## cr1751 - 2016. Underpinned by the authorities’

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### Macroeconomic performance and social context
- Growth and income:
  - Real GDP growth: 2015 = 4.3 percent; 2016 estimated ~4½ percent; momentum into 2017 then easing to potential ~3½ percent after 2018.
  - Per capita GDP rose to almost $15,000 (Per capita GDP (2014): US$14,770).
  - Tourist arrivals: growth 8¼ percent through September 2016; visitor arrivals as of December 25: 295,425 (increase of 10% over 2015).
- External buffers and reserves:
  - Gross international reserves (GIR) improved to over 4 months by end-2015 (Net international reserves: end-2016 target implies coverage at 3¾ months of prospective imports).
  - Gross official reserves (end of year, US$ millions): 2013 = 425; 2014 = 463; 2015 = 521; 2016 = 537; 2017 Est. = 517.
- Inflation and monetary conditions:
  - Year-on-year CPI inflation negative up to October 2016; average inflation in 2015 = 4 percent; inflation projections: 2016 ~4.0 percent (staff table), 2017 Est. = 2.5; Annex and MEFP projections note end-2016 inflation ~1.5 percent and average inflation 2017 projected at 3.7 percent in some sections.
  - CBS tightened monetary policy in March 2016; one-year T-bill rate rose to 8.3 percent in October from just over 5 percent in March.
  - Private sector credit growth: hovered 7–10 percent in recent months; credit to the private sector (12–month % change): 2014 = 26.2; 2015 = 12.6; 2016 = 7.8; 2017 Est. = 13.1.
- Poverty and social indicators:
  - 2013 HBS poverty line: SCR 3,945 per adult equivalent per month → US$10.76 per adult equivalent per day (gross) or US$15.22 in 2013 PPP US$.
  - Proportion below national poverty line: 39.3 percent; food poverty headcount: 24.3 percent.
  - Gini Index (2013): 45.9 percent.
  - Mitigating non-monetary factors: free universal healthcare; free universal education; very low unemployment; generous housing policies.

### Fiscal shocks from SONA measures and estimated costs
- SONA commitments (February 2016): measures costing around 2 percent of GDP in 2016 and 3 percent thereafter.
- Key SONA tax and benefit changes:
  - 25 percent increase in the minimum wage; 40 percent increase in statutory pension.
  - Introduction of a progressive personal income tax (PIT) with an exemption threshold more than double Fund TA recommendation.
  - From April 2016, earnings below SR8,555.50/month exempted from income tax; earnings above SR9,838.8 continue at 15 percent until full system in mid-2017; earnings between SR8,555.5 and SR9,838.8 effectively face a 100 percent marginal tax rate until full implementation.
- Approximate annual cost (percent of GDP) of listed SONA measures (box):
  - Retirement/Invalidity benefit increase: 0.5
  - Home Carers allowance increase: 0.18
  - Increase in welfare weights and maxima: 0.29
  - Travel subsidies for students, patients and pensioners: 0.04
  - Reduction of 25% on PMC houses price: 0.08
  - Home Improvement/Re-roofing Loan for Pensioners: 0.07
  - Increase in Government Gratuity Scheme: 0.01
  - Payment of pensions for Ministers and Members only from age 63: (0.07)
  - Progressive Income Tax exemption from January 2017: 1.90
  - First-time Home Buyers Stamp Duty exemption: 0.04
  - Special Court for drug offences: 0.01
  - Anti-Corruption Commission set-up: 0.01
  - Housing repair work and Seed Financing for Property Management Company: 0.22
  - Estimated Annual Financing Implications (total): 3.2

### Recent developments, program performance, and outlook
- Recent outturns and program targets:
  - 2015 primary surplus reached 4¼ percent of GDP (exceeding target by ½ percent of GDP); end-June 2016 primary balance exceeded target by around 1 percent of GDP.
  - All end-December 2015 and end-June 2016 quantitative performance criteria were met.
  - Net international reserve (NIR) outperformance: end-2015 exceeded target by US$14 million; end-June 2016 exceeded target by US$10 million.
  - Reserve money targets achieved in Q4 2015 and H1 2016; reserve money slightly exceeded third review projections but remained within the prescribed upper band.
- Near-term growth outlook:
  - Real GDP estimated ~4½ percent in 2016; growth momentum into 2017 (new flights) then easing to ~3½ percent after 2018.
- Risks:
  - Downside risks include euro weakness against US dollar (tourism receipts largely in euro), inflation and exchange rate pressures from SONA expansionary effects, and global banking correspondent relationship reductions.

### Fiscal strategy, revenue measures, and debt management
- Revised debt objective:
  - Original goal: public debt-to-GDP below 50 percent by 2018; revised to below 50 percent by 2020 due to SONA permanent fiscal cost ~3 percent of GDP.
- Primary surplus targets:
  - Authorities agreed primary surplus of 3 percent of GDP in 2016 and 2017 (slightly less ambitious than previously around 3¾ percent).
  - For 2016, primary surplus expected to reach 3 percent of GDP (partial SONA cost in 2016 estimated at 2 percent of GDP).
  - 2017 budget targets a primary surplus of 3 percent of GDP.
- Revenue measures in 2017 budget:
  - 10 percent increase in excise on beer and wine.
  - 0.5 rupee/liter increase in excise on petroleum (excluding PUC and SPTC).
  - Additional revenue support: one-off stamp duty payment just over 1 percent of GDP from sale of local telecoms company; delay in full PIT implementation until mid-2017.
- Fiscal saving measures to partially offset SONA costs (estimated revenue generation, SCR and percent of GDP):
  - 0.5 SCR excise on fuel excl. PUC/SPTC: 33 million (0.16 percent of GDP)
  - 10 percent increase on sub-16 percent alcohol: 16 million (0.08 percent of GDP)
  - 10 percent increase on tobacco excise: 14 million (0.07 percent of GDP)
  - Increase in License Fees: 14 million (0.07 percent of GDP)
  - Increase in Port Fees: 10 million (0.05 percent of GDP)
  - Increase in Passenger Service Fee for non-residents: 20 million (0.10 percent of GDP)
  - Revise excise on hybrids: 10 million (0.05 percent of GDP)
  - Property tax: 10 million (0.05 percent of GDP)
  - Enforcement/new fees by Registration Division: 7 million (0.03 percent of GDP)
  - Total measures: 140 million (0.69 percent of GDP)
- Debt operations and liability management:
  - Paris Club agreement finalized February 2016 allowing buyback of over 90 percent of Paris Club maturities 2015–2021 at a small discount, facilitated by The Nature Conservancy.
  - Government issued obligations to Seychelles Conservation and Climate Adaptation Trust (SCCAT).
  - Authorities considering swapping dollar-denominated Eurobond obligations into Euros to better match FX earnings.
- Medium-term debt management recommendations:
  - Unwind some sterilization-related domestic debt as CBS tools evolve.
  - Lengthen maturities of domestic debt to reduce rollover risks and gross financing needs.

### Monetary policy, reserves, and macroprudential recommendations
- Reserve and FX policy:
  - End-2016 NIR target set at time of third review implies ~3¾ months of prospective imports (about 170 percent of the ARA metric).
  - Staff agreed with CBS to refrain from FX purchases for rest of 2016; without further purchases the end-2016 NIR target would be achieved.
  - Policy advice: CBS should continue purchasing international reserves only to the extent necessary to preserve import coverage at around the current level; limit FX purchases given high sterilization costs.
- Monetary framework modernization:
  - Recommendation to introduce an interest rate corridor around an appropriate policy rate (per AFRITAC TA) to guide short-term rates, reduce volatility, enhance monetary transmission, and encourage money market development.
  - Introduction of a policy rate will serve as an indicator of the monetary policy stance and help guide movements in short-term interest rates; issuance of short-term government securities remains critical for liquidity management.
- Macroprudential and financial stability:
  - Financial Stability Committee became operational in March 2016 (CBS, Ministry of Finance, FSA, FIU).
  - CBS lacks full macroprudential toolkit; revisions to CBS Act to allow enforcement of micro-prudential ratios (loan to value, debt to income, debt service to income) are underway.
  - Migration to Basel II expected to enhance toolkit over medium term.
  - Concern over rise in unsecured lending and costs of sterilization; staff recommends readiness to tighten monetary policy to contain demand-pull inflation from SONA and tariff/excise hikes.

### Financial sector integrity, offshore sector and AML/CFT
- Legislative and governance updates:
  - International Business Corporations Act, 2016 enacted; new Trusts Act drafted and awaiting enactment; International Corporate Trustee and Foundation Service Providers Act near finalization.
  - OECD Global Forum: Seychelles found non-compliant in 2013; supplementary report as of August 2015 found country largely compliant.
- Offshore sector headwinds:
  - Withdrawals of correspondent banking relationships (CBRs) present risks; loss limited so far but banks face pressures.
  - Authorities drafting an action plan to align banks’ AML/CFT frameworks with international standards; a comprehensive AML/CFT strategy to draw on National Risk Assessment (World Bank).
- IBC incorporations:
  - Number of IBCs incorporated: September 900 and October 841 (lowest since 2009); 2015 incorporations up to October down 27% year-on-year.

### SOEs, PFM, structural benchmarks and program monitoring
- SOEs and fiscal risks:
  - SOEs mostly profitable but aggregate profitability low vs international benchmarks (except transport).
  - SOEs’ non-guaranteed debt estimated at around 13 percent of GDP — sizable implicit contingent liability.
  - Governance reviews (World Bank-assisted) completed for initial three SOEs by June 2016; a further three (Ports Authority, Nouvobank, Seychelles Pension Fund) presented in December 2016 (Structural Benchmark).
  - PEMC and Ministry of Finance to submit an Action Plan to Cabinet for approval by March 2017 (structural benchmark) to improve SOE reporting, fiscal risk analysis, and data requirements.
- Public Financial Management:
  - PEFA assessment delayed to second half of 2016, PEFA launched Q3 2016; revised PFM Action Plan to be submitted to Cabinet by end-March 2017 (structural benchmark).
  - Programme Performance Based Budgeting (PPBB) in 5 portfolio Ministries in 2016; full roll-out staggered over three years aiming to cover all ministries by 2019.
- Program monitoring and conditionality:
  - Program to be monitored semi-annually; submission to National Assembly of a 2017 budget consistent with the program is a prior action.
  - Authorities requested modification of end-December 2016 fiscal primary surplus PC and waiver of applicability for end-December 2016 PCs where data unavailable.
  - Staff supports completion of fourth and fifth reviews under the Extended Arrangement, conditional on prior actions including submission of a budget consistent with a 3 percent primary surplus in 2017.

