Mauritius Urged by Top Lender to Borrow From Local Banks
Mauritius Urged by Top Lender to Borrow From Local Banks
Mauritius’ Treasury should raise more cash from local banks to drain excess liquidity from the market, according to the Indian Ocean island nation’s biggest lender.
Excess cash holdings by banks quadrupled over almost three months to 29.5 billions rupees ($740.3 million) by the first week of May, according to Bank of Mauritius data. The amount is in addition to the minimum cash balances of 35.4 billion rupees that lenders are required to maintain at the central bank.
“In addition to borrowing in foreign currency from international organizations to compensate for the drop in revenue from export sectors, the government could partly finance its spending by borrowing from local banks,” MCB Ltd. Chief Executive Officer Alain Law Min said in an emailed response to queries. “The banking system is characterized by persistent excess rupee-denominated liquidity.”
The Finance Ministry last tapped the market a month ago by raising 1.5 billion rupees of 119-day Treasury bills at 0.27%. Investors sent in bids of more than four times that amount.
Shrinking Economy
Reliant on tourism and exports of manufactured goods, the Mauritian economy could shrink as much as 11% in 2020, the first contraction in 40 years. To mitigate effects of the pandemic, Finance Minister Renganaden Padayachy is expected to announce key measures during his maiden budget speech on June 4.
In the meantime, the government has received 60 billion rupees as a “one-off exceptional contribution” from the Bank of Mauritius and a 188 million-euro African Development Bank loan.
With public debt at almost 66% of gross domestic product, the International Monetary Fund has urged Mauritius to rein in borrowing and drop it to about 60% of GDP in the fiscal year that starts in July. External debt is only about 11% of the overall amount, according to the Finance Ministry.
“Using local funds will help to contain increase in foreign debt and limit the exposure to foreign-currency risks,” Law Min said.
©2020 Bloomberg L.P.