* GDP growth seen at 3.7 pct in 2013, 4.4 pct in 2014
* Policy should be tightened if inflation accelerates sharply
* Public debt to fall below 50 pct GDP by 2018 (Adds details, quotes)
By Jean Paul Arouff
PORT LOUIS, April 9 Mauritius' economy will expand by 3.7 percent this year, slightly below potential due to subdued demand from its main markets and modest private investment, and will accelerate to 4.4 percent in 2014, the International Monetary Fund said.
The Washington based-body estimated gross domestic product grew 3.3 percent in 2012 and said that external shocks posed the largest risk to the outlook.
"Heavy dependence on demand from Europe for key services exports and declining competitiveness are particular sources of risks going forward," the IMF said in a statement released late on Monday, adding inflation would be about 5 percent in 2013.
Amid a festering debt crisis and stagnant economic growth, Europeans have cut down on the number of long-haul holidays taken to sun-drenched destinations like the Indian Ocean. Weak sugar and textile exports and a slowdown in the construction sector also contributed to the deceleration in growth last year.
The IMF welcomed the low and stable inflation delivered by the central Bank of Mauritius, although it cautioned that excess liquidity remained elevated and said wage rises might fuel inflationary pressures this year.
"The current accommodative monetary policy stance remains appropriate, but the authorities should stand ready to tighten monetary conditions if inflation accelerates beyond current expectations," the IMF said.
The current account deficit will narrow gradually to 7 percent by 2018 thanks in part to sustained fiscal changes to improve competitiveness. The IMF also said Mauritius was well placed to cut its public debt to below 50 percent of GDP by 2018 from its current level of around 56 percent. (Reporting by Jean Paul Arouff; Writing by Richard Lough; Editing by Edmund Blair)