BIZweek n°284 3 avr 2020
BIZweek n°284 3 avr 2020
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  • Parution : n°284 de 3 avr 2020

  • Périodicité : hebdomadaire

  • Editeur : Capital Publications Ltd

  • Format : (260 x 370) mm

  • Nombre de pages : 6

  • Taille du fichier PDF : 1,5 Mo

  • Dans ce numéro : Moody's dégrade la notation de Maurice.

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VENDREDI 03 AVRIL 2020 BIZWEEK ÉDITION 284 Materially lower growth, combined with higher fiscal deficits could lead to a permanently higher debt and interest burden that is already elevated relative to Baa1 peers. The coronavirus and slower global growth could also reduce foreign direct investment into Mauritius, weighing on its external accounts and potentially result in a drawdown on international reserves. Moody’s decision to affirmthe Baa1 rating takes into account Mauritius’s strong governance and policy effectiveness, which have supported strong economic growth and provides a degree of resilience to economic shocks. Mauritius’s local currency bond and deposit ceilings remain unchanged at A1. The A2/P-2 country ceiling for foreign currency debt and Baa1/P-2 ceiling for foreign currency bank deposits also remain unchanged. These ceilings act as a cap on the ratings that can be assigned to the obligations of other entities domiciled in the country. Rationale for the negative outlook Moody’s expects growth in Mauritius to slow as a result of the coronavirus-induced global growth slowdown, mainly as a result of lower tourist arrivals and earnings. Tourism’s direct contribution to GDP is estimated at 8.2% of GDP in 2019 and, when including the indirect contribution from other industries such as transport and accommodation and food service, it accounts for 23.8% of GDP, 22% of employment, and 35% of total exports. The magnitude of the downturn in growth is uncertain, and depends in part on the ability of the authorities, and the global community to contain the economic fallout from the coronavirus shock. After tourist arrivals increased by 4.7% in January and February, Moody’s expects a near complete halt in tourist arrivals in the second quarter of 2020, followed by a gradual recovery in the second half of the year, resulting in total annual arrivals contracting by at least 25-30% in 2020 relative to the previous year. Although Moody’s expects the government’s fiscal measures, along with central bank support, will prevent a more severe impact on the broader economy, increased government spending along with lower nominal growth and lower tax revenue will result in an increase in the size of the fiscal deficit and weigh on debt metrics. The government announced a wage assistance scheme that will ensure all private sector employees received their full salary for the month of March 2020, and could use additional spending approved in the budget if necessary to increase support to the economy. Moreover, the risks of a larger spillover from tourism to the rest of the economy beyond those captured in the indirect contribution of tourism to GDP point to further downside risks to Moody’s expectations that Mauritius willavoid an outright contraction in real GDP in 2020 and return to growth above 3% in 2021. A longer period of lower growth would dampen income growth and revenue collection, leading to a further widening of fiscal deficits and aggravating a debt and interest burden already above Baa1 peers. Under such a scenario, the weakening in fiscal strength may no longer be consistent with a Baa1 rating. Earnings from the tourism sector are an important source of export earnings, and pose an additional downside risk through the balance of payments channel. However, leakages of foreign exchange from tourist receipts are high, meaning a severe but temporary decline in tourism receipts will be offset by lower tourism-related imports, further cushioned by lower oil prices deflating the import bill. A large stock of international reserves limits the immediate credit implications of a larger current account deficit. Rationale for affirming the Baa1 rating Mauritius’s high and stable growth rates, which have supported rising wealth levels, along with strong institutional framework underpin the rationale for affirming the Baa1 rating. Moody’s views Mauritius’s credit profile as resilient to a severe, but temporary disruption, benefiting from a large stock of international reserves, a diversified economy with multiple drivers of growth, and a large domestic financial system which limits its reliance on external borrowing. Additionally, Moody’s expects the government’s policy response, via fiscal and monetary policy stimulus, will be targeted and short-termin nature, without permanently affecting