New York, April 01, 2020 -- Moody's Investors Service, ("Moody's") has
today changed the outlook on the Government of Mauritius's rating
to negative from stable. Concurrently, Moody's has
affirmed the Baa1 long-term issuer rating.
The negative outlook reflects risks to Mauritius's economic and
fiscal metrics as a result of the coronavirus outbreak. The rapid
and widening spread of the coronavirus outbreak, deteriorating global
economic outlook, falling oil prices, and asset price declines
are creating a severe and extensive credit shock across many sectors,
regions and markets. The combined credit effects of these developments
are unprecedented. For Mauritius, the shock mainly transmits
through the sharp decline and potentially prolonged slump in the tourism
industry, which represents a relatively sizable proportion of gross
value added in the economy as well as a source of government revenue and
export earnings. Materially lower growth, combined with higher
fiscal deficits could lead to a permanently higher debt and interest burden
that is already elevated relative to Baa1 peers. The coronavirus
and slower global growth could also reduce foreign direct investment into
Mauritius, weighing on its external accounts and potentially result
in a drawdown on international reserves.
Moody's decision to affirm the Baa1 rating takes into account Mauritius's
strong governance and policy effectiveness, which have supported
strong economic growth and provides a degree of resilience to economic
shocks.
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
RATIONALE FOR THE NEGATIVE OUTLOOK
Moody's expects growth in Mauritius to slow as a result of the coronavirus-induced
global growth slowdown, mainly as a result of lower tourist arrivals
and earnings. Tourism's direct contribution to GDP is estimated
at 8.2% of GDP in 2019 and, when including the indirect
contribution from other industries such as transport and accommodation
and food service, it accounts for 23.8% of GDP,
22% of employment, and 35% of total exports.
The magnitude of the downturn in growth is uncertain, and depends
in part on the ability of the authorities, and the global community
to contain the economic fallout from the coronavirus shock. After
tourist arrivals increased by 4.7% in January and February,
Moody's expects a near complete halt in tourist arrivals in the
second quarter of 2020, followed by a gradual recovery in the second
half of the year, resulting in total annual arrivals contracting
by at least 25-30% in 2020 relative to the previous year.
Although Moody's expects the government's fiscal measures,
along with central bank support, will prevent a more severe impact
on the broader economy, increased government spending along with
lower nominal growth and lower tax revenue will result in an increase
in the size of the fiscal deficit and weigh on debt metrics. The
government announced a wage assistance scheme that will ensure all private
sector employees received their full salary for the month of March 2020,
and could use additional spending approved in the budget if necessary
to increase support to the economy.
Moreover, the risks of a larger spillover from tourism to the rest
of the economy -- beyond those captured in the indirect contribution
of tourism to GDP -- point to further downside risks to Moody's
expectations that Mauritius will avoid an outright contraction in real
GDP in 2020 and return to growth above 3% in 2021. A longer
period of lower growth would dampen income growth and revenue collection,
leading to a further widening of fiscal deficits and aggravating a debt
and interest burden already above Baa1 peers. Under such a scenario,
the weakening in fiscal strength may no longer be consistent with a Baa1
rating.
Earnings from the tourism sector are an important source of export earnings,
and pose an additional downside risk through the balance of payments channel.
However, leakages of foreign exchange from tourist receipts are
high, meaning a severe but temporary decline in tourism receipts
will be offset by lower tourism-related imports, further
cushioned by lower oil prices deflating the import bill. A large
stock of international reserves limit the immediate credit implications
of a larger current account deficit.
RATIONALE FOR AFFIRMING THE Baa1 RATING
Mauritius's high and stable growth rates, which have supported
rising wealth levels, along with strong institutional framework
underpin the rationale for affirming the Baa1 rating.
Moody's views Mauritius's credit profile as resilient to a
severe, but temporary disruption, benefiting from a large
stock of international reserves, a diversified economy with multiple
drivers of growth, and a large domestic financial system which limits
its reliance on external borrowing. Additionally, Moody's
expects the government's policy response, via fiscal and monetary
policy stimulus, will be targeted and short-term in nature,
without permanently affecting the government's ability to maintain
a stable debt burden.
Mauritius's strong governance and policy making are credit strengths,
which support a stable macroeconomic environment and a favorable business
climate for attracting foreign investment. The country's
strong institutional framework and prudent policymaking have supported
not only high growth rates but also increase the economy's resiliency
to shocks.
The Mauritian economy has demonstrated remarkably steady, and relatively
high growth rates over the past decade, benefiting from a well-diversified
economic structure despite its small size. Real GDP growth has
averaged 3.8% over the past ten years, above the Baa-rated
median of 3.1%, while exhibiting significantly lower
volatility. Robust economic growth has supported an increase in
income per capita, signaling a higher capacity to absorb economic
or fiscal shocks.
Mauritius's high government debt and interest burdens are a key
credit constraint relative to Baa-rated peers, limiting to
a certain extent its ability to deploy counter-cyclical fiscal
policy to buffer the economy in the face of shocks such as the current
situation. Although Mauritius's debt and interest burden
will remain above those of similarly-rated peers, risks are
contained due to the low share of foreign-currency denominated
debt and relatively large share of long-term domestic debt.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental risks are material in shaping Mauritius's credit profile,
given its exposure to natural and man-made disasters due to its
small size and the importance of tourism to the economy. A high
food and energy import dependency, as well as flood hazards and
changes in rainfall affecting cereal yields, explain Mauritius's
vulnerability to climate change risk.
Social risks are not material to Mauritius's rating at this stage.
The country enjoys nearly non-existent poverty rates, relatively
low income inequality, while the government offers universal free
access to education and primary healthcare, all of which reduce
risks of social unrest. Over time, an aging population could
increase government spending pressures and weigh on growth potential.
The overall strength of Mauritius's institutions, including its
quality of governance, is a key support for the Baa1 rating.
The government has demonstrated a proactive approach to addressing challenges
to important sectors of the economy, which increases the resiliency
of the economy.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The negative outlook indicates that an upgrade is unlikely in the near
future. Moody's would likely change the outlook to stable
if the shock to the tourism industry and growth proved temporary,
increasing the likelihood that fiscal and debt metrics would stabilize
over time at a level that remains consistent with a Baa1 rating.
This would probably result from indications that the coronavirus outbreak
does not have any long-lasting impact on consumer travel preferences
for island destinations like Mauritius, and that fiscal measures
announced to limit the immediate fallout from the coronavirus were reversed
once economic activity recovered.
Moody's would likely downgrade Mauritius if fiscal metrics weakened
materially over the next 12-18 months and this deterioration was
unlikely to be reversed over the medium term. A prolonged weakening
in economic activity, which signaled a permanent reduction in the
country's growth potential and reduced economic resiliency,
would also likely result in a downgrade.
GDP per capita (PPP basis, US$): 23,709 (2018
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 3.8% (2018 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.8%
(2018 Actual)
Gen. Gov. Financial Balance/GDP: -3.1%
(2018 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -5.9% (2018 Actual)
(also known as External Balance)
External debt/GDP: 16.5% (2018 Actual)
Economic resiliency: a3
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 27 March 2020, a rating committee was called to discuss the rating
of the Mauritius, Government of. The main points raised during
the discussion were: The issuer's economic fundamentals, including
its economic strength, have not materially decreased. The
issuer's institutions and governance strength, have not materially
changed. The issuer's fiscal or financial strength, including
its debt profile, has not materially changed.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, 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 further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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
Vice President - Senior 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
