Moody's Investors Service ("Moody's") has today downgraded the Government of Mauritius's long-term foreign and local currency issuer ratings to Baa3 from Baa2, and changed the outlook to stable from negative.
The downgrade to Baa3 is driven by Moody's assessment that the quality and effectiveness of institutions and policy making has weakened, which in turn hampers Mauritius's economic resiliency and capacity to absorb future economic shocks. While the institutional framework remains strong and policymaking has historically supported high and stable economic growth, reversing the deterioration in economic and fiscal strength as a result of the pandemic is complicated by the reliance on unconventional and one-off measures which creates some uncertainty around future fiscal performance and ultimately weighs on Moody's assessment of institutions and governance strength.
The stable outlook reflects Moody's expectations that Mauritius's credit profile will remain aligned with Baa3-rated sovereigns and, in particular, incorporates Moody's view that the headline fiscal and debt metrics will further improve, with the debt burden falling below 70% of GDP by the end of the fiscal year ending June 30, 2023 (fiscal year 2023), notwithstanding risks to fiscal consolidation stemming from the global inflation shock. Mauritius's sizeable international reserves limit external vulnerability risk despite large current account deficits and provide a buffer to higher import prices. The Baa3 rating is also supported by low social and political risk.
Mauritius's country ceilings have been lowered by one notch. Namely, Mauritius's local-currency country ceiling was lowered to A2 from A1. The four-notch gap to the sovereign rating reflects a relatively favorable legal and regulatory framework, low external vulnerabilities and a stable political system, balanced by reliance on tourism which represents a source of common shock for the government and non-government issuers in the country. The foreign-currency ceiling was lowered to A2 from A1. Mauritius's role as an international financial center significantly reduces the incentives to impose transfer and convertibility restrictions, supporting the foreign-currency ceiling's alignment with the local-currency ceiling.
