Finance Minister Hassan welcomes IMF’s new extended fund facility |05 June 2023

Minister Hassan

Finance, National Planning and Trade Minister Naadir Hassan has welcomed the approval by the International Monetary Fund executive board of a new extended fund facility and also for Seychelles to benefit under the resilience and sustainability facility.

The International Monetary Fund (IMF) executive board took the decision last week by approving a three-year arrangement for Seychelles under the extended fund facility (EFF), in an amount equivalent to US $56 million, as well as a three-year arrangement under the resilience and sustainability facility (RSF) amounting to US $46 million.

Minister Hassan said: “The IMF has proven to be a strong and faithful partner of the Seychelles, throughout the country’s economic downturn. The support provided by the institution towards our economic reform programme after the Covid-19 pandemic in 2021 onwards, has enabled the country’s economy to recover and allowed the government fiscal space to finance budget gaps.

“As we move on the next phase of our development, the government is grateful to the IMF for the additional support under the new EFF. The government is equally grateful to the IMF for recognising the vulnerability of our country to climate change and the high cost of boosting our resilience to such phenomenon, which has enabled Seychelles to also benefit under the RSF programme.”

According to the IMF, the new EFF will replace the EFF approved on July 29, 2021 (2021 EFF). Under the 2021 EFF arrangement, the authorities satisfactorily implemented policies to restore macroeconomic stability in the face of multiple shocks, including the Covid-19 pandemic disruptions. All quantitative targets through end-December 2022 were met and all but one structural benchmark were met or implemented with delay. The new EFF will build on progress made under the 2021 EFF to strengthen macroeconomic stability while emphasising reforms to boost investments in human and physical capital to support inclusive growth. Efforts will also focus on strengthening fiscal and monetary policy frameworks.

The RSF will support the authorities’ agenda to build resilience to climate change by lifting bottlenecks to climate-related investments and by facilitating the integration of climate-related considerations into macroeconomic policies and frameworks. The RSF arrangement for Seychelles, the second in Africa, will exploit synergies with other sources of public financing and help catalyse further private financing for climate-related investments.

Following the executive board’s discussion, Gita Gopinath, first deputy managing director and acting chair of the board, issued the following statement:

“Under the 2021 EFF, the Seychellois economy showed resilience to shocks, including the Covid-19 pandemic and Russia’s war in Ukraine. The authorities’ policy measures helped the economy recover quickly from the pandemic-related disruptions and provided necessary support for households and the private sector. Strong growth and better than expected fiscal outturns contributed to the rapid decline in public debt and the restoration of macroeconomic stability. Monetary policy has remained appropriately accommodative in light of moderate inflation. However, the authorities should remain vigilant to signs of inflationary pressures and adjust the monetary policy stance if needed.”

She added that the outlook is positive, with tourism almost back to its pre-pandemic level and inflation projected to remain moderate.

“However, Seychelles continues to face substantial risks, including from global financial and economic developments, which could severely impact tourism, and climate change.

“The new EFF arrangement will protect macroeconomic stability and rebuild buffers, while helping to advance the authorities’ reform agenda. Fiscal consolidation efforts through revenue gains, prudent spending, and improvements in public financial management will help reduce debt vulnerabilities and create fiscal space for priority spending, including social spending and investment in climate change adaptation and mitigation. The authorities are also committed to continue reforms to boost inclusive growth by improving social protection targeting and investing in human capital. Reforms are also planned to improve the monetary policy implementation framework and to strengthen the resilience of the financial system.

“The authorities plan to leverage the RSF to undertake reforms to remove bottlenecks to, and strengthen the climate-resilience of, public investment. The RSF will also help authorities catalyse further private financing and exploit synergies with other official financing. In particular, the RSF will focus on mainstreaming climate change in the government budget, strengthening climate-related risk management for financial institutions, and undertaking climate adaptation and mitigation reforms, including through measures to facilitate energy transition.”

Compiled by Gerard Govinden