## 1. Social Welfare Pr

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### Recent developments, outlook, and risks
- Tourism receipts increased by 5 percent year-on-year (yoy) for the first eight months of 2019.
- Production in tourism and communication sectors grew strongly in the first half of 2019.
- Nominal exchange rate stable in recent months.
- Headline yoy CPI inflation rate declined to 1.4 percent in September from over 4½ percent in early 2018.
- Central Bank of Seychelles (CBS) lowered the monetary policy rate by 0.5 percentage points at end-September 2019.
- Private sector credit growth accelerated to 16.2 percent at end-September from 11½ percent at end-2018, driven by loans to tourism and fishery sectors.
- Financial soundness indicators suggest commercial banks are adequately capitalized and profitable.
- Near- and medium-term growth projected to moderate to around 3½‒4 percent during 2019‒20.
- External current account deficit projected around 17‒18 percent of GDP for the next several years; financing would continue to be mostly by FDI.
- Gross international reserves’ (GIR’s) ARA metric expected to remain adequate at about 122 percent in the medium term.
- Downside risks: external shocks (geopolitical tensions, weaker global growth), potential withdrawal of correspondent bank relationships (CBRs), higher-than-projected international energy prices, domestic fiscal slippages (including risks related to Air Seychelles).
- Election-related risk: government may face challenges achieving the primary surplus target in 2020 when the Presidential election will take place.

### Program performance and reform targets
- Most quantitative targets (QTs) met; some reform targets (RTs) delayed for technical reasons.
- End-June floor on the primary fiscal surplus missed by SCR11 million (0.05 percent of GDP) due to delayed stamp duty receipts (SCR98 million, 0.5 percent of GDP) and delayed dividends from some SOEs.
- End-June floor on net international reserves (NIR) met, exceeded by US$13 million.
- 12-month average inflation at end-June was within the inner bound of the MPCC.
- All continuous targets have been met.
- Amendments to Public Enterprise Monitoring Committee (PEMC) Act to be submitted to Cabinet in December 2019 (delayed from end-September).
- Draft legislation on crisis management, bank resolution and safety nets to be submitted to Cabinet in November 2020 (reset from end-March 2020).

### Buttressing fiscal sustainability
- 2019 primary surplus projected to reach 2½ percent of GDP, supported by underspending of wage bills (delayed 5 percent salary adjustment) and under-execution of goods, services and capital expenditures.
- Authorities requested small downward revision to end-December 2019 floor on primary surplus (SCR5 million, 0.02 percent of GDP).
- 2020 budget and 3-year projections target a primary surplus of 2½ percent of GDP through 2022, consistent with PCI fiscal parameters.
- Planned injection of guarantees of $30 million (about 2 percent of GDP) to protect other shareholder’s preference shares of Air Seychelles; public debt-to-GDP ratio projected around 51¾ percent, marginally above authorities’ target of below 50 percent by end-2021.
- Under baseline, primary surplus would reduce public debt-to-GDP from about 61½ percent to around 47 percent by end-2022, assuming unwinding of SCR200‒300 million each year during 2020‒22 of government debt issued for monetary policy purposes.
- Authorities introduced permanent revenue-enhancing and expenditure-saving measures in 2020 budget:
  - Revenue measures estimated to enhance revenues by about 1 percent of GDP.
  - President announced increase in pension benefits and minimum wage from SCR5,250 to SCR5,750 a month from beginning of 2020, estimated to cost about ½ percent of GDP starting in 2020.
  - Better targeting of social welfare programs estimated to create savings of about 0.1 percent of GDP in 2020.
  - Freeze on recruitment of non-essential staff and reduction of low-priority goods and services spending estimated to save about ¼ percent of GDP.
  - Cessation of one-off 2019 spending would reduce goods and services spending by around ¼ percent of GDP in 2020 compared with 2019.
- Total savings and revenue measures expected to offset loss of one-off stamp duty revenue and finance pension/minimum wage increases and AML/CFT capacity enhancement in 2020.
- Medium-term measures to contain nominal growth of current expenditure:
  - Procurement reform and removing duplication: about ½ percent of GDP in goods and services.
  - New staffing and recruitment policies and removal of duplication: projected to reduce wage bill by about ¾ percent of GDP.