### Debt and DSA stress-test outcomes (key figures preserved)
- External debt vulnerability:
  - Baseline external debt (percent of GDP): 105.
  - Historical external debt (percent of GDP): 118.
  - Interest rate shock outcome: 119.0.
  - Growth shock outcome: 121.1.
  - Non-interest current account shock outcome: 122.8.
  - Combined shock outcome: 148.6.
  - Real depreciation (30 percent) leads to external debt-to-GDP ~150 percent at end of projection period.
- Baseline external debt path (selected): 2015 = 100.9; 2016 = 101.9; 2017 = 104.7; 2018 = 104.2; 2019 = 104.4; 2020 = 104.7; 2021 = 104.7.
- Public debt DSA (selected nominal gross public debt % of GDP): 2014 = 108.8; 2015 = 70.5; 2016 = 70.6; 2017 = 70.5; 2018 = 67.9; 2019 = 61.4; 2020 = 55.4; 2021 = 49.7.
- Public gross financing needs (percent of GDP, selected): 2014 = 30.5; 2015 = 18.8; 2016 = 24.6; 2017 = 27.1; 2018 = 29.0; 2019 = 30.3; 2020 = 25.9; 2021 = 23.1.
- Stress-test conclusion: real exchange rate/real depreciation shocks materially increase public and external debt burdens relative to shocks to primary balance, real GDP growth, or real interest rates.

### Key macroeconomic and financial indicators (selected figures)
- Nominal GDP (2014): US$1,349 million
- Population, end-year (2014): 91,359
- Literacy rate (2010): 94 percent
- Main products and exports: Tourism, Canned Tuna
- Real GDP (annual growth, selected years and projections):  
  - 2013: 5.0  
  - 2014: 6.2  
  - 2015: 4.3  
  - 2016: 5.7  
  - 2017 Est.: 3.3  
  - 2018 Est.: 4.4  
  - 2019 3rd Rev.: 4.1  
  - 2020 Proj.: 3.4  
  - 2021 Proj.: 3.3
- CPI (annual average, selected years and projections):  
  - 2013: 4.3  
  - 2014: 1.4  
  - 2015: 4.3  
  - 2016: 4.0  
  - 2017 Est.: 2.5  
  - 2018 Est.: -0.7  
  - 2019 3rd Rev.: 3.7  
  - 2020 Proj.: 3.7  
  - 2021 Proj.: 3.0
- Months of imports, c.i.f. (selected): 2013 = 3.2; 2014 = 3.9; 2015 = 4.8; 2016 = 4.3; 2017 Est. = 4.5; 2018 Est. = 3.8.
- Current account balance including official transfers (percent of GDP, selected): 2013 = -12.1; 2014 = -23.0; 2015 = -14.4; 2016 = -18.8; 2017 Est. = -15.3.
- Exports of services (US$ millions, selected): 2013 = 628; 2014 = 834; 2015 = 675; 2016 = 848.
- Tourism earnings (US$ millions, selected): 2013 = 430; 2014 = 398; 2015 = 404; 2016 = 392.
- Broad money growth (12–month % change, selected): 2013 = 23.7; 2014 = 26.6; 2015 = 6.7; 2016 = 2.9; 2017 Est. = 9.1.
- Financial soundness indicators (selected): Regulatory capital to RWA (percent, selected quarters): 26.7; 26.7; 21.7; 23.3; 23.3; 24.8; 25.5; 26.2; 25.2. Nonperforming loans to gross loans (percent, selected quarters): 9.3; 9.4; 8.2; 7.1; 7.2; 7.7; 7.6; 8.5; 7.8.

### Staff appraisal and policy priorities
- Staff concurs with balancing social objectives and macro stability; notes social initiatives announced in early 2016 were not well targeted and entail substantial permanent fiscal costs—around 3 percent of GDP on a full-year basis.
- Staff welcomes authorities’ commitment to steady debt reduction reflected in draft 2017 budget targeting a 3 percent primary surplus.
- Staff view: if authorities implement additional measures to ensure a 3 percent surplus from 2018 onwards, public debt-to-GDP could be reduced below 50 percent by 2020 (two years later than originally planned); additional permanent revenue measures and containment of government expenditures—particularly wage growth—are needed.

*Source: IMF staff report (cr1751).*

### 2016. Underpinned by the authorities’

### cr1751 - 2016. Underpinned by the authorities’

### Macroeconomic performance (recent past)
- Seychelles recorded significant primary fiscal surpluses for seven consecutive years since 2009.
- Per capita GDP rose to almost $15,000.
- Public debt to GDP ratio has almost halved since end-2008.
- Gross international reserves (GIR) improved to over 4 months by end-2015 from less than 1 month at end-2008.
- Household Budget Survey (HBS) published in December 2015 indicated that 39 percent of the population were living below the authorities’ poverty line.

### Fiscal policy shocks: SONA commitments and costs
- President Michel’s State of the Nation Address (SONA) in February 2016 committed measures costing around 2 percent of GDP in 2016 and 3 percent thereafter.
- Measures included: a 25 percent increase in the minimum wage; a 40 percent increase in the statutory pension; introduction of a progressive income tax (PIT) with an exemption threshold more than double the level recommended in Fund technical assistance.
- As a result of the changes to the income tax:
  - From April 2016, those earning less than the SR8,555.50/month threshold were exempted from paying income tax.
  - For those earning above SR9838.8, the existing 15 percent flat tax continues to apply until the full system is introduced in mid-2017.
  - Those earning between SR 8,555.5 and SR9,838.8 effectively face a one hundred percent marginal tax rate until the new system is fully implemented.

Box: Approximate annual cost in percent of GDP of SONA measures (as listed)
- Increase in Retirement Benefit and Invalidity benefit rate from SR. 3,600 and 3,450 respectively to SR. 5,050: 0.5
- Increase in Home Carers allowance for full day carers to SR. 5,772 and half day carers to SR. 3,607.50: 0.18
- Increase in welfare weights and maximum levels of assistance: 0.29
- Travel subsidies for students, patients and pensioners: 0.04
- Reduction of 25% on the price of PMC houses to support home ownership: 0.08
- Home Improvement/ Re-roofing Loan for Pensioners through HFC: 0.07
- Increase in Government Gratuity Scheme: 0.01
- Payment of pensions for Ministers and Members of National Assembly only from the age of 63: (0.07)
- Progressive Income Tax exemption from January 2017: 1.90
- First-time Home Buyers Stamp Duty exemption: 0.04
- Special Court should be set up to hear all drug offences: 0.01
- Setting up an Anti-Corruption Commission: 0.01
- Housing repair work and Seed Financing for Property Management Company: 0.22
- Estimated Annual Financing Implications: 3.2
- Sources for box: Seychelles authorities and IMF staff estimates.

### Recent economic developments and outlook
- Economic growth reached 5¾ percent in 2015, buoyed by strong tourism performance.
- Tourist arrivals grew by 8¼ percent through September 2016.
- Nominal exchange rates have been stable since March 2016.
- Gross international reserves (GIR) were in line with staff’s projection at the time of the third review under the EFF.
- Central Bank of Seychelles (CBS) refrained from foreign exchange purchases during the first half of 2016, resumed purchases in July and August.
- Monetary developments:
  - CBS tightened monetary policy stance in March 2016.
  - Rate on one-year T-bills rose to 8.3 percent in October from just over 5 percent in March.
  - Year-on-year CPI inflation has been negative up to October (supported by tight monetary policy and low international fuel and food prices).
  - Private sector credit growth hovered between 7 and 10 percent in recent months, down from 26.2 percent at end-2014.
- Financial soundness indicators suggest banks remain adequately capitalized and liquid.
- Fiscal outturns:
  - In 2015, the primary surplus reached 4¼ percent of GDP, exceeding the target by ½ percent of GDP.
  - End-June 2016 primary balance exceeded the target by around 1 percent of GDP (with over-performance largely due to under-execution of the capital budget and tax revenue over-performance).
- Near-term outlook:
  - Real GDP is estimated to be growing at around 4½ percent in 2016.
  - Growth momentum expected to carry into 2017 with new flights, before easing to the potential rate of around 3½ percent after 2018.
  - Low international fuel and food prices and strong tourism arrivals have thus far offset effects of large increases in minimum wage and pensions without significant BOP and inflation pressure.
  - Downside risks: weakness of the euro against the US dollar (tourism receipts largely in euro); inflation and exchange rate pressures from SONA expansionary effects; global banking correspondent risk reduction affecting the financial sector.

### Program performance under the EFF
- All end-December 2015 and end-June 2016 quantitative performance criteria (PCs) were met.
- December 2015 and June 2016 fiscal primary surplus targets were met with substantial margins.
  - End-2015 primary surplus target met by a margin of ½ percent of GDP.
  - End-June 2016 primary balance exceeded by around 1 percent of GDP.
- Net international reserve (NIR) targets were exceeded:
  - NIR at end-2015 exceeded target by US$14 million.
  - NIR at end-June 2016 exceeded target by US$10 million.
- Reserve money targets on daily average were achieved in fourth quarter 2015 and first half 2016; reserve money slightly exceeded third review projections but stayed within the prescribed upper band.
- Structural agenda progressed with technical delays:
  - Governance reviews of 6 SOEs completed on schedule with World Bank assistance.
  - Revised SME policy approved by Cabinet.
  - PEFA assessment delayed to second half of 2016 due to administrative issues with donor financing.
  - National Assembly approved enactment of a new International Business Companies Act in July; legislation on International Corporate Service Providers and Trusts gazetted.
  - Framework for macro prudential surveillance approved by CBS board in March 2016.
  - Financial literacy baseline survey consultancy hired in April; finalization of strategy delayed beyond end-September 2016.
  - National Risk Assessment on AML/CFT being finalized; approval of resulting strategy may be delayed to early 2017.

