Mauritius

Overview

Policy Watch

Mauritius Monetary Policy Statement

09/11/2015

The Bank of Mauritius decided to reduce the key rate by 25 bp to 4.4%

Mauritius Monetary Policy Statement

17/07/2015

Bank of Mauritius kept its key rate unchanged at 4.65%

Mauritius Monetary Policy Statement

06/04/2015

Given the current economic outlook, the Mauritius MPC decided to keep the key rate unchanged at 4.65%

Mauritius Monetary Policy Statement

27/10/2014

Bank of Mauritius has decided to keep the repo rate unchanged at 4.65%

Debt vs GDP / Bonds vs bills

All Data - Mauritius

Year 2011 2012 2013 2014 2015 2016
GDP (billions US$) 11.25 11.44 11.93 14.20 - -
Total Outstanding Amount (Billion US$) 4.85 5.05 5.28 - - -
Bonds 3.85 4.09 4.40 - - -
Bills 1.00 0.96 0.88 - - -
Outstanding Amount/GDP (%) 43.10% 44.17% 44.26% 0.00% - -

News

Country Summary

In 2014, the Global Competitiveness Report, which measures the microeconomic and macroeconomic foundations of national competitiveness, ranked Mauritius 1st in Africa and 39th worldwide. The report further highlighted the country’s financial market deepening on the back of improved access to the different modes of financing and financial services. The country ranked 26th worldwide, under the Financial Market Development pillar. The economy of the island is very unique with a free trade zone, a bilingual and highly skilled labor force, an attractive tax regime with numerous double taxation treaties and a sound and profitable financial industry. The island is recognized for its solid infrastructure, fair and transparent judiciary system and efficient governance. Mauritius has been placed first in the Mo Ibrahim Index of African Governance since the inception of the classification in 2006. In 2015, the economic growth is projected at 3.5%, of which financial services and insurance would contribute to 0.5%.

The Central bank, the Bank of Mauritius (BoM), regulates banks, non-bank deposit taking institutions (NBDTIs), foreign exchange dealers and money-changers. Banks are the predominant intermediaries in the financial sector, with assets worth Rs.1 trillion in December 2013 while non-bank deposit taking institutions totaled assets representing 5,8% of total assets of the banking sector in September 2014. The sector is very concentrated : the largest four banks held 56.5% of the banking sector assets at the end of September 2014. The sector is profitable and liquid; the ROA and the ROE were respectively at 1,4% and 15,7% while the ratio of liquid assets to total assets was 23,1% at the end of September 2014.

The banking sector is characterized by an openness to international banks and a sound and safe regulatory framework. The capital adequacy ratio of Mauritian banks and NBDTI are well above the regulatory minimum of 10%; in September 2014, the capital adequacy ratios of the banks was 17.1% (vs 16.4% in September 2013). The BoM has issued guidelines which are consistent with the standardized approaches of the Basel II framework in 2008. The BoM supports the underlying objective of Basel III which is to strengthen the resilience of the banking sector against cyclical economic shocks. It intends to implement the Basel III reform package in Mauritius in a phased manner as from 2014. The BoM is also about to introduce a Depository Insurance Scheme to protect depositors. 

The Financial Services Commission (FSC) is the integrated regulator for the financial services sector other than banking; this comprises of capital markets, investment fund and intermediaries, global business, insurance and pensions, as well as the Stock Exchange of Mauritius (SEM). The FSC was established in 2001 and operates within an internationally recognized legal framework which includes the Financial Services Act, the Securities Act, the Insurance Act and the Private Pension Schemes Act. The insurance sector represented 33,7% of the GDP in 2014 and its assets were worth Rs.130,3 billion . In December 2013, the value of asset managed by pension firms was Rs. 29,83 billion.

The SEM is the only African Exchange to have a multi-currency trading platform (currencies traded are the euro, the pound sterling, the USD and the South African rand). The vision of the SEM is to become a world class, service-driven and operationally efficient Securities Exchange, with world class trading and settlement capabilities and emerge as a capital raising platform for Africa-focused investments. In 2014, the SEM's market capitalization was valued at Rs.230 billion, or 65% GDP. In 2015, the share of domestic private savings to GDP is expected to decrease to 16.3%; domestic private savings constitute the major source of funding for local investments.

Monetary policy & Public debt

The Bank of Mauritius Act of 2004 stipulates the primary objective of the Bank of Mauritius (BoM), which is to maintain price stability and promote an orderly and balanced economic development. To attain these objectives, the bank uses a set of measures, to control its supply of reserves money, money supply and interest rates, called the monetary policy. In the mid-1990s, the BoM adopted a monetary targeting approach to its monetary policies, using reserve money as the intermediate target.  During the same period, the foreign exchange market was liberalized and the BoM moved to market-based monetary instruments to orient its strategies. 

