Budget Address by Minister for Finance, Economic Planning and Trade Naadir Hassan |17 February 2021

Minister Hassan delivering his budget address yesterday (Photo: Jude Morel)

Seychelles to borrow R3.417 billion to fund its spending this year

By Elsie Pointe

Minister for Finance, Economic Planning and Trade Naadir Hassan yesterday delivered his first budget address under the newly elected government in which he listed a number of measures and policy reforms to help the country recover from its deficit balance.

The national budget proposed for the 2021 fiscal year stands at R11,013,648,296 ‒ of which R2,611,787,886.75 had already been approved by the National Assembly some weeks ago.

“We are hoping to collect R8.260 billion through revenue and grants. This means that we will still be faced with a primary fiscal deficit of R2.642 billion or 11.8% of our gross domestic product (GDP), and a total deficit of 15.3% of our GDP,” explained Minister Hassan.

To make up for this deficit, the country will have to borrow a sum of R3.417 billion to finance its expenditures for this year.

This year’s budget is a R1.2 billion increase on 2020’s R10.447 billion, a point which Minister Hassan said is firstly justified by the 30% depreciation of the Seychelles Rupee.

With Seychelles being a country that relies heavily on importation, Minister Hassan noted that the depreciation has a direct impact on the amount spent on importation of medicine and medical equipment as well as capital projects and other goods and services.

“Secondly, we also have infrastructural projects lined up that we are planning to finance through grants and loans. R1.185 billion worth of these projects will be financed through grants while R316.5 million will come from loans. It is important to note that,” said the minister.

At the start of his budget address, Minister Hassan did not hesitate to highlight the dire economic state of the country, noting that the effects of the coronavirus (Covid-19) pandemic on the economy of Seychelles in 2020 has been one of the worst we have ever experienced, and this includes the 2008 global recession. Instead of contracting by 10.8% in 2020, as predicted, the economy shrunk by 13.5%.

This is due to a continued decrease in the tourism sector, in view of the fact that the number of arrivals after the re-opening of our frontier in August 2020 did not increase as per our expectations.

“The latest figures show that tourist arrivals decreased by 70.1% compared to 2019, with 384,204 visitors in 2019 plummeting to just 114,858 visitors in 2020,” said Minister Hassan.

“We have estimated that the accommodation, food and also the administrative sectors have also contracted by 65%. We have estimated that the transportation and storage sectors that are also linked to the tourism sector through plane and boat arrivals will contract by 30%.”

“With such a performance in our tourism sector, its revenue collection has decreased by approximately US $322 million. This represents a 61.3% decrease compared to the provisional estimate for the year 2019. The same performance has been observed in VAT collection in the domestic tourism sector with a reduction of 48.2% at the end of 2020, which is equivalent to R416 million,” added the minister.

The dismal performance in the economy in 2020 continued with contractions of 1% in the construction sector, 1% in utilities, 15% in the retail and distribution sector and 35% in the arts and leisure sector.

Meanwhile, growth was observed in the food production sector which increased by 17.5%; the information and communication sector grew by 13.9%; the financial sector expanded by 9.4%; the fisheries sector by 2% and a minimal contraction of 0.1% was observed in the agricultural domain.

To reduce this deficit, government has to continually reduce its recurrent expenditure, and ensure that it functions more effectively by reducing wastage and duplication.

The government’s medium term plan is to reduce the country’s deficit by 8% in 2022 and by 2% in 2023, so as to re-route the country on a more sustainable fiscal path.

For 2021, the government has reduced expenditure by scrapping the Financial Assistance for Job Retention (FA4JR) scheme as from April this year, a move which promises to save the government R1.082 billion.

The government is also saving R47.580 million by reducing expenditures related to welfare and another R24.689 million from the Unemployment Relief Scheme (URS), compared to the revised 2020 budget.

By the end of 2020, the debt-to-GDP ratio was at a staggering 99.4%, although the country had been aiming to meet a debt-to GDP ratio of 50% before the pandemic hit.

“We expect that at the end of 2021, our debt-to-GDP will arrive at 108.4%, and 87.2% by 2025, if we continue on the same path,” said Minister Hassan.

The country’s debt sustainability is one of the topics on the table in the discussions, as part of a reform programme, between Seychelles and International Monetary Fund (IMF).

With mind to reduce our reliance on the tourism industry, the minister spoke of restructuration and changing the way we do things.

Potential areas for additional investment that could bring further yield to the country include the fisheries sector, digital economy, financial services, tourism, and agriculture, and the 2021 pushes policies that could benefit these sectors.

The 2021 also has for objective to reduce government expenditures as well as corruption and waste within public service.

The government has guaranteed that Seychellois will be prioritised over foreign investors when it comes to investments in the country, and where this is not possible it will push for joint ventures.

Minister Hassan said that the government’s top priority would be cleaning the public service of corruption and mismanagement, and infusing good governance in their stead.

• No salary increase for public service

Not a surprise given the current state of affairs, Minister Hassan confirmed that the government is not planning to undertake any salary increase for public service employees.

