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CBS presents 2020 reports to the press |22 April 2021

CBS presents 2020 reports to the press

The CBS panel during the press conference yesterday: (l to r) Mr Pillay, Governor Abel, Mr Tirant and Ms Mussard (Photo: Joena Meme)

The Central Bank of Seychelles (CBS) yesterday morning presented the media with its annual report for 2020, explaining the general economic environment, including the action of the bank as a policy body and on its financial statements, as well as a report on the management of its international reserves.

This follows the presentation of copies of the two reports to President Wavel Ramkalawan on March 30, 2021 and also to the National Assembly by Governor Caroline Abel, an obligation the bank has under its act to by March 31 of every year, submit an annual report on the affairs of the bank, mainly related to policy decisions including actions taken and also terms of its operation.

Apart from Governor Abel, who made the introductory remarks, also present were Rahul Pillay, economist from research and statistic division, who gave an overview of the annual report; Mike Tirant, head of banking services division, who spoke on the bank’s financial statements; and Vanessa Mussard, senior financial and risk analyst, financial market division who made a presentation on the reserves management report for 2020.

Presenting the annual report, Mr Pillay first said that the productive, financial, fiscal and the external sectors of our economy have had their performances affected following our country’s economy suffering major setbacks as a result of the shutdown of the tourism and travel industry worldwide due to the spread of the Covid-19 pandemic across the globe.

He noted that the global trade was impacted in terms of maintaining production and commercial services, causing the world economy, according the International Monetary Fund (IMF), to reduce by 3.3% in 2020.

Still according to the IMF, the pandemic will continue to have adverse impact on medium term growth prospect.

Mr Pillay said that the downfall of the tourism industry (the main pillar of our economy) due to the pandemic impacted on other sectors of the economy.

He stated that with the reduced inflow of foreign exchange, the rupee saw a significant depreciation vis-à-vis the US dollar, on the average 26%, causing the price of commodities to increase significantly.

He also stated that various measures were put in place to support the economy and mitigate the impact of Covid-19 on businesses, individuals and in the labour market which had been disrupted through a pick-up in unemployment.

The number of individuals employed in the private sector and parastatal sector contracted by 6.3% and 3.2% respectively while the number of individuals employed in the public sector rose by 2.6%. The national unemployment rate increased by 1.6 percentage points to reach 4.0% while the average earnings across public, private and parastatal sectors grew by 8.0%, 2.3% and 4.9%, respectively.

He said that economic activities in 2020 were reduced by 13.5% due to a reduction of 70% in tourist arrivals in the country which stood at only 114,858 compared to 384,204 in 2019.

He noted that it was only the fishery and the productive sectors that were supporting the economy although they did not have the capacity to generate enough to sustain the loss of revenue from tourism.

He also noted that tourism earnings contracted by 62% to amount to US $221 million.

Mr Pillay added that while the fisheries sector contracted by 1%, there was reductions in crop production and despite growth in livestock related activities and production, the agriculture sector fell by 0.5%.

He added that although a 60% increase in the manufacture of tobacco, the manufacturing sector activity was reduced by 1.4% as a result of a reduction in the manufacturing of beverages among other manufacturing products; concrete, rock products, glass etc, that saw a decline due to lower demand for construction projects and higher overheads among other factors.

He noted though that the manufacture of food expanded by 18% driven mostly by a 29% increase in production of canned tuna.

He explained that inflation was at 3.8% in 2020 compared to 1.7% in 2019, as a result of the depreciation of the rupee and the increase in the cost of commodities and petroleum products on the world market.

The total credit loan increased by 27% by which at the close of 2020, the total stock of outstanding domestic credit stood at R16 billion while credit allocated to the private sector which rose by 22 per cent in 2019, grew by 20% (or R1,658 million) in 2020.

Foreign currency loans grew by 64% in rupee terms reflecting the valuation effects primarily as a result of the depreciation of the SCR. The local currency loans grew by only 5.1%, partly driven by the private sector credit relief schemes provided by the Central Bank and largely taken by the tourism sector which stood at R686 million.

Credit extended to public entities increased by 20% (or R148 million) while claims on government was higher by 44% (or R1,465 million) with the money needed to finance the fiscal deficit due to programmes put in place, like FA4JR, to help revive the economy and that created a primary fiscal deficit of 16% of GDP.

