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AfDB approves US$20 million loan to support Covid-19 recovery |30 July 2021

AfDB approves US$20 million loan to support Covid-19 recovery

Economic planning principal secretary Agathine and chief debt analyst Labonté(Photo: Joena Meme)

The board of directors of the African Development Bank group has approved a US$20 million flexible loan to finance Seychelles’ governance and economic reforms support programme, it was announced yesterday.

The government is expected to help drive the island nation’s macroeconomic stability and recovery from Covid-19 in the medium-termand aims to deepen reforms introduced through the bank’s Covid-19 crisis response budget support programme, approved in June 2020 for US$10 million.

During a press conference held yesterday at Liberty House,principal secretary for economic planning Elizabeth Agathine noted that the reforms are expected to advance fiscal sustainability, improve the business environment and Seychelles’ climate change and environmental resilience.

“This programme for budgetary support from the African Development Bank (AfDB) which was recently approved, was discussed with the bank in the context of our economic programme to support our budgetary financing. Actually, we are planning to negotiate the same financing structure with our other development partners in the coming three years. The programme has different objectives, among which is reinforcing economic governance, and the way the budgetary programme works is that there are actions that we must satisfy as a country for the programme to be approved and the funds disbursed into government’s account,” Mrs Agathine explained.

She went on to note that the actions are linked to government policies, programmes in place and the bank has determined which actions are more relevant to support this programme with, and it is from there that we entered into the agreement for the budgetary support programme.

The bank’s financing will complement funds from the World Bank and the International Monetary Fund (IMF) in support of reforms that will benefit Seychelles’ private sector, dominated by small enterprises. By ensuring that such businesses stay afloat during these challenging times, the operation will positively impact women and the youth, while creating employment and equal opportunities.

Chief debt analyst within the Ministry of Finance, Economic Planning and Trade, Dick Labonté explained that the loan duration is 17 years with an eight-year grace period. He said the interest rate is affordable with both a variable and fixed component at “two percent give or take”. This facility will add to the country’s external debt by 1.5 percent to gross domestic products (GDP)and is not expected to impact on debt sustainability, in line with the objectives of the macroeconomic reform programme.

Over the coming three years, the country is likely to need budgetary support, and it is therefore probable that there will be negotiations for another loan facility.

“In our analysis we realised that domestic debt costs us more than external debt. In this time of economic crisis, we have a budget deficit, the country’s revenue is not covering its expenses, so we need to find a way to finance the expenses and the way we do this is through borrowing, and external debt costs us less than domestic debt. That is why we have so many negotiations with all the partners to make our debt more affordable. This has already been accounted for in the macroeconomic framework and we have already assessed its sustainability and determined that it is sustainable, so that by 2026, the country’s debt will be back at 70 percent to GDP,” Mr Labontédetailed.

According to a press release issued by the AfDB on July 23 on its website and which appeared in theSeychelles NATIONissue of Saturday July 24, Seychelles’ Minister of Finance, Trade, Investment and Economic Planning, Naadir Hassan, thanked the bank for being a trusted partner in the country’s development.

“The facility comes at an opportune time and will provide much-needed relief given the economic hardship we are faced with in light of the Covid-19 pandemic. It will help the government meet the current budgetary financing gap and help achieve economic development targets as we steer the country on the path to recovery and debt sustainability,” Minister Hassan said.

The global downturn emanating from the Covid-19 pandemic has unfavorably impacted Seychelles’ economy, in spite of government interventions.

“The Covid-19 pandemic has devastated the tourism sector which contributes about 25% of GDP and accounts for the largest share of the total employment,” said Nnenna Nwabufo, director general of the Bank Group’s East Africa Regional Development and Business Delivery Office.

She noted that on the same day the loan was approved, the IMF and the Seychelles government reached a staff-level agreement for a US$107 million arrangement under the Fund’s Extended Fund Facility, which underscores the timeliness of the bank’s intervention and the strength of the partnership between the bank and the IMF.

The pandemic has severely impacted Seychelles’ macroeconomic performance. Real GDP growth, which averaged 4.2% in 2016-2019, contracted by 12.9% in 2020. The overall fiscal deficit of between -1.4% and 0.7% of GDP in the 2016-2019 period widened to -19.5% in 2020, while public debt that stood at 62.3% of GDP at end-2018, is now projected at 87.7% by the end of 2021, according to the Bank’s appraisal report.

The bank’s approved and ongoing portfolio in Seychelles as at July 2021 comprises five operations in the public sector totaling US$45.7 million. Of these 53% are in the water supply and sanitation sector, and 47% in the multi-sector.

 

Laura Pillay

 

 

 

 

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