Download External Trade and Balance of Payments

V
EXTERNAL TRADE AND
BALANCE OF PAYMENTS
The current account of the balance of payments posted a higher surplus of Rs5,442
million in 2001-02 compared with a surplus of Rs3,472 million in 2000-01. The improvement
in the current account balance stemmed from higher surpluses recorded in the services and
current transfers accounts. In relation to GDP, the surplus on the current account represented
3.9 per cent in 2001-02 compared with 2.8 per cent in 2000-01.
The deficit on the merchandise account of the balance of payments increased from
Rs7,724 million in 2000-01 to Rs9,143 million in 2001-02. On a balance of payments basis,
total exports (f.o.b.) grew by 7.8 per cent, from Rs45,065 million in 2000-01 to Rs48,602
million in 2001-02. Total imports (f.o.b.) increased by 9.4 per cent, from Rs52,789 million in
2000-01 to Rs57,745 million in 2001-02.
The surplus on the services account, which
amounted to Rs9,152 million in 2000-01, rose significantly to Rs12,610 million in 2001-02,
boosted partly by a marked increase in receipts from tourism.
The capital and financial account, inclusive of reserve assets, recorded a net outflow
of Rs8,245 million in 2001-02 compared with a net outflow of Rs2,619 million in 2000-01.
The capital and financial account, exclusive of reserve assets, recorded a deficit of Rs895
million in 2001-02 compared with a surplus of Rs2,488 million in 2000-01.
On present trends, a deficit of Rs9,840 million has been projected on the merchandise
account of the balance of payments in 2002-03. However, the services, income, and current
transfers accounts are expected to generate surpluses that would more than offset the deficit
on the merchandise account. A surplus of Rs6,912 million, equivalent to 4.6 per cent of
GDP, has been projected on the current account of the balance of payments in 2002-03.
Table V.1 gives a summary of the balance of payments accounts for the years 199899 through 2002-03.
Table V.1: Balance of Payments Summary
(Rs million)
1998-99
Current Account
1999-00
1
2000-01
1
2001-02
2
2002-03
3
-1,622
-1,451
3,496
5,442
6,805
-9,071
-12,344
-7,724
-9,143
-9,947
Exports f.o.b.
41,702
38,845
45,065
48,602
51,245
Imports f.o.b.
50,773
51,189
52,789
57,745
61,192
Imports c.i.f.
54,076
55,049
56,802
62,388
66,220
5,769
9,019
9,184
12,610
14,371
Goods
Services
Income
Current Transfers
Capital and Financial Account
-589
-575
328
-145
290
2,269
2,449
1,708
2,120
2,091
-6,805
276
-2,719
-2,541
-8,022
Capital Account
-16
-12
-40
-30
-40
Financial Account
292
-2,707
-2,501
-7,992
-6,765
-690
-2,141
-5,107
-7,350
-6,948
1,346
4,170
-955
2,580
0
of which:
Reserve Assets
Net Errors and Omissions
1
2
3
Revised.
Estimates.
Projections.
Notes: (a) Import data for 1998-99 are inclusive of import of aircraft (Rs2,700 million).
(b) Import data for 2000-01 are inclusive of import of marine vessel (Rs398 million).
(c) Import data for 2001-02 are inclusive of import of aircraft (Rs1,600 million).
(d) Import data for 2002-03 are inclusive of import of aircraft (Rs1,150 million).
SERVICES, INCOME AND CURRENT TRANSFERS
During 2001-02, the surplus on the services account increased significantly by 37.8 per cent,
from Rs9,152 million in 2000-01 to Rs12,610 million. The improvement was largely due to
a surge in gross earnings from tourism, which went up by 22.7 per cent, from Rs15,527
million in 2000-01 to Rs19,045 million in 2001-02. Despite overall weakness in the global
tourism industry in the aftermath of September 11th attacks in the United States and the
economic slowdown in our main source markets, the number of tourist arrivals grew by 1.3
per cent, from 658,351 in 2000-01 to 667,236 in 2001-02. However, average tourist
expenditure surged by 21.0 per cent, from Rs23,585 in 2000-01 to Rs28,543 in 2001-02,
reflecting several factors including favourable exchange rate developments and increases in
hotel tariffs in part due to the upgrading of some existing hotels into world class luxury ones.
