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Moody's downgrades Mauritius' local currency bond rating to Baa2

December 17, 2007 | Cbonds

Moody's Investors Service has downgraded the local currency bond rating of Mauritius' government to Baa2 from Baa1, reflecting its relatively heavy debt burden despite recent consolidation progress. The foreign currency government bond rating was confirmed at Baa2.


Moody's also confirmed the Baa1 country ceiling for foreign currency bonds and notes, the Baa2 country ceiling for foreign currency bank deposits, the Aa2 local currency debt ceiling (usually the highest possible rating that can be assigned to obligors and obligations denominated in local currency within a country) and the Aa2 local currency bank deposit ceiling. All rating outlooks are now stable.


The rating action concludes Moody's review for downgrade of all of the country ceilings as well as the government local and foreign currency bond ratings initiated in August 2007.


"The downgrade of the local currency government bond rating reflects the large public debt burden in the context of an economy that is far more sensitive to external shocks," says Sara Bertin, a Moody's Vice President.


Bertin said that Mauritius' high public debt levels have been exacerbated by the government's low revenue base, which weakens its payments capacity. Compared to other countries with local currency debt rated investment grade, the Mauritian government's interest payments burden relative to its revenues is particularly large, which reduces the government's resilience to interest rate shocks in particular.


"Nevertheless, the government has successfully pursued a comprehensive program of fiscal consolidation in the past two years," Ms Bertin adds. "This led to a narrowing of the fiscal deficit and we expect fiscal adjustment to remain one of the government's highest priorities over the medium term."


She pointed out that the reform program has already helped to revitalize growth and diversify the economic base. In addition, inflation has been falling from its record high at midyear, which is being reflected in the lower interest rates the government is paying on its own debt obligations.


Bertin said that Mauritius' foreign currency ratings were confirmed even though the end of preferential treatment for textile and sugar exports increased the economy's vulnerability to exogenous shocks, and severely weakened the current account position. In Moody's opinion, the low proportion of external debt in the government debt stock, the still-strong external liquidity position, and higher foreign direct investment inflows mean that external debt refinancing risk is quite low, consistent with the current Baa1 foreign currency country ceiling and the Baa2 foreign currency government debt rating.


Company: Mauritius

Full company nameThe Republic of Mauritius
Country of riskMauritius

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