Exclusive interview with Finance, Economic Planning and Trade Minister Naadir Hassan ‘We are not out of the woods yet’ By Vidya Gappy |15 May 2021
As Seychelles sees its economic activities increase, Seychelles NATION brings its readers an interview with the Minister for Finance, Economic Planning and Trade, Naadir Hassan, on our current economic situation. Although the minister is “positively encouraged” by how things are unfolding, he has nevertheless warned that “we are not out of the woods yet”.
Seychelles NATION: As finance minister, are you satisfied with the level of economic activity in the country since the opening of our frontiers?
Minister Hassan: I would not say I am satisfied, but I am positively encouraged, especially on the tourism side. Since we opened our frontiers, the numbers have been very positive. We have seen a number of airlines coming back and this means that there is a demand to come to Seychelles. The numbers are not at pre-Covid level but we have seen an increase! Just for April we had over 14,000 visitors and for the first weeks of May we had just over 4000. Obviously these are not pre-Covid level figures, but it is a significant improvement. With this other supporting sectors of the economy have been able to function also. Our fisheries sector is faring quite well and there is ongoing plan to enhance this sector. We can also see diversification in agriculture and the economic diversification is taking shape. We will be able to see the result of these diversifications in the coming two to three years. In the short term, our tourism industry will support us and that’s why it is important to open our frontiers. Critical to this, we have to keep the Covid cases down; this is where everybody takes their responsibility. Statistics is showing us that when you are vaccinated you are not ending up under ventilator or in serious conditions. This means the vaccines are protecting us. That’s what matters the most and we should not put unnecessary pressure on the Ministry of Health. I am also in discussion with the Ministry of Health to get access to approved vaccines for under 18, through the COVAX initiative. Vaccination alone will not protect us and as advised by the WHO, we need to change our behaviour and respect the health guidelines. The increase in cases will affect all of us and our economy will be affected. Collective responsibility is important for our country to do well.
Seychelles NATION: Seychelles is in the spotlight right now for vaccination numbers, Covid-19 cases and its economy. How can you describe the Seychelles economy in comparison to the world’s?
Minister Hassan: First of all, we need to understand that Seychelles is a small island state and we call it an open vulnerable economy. Let us compare it with a country that can close down, like Australia. Australia is closed down till 2022 and it can do it as it is self-sustaining. Let’s look at Seychelles, by nature of our economy, we cannot close down. When we close down, our main sector, which is tourism, is impacted, meaning we do not have revenues coming in. This impacts immediately our exchange rate and the government will not be able to sustain its economy. One example is the FA4JR scheme came close to bankrupting the country! Our financial resources are not like the other countries where they can borrow cheaply on the market to sustain their budget deficit. Seychelles borrows at high interest rates. It is easy to say let us continue with this scheme, etc, but people need to understand what impact these schemes have on our budget. This is why we cannot lock the country down. The country needs to be safe and the country needs to be open.
Seychelles NATION: With the opening of our frontiers, the Seychellois people immediately went back to their old habits of shopping online and others. What advice would you give to the public?
Minister Hassan: It is important for all of us to understand that we are not out of the woods yet. Things are still at a critical stage and we have to be careful the way we, as a country, behave in our economy. The level of economic activities is nowhere the pre-Covid level. We, as an economy, have to adjust to the new level. The level of spending we do as consumers cannot be the same level we used to do pre-2020. We have to be more responsible and be mindful that it does not put extra pressure on our foreign exchange. We cannot think that everything is back to normal as everything is not back to normal. We are at the very beginning of the economic recovery and there is a lot of downside risks and we need to manage those risks carefully so that our recovery is sustained and can accelerate as the pandemic is under control.
Seychelles NATION: Some businesses had to close down whereas others have started to recruit. Again what lessons have been learnt and what advice could you give to small, medium entrepreneurs?
Minister Hassan: It is all about adapting for the business community. And be agile enough to adapt to an ever changing environment that we are in. We have seen that many businesses had to adapt with these changes and also go online. I am pushing a lot on the agenda of having a digital economy. This will eliminate a lot of risks in the business. Businesses also should embrace those changes and be cautious moving forward. A lot of businesses had to go through a restructuring process in order to survive. When we try to go too big too early, it can have negative impact. In this environment that is so uncertain, businesses have to be flexible and adapt to the situations presented to them.