Total visitor nights spent increased from 6,520,000 in 2000-01 to 6,594,000 in 2001-02 while
the average length of stay per tourist remained unchanged at 9.9 nights. Expenditure on
foreign travel by residents increased by 37.8 per cent to Rs6,666 million in 2001-02. Net
inflows on the travel account thus rose by 15.8 per cent to Rs12,379 million in 2001-02.
Average expenditure per Mauritian resident travelling abroad increased by 40.0 per cent,
from Rs30,012 in 2000-01 to Rs42,003 in 2001-02. The transportation account recorded a
lower deficit of Rs255 million in 2001-02 compared with a deficit of Rs1,010 million in
2000-01 as a result of the faster growth of receipts relative to payments. Other services
registered a surplus of Rs486 million in 2001-02 as against a deficit of Rs529 million in the
preceding fiscal year.
The income account recorded a net outflow of Rs145 million in 2001-02 compared
with a net inflow of Rs336 million in the preceding year. The net surplus on the current
transfers account increased by 24.1 per cent, from Rs1,708 million in 2000-01 to Rs2,120
million in 2001-02.
Chart V.1 shows the main components of the current account for the fiscal years
1995-96 through 2001-02. Chart V.2 shows the financing of the current account from 199596 through 2001-02.
Chart V.1: Components of the Current Account
Per cent of
GDP
12
8
4
0
1995-96
1996-97
1997-98
1998-99
1999-00
-4
-8
Current Account
Balance
-12
Merchandise
Services
Current Transfers
2000-01
2001-02
Chart V.2: Financing of the Current Account
Per cent of GDP
4
3
2
1
0
-1
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
-2
Current Account
Balance
-3
-4
-5
-6
-7
Capital and Financial Account, of which
Reserve Assets (increase -)
CAPITAL AND FINANCIAL ACCOUNT
Foreign direct investment in Mauritius during 2001-02 registered inflows of Rs902
million compared to inflows of Rs5,572 million a year earlier. The latter high figure was
largely due to the share participation of France Telecom in Mauritius Telecom (Rs7,204
million) that was offset to some extent by disinvestment from the sugar industry (Rs1,683
million). Direct investment abroad amounted to Rs44 million during the period under review
compared with Rs129 million in 2000-01. Consequently, direct investment recorded net
inflows of Rs858 million in 2001-02 compared to net inflows of Rs5,443 million in 2000-01.
Portfolio investment recorded net outflows of Rs559 million in 2001-02 compared to net
outflows of Rs3,834 million in the preceding year, which largely reflected the repayment of
the outstanding amount of the Floating Rate Notes loan raised in October 1995.
Loan receipts on account of government amounted to Rs1,769 million in 2001-02,
reflecting in part the disbursement of a first instalment under the Public Expenditure Reform
Loan (PERL) from the World Bank, while capital repayments amounted to Rs708 million
implying a net inflow of Rs1,061 million during the year under review. Loan receipts on
account of parastatal bodies amounted to Rs2,480 million while capital repayments totalled
Rs3,996 million. Consequently, parastatal bodies recorded a net capital outflow of Rs1,516
million in 2001-02 as against a net inflow of Rs1,026 million a year earlier. Other private
long-term capital movements recorded a net outflow of Rs637 million in 2001-02 compared
to a net outflow of Rs76 million in the preceding year. Net outflows due to the build-up of
short-term foreign assets of Class A banks amounted to Rs1,392 million in 2001-02
compared to net outflows of Rs1,417 million in 2000-01.
NET INTERNATIONAL RESERVES
The net international reserves of the country, made up of the net foreign assets of the
banking system, the foreign assets of the Government and the country's Reserve Position in
the International Monetary Fund (IMF), increased by Rs8,791 million, from Rs31,760 million
at the end of June 2001 to Rs40,551 million at the end of June 2002.
Table V.2 shows the monthly level of net international reserves of the country during
the fiscal year 2001-02.
