BoP Position Stable Despite C/A Imbalances
BMI View: The latest balance of payments data are broadly supportive of our view that Mauritius will see its sizeable current account deficit remain close to present levels over the coming quarters, with BMI projecting a shortfall equal to 10.5% and 10.0% of GDP in 2013 and 2014 respectively. While a deep structural trade deficit will see this shortfall persist over the medium-term, robust inflows of foreign capital should continue to provide adequate cover.
While the country saw its trade account deficit - the major determinant of the current account shortfall - narrow by 11.5% year-on-year (y-o-y) in Q113 we believe this improvement exaggerates the overall health of the country's trade dynamics given that much of this owed to the continued slowdown in capital goods imports (resulting from an ongoing slump in fixed investment). Indeed, with the recovery in exports continuing to be constrained by weak demand from Europe, our prediction of a slight narrowing of the trade account deficit in 2013 is based more on import weakness than export strength.
Looking ahead, our outlook for Mauritius's overall balance of payments dynamics remains unchanged. We expect the country to sustain a sizeable, but narrowing, current account shortfall over the medium-to-long term driven by a structural trade deficit. Even so, we believe this deficit will continue be adequately covered by capital inflows - notably foreign direct investment - underpinned by Mauritius' attractive investment climate. Moreover, the government appears mindful of the economy's exposure to external shocks, as illustrated by ongoing efforts to boost foreign reserve cover as well as its commitment to reducing its debt pile.
|Import Dependence Keeps C/A Deep In The Red|
|Mauritius - A Very Structural Deficit|