### Policies in the period ahead — Fiscal
- Authorities committed to reducing public debt while addressing social priorities.
- Original goal to reduce public debt-to-GDP ratio below 50 percent by 2018 was revised to below 50 percent by 2020 due to SONA measures with permanent fiscal cost around 3 percent of GDP.
- Authorities agreed measures to achieve a primary surplus of 3 percent of GDP in 2016 and 2017 (slightly less ambitious than previously-agreed target of around 3¾ percent of GDP).
- For 2016, primary surplus expected to reach 3 percent of GDP (cost of partial SONA implementation in 2016 estimated at 2 percent of GDP).
- 2017 budget submitted targeting a primary surplus of 3 percent of GDP; measures include:
  - 10 percent increase in excise on beer and wine.
  - 0.5 rupee/liter increase in excise on petroleum (excluding that used the PUC and SPTC).
- Additional revenue support expected in 2017 from:
  - A large one-off stamp duty payment (just over 1 percent of GDP) from foreign acquisition of a local telecoms company.
  - Delay in full implementation of the progressive income tax until mid-2017.
- Additional permanent measures will be needed to meet the authorities’ goal of reducing debt to GDP below 50 percent by end-2020.
- Debt management strategies and actions:
  - Paris Club agreement finalized in February 2016 allowing Seychelles to buy back over 90 percent of Paris Club maturities falling due 2015–2021 at a small discount, facilitated by The Nature Conservancy.
  - Government issued obligations to the Seychelles Conservation and Climate Adaptation Trust (SCCAT).
  - Authorities considering liability management to swap dollar-denominated Eurobond obligations into Euros to better match currency of foreign exchange earnings.
- Medium-term recommendations:
  - Seek opportunities to reduce debt-related risks by unwinding some sterilization-related domestic debt as CBS monetary tools evolve.
  - Seek to lengthen maturities of domestic debt to reduce rollover risks and gross financing needs.

Box: Fiscal saving measures to partially offset SONA costs (estimated revenue generation)
- 0.5 SCRs on excise for fuel excluding PUC and SPTC: 33 million (0.16 percent of GDP)
- 10 percent increase in excise on sub-16 percent alcohol: 16 million (0.08 percent of GDP)
- 10 percent increase in excise on tobacco: 14 million (0.07 percent of GDP)
- Increase in License Fees: 14 million (0.07 percent of GDP)
- Increase in Port Fees: 10 million (0.05 percent of GDP)
- Increase in Passenger Service Fee for non-residents: 20 million (0.10 percent of GDP)
- Revise excise tax on hybrids to 25 to 100 percent (based on engine capacity) of current rate for non-hybrids: 10 million (0.05 percent of GDP)
- Property tax: 10 million (0.05 percent of GDP)
- Enforcement of penalty fees, introduction of new fees by Registration Division: 7 million (0.03 percent of GDP)
- Total measures: 140 million (0.69 percent of GDP)
- Source for box: Seychelles authorities and IMF staff estimates.

### Policies in the period ahead — Monetary and exchange rate
- CBS stands ready to tighten monetary policy in light of concerns about the expansionary impact of SONA initiatives.
- A tight reserve money target through first half 2016 helped contain inflation and moderate private sector credit growth.
- With higher-than-expected growth in foreign currency deposits during second quarter, CBS slightly revised up the reserve money target while keeping monetary stance broadly unchanged.
- Reserve money remained within prescribed bands; end-2016 reserve money expected to be broadly in line with the target set at the time of the third review.
- Additional spending from SONA and incentive schemes in the real estate sector could pressure domestic inflation and credit growth.
- Increases in electricity tariffs and planned increases in several excises in early 2017 (¶12) would push up inflation in coming months.
- CBS readiness: tighten monetary policy to contain demand-pull inflationary pressures or second-round effects of tariff and excise adjustments.

*Source: Seychelles authorities and IMF staff estimates.*

### 16. NIR has exceeded the targets set at the time of the third review so far, keeping

### 16. NIR has exceeded the targets set at the time of the third review so far, keeping

### International reserves, monetary policy, and exchange rate policy
- End-2016 NIR target set at the time of the third review implies reserves coverage at 3¾ months of prospective imports (about 170 percent of the ARA metric) at end-2016.
- Strong tourist arrivals and lower international commodity prices helped NIR overperform against the targets up to September.
- Staff agreed with the CBS to refrain from foreign exchange purchases for the rest of 2016 and proposed that the end-2016 NIR target remain unchanged to allow the exchange rate to move in line with economic fundamentals.
- Without further foreign exchange purchases by the CBS, the end-2016 NIR target would be achieved.
- Sterlization costs remain high due to the still wide spread between domestic and international interest rates; further substantial reserves accumulation could compromise the medium-term debt target.
- Policy advice: CBS should continue purchasing international reserves only to the extent necessary to preserve import coverage at around the current level.
- Reserve money corridor is +/- 3 percent, with the upper limit constituting a performance criterion under the program. The reserve money target is the quarterly average reserve money.

### Monetary policy framework modernization
- Absence of a monetary policy rate has created volatility in short-term interest rates and uncertainty about the correct rate to follow and bid.
- Recommendation: Introduce an interest rate corridor around an appropriate policy rate (as advised by recent TA by AFRITAC) to:
  - provide guidance for other short-term interest rates,
  - reduce volatility in short-term interest rates,
  - enhance monetary policy transmission from short-term money market rates to lending rates,
  - encourage development of interbank activities and money markets (which currently do not exist).

### Financial stability and macroprudential framework
- A Financial Stability Committee (FSC) became operational in March 2016; comprises CBS, Ministry of Finance, FSA, and FIU; scheduled to meet every quarter.
- While most foreign currency loans are hedged, the rise in unsecured lending remains a source of concern.
- CBS currently lacks macro-prudential tools to address such concerns; revisions to the CBS Act to allow enforcement of micro-prudential ratios (loan to value, debt to income, debt service to income) are underway.
- Migration to Basel II will provide an enhanced toolkit over the medium term.
- Authorities requested STA technical assistance on collection of housing price index data to gauge implied financial stability risk.

### Offshore financial sector and AML/CFT risks
- Significant governance improvements: new International Business Corporations (IBC) Act took effect; revised draft Act for trusts and International Corporation Service Providers (ICPS Act) to be shortly submitted to Cabinet.
- Offshore sector faces headwinds from withdrawals of correspondent banking relationships (CBRs) and global focus on money laundering and terrorist financing.
- Loss of CBRs has been limited so far, but banks face pressures in maintaining these relationships.
- Authorities drafting an action plan to reduce financial sector risks and avoid further loss of CBRs; proposed strategy focuses on ensuring banks’ AML/CFT framework aligns with international standards and enhancing cooperation with relevant jurisdictions.
- A comprehensive AML/CFT strategy drawing on the National Risk Assessment (conducted by the World Bank) will be articulated in coming months.

### Structural agenda: revenue administration, PFM, and SOEs
- Bonded warehouse scheme administration tightened after audits revealed substantial control weaknesses.
- Implementation of the Progressive Income Tax will pose fresh challenges for revenue administration; ensuring adequate staffing at the Seychelles Revenue Commission is a key focus given a very large number of unfilled vacancies.
- A PEFA assessment is being drafted to form the basis of a new PFM Action Plan (Structural Benchmark).
- Authorities developed a framework for implementing Public Private Partnerships with African Development Bank assistance (Structural Benchmark).
- SOEs: most currently profitable but remain a key source of fiscal risk.
  - TA from AFRITAC found aggregate profitability low compared with international benchmarks except in transport.
  - SOEs’ non-guaranteed debt—estimated at around 13 percent of GDP—constitutes a sizable implicit contingent liability requiring better reporting and analysis.
  - World Bank-assisted governance reviews produced recommendations to improve assessment of financial and social viability of SOEs’ new business lines, streamline information reporting, and impose sanctions for non-compliance.
- The first three SOE reviews were completed by June; a further three (covering the Ports Authority, Nouvobank, and the Seychelles Pension Fund) were presented to authorities in December 2016 (Structural Benchmark).
- Public Enterprise Monitoring Commission and Ministry of Finance will submit an Action Plan to Cabinet for approval by March 2017 to address key weaknesses identified in the TA (structural benchmark). The action plan will propose a timeline for implementing full fiscal risk analysis of the SOE sector in the country’s budget documents and clarify and strengthen data requirements and analysis of SOE investment and debt decisions.

### Program monitoring, fiscal risks, and vulnerabilities
- Program will continue to be monitored on a semi-annual basis; submission to the National Assembly of a 2017 budget consistent with the program is a prior action.
- Authorities requested reducing the end-December 2016 fiscal primary surplus target given the SONA initiatives, while NIR and reserve money targets will be kept unchanged.
- Submission of a budget consistent with the primary surplus target of 3 percent of GDP in 2017 to the National Assembly is a prior action for Board discussions to complete the fourth and fifth reviews.
- Staff supports the authorities’ request for a waiver of applicability for the end-December performance criteria, as the relevant Profit and Loss of SOEs data are not yet available, the program’s goals remain likely to be met, and there is no clear evidence that the performance criteria will not be met.
- Downside risks to the program stem from the fiscal operation in 2017 and external factors; economy remains vulnerable to external shocks.
- Internal risk: challenge of passing a 2017 budget fully consistent with the program given opposition control of the National Assembly; if a fully consistent budget cannot be passed, the government will take measures via executive powers (e.g., delaying non-priority expenditures) to achieve the primary surplus target.
- Additional fiscal measures will be required going forward to ensure a sufficiently strong primary balance to reduce the debt-to-GDP ratio below 50 percent by 2020.

### Staff appraisal and fiscal policy balance
- Staff concurs with authorities on the need to share growth benefits while safeguarding macroeconomic stability.
- Social initiatives announced in early 2016 were not well targeted and entailed substantial permanent fiscal costs—around 3 percent of GDP on a full-year basis.
- Without credible counterbalancing measures, these initiatives risk reversing gains from reforms since the 2008 crisis.
- Staff welcomes the authorities’ commitment to steady reduction of public debt reflected in the draft 2017 budget; the 2017 budget includes measures to buttress revenue and attain a surplus of 3 percent of GDP.
- Staff’s updated DSA indicates that, if authorities implement additional measures to ensure a surplus of this magnitude from 2018 onwards, the revised primary surplus target would allow reduction of the public debt-to-GDP ratio below 50 percent by 2020, two years later than originally planned.
- Conclusion: The revised goal strikes an appropriate balance between social objectives and economic stability, but additional permanent revenue measures and containment of government expenditures—particularly wage growth—are needed to attain the debt reduction target.

*Source: IMF staff report (chapter text provided).*

### 28. The CBS should stand ready to further tighten the monetary policy if needed, while

### cr1751 - 28. The CBS should stand ready to further tighten the monetary policy if needed, while

### Monetary policy stance and reserves
- The CBS should stand ready to further tighten the monetary policy stance if needed to contain inflationary pressures.
- Preserve the international reserves coverage at around the current level; foreign exchange purchases should be limited to maintaining the current level of reserves coverage of imports.
- Rationale and risks cited:
  - Balance of payments strengthened, supported by low international commodity prices and strong tourist arrivals.
  - Inflation has been subdued, supported by favorable food and fuel prices and a tight monetary policy stance, while credit growth remains moderate.
  - Implementation of the SONA initiatives could put pressures on domestic inflation and credit growth.
  - Recent increase in electricity tariffs and planned increases in several excises could push up inflation in coming months.
  - With external buffers adequate and the costs of sterilization still high, limit FX purchases to reserve maintenance.

