Estudos Económicos
Mauritius

Mauritius

Population 1.3 million
GDP 9,613US$
A4
Country risk assessment
A3
Business Climate
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Synthesis

major macro economic indicators

 

 

  2015 2016 2017(f) 2018(f)
GDP growth (%) 3.6 3.8 3.9 4.0
Inflation (yearly average, %) 1.3 1.0 3.6 3.8
Budget balance (% GDP)* -3.6 -3.7 -3.5 -3.9
Current account balance (% GDP) -4.9 -4.4 -5.8 -6.2
Public debt (% GDP) 63.6 64.5 64.7 65.0

*last fiscal year from July 2017 to June 2018 (f): forecast

STRENGTHS

  • Strong tourist activity
  • English/French bilingualism
  • Solid banking system
  • Democratic institutions and effective governance

WEAKNESSES

  • Commercial and economic dependence on Europe (tourism, construction)
  • Infrastructures failing in certain regions
  • Lack of skilled workers

RISK ASSESSMENT

Robust growth despite weak exports

In 2018, growth should be in line with that observed in 2017. The weakness of exports, particularly to the key markets of France and the United Kingdom, will continue to be a drag on the expansion of activity in the manufacturing sector (especially textiles) and agriculture. In particular, the sugar sector could suffer from the end, in October 2017, of production quotas in the European Union, the main destination of Mauritian sugar. Tourism and financial services will continue to drive growth in 2018 but are expected to grow at a slightly slower pace than in the past. The amendment of the provisions of the non-double taxation agreement with India could compromise the status of Mauritius as a preferential investment vehicle to India and thus constrain the financial sector. Public investment will support construction and should offset weak exports. Although still constrained by the weakness of some export sectors, household consumption should be driven by the return of confidence.

Relatively dynamic domestic demand, changes in the price of imported oil, as well as the easing of the monetary policy in September 2017, should keep inflation at a high level. The lowering of the central bank’s key interest rate, to its lowest historical level (3.5% at the end of 2017), is aimed in particular at counteracting the appreciation of a rupee, deemed overvalued by exporters, against the greenback (50% of export earnings are in dollars).

 

Widening deficits

Relatively expansionary fiscal policy should be maintained in order to support growth. However, the increase in capital investment spending should slow, while the authorities will try to contain the growth of current spending through tax administration reforms. A $500 million credit line granted by India is expected to finance part of the capital investment. The introduction of negative income tax, help for the poorest households, should contribute to widen the deficit. Many tax deductions introduced in the 2017/2018 budget, especially for businesses, will weigh on revenues. Since the budget is financed mainly by concessional loans and domestic debt, the risk of over-indebtedness remains low.

The current account is expected to continue to deteriorate in 2018 following a worsening in the trade deficit. The modest demand, particularly from the United Kingdom and France, for textile and sugar exports will be felt, in particular, on the balance of goods. Surpluses in the balance of services, mainly thanks to tourism, and income account, thanks to the repatriation of profits of the many offshore companies established in Mauritius, should not make it possible to offset the widening deficit on the balance of goods. Foreign direct investment and capital flows will finance this current account deficit.

 

Mauritian stability challenged by repeated scandals

Since its victory in the 2014 legislative elections, the governing Lepep Alliance has changed its faces many times, damaging the image of stability enjoyed by the country. In December 2016, the tripartite coalition in power was notably weakened by the defection of one of the constituent parties of the Alliance, the Mauritian Social Democratic Party. The month following the decision of Prime Minister Sir Anerood Jugnauth (86), who had already held this office (1982-1995 and 2000-2003) and that of President (2003-2012), to withdraw for the benefit of his son Pravind Jugnauth sparked the opposition’s ire, as well as many demonstrations. In addition, many scandals have pushed some ministers to resign in recent months. In September 2017, Attorney General Ravi Yerrigadoo was embroiled in a money laundering case. Named in the Paradise Papers revelations, Mauritius also sees its name associated with some suspicious fund investments. These scandals could mar the reputation of one of the highest ranking countries in sub-Saharan Africa according to the World Bank’s governance indicators. Mauritius enjoys a favourable business climate that allows it to rank 25th (out of 190) in the 2018 Doing Business Guide as well as attract foreign investment.

 

Last update: January 2018

Início
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