Moody’s Baa3 Rating: Mauritius on Edge of Losing Investment Grade

Moody’s recent evaluation of Mauritius, released on January 30 in New York, leaves a troubling taste. On the one hand, the country retains its Baa3 rating; on the other, its outlook has shifted from stable to negative. This sets Mauritius perilously close to losing its “Investment Grade.” To reverse this trend, urgent reforms are needed to lower public debt and restore financial stability.

Amit Bakhirta, Founder and CEO of Anneau, warned that Mauritius now has “one foot almost off the edge of the junk cliff.”

He asserted that losing our Investment Grade would unleash a financial tsunami upon our shores.

According to Bakhirta, economic restructuring is essential.

While Moody’s has held onto the Baa3 rating, the negative outlook signals a dire warning:

Without immediate budget consolidation and timely debt restructuring, we risk being further downgraded to ‘junk’ status in the next 12 to 18 months.

The State of the Economy report cited underlying budgetary weaknesses due to rising deficits, increased debt burdens, and systemic governance issues across public bodies.

With our debt levels surpassing 77% of GDP, we face a reality that starkly contrasts with that of our regional counterparts.

Transparency may be our rallying cry, but we must focus on addressing the fundamental issues at hand.

At Anneau, we’ve long advocated for prudent fiscal policies and budget consolidation plans—now, the world is paying attention as Moody’s echoes our concerns.

If we lose our Investment Grade, the effects on our financial sector and our capacity to attract investments could be catastrophic.

A potential financial tsunami would result in deposit outflows from Global Business Companies, weakened bank balance sheets, credit downgrades across commercial banks, and deteriorating trade accounts.

Currency reserves would dwindle, causing a weakened rupee, thereby exacerbating inflation as we spiral deeper into economic turmoil.

Moreover, many G20 funds prohibited cash deposits and investments in jurisdictions deemed as ‘junk’.

This would spell disaster for our International Financial Centre (IFC), complicating recovery efforts.

Government’s Action

The government has signaled its intent to implement a “significant fiscal consolidation programme and substantial economic reforms” to counter impending downgrades.

Is this the path forward? Yes, because we have no alternative. However, it’s essential to remember that the Central Bank, along with several state-owned enterprises, also needs recapitalisation.

A poorly executed consolidation plan could stifle economic growth, underscoring the need for wisdom, discipline, and prudence at this critical juncture. Mauritius needs an economic makeover.

Mauritius Bankers Association: Support for Reforms

The Mauritius Bankers Association (MBA) viewed the maintenance of our Baa3 rating and Investment Grade status as crucial for our financial centre.

With the report identifying significant fiscal challenges and the pressing need for swift reforms, the MBA also highlighted the strength of the financial sector, rated at A2—four notches above the national rating.

The banking sector remained stable and well-capitalised, with promising growth prospects.

The MBA is engaged with public authorities to support the implementation of necessary reforms.

Faraz Rojid, CEO of Mauritius Finance: United Efforts Needed

Faraz Rojid embraced Moody’s decision to uphold our Investment Grade, reinforcing the Mauritius International Financial Centre’s unique position in facilitating investment flows to Africa and beyond.

However, the negative outlook calls for united action from all economic partners.

The government’s consolidation programme and substantial economic reforms will be critical to meet this challenge, with financial service operators and Mauritius Finance is ready to support national efforts to enhance our rating and bolster the MIFC’s reputation.

Kevin Ramkaloan, CEO of Business Mauritius: Strengthening Resilience

Kevin Ramkaloan welcomes the retention of our Investment Grade, a vital signal for investors despite the complex global economic environment.

Maintaining this rating, in light of current circumstances, is a significant achievement.

Nevertheless, the shift to a negative outlook necessitates meticulous attention to macroeconomic fundamentals, notably public debt management.

The growth of key economic sectors remains a cornerstone for our path forward, and despite this challenging situation, the other economic indicators reported by Moody’s indicate a stable and dynamic economic base.

Strengthening robust sectors while nurturing new ones within a conducive business environment is imperative.

Dr. Chandan Jankee, Economist: Urgent Reforms Required

Dr. Chandan Jankee reflected on the prevailing economic discourse, noting that many expected a credit downgrade following recent media reports depicting a bleak economic landscape.

It’s reassuring that Moody’s has upheld our sovereign rating. However, the negative outlook serves as a stark reminder that comprehensive reforms and effective economic policies need to be implemented urgently.

There are concerns that this new outlook could lead the government to tighten spending even further, potentially undermining our welfare state.

In these pivotal times, the call for action resounds across every corner of Mauritius. Immediate and decisive measures can guide our nation back to more favourable shores.

Source: Defi Media