### AML/CFT and financial sector integrity
- Authorities should continue efforts to strengthen the legal and regulatory framework regarding AML/CFT.
- Seychelles banking sector lost some CBRs in recent years, reflecting intense global interest in money laundering and terrorist financing issues.
- Authorities are urged to firm up an action plan (currently being drafted) to reduce financial sector risks and avoid further loss of CBRs.
- Proposed strategy focuses on:
  - Ensuring banks’ AML/CFT framework is in line with international standards.
  - Strengthening cooperation with relevant jurisdictions.

### SOEs, fiscal risks, and public financial management (PFM)
- Focus on structural agenda to minimize fiscal risks stemming from SOEs and further improve PFM.
- While most SOEs are profitable, the large size of their non-guaranteed debt should require closer monitoring by the government.
- Authorities should develop a concrete action plan to address key weaknesses in the SOE sector identified by recent TAs, including:
  - Better assessment of the viability of new business lines of SOEs.
  - Implementation of full fiscal analysis of the SOE sector.
- The ongoing PEFA assessment would provide a good basis for a new PFM action plan to be formulated in coming months.

### IMF program review and staff support
- In light of the authorities’ continued program implementation, staff supports:
  - Completion of the fourth and fifth reviews under the Extended Arrangement.
  - Modification of the quantitative performance criterion for end-December 2016.
  - Waiver of applicability of the quantitative performance criteria for end-December 2016.

### Key macroeconomic and financial indicators (selected figures as presented)
- Nominal GDP (2014): US$1,349 million
- Per capita GDP (2014): US$14,770
- Population, end-year (2014): 91,359
- Literacy rate (2010): 94 percent
- Main products and exports: Tourism, Canned Tuna

- Real GDP (annual growth, selected years and projections):  
  - 2013: 5.0  
  - 2014: 6.2  
  - 2015: 4.3  
  - 2016: 5.7  
  - 2017 Est.: 3.3  
  - 2018 Est.: 4.4  
  - 2019 3rd Rev.: 4.1  
  - 2020 Proj.: 3.4  
  - 2021 Proj.: 3.3

- CPI (annual average, selected years and projections):  
  - 2013: 4.3  
  - 2014: 1.4  
  - 2015: 4.3  
  - 2016: 4.0  
  - 2017 Est.: 2.5  
  - 2018 Est.: -0.7  
  - 2019 3rd Rev.: 3.7  
  - 2020 Proj.: 3.7  
  - 2021 Proj.: 3.0

- Total government and government-guaranteed debt (percent of GDP, selected years and projections):  
  - 2013: 70.8  
  - 2014: 70.5  
  - 2015: 66.6  
  - 2016: 70.6  
  - 2017 Est.: 62.7  
  - 2018 Est.: 70.5  
  - 2019 3rd Rev.: 67.9  
  - 2020 Proj.: 61.4  
  - 2021 Proj.: 55.4

- Gross official reserves (end of year, millions of U.S. dollars; selected series):  
  - 2013: 425  
  - 2014: 463  
  - 2015: 521  
  - 2016: 537  
  - 2017 Est.: 517  
  - 2018 Est.: 513  
  - 2019 3rd Rev.: 520  
  - 2020 Proj.: 544  
  - 2021 Proj.: 559  
  - 2022 Proj.: 571  
  - 2023 Proj.: 582

- Months of imports, c.i.f. (selected series):  
  - 2013: 3.2  
  - 2014: 3.9  
  - 2015: 4.8  
  - 2016: 4.3  
  - 2017 Est.: 4.5  
  - 2018 Est.: 3.8  
  - 2019 3rd Rev.: 3.7  
  - 2020 Proj.: 3.7  
  - 2021 Proj.: 3.7  
  - 2022 Proj.: 3.5  
  - 2023 Proj.: 3.5

- Current account balance including official transfers (percent of GDP, selected series):  
  - 2013: -12.1  
  - 2014: -23.0  
  - 2015: -14.4  
  - 2016: -18.8  
  - 2017 Est.: -15.3  
  - 2018 Est.: -17.7  
  - 2019 3rd Rev.: -17.9  
  - 2020 Proj.: -17.5  
  - 2021 Proj.: -16.9  
  - 2022 Proj.: -16.4  
  - 2023 Proj.: -16.0

- Current account balance (Millions of US Dollars, selected series):  
  - 2013: -159  
  - 2014: -310  
  - 2015: -209  
  - 2016: -256  
  - 2017 Est.: -235  
  - 2018 Est.: -250  
  - 2019 3rd Rev.: -266  
  - 2020 Proj.: -275  
  - 2021 Proj.: -279  
  - 2022 Proj.: -286  
  - 2023 Proj.: -294

- Exports of services (Millions of US Dollars, selected series):  
  - 2013: 628  
  - 2014: 834  
  - 2015: 675  
  - 2016: 848  
  - 2017 Est.: 706  
  - 2018 Est.: 909  
  - 2019 3rd Rev.: 939  
  - 2020 Proj.: 970  
  - 2021 Proj.: 1,010  
  - 2022 Proj.: 1,058  
  - 2023 Proj.: 1,101

- Tourism earnings (part of exports of services, selected series):  
  - 2013: 430  
  - 2014: 398  
  - 2015: 404  
  - 2016: 392  
  - 2017 Est.: 424  
  - 2018 Est.: 422  
  - 2019 3rd Rev.: 434  
  - 2020 Proj.: 448  
  - 2021 Proj.: 467  
  - 2022 Proj.: 490  
  - 2023 Proj.: 510

- Broad money growth (12–month percent change, selected series):  
  - 2013: 23.7  
  - 2014: 26.6  
  - 2015: 6.7  
  - 2016: 2.9  
  - 2017 Est.: 9.1  
  - 2018 Est.: 10.7  
  - 2019 3rd Rev.: 12.1  
  - 2020 Proj.: 9.9  
  - 2021 Proj.: 10.2  
  - 2022 Proj.: 12.1  
  - 2023 Proj.: 5.7  
  - 2024 Proj.: 10.4

- Credit to the private sector (12–month percent change, selected series):  
  - 2013: 4.5  
  - 2014: 26.2  
  - 2015: 12.6  
  - 2016: 7.8  
  - 2017 Est.: 13.1  
  - 2018 Est.: 9.9  
  - 2019 3rd Rev.: 12.0  
  - 2020 Proj.: 7.8  
  - 2021 Proj.: 11.2  
  - 2022 Proj.: 10.7  
  - 2023 Proj.: 10.6  
  - 2024 Proj.: 10.6

- Financial soundness indicators (selected):  
  - Regulatory capital to risk weighted assets (percent, selected quarters): 26.7; 26.7; 21.7; 23.3; 23.3; 24.8; 25.5; 26.2; 25.2  
  - Nonperforming loans to gross loans (percent, selected quarters): 9.3; 9.4; 8.2; 7.1; 7.2; 7.7; 7.6; 8.5; 7.8  
  - Return on assets (annualized, percent, selected quarters): 3.1; 1.9; 3.3; 3.5; 3.2; 4.6; 3.8; 4.0; 3.8

- Indicators of Fund credit (Millions of SDR, selected):  
  - Stock (existing Fund credit, end-of-period): 2013: 28.3; 2014: 29.2; 2015: 29.0; 2016: 28.0; 2017: 24.6; 2018: 20.1; 2019: 15.0; 2020: 9.8; 2021: 6.2

*Source: IMF staff report as presented in the provided content.*

### Annex I. Poverty in Seychelles

### Annex I. Poverty in Seychelles

### Poverty estimates from the 2013 Household Budget Survey (HBS)
- The 2013 HBS, as reported in a December 2015 National Bureau of Statistics Bulletin (with World Bank technical assistance), estimated a 2013 poverty line at SCR 3,945 per adult equivalent per month by inflating the 2006‒07 poverty line using the CPI.
- This poverty line translates to a gross income per adult equivalent per day of US$ 10.76, or US$15.22 in 2013 Purchasing Power Parity (PPP) US$.
- On the basis of this poverty line, the proportion of the population below the poverty line was estimated at 39.3 percent.
- The food poverty line was estimated at SCR 3,193, implying a head count food poverty rate of 24.3 percent.
- The Gini Index was estimated at 45.9 percent.
- Methodological differences complicate trend analysis with the 2006‒07 HBS: the 2013 welfare indicator is income-based while the 2006‒07 welfare indicator and poverty line were consumption-based.

### International and alternative poverty measures
- Using the UNDP Human Development Index, Seychelles ranks 64 out of 188 countries.
- Using the international poverty line of US$1.9 per person per day in 2011 PPP terms, 1.1 percent of the population would be classified as poor in 2013.
- Using the US$3.1 per person per day (in 2011 PPP) poverty line, moderate poverty was 2.5 percent of the population in 2013.
- The Annex notes that these broader international measures imply Seychelles performs significantly better than the national-income-based poverty measure.

### Social protections, marginalized groups, and non-monetary context
- The report highlights mitigating factors that reduce the impact of monetary poverty:
  - Free universal healthcare.
  - Free universal education.
  - Very low unemployment rates.
  - Generous housing policies.
- The Annex also identifies persistent vulnerabilities:
  - Marginalized populations excluded from the benefits of growth.
  - Drug problems, including heroin, posing challenges.
  - The prison population is one of the highest in the world on a per capita basis.

*Annex I. Poverty in Seychelles (cr1751)*

### 11.      Standardized stress tests confirm that, as with the public debt, the country’s

### cr1751 - 11.      Standardized stress tests confirm that, as with the public debt, the country’s

### Key findings on external debt vulnerability
- A 30 percent depreciation of the domestic currency would lead to an external debt-to-GDP ratio of around 150 percent at the end of the projection period, compared to 105 percent under the baseline scenario.
- The interest rate, growth and current account shocks have a more muted effect on the external debt profile than an exchange rate shock.
- A permanent ¼ standard deviation shock to either growth or the current account (excluding interest payments) would lead to a slow buildup of the external debt-to-GDP ratio over time, overshooting the baseline projection by 18 percentage points in 2021.

