Mauritius

Country Summary

Macroeconomic performance and outlook

Real GDP growth was moderate yet steady, averaging 3.8% during 2015–19. Growth was mainly driven by financial services, retail and wholesale trade, and infor- mation and communications technology. GDP per capita trended upward, reaching an estimated $10,200 in 2019 —the third highest in Africa after Equatorial Guinea and Seychelles. The economy is largely service-based (76% of GDP in 2019), followed by industry (21%) and agricul- ture (3%). Aggregate demand has been underpinned by strong growth in household consumption, while invest- ment stood at 19% of GDP in 2019.

The accommodative monetary policy of the Bank of Mauritius has been widely considered appropriate in view of recent low inflation. Fiscal policy was expan- sionary over 2015–19: government spending is dominated by recurrent spending, but the public wage bill is increasing, and a more generous universal pension scheme has been introduced. Spending has been offset by a rise in revenues, driven by strong tax collec- tion. The budget deficit, 3.2% of GDP in 2019, is funded predominantly from domestic debt issues and ongoing disbursement of a $500 million grant from India in 2016. Fiscal consolidation is required through increasing domestic resource mobilization and the sale of govern- ment assets.

The current account deficit, estimated at 6.3% of GDP in 2019, is projected to narrow to 5.6% of GDP in 2020 and 5.2% in 2021, due largely to improved export and tourism earnings. The current account deficit will continue to be covered by investment income from off- shore companies and foreign direct investment.

Youth unemployment is 22.5%, and national unem- ployment is 6.9%. The rapid shift from labor-intensive sectors to emerging high value-added sectors requires higher skills. Inequality has recently been on the rise.

Tailwinds and headwinds

Key sectoral drivers of growth are expected to continue performing well. Real GDP growth is projected to be 

3.9% in 2020 and 4.0% in 2021, due to increased tour- ism, steady investment growth, and external demand from regional and global growth. Tourist arrivals are projected to exceed 1.2 million a year, with more coming from nontraditional markets in Asia and Africa. The economy is expected to diversify further into higher value-added sectors such as agroprocessing, medical tourism, higher education services, and development of the ocean economy. Ocean economy activities such as leisure, energy, aquaculture, and port logistics could add 1.5–2 percentage points to GDP.

The effort to increase efficiency and productivity in public services could include digitizing the economy, as in fintech and artificial intelligence. A favorable business environment and business-friendly regulations such as the revised Business Facilitation Act are expected to boost foreign direct investment inflows, and improved global economic demand should increase the export of goods and services. Government efforts to reorient Mauritius as a gateway between Asia and Africa for trade and investment and to further diversify export markets will consolidate the country’s position as a logistics and services hub for Africa and boost the wider economy.

Global energy and food price increases are expected to diminish the island economy’s current account balance and add to inflation, projected at 3.5% in 2020 and 2021. Public debt remains high at 63% of GDP, and a statutory target of 60% of GDP by 2021 will limit the fiscal space for investing in infrastructure and human capital. Although the financial sector is among the most robust and best regulated in Africa, it caters mostly to large corporations. Small and medium enter- prises continue to find access to finance a challenge. Other risks to growth potential include skill constraints, environmental degradation, a rapidly aging population, and widening income inequality. Efforts to speed much- needed public investments and improve public service delivery could falter due to institutional and regulatory constraints. Private investment in strategic infrastruc- ture subsectors such as water, transport, and energy is expected to remain low given the lack of significant regulatory reforms.

Source: African Economic Outlook 2020

Fixed Income

Summary

During the past four years, the profile of Government debt has improved significantly in terms of both the cost of borrowings and the refinancing and interest rate risks. Cost of borrowings: (i) Ratio of interest payments to recurrent revenue reduced from 12.3% in FY 2014 to 10.9% in FY 2017/18. (ii) Ratio of interest payments to GDP brought down from 2.5% to about 2.3% Refinancing risks: (i) Average time to maturity of Government debt increased from 4.7 years at end-December 2014 to 4.9 years at end-June 2018 (ii) Average time to re-fixing Government debt improved from 3.2 years to 4 years

Issuance strategy

  • Mix of Foreign and Domestic Borrowings

Government external debt portfolio will be downsized during FY 2019/20. This will be achieved through early repayment of relatively expensive foreign loans equivalent to some Rs 15.6 billion and by having greater recourse to domestic financing. As a result of this downsizing, the share of external debt in Government debt portfolio is expected to drop to around 9% by end-June 2020. The target over the medium term will be to contain the share of external debt to within 15% and that of domestic debt at around 85%.

  • Currency Mix

The long term objective of the Strategy is to align the currency composition of public sector external debt to that of export earnings of the country. In this respect, the share of Government external debt in USD will be reduced to about 25% over the medium term. The share of debt in Euros will be maintained at around 35% and the portfolio further diversified in terms of other currencies.

  • Maturity Mix

Regarding domestic debt, the average time to maturity currently stands at about 4.8 years. Around 13% of Government domestic debt is of short term maturity, while the share of medium term and long term debt is 22% and 65%, respectively. The target over the medium term is to further reduce the share of short term debt to about 10% and increase that of medium and long term debt to about 23% and 67%, respectively. This will maintain the ATM of Government domestic and total debt at close to 5 years The quasi totality of Government external loans is long term, with original maturities of between 15 to 20 years. With the planned early repayment of a number of external loans, the time to maturity (ATM) of Government external debt is expected to drop during FY 2019/20.

[Source: Medium term macroeconomic 2019-2020]

Benchmark 

Yield curve

Yield curve calculation models

Interpolation methods 

Yield curve managed by 

Challenges in building an efficient yield curve 

 

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

Rating agency Rating Outlook
Moody’s Baa1 Negative
Fitch    
Standard and Poor’s    

List of Primary Dealers

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

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