Mauritius ratings lowered on rising interest rates

Moody’s Investors Service has put the Baa1 local currency, and the Baa2 foreign currency government bond ratings on review for possible downgrade because of the size and maturity structure of the government debt in the context of rising domestic interest rates.

Moody’s also placed on review for possible downgrade the Baa1 country ceiling for foreign currency bonds and the Baa2 country ceiling for foreign currency bank deposits. The Aa2 local currency guideline — the highest possible rating that could be assigned to obligors and obligations denominated in local currency within the country — and the local-currency bank deposit ceiling are under review as well.

“The change in outlook reflects the ongoing increase in the cost of servicing the domestic debt due to the increasing debt stock over the last decade and currently high interest rates,” said Moody’s Vice President Sara Bertin. “Mauritius‘ high debt levels have been exacerbated by the government’s low revenue–to–GDP ratio.”

Since 2006, she said, the government has been pursuing a program of fiscal consolidation that led to a 1% decrease of the fiscal deficit in 2006. Nevertheless the deficit still remains high at 4.3% of GDP.

“Of particular concern is the increasing cost of servicing the domestic debt, which hampers the fiscal consolidation process despite better growth prospects and rising fiscal revenues,” said Bertin. “Over the medium-term, we don’t expect to see declines in the fiscal deficit, the debt level, or inflationary pressures sufficient to alleviate marginally higher credit risk, hence the downward pressure on the ratings.”

She added that the review will concentrate on medium-term fiscal prospects, as well as how the fiscal balance might affect the external sector, especially in the context of on-going current accounts deficits.