the government’s ability to maintain a stable debt burden. Mauritius’s strong governance and policy making are credit strengths, which support a stable macroeconomic environment and a favorable business climate for attracting foreign investment. The country’s strong institutional framework and prudent policymaking have supported not only high growth rates but also increase the economy’s resiliency to shocks. The Mauritian economy has demonstrated remarkably steady, and relatively high growth rates over the past decade, benefiting from a well-diversified economic structure despite its small size. Real GDP growth has averaged 3.8% over the past ten years, above the Baa-rated median of 3.1%, while exhibiting significantly lower volatility. Robust economic LA TOUR RATING ACTION Moody’s changes the outlook on Mauritius’s rating from stable to negative Moody’s Investors Service, («Moody’s») has on 1st April changed the outlook on the Government of Mauritius’s rating to negative from stable. Concurrently, Moody’s has affirmedthe Baa1 long-termissuer rating. The negative outlook reflects risks to Mauritius’s economic and fiscal metrics as a result of the coronavirus outbreak. The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. For Mauritius, the shock mainly transmits through the sharp decline and potentially prolonged slump in the tourism industry, which represents a relatively sizable proportion of gross value added in the economy as wellas a source of government revenue and export earnings Other downgrades in the world It may be noted that Moody’s has recently downgraded South Africa’s sovereign rating from Baa3 to Ba1. In addition, Moody’s has changed the outlook for six European banking systems to negative from stable in light of the coronavirus pandemic. These are France, Italy, Spain, Denmark, the Netherlands and Belgium. Fitch, another credit rating agency, has cut Britain’s sovereign debt rating to AA-, saying debt levels will jump as the government rampsup its spending to offset the near shutdown of the economy in the face of coronavirus. Furthermore, S&P Global, which is one of the three big credit rating agencies, has downgraded Kuwait’s long-termsovereign credit to ‘AA-’from ‘AA’due to a sharp drop in oil prices and the country’s slow reformmomentum. growth has supported an increase in income per capita, signaling a higher capacity to absorb economic or fiscal shocks. Mauritius’s high government debt and interest burdens are a key credit constraint relative to Baa-rated peers, limiting to a certain extent its ability to deploy counter-cyclical fiscal policy to buffer the economy in the face of shocks such as the current situation. Although Mauritius’s debt and interest burden will remain above those of similarly-rated peers, risks are contained due to the low share of foreign-currency denominated debt and relatively large share of long-termdomestic debt. Environmental, Social, Governance Considerations Environmental risks are material in shaping Mauritius’s credit profile, given its exposure to natural and man-made disasters due to its small size and the importance of tourism to the economy. A high food and energy import dependency, as wellas flood hazards and changes in rainfallaffecting cereal yields, explain Mauritius’s vulnerability to climate change risk. Social risks are not material to Mauritius’s Moody's rating scale lido ? Lowest level of credit risk Very low credit risk Low credit risk Moderate credit. risk Substaritial credit risk Malt dlt tKN Very high credit risk Source : Moody's PW rating at this stage. The country enjoys nearly non-existent poverty rates, relatively low-income inequality, while the government offers universal free access to education and primary healthcare, all of which reduce risks of social unrest. Over time, an aging population could increase government spending pressures and weigh on growth potential. The overall strength of Mauritius’s institutions, including its quality of governance, is a key support for the Baa1 rating. The government has demonstrated a proactive approach to addressing challenges to important sectors of the economy, which increases the resiliency of the economy. Factors that would lead to anupgrade or downgrade of the ratings The negative outlook indicates that anupgrade is unlikely in the near future. Moody’s would likely change the outlook to stable if the shock to the tourism industry and growth proved temporary, increasing the likelihood that fiscal and debt metrics would stabilize over time at a level that remains consistent with a Baa1 rating. This would probably result from indications that the coronavirus outbreak does not have any long-lasting impact on consumer travel preferences for island destinations like Mauritius, and that fiscal measures announced to limit the immediate fallout from the coronavirus were reversed once economic activity recovered. Moody’s would likely downgrade Mauritius if fiscal metrics weakened materially over the next 12-18 months and this deterioration was unlikely to be reversed over the medium term. A prolonged weakening in economic activity, which signalled a permanent reduction in the country’s growth potential and reduced economic resiliency, would also likely result in a downgrade. 4