Table V.2: Net International Reserves
(Rs million)
Bank of Mauritius
Net Foreign Assets
Class A Banks Net
Foreign Assets
Others
1
Net
International
Reserves
2001
Jul
22,373
9,358
536
32,267
Aug
23,296
9,237
552
33,085
Sep
23,720
9,132
556
33,408
Oct
24,526
9,226
560
34,312
Nov
24,682
9,236
557
34,475
Dec
25,220
9,991
553
35,764
Jan
25,021
9,898
546
35,465
Feb
26,105
10,463
547
37,115
Mar
26,726
11,067
548
38,341
Apr
27,186
10,553
558
38,297
May
27,860
29,912
10,964
10,062
565
577
39,389
2002
Jun
1
40,551
Comprise foreign assets of the Government and the country's Reserve Position in the IMF.
The major component of net international reserves, namely, gross reserve assets of the
Bank of Mauritius, went up by Rs7,350 million to Rs29,912 million at the end of June 2002.
Net foreign assets of Class A banks increased by Rs1,392 million, from Rs8,671 million at the
end of June 2001 to Rs10,062 million at the end of June 2002.
In terms of import cover, the level of net international reserves of the country at the
end of June 2002 represented 8.0 months of imports compared to 6.8 months of imports at the
end of June 2001. The end-June 2003 level of net international reserves of the country has
been projected at Rs47,606 million, equivalent to 8.8 months of imports.
EXCHANGE RATE DEVELOPMENTS
During fiscal year 2001-02, exchange rate movements on the international foreign
exchange market were characterised by a high degree of volatility as the market focused on
the fundamentals of the major industrialised economies, namely, the United States, euro zone,
Japan and Britain. Prospective economic performance and monetary policy adjustments were
the driving factors behind the movements of the four major currencies.
Movements in the US dollar during the period under review were largely influenced
by the performance of the US economy. The release of a number of soft US data in the third
quarter of 2001, namely, deteriorating labour market conditions, weaker-than-expected GDP
growth, amongst others, reinforced market sentiment that the US economic recovery would
not be as strong as previously anticipated. In response to this slowdown, the US Federal
Reserve at its regular FOMC meeting on 21 August 2001, reduced its federal funds rate by a
quarter percentage point to 3.50 per cent. The US dollar, however, suffered its major setback
following the tragic events of 11 September 2001. The weak consumer sentiment worsened
and with it, the US economic outlook. On 17 September 2001, in a bid to stabilise the US
economy and financial markets, the US Federal Reserve cut its federal funds rate by 50 basis
points to 3.0 per cent and injected massive liquidity on the market. The rate cut move was
supported by coordinated interest rate reductions by other major central banks, namely, the
ECB, Bank of Canada, Swiss National Bank and Sweden’s Riksbank, and later by the Bank
of England and Bank of Japan. The US Federal Reserve, amid increasing signs of an
economic downturn in the United States, eased its monetary policy further by two successive
rate cuts of 50 basis points at its October and November 2001 FOMC meetings to 2.0 per
cent. In December 2001, the Federal Reserve reduced its federal funds rate by another 25
basis points to 1.75 per cent, its lowest level in 40 years. The US Fed’s aggressive monetary
policy and the release, subsequently, of relatively encouraging US economic data amid signs
of global slowdown benefited the US dollar and boosted market expectations that a recovery
would take shape during the second half of 2002. This view was confirmed when US
monetary policymakers, at their regular FOMC meeting on 19 March 2002, while leaving
rates unchanged, dropped their 15-month old warning that weakness posed the greatest threat
to the US economy and said that risks were evenly balanced between inflation and economic
weakness. However, by April 2002, market sentiment towards the US dollar turned negative
as US share prices started to tumble amid concerns about the US economic rebound and on
corporate governance and accounting scandals in the United States as well as renewed
tensions in the Middle East.
Investors’ confidence in US stock markets, which had in the
past helped sustain the broad-based strength of the US dollar by attracting capital flows,
dwindled and the huge US current account deficit, which has long been ignored while capital
was flowing in, came under market scrutiny. Remarks from US officials that the US dollar
would seek its level based on market forces raised further doubts about the US commitment
to its official strong dollar policy, which contributed to pressure down the US dollar. By endJune 2002, the US Federal Reserve at its regular FOMC meeting left its interest rate on hold
at 1.75 per cent.
