Moody's Investors Service Report entitled: "Credit Analysis: Mauritius," released last week justifies the Mauritius's Baa1 rating which has been attributed on the basis of the continuous resilience of the economy and public finances to shocks, the government's pragmatic policy-making, and the stable and investment-friendly environment, which encourages foreign direct investment (FDI).
The report which is an annual update of markets reviews Mauritius' economic strength as moderate for despite its small size with nominal GDP of $11.5 billion, the upper middle income economy has shown resilience to the unfavourable external environment through the diversification of its economy both in terms of sectors and export markets.
According to the report, by attracting FDI, Mauritius now partly finances the structural current account deficit following the decline in sugar and textile exports in the mid-2000's. Furthermore, it points out that Mauritius has undertaken various steps to diversify its export market from the slow-growth European economies towards faster-growing African and Asian economies. Progress in this area will help mitigate the economy's external vulnerabilities, thereby maintaining its favourable external debt metrics, adds the report.
The report highlights that Mauritius economic resilience is supported by the country's strengthening institutional framework, which is expected to help the economy and public finances avoid the negative impact of any shocks emanating from Europe, the country's largest trading partner. Moody's observes that aggressive countercyclical measures facilitated growth in the economy despite the global recession in 2009.
According to the report Government financial strength is assessed as moderate, which balances a higher debt stock than its Baa-peers, with positive debt dynamics, after a temporary increase in debt was recorded during the global financial crisis. The report notes that with short-term debt having shrunk to 18% of the total debt stock from 30% in 2007, rollover risk has diminished substantially. As a matter of fact, Government can rely almost exclusively on the very liquid domestic debt markets and its external exposure is modest with regards to multilateral lending. Debt affordability has also improved from 21% in 2007 to 14% in 2012, particularly as a result of lower interest rates and better tax collection.
It will be recalled that Moody's Investors Service has upgraded Mauritius's foreign and local currency government bond ratings to Baa1 from Baa2 in June last year. Moody's determines a country's sovereign rating based on four key factors. They are: economic and institutional strengths, government financial strength and susceptibility to event risk as well as the interplay between them.
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