In December 2006, a new monetary policy framework was implemented. Since then, the BoM utilizes the Key Repo Rate, in place of the Lombard rate as its main monetary policy instrument. An interest rate corridor, measured as the Key Repo rate + 125 basis points, serves to ensure consistency between interbank market rates and the Key Repo Rate.

The 2008 Public Debt Management Act provides the general principles of the Mauritius public debt management strategy. The 2008 strategy document highlights the responsibility of the Ministry of Finance in preparing the debt strategy and in informing the public about the status of the general debt. It also establishes risk control benchmarks and medium term targets for the composition, currency mix, interest rate mix, maturity profile and relative size of the public sector debt. The document also determines ceilings on domestic debt, currently set at 60% of GDP; there are plans to reduce this ratio to 50% by the end of 2013. 

In 2014, fiscal policy was conservative, the government adopted prudent macro economic fiscal policies; the budget deficit is supposed to be in target at around 3,2% .The Bank of Mauritius kept its key repo rate unchanged at 4,65% during 2014. In 2014, the government adopted prudent macro economic fiscal policies; the budget deficit was 3.2 % of GDP in 2014. In line with the prudent policies, the Bank of Mauritius kept its key repo rate unchanged at 4,65% during 2014.

Market Structure

Market participants

Issuers

The Bank of Mauritius (BoM) is the only issuer of public domestic debt. Section 5 of the 2008 Public Debt Management Act and section 57 of the Bank of Mauritius Act of 2004 directs the issuance process. At the beginning of every year, an annual communiqué (issuance calendar) is published outlining the number of issues and the dates for government securities.

There are no known quasi-governmental or state-owned enterprise security issues. The corporate bond segment has emerged only recently, as evidenced by the medium-term notes issued by Omnicane and Mauritius Commercial Bank (MCB) in January 2013 and August 2013.

Investor base

In 2013, commercial banks were the largest bidders, followed by pension funds and insurance companies.

Foreign investors are authorized to invest in the market. In 2013, they held Rs.157 million worth of Government securities. 

In the secondary market, corporations are the main participants, accounting for 82% of the Primary Dealers' operations. Transactions, conducted amongst Primary Dealers (PDs) account for 14.2% of the transactions. Transactions between individuals and PDs represent the smallest share with 0.1% of the transactions in 2012. 

Other intermediaries

A primary dealership system has been in place since March 2002 with the aim of improving liquidity in the domestic market. The objective of the Bank is also to set up an official market for trading Benchmark Notes and bonds. Four banks were initially appointed as primary dealers; they were 11 at the end of June 2014.

Instruments issued

Treasury Bills

The Bank of Mauritius (BoM) auctions 91-, 182-, and 364-day Government of Mauritius Treasury Bonds (GMTB) every week depending on Government borrowing requirements. The 273-d T-bill has been discontinued since July 2015.

Treasury Notes

GMTN of 3-year tenors are available in the Mauritian market. Every year, the Ministry of Finance determines the aggregate amount to be issued for that year; for the 2nd half of 2015, an aggregate amount of Rs.8,900 million of 3-year T-notes is to be issued. The interest-type of the notes issued are fixed-rated.

Government of Mauritius Bonds

The BoM also sells government bonds. Securities in this category have tenure of up to 20 years and bear different types of interest rate structures. These securities are ruled interalia by Section 8 of the Loans Act and section 57 of the Bank of Mauritius Act of 2004 The aggregate amount of 5-year tenor to be issued in the 2nd half of 2015 is Rs.4 billion. The BoM also issues: the 10- year bond, the 15-year bond and the 15-year inflation-indexed bond. The aggregate amount of 10-years & 15-years bonds to be issued in the 2nd half of 2015 is Rs,4.6 billion.

Other public domestic debt securities

The government of Mauritius is the only public entity to issue securities in the market. No public state enterprises are known to issue securities. 

Average yield to maturity and time to maturity

For September 2015, the overall weighted average yield across all T-bills was 1.96%; the highest yield registered was with the 364-d T-bill at 2.86 %.

Primary Market and Secondary Market

Primary Market

Auctions of GMTB are announced two days in advance, through the BoM’s websites. Auctions of other Government securities are announced at the beginning of the year through the issuance calendar and the details are communicated one week in advance through the BoM’s website as well as through the press. The BoM makes the prospectuses available on its website.  

Securities are offered in multiples of Rs100,000 and bids are quoted on a yield basis (except for the 15-year inflation-linked bonds quoted on a bid margin basis). At times in the event of under-subscription, the securities are underwritten by the BoM at non-competitive prices. 

Eligible participants in primary auctions of GMTB are Primary Dealers banks and Non primary dealers and other eligible financial institutions which have participated at the auctions at least twice fortnightly.

