Moody’s Affirms Mauritius’ Ratings, Maintains Stable Outlook
Moody’s Ratings has affirmed the Government of Mauritius’ long-term foreign and local currency issuer ratings at Baa3 and maintained a stable outlook. The affirmation of Mauritius’ Baa3 rating balances the country’s high and stable growth rates and political stability against an elevated debt burden and the economy’s small size, according to the rating note.
Moody’s stated that the rating reflects progress on fiscal consolidation as well as our expectations for a further reduction in the debt burden. However, Mauritius’ debt burden and debt affordability will remain weaker than those of similarly-rated peers. Effective policymaking remains an anchor for Mauritius’ Baa3 rating.
The global rating agency said this is demonstrated by the government’s ability to minimize the long-term impact of external shocks on the economy through sound policymaking. Mauritius’ sizeable international reserves limit external vulnerability risk despite persistent current account deficits and provide a buffer against negative terms of trade shocks.
The stable outlook reflects Moody’s view that Mauritius’ credit profile will remain aligned with that of Baa3-rated sovereigns. Upside risks relate to a continuation of the very high growth rates since 2022, which if sustained would bolster Mauritius’ economic strength and result in a faster pace of fiscal consolidation than currently anticipated.
In contrast, a return to slower growth rates, similar to those prior the pandemic, would limit further progress on reducing the government debt burden.
The stable outlook incorporates our expectations that economic policies will address ongoing challenges related to the global efforts against tax avoidance and changes to double taxation agreements with India and other key markets for Mauritius’ financial sector.
Mauritius local currency country ceiling remains unchanged at A2, the rating noted added.
The four-notch gap to the sovereign rating reflects a relatively favourable legal and regulatory framework, sizeable buffers limiting external vulnerabilities and a stable political system, balanced by reliance on tourism which represents a source of common shock for the government and non-government issuers in the country.
The foreign-currency ceiling remains unchanged at A2, according to Moody’s. Mauritius’s role as an international financial centre significantly reduces the incentives to impose transfer and convertibility restrictions, supporting the foreign-currency ceiling’s alignment with the local-currency ceiling.
The global rating agency said the small size of the Mauritian economy and concentration in tourism and financial services means that the country is materially exposed to external shocks.
Most other Baa3-rated peers tend to be significantly larger than Mauritius with more diversified economic structures and higher income levels. However, Mauritius has displayed remarkable resilience to previous shocks, with its long-term growth trend remaining unchanged, which supports our assessment of economic strength.
Mauritius’ economy has experienced a period of very high growth rates since 2022, with real GDP growth of 7% in 2023, following growth of 8.9% in 2022. The economic recovery was originally driven by a rebound in tourism, but has become more broad-based, with the construction sector significantly contributing to growth in 2023.
“We expect Mauritius’ economy to expand by 5.9% in 2024, sustaining the period of growth above the country’s pre-pandemic trend”.
Since 2022, Mauritius has witnessed an increase in investment activity, which has reversed the previous trend of declining investment rates, particularly in private sector investment. Robust investment supports near- and long-term growth.
Gross fixed capital formation increased to 24% of gross domestic product (GDP) in 2023, up from 20% of GDP in 2021 and 2022. Moreover, foreign direct (FDI) inflows increased to record levels in 2023, equivalent to 6% of GDP.
Analysts said although most FDI continues to flow into real estate projects, a large pipeline of real estate-related FDI will further stimulate economic activity, particularly construction and real estate activity.
However, the current growth trajectory may not be sustainable in the medium term as cyclical factors, like a tourism rebound and large-scale public investment projects fade.
Moreover, structural challenges, including demographic headwinds from an aging population, continue to constrain long-term economic potential. Recognizing these challenges, the government has implemented measures to attract foreign workers and increase female labour force participation rates to offset an aging population.
This includes steps to facilitate the entry and employment of foreign workers, including making Occupation Permits easier to obtain and extending the duration of these work permits.
The government has also prioritized increasing female labour force participation with the introduction of the Prime à L’Emploi scheme in 2022 to bring young women into the labour force.
Ultimately, the benefits of these initiatives will take time to materialize in higher growth rates, and will be gradual. The government prioritizes investment in renewable energy, which could support longer-term growth prospects.
The Renewable Energy Roadmap 2030 aims to increase the share of renewable energy to 60% by 2030. The government estimates Mauritius requires $6.5 billion in funding to reduce greenhouse gas emissions by 40% by 2030.
It has implemented several measures to encourage both public and private investment in the sector. These include feed-in tariffs for small-scale renewable energy producers, tax incentives for renewable energy equipment, and the establishment of a green energy scheme to provide low-interest loans for renewable energy projects.
Progress toward medium-term renewable energy targets would have a significant impact on the Mauritian economy, increasing investment in renewable energy and reducing reliance on imported fuel.
Lower energy imports would also lead to an improvement in Mauritius’ current account deficit. In 2022 and 2023, energy imports accounted for 23% and 20% of total imported goods, respectively, or more than 10% of GDP.
Mauritius’ fiscal metrics have improved faster than we previously expected, aided in part by very high GDP growth rates since 2022. The fiscal deficit has steadily narrowed from 5.5% of GDP in fiscal year 2022 (fiscal year ending June 30, 2022) to 3.9% of GDP in fiscal year 2024.
“We expect a further gradual consolidation, with the deficit narrowing to around 3.5% of GDP in fiscal year 2025, where it should remain. We expect a very gradual decline in government debt going forward, declining to 64% of GDP in fiscal year 2025, from 65% of GDP in fiscal year 2024”.
As a result, Mauritius’ debt burden will remain slightly higher than the Baa-rated median ratio of 58%. The government has demonstrated its commitment to fiscal consolidation through the introduction of new revenue measures, which support debt affordability and finance higher spending in priorities areas like pensions and investment in renewable energy.
The introduction of 2% Corporate Climate Responsibility Levy (CCRL) in fiscal year 2025 budget is the latest measure by the government to increase its revenue base The CCRL will raise MUR5 billion, or 0.6% of GDP in fiscal year 2025, with the revenue allocated to finance projects combatting climate change.
The CCRL will further increase government revenue, which reached 25% of GDP in fiscal year 2024, substantially higher than 21% of GDP in fiscal year 2019. The larger revenue base has supported Mauritius’ debt affordability metrics; the interest-to-revenue ratio has remained between 10% and 11% between fiscal 2022 and fiscal 2024.
Given moderate fiscal deficits and a financing plan that includes concessional external borrowing, we expect Mauritius’ debt affordability to improve slightly, but remain above 10% and weaker than the 8.5% median for Baa-rated sovereigns in 2024.
Higher revenue will support the government’s fiscal consolidation efforts and offset the increase in social spending, which has contributed to a more rigid expenditure structure.
Social spending has increased, including increased income allowances for certain households and higher pension payments under the Basic Retirement Pension. Social spending accounted for 9% of GDP in fiscal year 2024.
“We don’t expect additional increases in social spending, beyond those that will be implemented throughout fiscal year 2025. Even so, nearly half of total spending will fall under social spending programs or interest payments, limiting spending flexibility.”. Canadian Women’s Football Team Lose 6 Points, Coach Banned Over Drone Scandal