### External Debt Sustainability framework – baseline and stress outcomes
- Baseline external debt (in percent of GDP): 105.
- Historical external debt (in percent of GDP): 118.
- Interest rate shock outcome (external debt in percent of GDP): 119.0.
- Growth shock outcome (external debt in percent of GDP): 121.1.
- Non-interest current account shock outcome (external debt in percent of GDP): 122.8.
- Combined shock outcome (external debt in percent of GDP): 148.6.
- Real depreciation shock (scenario highlighted as particularly severe): exchange rate shock (30 percent depreciation) -> external debt-to-GDP ~150 percent (end of projection period).

### Baseline macro-fiscal and external projections (selected values)
- External debt-to-GDP baseline path (selected): baseline 2015 = 100.9, 2016 = 101.9, 2017 = 104.7, 2018 = 104.2, 2019 = 104.4, 2020 = 104.7, 2021 = 104.7 (table shows series under “Baseline: External debt” and related projection rows).
- Change in external debt (percent of GDP, selected years): 2015 = -16.8, 2016 = 1.1, 2017 = 2.8, 2018 = -0.5, 2019 = 0.2, 2020 = 0.3, 2021 = 0.0.
- Identified external debt-creating flows (in percent of GDP): 2016 = 12.9, 2017 = 8.4, 2018 = 2.2, 2019 = 3.8, 2020 = 4.9, 2021 = 5.5.
- Current account deficit, excluding interest payments (in percent of GDP, selected): 2016 = 16.5, 2017 = 16.7, 2018 = 16.4, 2019 = 15.8, 2020 = 15.2, 2021 = 14.8.
- Net non-debt creating capital inflows (in percent of GDP, selected): 2016 = -0.6, 2017 = -5.6, 2018 = -11.9, 2019 = -9.8, 2020 = -8.2, 2021 = -7.2.
- Automatic debt dynamics contribution (in percent of GDP, selected): 2016 = -3.1, 2017 = -2.8, 2018 = -2.2, 2019 = -2.1, 2020 = -2.1, 2021 = -2.2.

### Public debt DSA stress-test findings (selected)
- Baseline nominal gross public debt (in percent of GDP, selected): 2014 = 108.8, 2015 = 70.5, 2016 = 70.6, 2017 = 70.5, 2018 = 67.9, 2019 = 61.4, 2020 = 55.4, 2021 = 49.7 (table heading “Nominal gross public debt”).
- Net public debt (in percent of GDP, selected): 2014 = 107.5, 2015 = 59.5, 2016 = 58.7, 2017 = 57.5, 2018 = 55.8, 2019 = 51.3, 2020 = 47.6, 2021 = 44.0.
- Public gross financing needs (in percent of GDP, selected): 2014 = 30.5, 2015 = 18.8, 2016 = 24.6, 2017 = 27.1, 2018 = 29.0, 2019 = 30.3, 2020 = 25.9, 2021 = 23.1, 2021 cumulative = 18.3 (table shows series under “Public gross financing needs”).
- Stress tests show real exchange rate/real depreciation shocks materially increase public and external debt burdens relative to other shocks (primary balance, real GDP growth, real interest rate).

### Macro-fiscal stress test scenarios and key parameter paths (selected)
- Real GDP growth baseline path (in percent): 2016 = 5.9, 2017 = 5.4, 2018 = 3.7, 2019 = 5.0, 2020 = 6.2, 2021 = 5.7 (External Debt Sustainability table “Real GDP growth (in percent)” shows multiple series across tables; DSA baseline elsewhere shows 2016 = 4.4, 2017 = 4.1, 2018 = 3.4, 2019 = 3.3, 2020 = 3.3, 2021 = 3.3 in public DSA).
- Inflation (GDP deflator, in percent) baseline public DSA: 2016 = -0.5, 2017 = -0.4, 2018 = 3.8, 2019 = 3.7, 2020 = 3.0, 2021 = 3.1, 2021 = 3.0.
- Effective interest rate (in percent) public DSA baseline: 2016 = 4.8, 2017 = 6.2, 2018 = 5.5, 2019 = 5.4, 2020 = 5.1, 2021 = 5.2 (table entries vary by scenario).

### Risk assessment and heat-map indicators (selected)
- Gross financing needs benchmarks: lower/upper early warning thresholds of 15% of GDP (green if below), with cells highlighted yellow or red depending on whether shocks push the country above benchmarks.
- Market perception indicators referenced: bond spread benchmarks 200 and 600 basis points; external financing requirement benchmarks 5 and 15 percent of GDP; change in share of short-term debt benchmarks 0.5 and 1 percent; public debt held by non-residents benchmarks 15 and 45 percent; share of foreign-currency denominated debt benchmarks 20 and 60 percent.
- Public debt held by non-residents (in percent of total): historical plotting shows values and percentile bands (figure data present in risk-assessment charts).

### Policy and program-related developments (from Letter of Intent)
- The IMF Executive Board on June 4, 2014 approved a 3-year arrangement under the Extended Fund Facility (EFF) for an amount of SDR 11.445 million (50 percent of quota).
- Seychelles met all the quantitative Performance Criteria for end-December 2015 and end-June 2016 in the EFF-supported program (Table 1 referenced).
- Requests and scheduling changes: modification requested for end-December 2016 performance criterion on fiscal primary surplus; several structural benchmarks rescheduled (two September 2016 SBs rescheduled to March 2017; October 2016 SB on Public Private Partnership Regulation rescheduled to December 2016; two December 2016 SBs: SOE reviews completed while Public Financial Management Action Plan rescheduled to March 2017).
- The authorities requested completion of the fourth and fifth review of the EFF-supported program and approval of associated disbursements, based on program performance and the sustainability of planned policies.

*Source: IMF staff, Seychelles Public Sector Debt Sustainability Analysis (DSA) and Letter of Intent (as provided in the source content).*

### 3.  We believe that the economic and financial policies set forth in the MEFP are sufficient to

### cr1751 - 3.  We believe that the economic and financial policies set forth in the MEFP are sufficient to

### Program framework and IMF engagement
- Authorities state the economic and financial policies in the MEFP are sufficient to ensure program objectives will be met.
- Program instruments:
  - Quantitative Performance Criteria and Indicative Targets as described in the Technical Memorandum of Understanding (Tables 1 and 2 in source).
  - Structural benchmarks for the remaining arrangement period.
- For all end-December 2016 performance criteria, a waiver of applicability is requested on the grounds that the relevant information is not available and there is no clear evidence the criteria have not been met.
- Authorities stand ready to take further measures if necessary and will consult the Fund in advance of revisions to MEFP policies, in accordance with Fund consultation policies.
- Authorities request publication of the letter, MEFP, TMU, and staff report and will simultaneously publish these documents in Seychelles.

*Attachment I. Memorandum of Economic and Financial Policies — Selected substantive findings and policy measures*

### I. Real sector: 2015 performance, 2016 outlook, 2017 prospects
- 2015 performance:
  - Real GDP growth estimated at 5.7 per cent.
  - Visitor arrivals rose by 19 per cent for the year as a whole.
  - Tourism earnings declined by 1 percent in US dollar terms due to Euro depreciation vis-à-vis the US dollar.
  - Positive performance in Information and Communication, Manufacturing of beverages and Tobacco, and Financial and Insurance services.
  - Average inflation in 2015 was 4 per cent.
- 2016 outlook:
  - Real GDP growth projected to decelerate to about 4½ per cent due to lower but still strong tourist arrival growth and some slowdown in construction.
  - Tourism arrivals projected to grow by 9 per cent.
  - Canned tuna production growth about 17 per cent for the first six months; expected to continue strongly after renovation of the main tuna cannery.
  - Other strong sectors: information and communication, financial services; slowdown in construction activity, production of construction materials, and production of beverages.
  - Inflation projected at 1.5 per cent by end-2016, supported by favorable international commodity prices and exchange rate stability.
- 2017 prospects:
  - Real GDP growth projected at around 4.0 per cent (continued good tourism performance; construction envisaged to grow around 3 per cent).
  - Average inflation in 2017 projected to accelerate to 3.7 per cent because of expected increases in fuel and electricity prices.

### II. Fiscal sector: 2015–2017 developments and policy measures
- 2015 fiscal outturn:
  - Primary surplus reached 3.9 per cent of GDP versus target of 3.8 per cent.
  - Revenue and grants reached 32.6 per cent of GDP, albeit 0.6 per cent lower than programmed because of lower grants.
  - Current expenditure higher than programmed by 0.7 per cent of GDP.
  - Capital expenditure and net lending lower by 2.3 per cent of GDP.
- 2016 policy changes responding to household budget survey and social priorities:
  - Measures effective April 2016:
    - Minimum monthly statutory retirement pension increased to SR 5050 from SR 3300.
    - Minimum wage increased from SR 4050 to SR 5050 (based on a 35-hour working week).
    - Invalidity benefits raised in line with the minimum wage.
    - Rebate on price of government owned houses.
    - Reduced inner island travel cost for pensioners and students.
  - Additional allocations in transfers and capital budget:
    - SR 35 million for capital improvements to public housing and new land development projects.
    - SR 27 million to help vulnerable families and pensioners repair their homes.
  - Tax side measures effective April 2016:
    - Personal income tax tax-free allowance introduced (first SR 8550 per month exempt from April 1, 2016).
    - Reduction of the stamp duty on the first house from April 1 at a cost of SR 8 million.
  - Total cost of the expenditure and revenue measures estimated at SR 427 million or 2.2 % of GDP.
  - Other revenue-supporting developments in 2016: improved customs administration, higher dividends from public enterprises (Nouvobanq and Seypec), higher FIU fines, windfall revenue from stamp duties on Cable and Wireless property transfer (1% of GDP), higher business tax collections.
  - Resulting projection: total revenue and grants projected higher than expected; primary surplus projected to reach 3%.
  - Revised public debt target: 50% of GDP by 2020 instead of 2018.
- 2017 fiscal policies and prospects:
  - Government committed to present a 2017 Budget with a primary surplus of 3 per cent (equal to 2016).
  - Revenue measures to attenuate full-year impact of the personal income tax exemption:
    - From July 2017, personal income tax exemption on the first SR 8,555.50 will be generalized for all Seychellois workers.
    - Progressive personal income tax to be introduced with brackets of 15, 20 and 30 per cent.
    - Expatriates subject to the same tax brackets but with no exemption.
    - Exemption list of the Income and Nonmonetary Benefits Act to be reduced from 20 to 7.
    - Business tax on Sole traders and Partnerships to be aligned to the Personal Income tax.
  - Other tax measures in the budget:
    - Increase in excise taxes on fuel, alcohol and tobacco.
    - Upward adjustment in the excise for hybrid cars.
    - Review of current tax incentives agreements.
  - Expenditure measures:
    - Review and rationalisation of government goods and services and social welfare benefits to contain outlays and ensure efficiency.
  - Additional policy actions:
    - Within the first three months of 2017, conduct an assessment on revenue collection to identify further policy measures for 2017.
    - Working with WHO on possible introduction of a sugar tax.
    - Approached IMF for technical assistance on carbon taxation.
    - Government resolved to introduce a property tax on land owned by foreigners.

