## SEYCHELLES FIRST REVIEW UNDER THE POLICY COORDINATION INSTRUMENT AND REQUEST FOR MODIFICATION OF TARGETS (cr18196)

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### Key issues and program decision
- Context and objectives:
  - Preserve economic stability and enhance inclusive growth.
  - Authorities committed to maintaining a primary fiscal surplus consistent with achieving the medium-term debt reduction goal.
  - Authorities committed to reducing public debt below 50 percent of GDP by 2021.
- Staff recommendation and program decision:
  - Staff recommends completion of the first review under the Policy Coordination Instrument (PCI).
  - Staff recommends minor modifications of the reserve money targets for end-June and end-December 2018.
  - Staff supports the authorities’ request for modification of the end-June 2018 and end-December 2018 quantitative targets for reserve money.

### Recent developments and outlook
- Growth and external buffers:
  - Tourist arrivals grew by 15½ percent in 2017.
  - Real GDP growth estimated to have exceeded 5 percent in 2017; various statements cite 5.3 percent and 5.0–5.3 percent for 2017 depending on subsection.
  - Gross international reserves (GIR) overperformed program projection; NIR at end-2017 exceeded the target by $33 million.
- Inflation and monetary policy:
  - Headline year-on-year (yoy) CPI inflation rate picked up to 4.2 percent in April 2018 from the range of 3‒3½ percent during the second half of 2017.
  - Central Bank of Seychelles (CBS) tightened monetary policy in late March 2018 by raising the lower and upper bounds of the interest rate corridor by 1 and 2 percentage points, respectively.
  - CBS revised down slightly the reserve money targets for the rest of 2018 in accordance with its policy tightening.
- Credit and financial soundness:
  - Private sector credit growth accelerated to 19.7 percent at end-March 2018 from 8.1 percent at end-March 2017.
  - Financial soundness indicators suggest commercial banks are adequately capitalized and profitable.
- Medium-term outlook:
  - Growth expected to moderate to 3½ percent during 2018‒20, around potential, due to monetary tightening, moderation of tourism and fishery sector growth, and moratorium on large hotel construction projects.
  - Current account deficit expected to continue to be mostly financed by FDI; GIR’s ARA metric expected to stay around the current level in the medium term.

### Risks to the outlook
- Downside risks:
  - Intensification of security dislocations reducing tourist arrivals.
  - Structurally weak growth in major advanced and emerging economies dampening tourism.
  - Potential withdrawal of correspondent banking relationships (CBRs).
  - Higher-than-projected international energy prices affecting external balance, inflation, and some SOEs’ financial positions.
- Upside risks:
  - Tourism sector growth could exceed projections.
  - Stronger-than-projected euro against the US dollar would improve external position (tourism receipts mostly in euro; import bill mostly in US dollars).

### Fiscal policy: performance, composition, and measures
- 2017 performance:
  - 2017 primary surplus marginally exceeded the target; primary surplus reached 3.0 percent of GDP in 2017 in some summaries.
  - Primary expenditures were lower than programmed by 2¾ percent of GDP.
  - Tax revenue fell short of the program projection by about 1 percent of GDP; non-tax revenue underperformed due to delayed SOE dividend transfers.
- 2018 stance and one-off measures:
  - 2018 budget approved is in line with the program; primary surplus expected to reach 3 percent of GDP in 2018 (exceeding program target of 2½ percent of GDP).
  - Primary surplus excluding one-off measures estimated to edge up from 1.6 percent of GDP in 2017 to 1¾ percent in 2018.
  - One-off measures boosting 2018 revenue estimated to be about 1 percent of GDP (stamp duty payments and dividends); five-month delay of progressive PIT to June 1, 2018 produces one-off saving of around ¼ percent of GDP in 2018.
- Permanent fiscal saving measures in the 2018 budget (Ministry of Finance and staff estimates):
  - Introduction of a property tax: 40 (in SCR millions) = 0.18 (in percent of GDP)
  - Alignment of vessel registration tax: 30 = 0.14
  - Containment of growth in wage bill and goods and services: 80 = 0.37
    - Cancellation of opening of District Councils: 15 = 0.07
    - Stricter control on official travel: 5 = 0.02
  - Better targeting of social welfare: 30 = 0.14
  - Total estimated saving: 180 = 0.82 (in percent of GDP)
- 2018 SONA measures with estimated impact on 2019 budget (percent of GDP):
  - Increase in pension benefit from SR 5,050 to SR 5,250 a month: 0.10
  - Increase in minimum wage from SR 5,050 to SR 5,250 a month: 0.03
  - Seychelles National Parks Authority becomes an autonomous agent (net impact): 0.22
  - Seychelles Fishery Authority becomes an autonomous agent (net impact): 0.03
  - Additional resources for various agencies: 0.09
  - Privatization (20 percent of SEYPEC): 0.13
  - Estimated total fiscal cost of the above: 0.60
- Policy intentions for 2019:
  - Keep tight rein on current expenditure and implement revenue enhancing measures, including procurement reforms, containing wage bill growth, and rationalization of social welfare.
  - Terminate at end-2018 accelerated investment deduction and marketing cost deduction for tourism-related companies.
  - Staff urged abolition of the property tax to be introduced later in 2018 or removal of discriminatory features; authorities agreed to explore alternatives.

### Medium-term financing strategy and large projects
- President announced large-scale infrastructure projects in the 2018 SONA not included in medium-term PSIPs; if implemented, total cost could reach around 30 percent of 2018 GDP.
- Two projects account for more than half of total announced cost and are climate-related:
  - Conversion of electricity generation to LNG: $216 million — 13.8
  - Grand Anse Dam: $80 million — 5.1
- Projects announced in 2018 SONA (Estimated total project cost; in percent of 2018 GDP):
  - Grand Anse Dam: $80 million — 5.1
  - Second submarine cable: $20 million — 1.3
  - Cascade to Grand Anse Tunnel: $65 million — 4.2
  - Conversion of electricity generation to LNG: $216 million — 13.8
  - Reclaiming of land: $80 million — 5.1
  - Total: $461 million — 29.5
- Staff recommendation: phase investment projects in line with absorptive capacity and seek concessional external financing for climate-related actions where possible.
- Authorities need to identify financing for priority climate change related investments estimated to cost over $250 million over the next 15‒20 years (around 17 percent of 2018 GDP, Annex I).

### Climate change projects (Annex I) — identified costs and financing
- NDC 2015 estimated total cost of mitigation and adaptation at $604 million over next 15‒20 years.
- Projects with inclusion in PSIP and financing:
  - SWIOFish3 Project (2017‒23): Estimated cost $25.3 million; financing: $15 million by Blue Bond; $5 million by World Bank's GEF grant; $5.3 million by World Bank loan.
  - Solar Power Field Project (2018 onwards): $8.5 million; financing: Loan from Abu Dhabi Fund for Development.
  - Utility scale power plant with battery storage (2018‒22): $4 million; financing: Line of credit from the Government of India.
  - Solar led street lights (2018‒22): $0.6 million; financing: Line of credit from the Government of India.
  - Photovoltaic rooftop on government buildings (2018‒22): $3 million; financing: Line of credit from the Government of India.
  - Photovoltaic plant project (2019 onwards): $0.3 million (project design/legal advisory only); financing: African Legal Support Facility grant.
  - Other projects started in 2017 (2017‒19): $9.8 million; financing: $2.3 million domestic; $2.4 million World Bank GEF grant; $5.1 million AfDB loan.
  - Grand Anse Dam (2020 onwards): $80 million; financing: PPP and external project grant (Government pledge).
  - Conversion to LNG (2019 onwards): $216 million; financing: PPP and external project grant (Government pledge).
- Total estimated cost of projects listed: $347.6 million.
- Financing identified and included in PSIP: around $53 million.

### Monetary and exchange rate policies
- CBS actions and framework transition:
  - Tightened monetary policy in late March by increasing interest rate corridor bounds by 1 and 2 percentage points (lower and upper bounds).
  - Committed to a flexible exchange rate while staying watchful for inflationary pressures.
  - Will continue to use reserve money target until the new interest rate corridor framework functions effectively.
  - Staff welcomed CBS’s transition to a new monetary policy framework emphasizing interest rates, supporting use of RM as an operating target during transition and urging explicit announcement of a policy rate when fully transitioned (e.g., DAA rate or repo rate).
  - As of the third quarter of 2018, CBS is to formally move to a more flexible monetary targeting framework, with interest rates as the short-term operational target and reserve money as the longer-term operational target.
- Advice and vigilance:
  - Staff advised CBS to be ready to tighten monetary policy further and adopt macroprudential measures if needed.
  - Staff encouraged greater exchange rate flexibility while keeping gross international reserves (GIR) coverage around current levels; GIR projected to remain at about 170 percent of the relevant ARA metric under the baseline.

### Financial sector stability, AML/CFT, and SOE/PPP fiscal risks
- Financial sector soundness:
  - Regulatory capital to risk weighted assets and profitability indicators show banks well capitalized and profitable (selected indicators available in Table 5 highlights).
  - Non-performing loans and provisioning ratios reported across quarterly periods (see source tables for full series).
- Correspondent banking relationships (CBR) and AML/CFT:
  - Potential loss of CBRs is a major threat; authorities to strengthen AML/CFT framework and offshore sector transparency.
  - National Risk Assessment completed October 2017; National AML/CFT strategy expected to be approved by Cabinet by June 2018.
  - Amendments to AML/CFT legal and institutional framework to be submitted to Cabinet by end-June 2018.
  - Implement a risk-based approach to supervision by end-December 2018 (Third Review RT).
- SOEs and fiscal risk management:
  - Air Seychelles had a small loss in 2017 due to higher international fuel prices; operational restructuring under way and expected turnaround in 2019.
  - Preparation of Fiscal Risks Statement and new Code of Governance for SOEs (aligned with OECD Guidelines) to be submitted, with timing linked to 3rd review RTs.
  - PPP Act to take effect in second quarter of 2018; Fiscal Risk Statement attached to 2019 budget to cover PPP and SOE risks.
- Policy steps to minimize fiscal risks from PPPs and large projects:
  - Phase projects consistent with absorptive capacity.
  - Seek concessional external financing for climate actions.
  - Publish consolidated contingent liabilities and social obligations of SOEs for 2019 budget (End-December 2018).

