Press conference by Central Bank of Seychelles Governor Caroline Abel |28 July 2020

CBS Governor Caroline Abel (Photo: Anel Robert)

‘Minimise forex demand to stabilise rate and reserve’

By Elsie Pointe

While there is some form of stability in the foreign exchange market, the demand for foreign exchange has increased significantly over the last week compared to supply that continuously declines.

Governor of the Central Bank of Seychelles (CBS), Caroline Abel made this known during a press conference yesterday at the International Conference Centre (ICCS)

Due to the increased demand for foreign exchange, CBS has observed a depreciation of the Seychelles rupee particularly in regards to the main trading currency, the US dollar.

During the week of July 16-22, CBS recorded a total demand of US $8.2 million compared to a much lower inflow of US $7.3 million.

As she has repeatedly stressed over the course of the economic downturn, Governor Abel highlighted the need to minimise the demand for foreign exchange in order to stabilise the exchange rate and maintain the foreign exchange reserve at a reasonable level.

As of July 24, the national foreign exchange reserve stood at US $595 million, of which US $448 million can be used.

In July, CBS sold a sum of US $2.3 million to the Seychelles Trading Company (STC) while it put US $2 million up as foreign exchange auction. Around US $1.7 million were bought during this auction.

Governor Abel highlighted that the Seychelles economy is in transition, adding that it would be injudicious to think that it would pick up quickly.

As the government accumulates debt on all fronts, domestically and through international partners, it would strongly have to revise it tax regime and policies, and find ways to cut cost in government spending.

Private sector relief schemes

Governor Abel yesterday noted that CBS’ private sector relief scheme for micro, small and medium-sized enterprises (MSMEs) has so far approved 43 requests with a total payout of R13,131,667.09.

The scheme was implemented in May 2020 to give struggling MSMEs access to a credit line of R500 million at an interest of 1.5%.

In June 2020, CBS further introduced a scheme for large enterprises that make R25 million in revenue per year. These businesses can now tap into a credit line of R750 million at a lending rate of 4.5%.

However, CBS has only received one request for this credit line, which it approved for a sum of R2 million.

These credit facilities are made available through commercial banks.

Governor Abel noted that the private sector has requested for these loans to be accessible for an extended length of time.

With CBS constrained by Section 29 of the CBS Act, the governing bank has proposed to amend its laws to extend its powers to allow for an extension of loans, advances and rediscounts from three to five years in cases of force majeure.

This amendment was approved by the CBS board on June 15, 2020 and most recently by the Cabinet of Ministers on July 15, 2020.

“Following its approval, we brought the amendment to the Attorney General’s office to draft the amendment and submit it to the National Assembly for consideration,” Governor Abel explained.

“So at this precise moment, CBS cannot extend the length of loans until the National Assembly has considered the amendment.”

Solidarity treasury bonds

In the space of one month, CBS has been able to sell all of the R1.5 billion which the government issued as solidarity treasury bonds to meet its expenditures.

The three solidarity treasury bonds were made available of R500 million each – the first which matures at the end of three years at an interest rate of 7% per year, while the second and third are paid semi-annually for five years (10% interest) and seven years (12% interest) respectively.

The majority of the bonds, 44.4%, were procured by commercial banks and the Seychelles Credit Union for R666 million followed by individuals (34.2%) who took up R512.5 million.

Seychellois living abroad invested a total of R3,580,000 while foreign investors pulled in R3 million.

Vijay Construction’s financial woes

Will Vijay Construction’s court order to pay over €20 million to foreign entity Eastern European Engineering affect the foreign exchange reserve and by extension the economy?

This might be quite likely if these transactions are undertaken using the local financial system, Governor Abel said yesterday.

“At the moment we are not aware how this payment will be done. It is a substantial amount and is much more than what is transacted per week in terms of foreign exchange,” she said.

“If this money is to be taken from the system today, it would have a considerable effect on the exchange rate which will adjust at a much quicker pace. However, as of today, we are unsure of how they will go about this, so we cannot provide a complete analysis.”

Central Bank Governor warns against scams

The Governor concluded yesterday’s press conference with a plea for individuals to not fall victims to online scammers that are using her likeness to give out loans.

Governor Abel stressed that she does not have any social media presence, either in her professional or personal capacity.

To shop or not to shop?

With the resumption of commercial flights, Governor Abel warned against non-essential spending via online shopping.

“Undertaking online transaction means that you will be using foreign exchange and demand for foreign exchange will increase. Any decision that we take as individuals will have a more global impact and put pressure on the market, resulting in adverse effect on the exchange rates,” said Governor Abel.

However, she added that a move to restrict the supply of foreign exchange would provide an unwelcomed recollection, for most, of the country’s Exchange Control Act which enforced a highly regulated and restrictive foreign exchange regime.

“It would not inspire confidence,” she added.