### III. Public Financial Management (PFM) reforms
- Programme Performance Based Budgeting (PPBB):
  - 5 portfolio Ministries operating 2016 budgets through PPBB.
  - Full roll-out staggered over a three-year period due to capacity limitations; presentational PPBB to be introduced for remaining ministries in 2017.
  - Aim to cover all ministries by the 2019 budget.
  - World Bank support for transition.
- PEFA and PFM action plan:
  - PEFA launched in third quarter of 2016 following technical delays.
  - Revised PFM action plan to be submitted to Cabinet for approval in March 2017 (structural benchmark).
- PPP framework and pipeline:
  - With AfDB technical assistance, PPP regulatory and operational framework draft regulations presented to stakeholders in November 2016; final PPP regulations expected to be presented to Cabinet for approval in December 2016 (structural benchmark).
  - PPP Development Report (implementation manual and operational guidance) expected finalized in December 2016; capacity building to start January 2017.
  - Consultancy reviewing prospective projects to propose a bankable PPP pipeline; pipeline expected in place in December 2016.

### IV. Tax policy and tax administration improvements
- Business tax audits:
  - SRC to continue focus on Business Tax Audits alongside implementation of progressive income tax from 1st July 2017; ongoing recruitment to support effort.
- Strategy to improve filing rates:
  - Hampered in 2016 by poor quality client data and resource constraints; taskforce to continue into early 2017 to promote compliance.
- Collection Enforcement Strategy:
  - Enforcement objectives:
    - Limit accumulation of debt.
    - Increase revenue collections and reduce total arrears.
    - Improve effectiveness of enforcement activities.
  - Three main strategies: i) Early Collections, ii) Segmenting and prioritizing debt (Firmer Action), iii) Expanding actions and legal use to collect debt (Strategic Recovery).
  - 2017 plans: increased field visits, firmer criteria for approving payment by instalment, increased use of garnishing and liens, stronger legal actions including seizure of assets and submissions for prosecution.
- Bonded warehouses:
  - Problem: duty- and tax-suspended goods removed from bonds without declaration/payment creating substantial debts.
  - Actions taken: requirement to submit surety to Customs; physical stock-takes and reconciliations; of 68 Bonded Warehouses, 53 had stock-takes and reconciliations finalised in 2016.
  - Sanctions include revocation of approval to operate a Bonded Warehouse (all duty and taxes become payable immediately).
  - 2017 focus: monitor and control warehouses that submit surety by 31st December 2016; revoke approval and manage debt collection for those that fail.
- Legal reforms:
  - Amalgamation of the Income and Non-Monetary Benefits Tax Act and the Business Tax Act expected to take place in 2017 for enactment by 2018 (per IMF consultant legal drafter).

### V. State-owned enterprise (SOE) reform
- Governance and monitoring:
  - Public Enterprise Monitoring Commission (PEMC) has adopted the approved OECD Code of Governance to develop a Code for Public Enterprises upon Cabinet approval.
  - PEMC to initiate creation of an Institute of Directors and provide training for Board appointees.
  - 2017: governance and operational/business assessments envisaged for another six Public Enterprises.
- State Ownership Policy:
  - Will separate state’s ownership function from policy and regulatory functions to enhance oversight.
- Transparency and fiscal risk:
  - Asset registers published via PEMC website except L’Union Estate (AFS 2014 and 2015 not yet received).
  - PEMC to prepare a Fiscal Risk Statement in 2017 to show effects of Public Enterprise performance on the fiscal budget.
  - PEMC to coordinate exercise to calculate cost of social obligations absorbed by Public Enterprises.
- Legal and institutional strengthening:
  - Revision of PEMC Act to accommodate best practices and include compliance mechanisms with sanctions and mechanisms to identify and manage financial risks.
  - Harmonisation of laws, regulations and policies concerning Public Enterprises to strengthen performance and supervision.
- Assessments:
  - Governance reviews and operational/business assessments completed for PUC, SEYPEC, STC (report received June 2016).
  - Second set of three (Seychelles Pension Fund SPF, Seychelles Port Authority SPA and Nouvobanq NVBQ) completed recently (structural benchmark).
  - Findings and AFRITAC South fiscal risks TA to inform action plan with milestones.

### VI. Public debt management strategy
- Debt-to-GDP developments:
  - Total public debt-to-GDP: 68 percent of GDP in 2015; 64 percent in August 2016; projected to reach 67 percent by end-2016.
  - Authorities note vulnerability to shocks (exchange rates, primary balance, growth).
  - Debt-to-GDP target of below 50% achievable with strong fiscal performance, growth, and emphasis on concessional multilateral financing.
- Blue Bond:
  - Government considering a capital raising transaction ("Blue Bond") to accelerate implementation of fishery management plans for the Mahe Plateau as part of a comprehensive financial programme for the blue economy; to be coordinated with other fund-raising efforts including recent debt-for-adaptation swap and GEF 6 programme.
- Currency swap and liability management:
  - Exploring currency swap or liability management for USD-denominated External Bond.
  - Currency swap would convert USD-denominated Bond into Euro-denominated Bond to lower effective coupon cost (excluding maturity extension).
  - Liability management seeks significant cash flow savings and reduced reserve pressure over the next five years by extending bond life.
- Debt-for-adaptation:
  - February 2016: Seychelles completed buyback of US$21.4 million of its Paris Club debt and launched a partnership for marine resource protection and climate resilience.
  - Seychelles bought back 100 percent of participating Paris Club maturities through mid-2022 at discount to face value (per February 2015 agreement).
  - Buyback financed by grants from international marine conservation foundations and a loan from The Nature Conservancy (TNC).
  - Government to repay same amount to Seychelles Conservation and Climate Adaptation Trust (SEYCCAT) on concessional terms; SEYCCAT to fund marine conservation and climate adaptation projects and service the TNC loan.

### VII. Foreign trade regime
- Seychelles is party to the SADC Protocol on Trade and Protocol on Trade in Services and acceded to the SADC Free Trade Area (FTA) by ratifying the Protocol on Trade.

### VIII. Monetary policy and price stability
- Monetary policy objective:
  - Policy geared towards containing end-of-year annual inflation below 5 percent1.
  - Monetary policy implemented through conventional quarterly reserve money targets on daily average (CBS moved in 2014 from end-quarter targets).
- 2016 monetary stance and indicators:
  - CBS maintained a tight monetary policy stance through first three quarters of 2016 to contain inflationary pressures, delayed exchange rate pass-through, and rein in private sector credit growth.
  - Growth in credit to the private sector stood at 10.6 per cent year-on-year in September 2016.
  - Average inflation stood at - 0.4 per cent in October 2016 and -0.5 per cent year-on-year.
- Risks and policy outlook:
  - Despite projected decline in inflation in 2016, substantial risks remain warranting a tight stance: wage and tax revisions raise probability of consumption growth; credit growth by other financial institutions could pressure the currency.
  - Rapidly increasing monetary debt a concern: monetary debt expanded to around 16 percent of GDP as of end-September.
  - Authorities view issuance of short-term government securities for monetary policy purposes as vital to contain inflation risk.
  - Over the medium term, intention to develop a stronger monetary policy framework in which interest rates play a greater role to allow some unwinding.

*Source: Attachment I. Memorandum of Economic and Financial Policies (Excerpt).*

### introduction of a policy rate will serve as an indicator of the monetary policy stance and help guide

### introduction of a policy rate will serve as an indicator of the monetary policy stance and help guide

### Monetary policy stance and liquidity management
- Introduction of a policy rate will serve as an indicator of the monetary policy stance and help guide movements in the short-term interest rates.
- By promoting money market development, the CBS shall reduce the need for frequent interventions to manage domestic liquidity, thus alleviate some of the pressure of the debt burden in the medium term.
- Policy coordination through issuance of short-term government securities remains critical to address systemic liquidity conditions.
- The CBS is committed to allow the exchange rate to adjust to market conditions and remain in line with fundamentals; any intervention in the foreign exchange market by the CBS would be in the event of excess volatility and preserving reserve adequacy.

### Balance of payments developments and outlook (Section IX)
- The balance of payments strengthened in 2016; outlook benign for 2017.
- Tourism: 9 per cent increase in tourist arrivals by the end of October.
- Exports/imports and current account:
  - Strong growth in tuna exports.
  - Slowdown in FDI–related imports recorded.
  - Low international oil prices contributed to contraction of the current account deficit in 2016.
  - With arrival of new airlines later in the year, strong tourism performance is expected to continue.
  - Oil prices forecasted to remain relatively low for a protracted period; pipeline of foreign investment projects less buoyant compared to 2015.
  - Real exchange rate is projected to weaken due to increased imports related to consumption; current account deficit expected to widen in USD terms in 2017.

### External reserves and reserve adequacy
- The net international reserves (NIR) target for December 2015 and June 2016 was exceeded by a significant margin.
- Reserve coverage: current reserve coverage standing around 4 months of prospective imports.
- CBS foreign exchange operations:
  - Given strong demand for foreign exchange experienced thus far, the CBS has limited opportunistic purchases of foreign exchange from the market.
  - Past actions ensure external debt commitments and recurring expenses will be comfortably met, including commencement of repayments on the USD 168 million Eurobond.
- NIR as at end-September 2016:
  - Net international reserves at market rate stood at US$429 million which was an over performance on the US$418 million target by US$11.0 million.
  - Overperformance mainly attributed to project loans and grants and interest returns on fixed deposits, with higher concentration in the US dollar portfolio.

### Financial sector developments, policies and outlook (Section X)
- OECD Global Forum: Seychelles found non-compliant in 2013; supplementary report as of August 2015 found the country largely compliant.
- International Business Companies and trust legislation:
  - The International Business Companies Act, 2016 enacted and came into operation on the 1st December 2016; replaces the International Business Companies Act, 1994 and ensures beneficial ownership of IBCs is held in Seychelles and provides for filing of Directorship information with the Registrar.
  - New Trusts Act drafted and awaiting enactment. International Corporate Trustee and Foundation Service Providers Act almost finalized.
- IBC incorporations and enforcement:
  - Number of IBCs incorporated: September 900 and October 841 (lowest since 2009).
  - Incorporations for 2015 up to October experienced a 27% decrease similar to incorporations in 2016 over the same period.
  - Reductions predominately due to increased enforcement action by the FSA against non-compliant IBCs, implementation of Common Reporting Standards and FATCA, and difficulties for Seychelles IBCs opening bank accounts locally and internationally.
  - Further reductions expected once the International Business Companies Act 2016 comes into force.

