IMF Extended Fund Facility for Seychelles IMF makes first disbursement of US $34.26m By Elsie Pointe |02 September 2021
SS Payet (Photo: Louis Toussaint)
Following its approval of an extended funded facility for Seychelles amounting to US $105.63 million, the International Monetary Fund (IMF) has made a first disbursement of US $34.26 million, equivalent to around R535.1 million.
The 32-month Extended Fund Facility, which the IMF approved late July this year, will serve to fill in for the budget deficits caused by the impacts of Covid-19 and assist with post-pandemic recovery.
Additional to the budget deficit observed for 2019 and expected for this year, the Ministry of Finance, Trade and Economic Planning is projecting similar deficits for the next two years – 2022 and 2023.
The government is presently covering for its deficits through domestic loans and financial instruments such as treasury bills, and financial assistance from external development partners such as the IMF with the Extended Facility Fund, the World Bank and the African Development Bank.
“In the next two years, the government is forecasting a budget deficit and with a budget deficit you have to find ways to make up for it. A budget deficit means the revenue the government is collecting is less than its expenses,” explained secretary of state for finance Patrick Payet.
“The disbursement the IMF has done during August is to finance the budget deficit for this year. Given the impact of Covid-19 is being more strongly felt this year and the budget deficit is huge while the coming years are expected to see an improvement, IMF expects to disburse the majority of the Extended Fund Facility this year. This is a total of US $69 million for this year – the US $34.26 million recently disbursed and the next disbursement of US $34.74 million which will be at the end of this year in December.”
Mr Payet stated that two other IMF disbursements of US $18 million each have been slated for 2022 and 2023.
Seychelles will make the first repayment of the IMF facility in February 2026 at an interest rate of around 1.05% and the last repayment is scheduled for August 2031.
The government is aiming to gradually reduce its deficit in the coming year and is projecting to start hitting a budget surplus by 2024.
According to Mr Payet, the government is targeting to reduce the debt to GDP ratio which reached 100% in 2020 to below 70% by 2026.
If we were not receiving support from our development partners like IMF, World Bank and AfDB, the government would have had to take drastic decisions regarding reducing expenditures through reduction of expenses for goods and services. Some ministries, departments and agencies would have been closed or government would have had to undertake salary cuts, laying off staff and cutting on capital expenditures,” added Mr Payet.
“However the government decided to reduce expenditures but only to a certain level and request additional resources from our development partners.”
As part of the wider Seychelles reform programme assisted by the IMF, the disbursements under the Extended Facility Fund however come with conditions which include Seychelles having to hit certain set targets or benchmark indicators.
The Ministry of Finance, Trade and Economic Planning, Central Bank of Seychelles, Seychelles Revenue Commission, National Bureau of Statistics and the Public Enterprise Monitoring Commission (PEMC) are working to prepare and implement the action plan for the reforms.
“One of these reforms that we had previously mentioned is reforms in retirement benefits and pension. During the past two months, our teams has met and discussed the issue. We are finalising the discussions so we can start engaging with the private sector and the public.”
Mr Payet stated that decisions regarding retirement benefits will have to be taken before the end of this year as it will be incorporated in the budget.
“We also have the business tax reforms lined up and we have undertaken a lot of discussion with the private sector. The Attorney General is currently drafting the legislation and we will bring this back to the private sector to go over the provisions. So there are different stages to the reforms.”
Reforms in state owned enterprises are also in the pipeline whereby these enterprises are expected to become more efficient, self-reliant and generate more revenue to provide the government with dividends.
“We have to revise the subventions we give to state-owned enterprise; they need to operate more efficiently and reduce their dependence on government. This helps the government reduce its own expenses and increases its revenue if the state-owned enterprises perform well enough to provide a dividend.”
The greatest liability for the government remains Air Seychelles in which the government has pumped in almost R1.2 billion for the last decade and Mr Payet stressed that the government no longer has this type of money to feed into the airline.
The Seychelles Public Transport Corporation, which receives a large subvention from the government to ensure that bus prices remains affordable, will also be under scrutiny.
Another example of reforms in government agencies is with the Seychelles Postal Services which will have to revisit its structure so as to generate profits.
While large state-owned enterprises such as the Seychelles Petroleum Company pay the government around R200 million in dividend per year and the Financial Services Authority predicted to pay over R100 million in 2021, companies such as the Islands Development Company that did not previously pay dividend will have to pay their dues.