Report on economic impacts of Covid-19 in Seychelles launched |24 November 2021
A new report entitled ‘Economic impacts of Covid-19 and policy options in the Seychelles’ was launched yesterday at the Eden Bleu Hotel on Eden Island by the Minister for Finance, Economic Planning and Trade Naadir Hassan and the director general for East Africa at the African Development Bank, Nnenna Nwabufo.
Funded by the African Development Bank (AfDB), this report was prepared as part of the country dialogue and consultation. It makes use of analytical tools to assess the socio-economic dynamics in the Republic of Seychelles, focusing on the economic impacts of Covid-19 on selected key sectors in the economy, and provides evidence-based policy options for recovery, notably three scenarios for economic recovery post-2020.
The report talks about the impact of Covid-19 on the Seychelles in 2020 and focused on how the pandemic brought a decline in tourism activities with a significant decline in tourism revenue. There was also a decline in the real value of total exports explaining the fall in real GDP and how the decline in government revenues along with the growth in government spending created a deficit that significantly increased the debt-to-GDP ratio.
In his opening remarks, Minister Hassan recalled that Seychelles registered its first confirmed positive cases in mid-March 2020, which marked a fundamental shift in life. As the pandemic persisted globally, Seychelles was able to skirt the worst of it until community transmission in December 2020 which changed the way of doing business and our prospects.
“I must point out that in 2020, Seychelles’ economy experienced a contraction of 10.7% decline in real GDP, coupled with a record decline of 70% in tourist arrivals, a substantial blow to the pillar of our economy. The government responded to mitigate the economic downturn with support to the private sector, enhanced social protection coverage and other measures to preserve livelihood and ensure socio-economic stability,” explained the minister.
At the height of the pandemic, the AfDB heeded our call for assistance, with budget support of $10 million, assisting the government of Seychelles in meeting its financial obligations. This was subsequently followed by further financial assistance of $20 million in 2021. This support provided much-needed relief, in the face of highly adverse economic conditions. As highlighted in this report, the decline in government revenues associated with the economic downturn, along with the growth in government borrowing and spending, created a deficit that significantly increased our debt-to-GDP ratio, added the minister.
Since the vaccination campaign in January 2021 and the reopening of our borders, Minister Hassan noted that the tourism industry has been showing signs of recovery with total arrivals reaching over 146,000 as of mid-November and this is an increase of 43% as compared to 2020 visitor arrivals.
“The timing of this report is most opportune, as it coincides with national efforts to relaunch the economy, as we look ahead to unlocking new areas of potential economic growth found in the Digital Economy, Blue Economy and Fisheries, Agriculture, Financial Services. The onset of Covid-19 has brought on a new landscape and reality, in which all economies, small and large, have had to adapt and rise to the occasion, in face of unprecedented odds,” concluded Minister Hassan.
Ms Nwabufo explained that the main purpose of the study is to assess the impacts of Covid-19 on productive sectors in Seychelles and propose recovery strategies. The study was initiated and undertaken at the time when Seychelles, like other countries in the world, was severely hit by the Covid-19 pandemic.
“In response to the Covid-19 pandemic, the government issued a revised budget amendment bill on April 7, 2020, showing a primary fiscal deficit of 14% which further led to an increase in the public debt stock. These estimates were in line with the projections of a 24% reduction in tax collection leading to a tax-to-GDP ratio of 27%, for the year compared to an average of 32% over the previous five years. The government committed approximately US $70 million to guarantee salary payment of all employees until June 2020 and extended this to December 2020 for Seychellois employees only. Also, corporate social responsibility, tourism marketing and business taxes due for April, May and June were postponed to September 2020,” recalled Ms Nwabufo.
She remarked that measures introduced in the budget amendment include issuance of a domestic bond and drawing from crisis response budget support facilities of the Bank, the World Bank, and the IMF. As a result, the government revised its end-2020 debt-to-GDP ratio target to 85.1%. The tight monetary policy stance-maintained inflation at between 1.8% and 3.7% during the 2017-2019 period. However, the inflation rate which was 1.2% in 2020 is expected to rise to 7.3% this year before moderating to 3.5% in 2022 because of depreciation of the Seychelles Rupee and supply side disruptions emanating from the Covid-19 pandemic.
In order to deepen the understanding of sectoral effects of the pandemic and any similar shocks, the Bank, in collaboration with the Ministry of Finance, Economic Planning and Trade, carried out this in-depth study through (i) stocktaking of the available assessments to date, and (ii) undertaking in-depth assessment of the effects of the Covid-19 pandemic on selected key productive sectors in the economy.
As conclusion, the DG added that “this study confirms that the major impact of the Covid-19 pandemic in the Seychelles was mainly through the decline in tourism activities that significantly reduced government revenue from that sector. A decomposition of the sources of growth from the demand side suggests that the decline in real exports was one of the most important factors explaining the fall in real GDP. Three scenarios for economic recovery after 2020 are considered in the study; namely: (i) the ‘Main Scenario’, (ii) the ‘Optimistic Scenario’ and (iii) the ‘Pessimistic Scenario’. The three scenarios differ in the speed of recovery of foreign demand for services (including tourism) and re-export of petroleum products. The study indicates that diversifying away from tourism may be achieved by increasing the shares of the other activities in a growing economy through public policies. In this respect, two policy options are considered for achieving the objective of economic diversification: increasing public investment that will exclusively benefit the agriculture, fishing, and manufacturing sectors; and providing tax incentives in terms of output subsidies for firms in those industries.”
After the launch of the report, there was a panel discussion with the Governor of the Central Bank of Seychelles, Minister Hassan and DG Nwabufo.
The event was attended by members of the diplomatic corps and other stakeholders.