### Financial Sector Development Implementation Plan (FSDIP) — objectives and progress
- FSDIP approved by Cabinet in November 2013 to improve the financial sector’s contribution to economic and social development.
- Project components:
  - (i) improving the financial system’s legal and regulatory framework;
  - (ii) development of the National Payment System and other relevant financial infrastructure;
  - (iii) improving SME access to credit;
  - (iv) improving the regulation and supervision of Non-Bank Financial Institutions;
  - (v) fostering capital markets development;
  - (vi) cross-cutting issues: consumer protection, financial literacy, and training of financial sector professionals.
- Technical assistance requested from: Investment Climate Facility for Africa (ICF), African Development Bank (AfDB) and the World Bank under the Reimbursable Advisory Service (RAS).
- Substantial progress made, including:
  - Improving legal and regulatory framework:
    - Policy paper being prepared on introduction of investment banking in Seychelles.
    - Strategy Paper for Islamic Banking and Finance finalized.
    - Policy paper, bill, regulations, codes and guidelines for Collective Investment Schemes drafted and circulated; expected to be finalized by 2017.
    - Review of Authorization and Post-Authorization Processes & Systems for Collective Investment Schemes Business and Capital Market Business completed.
    - Phase 1 for development of risk-based supervisory framework for pensions completed and status report submitted.
    - Insurance core principles (ICP) assessment for development of risk-based supervisory framework for Insurance completed and report submitted.
  - National Payment System and financial infrastructures:
    - National Payment System Vision and Strategy 2016-2020 finalized and endorsed by the CBS and industry in June, 2016.
    - Feasibility studies on establishment of a Central Securities Depository and Real Time Gross Settlement system completed.
    - Diagnostic Study on Government Payments completed and awaiting Government endorsement.
    - Assessment of the Remittance Market based on WB-CPSS General Principles for International Remittances completed.
    - Policy paper for the Credit Information System finalized and submitted for preliminary drafting of the Seychelles Credit Information Act.
  - Fostering capital market development:
    - Master Repurchase Agreement currently being drafted by the CBS.
  - Consumer protection, financial literacy, training:
    - Baseline survey for financial literacy completed and report submitted.
    - Consultancy services being sought for development of a National Strategy for Financial Education.
    - A Financial Consumer Protection Act currently being drafted in consultation with the World Bank.

### Quantitative performance criteria (selected Table 1 highlights)
- Net international reserves of the CBS, millions of U.S. dollars (floor) — selected sequence from table:
  - 417, 417, 409, 423, 429, 434, 412, 422, 418, 433, 401, 401
- Net international reserves (adjusted targets) — selected sequence:
  - 417, ..., 405, ..., 406, ..., 393, ..., 403, ..., 383, ...
- Reserve money target (ceiling on daily average during the quarter) — selected sequence:
  - 2,552, 2,520, 2,781, 2,708, 2,818, 2,758, 2,858, 2,815, 2,897, 2,870, 2,961, 2,961
- Primary balance of the consolidated government (cumulative floor) — selected sequence:
  - 539, 805, 720, 783, 85, 238, 288, 412, 470, 560, 767, 571
- Contracting or guaranteeing of new external debt by the public sector (Millions of U.S. dollars; cumulative ceiling from start of 2015) — selected sequence:
  - 63, 56, 90, 71, 110, 90, 110, 90, 110, 95, 130, 130
- Contracting or guaranteeing of new short-term external debt by the public sector (Millions of U.S. dollars; cumulative ceiling) — all entries:
  - 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
- Accumulation of external payments arrears by the public sector (ceiling) — all entries:
  - 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
- Memorandum items (selected):
  - Net external non-project financing (millions of U.S. dollars; cumulative): -8.3, -8.3, -22.4, -18.4, 12.3, -11.5, -11.7, -31.0, -14.4, -28.7, -33.2, -51.5
  - External budget loans: 7.0, 7.0, 7.0, 7.0, 15.0, 10.0, 15.0, 15.0, 15.0, 20.0, 20.0, 20.0
  - Cash payments on foreign debt service: 18.3, 18.3, 34.3, 30.3, 2.7, 21.5, 26.7, 46.0, 29.4, 48.6, 53.2, 71.4
  - Reserve money (daily average during the quarter): 2,520, 2,520, 2,700, 2,708, 2,736, 2,758, 2,775, 2,815, 2,813, 2,870, 2,875, 2962
  - Program accounting exchange rates (SR/US$ (end-of-quarter)): 13.74, 13.74, 13.01, 13.01, 13.01, 13.28, 13.01, 13.28, 13.01, 13.34, 13.01, 13.34
  - Program accounting exchange rates (US$/Euro (end-of-quarter)): 1.12, 1.12, 1.12, 1.12, 1.12, 1.09, 1.12, 1.09, 1.12, 1.12, 1.12, 1.12
  - Program accounting exchange rates (US$/UK pound (end-of-quarter)): 1.54, 1.54, 1.51, 1.51, 1.51, 1.39, 1.51, 1.39, 1.51, 1.30, 1.51, 1.30
  - Program accounting exchange rates (US$/AUD (end-of-quarter)): 0.78, 0.78, 0.70, 0.70, 0.70, 0.72, 0.70, 0.72, 0.70, 0.77, 0.70, 0.77
  - Program accounting exchange rates (US$/CAD (end-of-quarter)): 0.80, 0.80, 0.75, 0.75, 0.75, 0.74, 0.75, 0.74, 0.75, 0.76, 0.75, 0.76
  - Program accounting exchange rates (US$/SDR (end-of-quarter)): 1.41, 1.41, 1.40, 1.40, 1.40, 1.38, 1.40, 1.38, 1.40, 1.40, 1.40, 1.40

### Structural benchmarks (selected Table 2 highlights)
- Fiscal and Public Financial Mgmt. Policy:
  - Prior Action: Submission of 2017 budget consistent with program goals, targeting 3.0 percent primary surplus to National Assembly — Timing: December 2016.
  - Cabinet approval of Public Financial Management Action Plan — Not met, rescheduled to end-March 2017.
  - Cabinet approval of new Public Private Partnership Regulation — Not met, rescheduled to end-December, 2016.
  - Update and publish on-line a government asset register, including state land — End December 2015 — Not met (register created but not extended to include government land).
- State-Owned Enterprises (SOEs):
  - Conduct governance reviews and operational/business assessments of initial three SOEs — End June, 2016 — Met.
  - Conduct governance reviews and operational/business assessments of a further three SOEs — End December, 2016 — Met.
  - Approval by Cabinet of SOE strategy building on results of governance reviews — End March 2017.
- Real Sector and Private Sector Development:
  - Approval by cabinet of a revised Micro, Small and Medium Enterprise Policy — End-March, 2016 — Met.
- Financial Sector Development:
  - Approval by the Board of CBS of a framework for macro prudential surveillance — End March, 2016 — Met.
  - Development of a CBS strategy to improve financial literacy — Not met, rescheduled to End March, 2017.
- International Financial Services Sector:
  - Submission to National Assembly of new legislation on International Business Companies consistent with international standards — End December, 2015 — Not met. Gazetted in January 2016, law approved in July 2016.
  - Submission to National Assembly of new legislation on International Corporate Service Providers and Trusts consistent with international standards — End December, 2015 — Not met. Gazetted in January 2016.
  - Cabinet approval of a strategy to tackle AML/CFT risks, drawing on the National Risk Assessment — Not met, rescheduled to end-March, 2017.

### Technical Memorandum definitions (selected)
- Net International Reserves (NIR) of the CBS (Floor):
  - Defined as reserve assets of the CBS minus reserve liabilities of the CBS (including liabilities to the IMF).
  - Reserve assets include SDRs, holdings of foreign exchange, demand and short-term deposits at foreign banks, fixed-term deposits abroad that can be liquidated without penalty, and any holdings of investment-grade securities. Excludes project balances and blocked or escrow accounts and bank reserves in foreign currency maintained for reserve requirements.
  - Reserve liabilities comprise liabilities to nonresidents contracted by the CBS and any net off-balance-sheet position (futures, forwards, swaps, options), including those to the IMF.
  - For program monitoring, reserve assets and liabilities at each test date must be converted into U.S. dollars using the end of period exchange rates assumed in the program.
  - Semiannually, NIR data submitted by the CBS to the IMF will be audited by the CBS’ internal audit division and reports submitted no later than two months after each test date.
  - Adjusters: the NIR floor will be adjusted upward (downward) by the amount by which external non-project loans and non-project cash grants exceed (fall short of) program assumptions; floors also adjusted by the amount that external debt service payments fall short (exceed) program assumptions.
- Reserve Money and Reserve Money Band (Ceiling):
  - Reserve money = currency issued + deposits held by other depository corporations at the central bank (bank reserves), including foreign currency denominations.
  - Reserve money targets are projected daily averages of the quarter preceding the test date, surrounded by a symmetrical band of three percent in both directions. The upper bound of the band is the performance criterion (ceiling).
  - Quarterly average reserve money = arithmetic average of reserve money observed on all days over the quarter; compared with program ceiling.
  - Daily reserve money data submitted by the CBS to the IMF weekly with time lag no later than one week; cumulative average over the quarter monitored and reported weekly. Semiannual audit by CBS internal audit division; reports submitted no later than two months after each test date.
- Program Primary Balance of the Consolidated Government (Cumulative Floor):
  - Defined as total consolidated government and social security fund revenues (excluding privatization and long-term lease income receipts) less all noninterest (primary) expenditures and net lending of the government and social security fund. For program purposes, the transfer of assets from the Social Security Fund to the Seychelles Pension Fund planned for 2015 will be excluded from expenditures.
- Public External Debt (Ceiling):
  - Ceiling applies to contracting or guaranteeing of new external liabilities by the public sector (central government, CBS, all public agencies and parastatals for non-commercial operations).
  - Exclusions: use of Fund resources, external debt restructuring-related operations, normal import credits, purchases of treasury securities by nonresidents, borrowing by parastatals in conduct of normal commercial operations.
  - Zero sub-ceiling on short-term external debt (original maturity up to and including one year).
  - Debt defined per Point 8 of the “Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements,” Executive Board Decision No. 6230-(79/140), as amended; includes loans, suppliers credits, leases (present value of lease payments), and arrears, penalties, judicially awarded damages that constitute debt.