Seychelles NATION: Some countries have been advising their people not to travel to Seychelles. Has government registered a decrease in the number of flights and tourists to Seychelles since these announcements?
Minister Hassan: So far the numbers are holding up. In fact, the US travel advisory dated quite a while back and got into the media two weeks back. Over 140 countries are on this list, not to be on the list would be an exception rather than the norm. A lot of noise and negative publicity were made around this issue. In my view this was overblown and created negative press worldwide. This advisory did not really affect us as the US is not our key market.
Seychelles NATION: Is government likely to help government agencies that do not receive a budget in case they are unable to honour all of their commitments?
Minister Hassan: So far, when we look at the budget 2021, there are a few entities that are receiving assistance such as Air Seychelles, SPTC and others. There are also smaller entities that are also receiving subventions as they have been impacted directly by the pandemic. But as we move in 2022, because we have to do fiscal consolidation, those subventions will have to reduce significantly because we have to narrow the budget deficiency.
Seychelles NATION: What is the latest on Seychelles’ request for budgetary support?
Minister Hassan: So far we are still in very complex negotiations with our international partners. Any budget support is done in the context of getting an IMF endorsed programme. For this to happen, the IMF has to be comfortable that our debt is sustainable. Right now there is a lot of number crunching that is going on so that we are able to access the program. Then the other partners and bilateral partners come in. The IMF is the catalyst to get budget support and that discussion is still ongoing. Given the magnitude of the shock we got from the pandemic, this means the negotiations are more complex.
Seychelles NATION: Seychelles’ debt has been declared as unsustainable. With the current level of economic activity, is the situation improving?
Minister Hassan: It is important that I explain what it means that our debt is unsustainable. It is when the debt reaches a certain level of the GDP. In our case, at the end of the year it was around 100% of our GDP. Also as part of the equation, approximately 15% of what is in the budget number is actually just paying interest on our debt. Why is this the case? Government had to borrow domestically to finance the budget deficit and domestically the debt is very expensive – bonds were issued up to 12% and this represents a significant burden on the government. So we will have to restructure this whole debt situation whereby we come to replace some of the domestic debt with external debt. This will reduce the interest rate on our debts. This reduction will reflect on our budget thus making it more sustainable. At the same time, we will have to start making a surplus to pay off our debt.
Seychelles NATION: What are the consequences of a lockdown?
Minister Hassan: What does lockdown mean? It means nobody can leave the country and nobody can come in. When we go on a lockdown, our access to the world is cut off, so any goods coming in will have to come via sea freight and it has its own limitations. Most of the medicines come through airfreight. With no connection to the world we will be in trouble. The second impact is we do not have tourists coming in thus bringing depreciation in our currency. This is what happened when we went in lockdown. Thirdly when we go in lockdown, businesses are closed down thus they are not able to pay taxes.
Seychelles NATION: Since government issued numerous treasury bills, has it not had an effect on the availability of rupees in the country, this causing the exchange rate to fall at a rapid rate?
Minister Hassan: I do not think so. When government issues treasury bills, the funds are collected and the money is being spent. The money goes back in the market and I absolutely do not think there is a shortage of rupees on the market.
Seychelles NATION: What is the state of our finances going forward?
Minister Hassan: The government has to be very disciplined on the expenditure side. Now we are running a deficit. This cannot continue and to do that we have to cut expenditure and we cannot do it overnight. We have to do it in phases. Moving forward we will see more discipline by government in terms of expenditure, such that we narrow deficit and eventually as the economy recovers, we start collecting more revenues and start paying our debts back. That’s the medium to long term strategy. It sounds simple, but it is a lot of work.
My key message is this economic recovery is about all of us. It is not the time for people to be divided or go in different directions. This is our country and it is all us that will make or break our economic recovery. All of us have to play our role in terms that we are making sure that we behave in the right manner.
Seychelles in figures
Revisions to economic outlook April 2021
The Real GDP growth has been preliminary revised upwards to 4.4 per cent compared to 2.08 per cent estimated for the Budget 2021. (Source: Ministry of Finance, Economic Planning & Trade)
Visitor arrivals for the month of April 2021 – 14,245 compared to 22 visitors in April 2020. (Source: National Bureau of Statistics)
Tourism receipts from Central Bank of Seychelles