### Social welfare programs (Box 1)
- Seychelles spends 5¾ percent of GDP on social welfare programs.
- World Bank analysis: current social protection system supports households that are not needy while many needy households do not get assistance; eligibility criteria create inequities through complex exclusions, deductions, and cost sharing.
- Medium-term plan with World Bank experts to better target and enhance quality of social protection:
  - Starting in 2020: enhance efficiency in service delivery of home care services by targeting needy individuals; introduce stricter criteria for invalidity and disability benefits.
  - Over medium term: establish household-level database to better identify needs; introduce new assessment methodology to define eligibility criteria and benefit levels for welfare programs (home care program and disability pensions).
- Estimated fiscal savings from better targeting and rationalization: 0.1 percent of GDP in 2020 and 0.3‒0.4 percent of GDP over the medium term.
- Potential labor market effect: measures could bring a significant number of home carers and benefit recipients into the labor force in the medium term, helping potential growth and expanding the income tax base.

### Investment, PPPs, and climate-related projects
- Authorities will take a phased approach to large infrastructure and climate change projects within primary surplus target of 2½ percent of GDP through 2022 and steady public debt reduction.
- Plan to rely on concessional external financing and public-private-partnerships (PPPs) where possible.
- Conversion of electricity generation from heavy fuel to Liquefied Natural Gas (LNG) (about one-third of total climate-related cost) planned through a PPP with IFC advice.
- Grand Anse Dam financing negotiations for external grants are at an advanced stage.
- Government plans Fund’s Public Investment Management Assessment (PIMA) by mid-2020.
- PPP bill submitted to National Assembly to provide institutional framework for project approval, screening, and contract management.

### Minimizing fiscal risks and SOE-related vulnerabilities
- Public debt path remains below high-risk benchmark under all shock scenarios, but risks center on high gross financing needs due to high debt level and short domestic debt maturities.
- Authorities plan to issue 3-, 5-, and 7-year bonds to replace maturing short-term debts during 2020 to reduce rollover risk and develop the domestic debt market.
- Government canceled liability management exercise to swap current US dollar obligations of around US$130 million into Euros due to commission cost considerations.
- Staff urged continued efforts to minimize SOE fiscal risks, particularly from Air Seychelles:
  - Air Seychelles operational restructuring (staff redundancies, closure of loss-making international routes); financial performance improved significantly in 2019.
  - Unguaranteed “project box bond” of $71.5 million owed to the other shareholder could pose roll-over risk to the company in 2020 and especially 2021; government does not intend to assume this liability.
  - Government received long-term business viability analysis from World Bank TA experts and is conducting a comprehensive governance assessment of the company to be completed by end-December 2019 (5th review RT).
  - Government will propose a RT for the 6th review to address remaining weaknesses based on assessments and World Bank TA.
  - New government ownership and dividend policy for SOEs to be submitted to Cabinet by end-October to reduce budgeting uncertainty and strengthen SOE oversight.

### Preserving price and external stability
- Despite potential demand pressures from public-sector wage adjustment (delayed to late 2019) and brisk private credit growth, weakening international fuel prices and increased domestic retail competition expected to contain inflation in coming months.
- Staff advice: preserve prudent policies under PCI to maintain benign outlook; monitor risks from Air Seychelles and external shocks closely.

### Monetary policy and inflation outlook
- Staff supported CBS’ recent monetary policy easing given continued inflation underperformance since the 2nd review and benign inflation outlook.
- Annual average inflation forecasts revised down by:
  - 0.6 percentage points for 2019
  - 0.9 percentage points for 2020
- Upside risks to inflation:
  - Demand pressures from higher public wages
  - Acceleration of private sector credit growth
- Downside risks to inflation:
  - Lower-than-expected international fuel prices
  - Lower-than-expected imported food prices
  - Increased competition among domestic retailers
- Policy stance:
  - CBS and staff agreed to stand ready to adjust monetary policy promptly in response to significant deviations of inflation from projections.
  - Staff encouraged CBS to formalize and expand the survey of inflation expectations in coordination with the National Bureau of Statistics (NBS).