With loans taken from local and international institutions, the total stock of Public Debt stood at R19.4 billion equivalent to USD897 million (or 94% of GDP).

Elaborating on the bank’s financial statement, Mr Tirant said the total assets stood at R13,708 million, total liabilities were R9,768 million and total equity stood at R3,940 million, an increase of 42 percent in total asset, 12 percent increase in total liabilities and 347 percent increase in equity compared to the previous year .

The total value of foreign currency denominated assets increased in Rupee terms from R8,214 million, equivalent to USD580 million as at the end of 2019 to R12,153 153 million, equivalent to USD559 million as at the end of 2020, which is an increase of 4.8% in Rupee term but represents a drop of USD21 million.

Mr Tirant noted that in light of the external shocks caused by the pandemic situation, the USD exchange rate against SCR increased significantly from R14.09220922 as at December 2019 to R21.6173 as at December 2020 which had significant impact on the main movements in the statements.

On the bank’s profit or loss and other comprehensive income, he said it shows a comprehensive income of R3,080 080 million for the year 2020. The net revenue was R3,283 million, income earned mainly from gains on fair valuation of financial assets at FVTPL amounting to R1,737 million and gains arising from revaluation of foreign currency monetary assets and liabilities amounting to R1,389 million. Total monetary liabilities increased from R5,437 437 million in 2019 to R7,132 million in 2020.

CBS made R42 million as profit in 2020 and as per the section 16 of its act, 50% of the profit amounting to R21 million was used to build up authorised capital to reach 3.33% of monetary liabilities and the general reserves to reach 6.6% of monetary liabilities. The remaining 50% is paid to the government’s Consolidated Fund as dividends for the year.

Mr Tirant noted that CBS saw a significant increase of R3 billion in revaluation reserves compared to 2019 as a result of the Rupee depreciation against the foreign currencies. He said this unrealised revaluation gain by CBS is not distributed as profit.

The financial statements of the Bank for the year ending December 31, 2020 was approved and signed by the board on March 25 ,2021 as required by section 47 (4) of the CBS Act, 2004. It was audited by Deloitte Touché Tohmatsu Limited from South Africa on behalf of the Auditor General.

In relation to the bank’s reserves management report, Ms Mussard said that Gross International Reserves fell from USD580 million at the end of 2019 to USD559 million at the end of 2020, a first in such decline in four years following the collapse of our tourism industry.

She added that the sum though was considered as enough as it covered three months of importation.

She further added that at end of 2020, the reserves covered five months of the country’s importation and that was even more than for 2019 which was for 3.8 months’ importation.

Ms Mussard added that the bank other than only using its reserves to meet a range of macro-economic objectives such as re-payment of public debt in foreign exchange, payment of other foreign exchange obligations – Government, Agencies and SOEs and supporting the foreign exchange policy among other objectives, it also uses some of it for long-term risk free investment as a means to generate some revenue. It also keeps some of the reserves as hard cash.

She stated that CBS net reserve stood at USD400 million at the end of 2020 from a targeted USD394 million.

She said one of the main challenges was to find ways to increase the bank’s foreign reserves and the most were collected through taxes, charges and license among others which represented 27% of revenue.

She added that a further 23% were collected through loans and through multi-bilateral and bilateral donations supporting national projects and 23% as disbursement from IMF, while 8% were traded through foreign exchange auctions among other forms of methods used to boost up the bank’s reserves.

Ms Mussard stated that CBS in 2020, used its reserves to pay for regular expenses of government ministries, agencies and paratatals.

She noted that the Seychelles Trading Company (STC) and Seychelles Petroleum Company Ltd (Seypec) represented a share of 13% (USD11 million each) of the total reserves used to pay out for their commodities.

She also noted that CBS also intervenes to stabilise the economy through injecting USD 29 million through auctions with the local banks.

She stated that with evolution of Covid-19 pandemic and its economic consequences, CBS will continue to support its objective of promoting domestic price stability and soundness of the financial system. It is to be noted the government’s debt has reached 94% GDP, far from the original target of 50% GDP.

 

Patrick Joubert

 

 

 

 

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