Global Market | |
Global Market | |
4299 VIEWS | |
![]() |
Tuesday, November 14, 2017 8:45 AM / BMI Research
BMI View: Mauritius
will experience a sharp widening of its current account deficit in 2017 on the
back of weaker demand for its exports in key markets. Even so, the impact on
the country's wider economic outlook will be muted, as this trend will reverse
in 2018/19 when recovering growth in key export markets will see the deficit
begin to narrow gradually.
Mauritius will see further
weakness in exports for the remainder of 2017, due to low demand amongst its
key trading partners, increasing the country's current account deficit.
However, we expect that this expansion will be temporary as growth begins to
recover in Mauritius's key export markets from 2018. Imports have been rising
partially on the back of ongoing construction projects, but will likely begin
to stabilise as poor economic growth will begin to dampen demand for consumer
goods imports.
Slowing investment into the ocean
economy – following the changes to Mauritius' double tax treaty with India – will
see the financial account surplus narrow over our shortterm outlook, although
fixed investment will remain stable. Although these dynamics are likely to
weigh on the country's stock of foreign reserves, this is unlikely to undermine
the stability of country's external position, especially as pressure begins to
decline from 2018.
Faltering Exports To Stretch C / A
Deficit
A combination of weak demand in
key European export markets and a stronger currency bolstering imports will see
the current account balance widen in 2017, but we expect that it will begin to
narrow thereafter. We expect that exports will continue to decline in 2017,
after having already struggled so far this year, with total exports down 5.3%
y-o-y in May – the most recent data available.
This has come on the back of
weaker demand in Europe, especially in France and the UK – Mauritius' top two
export destinations – that collectively accounted for 26.9% of Mauritius's
exports in 2016. Q117 trade figures showed a 5.7% y-o-y decline in exports to
France and a 22.4% decline in exports to the UK. Indeed, the sectors which have
seen the biggest declines are those that export primarily to Europe such as
clothing (down 16.7% y-o-y in Q117) and crude materials (down 10.0% in May).
We believe that these trends will
continue in 2017, as the UK and France will experience only tepid growth,
leading to weaker consumption. This will begin to change from 2018 as France's
economy will see accelerating growth (see 'A Turning Point For The French
Economy?', June 21), as will the UK's from 2019. This will see demand for
Mauritian goods recover and, consequently, we expect this nadir in exports to
be transient.
Furthermore, we expect that import
growth will slow from 2018 onwards, as weaker real GDP growth across much of
the economy will likely feed through to lower demand for consumer goods
imports. Imports will continue to increase overall however, albeit more slowly,
due to increasing demand for capital goods as a series of construction projects
will be ongoing over our forecast period – the most notable example being the
Port Louis to Curepipe railway.
Mauritius has courted Chinese
investment and sought to join the "maritime silk road", which offers
some scope for further construction projects in the coming years. We have not
yet factored this into our forecasts as the nature, viability and timing of any
projects are not yet clear.
Falling Investment Will Not Threaten
Sustainable Position
Revisions to Mauritius' tax treaty
with India will likely see a steady decline in the former's financial account
surplus over the coming years. Under the treaty, investments made in India from
Mauritius would be taxed at a lower rate, not a higher Indian rate of capital
gains tax. Revisions to the treaty will gradually eliminate this advantage
between April 2017 and April 2019.
This will remove one of the key
supports of the financial sector in Mauritius, as it had been the main conduit
for foreign investment into India due to its favourable tax status. We have
already seen investment decline in Q117 but we expect it to fall off
dramatically from Q217 following the implementation of the new agreement.
That said capital investment into
projects such as the Curepipe-Port Louis railway will ensure that the surplus
does not shrink too far and that the pace of decline is gentle. In light of
this we expect that Mauritius' reserves will decline, but at a manageable rate
as they start from a relatively high position of 9.2 months import cover in
Q117.
Related News
1. Botswana:
Deceleration in Growth Will Not Derail Positive Longer-Term Outlook
2. Angola: Policy
Continuity under Lourenço Bodes Poorly For Economic Reform
3. South Africa:
Slow Growth and High Inflation Suggest Depreciation Ahead
4. Zimbabwe: Low
Inflation Data Belies Rising Prices
5. Local Leadership
Changes in South Africa Boost Ramaphosa''s Prospects
6. Modest Monetary
Tightening in Morocco From 2018
7. Libya: No
Breakthrough in Peace Process from Paris Meeting
8. Limited Space
for Fiscal Consolidation in Tunisia
9. Algeria:
Unorthodox Financing Plan Will Raise Political Risk
10. Kenya – CBK To
Make Slow Shift Towards Looser Policy
11. Kenya: Odinga''s
Withdrawal Paves Way For Violence
12. Regional Growth
to Accelerate, But Long-Term Political Headwinds Remain
13. Cameroon –
Anglophone Concerns Will Keep Political Landscape Tense
14. Côte d’Ivoire –
Strong Growth Dented By Weak Cocoa Prices