### Transition to new monetary policy framework and liquidity management
- CBS implementing a 6-phase plan to strengthen inflation forecasting and liquidity management.
- Working group set up to advise on development of the interbank market.
- CBS and Ministry of Finance set up a working group to enhance coordination and ensure planned unwinding of monetary debt does not hamper CBS operations.
- Staff advised maintaining a flexible exchange rate policy and keeping international reserves coverage around the current level.
- CBS requested to revise down NIR targets slightly; revised projected level of GIR would still stand at about 121 percent of the relevant ARA metric during 2019‒20 under the baseline.
- Staff’s external sector assessment indicates a moderate level of overvaluation of the real effective exchange rate and an external position moderately weaker than implied by fundamentals.
- Staff advised limiting large FX purchases to preserve reserve coverage ratio.

### Financial stability, AML/CFT, and prudential reform
- Steps taken to address risks of potential loss of CBRs:
  - Agreement with the World Bank for AML/CFT capacity building and legislative review.
  - Resident advisor contracted; 2020 budget allocates additional resources.
  - Drafting of new AML bill nearly complete; draft bill to be submitted to the Cabinet by end-March 2020 (5th review RT).
  - Draft amendments to strengthen entity transparency to be submitted to the Cabinet by end-December 2019 (5th review RT).
  - Establishment of a beneficial ownership register for the offshore sector planned.
  - Comprehensive financial sector strategy covering domestic and offshore sectors to be submitted by mid-2020.
  - ESAAMLG September 2019 mission highlighted importance of steadfast progress to maintain CBRs.
- Prudential framework and supervision:
  - Policy framework paper for Basel II pillar 1 implementation and Basel III capital definition on track for Cabinet submission by end-December 2019 (5th review RT).
  - Policy framework paper on a Financial Sector Stability Act to be submitted by September 2020 (6th review RT).

### Enhancing inclusive and sustainable growth
- Business environment constraints:
  - High electricity costs identified as a major bottleneck.
  - World Bank experts conducting a comprehensive utility tariff review; completion targeted by end-2019.
  - Government intends to amend the Company Act and Insolvency Act; policy papers to be submitted to Cabinet by September 2020 (6th review RT).
  - Continued digitization: tax filing, property, and company registration.
- Sectoral diversification:
  - Tourism master plan reformulated to increase local content and promote trade between local food producers and accommodation establishments.
  - Fisheries sector upgrades around Victoria port to establish a long-line base and new handling facilities.
- Financial inclusion:
  - National Financial Inclusion Strategy (NFIS) to focus on SMEs’ access to financing, innovative financial services, competition, and consumer protection.
  - Any SME financing scheme should be targeted, transparent, and not impede monetary policy.

### Program monitoring, fiscal outlook, and staff recommendations
- Program to be monitored semi-annually; Seychelles does not need Fund financial assistance under the baseline and is not seeking Fund financial assistance as the program is fully financed.
- Authorities requested slight modifications to end-December 2019 fiscal primary surplus and NIR targets; end-June 2020 quantitative targets proposed.
- Fiscal path under the 2020 budget judged consistent with steady decline of public debt and fiscal sustainability in the medium term while allowing priority infrastructure and climate investments.
- Air Seychelles remains the biggest program risk; government urged to:
  - Keep close monitoring of the company’s operations and restructuring progress
  - Refrain from issuing additional guarantees or taking on liabilities
  - Take corrective actions promptly if fiscal impact beyond assumptions materializes
  - Articulate measures to address remaining weaknesses based on governance monitoring and World Bank TA
- Capacity development:
  - Fund and other IFIs to focus TA on AML/CFT, monetary policy operations, PFM, and macroeconomic statistics.
  - Authorities plan to complete GDP rebasing by mid-2020 with Fund TA.
  - CBS efforts to improve quality of external statistics continue.

### Staff appraisal — key recommendations
- Implement permanent saving measures in 2020 budget to strengthen medium-term fiscal sustainability.
- Streamline and better target social welfare programs starting in 2020 and keep tight control on current spending for the next three years.
- Implement major public investments within PCI fiscal parameters; explore additional revenue measures discussed at the 2017 Article IV consultation for longer-term fiscal space.
- Keep tight rein on Air Seychelles to reduce fiscal risks; refrain from additional guarantees.
- Maintain flexible exchange rate policy with minimal intervention to preserve reserve coverage ratios around current levels.
- Continue strengthening AML/CFT framework and capacity enhancements to reduce risks of further loss of CBRs.
- Continue structural reforms to improve business environment, target utility subsidies better, and increase the financial sector’s contribution to inclusive growth.

