Statement at the Conclusion of the 2008 Article IV Staff Mission to SeychellesPress Release No. 08/15
February 1, 2008
The following statement was issued on January 30, 2008, in Victoria by an International Monetary Fund (IMF) staff mission:
"An IMF team, headed by Mr. Norbert Funke, visited Victoria during January 17-30, 2008 to conduct the Article IV consultation discussions with Seychelles. It reviewed economic developments and prospects, and discussed with the authorities their policies to achieve debt sustainability, external stability, and the goals of their "Strategy 2017." The mission met with his Excellency President James Michel, the Minister of Finance Danny Faure, the Minister of National Development Jaquelin Dugasse, the Governor of the Central Bank of Seychelles Francis Chang Leng, other senior government officials, representatives of the private sector, non-government organizations, and the diplomatic community.
"Economic growth continued to be robust in 2007, at over 5 percent, supported by strong foreign direct investment, mainly in the tourism sector. Unemployment is at an historic low. Inflation rose in response to the gradual realignment of the Seychelles rupee, which is aimed at increasing Seychelles' international competitiveness. Fiscal policy remained expansionary as a result of higher-than-budgeted spending and lower revenues. The current account deficit widened, partly reflecting imports related to record inflows of new foreign direct investment and the purchase of another oil tanker. Growth may ease somewhat in 2008, reflecting high international oil prices, an expected slowdown in global growth, and local capacity constraints. Inflation is likely to remain elevated in the near term, as one-off factors due to price adjustments feed through.
"The mission welcomed the authorities' broad-based reform strategy outlined in March last year and the positive steps taken towards closer relations with multilateral institutions. The 2008 budget, which targets a sizeable primary surplus, breaks with the past and is an important step in the right direction. A range of structural reforms are set to play an important complementary role in reducing macroeconomic imbalances. These include significant upward revisions of utility prices, removal of price controls on imports, and foreign exchange market liberalization measures. The reforms will reduce subsidies to public enterprises, limit budgetary pressures, and improve market signals. The government's announcement that privatization will continue strengthens the prospects for private sector development.
"To put the economy on a strong, sustainable growth path for the medium term, it will be essential to broaden and deepen reform efforts aimed at restoring macroeconomic balance and improving competitiveness. Firm fiscal consolidation, a transparent debt strategy, exchange regime liberalization, and more structural reforms are needed to reduce high public debt to a sustainable level, restrain demand pressure, and support private sector growth. These policies, in combination, will reduce the vulnerability of the economy and contribute to long-run improvements in the living standards of all Seychellois. Success will depend in large part on providing momentum and credibility to the reform efforts and, in this regard, rigorous implementation of the 2008 budget will be essential.
"The IMF stands ready to assist the authorities in refining and implementing their reform program, and looks forward to continuing a close and constructive dialogue."