Mauritius: Central bank governor Seegolam explains plans to pilot digital currency

By Kervin Victor
Posted on Friday, 15 July 2022 15:57

Harvesh Seegolam at the Paris FinTech Forum 2020. Paris, France - 28 January 28, 2020. Ugo Padovani

Appointed governor of the Mauritius central bank while the country was experiencing its first cases of Covid-19, Harvesh Seegolam quickly had to devise measures to keep the economy afloat.

Despite the International Monetary Fund (IMF)’s remonstrances about the bank’s independence, he insists there is a “Chinese wall’’ between the bank and the Mauritius Investment Corporation (MIC) – a $2bn special purpose vehicle designed to help with the pandemic response.

TAR: You took office as governor at the same time as Covid-19 broke out in Mauritius. How did you manage this crisis, and how well do you think Mauritius has handled the pandemic?

Harvesh Seegolam: Indeed, I took office at one of the most challenging moments that Mauritius and the world have had to face and are still facing. One of my key priorities was to mitigate any contagion from the health crisis to the banking sector, thus ensuring the stability and soundness of the financial system of Mauritius.

We engaged with the banking industry and economic stakeholders to assess the parameters. This led to my decision to elaborate a timely and responsive series of support measures, both conventional and unconventional. In March 2020 we introduced the Bank of Mauritius Covid-19 Support Programme, which continues to be instrumental in preserving resilience in our banking sector and the economy.

All the what-ifs and economic scenarios were rendered obsolete. In this context, one of the most important decisions that the Bank of Mauritius took was the setting up of the Mauritius Investment Corporation (MIC).

At the height of the pandemic, the MIC’s mandate was to assist systemically large, important and viable companies in Mauritius that were financially impacted by Covid-19, and which therefore posed a direct threat to financial stability. The MIC is also mandated to build a portfolio geared towards building the future of Mauritius by investing in new sectors of our economy. Last, but not least, it also focuses on return-generating key strategic assets and projects. In this process, the MIC continues to work in close collaboration with all banks.

The MIC has thus provided – and still provides – vital assistance to safeguard the stability of the banking sector by mitigating non-performing loans, which would have otherwise caused systemic issues for our country. By extension, the MIC has directly and indirectly helped save more than 125,000 jobs, representing around 25% of the working population of Mauritius across various sectors of the economy, including tourism, manufacturing and small and medium-­sized enterprises.

What do you make of the IMF recommendation for the central bank to dissociate itself from the MIC for more independence?

Let me, first and foremost, tell you that the independence of the Bank of Mauritius is a sacrosanct principle. Never has it been compromised, and it never will be. As regards the creation of the MIC, all decisions were taken independently by the Bank of Mauritius. The bank has also ensured that the MIC operates in a fully autonomous manner with good governance principles, accountability and transparency. To this end, the MIC has a fully independent board consisting of both international and local professionals, and it has a well-defined investment-making process.

What is your outlook for inflation for the rest of 2022?

As in many economies, inflation has gone up in Mauritius, driven primarily by supply-side factors. In early March 2022, headline inflation was forecast at 6.7% for 2022. This forecast could be revised upwards, depending critically on external price pressures, particularly the evolution of geopolitical issues and their impact on global commodity prices, supply chain disruptions, freight costs and petroleum prices.

After a contraction of around 15% in 2020 and 4% growth in 2021, what is your forecast for GDP growth for Mauritius this year?

At the level of the bank, we have projected real GDP growth to be between seven and eight per cent for 2022. The growth outlook is certainly dependent on tourist arrivals. I must also highlight that most of our other sectors have already reached pre-pandemic levels of economic activity. Furthermore, the successful exit of Mauritius from the Financial Action Task Force and European Union lists well ahead of the set timelines, in October 2021 and February 2022 respectively, has further increased confidence in Mauritius as an international financial centre and a platform for doing business.

The Bank of Mauritius is working towards the introduction of a retail central bank digital currency (CBDC). How can the digital rupee contribute to more efficient payment systems?

I am convinced that the introduction of a CBDC in Mauritius will contribute to greater digital financial inclusion and improve the efficiency of payment processes by enabling faster and safer settlement procedures. From an anti-money laundering/combating the financing of terrorism perspective, the CBDC will be a vital tool. We have reached an advanced stage in the design of the Bank of Mauritius CBDC and we intend to launch it on a pilot basis this year. The CBDC will coexist with and complement the use of cash.

With the CBDC, we are looking forward to continuing to modernise our well-structured existing payment eco-system. We are working towards making Mauritius a destination of choice with respect to digital banking and financial services in our part of the world. We are continuously revamping both the regulatory enabling environment and the depth and breadth of banking and financial products and services.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options