Moody’s Investors Service (“Moody’s”) yesterday downgraded the Mauritian government’s long-term foreign and local currency issuer ratings to Baa3 from Baa2, and changed the outlook to stable from negative. The downgrade to Baa3 is motivated by Moody’s assessment that the quality and effectiveness of institutions and policymaking have weakened, which hinders Mauritius’ economic resilience and its ability to absorb future economic shocks. While the institutional framework remains strong and policymaking has historically supported high and stable economic growth, reversing the deterioration in economic and fiscal strength due to the pandemic is complicated by the use of unconventional and ad hoc measures, which creates some uncertainty about future fiscal performance and ultimately weighs on Moody’s assessment of institutional and governance strength.
The stable outlook reflects Moody’s expectation that Mauritius’ credit profile will remain aligned with that of Baa3-rated sovereigns and incorporates Moody’s view that fiscal and debt indicators will continue to improve, with the debt burden falling below 70 percent of GDP by the end of the fiscal year ending June 30, 2023 (FY2023), despite risks to fiscal consolidation from the global inflation shock. Mauritius’ large international reserves limit the risk of external vulnerability despite large current account deficits and provide a buffer against rising import prices. The foreign exchange ceiling has been lowered from A1 to A2. Mauritius’ role as an international financial center significantly reduces the incentives for imposing transfer and convertibility restrictions, thereby promoting the alignment of the foreign currency ceiling with that of the local currency.
The government has formulated medium-term targets to reduce public debt to 60 percent of GDP, increase international reserves to between 22 and 24 months of imports, and maintain growth rates of 5 percent. However, the reliance on one-off measures and the use of unconventional policies over the past two years raise the risk that fiscal and economic repairs from the pandemic shock will be slower than expected. Moody’s believes that institutions and governance have weakened, reducing Mauritius’ ability to absorb future shocks.
While travel demand remains strong, with pent-up demand still significant, rising prices and weakening growth, particularly in key source markets such as France, the United Kingdom, and Germany, pose risks of a decline in tourism activity, especially starting next year. Mauritius depends on five markets-France, the United Kingdom, Germany, South Africa, and Reunion Island-for about 60 percent of tourist arrivals. Mauritius also faces downside risks from rising commodity prices and inflation, which weigh on real income levels and purchasing power.
Mauritius is particularly exposed to rising commodity prices, with food and fuel-related imports accounting for 36 percent of total imports or 14 percent of GDP in 2021. Rising commodity prices, along with exchange rate depreciation, have pushed up inflation in 2022, with consumer prices rising 9.6 percent year-on-year in June 2022. The erosion of purchasing power due to higher inflation is likely to weigh on household consumption, while posing challenges to the government’s fiscal consolidation program, evident in the increase in social benefits planned in the FY 2023 budget.
Default history: No default events (on bonds or loans) have been recorded since 1983
Upward pressure on the rating would emerge over time if medium-term growth accelerated toward the government’s 5% target on a sustained basis. An improvement in fiscal strength, such as through a more pronounced reduction in the government debt burden than Moody’s currently expects without an increase in contingent liabilities from guaranteed and non-guaranteed debt of the public sector, would also strengthen Mauritius’s credit profile, particularly if it is accompanied by an improvement in debt affordability.
Conversely, should it become increasingly likely that government debt will remain higher than Moody’s expects, this would weigh on fiscal strength and would be credit negative. An increase in the likelihood of government support for state-owned enterprises or a marked decrease in international reserves that would point to higher external vulnerability risks would also exert downward pressure on the rating.
Moody’s maintains Mauritius in investment grade category, says Ministry of Finance
The international rating agency Moody’s maintains Mauritius in the investment grade category. Mauritius is and remains the only
Mauritius is and remains the only “International Financial Centre – IFC” in Africa recognized as “Investment grade”.
Based on 2021 data, i.e. at the peak of the pandemic, Moody’s rating for Mauritius is raised from Baa2 (negative) to Baa3 (stable), which keeps the island in the top third of jurisdictions worldwide.
Moody’s analysis reflects the magnitude of the shock to the Mauritian economy in 2020 and 2021 due to the Covid-19 crisis.
In this context, while five African countries held investment grade status at the beginning of 2020, only two of them, Mauritius and Botswana, have managed to retain it, despite the most severe economic crisis they have ever faced.
The government is fully committed to consolidating Mauritius’ position as a reputable IFC and to continuously improving the resilience of its economy. The reopening of the borders in October 2021 and the strong recovery of key sectors of the Mauritian economy will enable the country to surpass pre-pandemic levels as early as 2022, with a GDP of 526 billion rupees according to the IMF.
Given the positive outlook for 2022, Moody’s has raised Mauritius’ outlook to “stable” from “negative.
According to Moody’s, this positive change reflects and incorporates the fact that “fiscal and debt indicators will continue to improve, with the debt burden falling below 70% of GDP by the end of the fiscal year ending June 30, 2023 (FY2023).” In addition, “Mauritius’ large international reserves limit the risk of external vulnerability.”
Mauritius retains investment grade status following latest Moody’s rating, says BOM
The Bank of Mauritius (Bank) has taken note of the decision by Moody’s Investors Service (Moody’s) to revise Mauritius’ sovereign rating from Baa2 Negative to Baa3 Stable.
Mauritius maintains its investment grade status. It remains the only international financial center in Africa with an investment grade rating, and one of only two countries on the continent with an investment grade rating.
Importantly, Mauritius continues to be an investment grade jurisdiction despite successive economic shocks and looming risks to the global economic outlook, as recently highlighted by the International Monetary Fund in its World Economic Outlook Update July 2022. The stable outlook reflects the resilience of the Mauritian economy and the commitment of the authorities to put in place policy measures conducive to macroeconomic and financial stability that drives economic growth.
The Bank’s actions are firmly geared towards strengthening the country’s resilience to external shocks, improving the financial system’s capacity to absorb shocks, and promoting macroeconomic stability, which will help sustain economic growth. Mauritius also continues to have large stocks of international reserves, which provide an important buffer against external shocks.
The Bank had set up the MIC with specific mandates at the beginning of the pandemic. The MIC continues to fulfill its objectives and is supporting the economy in its recovery phase. The Bank continues to enjoy a comfortable financial position and has adopted measures to further strengthen its financial position.
Maintaining its investment grade status with a stable outlook reinforces the country’s strategy as an international financial center for sustainable investments in Africa and other strategic regions. The Bank is ensuring that the banking sector remains strong, with banks being stable, liquid, and adequately capitalized, with comfortable buffers against any additional shocks.
