Amid a global landscape marked by persistent volatility, rising trade tensions (albeit slightly eased of late), and geopolitical risks, the Mauritian economy continues to face a relatively uncertain outlook and a range of challenges. Though resilient and supported by the country’s strong fundamentals, national growth remains vulnerable to external headwinds, domestic structural weaknesses, and mounting climate pressures. In this shifting context, and with the national budget set to be presented next week, a pressing need emerges: to boldly and firmly rein in the fiscal deficit in order to reach more appropriate and sustainable levels for the country’s advancement.
This stance underscores the vital need to take decisive action — with the support of all stakeholders — to (i) contain the growth of recurrent public expenditure, even if politically risky, and (ii) significantly increase state revenues. This is the only way to secure long-term gains in macroeconomic stability, GDP growth, and social progress, according to Nuvin Balloo, Group Chief Strategy Officer at SBM Holdings Ltd, in the latest edition of the economic bulletin SBM Insights. Now in its 17th edition, the publication also highlights that the historic agreement with the United Kingdom on sovereignty over the Chagos Archipelago, including Diego Garcia, is a major milestone and a strategic opportunity for Mauritius. The financial support resulting from this agreement could, over time and alongside other reforms, support fiscal consolidation, economic recovery, and structural transformation.
Key Issues
The Mauritian economy remains exposed to a highly volatile, uncertain, and ambiguous global environment, with impacts across its real, financial, fiscal, and external sectors. While some progress has been made, international trade tensions have triggered high uncertainty, sharp market volatility, and a slowdown in global commerce. Overall, the current global climate and Mauritius’s recent macroeconomic indicators call for the continuation of well-designed economic policies and credible fiscal consolidation in the medium and long term, while simultaneously strengthening the country’s resilience and competitiveness.
This is especially critical as Mauritius faces several transformative forces, including demographic shifts and population ageing, digitalisation, artificial intelligence, urbanisation, and issues surrounding the availability, security, and efficiency of energy and water resources, alongside climate transitions. Climate change deserves close scrutiny, particularly given the increased frequency of droughts and the growing severity of natural phenomena that are placing significant pressure on multiple economic sectors, inflation, and national infrastructure.
As affirmed by authorities and the business community, one of Mauritius’s top priorities is to achieve high, inclusive, and sustainable growth while promoting green development. Encouragingly, the government has expressed its intent to strengthen the country’s economic fundamentals while tackling the structural challenges it faces at various levels — especially the current budget deficit, which is unsustainable in the long term. In alignment with reform ambitions aimed at catalysing growth, a key challenge and priority for Mauritius — especially in light of current fiscal and budgetary ratios — is to implement a well-calibrated and thoughtful medium-term fiscal consolidation programme that gradually strengthens budgetary discipline and ensures public debt follows a sustainable path. This was reiterated by the Honourable Prime Minister and the Junior Minister of Finance in recent public statements.
Improving the country’s fiscal position is critical to (i) maintaining its investment-grade credit rating while attracting foreign capital and supporting macroeconomic progress and (ii) creating the fiscal space required for long-term gains in GDP and job creation.
Economic Growth
Based on the latest data, Mauritius is projected to achieve a real GDP growth rate of 3.2% in 2025 under the baseline scenario. While this reflects the country’s resilience and strong fundamentals, the 2025 forecast is lower than the estimate for 2024. The revised forecast, which falls short of earlier projections, follows a global trend where many countries are adjusting their growth expectations downward due to escalating trade tensions and their impact on real economies.
Mauritius’s growth in 2025 will benefit, to some extent, from government initiatives aimed at improving the business environment, and the upcoming national budget is expected to lay the groundwork for a more diversified, resilient, and competitive economy. However, global headwinds will likely dampen growth this year, driven by new tariff policies, disrupted trade flows, and broader financial and real sector effects. In essence, while the international business environment shows gradual signs of recovery, it must be closely monitored for its direct and indirect implications for Mauritius — especially in terms of inflation, household consumption, net exports, foreign capital flows, currency movements, and sectoral value added.
Moreover, sluggish growth among Mauritius’s main trading partners is expected to constrain exports of goods and services. Domestically, economic expansion in 2025 will also be impacted by persistent and prolonged droughts, which have affected consumer prices, production, and trade. It is important to note that the 2025 growth forecast remains subject to considerable uncertainty and potential deterioration in the global context. On the domestic front, one of the key downside risks is the potential intensification of climate-related shocks, which could further strain national output and export performance.
The Historic Agreement with the United Kingdom
On 22 May 2025, Mauritius experienced a historic milestone when the governments of Mauritius and the United Kingdom signed an agreement granting sovereignty over the Chagos Archipelago, including Diego Garcia, to Mauritius. Under this agreement, the UK committed to substantial payments, including:
(i) £165 million annually for each of the first three years following the treaty’s enactment,
(ii) £120 million annually from the fourth year onwards for the treaty’s full duration,
(iii) £40 million to capitalise a Trust Fund established by Mauritius for the benefit of the Chagossians, and
(iv) a £45 million annual grant for 25 years to support projects promoting Mauritius’s long-term development and the well-being of its people.
“This agreement holds particular significance in today’s context. The financial package is expected to provide Mauritius with some fiscal breathing room as the country tackles a concerning and elevated budget deficit,” explains Nuvin Balloo. “At the same time, the government must create the fiscal space necessary to support GDP growth. Looking ahead to the upcoming national budget, this annual income will offer additional resources, alongside other initiatives, to carry out structural reforms and achieve medium-term fiscal consolidation.”
He also notes that the foreign currency inflows and financial support associated with this deal will help improve foreign exchange market performance, enhance the resilience of the banking sector, boost forex availability locally, and support the overall stability of the Mauritian rupee. “It is essential that the government clearly define its priorities and implement the necessary frameworks for the design, execution, and management of strategic projects and investments, while ensuring optimal efficiency at every level,” concludes Balloo in this new edition of SBM Insights.
