Public Finance

The Budget unsurprisingly seeks to increase government revenue and limit spending especially on social measures. It is a step in the right direction in light of the recent findings of the State of the Economy and reports of various agencies. We note the introduction of some aggressive measures which will be unpopular.​

• Effective on 06 June 2025, the excise duty on hybrid and electric vehicles is being re-introduced, and the rates of excise duty and customs duty on conventional vehicles are being increased to between 45% to 100%.​

• Fair share contribution by certain corporates of 5% of chargeable income. Additionally, dividends may be subject to an additional PAYE charge of 15% if the shareholder of a corporate is a high-income earner i.e. a 19.25% reduction in the net potential dividend.​

• Age eligibility for Basic Retirement Pension (BRP) is being increased to 65 years in a phased manner over a period of 5 years.​

We understand the logic of using the rental proceeds of Chagos Deal to reduce the fiscal deficit and indirectly help to lower the debt/GDP ratio in the next 3 years.​

The scenario proposed is to reach a Gross Debt/GDP ratio to 79.7% within 3 years which should align with more prudential norms. ​

Despite the need to balance the books, no enterprise can continue to function and grow without capital expenditure. We look forward to the timely completion of the ambitious Public Sector Investment Programme (PSIP) within budget. We however urge the Government to fully quantify or value the societal impact of these projects versus their costs.​

We welcome the planned introduction of the Fiscal Responsibility Act in light of the country’s indebtedness and dire need to retain its investment grade status. ​

The potential for several contingent liabilities (parastatal bodies and others) to crystallise and its potential impact on public finances can severely derail any deleveraging of the Government balance sheet. ​

Furthermore, any potential large scale economic shocks will render any deleveraging projection obsolete.​

Government needs to quickly restore fiscal headroom to address these potential headwinds.​

The Budget speech indicates that the actual budget deficit is 9.8% of GDP rather than 3.4% representing approximately a shortfall of Rs43bn from last year’s budget. Our analysis further below suggest this is mainly driven by a shortfall in tax revenues. ​

The public debt reached MUR642m for 2024/25, representing 90% of the country's GDP. The aim of the Government is to reduce the public debt as a % of GDP to 80% within the next 3 years. ​

This scenario assumes that the first 3 years of the Chagos deal rental will be used to reduce the fiscal deficit and indirectly bring down debt.​

Since 2021/22, the country has struggled to meet the GDP growth expectations set by the National Budgets. The Government has forecasted an annual GDP growth rate ranging from 3.7% to 4.0% over the next 3 years.​

The downward inflation trend continued into 2024/25 with headline inflation averaging 2.6%. The Government has expressed their ambition to control inflation. ​

Total planned investment: Rs180bn

Made up mostly of Infrastructure, Water, Wastewater and Environmental projects.