The euro, which started fiscal year 2001-02 trading at around US$0.8493, maintained
a general upward movement vis-à-vis the US dollar. By August 2001, the single currency,
drawing support from fading prospects of a swift rebound in US economic activity, managed
to push above the 90 cents dollar level. On 30 August 2001, the ECB, against the backdrop
of slowing growth in Europe and the United States, cut its key refinancing rate, as expected,
by 25 basis points to 4.25 per cent. With the ECB President stating that the euro had more
room to rise and that inflation within the euro zone was likely to fall below the 2.0 per cent
target, the interest rate move helped the single currency to trade above the US$0.9150 level.
In the aftermath of the September 11 terrorist attacks in the United States, the euro took
advantage of the US dollar’s decline to move above the 93 dollar cents level. The ECB on 17
September 2001 surprised the market by an emergency 50 basis points cut in its key
refinancing rate to 3.75 per cent, a confidence-boosting measure in parallel with the US
Federal Reserve and other major central banks. However, prompt actions by other major
central banks worldwide led to the euro losing ground vis-à-vis the US currency to fall below
the 90 dollar cents level. Continuing pessimism over the euro zone’s economic prospects and
worries about the ECB’s perceived unwillingness, despite persistent calls for cuts, at both of
its governing council meetings during October 2001 to trim interest rates to spur growth
weighed on the single currency. On 8 November 2001, however, the ECB surprised the
market with a bigger-than-expected interest rate cut of 50 basis points to 3.25 per cent but the
euro failed to capitalise on the rate move as currency traders associated the larger-thanexpected cut with scepticism over the ECB’s policies. This cut was the last of the easing
cycle of the ECB for fiscal year 2001-02. By the end of December 2001, the single currency
was trading around US$0.8853. The official physical introduction of euro denominated notes
and coins on the 1st of January 2002 for widespread use in the 12 euro-member nations had
no lasting impact on the single currency. By end-February 2002, amid prospects of a brighter
US economic outlook, the euro fell to US$0.8639, fuelling expectations that recovery in the
euro zone might lag behind. However, adverse developments in the US regarding corporate
governance and the release of encouraging data in the euro zone benefited the single currency
vis-à-vis the US dollar. It managed with greater resilience than usual to hold above the
US$0.86 level, trading in the range of US$0.8653 to US$0.8977.
In the wake of massive
losses in US stock markets, which prompted investors to diversify out of the United States,
the euro breached above the US$0.90 level at the start of May 2002. The single currency,
capitalising on the broad-based selling pressure on the US dollar, maintained its upward
movement against the US currency, breaching several key levels. At the close of fiscal year
2001-02, the euro had already climbed to a 28-month high of US$0.9944, just short of the
psychological key parity level with the US dollar.
The Pound sterling, which was trading around US$1.4170 in early July 2001, took
advantage of the weakness of the US dollar to push higher against the US currency.
However, the Bank of England's surprise cut of its key repo rate by 25 basis points to 5.0 per
cent in August 2001 somewhat affected the Pound. Nonetheless, the British currency
managed to regain its footing against the US dollar soon after following the release of
positive economic data, which showed the resilience of the British economy and helped to
dampen expectations of further rate cuts. The Pound sterling, in the aftermath of the terrorist
attacks in the US, capitalised further on the weak dollar to surge above the US$1.47 level.
The Bank of England, following in after the Fed and other central banks had reduced interest
rates, lowered its key repo rate on 18 September 2001 outside the framework of scheduled
MPC meetings by 25 basis points to 4.75 per cent. However, with the market later reassessing
on how bullish sentiment might be about the UK with the US economy so subdued, the
Pound sterling lost ground vis-à-vis the US dollar. Ongoing debate about whether the United
Kingdom would join euro zone membership in the near future also contributed to keeping the
Pound under downward pressure. The Bank of England eased its monetary policy further by
reducing its key interest rate in October 2001 by 25 basis points and by half percentage point
in November 2001, its last rate cut for the year 2001-02, to reach a 38-month low of 4.0 per
cent. The release of domestic economic data highlighted the resilience of the British economy
despite the global slowdown. By the end of the fiscal year 2001, the Pound sterling was
trading around US$1.4511, but it retreated somewhat during the first quarter of 2002, trading
in the range of US$1.4106 to US$1.4408. By the end of April 2002, the Pound sterling,
benefiting from relatively good economic data and capitalising on the renewed scepticism
over the US currency, embarked on a rising trend vis-à-vis the US dollar. The British
currency closed business on 28 June 2002.
