Press Release No. 13/63

Press Release No. 13/63
March 5, 2013

An International Monetary Fund (IMF) mission led by Carol Baker visited Victoria from February 20 – March 5, 2013 to conduct the 2013 Article IV consultation discussions and assess performance at end-December for the seventh program review under the Extended Fund Facility (EFF) Arrangement with Seychelles.¹ The mission met with Finance Minister Pierre Laporte, Central Bank Governor Caroline Abel, other senior government officials and members of parliament, as well as representatives of the private sector.

At the conclusion of the mission, Ms. Baker issued the following statement:

“The Seychellois economy has shown resilience in the face of the difficult global economic environment. Economic growth has held up thanks to increasing tourist arrivals from non-traditional markets; fiscal policies have remained firmly on track toward the government’s target of bringing public debt down to 50 percent of gross domestic product (GDP) by 2018; and debt restructuring is nearly complete. Monetary tightening has been successful in reversing the inflationary uptick experienced last year, and inflation pressures are expected to continue their recently observed downward path.

“The government has made sustained progress in implementing the IMF-supported program. All end-December 2012 quantitative targets under the program were met. The broader structural reform agenda is also moving ahead, with cabinet approval of the public sector investment program and passage of the Public Financial Management Act. The mission welcomes the introduction of the value-added tax (VAT), which will modernize and strengthen the tax system, and encourages the government to take all necessary steps to ensure that the VAT is applied efficiently.

“The government of Seychelles has made significant strides since the time of the 2008 debt crisis to stabilize the economy, improve financial discipline at the central government level and reduce public debt. However, challenges remain. Seychelles’ open economy remains highly vulnerable to external shocks. Moreover, like many small middle-income economies, Seychelles faces the medium-term challenge of achieving high-income status in the face of limited opportunities for rapid growth.

“Policies in the period ahead should aim to cement macroeconomic stability, and support growth and employment. Ensuring a buildup of buffers against shocks will be critical in the current global economic environment, and requires the continuation of prudent macroeconomic policies and the safeguarding of international reserves. Moreover, the mission urges the authorities to bring the same level of fiscal discipline observed at the central government level to the broader public sector, including through the gradual adjustment and rebalancing of domestic utility, food and transport prices. Throughout this price adjustment process, it is of utmost importance to take the necessary steps to protect the most vulnerable segments of Seychellois society, while increasing use of mean-tested benefits in social welfare to ensure that it does not act as a deterrent to labor force participation.

“In terms of growth and employment, the government should maintain momentum for their ample structural reform agenda which aims to foster an environment conducive to private sector participation in economic activity. Key measures include modernization of the legal framework—such as the Companies, Insolvency and Labor Acts—in line with international best practice; financial sector development aimed at reducing the cost and increasing access to credit, especially for small and medium enterprises; and building capacity of local labor to bring it in line with the needs of the private sector. In the case of housing and social protection, policies should seek to balance addressing market failures and protecting the vulnerable against overly generous benefits which deter labor market participation and private sector development.

“The mission appreciates the high quality of the discussions and wishes to thank the authorities for their warm hospitality, and the open and constructive dialogue.”

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¹ The Extended Fund Facility under the Extended Arrangement is an instrument of the IMF designed for countries facing serious medium-term balance of payments problems because of structural weaknesses that require time to address. Assistance under the extended facility features longer program engagement—to help countries implement medium-term structural reforms—and a longer repayment period. (See http://www.imf.org/external/np/exr/facts/eff.htm). Details on Seychelles’ current arrangement are available at www.imf.org/seychelles.