The Choice for 2026 and Beyond

Analysis

Mauritius faces a stark choice: a decade of stagnation or a new era of accelerated growth. Success requires the political courage to abandon the status quo

By Sameer Sharma

As the new government of Mauritius moves beyond its first year in power, the nation finds itself at a pivotal juncture. The economic indicators for 2025 paint a picture of fragile equilibrium, masking deeper structural vulnerabilities that threaten to cap the island’s potential. With growth projected at a modest 3.2% — persistently below the estimated potential of 3.5% — and inflation presenting a distorted façade of control, the Mauritian economy is running on idle.

Headline inflation may hover around 4%, but the more telling core inflation measure, stripping out volatile food and energy, remains stubbornly above 6.6%. This, coupled with producer price inflation near 6.9%, signals entrenched cost-push pressures. The central bank’s relatively dovish stance, while understandable given the supply-side nature of this inflation, underscores the limits of monetary policy in the absence of complementary structural action.

Beneath these macro figures lies a more disconcerting reality. The government’s focus on maintaining the rupee’s stability has resulted in a foreign exchange market that is dysfunctional, illiquid, and dislocated. The official spot rate exists in a state of artificial equilibrium, divorced from the true offshore rate above Rs 49/USD, where genuine supply and demand meet. This dislocation reflects a fundamental lack of capital markets sophistication within policy circles and a central bank, the Bank of Mauritius (BoM), whose credibility is undermined by a balance sheet bloated with overvalued, illiquid assets. The result is a market that “never lies”: domestic capital continues to seek refuge overseas (over USD 4bn in foreign holdings), foreign portfolio investment flees an unimpressive local bourse, and the critical engine of private investment sputters.

The government’s immediate political economy is dominated by averting a Moody’s downgrade. However, with growth lacklustre, the debt-to-GDP ratio’s improvement is largely an inflationary mirage. Should this ratio deteriorate towards 90% on any real-term reassessment, a downgrade would be inevitable, triggering capital flight, forcing monetary tightening, and imposing harsh austerity — a vicious cycle Mauritius has thus far avoided but remains acutely vulnerable to.

The much-touted Vision 2050 and nascent AI ambitions risk becoming expensive distractions if not grounded in realism and open collaboration. Attempts to build purely sovereign AI infrastructure, as seen with Mauritius Telecom’s compute grid proposal, ignore the hybrid efficiencies of global cloud partners and the nation’s own chequered history in executing complex infrastructure projects. Underpinning all these challenges is an economic structure dominated by oligopolies — both in the private sector, where family-owned conglomerates often exhibit rent-seeking behaviours, and in the public sector, where inefficient State-Owned Enterprises (SOEs) serve as bastions of political patronage rather than productivity.

Without a profound shift in policy thinking and execution, Mauritius is condemned to a “new normal” of mediocre growth, insufficient to elevate living standards meaningfully or to graduate to high-income status. The following analysis outlines the necessary course corrections.

l. Diagnosing the Core Dysfunctions: Markets, Competition, and State Intervention

A. The Capital Markets Conundrum

The development of deep, liquid, and credible capital markets is non-negotiable for an aspiring financial centre and a mature economy. Mauritius is failing on all fronts due to a philosophy of control over facilitation.

Foreign Exchange Market: The mandated 90bps bid-ask spread limit is a textbook example of misguided intervention. Spreads reflect liquidity risk, counterparty risk, and market-making costs. Artificially capping them disincentivizes dealers from providing liquidity, exacerbating the very illiquidity and dislocation policymakers seek to avoid. The rule is inconsistently enforced, leading to a plethora of unofficial rates. The solution is not more control, but a decisive move towards a market-determined exchange rate.

A managed, technical adjustment to better reflect the offshore equilibrium (closer to Rs 49/USD) would be a start, followed by the abolition of the spread limit. True rupee stability will come from attracting foreign investment through sound policy, not from suppressing a price signal.

Equity and Bond Markets: The Stock Exchange of Mauritius remains anaemic, plagued by high fees, low liquidity, and a narrow investor base. Strategic partnerships with larger exchanges like the Johannesburg Stock Exchange (JSE) could provide the technological upgrade and access to international liquidity needed.

More critically, the local government bond market is fragmented and inaccessible. A clear roadmap to Euroclearability is essential to attract foreign institutional investors. This requires consolidating debt issuance into larger, benchmark bonds and developing a functional interbank repo market, with the BoM acting as a catalyst for liquidity in its nascent stages.

B. The Pension System: A Crisis of Sustainability and Governance

The government’s move to align the pensionable age with the retirement age, while framed as a necessary measure for fiscal sustainability, highlights a deeper, more systemic failure within the nation’s retirement savings architecture. The debate on parametric reforms aside, the fundamental issue lies in the abysmal performance and governance of the pension funds themselves. Both defined benefit (DB) and defined contribution (DC) schemes suffer from archaic investment strategies, poor governance, and a lack of sophistication. Their portfolios are chronically over-invested in low-yielding local bonds and illiquid local equities, a strategy driven more by regulatory inertia and a captive domestic audience than by prudent fiduciary duty. This home bias condemns pensioners to subpar returns, exacerbating the very sustainability crisis the government seeks to address.

