IMF Executive Board Concludes 2010 Article IV Consultation with the Seychelles

Public Information Notice (PIN) No. 10/162
December 22, 2010

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On December 20, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the 2010 Article IV consultation with the Seychelles.1


The economic outlook is favorable. Developments in 2010 confirm a quick progress toward stabilization and have freed up some margins for more expansionary policies. The exchange rate has stabilized, price stability has been restored and reserves rebuilt. The medium-term outlook is favorable as growth is projected to gradually reach 5 percent, but the timid global recovery and large external vulnerabilities plead in favor of rebuilding policy buffers and diversifying the economy.

The 2010 Article IV discussions focused on the medium-term challenges that confront Seychelles, including recovering from a severe external debt crisis, reducing the small island state’s vulnerability to external shocks, and promoting private-sector led growth. Several interrelated issues were discussed: the use of the fiscal margins that have emerged from the economic recovery, external stability issues, the management of the growing banking liquidity, and the sound development of the financial sector.

The program is on track. All performance criteria through end-September 2010 were met and the end-year targets are within reach. Although most of the structural reform agenda is progressing as scheduled, capacity bottlenecks have delayed two measures that were structural benchmarks for end-September and end-November 2010 respectively.

The program targets for 2011 reflect further efforts to consolidate economic stabilization gains and secure Seychelles’s medium-term growth objective. The program accommodates an easing of the fiscal stance consistent with debt sustainability and external stability. After two years of fiscal over-performance, the authorities target a primary surplus of 5 percent of GDP for the 2011 budget, 1 percentage point of GDP less than initially planned. This will provide fiscal space for the financing of infrastructure, addressing the main growth bottleneck in the medium term, while maintaining public debt on the initial declining path. Further steps are taken to rationalize the tax system, including preparations for the launching of a value-added tax (VAT) in mid-2012. Monetary policy will aim toward maintaining inflation below 3 percent.

Executive Board Assessment

Directors commended the authorities’ stabilization efforts that helped Seychelles overcome the 2008 balance of payments and debt crisis and the recent global recession. Directors noted a remarkable turnaround of economic policies, including foreign exchange market liberalization and floating of the rupee, exceptional fiscal adjustment, and enhanced management of public finances and the central bank. They also noted the important role played by international assistance, which facilitated successful restructuring of external debt and the return of investor confidence.

Directors agreed that, with improved economic fundamentals, the medium-term outlook is positive, but risks remain. They observed that upbeat growth projections, a benign inflationary environment, and the strong revenue performance in 2010 offer room for more expansionary fiscal policies in 2011 in support of the country’s development needs, including priority recruitment in the public sector and infrastructure investment. At the same time, uncertainty about the global economy and large external vulnerabilities favor the rebuilding of policy buffers. Directors welcomed further steps to rationalize the tax system, including the launch of a value-added tax in mid-2012, enhanced transparency and accountability of public finances, and the planned reform of the social security system.

Directors took note of the staff’s assessment that the exchange rate is broadly in line with fundamentals, and welcomed the authorities’ intention to maintain a flexible exchange regime, which has played an important role on the recovery path. However, vigilance is needed against the inflation and exchange rate risks stemming from excess liquidity in banks, which is emerging from the quick reduction of domestic public debt. In this context, Directors welcomed the authorities’ commitment to mop-up liquidity, including by issuing treasury bills for monetary policy purposes, and to maintain inflation in the low single digits.

Directors noted the soundness of the banking system and welcomed improvements in financial regulations. At the same time, they thought that greater competition among banks would facilitate credit growth and intermediation. They encouraged the authorities to reduce state intervention in the financial system, and enhance disclosure requirements and consumer protection.

Directors commended the authorities for successful implementation and strong ownership of the reform program, and were encouraged by their commitment to sustain the reform momentum. They stressed the need to address capacity bottlenecks, which have delayed two structural benchmarks.

Directors emphasized the need to maintain an ambitious path toward debt sustainability. They welcomed the measures aimed at enhancing efficiency of public enterprises, underscoring the importance of ensuring financial sustainability of the national airline and Public Utilities Company.