The Japanese yen, which started July 2001 at ¥124.65 per dollar, derived support from
the weak US currency to move higher vis-à-vis the US dollar despite the market’s persistently
bearish sentiment towards Japanese economic fundamentals.
Post September 11, 2001
attacks, the Bank of Japan as part of a global effort to ease the strain on the financial markets
eased its already ultra-loose monetary policy by reducing its official discount rate to a record
low of 0.10 per cent from 0.25 per cent. Despite these developments, the yen continued to
rise against the US dollar and, in a bid to curb the yen’s strength and keep Japanese exports
competitive, the Japanese authorities intervened repeatedly on the international foreign
exchange market. Starting the third week of September 2001, Bank of Japan intervened six
times in two weeks, enlisting once the support of the New York Federal Reserve and thrice
that of the ECB. Against the broad-based strength of the US dollar, the yen extended its
losses from a high of ¥116.37 reached in September 2001 to trade at ¥131.25 per dollar on 31
December 2001. The Japanese currency was also undermined by mounting worries about its
financial sector and ongoing concerns that the Japanese economy was within view of its
fourth recession. On 11 February 2002, the yen attained its intra-fiscal year 2001-02 low of
¥134.71 per US dollar. Thereafter, with a retreating US dollar and strong gains in Tokyo
stock index following investors shifting capital out of the US to Japan and elsewhere, the yen
recovered vis-à-vis the US currency. The Japanese currency maintained its upward trend
against the US dollar, ignoring verbal intervention from Japanese officials but drawing
support from market belief that, in the wake of the Middle East crisis, Japan was less exposed
to the heightened political risk than the other main currency areas. The rapid rise of the
Japanese currency to a 5½-month high against the US dollar on 22 May 2002 raised concerns
that the fragile economic recovery in the export sector could be choked off were the Japanese
yen to strengthen further. This prompted the Japanese authorities to intervene once again on
the international foreign exchange market in a move that surprised the market. On 28 June
2002, the yen, unfazed by the Japanese several rounds of intervention, closed on a higher note
trading at ¥119.43 per US dollar.
Between 2000-01 and 2001-02, based on daily average, the US dollar appreciated
against the Japanese yen and Pound sterling by 10.2 per cent and 0.65 per cent, respectively,
but depreciated vis-à-vis the euro by 0.34 per cent.
Throughout fiscal year 2001-02, movements in the exchange rate of the Mauritian
rupee factored in both international trends and local market conditions. During 2001-02,
exchange rate movements of the Mauritian rupee vis-à-vis major trading partner currencies
displayed a mixed performance.
On a 12-month running period between June 2001 and June 2002, the rupee, on a
daily average basis, depreciated against the euro, US dollar and Pound sterling by 8.5 per
cent, 8.2 per cent and 7.7 per cent, respectively, while it appreciated vis-à-vis the Japanese
yen by 1.1 per cent. It also appreciated by 19.6 per cent against the South African rand.
Table V.3 shows the exchange rate of the Mauritian rupee vis-à-vis major trading
partner currencies.
The behaviour of the rupee against the US dollar reflected to a large extent the overall
performance of the US currency on the international foreign exchange market. The rupee,
which started fiscal year 2001-02 trading at an average rate of Rs29.3624 against the US
dollar, gradually depreciated vis-à-vis the US currency. On 4 March 2002, the rupee reached
an intra-fiscal year low, trading at an average rate of Rs30.5349 against the US dollar.
Subsequently, the combined effects of the broad-based weakness of the US dollar on the
international foreign exchange market and a comfortable liquidity position in the domestic
foreign exchange market contributed to move the rupee higher vis-à-vis the US currency to
close business on 28 June 2002 at an average rate of Rs30.1581.