### Key macroeconomic and fiscal figures (selected series and projections)
- Real GDP growth (selected years/entries):
  - 2016: 4.5
  - 2017: 4.3
  - 2018: 4.1
  - 2019: multiple entries including 3.5, 3.9, 4.1, 4.0, 3.8, 3.6 (table shows multiple series)
- Nominal GDP (millions of Seychelles rupees):
  - 2016: 19,014
  - 2017: 20,515
  - 2018: 22,019
  - 2019: 23,274
  - 2020: 23,200
  - 2021: 24,447
  - 2022: 26,198
  - 2023: 28,011
  - 2024: 29,959
  - 2025: 31,963
- CPI (annual average) (selected):
  - 2016: -1.0
  - 2017: 2.9
  - 2018: 3.7
  - 2019: multiple entries including 2.6, 2.0, 2.1, 2.9, 3.0
- Private credit (12–month percent change):
  - 2016: 10.3
  - 2017: 17.8
  - 2018: 11.5
- Gross official reserves (millions of U.S. dollars):
  - 2016: 522.6
  - 2017: 546
  - 2018: 545
  - 2019: multiple quarterly/end projections including 551, 542, 541
- Reserves Adequacy (ARA EM metric, percent):
  - 2016: 131.0
  - 2017: 129.3
  - 2018: 124.5
  - 2019 and projections: 124.9, 122.5, 120.8, 122.3, 122.4, 122.0, 122.7
- Current account balance including official transfers (percent of GDP):
  - 2016: -20.6
  - 2017: -20.4
  - 2018: -17.0
  - 2019: -17.0
  - 2020: -17.3
  - 2021: -17.6
  - 2022: -17.9
  - 2023: -18.0
  - 2024: -17.5
  - 2025: -17.5
- Total government and government-guaranteed debt (percent of GDP):
  - 2016: 72.7
  - 2017: 66.8
  - 2018: 61.0
  - 2019: 57.7
  - 2020: 61.4
  - 2021: 57.3
  - 2022: 51.7
  - 2023: 46.9
  - 2024: 43.1
  - 2025: 40.3

### Debt Sustainability Analysis — baseline, risks, and stress tests
- Baseline:
  - Public debt projected to fall below 50 percent (46.9 percent) of GDP by end-2022 if primary surpluses of 2½ percent of GDP are maintained.
  - End-2018 public debt around 60 percent of GDP.
  - Projected end-2019 public debt stock slightly higher because of injection of $30 million (about 2 percent of GDP) of guarantees for Air Seychelles.
  - Under baseline, public debt-to-GDP ratio at end-2021 expected at around 51¾ percent.
- Key macro/fiscal assumptions:
  - Real GDP growth around 3.9 percent in 2019 and between 3.5 and 4.1 percent in the medium term.
  - Effective interest rate series (selected): 2019 = 5.3 percent; 2020 = 5.2 percent; 2021 = 6.3 percent; 2022 = 6.6 percent; 2024 = 6.1 percent.
  - Nominal gross public debt (percent of GDP): 2017 = 93.2; 2018 = 66.8; 2019 = 61.0; 2020 = 61.4; 2021 = 57.3; 2022 = 51.7; 2023 = 46.9; 2024 = 43.1; 2025 = 40.3.
  - Public gross financing needs (percent of GDP): 2017 = 23.5; 2018 = 30.1; 2019 = 27.9; 2020 = 24.0; 2021 = 27.7; 2022 = 25.0; 2023 = 21.5; 2024 = 17.1; 2025 = 17.0.
- Stress tests and scenarios:
  - Real exchange rate shock (real depreciation by around 16 percent after 2020): debt-to-GDP would peak at around 61 percent in 2020 and remain about 2¼ percentage points above the 50 percent target for 2022.
  - One-time real GDP growth shock (growth lower than baseline by 2 percent during 2020–21): would moderate pace of debt fall and delay attainment of debt reduction goal by a few years.
  - Real interest rate shock (667 basis points after 2020): would moderate pace of debt decline.
  - Combined macro-fiscal shock: debt-to-GDP would peak at around 67½ percent (still below critical value of 70 percent); debt-to-revenue ratio would increase to around 170 percent; gross financing needs would hover between 29¼ and 33½ percent.
  - Standardized external stress tests: total external debt remains elevated in the range of 110‒114 percent of GDP throughout projection period; a 30 percent depreciation would raise external debt-to-GDP to around 175 percent in 2020 and to 178 percent by end of projection period.
- SOE contingent risks:
  - Staff analysis suggests additional debt liabilities of SOEs total around 13 percent of GDP (majority owed by SEYPEC and Air Seychelles).
  - Air Seychelles’ project box bond of $71.5 million (around 5 percent of GDP) owed to Etihad could pose rollover risks in 2020 and 2021.
  - Scenario where SOEs’ external debts of 5 percent of GDP are assumed by the government in 2020: government’s goal of reducing public debt below 50 percent of GDP would be delayed by two years.
- Policy recommendations to mitigate risks:
  - Steadfast implementation of fiscal consolidation in line with the PCI to sustain primary surpluses of 2½ percent of GDP.
  - Extend maturities of domestic public debt where possible to reduce gross financing needs and rollover risks.
  - Monitor and manage SOE debt closely to mitigate risk of obligations migrating to the government balance sheet.