### Public debt, liability management, and Blue Bond
- Debt and projections (selected):
  - Nominal GDP (2017): US$1,498 million.
  - Total government and government-guaranteed debt (percent of GDP): 66.9 (2017); 67.2 (2018 Program); 62.7 (2019); 62.6 (2020); 58.0 (2021); 53.0 (2022); 48.6 (2023); 44.4 (2024); 40.6 (2025).
  - Total external debt outstanding (millions of U.S. dollars): 1,462 (2017); 1,500 (2018); 1,516 (2019); 1,559 (2020).
- Financing and liability management:
  - A Blue Bond of US$15 million to be issued, guaranteed by the World Bank; proceeds to finance SWIOFish3 project.
  - Government will carry out liability management to swap current US dollar obligations of US$144 million into Euros during second half of 2018.
  - Plans to lengthen maturity of domestic debt in 2019 budget to reduce rollover risks.
  - Cross-currency swap exploration of EuroBond currently at US$143.56 million; bond pays 8% per annum; aim to swap to euro-denominated bond in second half of 2018.

### Program monitoring, quantitative targets, and reporting
- Monitoring and reviews:
  - Program monitored semi-annually; second review test date end-June 2018; third review test date end-December 2018.
  - Second review scheduled to be completed by October 31, 2018; third review by April 30, 2019.
- Quantitative targets and selected projections (highlights):
  - Real GDP growth (annual percent): 4.5 (2014); 4.9 (2015); 4.5 (2016); 4.2 (2017); 5.3 (2018 Program); 3.3 (2019); 3.6 (2020).
  - CPI (annual average): 1.4 (2014); 4.0 (2015); -1.0 (2016); 3.2 (2017); 2.9 (2018 Program); 3.4 (2019); 4.4 (2020).
  - Reserve money (end-of-period, annual percent change): 13.9 (2014); 9.5 (2015); 14.5 (2016); 18.7 (2017); 18.9 (2018 Program).
  - Gross official reserves (end of year, millions of U.S. dollars): 526 (2017); 544 (2018 Program); 650 (2019); 552 (2020).
  - Reserves in percent of ARA metric: 165.8 (2017); 180.6 (2018 Program); 162.9 (2019); 169.7 (2020).
  - Current account balance (percent of GDP): -15.8 (2017); -20.5 (2018 Program); -13.9 (2019).
  - Program primary balance (percent of GDP): 3.0 (2017); 3.0 (2018 Program); 2.5 (2019); 3.0 (2020).
- Technical memorandum highlights:
  - Program exchange rate (2018): SCR13.84 per US$1; US$/EUR 1.20; US$/GBP 1.35; US$/SDR 1.45; US$/AUD 0.78; US$/CAD 0.80; US$/CNY 0.15.
  - Reserve money targets are daily-average quarter figures with a symmetrical band of six percent; upper bound is the ceiling.
  - Net international reserves (NIR) defined as reserve assets minus reserve liabilities; NIR floor adjusters linked to external non-project loans, grants, and external debt service deviations.
- Reporting requirements (selected):
  - CBS weekly: daily reserve money data, foreign exchange reserves position, summary FX transactions, liquidity deposit auction results, T-bill auction results.
  - CBS monthly: monetary survey, foreign exchange cash flow, financial soundness indicators, stock of government securities.
  - Ministry of Finance monthly: consolidated government operations, detailed revenues and expenditures, customs import/export data, public debt report.
  - Semiannual audit: NIR and reserve money data submitted to IMF to be audited by CBS internal audit division within two months after each test date.

### Structural priorities, capacity development, and governance
- Structural priorities for 2018:
  - Strengthening the AML/CFT framework.
  - Reducing potential fiscal risks.
  - Improving public investments’ efficiency.
  - Enhancing inclusive growth.
- Capacity development:
  - IMF technical assistance essential in PFM, monetary policy operations, AML/CFT, and financial sector reforms.
- CBS governance and safeguards:
  - CBS requested IMF safeguard assessment completed in February 2018.
  - Proposed amendments to CBS Act scheduled for June 2018; interim incorporation of a one-year "cooling off" clause for re-appointed executive board members in March 2018.
- Timetables for deliverables (selected reform targets):
  - Submit cost-benefit analyses for public investment projects above 10 million rupees to Cabinet by End June 2018.
  - Submit amended AML/CFT legal and institutional framework to Cabinet by End June 2018.
  - Publish consolidated contingent liabilities and cost of SOE social obligations for 2019 budget by End December 2018.
  - Submit new Code of Governance for SOEs to National Assembly by End September 2018.
  - Implement risk-based supervision of banks and trusts and company service providers by End-December 2018.
  - Implement Pillar 1 of Basel II by end June 2018; full Basel framework by end June 2019.
  - Financial Consumer Protection law promulgation by July 2018; National Financial Education Strategy implementation to begin Q2 2018.
  - Policy to enact a Financial Stability Act by end of June 2019.

### Policy implications and staff assessment
- Continued strong program implementation and commitment to macroeconomic stability underpin staff support for completing the first PCI review and modifying reserve money targets.
- Program risks considered moderate but economy remains vulnerable to external shocks, primarily those affecting tourism, commodity prices, and correspondent banking access.
- Staff urged cautious phasing of large-scale investments, mitigation of fiscal risks from PPPs and SOEs, and reliance on concessional finance for climate-related projects where feasible.

*Source: IMF staff report (cr18196).*

### 2017. The Central Bank of Seychelles (CBS) tightened its monetary policy stance in late

### SEYCHELLES FIRST REVIEW UNDER THE POLICY COORDINATION INSTRUMENT AND REQUEST FOR MODIFICATION OF TARGETS

### Key issues
- Context: Seychelles intends to preserve economic stability and enhance inclusive growth. Authorities committed to maintaining a primary fiscal surplus consistent with achieving the medium-term debt reduction goal.
- Priorities: structural measures to avoid further loss of correspondent banking relations (CBRs), reduce fiscal risks, and strengthen the business environment.
- Program recommendation: Staff recommends completion of the first review under the Policy Coordination Instrument (PCI) and minor modifications of the reserve money targets for end-June and end-December 2018.

### Recent developments and outlook
- Growth and external buffers:
  - Tourist arrivals grew by 15½ percent in 2017.
  - Real GDP growth is estimated to have exceeded 5 percent in 2017.
  - Gross international reserves (GIR) have overperformed staff’s projection at the time of the program request.
- Inflation and monetary policy:
  - Headline year-on-year (yoy) CPI inflation rate picked up to 4.2 percent in April 2018 from the range of 3‒3½ percent during the second half of 2017.
  - The Central Bank of Seychelles (CBS) tightened its monetary policy stance in late March by raising the lower and upper bounds of the interest rate corridor by 1 and 2 percentage points, respectively.
  - The CBS revised down slightly the reserve money targets for the rest of 2018 in accordance with its policy tightening.
- Credit and financial soundness:
  - Private sector credit growth accelerated to 19.7 percent at end-March 2018 from 8.1 percent at end-March 2017.
  - Financial soundness indicators suggest commercial banks are adequately capitalized and profitable.
- Medium-term outlook:
  - Growth is expected to moderate to 3½ percent during 2018‒20, around the potential rate, due to monetary tightening, moderation of tourism and fishery sector growth compared with 2017, and the moratorium on large hotel construction projects.
  - The current account deficit would continue to be mostly financed by FDI and the GIR’s ARA metric is expected to stay around the current level in the medium term.

### Risks to the outlook
- Downside risks:
  - External shocks: intensification of security dislocations in parts of the Middle East, Africa, and Europe could reduce tourist arrivals.
  - Structurally weak growth in major advanced and emerging economies could dampen tourism.
  - Potential withdrawal of correspondent banking relationships (CBRs) by international banks could affect the financial sector.
  - Higher-than-projected international energy prices could negatively affect the external balance, inflation, and some SOEs’ financial positions.
- Upside risks:
  - Tourism sector growth could exceed projections.
  - A stronger-than-projected euro against the US dollar would improve the external position (tourism receipts mostly in euro; import bill mostly in US dollars).

### Program performance (end-December 2017)
- All quantitative targets (QTs) for end-December 2017 were met.
- Fiscal outturns:
  - The 2017 primary surplus marginally exceeded the target.
  - Primary expenditures were lower than programmed by 2¾ percent of GDP due to delays in personnel recruitment, savings in goods and services, and smaller-than-budgeted external loan financed capital investments.
  - Tax revenue fell short of the program projection by about 1 percent of GDP (offsetting overperformance in business tax, personal income tax, and VAT were delays in stamp duty collection and business tax from the Port Authority).
  - Non-tax revenue underperformed because of delayed transfers of some SOEs’ dividends to the budget (to take place in 2018).
- External and monetary targets:
  - NIR at end-2017 exceeded the target by $33 million.
  - The daily average of reserve money (RM) during the fourth quarter of 2017 was well below the ceiling.
- Structural reform targets:
  - No structural reform targets (RTs) were due for the first review; RTs for the 2nd and 3rd reviews are progressing well.