Secondary Market

OTV vs. Exchange listed

Most of the Government securities are traded on the secondary market via Over-the-Counter (OTC).
There is limited secondary market trading for government securities. The strongest demand is for short-term instruments (the Treasury bills market is generally more liquid than the Treasury bond market). 

Clearing, settlement and custody

Government securities are cleared through the BoM payment system- the Mauritius Automated Clearing and Settlement System (MACSS). Any other securities (corporate bonds and equities) are cleared through the Central Depository & Settlement company (CDS). 

The CDS sells its services to other African Exchanges. It formed a consortium with a Sri-Lankan company to implement the central depository systems in Kenya, Tanzania, Ghana, Botswana and Zambia. 

Recent Developments

On 26 July 2013, the SEM also introduced the listing and trading of Exchange Traded Funds (ETFs) as new and innovative products to facilitate dynamic portfolio management.

In January 2014, the SEM reduced the transaction fees on corporate bond trading by 83%.

Investor Protection

Investor protection is ensured through several mechanisms. First, the Mauritian judicial system is a fair and reliable one, based largely on English and French law. Mauritius has been ranked first in terms of corporate governance by the Mo-Ibrahim Index of African governance (IIAG) since 2006. The island also received the 20th position (out of 189 economies) in the World bank’s “2014 “Ease of doing business report, an upgrade of 1 rank from that of 2013, where Mauritius was ranked 19th.

The second safety measures are the two Funds established by the SEM in conjunction with the Central Depository Securities system (CDS). The Guarantee Fund and Compensation Fund aim at providing protection against settlement failures, broker malpractices or default.

The third measure is given by the safety guards with respect to insider trading, as prescribed by the Law and Exchange regulations.

Mauritius is also a signatory to the International Convention on the Recognition and Enforcement of Foreign Arbitral Awards The regulatory process is transparent and non-discriminatory; the 2014 “Ease of doing business Report” ranked Mauritius 12th in terms of investor protection.

Guide to Buying Bonds

Procedures for market participation

Participation in Government of Mauritius securities sales can be achieved through 3 avenues: direct-bidding, Primary Dealers (PDs) or secondary market trading. Direct access to primary auctions is only open to Mauritian citizens or residents. Foreign Financial Institutions can submit their bids through Primary Dealers or licensed Stockbrokers. 
In the secondary market, individuals and corporates can purchase Treasury bills by contacting any of the twelve PDs appointed by the Central Bank. Non-residents are allowed to participate in the secondary market through a Primary Dealer.

Settlement cycle

Settlement for Government of Mauritius Treasury Bonds (GMTB) is T+0.
The settlement cycle for all government securities but GMTB is T+2 days.

Taxation

Residents and non-residents are subject to the same withholding tax rate of 15%. Residents can apply for an income threshold exemption, depending if they have and the number of their dependents. Non-residents can apply for an exemption if the interest received is from a bank or a non-bank deposit taking institutions. Only tax payments in excess of Rs.500 are deductible. 
Mauritius has concluded Double Taxation Agreements with 38 countries, among which the following 14 African countries (Botswana, Lesotho, Madagascar, Mozambique, Namibia, Rwanda, Senegal, Seychelles, South Africa, Swaziland, Tunisia, Uganda, Zambia and Zimbabwe. 

Agreements with Kenya, Congo, Nigeria and Gabon await ratification while that with Ghana awaits signing.

Market restrictions

Openness to international investors

Foreign investors are invited to participate to the Mauritian capital (debt and equity) markets. Currently, trades by foreign investors account for 40 to 50% of the daily trading volumes on the Stock Exchange of Mauritius (SEM).

Being an export and tourism driven economy, Mauritius has undertaken several initiatives to encourage foreign investment. The government offers a variety of investment incentives including:

  • A corporate tax exemption of at least 10 years
  • Free repatriation of profits, dividends, and invested capital
  • Waiver on income taxes on dividends for 10 years
  • Exemption from capital gains tax

Capital controls

There are no capital controls in Mauritius; they were abolished more than two decades ago.

Restrictions on foreign exchange and profit repatriation

Exchange controls were suspended in 1994, allowing foreign investors to freely repatriate their profits. 
The Exchange rate regime in Mauritius is a managed float; the BoM limits its interventions in the foreign exchange market largely to smoothening volatility. 

Credit rating

Last credit rating dates back in June 2013: Moody’s maintained the Mauritian sovereign debt rating of Baa1 reflecting the demonstrated resiliency of the economy to shocks and the stable and investment-friendly environment. Fitch and S&P did not rate Mauritius in 2013.

List of Primary Dealers

The list of Primary Dealers has been reduced from 12 to 11.