### Program statement highlights and monitoring (Appendix I)
- 2019 real GDP growth now estimated at 3.9 percent (initial forecast at third review: 3.5 percent).
- Tourism earnings increasing by around 5 percent; tourist arrivals for first 8 months of 2019 up by 7.1 percent.
- Consumer price inflation in 2019 expected at 2.0 percent on average for the year (previously expected 2.6 percent).
- 2020 projections:
  - Real GDP growth expected to decelerate slightly to 3.5 percent.
  - Value added in tourism expected to continue rising by about 5 percent.
  - Average inflation for 2020 projected at 2.1 percent.
- Proposed revision: NIR end-December 2019 revised down by $9 million relative to third review target due to higher-than-expected imports.
- Net international reserves (NIR) floor and primary balance (consolidated government cumulative floor) proposed and actual figures (selected):
  - NIR (millions of U.S. dollars): 3rd Review Projection: 396; 3rd Review Act. Status: 409 Met; Proposed December: 412; Proposed June 2020: 403; Proposed December 2020: 402.
  - Primary balance (SR millions, cumulative floor): 3rd Review Projection: 265; 3rd Review Act. Status: 254 Not Met; Proposed December: 589; Proposed June 2020: 584; Proposed December 2020: 211; Program projection: 611.
- Monetary Policy Consultation Clause (MPCC) inflation mid-point and bounds (percent, selected):
  - MPCC mid-point (3rd Review Projection): 2.8; 3rd Review Act. Status: 2.7; Proposed December 2019: 2.6; Proposed June 2020: 2.0; Proposed December 2020: 1.8; Program projection: 2.1.
  - MPCC upper bound (3rd Review Projection): 4.8; 3rd Review Act. Status: 4.6; Proposed December 2019: 4.0; Proposed June 2020: 3.8; Proposed December 2020: 4.1.
  - MPCC lower bound (3rd Review Projection): 0.8; 3rd Review Act. Status: 0.6; Proposed December 2019: 0.0; Proposed June 2020: -0.2; Proposed December 2020: 0.1.

