Seychelles receives B+ Fitch Ratings upgrade |23 November 2021
Seychelles’s economy has yet to fully come out of the woods but it is slowly making strides in the right direction as evidenced with its recent Fitch Ratings upgrade to B+, with a stable outlook.
According to the rating commentary published on Friday, November 19, Fitch Ratings upgraded Seychelles’ long term foreign-currency issue default rating to B+ with a stable outlook from the previous rating of B with a stable outlook.
The upgrade reflects the increase in tourism arrivals which have led to economic growth in the country and Fitch has highlighted that arrivals are on course to reach 70% of the 2019 level by the end of this year.
The country’s vaccination campaign which has seen 78% of the population vaccinated by November 8, limited restrictions on tourists and emergence of new tourism markets such as Israel and Saudi Arabia are all lending to the positive upsurge.
“Fitch expects real GDP (gross domestic product) growth to reach 6.0% in 2021, peak at 6.8% in 2022 and moderate to 4.8% in 2023,” reads the rating commentary.
“Investment is set to pick up in 2022-23, as hotel construction/expansion projects that were paused in 2020 and part of 2021 resume. However, this will also contribute to higher import costs, given capital goods imports, global supply chain disruptions and high oil prices. Export growth will be underpinned by tourism receipts and tuna exports, although high oil prices and investment-related imports will constrain the contribution of net exports to growth,” it continues.
The strong rebound in economic activity and increased revenue will lead to less budget deficits and this at an even faster rate than initially anticipated.
The expiry of pandemic-related fiscal support such as the FA4JR (Financial Assistance for Job Retention) and tapering of other social transfers will contribute to a reduction in headline expenditure, which Fitch expects to fall below pre-pandemic levels by 2023. Total social transfers peaked at 16.7% of GDP in 2020 and are expected to drop to 8.7% by end-2021 and average 6.5% in 2022-23.
Fitch also expects a faster decline in government debt levels given the strong expected nominal GDP growth and improved budgetary performance. A positive for the country, its debt to GDP ratio is estimated to fall to 77.3% by the end of this year instead of the previously more somber projection of 94.4%.
It will fall even more in 2022 to a predicted 72% and to 68.3% in 2023, although debt will continue to remain above pre-pandemic levels even with the positive downward trend.
Seychelles’ B+ rating also reflects the country’s strong governance, development, its good record of public debt reduction pre-pandemic and strong.
Compiled by Elsie Pointe