Chagos Deals & its estimated Economic Impact

Under the recent deal between the United Kingdom and Mauritius, Mauritius has regained the sovereignty over the Chagos Archipelago while allowing the UK and US to maintain their strategic military base on Diego Garcia via a long-term renewable lease of 99 years. In return, Mauritius will benefit from a structured flow of economic support across three pillars:

a) Annual payments from the UK over 99 years;
b) GBP 40 million Trust Fund for the welfare of the Chagossian people; and
c) GBP 45 million per annum over 25 years to promote economic development in Mauritius.

We estimate that the Chagos agreement could add approximately GBP 143.5 million (MUR 8.9 billion) annually to GDP starting from 2026, providing an important fiscal boost. From Figure 1, Mauritius’s public sector debt to GDP ratio could decline from around 83.4% in 2024 to 79.4% by 2027, while the budget deficit to GDP ratio narrows from around 6.7% in 2024 to 3.1% by 2027. These forecasts are based on our assumptions detailed at end.

This expected fiscal improvement will also be reflected in the two of the main fiscal proxies used by Moody’s to assign sovereign ratings: the General Government Debt to Nominal GDP ratio (‘’Debt-to-GDP’’) and the General Government Debt as a share of Government Revenue (‘’Debt-to-Revenue’’). As at June 2024, the Debt-to-GDP and Debt-to-Revenue ratios are 83.4% and 347.3% respectively. After accounting for Chagos’ inflows and assuming fiscal discipline, we expect the abovementioned ratios to stand at 75.9% and 290.6% respectively by June 2029.

While the Chagos agreement might be beneficial, it will not be sufficient on its own to improve Mauritius’s debt situation and resulting credit rating. To achieve meaningful credit quality improvements and long-term fiscal sustainability, the Chagos inflows must be paired with credible structural reforms and fiscal consolidation. The government has taken initial steps by announcing a Fiscal Responsibility Act in early 2025, which—if effectively implemented—could enhance policy credibility, improve future debt management, and strengthen fiscal transparency. We await the implementation of this Act to send a notable signal of our commitment to fiscal discipline to Moody’s and other rating agencies.

Moreover, complementary efforts will need to include more efficient and equitable tax policies, and improved support for SMEs. These reforms are essential to shift away from a historically consumption-driven economic model that has contributed to fiscal imbalances. Sustained economic growth above the IMF’s baseline projection of 3%—ideally exceeding 5%—will be critical to strengthening debt dynamics, improving investor sentiment, and reducing risk premiums.

The path forward will require careful management of political and social trade-offs, especially in areas such as tax reform and social spending. Maintaining a pro-growth policy stance will be key to ensuring that fiscal adjustments do not come at the expense of economic resilience.

The assumptions that we used:

Our economic impact assessment is built on a set of prudent assumptions rooted in national data and long-term trends. We applied a conservative fiscal multiplier of 1.1x, estimated using data on consumption, GDP and imports over the period 2006 to 2024. For simplification, a flat tax rate of 10% was used.

Currency conversions were based on mid-market exchange rates at the time of analysis, with GBP/MUR at 61.81 and USD/MUR at 45.77. Given that the majority of development works will likely be carried out by UK-based contractors, we have estimated that only 30% of the GBP 45 million allocated for development will effectively circulate within the local economy.

Fiscal indicators were drawn from the 2024 State of the Economy Report, which shows public sector debt at 83.4% of GDP and the budget deficit at 6.7% of GDP. We project both public debt and the fiscal deficit to grow at an annual rate of approximately 1.7% from 2025 to 2027. Meanwhile, GDP growth is expected to average around 4.2% per year from 2026 onward. These projections offer a cautious yet grounded basis for assessing Mauritius’ economic trajectory.