Introduction
As Mauritius prepares its FY2025/26 (FY26) Budget, the newly elected government faces the challenge of stimulating growth and maintaining fiscal sustainability, while managing the costs of its election pledges. The budget will need to address structural weaknesses and provide guidance for medium-term policy. Although some sectors have recovered in recent years, several, particularly manufacturing, construction, and parts of the export economy, are expected to underperform in 2025 due to subdued demand, rising costs, and labour market gaps. This report explores the outlook for these sectors and their implications for fiscal and economic policy.
As part of its post-election transparency efforts, the new government published a “State of the Economy” audit in December 2024, revealing significant revisions to growth and fiscal indicators and highlighting deep structural and policy challenges.
Key highlights from the audit report include:
- Annual GDP growth was overstated for the past two years. Accordingly, the estimated GDP growth for 2024 was revised downward to 5.1% (YoY) from the previous estimate of 6.5%, while for 2023, the growth was revised downward to 5.6% against the previous estimate of 7.0%. This was primarily due to a significant reassessment of the construction sector.
- GGG debt-to-GDP was revised upward due to a methodology change that excludes offsets from government securities held by non-financial public entities. It now stands at 84.7% for FY23 and 83.4% for FY24, up from 80.2% and 77.6%, respectively.
- The FY24 fiscal deficit was revised to 5.7% of GDP from 3.9%, mainly due to lower revenue, partly offset by reduced capital expenditure. The FY25 deficit is now projected at 6.7% of GDP, up from 3.4%, reflecting weaker tax revenues, state-owned enterprises (SOEs) liabilities, and the new government’s fiscal priorities.
These revisions reveal a more fragile fiscal position, with elevated debt and deficits likely to persist. While the government remains committed to fiscal consolidation, its ability to deliver will depend heavily on how it manages new policy priorities and electoral commitments.
This document, therefore, serves as Part 2 of the pre-budget analysis series, building on the foundational assessment provided in Part 1. While Part 1 outlined broad fiscal challenges—including expenditure trends, revenue shortfalls, and risks like contingent liabilities—this instalment delves deeper into sector-specific vulnerabilities and policy prescriptions for the upcoming budget. It provides granular insights into
- Sectoral slowdowns (for example, construction stagnation, tourism competitiveness gaps, and export sector decline) and their macroeconomic implications.
- Fiscal risks from rising debt (83.4% of GDP in FY24), interest payments, and refinancing pressures due to concentrated maturities.
- Revenue mobilization strategies, such as VAT/CIT reforms and the potential impact of the Chagos Islands deal. • Structural reforms are required to address pension sustainability, climate resilience, and SOE liabilities.
The document also balances critiques with resilient sectors (ICT, financial services) and proactive measures (e.g., performance-based budgeting). Together with Part 1, it provides a comprehensive view of Mauritius’s fiscal crossroads, advocating for growth-friendly consolidation in FY26. Solution-oriented, the document offers several suggestions for the further development of the Mauritian Economy, including ESG and Corporate Bond Development.
Economic Growth Slows in 2024, Underperforming Projections
Mauritius’ GDP growth decelerated to 4.7% in 2024, down from 5.0% in 2023 and below the Bank of Mauritius (BoM) and government’s forecast of 5.1%. From a sectoral perspective, growth in 2024 was supported by the construction (13.3% YoY growth), agriculture, forestry & fishing (5.9%), accommodation & food services activities (5.6%), financial services sector (4.7%) and information & communication technology (ICT) sector (4.5%). While key sectors continued to drive growth, their momentum showed signs of weakening:
In 2025, early indications of a slowdown are already evident, particularly in the tourism and construction sectors. However, the manufacturing and information & communication industries are anticipated to provide some support to overall growth. Despite this, export-oriented enterprises are beginning to show signs of weakening. Below, we delve into key sectors to provide a more detailed analysis.
Construction
The construction sector has emerged as a major growth driver since the launch of the Public Sector Investment Programme (PSIP) in FY16. Following a contraction of 3.5% in 2015, the sector rebounded strongly, reaching peak growth of 13.3% in 2024. Over this period, its contribution to the economy expanded, with gross value added (GVA) rising from 4.5% of GDP in 2015 to 5.8% in 2024. Driving the expansion of the sector has been the investment in building and construction.
