“Mauritius Faces Fiscal Crossroads Ahead of FY25-26 Budget”

With revised growth figures, widening deficits, and a sharp rise in public debt, Mauritius’s fiscal trajectory is under scrutiny ahead of the FY25-26 budget. While the government signals intent to consolidate, entrenched social spending, sluggish revenues, and underperforming State-owned enterprises present significant hurdles.

As Mauritius prepares for the presentation of its FY25-26 national budget on 5 June 2025, the country finds itself at a fiscal inflection point. The latest pre-budget analysis from CARE Ratings Africa paints a sobering picture of mounting fiscal pressures, underwhelming revenue performance, and rising social expenditures that are testing the government’s capacity for fiscal consolidation.

Growth Revisions and Fiscal Deterioration

The new administration, elected in November 2024, has already commissioned a “State of the Economy” audit which revised economic growth downwards. GDP growth for 2024 was corrected to 5.1% from an earlier estimate of 6.5%, while 2023’s figure was adjusted to 5.6% from 7.0%, mainly due to overestimated performance in the construction sector.

In parallel, gross general government (GGG) debt metrics have been recalculated using a new methodology. The debt-to-GDP ratio now stands at 84.7% for FY23 and 83.4% for FY24, significantly higher than earlier reported figures. The fiscal deficit for FY24 has also widened to 5.7% of GDP from a previous estimate of 3.9%, and FY25’s deficit is forecasted to reach 6.7% – nearly double the initial projection.

Persistent Expansionary Stance

The fiscal deterioration stems largely from an unabated expansion in government spending. Expenditure is projected to reach 29.7% of GDP in FY25, up from 28.2% in FY24. A significant portion of this increase is attributed to social protection, particularly pensions, which accounted for 73% of the MUR 85 billion allocated to social welfare in FY24.

Additional pressures are being created by post-election policy decisions, including salary relativity adjustments, a new free travel scheme, and enhanced child and elderly allowances. Despite subdued capital expenditure – delayed by project execution bottlenecks – overall spending remains elevated.

Weak Revenue Performance and Widening Gap

Revenue mobilisation has not kept pace. Between July and November 2024, total revenue grew by just 10.3%, well below the 19.3% projected for FY25. The underperformance is broad-based, affecting personal and corporate income taxes, VAT, and excise duties. A newly introduced Corporate Climate Responsibility levy and hikes in excise taxes are expected to improve receipts, but their full impact remains to be seen.

The resulting revenue-expenditure mismatch has led to a FY25 fiscal deficit projection of MUR 48.5 billion. The government’s borrowing requirement is now estimated at MUR 59.6 billion, or 8.2% of GDP – well above the 4.8% forecasted in the FY25 budget.

Rising Debt and Refinancing Risks

Public debt maturity profiles reveal a concentration of obligations due by FY30, with 69% of domestic debt maturing within five years. This raises medium-term refinancing and interest rate risks. The ratio of interest payments to total revenue has already increased to 11.1% in FY24, above the government’s 10.5% benchmark.

While the government holds liquid assets worth MUR 61 billion (8.8% of GDP), their specific uses remain undisclosed. Observers suggest some of these funds could be diverted towards debt reduction.

Contingent Liabilities and Depleted Buffers

The fiscal outlook is further burdened by growing contingent liabilities, particularly from struggling state-owned enterprises (SOEs). The State Trading Corporation and New Social Living Development Ltd are flagged as high-risk entities. The latter, responsible for delivering 8,000 social housing units, has already drawn MUR 7.2 billion in bridging finance.

In addition, fiscal buffers such as Special Funds have seen a dramatic reduction – from MUR 36.8 billion in FY22 to MUR 14.1 billion in FY24. Although the FY25 Budget outlines a sharp drop in Special Funds payments from FY26, questions remain over the financing of ongoing social housing projects.

Toward Fiscal Consolidation?

In light of these challenges, a credible fiscal consolidation plan is imperative. The government has committed to reducing the GGG debt-to-GDP ratio to 60% by FY28. Achieving this will require difficult trade-offs, including tightening current expenditures without undermining social support.

Revenue mobilisation remains a key pillar. Measures include improved tax compliance through IT upgrades, a tax arrears settlement scheme, and possible rationalisation of tax exemptions. There is also room to increase tax revenues through VAT base expansion and rationalisation of corporate tax exemptions.

One potential fiscal reprieve may come from the resolution of the Chagos Archipelago dispute. Under a prospective agreement, the UK could pay Mauritius up to GBP 90 million annually for continued military use of Diego Garcia. If finalised, this could reduce the fiscal deficit by 0.7 percentage points annually from FY26. However, the deal remains unsigned and politically sensitive.

The Urgent Need for Pension Reform

Demographic shifts add another layer of complexity. By 2063, nearly 27.4% of the population is projected to be over 65 years old, compared to 13.6% in 2023. This ageing trend will strain Mauritius’s pay-as-you-go pension system, which has already been replaced by the contributory Generalised Social Contribution (CSG) system.

Reform options include gradually raising the retirement age and expanding occupational pension schemes. The IMF has suggested increasing retirement eligibility from 60 to 65, and the upcoming budget is expected to outline preliminary steps in this direction.

Mauritius’s FY26 budget will need to balance electoral commitments and economic realism. With fiscal buffers waning, debt metrics worsening, and revenue under strain, the government’s stated intent to pursue consolidation must now translate into concrete policy measures. A transparent and credible fiscal roadmap – complemented by structural reforms – will be essential to maintain macroeconomic stability and investor confidence.

(This article is based on the report “Mauritius FY26 Pre-Budget Expectations (Part I)” published by CARE Ratings Africa on May 16, 2025.)