### Data reporting, continuous targets, and reform timetable
- Continuous targets include: no restrictions on payments and transfers for current international transactions; no multiple currency practices; no inconsistent bilateral payments agreements; no import restrictions for balance of payments reasons.
- Adjustment rules for the NIR floor specified for non-project loans/grants, debt service, and Cable and Wireless receipts.
- Reform targets under the PCI (selected):
  - Prior Action: submit a 2020 budget consistent with primary surplus target of 2.5 percent of GDP to National Assembly.
  - PEMC Act amendments: submit to Cabinet by End September 2019 (4th review). Status: Met in November 2019.
  - Operational and governance assessments of Air Seychelles to Cabinet: Timing End December 2019 (5th review). Status: Not met; to be implemented in December 2019.
  - Submit policy framework paper for Basel II pillar 1 and Basel III capital definition to Cabinet by End-December 2019 (5th review).
  - Submit draft legislation for crisis management, bank resolution, and safety nets to Cabinet by End-November 2020 (6th review), reset from end-March 2020.
  - Submit amendments to strengthen entity transparency and establish master registry of beneficial owners: Timing End-March 2020 (5th review). Status: proposed to be revised.
- Reporting schedules:
  - CBS weekly reporting (within one week): daily reserve money data; foreign exchange reserves position; summary table on FX market transactions; results of liquidity deposit auctions and Treasury bill auctions.
  - CBS monthly reporting (within four weeks): monetary survey; foreign exchange cash flow; financial soundness indicators; stock of government securities in circulation by holder and maturity.
  - Ministry of Finance monthly reporting (within four weeks): consolidated government operations in IMF format and GFSM2001; detailed revenues and expenditures; import/export data; public debt report; creditors schedule on domestic arrears.
  - NBS monthly reporting (within 10 days): CPI headline inflation, by category.
- Technical Memorandum of Understanding (TMU) definitions:
  - NIR = reserve assets of the CBS minus reserve liabilities of the CBS (including liabilities to the IMF).
  - MPCC headline inflation = year-on-year rate of change of the CPI averaged for the past 12 months as measured by NBS.
  - MPCC consultation triggers: consultations if observed headline inflation falls outside ±2 percentage points around mid-point; discussions with Fund staff if outside ±1.5 percentage points.

*Source: IMF staff report excerpt (content unit: 1sycea2019004).*

### 1. Social Welfare Pr

### 1. Social Welfare Programs in Seychelles

### Recent Developments, Outlook and Risks
- Growth momentum remains strong; tourism receipts increased by 5 percent year-on-year (yoy) for the first eight months of 2019.
- Production in tourism and communication sectors grew strongly in the first half of 2019.
- Nominal exchange rate stable in recent months.
- Headline yoy CPI inflation rate declined to 1.4 percent in September from over 4½ percent in early 2018.
- Central Bank of Seychelles (CBS) lowered the monetary policy rate by 0.5 percentage points at end-September 2019.
- Private sector credit growth accelerated to 16.2 percent at end-September from 11½ percent at end-2018, driven by loans to tourism and fishery sectors.
- Financial soundness indicators suggest commercial banks are adequately capitalized and profitable.
- Near- and medium-term outlook: growth projected to moderate to around 3½‒4 percent during 2019‒20, around potential, due to moderation in tourism and fishery growth and the moratorium on large hotel construction projects until end-2020.
- External current account deficit projected around 17‒18 percent of GDP for the next several years; financing would continue to be mostly by FDI.
- Gross international reserves’ (GIR’s) ARA metric expected to remain adequate at about 122 percent in the medium term.
- Risks tilted to the downside: external shocks (geopolitical tensions, weaker global growth), potential withdrawal of correspondent bank relationships (CBRs), higher-than-projected international energy prices, and domestic fiscal slippages (including risks related to Air Seychelles).
- Election-related risks: government may face challenges achieving the primary surplus target in 2020 when the Presidential election will take place.

### Program Performance
- Most quantitative targets (QTs) met; some reform targets (RTs) delayed for technical reasons.
- End-June floor on the primary fiscal surplus missed by SCR11 million (0.05 percent of GDP) due to delayed stamp duty receipts (SCR98 million, 0.5 percent of GDP) and delayed dividends from some SOEs.
- End-June floor on net international reserves (NIR) met, exceeded by US$13 million.
- 12-month average inflation at end-June was well within the inner bound of the monetary policy consultation clause (MPCC).
- All continuous targets have been met.
- Amendments to Public Enterprise Monitoring Committee (PEMC) Act to be submitted to Cabinet in December 2019 (delayed from end-September).
- Draft legislation on crisis management, bank resolution and safety nets to be submitted to Cabinet in November 2020 (reset from end-March 2020).