Major public works projects, including road extensions, new roads, and social housing, have fuelled expansion. In the private sector, construction has been driven by a biotechnology park, new smart cities in Moka and Medine, and private office buildings. Despite construction growth rising from 9.1% in 2023 to 13.3% in 2024, the sector is expected to stagnate in 2025, with projected growth at 0%, according to Statistics Mauritius. This is evident in the ongoing construction projects. In 2025, investment in residential building is expected to slow with a growth of 1.4% from 6.7% in 2024. For instance, the public works for the Rivière-des-Anguilles Dam are still pending, as no funds have been disbursed and the tender documents are still being finalized. Selecting a contractor may require up to six months, while construction is expected to last around 40 months. The dam is designed to satisfy drinking and irrigation water demands until 2050.
Despite robust growth in Mauritius’ construction sector between 2015-2024, with output peaking at 13.3% growth in 2024, the country’s overall investment levels have remained inadequate, averaging just 18.5% of GDP during this period – significantly below both the 25% threshold needed to drive meaningful socio-economic development and the 25% average achieved by peer economies in 2024. This persistent investment gap suggests the construction-led expansion has failed to catalyse broader capital accumulation, leaving Mauritius vulnerable to sustainability challenges and potentially constraining future productivity growth and economic diversification. The disparity highlights a need for more balanced, economy-wide investment strategies to complement the sector’s strong performance.
Looking ahead, as per the Statistics Mauritius, investment growth is expected to contract by 1.8% in 2025, compared to 8.3% in 2024, primarily due to stagnation in the construction sector. As per the “State of the Economy” Report, the government has revised capital expenditure downwards by MUR 1.2 billion in FY24 from MUR 17.7 billion. Similarly, in FY25 capital expenditure estimates is revised lower by MUR 2.8 billion from 27.2 billion. The fiscal pullback reflects cyclical constraints, including high public debt at 84.7% of GDP, as well as a shift toward recurrent social spending.
Key Implications:
The construction slowdown may significantly impact employment and affect the ability to repay loans, thereby increasing the likelihood of higher non-performing loans. Additionally, private sector investment, which accounted for 82% of total investment in 2024 will feel the pinch of tighter financing conditions following the with increase in key policy rate to 4.5% in February 2025.
Tourism
Tourism remains a key driver of growth in the accommodation and food services sector, significantly contributing to GDP, employment, and foreign exchange earnings. The sector’s share in GVA dropped to 2.3% in 2020 due to the COVID-19 pandemic but has gradually recovered to 8.5% in 2024, slightly below the pre-pandemic level of 8.6% in 2019.
Tourism growth was 24.7% in 2023 and 5.7% in 2024. The double-digit growth in 2023 can be attributed to the surge in tourism driven by revenge tourism, as many travellers finally took their postponed trips after the pandemic. In 2024, however, the growth rate eased to 5.7%, indicating a stabilization in travel patterns as the initial rush of deferred vacations subsided.
Mauritius’ tourism recovery has significantly lagged comparable island destinations, taking four years to return to pre-pandemic arrival levels, compared to just two years for the Maldives. This concerning gap persists despite substantial post-COVID investments including MUR 3.2 billion in promotional campaigns, a 22% expansion in flight connectivity, and tax incentives for sector modernization.
The 2025 outlook looks vulnerable, with projections showing stagnant growth (0% in 2025 vs 5.7% in 2024), with share of tourism in GVA declining to 8.2% from 8.5%), and an early-year arrival drops (2% YoY decline in January worsening to 12% in February), putting the government’s 1.4 million visitor target at risk. Structural challenges explain this underperformance: overreliance on European markets (64% of arrivals), climate pressures affecting 42% of coastal resorts, and acute 18% vacancy rates for skilled hospitality staff. These trends suggest that Mauritius’ traditional tourism model requires urgent reinvention through diversification of the African and Indian markets, product innovation in medical and eco-tourism, and investments in climate resilience to regain regional competitiveness. The delayed rebound points to structural competitiveness issues, notably as regional peers like Seychelles and Zanzibar have also surpassed 2019 arrival levels by 2023.
We focus on some of the reasons for the muted projected growth in the sector, which may lead to vulnerabilities persisting.
Higher Competition
Lower-cost destinations, such as Sri Lanka, Thailand, and Bali, continue to attract an increasing number of European visitors. Bali, Sri Lanka, and the Maldives have higher tourist arrivals compared to Mauritius.
Drop in European Arrivals
The Mauritius tourism industry, which is primarily driven by the European market (accounting for 64% of the market share in 2024), faces challenges due to sluggish economic growth in Europe. Factors such as weak consumer confidence, tighter monetary conditions, and global trade policy uncertainty has impacted Europe’s economic outlook, potentially reducing discretionary spending on travel. Tourist arrivals from Europe in January-February 2025 declined by 9.8% YoY compared to the same period in 2024. The overall tourist arrivals saw a 6.8% YoY decline in January-February 2025. It should nevertheless be pointed out that April has seen a recovery in tourist arrival numbers.
