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MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT

GOVERNMENT OF MAURITIUS

SOVEREIGN CREDIT RATINGS

Presentation by

William Cox

Resident Adviser

U.S. Treasury Office of Technical Assistance

13 February 2007

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Who are the rating Agencies?

• Globally recognized authorities on assessing credit risk

• The source of independent quantitative ratings for countries,companies and securities

• Providors of information for global investors to make decisions on allocating capital

• Largest ratings agencies are:Moody’sStandard and PoorsFitch

• Many other ratings specialists exist

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What is a Sovereign Credit Rating?

• The rating scale ranges from AAA to D

• AAA countries are the largest and the richest economies in the world. Primarily located in Europe, North America, Asia (Japan and Singapore) and Oceania (Australia and New Zealand)

• D signifies Default

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Between the two extremes , the letter scale progresses by notches (Moody’s / S&P) :

Aaa / AAAAa / AAA /ABaa / BBBBa / BBB / BCaa / CCCCa / CCC / CD D

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Between the two extremes , the letter scale progresses by notches (Moody’s / S&P) : (ctd)

• Each letter grade is further subdivided into threedivisions, i.e. A 1/A + (Moody’s / Standard & Poors)or Baa 2/BBB, or Ba 3/BB -

• The ratio scale attempts to reflect the probability of default by an issuer

• Ratings of Baa 3/BBB - and above are considered to be “investment grade”

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What is Mauritius’ Current Rating?

• The Government of Mauritius is rated Baa 2 (negativeoutlook) by Moody’s for a foreign currency loan

• The Government of Mauritius rating for a localcurrency issue is Baa 1 (stable outlook)

• Note that these are investment grade ratings

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How does Mauritius’ Rating Compare with other Developing Countries?

• Mauritius ’ rating is quite high for the developing world

• The rating is particularly high in Africa

• The country is one of only four in Africa with investmentgrade ratings: Botswana, South Africa, Tunisia and Mauritius

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Moody’s Ratings for African CountriesForeign Currency Government Bond

A 2 ………...1…………….(Botswana)A 3 ………...……………..Baa 1 ………1……………(South Africa)Baa 2 ………2……………(Mauritius, Tunisia)Baa 3 ……………………..Ba 1 ………. 2……………(Egypt, Morocco)Ba 2 ………………………Ba 3 ………………………

Source : Moody’s

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Standard & Poors Ratings For AfricaForeign Currency Government Bond

A + ……………………………A …………… 1……………... (Botswana)A – …………………………….BBB + ………. 1………………(South Africa)BBB ………….1 …………….. (Tunisia)BBB – …………………………BB + …………2 …………….. (Egypt, Morocco)BB …………………………….BB – …………………………..B + ………….. 3 …………….. (Benin, Ghana, Senegal)B ……………. 4 …………….. (Burkina Faso, Madagascar, Mali

Mozambique)B – ……………………………CCC + …………………………CCC ………… 1 …………….. (Cameroon)CCC - …………………………

Source: Standard & Poors

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A Peer Group for MauritiusOther “Triple B” Sovereigns

Barbados Baa 2Bulgaria Baa 3Croatia Baa 3El Salvador Baa 3India Baa 3Kazakhstan Baa 2Mexico Baa 1Romania Baa 3Russia Baa 2South Africa Baa 1Thailand Baa 1Trinidad & Tobago Baa 2Tunisia Baa 2

Source: Moody’s

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How do Rating Agencies Calculate a Rating?

• Combine quantitative and qualitative factors

• Quantitative factors assess a sovereign’s ability to pay

• Qualitative factors assess a sovereign’s willingness to pay

• Resulting rating is a combination of ratios, formulas, peer group comparison, experience and judgment

• A rating should reflect the overall probability of default by an issuer

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Ratings are Based upon categories

(1) Political Risk(2) Income and Economic Structure(3) Economic Growth Prospects(4) Fiscal Flexibility(5) Debt Burden(6) Budget and Contingent Liabilities(7) Monetary Flexibility(8) External Liquidity(9) Public Sector External debt Burden(10) Private Sector External Debt Burden

Source: Standard & Poors

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How does Mauritius Look?

Political Risk

• Favorable

• Based on Mauritius’s history of peaceful democraticdevelopment

• Transparency of political institutions

• Developed civil institutions

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How does Mauritius Look?

Income and Economic Structure

• Favorable

• Based primarily on GDP per capita of approximately $ 5, 200

• Same as median for peer group

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How does Mauritius Look?

Economic Growth Prospects

• Favorable

• Based upon projection of 5.4% real growth in GDP in 2007/08 fiscal year

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How does Mauritius Look?

Fiscal Flexibility

• Unfavorable

• Based upon central Government Deficit/GDP of 5.5 %in 2005/06 fiscal year

• Median for peer group is 1.1%

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How does Mauritius Look?

Debt Burden

• Unfavorable

• Based upon Central Government Debt / GDP of 58%

• Median for peer group is 28%

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How does Mauritius Look?

Budget and Contingent Liabilities

• Unfavorable

• Based upon parastatal debt of 13 % of GDP at end June 2006

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How does Mauritius Look?

Monetary Flexibility

• Unfavorable

• Based upon December 2005 to December 2006 changein CPI of 11.9%

• Median for peer group is 5.1 %

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How does Mauritius Look?

External Liquidity

• Mixed

• Based upon the fact that some measures of external debt vulnerability are favorable, while others (particularly current account deficit) are not

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How does Mauritius Look?

Public and Private Sector External Debt Burden

• Favorable

• Based on: low level of external debt / GDPlow level of external debt /CARSNet Foreign Assets of banking system

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Summary

• Economic statistics for Mauritius debt ratings are mixedversus its peer group

• Favorable Comparisons:- Political risk- Per Capita GDP- Growth Prospects- Public Sector External Burden- Private Sector external burden

• Unfavorable Comparisons:- Budget Deficit- Government Debt Burden- Contingent Liabilities- Inflation- Current Account Deficit

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Why are Ratings Important?

• Mauritius seeks to transform itself into a regional centrefor the Indian Ocean

• The goal is to become a trading and financial service centre for the region

• Achieving the goal of global competitiveness and improving its credit rating are linked

• The link is reducing the debt burden

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Why are Ratings Important?

• A strong credit rating puts Mauritius on the “radar screen”for investors

• It encourages foreign direct investment and portfolio flows

• It supports foreign trade

• It lowers the borrowing cost of the Government

• It is a general vote of confidence in the stability andgrowth prospects of the country

• It facilitates the integration of Mauritius into the global economic system

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Mauritius : The Challenge

• Government must deliver on its promise to bring down the budget deficit

• The debt burden should be kept on a decreasing path

• Inflation outlook for 2007 is currently favorable: thishelps

• Contingent liabilities and current account deficit shouldbe reduced

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Thank You