### Buttressing Fiscal Sustainability
- 2019 primary surplus projected to reach 2½ percent of GDP, supported by underspending of wage bills (delayed 5 percent salary adjustment) and under-execution of goods, services and capital expenditures.
- Authorities requested small downward revision to end-December 2019 floor on primary surplus (SCR5 million, 0.02 percent of GDP).
- 2020 budget and 3-year projections target a primary surplus of 2½ percent of GDP through 2022, consistent with PCI fiscal parameters.
- Planned injection of guarantees of $30 million (about 2 percent of GDP) to protect other shareholder’s preference shares of Air Seychelles; public debt-to-GDP ratio projected around 51¾ percent, marginally above authorities’ target of below 50 percent by end-2021.
- Under baseline, primary surplus would reduce public debt-to-GDP from about 61½ percent to around 47 percent by end-2022, assuming unwinding of SCR200‒300 million each year during 2020‒22 of government debt issued for monetary policy purposes.
- Authorities introduced permanent revenue-enhancing and expenditure-saving measures in 2020 budget:
  - Revenue measures estimated to enhance revenues by about 1 percent of GDP (including increased environmental levy on motor vehicles and various fees; changed excise structure for alcoholic beverages; property tax; personalized license plate numbers; processing fees for postage and courier services).
  - President announced increase in pension benefits and minimum wage from SCR5,250 to SCR5,750 a month from beginning of 2020, estimated to cost about ½ percent of GDP starting in 2020.
  - Better targeting of social welfare programs estimated to create savings of about 0.1 percent of GDP in 2020 (see Box 1).
  - Freeze on recruitment of non-essential staff and reduction of low-priority goods and services spending estimated to save about ¼ percent of GDP.
  - Cessation of one-off 2019 spending (e.g., international sports events) would reduce goods and services spending by around ¼ percent of GDP in 2020 compared with 2019.
- Total savings and revenue measures expected to offset loss of one-off stamp duty revenue and finance pension/minimum wage increases and AML/CFT capacity enhancement in 2020.
- Medium-term measures to contain nominal growth of current expenditure include procurement reforms, removal of duplication of government services, and new staffing and recruitment planning; projected savings over medium term:
  - Procurement reform and removing duplication: about ½ percent of GDP in goods and services.
  - New staffing and recruitment policies and removal of duplication: projected to reduce wage bill by about ¾ percent of GDP.

### Social Welfare Programs (Box 1)
- Seychelles spends 5¾ percent of GDP on social welfare programs.
- World Bank analysis: current social protection system supports households that are not needy while many needy households do not get assistance; eligibility criteria create inequities through complex exclusions, deductions, and cost sharing.
- Medium-term plan with World Bank experts to better target and enhance quality of social protection:
  - Starting in 2020: enhance efficiency in service delivery of home care services by targeting needy individuals; introduce stricter criteria for invalidity and disability benefits.
  - Over medium term: establish household-level database to better identify needs; introduce new assessment methodology to define eligibility criteria and benefit levels for welfare programs (home care program and disability pensions).
- Estimated fiscal savings from better targeting and rationalization: 0.1 percent of GDP in 2020 and 0.3‒0.4 percent of GDP over the medium term.
- Potential labor market effect: measures could bring a significant number of home carers and benefit recipients into the labor force in the medium term, helping potential growth and expanding the income tax base.

### Investment, PPPs, and Climate-related Projects
- Authorities will take a phased approach to large infrastructure and climate change projects within primary surplus target of 2½ percent of GDP through 2022 and steady public debt reduction.
- Plan to rely on concessional external financing and public-private-partnerships (PPPs) where possible.
- Conversion of electricity generation from heavy fuel to Liquefied Natural Gas (LNG) (about one-third of total climate-related cost) planned through a PPP with IFC advice.
- Grand Anse Dam financing negotiations for external grants are at an advanced stage.
- Government plans Fund’s Public Investment Management Assessment (PIMA) by mid-2020.
- PPP bill submitted to National Assembly to provide institutional framework for project approval, screening, and contract management.