Climate Shocks Compound Tourism Challenges
Mauritius faces climate-related disruptions that threaten its tourism appeal, including a severe drought that leads to water restrictions just before the peak season. These constraints could compromise the premium visitor experience and exacerbate the decline in arrivals observed in early 2025. Despite expected cyclones in Q1, the 6.8% YoY decline in arrivals cannot be attributed to weather alone, as similar storms in 2024 did not cause equivalent drops. Average stays have shortened by 14% (from 7.2 to 6.2 nights), and forward bookings for summer 2025 are down 18% compared to last year.
Urgent Need for Market Diversification
Economic and environmental pressures underscore the risks of relying too heavily on European markets. Competing destinations, such as the Seychelles, have mitigated similar challenges by attracting travellers from the Middle East (22% of arrivals) and Asia (19%). For Mauritius to regain its competitive edge, strategic shifts toward high-growth markets and investments in climate-resilient infrastructure are essential to reduce vulnerability to external shocks and ensure long-term sustainability.
Refinancing Risks Arising from the MIC Bonds
The Mauritius Investment Corporation Ltd. (MIC) played a crucial role in supporting tourism sector enterprises during the pandemic, primarily through Redeemable Convertible Secured Bonds, which carried a preferential interest rate of 3.5%. Most hotel beneficiaries have retained these instruments rather than seeking refinancing, given their favourable terms (including a nine-year conversion option to equity). However, this dependence on MIC support creates potential refinancing risks – should regulatory changes require bond repayment, hotels would need to secure replacement debt at current market rates, which are significantly higher than the original 3.5% coupon. This could strain liquidity for many tourism businesses still recovering from pandemic losses, particularly as the sector faces new challenges from slowing European demand and climate-related pressures.
Overall Trend in Tourist Arrival
Overall, from January to April, the cumulative number of tourist arrivals totalled 446,546, reflecting decline of 1.2% YoY. This amount reflects that nearly 32% of the tourist arrival target of 1.4 million has been reached as of April. Following a bleak start to tourist arrivals in Q1 2025, April saw a notable increase, signalling a positive shift for the island’s tourism industry. The number of visitors increased in April by 14% YoY. Broadly, Mauritius’ tourism sector faces challenges that could impact economic stability. Meeting the 2025 arrival target is crucial to sustain foreign exchange earnings, and to safeguard jobs. The sector is focusing on climate adaptation measures, including MUR 1.2 billion in flood control projects, coastal hardening for 42% of beachfront resorts, water infrastructure to mitigate the impacts of drought, and transitioning to renewable energy. These measures aim to mitigate climate shocks and preserve the sector’s contribution to GDP, which is projected to be 15-20% including both direct and indirect contribution of the sector to the economy by 2030.
Structural Weaknesses in Other Key Sectors Threaten Economic Diversification and Export Capacity Mauritius’ 2024 growth was hampered by contractions in legacy industries, revealing vulnerabilities in its economic model and eroding its export base. Sugar manufacturing output fell by 7.8% YoY, contributing to a 15% drop in agricultural exports in 2024. Textiles declined by 6.1%, following a 10% decline in 2023, which reduced the sector’s export contribution by 22% since 2020. These issues are exacerbated by global trade headwinds, including the Trump administration’s 10% tariffs, which could further disadvantage Mauritian exports in the US market.
The government’s projections for 2025 offer little relief: stagnant growth (0%) for sugar and a modest 1% rebound in textiles suggest that these traditional export pillars may have lost their competitiveness. The manufacturing malaise affects multiple sectors, with significant implications for international trade and exports. Export-oriented enterprises (EOE) now generate only 3.7% GVA share, about half their 2015 level (6.0%), with export volumes falling 12% YoY in Q1 2025. Overall goods exports declined by 6.9% in 2024, marking the worst performance since the global financial crisis of 2008.
Deepening Export Crisis Threatens Mauritius’ Growth Model
The alarming deterioration of Mauritius’ EOE sector reveals systemic competitiveness challenges, with the industry contracting 11.2% in 2023 and 1.1% in 2024, extending a decade-long decline that has seen an average annual contraction of 2.8% from 2013 to 2023. The textile segment’s performance has been even more dire, shrinking at an annual rate of 3.5% over the same period. This prolonged erosion of export capacity has had severe macroeconomic consequences. This has led to a decline in export contribution, with the goods exports-to-GDP ratio plummeting to 15.9% in 2024 (compared to an average of 18.6% from 2013 to 2023), and textile exports have decreased by 33% since 2013.