### Policies in the period ahead

Fiscal policy
- Fiscal anchor:
  - Authorities committed to reducing public debt below 50 percent of GDP by 2021.
  - Large infrastructure projects planned would be implemented within the envelope of the program’s primary surplus target of 2½ percent of GDP.
  - Assumes unwinding of SCR200‒250 million each year of government debt issued for monetary policy purposes.
- 2018 fiscal stance:
  - The 2018 budget approved by the National Assembly is in line with the program; the primary surplus is expected to reach 3 percent of GDP in 2018 (exceeding the program target of 2½ percent of GDP).
  - The primary surplus excluding one-off measures is estimated to edge up from 1.6 percent of GDP in 2017 to 1¾ percent in 2018, while GDP growth is expected to slow from 5¼ percent in 2017 to 3½ percent in 2018.
  - One-off measures boosting 2018 revenue include stamp duty payments from foreign acquisition of a local telecom company and dividends transfers from some SOEs, together boosting government revenue by about 1 percent of GDP; a five-month delay of the introduction of the progressive PIT to June 1, 2018 produces one-off saving of around ¼ percent of GDP in 2018.
- Permanent fiscal saving measures in the 2018 budget (from Ministry of Finance and staff estimates):
  - Introduction of a property tax: 40 (in SCR millions) = 0.18 (in percent of GDP)
  - Alignment of vessel registration tax with international standards: 30 = 0.14
  - Containment of growth in wage bill and goods and services: 80 = 0.37
    - Cancellation of opening of District Councils: 15 = 0.07
    - Stricter control on official travel: 5 = 0.02
  - Better targeting of social welfare: 30 = 0.14
  - Total estimated saving: 180 = 0.82 (in percent of GDP)
- 2018 SONA fiscal measures with estimated impact on 2019 budget (in percent of GDP):
  - Increase in pension benefit from SR 5,050 to SR 5,250 a month: 0.10
  - Increase in minimum wage from SR 5,050 to SR 5,250 a month: 0.03
  - Seychelles National Parks Authority becomes an autonomous agent (net impact): 0.22 (revenue loss net of expenditure saving)
  - Seychelles Fishery Authority becomes an autonomous agent (net impact): 0.03
  - Additional resources for various agencies, including police and anti-corruption commission: 0.09
  - Privatization (20 percent of SEYPEC): 0.13 (loss of dividends due to partial privatization)
  - Estimated total fiscal cost of the above: 0.60
- Policy intentions for 2019:
  - Authorities intend to keep tight rein on current expenditure and implement revenue enhancing measures in the 2019 budget, including procurement reforms, containing wage bill growth via staffing and recruitment planning, and continued rationalization of social welfare.
  - Termination at end-2018 of accelerated investment deduction and marketing cost deduction for tourism-related companies to help offset revenue loss from progressive PIT introduction.
  - Staff urged abolition of the property tax to be introduced later in 2018 or removal of its discriminatory features; authorities agreed to explore alternatives.

Monetary and exchange rate policies
- CBS actions:
  - Tightened monetary policy in late March by increasing interest rate corridor bounds by 1 and 2 percentage points (lower and upper bounds).
  - Committed to a flexible exchange rate while staying watchful for inflationary pressures.
  - Will continue to use reserve money target until the new interest rate corridor framework functions effectively.

Structural agenda and financial stability
- Structural priorities for 2018:
  - Strengthening the AML/CFT framework.
  - Reducing potential fiscal risks.
  - Improving public investments’ efficiency.
  - Enhancing inclusive growth.
- Financial sector vigilance:
  - Authorities to guard against risks from potential loss of correspondent banking relationships (CBRs).

### Staff recommendations and assessment
- Staff recommends completion of the first review under the PCI and minor modifications of the reserve money targets for end-June and end-December 2018.
- Program risks considered moderate given strong implementation and commitment to macroeconomic stability, but the economy remains vulnerable to external shocks.

*International Monetary Fund, June 5, 2018.*

### 11.  Staff encouraged the authorities to elaborate a medium-term financing strategy for the

### 11.  Staff encouraged the authorities to elaborate a medium-term financing strategy for the 

### Medium-term financing strategy and project costs
- The President announced large-scale infrastructure projects in the 2018 SONA that were not included in the authorities’ medium-term Public-Sector Investment Plans (PSIPs).
- If approved and implemented gradually over the medium to long term, the announced projects’ total cost over their lifespan could reach around 30 percent of 2018 GDP.
- Two projects account for more than half of total cost and are part of climate change mitigation and adaptation efforts:
  - Conversion of electricity generation to LNG: $216 million — 13.8
  - Grand Anse Dam: $80 million — 5.1
- Projects announced in the 2018 SONA (Estimated total project cost; in percent of 2018 GDP):
  - Grand Anse Dam: $80 million — 5.1
  - Second submarine cable: $20 million — 1.3
  - Cascade to Grand Anse Tunnel: $65 million — 4.2
  - Conversion of electricity generation to LNG: $216 million — 13.8
  - Reclaiming of land: $80 million — 5.1
  - Total: $461 million — 29.5
- Authorities argued these projects would boost medium-term growth by addressing infrastructure bottlenecks.
- Staff recommendation: phase investment projects in line with the country’s absorptive capacity and seek concessional external financing for climate change related actions to the extent possible.

### Climate-related investment needs and fiscal space
- Authorities need to identify financing for priority climate change related investments estimated to cost over $250 million over the next 15‒20 years (around 17 percent of 2018 GDP, (Annex I)).
- The authorities committed to maintaining the primary surplus target of 2½ percent of GDP from 2019 onwards as envisaged in the program and to achieving their goal of reducing debt below 50 percent GDP by end-2021.
- Staff emphasized the need to create further fiscal space over the medium term, beyond that required to secure the debt reduction goal of the program, including:
  - Mitigating fiscal risks from PPPs.
  - Exploring additional revenue measures discussed during the 2017 Article IV consultation.

### Fiscal policy measures and budget preparation
- Measures to contain current spending in the 2019 budget would help shift spending from current to capital outlays.
- Staff urged the authorities to:
  - Phase projects consistent with absorptive capacity.
  - Seek concessional external financing for climate actions.
  - Mitigate fiscal risks and explore additional revenue measures.
- Authorities plan permanent measures in the 2019 budget to:
  - Contain nominal growth in wages and goods and services.
  - Better target social welfare programs.
  - Streamline preferential business tax treatments for tourism-related companies starting in 2019.

### Financing and liability management
- A Blue Bond of US$15 million will be shortly issued, with guarantees by the World Bank to lower interest costs; proceeds will finance a project to improve marine resource management and strengthen fisheries value chains (Third SWIOFish3 project).
- The government will carry out a liability management exercise to swap current US dollar obligations of US$144 million into Euros during the second half of 2018.
- Plans in the 2019 budget include lengthening the maturity of domestic debt to reduce rollover risks.
- Liability management and lengthening domestic debt maturity, together with steady public debt reduction, would help manage medium-term debt sustainability risks.

### SOEs, PPPs, and fiscal risk management
- Air Seychelles had a small loss in 2017 due to higher international fuel prices; other major SOEs remained profitable. Air Seychelles began operational restructuring and is expected to turn around in 2019.
- Progress reported:
  - Preparation of a Fiscal Risks Statement analyzing risks from the SOE sector and PPPs, and quantification of social obligations absorbed by SOEs, to be included in the 2019 budget (3rd review RTs).
  - A new Code of Governance for SOEs in line with OECD Guidelines to be submitted to Cabinet by September (3rd review RT).
- To minimize fiscal risks from PPPs for newly announced large projects and climate-related investments:
  - The PPP Act will take effect in the second quarter of 2018.
  - The Fiscal Risk Statement attached to the 2019 budget will cover risks from PPPs as well as SOEs (PS ¶29).

### Monetary and exchange rate policies (summary of related staff advice)
- Staff supported the CBS’ precautionary tightening of monetary policy stance in late March due to rising international fuel prices, electricity tariff adjustments, strong domestic demand, and acceleration of credit growth.
- Staff advised that the CBS should be ready to tighten monetary policy further and adopt macroprudential measures if needed.
- Coordination between the CBS and the Ministry of Finance is encouraged to ensure that unwinding monetary debt in line with government debt reduction does not hamper liquidity management and inflation objectives.
- The plan to rely on reverse repurchase operations would help manage liquidity injected by monetary debt unwinding.
- Staff welcomed the CBS’s transition to a new monetary policy framework emphasizing interest rates, supporting the use of RM as an operating target during transition and urging explicit announcement of a policy rate when fully transitioned (e.g., DAA rate or repo rate).
- Staff encouraged greater exchange rate flexibility while keeping gross international reserves (GIR) coverage around current levels; GIR is projected to remain at about 170 percent of the relevant ARA metric under the baseline.

### Financial sector stability and AML/CFT
- Authorities finalizing a new offshore sector strategy to move to a more transparent business model and prevent misuse of legal persons and arrangements for money laundering.
- Cabinet approved the National Risk Assessment to form the basis for the National AML/CFT strategy, to be approved by Cabinet by June 2018.
- Amendments to the AML/CFT legal and institutional framework will be submitted to Cabinet by end-June.
- Progress toward implementing a risk-based approach to bank and trust supervision by end-2018 (3rd review RT).
- CBS plans to complete transition to Basel II and adopt the Basel III capital definition; full framework expected by June 2019.
- Regulatory framework to address weaknesses in crisis management, bank resolution and safety net to be submitted to the National Assembly by end-2018 (PS¶46, 3rd review RT).

### Inclusive growth and sectoral policies
- Addressing the infrastructure gap, particularly high electricity costs, is key to boosting growth; staff urged resumption of electricity tariff rebalancing delayed from November 2017 to September 2018.
- Cost-benefit analyses of major public investments will be submitted to Cabinet by June as part of 2019 budget preparation (2nd review RT).
- Efforts to diversify tourism and upgrade the fishery industry include developing a Tourism Satellite Account and launching the SWIOFish3 project.
- The Development Bank of Seychelles (DBS) will make loans to eligible projects under SWIOFish3 using Blue Bond proceeds; strict loan selection criteria for DBS were established (PS¶24).
- National Financial Inclusion Strategy focuses on SME financing; National Financial Education Strategy (NFES) launched December 2017 with implementation expected to begin in the second quarter of 2018 on a three-year rolling plan.
- CBS and FSA plan to promulgate a Financial Consumer Protection law by July 2018.

### Program monitoring and risks
- The program will be monitored semi-annually; end-June and end-December 2018 fiscal primary surplus and NIR targets are maintained.
- Seychelles does not need Fund financial assistance under the baseline and is not seeking financial assistance from the Fund as the program is fully financed.
- Capacity development remains essential in PFM, monetary policy operations, and AML/CFT with IMF technical assistance.
- Downside risks to the PCI remain moderate and stem predominantly from external factors; the CBS completed an updated voluntary safeguards assessment in February 2018 and committed to addressing remaining vulnerabilities.

