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Mauritius Country Risk Report Q1 2017

  • November 2016
  • -
  • Business Monitor International
  • -
  • 31 pages

Core Views

We maintain our view that real GDP growth in Mauritius will come in lower in 2017 compared to recent years, as the negative effects of the UK's decision to leave the EU on June 23 (Brexit) and the renegotiation of the Double Taxation Avoidance Agreement with India in May will weigh on a number of sectors crucial to the economy. Highly accommodative monetary and fiscal policy will help offset the impact of these, but nevertheless we forecast that Mauritius will achieve real GDP growth of just 2.9% in 2017, compared to a projected 3.0% in 2016 and an average 3.3% over the previous five years.

Mauritius will see its fiscal deficit widen in 2017 as the government ramps up capital spending and revenues are constrained by a number of tax cuts. Should the poorest of society not see their living standards improve, dissatisfaction at tax cuts for high net worth individuals and businesses willlead to a loss of support for the government. Changed macroeconomic circumstances in the wake of the Brexit vote will result in greater government involvement in developing new industries and seeking new trade partners.

This will need foreign investment, but corruption scandals in Mauritius will deter some investors from the otherwise attractive market. The negative impact of the Brexit vote on Mauritian exports will result in the current account deficit widening in 2017, contrary to our previous expectation that it would narrow. Imports will slow in 2017 as new economic realities take hold.

Table Of Contents

Mauritius Country Risk Report Q1 2017
Executive Summary 5
Core Views 5
Key Risks5
Chapter 1: Economic Outlook7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Brexit Will Weigh On Weak Growth 8
The UK's decision to leave the EU will weigh on Mauritian real GDP expansion in 2017, exacerbating what was already a relatively weak
growth trajectory Some support will come from accommodative fiscal and monetary policy
GDP By Expenditure Outlook 9
Mauritius' economic growth will be derailed in 2017 due to the Brexit vote, and we forecast that growth will slow from 2016 Over
the medium term (2017 to 2020), growth will be supported by a ramp-up in public sector investment and accommodative monetary
policy
TABLE: GDP GROWTH FORECASTS 9
TABLE: PRIVATE CONSUMPTION FORECASTS 9
TABLE: GOVERNMENT CONSUMPTION FORECASTS 9
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS 10
Fiscal Policy And Public Debt Outlook10
Business-Friendly Budget Could Cost Government Popular Support 10
Mauritius will see its fiscal deficit widen in 2017 as the government ramps up capital spending and revenues are constrained by a
number of tax cuts Should the poorest of society not see their living standards improve, dissatisfaction at tax cuts for high net worth
individuals and businesses will lead to a loss of support for the government
Structural Fiscal Position 11
TABLE: MAIN REVENUE and EXPENDITURE CATEGORIES12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS 12
External Trade And Investment Outlook 12
Brexit Vote Will Hit Current Account 12
Mauritius' current account deficit will widen in 2017, in the wake of the UK's decision to leave the EU and the negative effect this will
have on European demand for Mauritian exports A similarly weaker outlook for investment will necessitate a short-term drawdown of
reserves , weighing on the country's sovereign credentials
Outlook On External Position 14
TABLE: CURRENT ACCOUNT BALANCE FORECASTS14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 14
TABLE: TOP 5 GOODS IMPORTS 2014 15
TABLE: TOP 5 GOODS EXPORTS 201515
Monetary Policy 15
Neutral Policy To Be Pursued In 2017 15
The Bank of Mauritius will keep the key repo rate on hold at 3 75% in 2017, after enacting a series of cuts through 2016 While the
economic recovery will remain weak on the back of Brexit contagion, accelerating inflation and concerns over a low savings rate will
stem further easing
Monetary Policy Framework 16
TABLE: MONETARY POLICY FORECASTS 16
Contents
Chapter 2: 10-Year Forecast 19
The Mauritian Economy To 202519
Service Industries To Drive Long-Term Growth 19
Real GDP growth in Mauritius will be driven by the development of service industries over the coming decade This will be powered by
government investment into the key sectors of tourism, medical tourism, education, banking, and shipping services
TABLE: LONG-TERM MACROECONOMIC FORECASTS 19
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index23
Domestic Politics24
Government Will Focus Efforts On Economic Diversification 24
Changed macroeconomic circumstances in the wake of the Brexit vote will result in greater government involvement in developing
new industries and seeking new trade partners This will need foreign investment, but corruption scandals in Mauritius will deter some
investors from the otherwise attractive market
Chapter 4: BMI Global Macro Outlook27
Global Macro Outlook 27
Austerity Has Peaked, But Populism Is Not Yet Policy 27
TABLE: GLOBAL ASSUMPTIONS27
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 28
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 29
TABLE: MACROECONOMIC DATA and FORECASTS 31

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