VENDREDI 03 AVRIL 2020 BIZWEEK ÉDITION 284 COVID-19 to send almost all G20 countries into a recession global economic picture is looking bleak, with recessions in almost every developed economy across «The the world. We assume that there will be a recovery in the second half of the year, but downside risks to this baseline scenario are extremely high, as the emergence of second, or third waves of the epidemic would sink growth further. At this stage, it is also hard to see an exit strategy from the lockdowns, which means that uncertainty will remain high. Finally, the combination of lower fiscal revenues, and higher public spending, will put many countries on the brink of a debt crisis,» affirms Agathe Demarais, the Economic Intelligence Unit (EIU’s) Global Forecasting Director in a report released earlier this week. Regional highlights The US economy will contract by 2.8% this year. The administration’s initial response to the coronavirus was poor, allowing the illness to spread quickly. In addition, just as the economic risks related to Covid-19 began to mount, the agreement between Saudi Arabia and Russia to cut oil production collapsed, sending oil prices tumbling. The combination of the coronavirus epidemic, and the slump in global oil prices, means that investment will contract sharply this year, especially in the energy sector, and export growth will sag. This puts Donald Trump’s re-election bid at risk, as unemployment looks set ACTA PUBLICA ECONOMIC INTELLIGENCE UNIT FORECAST Following the coronavirus outbreak, The Economist Intelligence Unit (The EIU) has revised - this week - its growth forecasts for all countries across the world. The results paint a bleak picture. Across the G20, all but three countries (China, India and Indonesia) will register a recession this year. The global economy will contract by 2.2% Revised growth forecasts for G20 countries in 2020 Real GDP growth (% in 2020) Real GDP growth (% in 2020) Previous forecast (before outbreak) Argentina -6.7 -2 Australia -0.4 2 Brazil -5.5 2.4 Canada -1.3 1.8 China 1 5.9 France -5 1 Germany -6.8 0.9 India (2020/21 fiscal year) 2.1 6 Indonesia 1 5.1 Italy -7 0.4 Japan -1.5 0.4 South Korea -1.8 2.2 Mexico -5.4 1.1 Russia -2 1.6 Saudi Arabia -5 1 South Africa -3 1.4 Turkey -3 3.8 UK -5 1.1 US -2.8 1.7 Global (market exchange rates) -2.2 2.3 to rise sharply. The impact on China’s economy of the Covid-19 outbreak is set to be much deeper than that of SARS. Assuming that the virus does not flareup again, we expect China’s real GDP growth to stand at only 1% in 2020, compared with an estimated 6.1% in 2019. The slowdown will be concentrated in the first quarter of the year and will still be felt in the second quarter. Growth will recover in the second half of the year when China typically produces most of its GDP. The eurozone will be one of the hardest hit regions, posting a full-year recession of 5.9%. Germany (-6.8%), France (-5%), and Italy (-7%) will register full-year recessions. In Germany, the huge manufacturing sector is highly export-oriented, which means that the country is particularly exposed to both supply chain disruption and weak global demand. As a result, the recovery that we are expecting in other eurozone countries in the second half of 2020 will materialise much more slowly in Germany. Growth prospects are particularly poor across Latin America. Argentina (-6.7%), Brazil (-5.5%), and Mexico (-5.4%) willall register recessions this year. Mexico is closely reliant on trends in the US, and our expectation that US GDP growth will drop puts a strain on Mexico’s economic prospects. Across the region, business disruption will cause inward foreign direct investment (FDI) to fall sharply. This will be severely damaging in a region where domestic savings are weak and FDI accounts for 3% of GDP and 15% of total fixed investment. Meanwhile, for the Southern Cone countries, the approach of the southern hemisphere winter raises the prospect of a difficult, prolonged epidemic. e e k ADMINSTRATION Jes..53e Bempaya MARKETING ET PUBLICITÉ Erne  : 5, Antonio Street, Port Louis TOI  : 3+230) 2111744, 2111743 Fol 4-231.4 2137114 Emaa : laizweek.mdactior@gmailoarn5

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