Table V.3: Exchange Rate of the Rupee vis-à-vis Major
Trading Partner Currencies
Indicative
Selling Rates
Average for
12 Months
Ended
June 2001
Average for
12 Months
Ended
June 2002
(Rupees)
(1)
Australian dollar
Appreciation/
(Depreciation)
of Rupee
Between
(1) and (2)
(Per cent)
(2)
(3)
14.9535
15.9034
(6.0)
Hong Kong dollar
3.5970
3.9102
(8.0)
Indian rupee (100)
60.9061
63.7358
(4.4)
Japanese yen (100)
24.3336
24.0657
1.1
Kenya shilling (100)
36.0084
39.0467
(7.8)
New Zealand dollar
11.8064
13.0894
(9.8)
Singapore dollar
15.9325
16.8798
(5.6)
3.6942
3.0883
Swiss franc
16.1814
18.2951
(11.6)
US dollar
27.7390
30.2128
(8.2)
Pound sterling
Euro
40.2372
24.7595
43.5828
27.0687
(7.7)
(8.5)
South African rand
19.6
Note: With effect from October 1998, the daily average exchange rate of the rupee is based
on the average selling rates for T.T. and D.D. of all Class A banks.
Reflecting the euro’s gradual recovery on the international foreign exchange market,
the rupee depreciated against the single currency during fiscal year 2001-02. The rupee,
which started the period under review trading at an average rate of Rs24.9415 against the
euro, closed the year 2001 trading at an average rate Rs26.9800. Following the euro’s breach
above the 99 dollar cents level in June 2002, the Mauritian rupee, for the first time since
January 1999, crossed the Rs29.00 rate level against the single currency. At the close of
business on 28 June 2002, the rupee was trading at its intra-fiscal year low of Rs29.8299
against the euro, nearly 37 cents above the rate at which the rupee first traded against the euro
on 3 January 1999.
During 2001-02, the rupee lost ground against the Pound sterling. From an average
rate of Rs41.590 against the Pound sterling on 1st July 2001, the rupee depreciated to trade at
an average rate of Rs44.196 at the close of business in December 2001. On 19 June 2002, the
rupee exchange rate vis-à-vis the Pound sterling hit a record low by crossing over the Rs45
rate level to trade at an average rate of Rs45.197. By the end of the fiscal year, the rupee had
breached another record low level of Rs46.000 against the Pound, trading at an average rate
of Rs46.074.
From an average rate of Rs23.64 per 100 Yen at the start of the fiscal year, the rupee
reached an average rate low of Rs25.75 per 100 Yen on 24 September 2001 when the
Japanese yen posted its highest gains against the US dollar. Thereafter, reflecting the yen’s
downturn on the international foreign exchange market, the rupee, on 25 January 2002,
peaked to an average rate high of Rs22.67 per 100 Yen. On 28 June 2002, the rupee closed
the fiscal year trading at an average rate of Rs25.31 per 100 Yen.
Chart V.3 shows the trends in the daily bilateral exchange rates of the rupee against
the US dollar, euro, Japanese yen, Pound sterling and South African rand.
Table V.4 summarises the monthly inward and outward remittances of Class A banks
during 2001-02.
Table V.4: Inward and Outward Remittances of Foreign Currencies of Class A Banks
Inward
Remittances
(Rs million)
Outward
Remittances
(US$ million)
(1)
(Rs million)
Surplus / Shortfall (-)
(US$ million)
(2)
(Rs million) (US$ million)
(1) - (2)
2001
Jul
6,400
217.1
7,148
242.5
-748
Aug
6,946
234.5
7,098
239.6
-152
-25.4
-5.1
Sep
6,695
224.4
8,269
277.1
-1,574
-52.7
Oct
6,563
217.5
8,077
267.6
-1,514
-50.1
Nov
6,696
220.0
6,479
212.9
217
7.1
Dec
7,807
256.5
8,272
271.7
-465
-15.2
2002
Jan
6,762
221.9
6,115
200.6
647
21.3
Feb
5,541
181.6
5,418
177.5
123
4.1
Mar
6,843
224.3
6,394
209.5
449
14.8
Apr
7,200
236.1
8,059
264.2
-859
-28.1
May
6,065
199.4
6,460
212.4
-395
-13.0
Jun
5,663
187.0
7,464
246.4
-1,801
-59.4
2001-02
79,181
2,620.2
85,253
2,822.0
-6,072
-201.8
Chart V.3: Movements of the Daily Exchange Rate of the Rupee vis-à-vis Major Currencies:
2001-02