*Source: Seychelles authorities and IMF staff estimates*

### 27.  The CBS should stay vigilant to any sign of inflationary pressures and allow greater

### 27.  The CBS should stay vigilant to any sign of inflationary pressures and allow greater

### Monetary policy stance and inflation vigilance
- Staff supports the CBS’ intention to stay watchful to any sign of demand-pull inflationary pressures, including credit growth, and second-round effects of the electricity tariff adjustments in coming months.
- The CBS should be ready to tighten monetary policy further and take macroprudential measures if needed.
- The exchange rate is broadly in line with fundamentals and the reserves buffer is estimated to be adequate.
- The CBS is advised to allow greater exchange rate flexibility with minimal intervention to preserve reserves coverage ratios at around the current level.

### Transition to a new monetary policy framework
- Staff welcomes the CBS’ continued efforts for a smooth transition to the new monetary policy framework in which interest rates plays a prominent role.
- The new framework would enhance the monetary transmission mechanism in the medium term.
- The CBS has delineated an Action Plan for a successful transition, focusing on:
  - enhancing capacity for inflation forecasting and liquidity management,
  - improving communication of its policy intentions, and
  - further developing the interbank market infrastructure.

### Financial integrity, structural reforms, and fiscal risks
- The authorities should step up efforts to address the risks of further potential loss of CBRs and implement structural reforms to enhance inclusive growth and reduce fiscal risks.
- The authorities are urged to align the AML/CFT framework with international standards and best practices and enhance entity transparency in the offshore sector.
- They are encouraged to continue efforts at the regional/international level to develop solutions to address CBR pressures.
- Given the government’s emphasis on infrastructure scaling up in coming years, better management of public investment would be key to effectively address infrastructure gap, boost prospects for inclusive growth, and shore up fiscal sustainability.
- The authorities are also encouraged to implement measures to minimize fiscal risks potentially arising from the SOE sector and PPPs.

*Source: cr18196 - 27.  The CBS should stay vigilant to any sign of inflationary pressures and allow greater*

### 30. Given the authorities’ strong program implementation and continued commitment to

### cr18196 - 30. Given the authorities’ strong program implementation and continued commitment to

### Program decision
- Staff supports the authorities’ request for the completion of the first review under the PCI and the modification of the end-June 2018 and end-December 2018 quantitative targets for reserve money.

### Key macroeconomic indicators and projections (highlights from Figures and Table 1)
- Nominal GDP (2017): US$1,498 million
- Per capita GDP (2017): US$15,735
- Population, end-year (2016): 94,677
- Literacy rate (2015): 95.3 percent
- Main products and exports: Tourism, Canned Tuna
- Nominal GDP (millions of Seychelles rupees): 17,119 (2014); 18,340 (2015); 19,014 (2016); 20,281 (2017); 20,444 (2018 Program); 21,747 (2019); 21,914 (2020); 23,428 (2021); 24,890 (2022); 26,603 (2023); 28,414 (2024); 30,240 (2025)
- Real GDP growth (annual percent): 4.5 (2014); 4.9 (2015); 4.5 (2016); 4.2 (2017); 5.3 (2018 Program); 3.3 (2019); 3.6 (2020); 3.3 (2021); 3.3 (2022); 4.1 (2023); 4.0 (2024); 3.3 (2025)
- CPI (annual average): 1.4 (2014); 4.0 (2015); -1.0 (2016); 3.2 (2017); 2.9 (2018 Program); 3.4 (2019); 4.4 (2020); 3.6 (2021); 3.1 (2022); 3.1 (2023); 3.1 (2024); 3.0 (2025)
- Reserve money (end-of-period, annual percent change): 13.9 (2014); 9.5 (2015); 14.5 (2016); 18.7 (2017); 18.9 (2018 Program); 7.0 (2019); 6.1 (2020)
- Broad money (annual percent change): 26.6 (2014); 2.9 (2015); 12.1 (2016); 14.3 (2017); 16.4 (2018 Program); 8.1 (2019); 7.4 (2020)
- Money multiplier (broad money/reserve money): 5.0 (2014); 4.7 (2015); 4.6 (2016); 4.4 (2017); 4.5 (2018 Program); 4.4 (2019); 4.5 (2020)
- Credit to the private sector (annual percent change): 26.2 (2014); 7.8 (2015); 10.3 (2016); 15.7 (2017); 17.8 (2018 Program); 9.1 (2019); 11.5 (2020)
- Gross national savings (percent of GDP): 14.6 (2014); 15.2 (2015); 10.2 (2016); 14.9 (2017); 8.2 (2018 Program); 16.0 (2019); 10.0 (2020); 12.9 (2021); 15.2 (2022); 15.3 (2023); 16.2 (2024); 16.1 (2025)
- Gross investment (percent of GDP): 37.7 (2014); 33.8 (2015); 30.2 (2016); 30.7 (2017); 28.6 (2018 Program); 29.9 (2019); 28.1 (2020); 30.5 (2021); 32.2 (2022); 32.9 (2023); 33.4 (2024); 32.6 (2025)
- Private consumption (percent of GDP): 50.8 (2014); 47.6 (2015); 47.1 (2016); 42.8 (2017); 50.9 (2018 Program); 43.1 (2019); 47.6 (2020); 47.6 (2021); 47.9 (2022); 48.0 (2023)
- Overall balance, including grants (percent of GDP): 2.1 (2014); 0.9 (2015); -1.4 (2016); 0.8 (2017); 0.0 (2018 Program); -0.7 (2019); -0.3 (2020); -0.4 (2021); -0.1 (2022); 0.1 (2023); 0.3 (2024); 0.5 (2025)
- Program primary balance (percent of GDP): 4.9 (2014); 4.3 (2015); 3.4 (2016); 3.0 (2017); 3.0 (2018 Program); 2.5 (2019); 3.0 (2020); 2.5 (2021); 2.5 (2022); 2.5 (2023); 2.5 (2024); 2.5 (2025)
- Total government and government-guaranteed debt (percent of GDP): 74.6 (2014); 69.9 (2015); 72.7 (2016); 66.9 (2017); 67.2 (2018 Program); 62.7 (2019); 62.6 (2020); 58.0 (2021); 53.0 (2022); 48.6 (2023); 44.4 (2024); 40.6 (2025)
  - Domestic (including debt issued for monetary purposes): 33.5 (2014); 34.8 (2015); 40.4 (2016); 37.0 (2017); 36.8 (2018 Program); 34.4 (2019); 33.4 (2020); 30.8 (2021); 27.4 (2022); 24.6 (2023); 21.7 (2024); 18.3 (2025)
  - External: 41.1 (2014); 35.1 (2015); 32.2 (2016); 29.9 (2017); 30.4 (2018 Program); 28.3 (2019); 29.2 (2020); 27.1 (2021); 25.6 (2022); 24.0 (2023); 22.7 (2024); 22.3 (2025)
- Current account balance including official transfers (percent of GDP): -23.1 (2014); -18.6 (2015); -20.1 (2016); -15.8 (2017); -20.5 (2018 Program); -13.9 (2019); -18.2 (2020); -17.6 (2021); -17.0 (2022); -17.6 (2023); -17.2 (2024); -16.6 (2025)
- Total external debt outstanding (millions of U.S. dollars): 1,588 (2014); 1,375 (2015); 1,404 (2016); 1,462 (2017); 1,500 (2018); 1,516 (2019); 1,559 (2020); 1,599 (2021); 1,647 (2022); 1,715 (2023); 1,792 (2024); 1,888 (2025)
- Total external debt (percent of GDP): 118.2 (2014); 99.9 (2015); 98.3 (2016); 98.4 (2017); 100.1 (2018); 96.7 (2019); 99.7 (2020); 97.1 (2021); 95.1 (2022); 93.7 (2023); 93.1 (2024); 93.7 (2025)
- Gross official reserves (end of year, millions of U.S. dollars): 462.9 (2014); 536.8 (2015); 522.6 (2016); 526 (2017); 544 (2018 Program); 650 (2019); 552 (2020); 454 (2021); 857 (2022); 863 (2023); 367 (2024); 696 (2025)
- Months of imports, c.i.f. (reserves coverage): 3.9 (2014); 4.3 (2015); 3.7 (2016); 3.7 (2017); 3.4 (2018 Program); 3.3 (2019); 3.2 (2020); 3.4 (2021); 3.5 (2022); 3.4 (2023)
- Reserves in percent of Assessing Reserve Adequacy (ARA) metric: 141.8 (2014); 181.7 (2015); 181.6 (2016); 165.8 (2017); 180.6 (2018 Program); 162.9 (2019); 169.7 (2020); 173.6 (2021); 178.4 (2022); 189.4 (2023); 197.9 (2024); 198.8 (2025)
- Seychelles rupees per US$1 (end-of-period): 14.0 (2014); 13.2 (2015); 13.5 (2016); 13.8 (2017)
- Seychelles rupees per US$1 (period average): 12.7 (2014); 13.3 (2015); 13.3 (2016); 13.6 (2017)

### Balance of payments summary (Table 2 highlights)
- Current account balance (millions of U.S. dollars): -310 (2014); -256 (2015); -286 (2016); -307 (2017); -284 (2018); -290 (2019); -295 (2020); -322 (2021); -330 (2022); -334 (2023)
- Current account balance (percent of GDP): -23.1 (2014); -18.6 (2015); -20.1 (2016); -20.5 (2017); -18.2 (2018); -17.6 (2019); -17.0 (2020); -17.6 (2021); -17.2 (2022); -16.6 (2023)
- Balance of goods and services (millions of U.S. dollars): -211 (2014); -124 (2015); -146 (2016); -176 (2017); -124 (2018); -124 (2019); -121 (2020); -145 (2021); -135 (2022); -131 (2023)
- Exports of goods (millions of U.S. dollars): 539 (2014); 449 (2015); 459 (2016); 535 (2017); 533 (2018); 560 (2019); 605 (2020); 651 (2021); 667 (2022); 694 (2023)
  - Tuna exports: 318 (2014); 239 (2015); 270 (2016); 268 (2017); 268 (2018); 298 (2019); 331 (2020); 368 (2021); 372 (2022); 379 (2023)
- Imports of goods (millions of U.S. dollars): 1,081 (2014); 922 (2015); 991 (2016); 1,155 (2017); 1,208 (2018); 1,285 (2019); 1,368 (2020); 1,476 (2021); 1,541 (2022); 1,628 (2023)
- Exports of services (millions of U.S. dollars): 834 (2014); 848 (2015); 894 (2016); 998 (2017); 1,104 (2018); 1,180 (2019); 1,267 (2020); 1,347 (2021); 1,423 (2022); 1,506 (2023)
  - Tourism earnings (millions of U.S. dollars): 398 (2014); 392 (2015); 414 (2016); 483 (2017); 553 (2018); 597 (2019); 656 (2020); 699 (2021); 751 (2022); 792 (2023)
- Financial account, net (millions of U.S. dollars): 258 (2014); 271 (2015); 237 (2016); 276 (2017); 230 (2018); 287 (2019); 308 (2020); 360 (2021); 351 (2022); 339 (2023)
  - Direct investment, net (millions of U.S. dollars): 216 (2014); 148 (2015); 182 (2016); 270 (2017); 167 (2018); 179 (2019); 189 (2020); 239 (2021); 275 (2022); 296 (2023)
- Overall balance (millions of U.S. dollars): 36 (2014); 72 (2015); 5 (2016); 22 (2017); -16 (2018); 31 (2019); 38 (2020); 61 (2021); 44 (2022); 28 (2023)
- Change in net international reserves (increase: –) (millions of U.S. dollars): -36 (2014); -72 (2015); 13 (2016); -23 (2017); 16 (2018); -31 (2019); -38 (2020); -61 (2021); -44 (2022); -28 (2023)

