Economic Studies
Mauritius

Mauritius

Population 1.3 million
GDP per capita 11,228 US$
B
Country risk assessment
A3
Business Climate
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 3.8 3.8 3.7 3.5
Inflation (yearly average, %) 3.7 3.2 0.8 1.4
Budget balance (% GDP) -3.3 -2.9 -3.2 -3.5
Current account balance (% GDP) -5.8 -6.2 -7.6 -7.5
Public debt (% GDP) 64.3 66.2 68.6 69.4

(e): Estimate. (f): Forecast. *Fiscal year from 1st July - 30th June. 2019 data: FY19/20.

STRENGTHS

  • Strong tourism sector
  • 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

RISK ASSESSMENT

Robust growth despite the slowdown in external demand

Growth should slow slightly in 2020 while staying robust, supported by strong services and construction. Aided by an extremely favourable tax regime, the financial sector will remain one of the main drivers of the economy, notably through cross-border investment activities and banking services. However, the expansion of the financial sector could be affected by the removal in March 2019 of the tax advantage granted by India, which is the sector’s main partner. However, diversification and the recent opening-up to other markets, such as Africa, offer significant opportunities. Tourism may continue to see flat growth in numbers of visitors, particularly from Europe and Asia, in line with economic conditions. Tourism should nevertheless be resilient thanks to the development of new air links and recently built hotel infrastructure. The construction sector will remain on a positive trend in 2020, driven by the rise in public investment (7.6% of GDP). The main projects include construction of a new terminal and runway, continued work on the railway line linking Port-Louis to Curepipe, and improvements to the road network. Household consumption will keep up good momentum, benefiting from credit and wage growth, muted inflation because of low prices for imported food and energy products, as well as social measures to support purchasing power. In contrast, the manufacturing sector is set to continue to put in a mixed performance and will be affected by the textile and sugar industries, which are being hurt by the moderation of external demand.

 

Expansionary fiscal policy maintained

The fiscal stance remains expansionary for FY 2019/2020, and the government deficit is likely to deteriorate. Spending will increase significantly, mainly to finance the rise in investment and new social measures announced before the elections, such as the increase in the value of old-age pensions. Moreover, higher income tax exemption thresholds will put a strain on revenues, which are expected to go up only slightly. The build-up of public deficits continues to fuel public debt, of which the GDP share is on an upward trend. However, the risk of default is still limited, as the debt is almost exclusively domestic, denominated in local currency and contracted over long maturities.

After deteriorating last year, the current account deficit should be stable in 2020, still fuelled by a large trade deficit (22% of GDP). While exports of goods will continue to be sluggish, imports will increase, driven by strong construction and private consumption. The surplus in the services balance (8% of GDP), mainly driven by tourism revenues, will remain. Profit repatriations by the many offshore companies based on the island will continue to support the income surplus (10% of GDP). FDI and other investment flows, directed towards tourism and the financial sector, will cover the current account deficit, while providing comfortable foreign exchange reserves, which represent about nine months of imports.

 

The Prime Minister secures popular legitimacy

The centre-left Alliance Morisien, a coalition led by outgoing Prime Minister Pravind Jugnauth, won 42 out of 70 seats in the November 2019 parliamentary elections, thus retaining a solid majority. Pravind Jugnaulth took office in 2017, following the resignation of his father Sir Arnerood Jugnauth, who was appointed in 2014. The handover weakened the popularity of the ruling coalition, which was accused of nepotism and was further affected by the loss of one of the constituent parties (Mauritius Social Democratic Party). The coalition is also suffering from a growing perception of cronyism and corruption, illustrated by the scandal in March 2018 when President Ameenah Gurib-Fakim was accused of using a bankcard provided by an NGO for personal purposes. However, despite all of this, the alliance and the Prime Minister managed to retain popular support.

Mauritius remains one of the highest ranked countries in sub-Saharan Africa according to the World Bank’s governance indicators. Political stability and good governance contribute to a highly competitive business climate at the international level: the country ranks 13th out of 190 in the Doing Business 2020 ranking. However, recent revelations that came out of the Mauritius Leaks investigation about the scale of tax optimisation or evasion, supported by the country’s very low tax rates, could have repercussions for Mauritius’ reputation.

 

Last update: Mai 2020

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