Mauritius Debt to GDP to Slide to 65% in 2025 –Note
As Mauritius government continues to develop policy strategies to keep the economy afloat after debt to gross domestic product (GDP) peaked, Moody’s has projected that pressure would ease further in 2025. The rating firm expects debt to gross domestic product to reduce to 65% in 2025, from a peak of 81% in 2201.
In its commentary note, the global rating agency said Mauritius economic growth and tax revenue offset spending to keep the nation’s debt downward. Moody’s projected that the country’s fiscal deficit would moderated in line with government plans.
With government plan in place, Moody’s stated Mauritius government plan to avoid a sharp reduction in real GDP growth rates from its aging population. On the issue, the government has taken steps to attract foreign workers by increasing the number and duration of occupation permits, the global rating agency said in a commentary.
Minister of Finance, Economic Planning and Development presented the budget outline for fiscal 2025 (ending 30 June 2025). The government is targeting a fiscal deficit of 3.4% of GDP, narrowing from 3.9% in fiscal 2024 and maintaining the downward trend for government debt.
Several policy measures aimed at achieving 7% real GDP growth in fiscal 2025 while supporting Mauritius’ competitiveness were also announced.
Moody’s said the country’s successful implementation of plans to boost investment and growth while maintaining a downward trajectory for the fiscal deficit and government debt burden would be credit positive.
The fiscal 2025 budget aims to balance an increase in social and capital spending, with higher tax collection to keep the fiscal deficit and government debt on a downward trend.
The budget plans a 17% increase in expenditures, driven mainly by increased basic pensions, support for other vulnerable groups and an increase in capital expenditures.
The government announced the basic pension will increase to MUR14,000 per month beginning July 2024, and an additional MUR1,000 per month beginning in January 2025, from MUR11,000 per month in 2023.
According to Moody’s, these higher pension payments drive a 21% annual increase in social benefits in the fiscal 2025 budget.
The budget also targets an increase in capital expenditures to 3.4% of GDP, up from 2.5% of GDP in fiscal 2024. The budget forecasts revenue increasing by 1.6 percentage points in fiscal 2025, outpacing the 1 percentage point of GDP increase in spending.
The government announced a corporate climate responsibility levy, set at 2% of profits for corporates with sales over MUR50 million.
In addition, the government plans a passenger solidarity levy on passengers departing Mauritius traveling in first or business class.
The remainder of increased revenue collection comes from improved compliance and a tax amnesty program to clear tax arrears.
The fiscal 2025 budget outline and presentation are consistent with a narrowing fiscal deficit and continued reduction in the debt burden.
“Strong economic growth in 2023, which we expect will continue throughout 2024 and into 2025, will support revenue collection and fiscal consolidation”, Moody’s stated.
Some of the announced fiscal measures, such as increased social support and capital expenditures, will support growth. According to estimates by government think tank Maurice Strategie, the additional recurrent spending (MUR25.7 billion) and capital expenditures (MUR9.5 billion) could contribute nearly 4 percentage points to nominal GDP growth in fiscal 2025.
Because social support measures typically target households with higher marginal propensity to consume, in Mauritius these measures tend to support economic growth as well as tax collection.
Mauritius’ tax system is skewed toward a reliance on indirect tax collection, such as for goods and services. VAT collection alone accounted for 8% of GDP in fiscal 2024. As a result, Moody’s said it expects revenue collection to increase because of fiscal measures and the strong growth backdrop.
“In fiscal 2025, we expect the fiscal deficit to narrow to 3.5% of GDP, in line with government projections.
“We expect the majority of net financing to come from the domestic market, with the main source of external funding from the African Development Bank, which is expected to provide the majority of external financing.
“Based on these forecasts, government debt – measured at the general government level – will decline to below 65% of GDP at the end of fiscal 2025”.
This is from a peak of 83% in fiscal 2021, but still above the level of debt prior to the pandemic, according to Moody’s.
Beyond fiscal 2025, sustaining economic growth at 5% per year would support the government’s medium-term fiscal consolidation efforts to reduce general government debt to below 60% of GDP by fiscal 2027.
The Mauritian economy has recovered since its borders re-opened in 2021. Its strong growth reflects the economy’s resilience, despite its small size and concentrated economic activity.
“We expect real GDP growth of 5.4% in 2024, down from 7% in 2023, but still relatively elevated compared with pre-pandemic growth rates”.
The government is focused on stimulating economic growth through initiatives supporting key sectors such as tourism, technology, and manufacturing that could increase the economy’s growth potential.
Heightened economic activity from these sectors could bolster government revenue, which would positively influence Mauritius’ credit profile.
In a recent report on Sub-Saharan Africa demographics, Moody’s showed that without an influx of foreign workers or an increase productivity, Mauritius’ real GDP growth would slow over the next 15 years because of demographic factors.
However, analysts believe Mauritius will avoid a sharp reduction in real GDP growth rates from its aging population. The government has taken steps to attract foreign workers by increasing the number and duration of occupation permits.
Moody’s stated that an increase in foreign workers can address skill mismatches that are a constraint for financial services and other service-oriented sectors, and offset negative demographic pressures.
Additionally, the government is implementing policies to increase low female participation rates in the labor market, for example, by providing incentives to corporations that support child care centers. Commission to Create Awareness on Nigeria Data Protection Act