The consistent underperformance explains Mauritius’ persistent trade deficit and reveals a failure to transition from traditional export sectors to new growth drivers. At the same time, there has been a decline in competitiveness, with labour productivity in textiles growing at just 0.4% annually, compared to 2.1% in competitor markets. Additionally, logistics costs remain 18-22% higher than those of regional peers.
Lastly, the performance of the EOE sector is also reflected in the gradual decline in the number of enterprises and the shrinking employment base.
The outlook for Mauritius’ EOE sector faces heightened uncertainty as escalating US trade protectionism threatens to undermine decades of preferential market access. The potential lapse or restructuring of AGOA benefits, which currently provide duty-free access for 35% of Mauritian exports, particularly textiles, could prove devastating to sector competitiveness against low-cost Asian rivals, such as Bangladesh (with labour costs 60% lower) and Vietnam (experiencing productivity growth averaging 5.2% annually). While direct US exports account for just 12% of textile shipments, the sector remains vulnerable through: (1) secondary impacts from reciprocal 40% US tariffs disrupting regional supply chains, and (2) potential “rules of origin” changes in AGOA that could exclude Mauritian processed goods. The current 90-day tariff suspension offers a critical – but rapidly closing – window for Mauritius to pursue three strategic responses: first, intensive lobbying for AGOA renewal with expanded product coverage; second, accelerated negotiation of bilateral safeguards for key export sectors; and third, domestic reforms to enhance productivity through automation subsidies and skills development programs. Without urgent action on these fronts, the EOE sector risks losing an estimated USD 280 million in annual export revenues within two years and sizable manufacturing jobs, which would deal a severe blow to Mauritius’ already struggling external trade position.
The weaknesses in the 3 key sectors (tourism, construction and export-oriented enterprises) are reflected through eroding competitiveness and export declines. These reveal an economy struggling to transition from traditional industries to new growth drivers. With the EU’s Everything But Arms (EBA) initiative set to phase out for Mauritian sugar, rising Asian competition in textiles, and potential US tariff escalations, Mauritius faces a perfect storm of external pressures.
Mauritius urgently needs to modernize its legacy sectors through automation and value-added production, diversify its exports into high-potential areas such as medical devices and fintech, and strengthen its trade diplomacy to mitigate the impacts of tariffs. Without immediate intervention, the country risks stagnation in exports, increased dependency on tourism, and vulnerability to external shocks. Potential US tariffs underscore the need to reduce reliance on traditional markets and transition to a more diversified and resilient economy.
Growth Projected to Slow in 2025
The International Monetary Fund (IMF) has revised Mauritius’ 2025 growth forecast downward to 3.0%, a significant slowdown from the 4.7% growth recorded in 2024. This revision reflects a convergence of external and domestic challenges that are straining the country’s economic momentum. On the external front, geoeconomic fragmentation and ongoing trade wars are dampening export demand, undermining sectors that have traditionally driven growth. It remains essential to monitor whether the growth momentum observed in the tourism sector in April 2025 will be sustained in the future. In addition, Mauritius has been experiencing the most severe drought in three decades, which has significantly impacted tourism, agriculture, and infrastructure. However, the government’s proactive measures, including stringent water usage regulations, are helping to mitigate these pressures and support recovery efforts.
Statistics Mauritius projects a slightly more optimistic 3.3% growth for 2025 compared to the IMF’s more conservative 3.0% forecast. The economy is demonstrating pockets of resilience, particularly in non-sugar agriculture, ICT, and financial services. Non-sugar agriculture is projected to grow by 6%, benefiting from government efforts to diversify away from the declining sugar industry and to leverage advances in high-tech agriculture. The ICT and financial services sectors continue to expand at a healthy rate of 4.5% and 4.7%, respectively, reflecting Mauritius’ ongoing transition toward a more services-oriented economy. Additionally, the mandatory 14th-month salary payment initiated by the government in 2024 has disbursed approximately MUR 400 million (as of 18 February 2025), which may also provide a temporary boost to domestic demand.
Mauritius is undergoing a clear structural shift, as traditional economic pillars are weakening and emerging sectors are gaining prominence. This is evident in the freeport industry (contributes 0.6% in GVA), which grew to 3.6% in 2024, compared to 2.9% in 2023. The government aims to position Mauritius as the premier and most competitive logistics hub in the Indian Ocean, offering comprehensive supply chain solutions that adhere to international standards. This strategic goal is to elevate Mauritius as a significant player in the global economy, acting as an ideal logistics and value-addition platform for Africa, Europe, and Asia.
