PORT LOUIS, Feb 21: The International Monetary Fund (IMF) cut its economic growth forecast for Mauritius on Saturday because of the global slowdown and warned the Indian Ocean island to remain vigilant given the serious risks ahead.

In a statement after a four-day mission, the IMF said it expected the economy to grow by two per cent this year, down from a 4 per cent forecast made last month, because the key tourism and textile sectors were being hit by falling demand.

“A sharply deteriorating external environment, however, is posing significant challenges,” the IMF said in a statement.

“On the back of much weaker external demand for textiles and tourism, economic growth is projected to decelerate to two per cent in 2009, down from more than five per cent in 2008,” the IMF said.

Mauritius has been one of Africa’s most stable and prosperous countries, but despite diversification its tourism and textile sectors remain exposed to the worsening global economic outlook, especially in their main European markets.

The government unveiled a $330 million stimulus package in December to cushion the blow and trimmed its 2009 growth forecast to four per cent after predicted growth of 5.2 per cent the previous year. Analysts said then that was still optimistic.

“The mission welcomed the government’s proactive policy response in the form of a fiscal stimulus package and coordinated monetary easing,” the IMF said.

“Given the serious risks to the economy, it stressed the need to remain vigilant in maximizing the impact of the stimulus, while containing fiscal and balance of payments pressures,” it said.

Annual growth in Mauritius leapt from 2.3 per cent in 2005 to over five per cent following a raft of reforms in 2006 to modernise the sugar and textile sectors and boost investment in tourism, telecommunications and financial services.

But the stock exchange in Mauritius sank to its lowest level since October 2006 last week, driven down by the worsening outlook for hotel and bank stocks. Fund managers say there will be little respite before the middle of the year at the earliest.

Tourism is a major foreign exchange earner and accounts for more than nine per cent of gross domestic product. Companies in Mauritius also sell clothes to some of Europe’s leading chains, such as Spain’s Zara and Britain’s Next and Marks & Spencer.

The hit to foreign exchange earnings was expected to widen the current account deficit, unless falling commodity prices have a significant impact on the country’s import bill.—Reuters