Additionally, there will be no increase in long service allowances and the government will not finance any new scheme of service.

In the same vein, the government will only finance recruitments in key positions in certain ministries and agencies in 2021.

Minister Hassan added that the government will have to consolidate the restructuring measures being undertaken ‒ the first phase which was announced on February 1 ‒ in its mid-year budget review.

The restructuring is being implemented to create a more efficient public administration and eliminate unnecessary positions.

“For the moment, most of the budgets being proposed are in their totality, until the laws that govern these entities in question have been completed,” explained Minister Hassan.

• Review of expenditures relating to goods and services

Minister Hassan announced various steps that the government is hoping to take in 2021 to reduce the amount it spends in paying for goods and services.

His ministry’s priority for 2021 is to review the Public Procurement Act, to simplify the procedures.

“Secondly, there will also be measures that will be taken against contractors who continuously fail to deliver government projects on time and of an acceptable level. Bids from these contractors will no longer be accepted, if their performance is not at the required level.”

Mr Hassan added that the government spends way too much on security, rent for accommodation or offices and cleaning services, which runs up to a total of R808.9 million every year.

He further added that the government is proposing to all proprietors who rent properties to ministries, departments and agencies, to offer a reduction of up to 25% on rent, as of February 1, 2021.

In the same vein, government is spending R301.1 million per year to outsource cleaning services for certain offices, roads, beaches and rivers. The tender process to award these cleaning contracts will also be reviewed.

• Agency for Social Protection to receive less than in 2020 budget

The Agency for Social Protection (ASP) ‒ the umbrella agency that manages the welfare system ‒ will receive R1.425 billion to fund its benefits and programmes in 2021.

Although, the ASP takes the largest chunk of the national budget once again, this figure is slightly less than the budget of R1.658 billion it received last year.

The reduction is due to the removal of five benefits under its purview, which will now be administered by their relevant ministries.

These are the allowance for post-secondary students, apprenticeship scheme, URS, vulnerable home repair and dedicated fund.

• R220.8 million to finance subventions to public enterprises

Only about half of the money spent in subventions in 2020 will be given to public enterprises in the 2021 budget.

A sum of R220.8 million has been designated for this purpose, compared to R413 million.

Out of the allocation, R133 million has been proposed for Air Seychelles, out of which, R103.724 million will assist the payment of salaries for nine months only.

A sum of R50 million is also being proposed for SPTC to assist it with revenue constraints.

Other subventions are:

• R14.8 million for the Seychelles Marine Parks Authority

• R15 million for the Postal Services of Seychelles

• R7.6 million for The Guy Morel Institute

• Reduction in business tax, CSR tax scrapped

As part of its policies on taxation ‒ equitable taxes for everyone is promoted ‒ the government plans to reduce business tax “very soon” and bring about a more reasonable rate.

The rates will be                     15% on profits of up to R1 million, followed by 25% on profits above R1 million.

Government will maintain the option of ‘presumptive’ tax that is imposed on small and medium entrepreneurs with revenues of less than R1 million per annum.

As from April 1, 2021, the government will also abolish the corporate social responsibility (CSR) tax for businesses since the government sees this tax as a punitive one.

“Abolishing the CSR tax will give businesses some relief in this period of uncertainty, and enable them to retain a certain amount of liquidity for operating. However it remains the responsibility of every business to invest in their communities,” stated Minister Hassan.

“It is not because the government is abolishing this tax that charitable donations made by these businesses should stop. It is just that it is not the role of government to force businesses to make donations, nor should these businesses expect something in return. We have to go back to giving with our hearts!”

Meanwhile a new business tax regime is in the making which hopefully will be implemented this year.

The excise tax will also be revisited and will include the introduction of a new law that is expected to give more authority to the customs division.

Great importance will be placed on compliance and revenue collection, and Minister Hassan warned businesses and individuals against not paying their dues.

• Agriculture and Fisheries

Minister Hassan announced that the Agriculture Development Fund under the Development Bank of Seychelles (DBS) will be revised and from now on it will provide a loan of up to R5 million, compared to the R1 million loan that is currently available.

The interest rate on this scheme will be 2.5% for loans of up to R3 million, and 5% for applications above R3 million, the interest rate will be 5%.

This is being done in order to encourage farmers to expand their activities.

Meanwhile in the fisheries sector, Minister Hassan noted that there are various investment opportunities in the:

• Construction of a new jetty to receive more long liners that are already fishing in our waters, but that do their transhipments either at sea or in another port in the Indian Ocean.
• Construction of a new jetty and the improvement of existing ones to facilitate seiner transactions.
• Construction of a dry dock for heavy work on industrial fishing vessels.
• Construction of the necessary facilities for electronic and electro-mechanic repairs on fishing vessels.
• Construction of a factory for making fish products, especially tuna, so that our country obtains better value from this important resource.
• The development of better net repair facilities.
• Developing and improving the facilities in the districts for artisanal fishermen.
• Construction of a facility at the airport to handle fish for exportation.
• Build and develop quality branding for our fish exports and other ocean products at an international standard.