Estudos Económicos
Mauritius

Mauritius

Population 1.3 million
GDP 11,090 US$
B
Country risk assessment
A3
Business Climate
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Synthesis

major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 3.8 3.0 -13.0 6.0
Inflation (yearly average, %) 3.2 0.5 2.5 3.2
Budget balance (% GDP)* -1.7 -2.2 -10.2 -12.0
Current account balance (% GDP) -3.9 -5.4 -13.3 -11.0
Public debt (% GDP)* 64.0 66.2 82.8 86.0

(e): Estimate (f): Forecast *Fiscal year 2021 = from July 1st 2020 to June 30th 2021

STRENGTHS

  • Strong tourism sector (outside pandemic period)
  • Bilingualism (English and French)
  • Robust banking system
  • Democratic institutions and effective governance

WEAKNESSES

  • Commercially and economically dependent on Europe and Asia (tourism, construction)
  • Island location and small domestic market
  • Poor infrastructure, especially on Rodrigues Island
  • Lack of skilled workers
  • Blacklisted (October 2020) by the European Union due to shortcomings in the fight against money laundering

RISK ASSESSMENT

Recovery of tourism-based growth

Mauritius suffered only slightly from the COVID-19 crisis in health terms. However, its economy was strongly impacted. It is expected to rebound gradually in 2021. The drop in activity recorded in 2020 is mainly due to the collapse of tourism (19% of GDP and employment). The restrictions on international travel brought about by the health crisis, as well as the closure of borders, have strongly affected tourism revenues (35% of total exports). The second wave in the autumn of 2020 led to an extension of the mobility crisis and should continue to weigh on tourism in the first quarter of 2021. Thus, it is expected to recover slowly throughout 2021. Furthermore, the construction sector (usually 10% of GDP and 22% of employment) has also contracted sharply because of the health crisis and this has brought construction sites to a standstill. However, it is expected to recover in 2021 and will be one of the key sectors of economic recovery. It will benefit from massive government support, as well as public investments such as the construction of social housing and new roads, which will create jobs and support the economy. Financial services and insurance (12% of the country's value added) were resilient in 2020, as were IT and telecommunications, and their growth is expected to continue in 2021.

Despite government support and the easing of credit policy by the Central Bank, with, for instance, an increase in unemployment benefits or the introduction of a 6-month moratorium on loan repayments, aimed at supporting the most vulnerable households and the sectors most affected by the crisis, household consumption (78% of GDP) has declined. Many faced declining incomes and job losses, while inflation increased due to soaring food prices. However, consumption is expected to recover, aided by the extension of some subsidies to 2021. FDI inflows fell sharply in 2020 because of the health crisis, the halt in tourism and risk aversion in a context of global recession. Mauritius remains an attractive country, thanks to strong public-private partnerships, but FDI is expected to recover slowly in 2021, as the EU blacklisted the island in October 2020 due to inadequate anti-money laundering measures. Public investment (7.6% of GDP), although declining because of COVID-19, will remain significant in 2021, particularly in social housing. Furthermore, Mauritius obtained a USD 354 million external loan from the French Development Agency in order to strengthen its resilience to natural and health disasters. This is expected to boost investment in these sectors.

 

Public and current account deficits still high

The public deficit increased sharply in the fiscal year 2019-2020 in connection with the pandemic. Indeed, the government has had to increase its spending to cope with the crisis in a context of declining revenues. The fiscal year 2020-2021 continues to be impacted by the fiscal support measures, some of which are being extended into 2021, and the public investments decided to support the economy. The fiscal stance will remain expansionary. Public debt has risen considerably because of the deficit. However, as of June 2020, it was almost exclusively denominated in local currency and ¾ of it was domestic. Its profile will not change as the authorities continue to favour domestic sources of financing, with an exceptional contribution from the Central Bank in 2020-2021. The debt burden is expected to push the country to engage in fiscal consolidation once the crisis is over. The current account deficit widened sharply following the COVID-19 crisis, aggravated, on the one hand, by the disappearance of the traditional surplus in services due to the collapse of tourism revenues, and, on the other, by the decline in primary income, alongside that of the revenues of the many offshore companies domiciled on the island, due to the general decline in activity and interest rates. Conversely, the usual massive goods deficit narrowed, as imports fell more than exports, which, moreover, once global demand recovered and supply chains were restored, recovered faster. The current account deficit is expected to decline only slightly in 2021, since the reversal of these various factors will be slow as domestic demand recovers and imports of capital goods for infrastructure projects increase.

 

A disrupted coalition

The coalition led by outgoing Prime Minister Pravind Jugnauth, the centre-left Morisien Alliance, won 42 of the 70 seats in the November 2019 parliamentary elections, thereby retaining a solid majority. The coalition suffers, however, from growing perceptions of cronyism, corruption, its perceived failure to manage the oil spill from the Wakashio wreck (on 25 July 2020), and the economic fallout from COVID-19.

Moreover, despite the island's good ranking in the World Bank's governance indicators, the EU's blacklisting could have consequences on the island's attractiveness. On the external front, Mauritius will continue to maintain strong ties with European countries, China and India, its main economic partners. Moreover, in October 2019, the country signed a free trade agreement with China that eliminates customs duties on a large number of products. Finally, the United Kingdom and Mauritius are still in deep disagreement over sovereignty over the Chagos Islands.

 

Last updated: February 2021

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