*Source: IMF staff report content as provided in the supplied PDF text.*

### 11. The nonaccumulation of arrears to external creditors will be a continuous performance

### 11. The nonaccumulation of arrears to external creditors will be a continuous performance criterion under the program

### External payments arrears: definition and treatment
- External payments arrears for program monitoring purposes are defined as the amount of external debt service due and not paid within the contractually agreed period, subject to any applicable grace period, including contractual and late interest.
- Arrears resulting from the nonpayment of debt service for which a clearance framework has been agreed or a rescheduling agreement is sought are excluded from this definition.
- The nonaccumulation of new external payment arrears by the public sector constitutes a continuous performance criterion (see Quantitative Performance Criteria table).

### Domestic arrears of government: definition and measurement
- The nonaccumulation of budget expenditure arrears will be a performance criterion under the program and will be measured on a net basis from the beginning of a calendar year.
- Budget expenditure arrears are defined as the sum of:
  - (1) any invoice received by a spending agency from a supplier of goods, services, and capital goods delivered and verified, and for which payment has not been made within the contractually agreed period, or in the absence of a grace period, within 30 days;
  - (2) unpaid wages, pensions, or transfers, pending for longer than 30 days to domestic or foreign residents, irrespective of the currency denomination of the debt; and
  - (3) debt service payment on domestic debt of the government or guaranteed by the government that has not been made within the contractually agreed period.
- Accumulation of domestic payment arrears by the government is set as a ceiling of 0.0 (in the Quantitative Performance Criteria table).

### Data and information reporting requirements
- The Seychelles authorities (government and CBS) will provide Fund staff with specified data and information on the following schedule.

- The CBS will report:
  - Weekly (within one week from the end of the period):
    - Daily reserve money data.
    - Foreign exchange reserves position.
    - A summary table on the foreign exchange market transactions.
    - The results of the liquidity deposit auctions, primary Treasury bill auctions, and secondary auctions.
  - Monthly (within four weeks from the end of the month):
    - The monetary survey in the standardized report form format.
    - The foreign exchange cash flow, actual and updated.
    - Financial soundness indicators.
    - Stock of government securities in circulation by holder (banks and nonbanks) and by original maturity and the debt service profile report.

- The Ministry of Finance will report:
  - Monthly (within two weeks from the end of the month):
    - Consolidated government operations on a commitment basis and cash basis in the IMF-supported program format and in GFSM2001 format.
    - The detailed revenues and expenditures of the central government and social security fund.
    - Import and export data from the customs department.
    - Public debt report, reconciled with the cash operations to minimize any statistical discrepancy.
    - Consolidated creditors schedule on domestic expenditure arrears of the government.
  - Quarterly (within one month from the end of the quarter):
    - Accounts of the public nonbank financial institutions.

- The government and CBS will consult with Fund staff on all economic and financial measures that would have an impact on program implementation, and will provide any additional relevant information as requested by Fund staff.

### Supplementary information and reserve money outturn (end-December)
- The reserve money target for end-December was narrowly missed.
  - Reserve money outturn: SR 2,990 million.
  - The outturn was one percent over the performance criterion set during the third review.
- Staff view: the minor deviation will not affect the program’s goals; staff support a waiver of nonobservance of the reserve money target on the grounds that the deviation is minor.
- Other end-December indicators (preliminary):
  - Mid-rate: 13.381 (rupee per US dollar).
  - Inflation: -0.4 percent y/y in November.
  - Visitor arrivals as of December 25: 295,425 visitors, an increase of 10% over the figure for 2015.
- Authorities’ request: waiver of nonobservance of the Performance Criterion for reserve money; intent to maintain tight and prudent monetary policy to ensure domestic price stability.

### Quantitative performance criteria (selected figures preserved exactly as presented)
- Reserve money target (ceiling on daily average during the quarter): series includes values such as 2,552; 2,520; 2,781; 2,708; 2,818; 2,758; 2,858; 2,815; 2,897; 2,870; 2,961; 2,990.
- Reserve money (daily average during the quarter) reported values include: 2,520; 2,520; 2,700; 2,708; 2,736; 2,758; 2,775; 2,815; 2,813; 2,870; 2,875; 2990.
- Net international reserves of the CBS, millions of U.S. dollars (floor): reported values include 417; 417; 409; 423; 429; 434; 412; 422; 418; 433; 401; 401.
- Net international reserves (adjusted targets) reported: 417...405...406...393...403...383...
- Primary balance of the consolidated government (cumulative floor): values include 539; 805; 720; 783; 852; 382; 884; 124; 705; 607; 675; 71.
- Contracting or guaranteeing of new external debt by the public sector (Millions of U.S. dollars; cumulative ceiling from start of 2015): values include 63; 56; 90; 71; 110; 90; 110; 95; 130; 130.
- Contracting or guaranteeing of new short-term external debt by the public sector (Millions of U.S. dollars; cumulative ceiling): series of 0.0 entries.
- Accumulation of external payments arrears by the public sector (ceiling): series of 0.0 entries.
- Accumulation of domestic payment arrears by the government (ceiling): series of 0.0 entries.
- Memorandum items:
  - Net external non-project financing (millions of U.S. dollars; cumulative): -8.3; -8.3; -22.4; -18.4; 12.3; -11.5; -11.7; -31.0; -14.4; -28.7; -33.2; -51.5.
  - Cash payments on foreign debt service: 18.3; 18.3; 34.3; 30.3; 2.7; 21.5; 26.7; 46.0; 29.4; 48.6; 53.2; 71.4.
  - External budget loans: 7.0; 7.0; 7.0; 7.0; 15.0; 10.0; 15.0; 15.0; 15.0; 20.0; 20.0; 20.0.
  - External budget grants: 3.1; 3.1; 4.9; 4.9; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0.
- Program accounting exchange rates (end-of-quarter) include:
  - SR/US$ (end-of-quarter): 13.74; 13.74; 13.01; 13.01; 13.01; 13.28; 13.01; 13.28; 13.01; 13.34; 13.01; 13.34.
  - US$/Euro (end-of-quarter): 1.12; 1.12; 1.12; 1.12; 1.12; 1.09; 1.12; 1.09; 1.12; 1.12; 1.12; 1.12.
  - US$/UK pound (end-of-quarter): 1.54; 1.54; 1.51; 1.51; 1.51; 1.39; 1.51; 1.39; 1.51; 1.30; 1.51; 1.30.
  - US$/AUD (end-of-quarter): 0.78; 0.78; 0.70; 0.70; 0.70; 0.72; 0.70; 0.72; 0.70; 0.77; 0.70; 0.77.
  - US$/CAD (end-of-quarter): 0.80; 0.80; 0.75; 0.75; 0.75; 0.74; 0.75; 0.74; 0.75; 0.76; 0.75; 0.76.
  - US$/SDR (end-of-quarter): 1.41; 1.41; 1.40; 1.40; 1.40; 1.38; 1.40; 1.38; 1.40; 1.40; 1.40; 1.40.

### Economic context and authorities’ outlook (statements and objectives)
- The Seychellois economy recovery highlights and objectives:
  - Population: 90,000.
  - Government target: reducing debt to 50 percent of GDP by 2020 (pushed out recently from 2018).
  - Growth: exceeded 5 percent in 2015 and is expected to be 4.5 percent in 2016.
  - Inflation: negative but expected to be around 1.5 percent by the end of 2016.
  - Public debt: currently around 70 percent and expected to fall over the coming years.
  - Government fiscal target in the Budget: a 3 percent primary surplus in 2017, equal to that expected in 2016.
  - Visitor arrivals: strong; increase in tuna canning expected to continue.
- Political and policy environment:
  - Government has a minority in the National Assembly, but bipartisan support appears to exist for continued fiscal restraint and structural reforms.
  - Budget includes revenue-raising measures: increases in fuel, alcohol and tobacco excises, and air passenger fees; works to fund previously announced initiatives including tax cuts for low-to-middle income earners.
  - Possible future measures under consideration: a sugar tax, a carbon tax and a property tax on land owned by foreigners.

### Fiscal and structural policies (key reforms and initiatives)
- Strengthening public financial management:
  - The Medium-Term Fiscal Framework anchors fiscal strategy and helps improve cash, asset and capital project management.
  - Public Expenditure Accountability Framework introduced in 2016.
  - Program Performance Based Budgeting in five Government departments in 2016; remaining departments to join by 2019.
  - Regulatory and operational framework for public-private-partnerships being designed with African Development Bank technical assistance.
- Tax administration and arrears management:
  - Improved tax administration and business tax compliance.
  - Tax audits of large businesses progressing.
  - New collection enforcement strategy introduced in 2016 to improve enforcement, reduce current stock of arrears and limit debt accumulation.
- Oversight of SOEs:
  - Management and governance audits underway to enhance transparency and efficiency.
  - Public Enterprise Monitoring Commission developing a code of governance based on the OECD’s model, reviewing governing legislation, and preparing a Fiscal Risk Management Statement.

### Monetary policy and financial sector measures
- Central Bank of Seychelles (CBS) policy stance:
  - Continuing tight monetary policy to guard against possible inflationary and exchange rate pressures.
  - Maintaining issuance of short-term government securities for monetary policy purposes.
  - Plan to shift monetary policy framework to incorporate a policy rate to guide movements in short-term interest rates.
  - Accumulation of reserves remains an important objective; as at September 2016, reserves were above target and equivalent to four months of imports.
- Financial sector regulatory upgrades and risk management:
  - CBS upgrading banking regulations for implementation of Basel II and III standards.
  - Financial Stability Committee became operational in March 2016, comprising members from the Financial Services Agency, the Financial Intelligence Unit, Ministry of Finance and CBS.
  - Authorities emphasize the need for a strong macro-prudential policy framework.
- Offshore sector and AML/CFT:
  - Regulatory frameworks being updated in line with international standards; OECD’s Global Forum has rated Seychelles as largely compliant.
  - Legislation now ensures beneficial ownership of International Business Companies is held in Seychelles and provides for filing of information about directors.
  - New Trusts Act to be enacted soon; International Corporate Trustee and Foundation Services Act close to finalization.
  - Authorities working on an action plan to reduce financial sector risks and protect the banking sector from possible withdrawals of correspondent banking relationships (CBRs).
  - National Risk Assessment being conducted by the World Bank to inform a comprehensive strategy to tackle AML/CFT risks.

*Source: cr1751 - 11. The nonaccumulation of arrears to external creditors will be a continuous performance criterion under the program*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr1751.pdf_