### Fiscal operations (Table 3 highlights)
- Total revenue and grants (millions of Seychelles rupees): 6,413 (2014); 6,276 (2015); 7,205 (2016); 7,448 (2017)
- Total revenue (millions of Seychelles rupees): 5,870 (2014); 6,132 (2015); 6,965 (2016); 7,275 (2017)
- Total revenue (percent of GDP): 34.3 (2014); 33.4 (2015); 36.6 (2016); 35.6 (2017)
- Tax revenue (millions of Seychelles rupees): 5,294 (2014); 5,557 (2015); 6,188 (2016); 6,600 (2017)
- Expenditure and net lending (millions of Seychelles rupees): 5,981 (2014); 6,057 (2015); 7,277 (2016); 7,457 (2017)
- Expenditure and net lending (percent of GDP): 34.9 (2014); 33.0 (2015); 38.3 (2016); 36.5 (2017)
- Current expenditure (percent of GDP): 28.0 (2014); 28.0 (2015); 33.1 (2016); 32.7 (2017)
- Capital expenditure (percent of GDP): 6.6 (2014); 4.4 (2015); 4.8 (2016); 3.7 (2017)
- Primary balance (percent of GDP): 4.9 (2014); 4.3 (2015); 3.4 (2016); 3.0 (2017)
- Overall balance, cash basis (after grants) (percent of GDP): 2.1 (2014); 0.9 (2015); -1.4 (2016); 0.0 (2017)
- External debt service due (memorandum, millions of Seychelles rupees): 397 (2014); 367 (2015); 781 (2016); 636 (2017)

### Financial sector soundness (Table 5 highlights)
- Regulatory capital to risk weighted assets (percent, end-of-period): 26.7 (Q4 2012); 26.7 (Q4 2013); 21.7 (Q4 2014); 23.3 (Q1 2015); 23.3 (Q2 2015); 24.8 (Q3 2015); 25.5 (Q4 2015); 26.2 (Q1 2016); 25.2 (Q2 2016); 25.2 (Q3 2016); 26.6 (Q4 2016); 25.7 (Q1 2017); 23.4 (Q2 2017); 22.4 (Q3 2017); 23.5 (Q4 2017)
- Non-performing loans to gross loans (percent, end-of-period): 9.3 (Q4 2012); 9.4 (Q4 2013); 8.2 (Q4 2014); 7.1 (Q1 2015); 7.2 (Q2 2015); 7.7 (Q3 2015); 7.6 (Q4 2015); 8.5 (Q1 2016); 7.8 (Q2 2016); 7.8 (Q3 2016); 6.8 (Q4 2016); 7.0 (Q1 2017); 6.9 (Q2 2017); 6.5 (Q3 2017); 7.1 (Q4 2017)
- Provision as percentage of non-performing loans (percent): 29.5 (Q4 2012); 39.2 (Q4 2013); 43.9 (Q4 2014); 46.0 (Q1 2015); 45.5 (Q2 2015); 42.0 (Q3 2015); 41.1 (Q4 2015); 37.2 (Q1 2016); 40.7 (Q2 2016); 40.7 (Q3 2016); 37.4 (Q4 2016); 36.0 (Q1 2017); 35.6 (Q2 2017); 35.4 (Q3 2017); 31.9 (Q4 2017)
- Return on assets (annualized, percent): 3.1 (Q4 2012); 1.9 (Q4 2013); 3.3 (Q4 2014); 3.5 (Q1 2015); 3.2 (Q2 2015); 4.6 (Q3 2015); 3.8 (Q4 2015); 4.0 (Q1 2016); 3.8 (Q2 2016); 3.8 (Q3 2016); 3.8 (Q4 2016); 3.4 (Q1 2017); 4.0 (Q2 2017); 3.3 (Q3 2017); 3.9 (Q4 2017)
- Return on equity (annualized, percent): 29.8 (Q4 2012); 19.6 (Q4 2013); 38.2 (Q4 2014); 37.5 (Q1 2015); 32.1 (Q2 2015); 41.5 (Q3 2015); 34.7 (Q4 2015); 35.1 (Q1 2016); 34.8 (Q2 2016); 34.8 (Q3 2016); 32.7 (Q4 2016); 29.8 (Q1 2017); 36.8 (Q2 2017); 30.6 (Q3 2017); 35.1 (Q4 2017)
- Net interest margin (annualized, percent): 4.1 (Q4 2012); 3.2 (Q4 2013); 2.8 (Q4 2014); 3.4 (Q1 2015); 3.8 (Q2 2015); 4.3 (Q3 2015); 4.3 (Q4 2015); 4.3 (Q1 2016); 4.3 (Q2 2016); 4.3 (Q3 2016); 4.6 (Q4 2016); 4.3 (Q1 2017); 5.0 (Q2 2017); 4.0 (Q3 2017); 4.1 (Q4 2017)
- Core liquid assets to total assets (percent): 39.6 (Q4 2012); 41.6 (Q4 2013); 40.8 (Q4 2014); 41.0 (Q1 2015); 35.4 (Q2 2015); 31.1 (Q3 2015); 33.0 (Q4 2015); 33.8 (Q1 2016); 30.6 (Q2 2016); 30.6 (Q3 2016); 28.6 (Q4 2016); 28.7 (Q1 2017); 40.2 (Q2 2017); 38.8 (Q3 2017); 38.2 (Q4 2017)

### Policy implications reflected in the content
- Continued strong program implementation and commitment to safeguarding macroeconomic stability underpin staff support for completing the first PCI review.
- The request for modification of end-June 2018 and end-December 2018 quantitative targets for reserve money is supported by staff given the authorities’ implementation record.

*Source: IMF staff report (cr18196).*

### Annex I. Seychelles’ Climate Change Policies: Updates to the 2017

### Annex I. Seychelles’ Climate Change Policies: Updates to the 2017 Climate Change Policy Assessment

### Progress and overall cost estimates
- Authorities’ 2015 Nationally Determined Contribution (NDC 2015) estimated the total cost of climate change mitigation and adaptation actions at $604 million over the next 15‒20 years.
- The WB-FAD TA mission findings (2017 Climate Change Policy Assessment) indicate the authorities’ estimated total cost is likely to be a lower bound.
- Since the 2017 Assessment, the authorities have articulated specific mitigation and adaptation projects and identified financing for several projects.
- Financing of around $53 million for climate change related investments has been identified and incorporated in the authorities’ PSIP.
- Large-scale infrastructure projects announced in the 2018 SONA with climate relevance:
  - Grand Anse Dam and conversion of electricity generation from heavy fuel to LNG, total cost $296 million over the medium term; Grand Anse Dam strengthens water security (adaptation) and conversion to LNG would considerably reduce carbon emission (mitigation).
- The authorities plan to finance large projects by relying on PPPs and external project grants while preserving primary surplus and debt reduction targets under the PCI.

### Climate change related projects identified by the authorities (projects, periods, inclusion in PSIP, estimated cost, financing)
- SWIOFish3 Project
  - Project period: 2017‒23
  - Included in the PSIP: Yes
  - Estimated cost: $25.3 million
  - Financing: $15 million by Blue Bond; $5 million by World Bank's GEF grant; $5.3 million by World Bank loan
- Solar Power Field Project
  - Project period: 2018 onwards
  - Included in the PSIP: Yes
  - Estimated cost: $8.5 million
  - Financing: Loan from Abu Dhabi Fund for Development
- Utility scale power plant with battery storage
  - Project period: 2018‒22
  - Included in the PSIP: Yes
  - Estimated cost: $4 million
  - Financing: Line of credit from the Government of India
- Solar led street lights
  - Project period: 2018‒22
  - Included in the PSIP: Yes
  - Estimated cost: $0.6 million
  - Financing: Line of credit from the Government of India
- Photovoltaic rooftop on governemnt buildings
  - Project period: 2018‒22
  - Included in the PSIP: Yes
  - Estimated cost: $3 million
  - Financing: Line of credit from the Government of India
- Photovoltaic plant project
  - Project period: 2019 onwards
  - Included in the PSIP: Yes
  - Estimated cost: $0.3 million 1/
  - Financing: African Legal Support Facility grant
  - Note: 1/ Project design and legal advisory service only.
- Other projects already started in 2017
  - Project period: 2017‒19
  - Included in the PSIP: Yes
  - Estimated cost: $9.8 million
  - Financing: $2.3 million by domestic financing; $2.4 million by World Bank's GEF grant; $5.1 million by AfDB loan
- Grand Anse Dam
  - Project period: 2020 onwards
  - Included in the PSIP: Not yet
  - Estimated cost: $80 million
  - Financing: PPP and external project grant (Government's pledge)
- Conversion of electricity generation to LNG
  - Project period: 2019 onwards
  - Included in the PSIP: Not yet
  - Estimated cost: $216 million
  - Financing: PPP and external project grant (Government's pledge)
- Total estimated cost of projects listed: $347.6 million
- Source of table data: Seychelles authorities

*Source: Annex I. Seychelles’ Climate Change Policies: Updates to the 2017 Climate Change Policy Assessment (cr18196).*

### 3. Economic performance in 2017 was overall satisfactory, with real GDP growth rate

### 3. Economic performance in 2017 was overall satisfactory, with real GDP growth rate

### Economic performance and prices (2017)
- Real GDP growth rate estimated at 5.3 percent.
- Average consumer price inflation (year on year) of 2.9%, with end -year CPI increase of 3.5 %.
- Growth drivers:
  - Tourism sector: tourist arrivals growing by 15%.
  - Positive performance of manufacturing (beverages and tuna can production), telecommunications and the financial and insurance sector.
- Consumer price inflation higher in the second part of the year because of the rise of international fuel price.

