Moody’s: Mauritius’s diversified and resilient economy support rating; fiscal challenges

Port Louis, Mauritius (Capital Markets in Africa)  — Mauritius’s small yet diversified economy, good record of attracting investment and its resilience against external shocks underpin its Baa1 (Stable) government bond rating, Moody’s Investors Service said in its latest credit analysis of the country published this week.

The Mauritian authorities’ key challenges are to continue to foster domestic and foreign investment, maintaining the country’s financial stability and consolidating the public finances to help meet its government debt reduction commitments.

“While Mauritius has a small and open economy that is susceptible to external shocks, it also has an impressive record of resiliency,” said Lucie Villa, Assistant Vice President and co-author of the report. “The country’s relative wealth and diversification and the authorities proactive policies all support the economy.”

Moody’s believes Mauritius’s economic outlook is healthy and forecasts real growth of 3.6% in both 2015 and 2016, in line with historical averages.

Mauritius stands out in the region for its ease of doing business, its low taxes, and the importance given to the private sector’s views when the government shapes economic policy. Ample liquidity available in the domestic capital market supports the government’s capacity to access local currency denominated funding.

A substantial deterioration of government debt metrics or increased external vulnerabilities would exert downward pressure on the rating. Conversely, a significant and permanent reduction in Mauritius’s vulnerability to external volatility and shocks would exert positive pressure.

The government is committed to lower its debt to 50% of GDP by 2018. However, the medium-term fiscal path presented in the last budget relies on back-loaded fiscal deficit reduction based on tight current spending control and the pick-up of growth. This underlines the risks of the government potentially missing its targets. General government debt is high compared to peers.

The authorities also faces a challenge in finding ways to protect the public finances from any spillover effects from country’s financial sector, which includes a relatively small banking system. The problems recently uncovered in the Bramer Corporation Limited (unrated) highlight the challenges facing the supervisory authorities.

Moody’s expects monetary policy to remain in-line with the central bank’s objectives of price stability and balanced economic development. Mauritius enjoys a stable political environment with well-established institutions and a tradition of coalition politics