Seychelles: Selected Economic and Financial Indicators, 2008–13
  2008 2009 2010 2011 2012 2013
    Prog Prel. Prog. Proj. Projections

National income and prices

(Percentage change, unless otherwise indicated)

   Nominal GDP (millions of Seychelles rupees)

8,710 10,402 10,726 11,206 11,303 12,000 12,881 13,920

   Real GDP

-1.3 -7.6 0.7 4.0 6.2 4.3 4.8 5.0

   CPI (annual average)

37.0 32.9 31.9 -2.4 -2.2 2.5 3.0 2.9

   CPI (end-of-period)

63.3 1.9 -2.5 1.1 1.2 3.0 2.6 3.0

   GDP deflator average

29.3 28.5 22.3 0.4 -0.8 1.8 2.5 2.9

Money and credit

(Percentage change, unless otherwise indicated)

   Net claims on private sector

48.6 -12.1 -11.4 22.2 21.5 11.3 ... ...

   Broad money

27.2 -0.7 7.5 19.1 12.5 11.1 ... ...

   Reserve money

0.6 32.2 15.7 35.3 35.5 5.1 ... ...

   Velocity (GDP/broad money)

1.5 1.8 1.7 1.5 1.6 1.5 ... ...

   Money multiplier (broad money/reserve money)

5.3 4.0 4.9 4.3 4.1 4.3 ... ...

Savings-Investment balance

(In percent of GDP)

   External savings

48.9 22.6 36.3 39.5 47.1 27.3 20.0 17.3

   Gross national savings

-8.8 6.8 -7.1 6.0 6.3 10.1 11.5 11.6

      Of which: government savings

7.9 2.8 7.8 5.6 7.6 13.1 10.7 9.3

   Gross investment

40.1 29.4 29.3 45.4 53.4 37.4 31.5 28.9

      Of which: government investment

2.1 5.3 5.7 8.0 8.4 10.4 8.5 7.8

Government budget


Total revenue, excluding grants

32.9 35.6 35.4 31.4 35.5 36.5 36.5 35.7

Expenditure and net lending

40.0 35.1 33.8 33.8 34.3 37.8 36.2 35.0

   Current expenditure

28.7 32.8 31.0 28.9 29.3 27.4 27.6 27.2

   Capital expenditure and net lending

11.2 2.3 2.7 4.9 5.0 10.5 8.6 7.9

Overall balance, including grants

-3.4 2.8 5.0 0.7 2.7 2.7 2.1 1.5

Primary balance

3.9 13.3 14.8 7.4 9.4 5.0 4.7 4.0

Total public debt 1

136.7 140.1 128.6 82.4 76.1 71.7 64.3 57.0

External sector

(In percent of GDP, unless otherwise indicated)

   Current account balance including official transfers

-48.9 -22.6 -36.3 -39.5 -47.1 -27.3 -20.0 -17.3

   Total stock of arrears (millions of U.S. dollars) 2

317 239 251 33.3 ... ... ...

   Total public external debt outstanding (millions of U.S. dollars) 1


      (in percent of GDP)

82.8 98.5 92.6 53.6 45.3 46.2 43.9 40.1

   Terms of trade (= - deterioration)

1.2 -2.1 -3.2 ... ... ...

   Real effective exchange rate (average, percent change)

-7.1 -6.6 ... ... ... ... ...

Gross official reserves (end of year, millions of U.S. dollars)

51 153 169 224 218 253 286 311

In months of imports, c.i.f.

0.6 1.5 1.7 2.3 2.3 2.7 3.0 3.1

Exchange rate


   Seychelles rupees per US$1 (end of period)

16.6 10.6 11.3 ... ... ... ... ...

   Seychelles rupees per US$1 (period average)

9.5 14.1 13.6 ... ... ... ... ...

Sources: Central Bank of Seychelles; Ministry of Finance; and IMF staff estimates and projections.

1 Includes the central bank.

2 The 2010 figure is an estimate as of end-November 2010.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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