### External sector and reserves (2017)
- External current account deficit declined slightly, on account of higher tourism earnings and tuna exports, despite an increase in the value of fuel import reflecting higher international prices.
- Gross international reserves rose more than envisaged under the program.
- End-December 2017 NIR and RM targets were met by a comfortable margin.

### Outlook for 2018 (growth, inflation, external)
- Real GDP growth rate expected to slow down to 3.6%, due to the moderation of tourism arrival, and fishery sector growth.
- CPI expected at 4.4 % on an annual average basis in 2018 (5.2% year-on-year (yoy) at end-2018), reflecting higher fuel price on average during the year, and some adjustment of public utility tariffs.
- External current account is expected to be broadly stable as a ratio to GDP, despite higher international fuel prices.

### Financial sector soundness and DBS performance
- Financial soundness indicators of commercial banks continue to be sound, with the minimum capital–asset ratio exceeded by high margin.
- Non-performing loans at the Development Bank of Seychelles (DBS) showed a marked deterioration in some Government schemes (Agriculture Development Fund and Fisheries Development Fund) offered by DBS on behalf of the Government.
- DBS’ own lending portfolio non-performing loans are at par with other commercial banks.
- Government has been working with DBS to review existing policy to minimize barriers to business operation.

### Budgetary performance in 2017 and outlook for 2018
- 2017 primary surplus reached 3.0 % of GDP, in line with initial target.
- Revenue and expenditure deviations in 2017:
  - Tax revenue lower than programmed by 0.4 % of GDP, mainly because of the delay on the stamp duty collection on a large private company change in ownership; partly offset by better performance in business tax and VAT revenue.
  - Non-tax revenue (excluding grants) lower than programmed by about 2% of GDP because of delays in transferring dividend to the budget, which will be reversed in 2018.
  - Primary current expenditures remained below program by 0.8% of GDP because of delay in personnel recruitment and some savings in goods and services.
  - Capital expenditures were lower than budgeted by 2% of GDP, mainly on account of smaller external grant financed capital investment.
- 2018 projections:
  - Primary surplus now expected to reach 3.0 % of GDP, versus 2.5% programmed, mainly on account of a better than originally budgeted revenue performance, by 1 % of GDP, which will be partly offset by higher current and capital expenditure.
  - Revenue projections reflect delayed collection of stamp duty and SOE dividends large arrears payments under the business tax, and a better expected performance of business tax revenue following 2017 results.
  - Progressive income tax will enter into effect on June 1, 2018, one month before originally programmed.
  - Primary current expenditures expected to exceed the program because of additional expenditure for Agency of Social Protection (home carers), medical supplies, retirement benefits, and subsidies for the SME lending scheme.
  - Capital expenditure increases needed for rehabilitating educational infrastructure; additional expenditures will be presented in a supplementary budget in May 2018.
  - Overall expenditure would exceed the program by 0.5% of GDP; Government will ensure part of the excess revenue is saved for debt reduction strategy; revised primary surplus of 3.0% of GDP.

### Social policy and tax measures
- Measures to rationalize social welfare are under preparation to improve professionalization of the care of old age persons; Government to provide land for private sector building of homes for the elderly and announced tax exemptions for private sector initiatives.
- Expenditures for private sector staff training programs to be deductible under the business tax with effect from April 1, 2018, and exempt from non-monetary benefit tax under the Income and Non-Monetary Benefit tax act. This measure will impact tax revenue mostly in 2019.
- Training costs allowed for deduction include costs incurred to ensure staff receive a certificate at the end of training (certificate, diploma, tertiary education and professional qualification as per the guidelines of the Seychelles Qualification Authority).
- Government working with Attorney General Office to finalize the Immovable Property tax for properties owned by non-Seychellois; final draft bill to be discussed with stakeholders and anticipated to be completed before end of June 2018.

### Medium Term Fiscal Framework and public expenditure rationalization
- Committee (Ministry of Finance, Trade and Economic Planning; Ministry of Family Affairs; Agency of Social Protection; Seychelles Pension Fund) analyzing current benefits and welfare programs; paper to be submitted in third quarter of 2018 for 2019 budget reflection.
- Ministry of Finance working with MDAs to rationalize existing functions and programs to find savings for new program initiatives; savings on wage bill and goods and services expected to start showing in 2019. Detailed assessment to be provided in mid-year review report in August 2018.
- Government project proposal for construction of a ‘Government House’ to own office accommodation and reduce rental costs:
  - For 2018 Government expected to spend approximately SR 126 million in rent which represents 5% of the total Goods and Services budget.
  - Expected medium-term savings of almost SR 80 million due to the Government Building project funded by a grant from Government of India; construction to be done in phases from last quarter of 2018.
- Government reviewing IT systems with Department of Information, Communication and Technology to improve efficiency and reduce recruitment over the medium term as services become more electronic.
- Major projects announced in 2018 State of the Nation Address to diversify the economy, accelerate growth, and mitigate climate change; projects to be implemented gradually within the program’s primary surplus target of 2½% of GDP from 2019 onwards and the goal of public debt reduction to below 50% of GDP by end-2021. Emphasis on Public Private Partnership (PPP) financing; PPP legislation to be presented before National Assembly before end of third quarter of 2018.
- Government committed to investment in climate change mitigation as part of National Development Strategy and Medium Term Fiscal Framework.

### Climate and energy projects and financing
- Government has guaranteed a loan US$ 8.5 million, signed by Public Utilities Company from the Abu Dhabi fund for Development, for financing of the Ile de Romainville Solar Power Field Project: design and construction of a solar field with a capacity of 5 megawatts on Romainville Island.
- Government received a grant amounting to US$ 250,000 from the African Legal Support Facility (ALSF) to provide advisory services in structuring, management, and negotiations of a 4MW photovoltaic (PV) plant in the lagoon at Le Rocher on Mahé; project in final stage of tendering and agreement to be signed in September 2018.
- Engagement with Indian Government on a Line of Credit to be implemented from 2018 to 2022; three incorporated projects with the aim of reduction of electricity consumption generated from fossil fuel:
  - Utility Scale Power Plant with Battery Storage amounting to US$ 4 million;
  - Solar Led Street Lights amounting to US$ 600,000;
  - Government Building Rooftop PV amounting to US$ 3 million.

### Public investment management and procurement
- MDAs required to ensure procurement plans approved and published by Procurement Oversight Unit during first quarter of 2018; done for all large intensive capital projects MDAs.
- Procurement plans to be discussed during MDAs monthly management meeting; capital spending to be closely monitored by cabinet ministers on a quarterly basis.
- Public Investment management unit preparing cost benefit analyses for project proposals for 2019 budget; report to be presented to Cabinet of Ministers by June 2018 (2nd review RT).

### Structural reform agenda — public finance and SOE management
- Reorganization of the Seychelles Revenue Commission proceeding as programmed; ambitious business audit program for 2018 ongoing.
- Customs: new deputy Commissioner appointed; ASYCUDA World system being upgraded; cargo targeting software being introduced to improve risk assessment and permit targeted inspections.
- Program Performance Based Budgeting: government on track to transition all MDAs to full PPBB for the 2019 budget; remaining 5 MDAs preparing performance indicators for monitoring and evaluation.

### Blue Bond and public debt management
- Issuance of the Blue Bond now scheduled for end–May 2018; bond guaranteed by the World Bank in combination with GEF resources; Blue Bond total US$ 15 million.
- Two subsidiary agreements:
  - With Development Bank of Seychelles (DBS) to administer a Blue Investment Fund (BIF) amounting to US$ 12 million.
  - With the Conservation and Climate Adaptation Trust of Seychelles (SEYCCAT) to administer a Blue Grant Fund amounting to US$ 3 million.
- Loan proposals received by DBS subject to administrative compliance, environmental and social screening by Project Implementation Unit (PIU) of SWIOFish3 according to World Bank ESMF and PF, technical evaluation by independent Technical Committee (TC), then financial appraisal by DBS, and DBS Board approval and negotiation.
- Applicants to the Blue Investment Fund required to demonstrate how projects meet principles for sustainable investment in fisheries and the Blue Economy; DBS monitoring supported by PIU on environmental and social safeguards.
- Debt management strategy to be reviewed in context of Medium Term Fiscal Framework for 2018-22 with aim that government debt–GDP ratio will attain 50% by 2021.
- Exploration of cross currency swap of EuroBond currently at US$143.56 million; interest payable semiannually at 8% per annum on the Bond. Aim to swap outstanding US$ bond to a euro-denominated bond to align debt with Euro earnings, reduce foreign currency risk (bond equivalent to 35% of external debt stock), and potentially reduce interest costs. Target completion during the second half of 2018.
- Debt management strategy guided by choices on:
  - Concessional / semi-concessional / commercial;
  - Currency composition;
  - Short- and long-term maturities;
  - Variable and fixed rate debt.
- Authorities favor a mixed borrowing strategy using concessional borrowings at affordable interest rates and limiting borrowings where refinancing, interest, and foreign exchange risks are very high; Government to work with CBS to lengthen maturity of debt profile. Assessment underway to tender any medium-term bond during last week of June with implementation of last phase of progressive income tax.

### Minimizing fiscal risks from SOEs and PPPs
- Comprehensive legal review under way to update laws and regulations regarding corporate governance of non-financial public enterprises to align with international good practice.
- Government to submit a new Code of Governance for all non-financial SOEs based on OECD guideline to the National Assembly for enactment by September 2018 (third review RT).
- By end-2018 government will publish a report consolidating information on all significant contingent liabilities and other fiscal risks, including those potentially arising from PPPs, for the 2019 budget (third review RT).
- Government will calculate the cost of social obligations of SOEs and provide that information in the budget document for the 2019 budget (third review RT).