Similarly, the global business sector is expected to experience better growth of 3.4% in 2025, increasing from 3.0% in 2024. Mauritius’ global business sector has emerged as a robust and flexible hub, attracting reputable international financial institutions despite fierce competition from more established markets. The industry thrives under the strong regulatory oversight of the Financial Services Commission (FSC) and the Bank of Mauritius. Additionally, strategic efforts to promote investment have significantly boosted its attractiveness, solidifying Mauritius’ role as a key player in the global economy.
Concluding Note and Recommendations
In our Part I report, we highlighted the critical fiscal challenges facing Mauritius, notably the escalating public debt, which exceeds 83% of the country’s GDP, and the associated risks of rising interest payments and refinancing pressures due to the concentration of maturities. We also emphasized the need for robust revenue mobilization strategies, including reforms to the Value Added Tax (VAT) and Corporate Income Tax (CIT) systems, to enhance fiscal sustainability.
While these challenges persist, attention now turns to the upcoming Budget, which is expected to provide greater clarity on government’s fiscal strategy. The extent to which the Budget outlines concrete measures to address revenue mobilization and expenditure management will be key in assessing the government’s commitment to strengthening fiscal sustainability.
Mauritius faces a critical juncture as external pressures—including US trade protectionism and intensifying international competition—threaten its traditional export-oriented sectors. Meanwhile, domestic challenges such as drought, rising public debt (83% of GDP), and slowing economic growth (projected at 3.0–3.3% in 2025) underscore the urgent need for structural reforms. While emerging sectors like ICT, financial services, Fintech, Biopharma, renewable energy and logistics show promise, the economy remains vulnerable due to its reliance on legacy industries.
To navigate these challenges and secure sustainable growth, Mauritius must adopt a multi-pronged strategy focusing on trade resilience, fiscal consolidation, and economic diversification.
The following recommendations are critical:
- Strengthening Trade Competitiveness & Expanding Market Access
- Lobby aggressively for AGOA renewal while negotiating bilateral safeguards for key export sectors. • Accelerate automation and skills development in textiles to counter low-cost Asian competition. • Leverage existing and upcoming trade agreements to diversify exports:
o CECPA with India – Boost exports in seafood, medical devices, and textiles while attracting Indian investment in technology and pharmaceuticals.
o FTA with China – Expand market access for Mauritian goods (e.g., rum, seafood) and attract Chinese investment in infrastructure and manufacturing.
o African Continental Free Trade Area (AfCFTA) – Position Mauritius as a gateway for trade with Africa, particularly in financial services, logistics, and light manufacturing.
o SADC & COMESA – Strengthen regional supply chains and enhance Mauritian exports in agro processing, locally produced goods from the import substitution era and textiles.
o UAE Trade Agreement – Increase exports of high-value goods (jewellery, precision instruments) and deepen ties in fintech and logistics.
- Develop a National Export Strategy to maximize benefits from these agreements, focusing on high potential sectors.
- Fiscal Reforms & Debt Management
- Enhance revenue mobilization through VAT and corporate tax reforms
- Ensure that some of the indirect taxes yield revenue including gaming and gambling sectors, online purchases and closing loopholes while ensuring fairness.
- Implement strict expenditure controls to curb non-essential spending and prioritize productive investments.
- Refinance debt strategically to ease maturity pressures and reduce interest burdens.
- Economic Diversification & Sectoral Modernization
- Boost high-value sectors (fintech, medical devices, logistics) through incentives and FDI-friendly policies. • Expand high-tech agriculture to offset declining sugar exports and improve food security.
- Strengthen the global business sector by maintaining strong regulatory standards and improving Mauritius’ appeal as a financial hub.
- Climate Resilience & Infrastructure Investment
- Invest in water management systems to mitigate drought impacts on tourism and agriculture. • Promote green energy initiatives to reduce reliance on imported fuels and enhance sustainability • Develop the renewable sector and circular economy.
Final Outlook
Without decisive action, Mauritius risks stagnation, job losses, and worsening fiscal strains. However, proactive reforms—particularly in trade policy (including maximizing new agreements like CECPA, AfCFTA, and UAE deals), fiscal management, and economic diversification—can position the country for long-term resilience and growth. The upcoming Budget must provide clear, actionable measures to address these challenges, ensuring Mauritius transitions successfully from a traditional export-led economy to a modern, diversified, and competitive hub in the Indian Ocean region.
