Moody’s Investors Service maintained its credit rating of Baa1 for Mauritius in its latest country-wide evaluation, citing the “resilience and diversification of the local economy and robust institutional capacity” as reasons for maintaining its stable outlook on the island economy.
However, the report, released on March 31, went on to note that any improvement in the country’s rating is restricted by “unfavourable debt metrics and the island economy’s vulnerability to external shocks”.
According to Moody’s credit report, Mauritius’ Baa1 country-wide rating is supported by the upper-middle-income status of the island economy, despite the small size of the nominal GDP in 2013, which stood at a mere $11.9 billion.
Over the past years, the Mauritian economy has proved resilient to the unfavourable external environment on the back of its continued success in attracting foreign direct investment (FDI) and diversifying its export base away from traditional European markets to Asian and African nations.
This, in turn, has helped to insulate the economy from external shocks and to enhance its already favourable external debt metrics.
Despite the rise in multilateral borrowing, the report notes that the government can rely on its relatively developed domestic debt markets as it has only modest external exposure.
Because of well-established democratic institutions and a tradition of coalition politics, political risk in Mauritius is considered to be very low, noted the report.
However, Moody’s noted that Mauritius’s debt affordability ratio and current debt stock, which is estimated at 53.8% of GDP in 2013, continue to compare unfavourably with those of its Baa-rated peers.
Moody’s also expressed concern over the high level of national debt and queried the government’s ability to improve the ratio of the debt to 50% of the GDP before 2018, as was announced officially.
The report also noted that island’s large banking system is a source of risk, although this is partially mitigated by the adequate capitalisation of its on-shore and off-shore banks, as well as a strict and prudent regulatory supervision by international standards.
Moody’s also cautioned potential investors that, being a small and export-dependent economy, Mauritius is exposed to changes in global demand, mainly from the EU.
Moody’s report stressed that if external demand fail to recover suitably, another shock could lead to a significant deterioration of its debt metrics, which in turn would result in a downward pressure on the rating.
However, the report concluded on the positive note that a considerable and permanent reduction in Mauritius’ vulnerability to external volatility and shocks could exert positive pressure on the rating.
About Moody’s:
Moody’s is a global rating agency that provides credit ratings, research, tools and analysis that contribute to transparent and integrated financial markets.
The corporation employs approximately 8,400 people worldwide and maintains a presence in 31 countries.
Its country-wide credit ratings are widely used by investors as the most reliable guide to a nation’s creditworthiness.
Image (Wikimedia) According to Moody’s credit report, Mauritius’ Baa1 country-wide rating is supported by the upper-middle-income status of the island economy, despite the small size of the nominal GDP in 2013, which stood at a mere $11.9 billion.
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