### Financial system modernization and inclusion
- Financial Sector Development Implementation Plan (FSDIP) approved end–2014 aims to strengthen the legal and regulatory framework, financial infrastructure and capital markets development, consumer protection and financial literacy.
- Technical assistance sought from African Development Bank (AfDB) and World Bank under Reimbursable Advisory Service (RAS).
- RAS Agreement extended up to December 2019 for completion of activities relating to the financial sector regulatory framework and the Credit Information System; extension also includes financial consumer protection and support to review and update the Data Protection Act.

*Source: cr18196*

### 32. Further to a mission undertaken in March 2018, it was appreciated that the

### cr18196 - 32. Further to a mission undertaken in March 2018, it was appreciated that the

### Consumer protection, CIS, and legal frameworks
- Authorities have made "tremendous progress" in addressing policy decisions related to consumer protection and CIS.
- Remaining gaps:
  - Competent authorities’ mandate over financial consumer redress "remains to be clearly formulated."
  - Need to develop a new legal framework for data protection; data protection law is dependent on developments in cybersecurity, CIS and access to information areas.
- Follow-up mission tentatively scheduled for July/August 2018.
- Consultancy work finalized:
  - Review of the Mutual Fund and Hedge Fund Act 2008.
  - Preparation of a new Trust Act.
  - Amendments to the International Corporate Service Providers Act.
  - Review of the Authorization and Post-Authorization Processes & Systems for Collective Investment Schemes and Capital Market business.
  - Development of a Risk-Based Supervision Framework for the regulation of Pensions and Insurance (almost finalized).
  - A Financial Consumer Protection Act is being drafted.

### Tax transparency and BEPS implementation
- OECD Global Forum on Transparency and the Exchange of Information for Tax Purposes found in August 2015 that the country is "largely compliant."
- Ongoing measures: further work on Base Erosion and Profit Shifting (BEPS) and adoption of the common reporting standards.
- Authorities committed to implement legislative changes "so as to be in line with the BEPS framework as agreed with the EU."
- Expectation: "all legislative changes will be completed before end 2018."
- Actions taken:
  - International Business Companies Act amended in late 2016 to require international business companies to keep a register of beneficial owners in Seychelles.
  - International Corporate Service Providers Act and the International Trusts Act are being reviewed; amendments to be submitted to National Assembly by fourth quarter of 2018.
  - Global Corporation Act under preparation was reviewed against BEPS requirement and "was found inconsistent."
  - On June 07, 2017 in Paris, Seychelles joined other countries in the signing ceremony of the Multilateral Instrument (MLI); Government working towards ratification of the MLI.

### Monetary policy and price stability
- Policy stance:
  - A loose monetary policy stance was maintained in the second half of 2017 and the first quarter of 2018 to support economic activity.
  - Monetary policy was tightened in the second quarter of 2018 to ensure domestic price stability.
  - CBS expected to maintain tight stance at least until the end of the year to contain second round inflationary pressures.
- Credit and demand:
  - "Credit to the private sector grew by 19.7 per cent year-on-year in March 2018" with majority consumer loans.
  - Associated growth in domestic demand contributed to a small depreciation of the Seychelles rupee vis-à-vis the USD until early March, and an increase in inflation.
- Inflation:
  - Consumer price index for March 2018 shows yoy inflation of "4.7 per cent" with the 12-month average rate increasing to "3.6 per cent."
  - "It is expected that inflation will increase to around 5.0 per cent yoy by the end of 2018."
- Policy instruments and framework transition:
  - CBS will use the interest rate corridor to guide market and complement with appropriate Reserve Money level.
  - IMF AFRITAC South providing Technical Assistance to build internal capacity in modelling and forecasting.
  - "As of the third quarter of 2018, the CBS is to formally move to a more flexible monetary targeting framework, with interest rates as the short-term operational target and reserve money as the longer-term operational target."
  - Transition to an interest rate targeting framework once key conditions and operational requirements are met.
- Money market and liquidity management:
  - Encouraging an active money market with functioning interbank interest rates remains a challenge.
  - Development to include reduced presence of the Bank in money markets, more predictable and transparent liquidity management policy actions, and consistent dialogue with market participants and public.
  - CBS and Ministry responsible for Finance will continue to collaborate on issuance of government securities for monetary policy purposes to partially address liquidity overhang.
  - Government target: reduce public debt to below "50 per cent of GDP by 2021."

### External stability and reserves
- Current account and tourism:
  - "The current account deficit worsened in 2017, standing at 20 per cent of GDP," mainly due to an increase in the value of imports.
  - Tourism earnings estimated at "$483 million" owing to a "15 per cent annual growth in visitor arrivals."
- Inflationary outlook:
  - Anticipated increase in international commodity prices, administrative prices (tariff re-balancing scheduled for July 2018), and weaker exchange rate expected to translate into higher local inflationary pressures in 2018.
- Reserves management:
  - "Gross international reserves are forecasted to remain at around the level which should provide for adequate buffer against external shocks and is consistent with the IMF calculated metrics on foreign reserves adequacy."
  - CBS will continue policy to purchase reserves from the market whenever opportunity arises.
  - During 2017, CBS revised Investment Guidelines based on Strategic Asset Allocation; engaged with Reserves Advisory and Management Programme (RAMP) and implemented Portfolio Analytics Tool (PAT2).
  - Bank added two new instruments to internally managed portfolio: "US treasuries" and the "UBS (Ireland) Select Money Market Fund."
  - Current engagement with RAMP expected to end in July 2018; Bank contemplating a new agreement to build capacity in reserves management extending to the Board of Directors.

### Financial stability, AML/CFT, and supervision
- Correspondent banking relationships (CBR):
  - Pressures on CBR "remains the most significant threat to financial stability."
  - Most banks have only one correspondent banking relationship in major currencies such as the US Dollar.
  - A high-level committee set up with representatives from Government ministries/agencies and private sector to ensure implementation of cabinet-endorsed recommendations.
  - Strategy includes reviewing the offshore sector model to move away from the current IBC model to a more transparent, internationally acceptable model, including compliance with international standards on access by competent authorities to beneficial ownership information.
- AML/CFT:
  - National Risk Assessment against AML/CFT risk completed in October 2017; expected to be endorsed by cabinet by end of April 2018.
  - The National AML/CFT strategy expected to be approved by cabinet by June 2018.
  - Country undergoing a Mutual Evaluation against FATF recommendations emphasizing a risk-based approach to supervision and effectiveness of implementation.
  - Authorities will review and amend AML/CFT legal and institutional framework in line with international standards and best practices by "end-June 2018 (Second Review RT)."
  - In particular, in line with FATF recommendations 24 to 30, ensure competent authorities can timely obtain accurate beneficial ownership information on legal persons and arrangements (offshore and onshore), and strengthen AML/CFT institutions.
  - IMF TA received in April to support these efforts.
  - Authorities will have started to implement a risk-based approach to supervision of banks and company service providers consistent with FATF immediate outcome 3, by "end-December 2018 (Third Review RT)."
- Resolution and regulatory frameworks:
  - CBS reviewing legal framework to formulate a new Act relative to the Resolution framework; new legislation expected to be finalised and submitted to Cabinet by "end 2018 (third review RT)."
  - IMF TA received; further TA likely required.
  - Implementation of Basel II and III ongoing:
    - Implementation of Pillar 1 of Basel II anticipated by "end June 2018."
    - CBS contracted a consultant for Pillar 2; adopted the definition of capital for Basel III, "as relevant."
    - Full framework expected to be in place by "end June 2019."
- Cybersecurity:
  - CBS recognizes cybercrime as "one of the most significant threat to the financial sector."
  - CBS finalising its Cyber Security Framework and introducing guidelines for financial institutions; guidelines expected to be finalised by "end of September 2018."
  - CBS collaborating with other stakeholders to formulate a national cyber security framework.
- Macroprudential and inclusion initiatives:
  - A standalone Financial Stability Act assigning macroprudential powers and enabling collective action by the financial stability committee is expected to be enacted by "end of June 2019." IMF TA support anticipated.
  - National strategy to enhance financial inclusion focusing on:
    - SME access to finance.
    - Enhance competition in financial services.
    - Access and usage of electronic payment systems and reduction in the use of cash.
  - CBS to collaborate with Ministry of Finance to enhance efficiency of Government payments and the remittance market.
  - Recommendation that CBS build capacity to facilitate Fintech development and appropriate institutional and regulatory frameworks.
  - Credit Information System and regulatory framework being enhanced to extend coverage of credit information to support better creditworthiness assessment and risk-based pricing; expected to be finalised by "December 2018."
- Financial consumer protection:
  - National Financial Education Strategy launched in December 2017 with a "3-year rolling implementation plan" targeting Adults in the formal workplace, Micro, Small and Medium Enterprises, Youth and the Socially and Financially Vulnerable; implementation to begin "as of Q2 2018."
  - CBS and the FSA undertake to promulgate a Financial Consumer Protection law by "July 2018."
  - Law objectives and provisions include:
    - Promote equitable and fair treatment of consumers.
    - Increased transparency.
    - Responsible lending and prevention of over-indebtedness.
    - Responsible pricing and appropriate products.
    - Data privacy.
    - Mechanism to provide consumer redress.
  - Expected outcome: increase trust in consumer products and services of the financial sector.
- Competition and payments infrastructure:
  - Given the three biggest banks control financial assets, CBS proposes an assessment (with IMF assistance) to identify impediments to increased competition in the financial services sector; exercise expected to be done before "December 2018."
  - Modernization and development of national payment system high priority: implementation of a CSD, an RTGS and a national payment switch/ACH scheduled to begin in "2019."

