Seychelles’ economy becoming more resilient, says IMF |27 March 2015

An International Monetary Fund (IMF) staff mission led by Marshall Mills has declared that the Seychelles’ economy is becoming more resilient.

The mission made the remark after visiting Seychelles from March 11 to 26 to conduct consultation discussions and assess performance under the second review of the Extended Fund Facility (EFF) Arrangement which has been going on with Seychelles since the economic reforms of 2008.

In a press conference held at the Seychelles Trading Company (STC) conference room yesterday afternoon, Mr Mills said the resilience is reflected in an improvement in the external sector, a strong fiscal position which has kept public debt on track to fall below 50 percent of GDP by 2018, tightened monetary policy in response to exchange rate depreciation and the inflationary pressures anticipated as a result.

Mr Mills, who was speaking in the presence of the Minister for Finance, Trade and the Blue Economy Jean-Paul Adam and the Central Bank Governor Caroline Abel, added that the country has met most of its quantitative programme targets for 2014. These included a surplus and increase in foreign exchange reserves which he said has boosted the resilience of the economy, with estimated growth reaching 3.3 percent last year.

He added that the external stabilisation which demonstrates the appropriateness of the authorities’ policy response and the importance of continuing exchange rate flexibility was also helped by positive external developments. Examples of these are a fall in fuel prices and a partial recovery in tourism.

Speaking of the future, Mr Mills said that the outlook for 2015 remains positive. He predicts that the current account deficit will contract as imports fall with lower demand and lower fuel and commodity prices. He added that although a currently weak Euro is putting some pressure on yields, tourism arrivals are rising moderately, and growth is projected at 3.5 percent, higher than previously expected.

In this view, he believes that the primary surplus targeted by the national budget remains attainable and appropriate, with international reserves expected to rise modestly in 2015 and maintaining adequate import coverage.

The IMF chief of mission has however warned that although the medium-term outlook is upbeat following Seychelles’ strides since the 2008 debt crisis, challenges still lie ahead. This is because Seychelles’ highly open economy remains vulnerable to external shocks, while he believes some deep-rooted structural weaknesses have not yet been fully addressed.

“Like many small middle-income economies, sustaining rapid growth and achieving high income status in Seychelles will require continuing structural reforms that enhance competitiveness and reduce risks,” Mr Mills remarked.

In this vein, he added that while he has welcomed measures to foster an environment conductive to private sector growth, he has also noted the weak operating results of certain public enterprises like the Seychelles Public Transport Corporation (SPTC), Seychelles Petroleum Company (Seypec) and Air Seychelles. He has consequently warned of the burden and risks that these public companies can pose to the public finances.

Mr Mills has therefore highlighted that safeguarding the hard-won economic gains of the past six years requires strengthening the governance and oversight of public enterprises. This includes ensuring a focus on their core mandates, preventing government financing of new mandates and preserving the space for private sector development.

During its visit, the IMF mission held discussions with President James Michel, Vice-President Danny Faure, Minister Adam as well as other ministers, the Governor of the Central Bank, members of the National Assembly as well as representatives of the private sector and the civil society.

As a result of the mission, the IMF executive board is now expected to discuss the completion of the review in June.