New York, March 27, 2018 -- Moody's Investors Service, ("Moody's") has today affirmed the Government
of Mauritius's Baa1 long-term issuer and senior unsecured
ratings and maintained the stable outlook.
The affirmation of the Baa1 ratings is supported by the following factors:
(1) Strong growth and macroeconomic resiliency to shocks, despite
its small size;
(2) Expectations for government debt to stabilize, albeit at an
elevated level.
The stable outlook reflects Moody's expectation that economic policies
will gradually address ongoing challenges to Mauritius's economic
model, including global efforts against tax avoidance, and
that government debt will stabilize at around 55% of GDP.
Mauritius's local currency bond and deposit ceilings remain unchanged
at A1. The A2/P-2 country ceiling for foreign currency debt
and Baa1/P-2 ceiling for foreign currency bank deposits also remain
unchanged. These ceilings act as a cap on the ratings that can
be assigned to the obligations of other entities domiciled in the country.
RATINGS RATIONALE
FIRST DRIVER -- STRONG GROWTH AND MACROECONOMIC RESILIENCY TO SHOCKS,
DESPITE ITS SMALL SIZE
The Mauritian economy has demonstrated very steady real GDP growth,
averaging 3.9% over the last decade, and has not experienced
a recession since in 1980. The country's robust and stable
growth performance highlights the economy's resiliency to shocks
despite its relatively small size.
Growth will continue to be supported by strong performance in the tourism
sector, continued growth in financial services, and further
expansion of Information and Communication Technology (ICT). Moody's
expects real GDP growth of 3.9% in both 2018 and 2019.
Growth will receive additional support from public investment projects
and a recovery in private investment. The government's Public
Investment Program (PIP) envisions public investment supporting urban
development and the improvement of transportation networks. This
includes the expansion of the Port Louis Harbor that will help position
Mauritius as a regional trade hub, and the Road Decongestion Program,
which will alleviate traffic and improve connectivity within the country.
Moody's expects the authorities' proactive economic policies,
a key element of the Mauritian economy's success, to continue
to address challenges to important sectors of the economy. The
Global Business Companies (GBC) sector is in the process of adjusting
to international efforts against tax avoidance. Heightened global
and bilateral scrutiny on tax evasion and financial transparency has forced
the Mauritius authorities to adjust the regulatory framework, including
amending the country's existing Double Taxation Avoidance Agreement
with India, which accounts for almost half of total outbound investment
from Mauritius. The capital inflows derived from GBC activities
are important for the balance of payments and an important source of liquidity
for the banking system. Thus far, treaty changes have not
brought about negative pressures on the balance of payments or the GBC
sector.
The Mauritian authorities have been proactive in supporting the industry's
ability to adapt to heightened global and bilateral scrutiny on tax evasion
and financial transparency, by adjusting the regulatory framework
accordingly. The government is working on a Financial Services
Sector Blueprint to develop a strategy to maintain a competitive advantage
in the sector while adopting international best practices with respect
to taxation. The government expects the blueprint to outline the
shift to higher-value added activities in the financial sector
to offset any potential future decline in GBC activity based solely on
preferential tax treatment. The Financial Services Sector Blueprint
will also provide more details regarding changes to the tax system.
This is part of the Mauritian government's policy to place the financial
sector as an economic priority and thus continue providing the support
it needs to position itself as a major financial hub.
SECOND DRIVER -- EXPECTATIONS FOR GOVERNMENT DEBT TO STABILIZE AT
AN ELEVATED LEVEL
At 59.4% of GDP as of June 2017, Mauritius's
government debt is elevated and above the Baa-rated median.
However, going forward, Moody's expects government debt
to decline to around 55% of GDP in 2018, where it is expected
to stabilize. Under the rating agency's baseline scenario,
the fiscal deficit will remain around 3% of GDP, while net
borrowing requirements will be slightly higher due to the acquisition
of financial assets. This will be sufficient for government debt
to remain broadly stable over the next few years.
Although slightly above the Baa-rated median, the risks associated
with this level of government debt are mitigated by several factors:
first, exchange rate risk is limited by the relatively small share
of foreign currency-denominated debt, accounting for less
than 20% of total debt and composed entirely of official sector
debt; second, 95% of domestic debt has a fixed interest
rate; third, the average time to maturity of domestic debt
has increased to 5.0 years as of June 2017, from 3.3
years as of June 2012; and lastly, the average time for re-fixing
of total government debt, a measure of interest rate risk,
has steadily increased and reached 4.0 years as of June 2017.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation that economic policies
will gradually address ongoing challenges, including those related
to global efforts against tax avoidance, and that government debt
will remain broadly stable. Although Mauritius's debt burden
and debt affordability compare unfavorably to the Baa-rated median,
the strength of the country's institutional framework supports the
government's capacity to carry an elevated debt burden.
WHAT COULD CHANGE THE RATING UP/DOWN
A sustained decline in the government debt trajectory supported by reductions
in fiscal deficits would be credit positive.
Conversely, downward pressure on the rating would emerge if Moody's
determines the government's fiscal consolidation efforts would be
insufficient to stabilize government debt metrics. Particularly
adverse effects from changes in the Double Tax Avoidance Agreement with
India, though not Moody's baseline scenario, could also
exert downward rating pressures, as well as a pronounced deterioration
in the financial sector's soundness.
GDP per capita (PPP basis, US$): 20,542 (2016
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 3.8% (2016 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 2.3%
(2016 Actual)
Gen. Gov. Financial Balance/GDP: -3.5%
(2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -4.4% (2016 Actual)
(also known as External Balance)
External debt/GDP: 18.3% (2016 Actual)
Level of economic development: Moderate level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 23 March 2018, a rating committee was called to discuss the rating
of the Government of Mauritius. The main points raised during the
discussion were: The issuer's economic fundamentals, including
its economic strength, have not materially changed. The issuer's
fiscal or financial strength, including its debt profile,
has not materially changed. The issuer's susceptibility to event
risks has not materially changed.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in December 2016. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
David Rogovic
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
