Economic studies
Mauritius

Mauritius

Population 1.3 million
GDP per capita 8,619 US$
B
Country risk assessment
A3
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Synthesis

major macro economic indicators

  2019 2020 2021 (e) 2022 (f)
GDP growth (%) 3.0 -14.9 3.5 6.0
Inflation (yearly average, %) 0.5 2.5 3.2 2.0
Budget balance (% GDP)* -3.2 -13.6 -5.6 -5.0
Current account balance (% GDP) -5.4 -12.6 -18.6 -8.9
Public debt (% GDP)* 65.0 83.4 95.0 91.4

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

STRENGTHS

  • Strong tourism sector (outside pandemic period)
  • Free trade agreements with China and India
  • Bilingualism (English and French)
  • Robust banking system
  • Developing offshore financial sector
  • Democratic institutions and effective governance

WEAKNESSES

  • Commercially and economically dependent on Europe and Asia (tourism, construction)
  • Dependence on imported food and energy
  • Island location and small domestic market
  • Poor infrastructure, especially on Rodrigues Island
  • Lack of skilled workers
  • Declining export competitiveness

RISK ASSESSMENT

Gradual recovery amid headwinds

The Mauritian economy made a weak recovery in 2021 due to a still-subdued tourism sector (over 20% of GDP and employment). The island has a high vaccination rate (over 70% of population), though the uncertainty over the course of the pandemic remains the top risk for Mauritius’ economic outlook. Mobility restrictions were renewed in late November 2021 with the emergence of the Omicron variant. Tourist arrivals in the first half of 2021 were less than 2% of 2019 levels. The government reopened border in two stages, with the first (15 July – 30 September 2021) allowing vaccinated travellers to visit limited areas, before a full reopening from 1 October 2021. A stronger recovery for Mauritius in 2022 therefore hinges on a wider global easing of travel restrictions. Partially compensating for the loss of tourism receipts were Financial and Insurance (10% of GDP), and ICT (4% of GDP), the only two sectors that recorded growth in 2020, which expanded at stronger paces in the first half of 2021, up 2.5% and 7% respectively. Meanwhile, the Financial Action Task Force (FATF )’s decision to remove Mauritius from the ‘grey’ list is also a welcome boost to the island’s financial sector and its efforts to strengthen its AML/CFT measures. We expect the recovery in export-oriented manufacturing industries (11% of GDP), and agriculture and fishery sectors (3% of GDP) to continue in 2022.

 

Another key sector of economic recovery was the construction sector (4% of GDP and 9% of labour force), which reported robust growth in first half of 2021, backed by public infrastructure projects. Strong expansion in construction activity is expected to continue in 2022. In the 2021-22 budget the government allocated MUR 65 billion (13% of GDP) to public works over the next three years. Funds (MUR 2 billion) to support residential land and property purchases, and exemption of registration duty will also boost the construction sector. FDI inflows continued to fall in the first semester of 2021, after a 36% drop in 2020, though the accommodation and food service sector received a significant inflow on expectations of a recovery in tourism. FDI is expected to recover in 2022 as Mauritius remains an attractive country, thanks to years of successful public-private collaboration, and with the country taken off the FATF list for inadequate anti-money laundering measures.

 

Despite government fiscal support, including wage subsidies, unemployment remained high and rose through the first semester of 2021, reaching 10.5%. As a result, the recovery in household spending (75% of GDP) was relatively subdued in the first half of 2021, with many also facing rising inflation, especially in food and transport costs. However, a revival in the tourism sector in 2022 is expected to lead to an improvement in household consumption.

 

Public and current account deficits still wide

The pandemic hit the Mauritian economy hard, with massive government stimulus (32% of 2020 GDP) and a collapse in tourism contributing to a widening of the deficit in both the fiscal and current accounts in 2020.

 

After a sharp increase in FY2019-20, the budget deficit narrowed in FY2020-21 owing to higher revenue collection. FY2021-22 is expected to see a further narrowing of fiscal shortfall as more fiscal measures are phased out amid the economic recovery. To finance the deficit, the government took on more debt, though almost exclusively denominated in local currency, with public debt rising considerably (nearly MUR 100 billion) between June 2019 and June 2021. The share of external borrowing also rose from 17% of total public debt to 25%, but is expected to decline from 2023. Its debt profile is unlikely to change significantly as the authorities continue to favour domestic sources of financing, with a large one-off transfer of MUR 60 billion (14% of GDP) from the central bank in FY2020-21.

 

The current account deficit jumped to 13.3% of GDP in 2020, and is expected to have widened further in 2021 due mainly to a deepening trade account deficit as much-reduced tourism revenues contributed to a shortfall in the services trade account, while goods trade deficit widened as imports recovered faster. The current account deficit, typically financed by foreign direct investment from the Global Business Companies (GBC), is expected to narrow in 2022 as a rise in primary income, driven partially by revenue recovery of the many offshore companies domiciled on the island, as well as an improvement in services trade balance, could provide greater support.

 

Political stability

The Militant Socialist Movement (MSM), a centre-left party led by Prime Minister Pravind Jugnauth, is the dominant party in Mauritian politics. Together with its coalition partners, the Morisien Alliance has retained a strong majority (60%) in the National Assembly following the 2019 parliamentary polls, with the next general election due in 2024.  On the external front, Mauritius will continue to maintain strong ties with European countries, China and India, its main economic partners. Mauritius and India signed a Comprehensive Economic Partnership Agreement (CECPA) in February 2021, which took effect in April 2021. Negotiations for a preferential trade agreement with Indonesia are ongoing. Finally, despite the United Nations court ruling that the United Kingdom has no sovereignty over the Chagos  Islands, the return of the disputed islands to Mauritius remains uncertain.  

 

Last updated: February 2022

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