Seychelles's economy has recovered strongly from the debt crisis and global recession, owing to high foreign direct investment and a rebound in tourism. Inflation remained near zero, and the country continued to rebuild its international reserves and reduce public debt. In 2011, the policy mix under the economic program supported by the Extended Fund Facility has been adjusted in response to global commodity price shocks and financial difficulties of Air Seychelles. Structural reforms will focus on strengthening the financial sector and restructuring of state-owned financial institutions.
I. R ecent D evelopments and outlook
1. The recovery of the Seychelleseconomy is rapidly gaining momentum . 2010 marked a reversal from the weak economic performance of the previous two years, when the country suffered from a severe debt crisis in 2008 followed by the global financial crisis in 2009. Real GDP is estimated to have increased by more than 6 percent in 2010, driven by exceptionally high foreign direct investment (FDI) flows and a rebound in tourism. Economic activity has picked up in other sectors as well, such as construction
and SDR 3.52 million will be available upon completion of the third review.
The program is on track . All quantitative performance criteria at end-December 2010 were met. The end-December 2010 structural benchmark relative to the introduction of a value-added tax was met, but the end-April benchmark on amendments to the Financial Institutions Act is expected to be delayed by two months. Staff recommends completion of the third review and modification of performance criteria.
In 2010, aided by sound macroeconomic and structural policies, the Seychelleseconomy
extended arrangement for Seychelles became effective on December 23, 2009 in the amount of SDR 19.8 million (about US$30.2 million; see Press Release No. 09/472).
Following the Executive Board’s discussion of Seychelles, Mr. Min Zhu, Deputy Managing Director and Acting Chair, made the following statement:
“Aided by sound macroeconomic policies and timely structural reforms, the Seychelleseconomy rebounded strongly from the crisis of 2008-09. Medium-term prospects are good, but downside risks exist due to the crisis in Europe. Inflation has picked up recently
Resilient growth is observed in 2012 in Seychelles. Weakness in tourism has been offset by increases from less-traditional markets. The current account and adjustments has administered prices in the second half of 2011, and a cycle of depreciation and inflation ensued. The fiscal accounts suffered in the first half of 2012 from the restructuring arrangement for Air Seychelles. The banking system remains solid and continues to maintain healthy capital adequacy ratios. Despite strong program performance, Seychelles remains highly vulnerable to external shocks.
This 2017 Article IV Consultation highlights Seychelles’ continued strong macroeconomic performance in 2016. Economic growth reached 4.5 percent, reflecting increased tourist arrivals, stronger output in the fishing industry, and expanding credit to the private sector. Helped by low commodity prices and a stable exchange rate, inflation (year over year) was negative throughout early 2017. The external current account deficit remained largely unchanged, while gross international reserves at the end of 2016 reached four months of prospective imports of goods and services. With continued foreign investment and rising arrivals in the tourism sector, the growth outlook for 2017 remains positive.
The fiscal policy stance continues to be appropriate, facilitating a reduction in public debt. Seychelles has made a good start on its second stage of reforms under an Extended Fund Facility (EFF)-supported program, despite a difficult international environment, showing strong resilience to the double crisis it confronted. The economy is reaping the benefits of strong macroeconomic stabilization policies. Seychelles remains highly exposed to external shocks. Progress on the ambitious program of tax and public finance management reform is encouraging, but important steps still lie ahead.
This paper refers to Seychelles’ Request for Purchase Under the Rapid Financing Instrument (RFI). The near-term economic fallout of the coronavirus disease 2019 pandemic is expected to be severe. Restriction in travel will hinder tourism and weaken fiscal and external positions, creating large additional financing needs. The authorities reacted swiftly by taking immediate measures of containment, including border closures, strengthening health policy responses and supporting households and firms. The emergency IMF support under the RFI provides timely resources to the authorities to address the urgent balance of payments and budgetary needs. The assistance of other international financial institutions and development partners is crucial to close the remaining financing gaps, ease the adjustment burden, and preserve economic growth. The authorities are committed to transparency and good governance in the use of emergency financing by providing monthly reports of pandemic-related expenditure to the National Assembly and undertaking an independent audit of such spending and procurement and publishing the results.
Seychelles’s fiscal stance for 2012 allows maintaining a steady course toward debt reduction. The authorities’ decisions to downsize the loss-making national airline and raise tariffs of public enterprises are crucial steps for easing fiscal pressures and ensuring sufficient capital expenditure, in particular in much-needed infrastructure projects. Price subsidies through the Stabilization Fund will be replaced with targeted transfers to low-income households. The structural reform agenda for 2012 builds on progress made to date, focusing on taxation, public finance management, public enterprises, and the financial sector.