The root causes are twofold. First, the restrictive foreign exchange regime and lack of FX flexibility actively hamper the ability of fund managers to build properly diversified global portfolios, forcing them into an overcrowded local pool. Second, and more critically, the pension funds lack the modern systems, processes, and specialized personnel required for dynamic investment in global alternatives — such as private equity, infrastructure, and real estate — which are essential for generating necessary risk-adjusted returns. Consequently, pension reform is more than a social policy; it is a critical capital market imperative.

To secure the future of Mauritian retirees, the state must liberalize FX access for institutional investors, mandate professional governance standards for pension boards, and incentivize the outsourcing of asset management to internationally qualified firms. Retirement security depends on global expertise, ensuring savings are not trapped within a shallow local market.

C. The Judicial Bottleneck: Where Proceduralism Strangles Justice and Business

While judicial independence is a cornerstone of Mauritius’s democracy, its effectiveness is crippled by an archaic, overly procedural, and slow-moving system. Justice delayed is indeed justice denied, and in the economic sphere, this translates directly into suppressed entrepreneurship, entrenched oligopoly power, and a higher cost of doing business. The management of cases is poor, with matters dragging on for years.

This creates a profoundly uneven playing field: a well-resourced conglomerate can easily outlast a small or medium-sized enterprise (SME) in a civil dispute, using procedural delays as a strategic weapon. The SME, facing existential cash flow constraints, is often forced to settle unfairly or abandon its claim altogether. This not only denies individual justice but also stifles competitive discipline, allowing inefficient or predatory incumbents to operate with impunity. For an economy needing dynamism, this is a critical failure.

Reform must be bold and modelled on global best practices from common law peers. Singapore offers a masterclass in judicial efficiency; the establishment of the Singapore International Commercial Court (SICC) and a streamlined, technology-driven Supreme Court feature strict case management timelines, active ‘docket judges’ who shepherd cases to conclusion, and the widespread use of pre-trial conferences to narrow issues.

Similarly, the UK’s Business and Property Courts operate on these principles, utilizing specialized judges and fixed schedules for disclosure and trial. Mauritius must adopt these models by creating a dedicated, fast-track Commercial Division with mandatory case completion KPIs (e.g., 18 months for standard commercial suits). This must be supported by the full digitalization of court filings and processes. The measurable outcome will be a dramatic improvement in contract enforcement rankings, directly boosting investor confidence and domestic business formation.

D. The Competition Deficit

World Bank reports consistently highlight the concentrated, import-dependent nature of the Mauritian economy. The Competition Commission exists but it seems to lack the mandate, resources, and political backing to effectively dismantle anti-competitive structures. In many sectors, from imports to retail, incentives to collude are high, stifling innovation, keeping consumer prices elevated, and creating barriers for dynamic small and medium enterprises (SMEs). Enhancing the Commission’s powers, ensuring its independence, and imposing stringent penalties for anti-competitive behaviour is a prerequisite for a more dynamic, fair, and productive private sector.

E. The SOE Albatross and the Accountability Vacuum

The single most impactful reform for unleashing growth is the transformation of the State-Owned Enterprise (SOE) sector. SOEs in ports, aviation, utilities, and waste management are typically overstaffed, underproductive, and resistant to innovation. They crowd out private investment, distort markets through implicit subsidies, and remain a persistent drain on the fiscus.

The solution is a structured, transparent privatization program where the state becomes a minority shareholder (e.g., 25%) post-restructuring, subjecting these entities to full market discipline. This would unlock capital, improve service quality, and liberate the government from managing businesses it is ill-equipped to run.

Crucially, for all remaining SOEs and public institutions — from Air Mauritius to the the Central Water Authority — governance must be revolutionized. Each must operate with clear, published Key Performance Indicators (KPIs) tied to efficiency, service delivery, and financial sustainability. The compensation of leadership and boards must be radically restructured, with a significant majority of variable pay linked directly to the achievement of these KPIs. The current culture of guaranteed high remuneration, regardless of performance, fosters complacency. This model of performance-based accountability must extend across the public sector, signalling a definitive break from the patronage-based model of the past.

ll. A Blueprint for Structural Reform: From Land to AI

A. Fiscal Revolution: Land Value Taxation and Decentralization

Mauritius requires a tax system that incentivizes production, investment, and efficient land use, rather than perpetuating hoarding and speculation. The introduction of a Land Value Tax (LVT) would be transformative.

* How it Works: LVT taxes the unimproved value of land alone, excluding the value of buildings, machinery, or other investments on it. This critical distinction punishes idle speculation and rewards development.

