Positive economic performance expected to carry through 2023 and medium-term |16 November 2022

Mr Vel

By Laura Pillay

Government expects to make a primary surplus over the next year and in the medium term despite the proposed 2023 national budget of R10,495,149,665.00, thereby, serving to stabilise the country’s debt.

The Ministry of Finance, National Planning and Trade officials on Monday noted that going into 2023, government expects to collect more revenues than what it spends, with a projected primary surplus of 1.1 percent in 2023, increasing to 2.2 percent in 2024, and 3.5 percent in 2025.

The same fiscal surplus is expected to be maintained in 2026 and 2027, contributing towards keeping the nation’s debt sustainable.

Over the past years, a primary surplus of 2.6 percent was recorded in 2019, while the pandemic year 2020 saw a fiscal deficit of 15.1 percent. With the improvement in economic performance in 2021, the fiscal deficit stood at 3 percent, reducing to 1.1 percent in 2022.

As explained by director general of the Macroeconomic and Forecasting Division Yannick Vel in outlining the ministry’s macroeconomic forecasts, the basis of the budget, despite a firm beginning to recovery in 2021, 2022 global GDP growth projections have been lower than previously anticipated, at around 3 percent for 2022, and around 2.8 percent for 2023. The decrease from initial projections is primarily attributed to serious developments in the global economy this year, including the Ukraine war and all of its implications and negative spillover effect, high inflation worldwide, tighter financial situations, and increasing commodity and electricity costs.

In Seychelles, the initial projection for 2022 was around 10 percent growth, and 5.4 percent for 2023. This is a turnaround from 2020, whereby, the domestic economy contracted significantly, shrinking by 7.7 percent. Although official figures are yet to be released, the economy is estimated to have grown by 7.9 percent in 2021.

In drafting the 2022 budget, analysts were projecting economic growth of 7.2 percent in 2022, but with the positive developments especially in the tourism sector throughout this year, analysts are projecting economic growth of 10.6 percent by the year end.

Mr Vel pointed out that the initial forecast at the beginning of the year was for 40 percent more visitors than last year, but growth in the tourism sector and related sectors averaged at 53 percent. The volume of visitors arriving in the country for 2022 up until the first week in November, in comparison to 2021 in its entirety, is 55 percent higher, representing around 100,000 more visitors than last year.

While Europe remains the top market, improvements across other markets in Asia, Africa and others, are apparent this year.

The significant increase in visitors is evidenced in tourism earnings and Value-Added Tax (VAT) receipts from the sector. The economy has benefitted from around US $663 million from January to August this year, just over US $300,000 more than 2021.

“With the trends which so far exceed our expectations, the end of year’s growth in arrivals is around 75 percent more. With tourism being a main pillar of the economy, this means that overall growth is higher, from an estimated 7.2 percent to 10.6 percent,” Mr Vel noted.

However, real growth for the fiscal year 2022 has been revised downwards by 0.18 percentage points on account of slow year-to-date production in some sectors. Although the Information, Communication and Technology (ICT), electricity, water and sewerage sectors have been revised upwards given continued strong performances in the first half of the year, this was fully offset by double digit negative performances in fishing and the manufacture of fishery products sectors. These activities have been revised downwards by 10 and 5.5 percentage points respectively. Fish catch is around 15 percent less than last year.

In going forward, 2023 and beyond, tourism arrivals are forecasted at just under 388,000 in 2023, meaning Seychelles will be back to its pre-pandemic level of arrivals, which in 2019, the benchmark year, totalled in at around 385,000. Five percent average growth in arrivals is expected in subsequent years.

In addition to the sustained growth in tourism and related sectors including transportation in 2023, the ICT sector is also on an upward trend and is expected to remain a significant contributor towards growth.

Analysts are projecting a rebound in artisanal fish catch and growth of 3 percent in the fishing sector, returning to its historical trend as well. Other sectors, namely, construction and the manufacturing of fishery products, and beverage and tobacco products are also projected to have positive growth by 3 percent.

“It is important to note that while the projection is positive and optimistic, with the external shocks, it is essential that we remain vigilant when proceeding with our budget. It takes just one major shock to unravel our plans,” Mr Vel added.

Major sources of pressure and uncertainties remain the Ukraine war and estimated low global growth. As per the Organisation for Economic Cooperation and Development (OECD), global economic growth could be more than 1 percent lower this year than what was previously projected.

Furthermore, inflation could rise by a further 2.5 percent following the increase in oil prices, subsequently impacting on accommodation and transportation services, adding extra pressure on businesses, while also impacting on purchasing power and savings.

Laura Pillay