This Financial Sector Assessment (FSA)is the joint IMF-World Bank work, based on the context ofthe Financial Sector Assessment Program (FSAP), intended toidentify strengths, and vulnerabilities, as well asdevelopment needs of the financial sector. The report thussummarizes main findings, and policy recommendations asfollows. Mauritius has been remarkably successful inachieving rapid growth, and substantial diversification of aformerly mono-agricultural economy. However, maintaining thepast high rates of growth, and employment will pose a majorchallenge. The trade preferences on which two of the pillarsof the economy are founded are being eroded, forcing thesugar and textile industries, to significantly improve theircompetitiveness, or lose market share to larger, lower-costproducers. In partnership with the private sector, thegovernment is taking decisive measures to build a knowledgeeconomy based on higher value-added services, notably ininformation and communication technologies. They have alsoadopted programs to modernize, and improve competitivenessin the sugar and textile industries, and, are investingheavily in education, in order to realign the labor forcewith the requirements of the new engines of growth.Mauritius has a relatively large and well-developed domesticfinancial system, and a growing offshore sector, however,the country needs to further diversify its financial sector,namely within the banking system. This includes continuingthe strengthening of banking supervision, fostering thedevelopment of alternatives to bank lending to reduceportfolio concentrations, and increase competition.Additionally, there is the need to encourage soundinternational risk diversification, by strengtheningprovisioning levels, so as to enhance the resilience of thesystem to a downturn in economic activity, and, by reducingthe government's implicit contingent liability in thebanking system.
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