* Impact: By increasing the holding cost of vacant or underutilized land, LVT compels owners to either develop the land to generate income or sell it to someone who will. This would dramatically increase the supply of land for productive use, lowering costs for housing and business expansion. Agricultural land confirmed for active local production could be exempted, while high-value development land would carry a higher tax burden, aligning with optimal land use planning.

* Decentralization Synergy: The revenue from LVT should be primarily managed at the municipal and district council levels. This decentralizes fiscal power, fostering local accountability. Communities would directly benefit from funds used for local infrastructure, services, and contracts — bolstering local SMEs, from plumbing firms to IT services. This creates a virtuous cycle of local investment and empowerment.

B. Catalyzing the Private Sector: SME Finance and FDI Attraction

Half of Mauritian SMEs operate at a subsistence level, lacking the sophistication and capital to scale. Beyond traditional bank lending, Mauritius must develop a vibrant venture capital and private equity ecosystem, with targeted funds for tech, green innovation, and export-oriented services. This requires regulatory sandboxes, favourable tax treatment for long-term risk capital, and efforts to connect local entrepreneurs with regional and global investors.

To attract high-quality, non-real estate FDI, Mauritius must move from a discretionary, relationship-based system to a rules-based, transparent one. Licenses, approvals, and public procurement must be digitized and automated. The principle should be “compliance grants access,” not “connections grant contracts.” This reduces corruption, increases efficiency, and signals to the world that Mauritius is a serious, modern business jurisdiction. This must be coupled with a more open immigration policy for high-skilled talent, injecting new ideas and competition into the ecosystem.

C. Strategic Recalibration: AI and Central Bank Credibility

The AI strategy must pivot from sovereign isolation to hybrid pragmatism. The vision of Mauritius Telecom building a “sovereign compute grid” and becoming a disaster recovery hub for Africa is ambitious but appears detached from financial and operational reality. There is no published, credible business plan detailing how this multi-billion-rupee capital expenditure will be funded without massive state subsidy or a dilutive capital raise. Given the track record of infrastructure delays and cost overruns, a go-it-alone approach is excessively risky.

A hybrid model, leveraging secure cloud partnerships (AWS, Microsoft Azure, Google Cloud) for non-sensitive workloads and larger-scale processing, while maintaining sovereign infrastructure for core government data, offers cost-effectiveness, scalability, and access to cutting-edge innovation. Techniques like federated learning, Homomorphic Encryption, and confidential computing can ensure data security in hybrid environments.

The focus should be on attracting FDI into green power generation to sustainably feed both national demand and potential data centres, while partnering with global tech leaders for compute capacity. For Mauritius Telecom to be a credible player in this space, it likely requires further privatization to bring in capital and expertise, transforming it from a state utility into a competitive, market-driven technology partner.

Finally, the Bank of Mauritius must regain its credibility. This begins with an independent forensic audit of its holdings in companies like AHL Ltd. and its portfolio of “other assets.” Appointing an internationally experienced fund manager to maximize value from these non-core holdings is essential. The Bank’s leadership and advisory circles need an infusion of professionals with deep capital markets experience, moving beyond theoretical economics to the practicalities of managing a modern financial system in a globalized world.

The Choice for 2026 and Beyond

Mauritius stands on the brink of a decade of stagnation or a new era of accelerated, inclusive growth. The path forward is not a mystery, but it requires political courage to break with the reflexes of the past. The current team’s adherence to controlled markets, tolerance of oligopolies, and management of a bloated, unaccountable state sector is yielding predictably mediocre results.

The agenda for 2026 must be bold and unambiguous:

1. Liberalize and deepen financial markets, starting with FX and bond market reforms, and concurrently modernize the pension fund sector to act as a sophisticated domestic investor.
2. Overhaul the judiciary with a fast-track commercial division, adopting Singaporean-style case management to make contract enforcement swift and credible.
3. Empower the Competition Commission and break the stranglehold of rent-seeking structures.
4. Privatize and revitalize SOEs under a new governance model of strict KPIs and performance-based compensation.
5. Enact a fiscal revolution with Land Value Taxation and meaningful decentralization.
6. Champion a rules-based, digital state to attract productive FDI and nurture SMEs.
7. Adopt pragmatic, hybrid strategies for technologies like AI, based on credible financing and partnership models.
8. Restore institutional credibility across public institutions through transparency, performance-based governance, and expertise.

This is not merely an economic programme; it is a philosophical shift towards more economic freedom, less distortive government, and genuine equal opportunity. The ideas of the past have run their course. For Mauritius to reach the next level, it must embrace the discipline and dynamism of the market, empower its people and municipalities, ensure swift and fair justice, and confidently engage with the world.

The time for course correction is now. The alternative is a gradual decline into economic irrelevance, where stability becomes synonymous with stagnation.

Mauritius Times ePaper Friday 31 December 2025