### Governance and internal audit of the CBS
- Internal audit:
  - External quality review of Internal Audit Division (IAD) rescheduled to "September 2018" to assess conformity with IIA’s International Standards for the Professional Practice of Internal Auditing and evaluate IAD’s effectiveness.
- IMF safeguard assessment:
  - CBS requested an IMF safeguard assessment mission completed in "February 2018."
  - Assessment focused on Central Bank of Seychelles Act, 2004 (CBS Act): legal structure and integrity of CBS, governance, institutional autonomy, personal autonomy, financial autonomy, and other matters.
  - Priority recommendations will form the bulk of proposed amendments to the CBS Act scheduled for "June 2018."
  - Proposed amendments include:
    - Requirement for CBS to be consulted before any legislation pertaining to its authority and activities is submitted for approval.
    - Reinforcement of compatibility requirements for Board members.
    - Removal of the Attorney General as a Board member due to conflict of interest.
    - Strengthening provisions for credit to Government.
  - Interim action: CBS incorporated a one-year "cooling off" period clause in terms and conditions of appointment of executive board members re-appointed in "March 2018."

### Program monitoring, quantitative and reform targets
- Review schedule:
  - Second review scheduled to be completed by "October 31, 2018."
  - Third review by "April 30, 2019."
  - Fourth review by "October 31, 2019."
  - Fifth review by "April 30, 2020."
  - Sixth review by "October 31, 2020."
- Proposed modification: end-June 2018 and end-December 2018 quantitative target for reserve money is proposed to be modified (Table 1 of the PS).
- Selected quantitative figures and targets (as presented in Table 1a and memorandum items):
  - Net international reserves of the CBS, millions of U.S. dollars (floor): series includes "391", "424", "406", "429", "393", "393", "393", "375", "375".
  - Reserve money target (ceiling on daily average during the quarter): series includes "3,766", "3,559", "3,635", "4,034", "3,643", "3,624", "3,864", "4,030", "4,003".
  - Primary balance of the consolidated government (cumulative floor): series includes "615", "621", "115", "49", "284", "284", "646", "538", "538".
  - Accumulation of external payments arrears by the public sector (ceiling): "0.0" across reported periods.
  - Nominal public debt (millions of Seychelles Rupees) memorandum items: series includes "13,536", "13,337", "13,740", "13,633", "13,692", "13,719", "13,550", "13,534", "13,614".
  - Program accounting exchange rates (end-of-quarter): SR/US$ "13.67", "13.84", "13.84", "13.84", "13.84"; US$/Euro "1.19", "1.20", "1.20", "1.20", "1.20"; US$/UK pound "1.29", "1.35", "1.35", "1.35", "1.35"; US$/AUD "0.79", "0.78", "0.78", "0.78", "0.78"; US$/CAD "0.80", "0.80", "0.80", "0.80", "0.80"; US$/CNY "0.15", "0.15", "0.15", "0.15", "0.15"; US$/SDR "1.41", "1.45", "1.45", "1.45", "1.45".
- Continuous targets (Table 1b) summary:
  - Not to impose or intensify restrictions on the making of payments and transfers for current international transactions.
  - Not to introduce or modify multiple currency practices.
  - Not to conclude bilateral payments agreements that are inconsistent with Article VIII.
  - Not to impose or intensify import restrictions for balance of payments reasons.
- Reform Targets (excerpted actions and timing from Table 2):
  - Fiscal and Public Financial Management:
    - Submit a report on cost-benefit analyses of public investment projects with a cost above "10 million rupees" to the Cabinet by "End June 2018" to enhance public investment efficiency.
  - State-Owned Enterprises (SOEs):
    - Publish an annual central government report quantifying and consolidating information on all significant contingent liabilities and other fiscal risks for the 2019 budget by "End December 2018."
    - Calculate the cost of social obligations of SOEs and provide that information in the budget document for the 2019 budget by "End December 2018."
    - Submit the new Code of Governance for the SOEs based on OECD Guideline to the National Assembly for enactment by "End September 2018."
  - Financial Sector Stability:
    - Review the AML/CFT legal and institutional framework and submit the amended framework to the Cabinet, in line with the FATF standard, particularly regarding entity transparency and AML/CFT institutions by "End June 2018" to reduce AML risks.
    - Implement a risk-based approach to the supervision of banks and trusts and company service providers, consistent with the FATF standard by "End-December 2018" to reduce AML risks.
    - Submit draft legislation to National Assembly to solidify the legal framework for crisis management, bank resolution, and safety nets by "End-December 2018" to buttress financial sector stability.

*Source: IMF staff report (content unit cr18196).*

### 1. This technical memorandum of understanding presents the definitions of variables

### 1. This technical memorandum of understanding presents the definitions of variables

### Program scope and timing
- Presents definitions of variables included in the quantitative targets and continuous targets set out in the Program Statement (PS), the key assumptions, and the reporting requirements of the Government and the Central Bank of Seychelles (CBS).
- The quantitative targets, the continuous targets, and the reforms targets for 2018 are listed in Tables 1 and 2 attached to the PS.
- Reviews will assess quantitative targets as of specified test dates:
  - Second review: end-June 2018 test date.
  - Third review: end-December 2018 test date.

### Program exchange rate (2018)
- Seychellois Rupee (SCR) to the U.S. dollar: SCR13.84 per US$1 for 2018.
- Other currencies (US$/1 other currency):
  - EUR 1.20
  - GBP 1.35
  - SDR 1.45
  - AUD 0.78
  - CAD 0.80
  - ZAR 0.08
  - CNY 0.15

### I. Quantitative and continuous targets — Net International Reserves of the CBS (Floor)
Definition
- Net international reserves (NIR) of the CBS are defined as reserve assets of the CBS, minus reserve liabilities of the CBS (including liabilities to the IMF).
- Reserve assets: claims on nonresidents that are readily available (liquid and marketable assets, free of any pledges or encumberments and excluding project balances and blocked or escrow accounts, and bank reserves in foreign currency maintained for the purpose of meeting the reserve requirements), controlled by the CBS, and held for the purpose of intervening in foreign exchange markets.
  - Include holdings of SDRs, holdings of foreign exchange, demand and short-term deposits at foreign banks abroad, fixed-term deposits abroad that can be liquidated without penalty, and any holdings of investment-grade securities.
- Reserve liabilities: liabilities to nonresidents contracted by the CBS, any net off-balance-sheet position of the CBS (futures, forwards, swaps, or options) with either residents or nonresidents, including those to the IMF.

Calculation method
- Reserves 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.

Monitoring and reporting
- Semiannually, at each test date for program quantitative targets, the net international reserves data submitted by the CBS to the IMF will be audited by the CBS’ internal audit division in accordance with International Standards on Auditing, to ensure conformity with the program definition and calculation methods.
- Reports will be submitted to the IMF no later than two months after each test date.

Adjusters
- The floor on the CBS’s NIR will be adjusted upward (downward) by the amount by which the external non-project loans and non-project cash grants exceeds (falls short of) the amounts assumed in the program (PS Table 1).
- The floors will also be adjusted upwards (downwards) by the amount that external debt service payments fall short (exceed) the amounts assumed in the program.

Key quarterly projection figures (millions of US$)
- External non-project loan: 0.0 (Dec. 2017, March, June, Sept., Dec. 2018)
- External non-project cash grants: 0.0 (Dec. 2017, March, June, Sept., Dec. 2018)
- External debt service payments (cumulative from the beginning of each year):
  - 2017 Dec.: 52.1
  - 2018 March: 5.1
  - 2018 June: 28.2
  - 2018 Sept.: 34.9
  - 2018 Dec.: 54.1
- Note: Quarterly Projections: December 2017 – December 2018 (millions of US$)

### Reserve Money and Reserve Money Band (Ceiling)
Definition
- Reserve money = currency issued and deposits held by other depository corporations at the central bank (bank reserves), including those denominated in foreign currencies.
- Reserve money targets are the projected daily averages of the quarter preceding the test date, surrounded by a symmetrical band of six percent in both directions.
- The upper bound of the band serves as the quantitative target (ceiling).
- Quarterly average reserve money will be calculated as the arithmetic average of reserve money observed on all days over the quarter and compared with the program ceiling.

Monitoring and reporting
- Daily reserve money data will be submitted by the CBS to the IMF on a weekly basis with a time lag no later than one week.
- The cumulative average over the quarter will be monitored by the CBS and reported to the IMF on a weekly basis.
- Semiannually, at each test date for quantitative targets, the reserve money data submitted by the CBS to the IMF will be audited by the CBS’ internal audit division in accordance with International Standards on Auditing.
- Reports will be submitted to the IMF no later than two months after each test date.
- If the observed quarterly average reserve money falls outside the lower or upper bands specified in the QT table for end-December 2017, end-June 2018 and end-December 2018 test dates, the authorities will complete a consultation with the IMF staff focusing on:
  - (i) the stance of monetary policy;
  - (ii) the reasons for deviations, taking into account compensating factors;
  - (iii) proposed remedial actions if deemed necessary.

### Program Primary Balance of the Consolidated Government (Cumulative Floor)
- Consolidated government primary balance (above the line, commitment basis) = 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.

### Ceiling on the Overall Stock of Public Debt (Memorandum Item)
- Ceiling applies to the overall stock of public debt.
- Public debt includes:
  - (i) central government debt;
  - (ii) government guarantees issued for loans extended to state-owned enterprises;
  - (iii) obligation to the IMF.
- Defined for program purposes as total outstanding gross debt liabilities, including liabilities in the form of securities and loans; excludes accounts payable.
- Debt measured at nominal value.
- Program exchange rate applies to all non-SCR denominated debt.
- External debt is defined on a residency basis.

Guidance on definition of debt (excerpt from Guidelines)
- Debt is a current liability created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, requiring the obligor to make one or more payments in the form of assets or services at some future point(s).
- Forms of debt include:
  - (i) loans (including deposits, bonds, debentures, commercial loans and buyers’ credits), and temporary exchanges of assets equivalent to fully collateralized loans (repurchase agreements and official swap arrangements);
  - (ii) suppliers’ credits (deferral of payments after delivery of goods or services);
  - (iii) leases (debt = present value at lease inception of all lease payments expected during the agreement, excluding payments for operation, repair, or maintenance).
- Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

### External Arrears of the Public Sector (Continuous Target)
- No accumulation of arrears to external creditors is a continuous target.
- External payments arrears 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.

### II. Data and Information — Reporting Requirements
CBS reporting

- 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.

Ministry of Finance reporting

- Monthly (within four 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.

Consultation clause
- 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.

*Source: cr18196 - 1. This technical memorandum of understanding presents the definitions of variables*

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_Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18196.pdf_