### Minimizing Fiscal Risks
- Public debt path remains below high-risk benchmark under all shock scenarios, but risks center on high gross financing needs due to high debt level and short domestic debt maturities.
- Authorities plan to issue 3-, 5-, and 7-year bonds to replace maturing short-term debts during 2020, as done in August 2019, to reduce rollover risk and develop the domestic debt market.
- Government canceled liability management exercise to swap current US dollar obligations of around US$130 million into Euros due to commission cost considerations.
- Staff urged continued efforts to minimize SOE fiscal risks, particularly from Air Seychelles:
  - Air Seychelles has begun operational restructuring (staff redundancies, closure of loss-making international routes); financial performance improved significantly in 2019.
  - Unguaranteed “project box bond” of $71.5 million owed to the other shareholder could pose roll-over risk to the company in 2020 and especially 2021; government does not intend to assume this liability.
  - Government received long-term business viability analysis from World Bank TA experts and is conducting a comprehensive governance assessment of the company to be completed by end-December 2019 (5th review RT).
  - Government will propose a RT for the 6th review to address remaining weaknesses based on assessments and World Bank TA.
  - New government ownership and dividend policy for SOEs to be submitted to Cabinet by end-October to reduce budgeting uncertainty and strengthen SOE oversight.

### Preserving Price and External Stability
- Despite potential demand pressures from public-sector wage adjustment (delayed to late 2019) and brisk private credit growth, weakening international fuel prices and increased domestic retail competition expected to contain inflation in coming months.
- Staff advice: preserve prudent policies under PCI to maintain benign outlook; monitor risks from Air Seychelles and external shocks closely.

*Source: 1sycea2019004 - 1. Social Welfare Pr (IMF country report content).*

### 12.      With inflationary pressures abated, the CBS should stay vigilant to both upside and

### 1sycea2019004 - 12.      With inflationary pressures abated, the CBS should stay vigilant to both upside and

### Monetary policy and inflation outlook
- Staff supported the CBS’ recent monetary policy easing given the continued inflation underperformance since the 2nd review and the benign inflation outlook in coming months.
- Annual average inflation forecasts revised down by:
  - 0.6 percentage points for 2019
  - 0.9 percentage points for 2020
- Upside risks to inflation:
  - Demand pressures from higher public wages
  - Acceleration of private sector credit growth in recent months (driven by productive sectors; no adverse impact on asset quality observed)
- Downside risks to inflation:
  - Lower-than-expected international fuel prices
  - Lower-than-expected imported food prices
  - Increased competition among domestic retailers
- Policy stance:
  - CBS and staff agreed on the need to stand ready to adjust monetary policy promptly in response to significant upward or downward deviations of inflation from projections.
  - Staff encouraged the CBS to continue finetuning its communication policy with Fund TA and to formalize and expand the survey of inflation expectations in coordination with the National Bureau of Statistics (NBS).

### Transition to new monetary policy framework and liquidity management
- CBS progress:
  - Implementing its 6-phase plan to strengthen inflation forecasting and liquidity management (PS¶30).
  - Working group set up to advise on development of the interbank market.
- Coordination with fiscal authorities:
  - CBS and Ministry of Finance set up a working group to enhance coordination and ensure planned unwinding of monetary debt, in line with government debt reduction, does not hamper CBS monetary operations (PS¶29).
  - Improved liquidity forecasting expected to benefit monetary policy conduct.
- Exchange rate and reserves guidance:
  - Staff advised maintaining a flexible exchange rate policy and keeping international reserves coverage around the current level.
  - CBS requested to revise down NIR targets slightly citing stronger-than-expected imports and possible FX market tightness around forthcoming elections.
  - Revised projected level of GIR would still stand at about 121 percent of the relevant ARA metric during 2019‒20 under the baseline.
  - Staff’s external sector assessment indicates:
    - A moderate level of overvaluation of the real effective exchange rate
    - An external position moderately weaker than implied by fundamentals
  - Large FX purchases would either increase issuance of monetary debt or increase excess liquidity; staff advised limiting FX purchases to preserve reserve coverage ratio at around the current level.

### Financial stability and AML/CFT
- Steps taken to address risks of potential loss of CBRs:
  - Agreement with the World Bank to assist in capacity building for AML/CFT institutions and to review and draft relevant legislation (PS¶35).
  - Resident advisor contracted; 2020 budget allocates additional resources to relevant institutions.
  - Drafting of new AML bill nearly complete; draft bill to be submitted to the Cabinet by end-March 2020 (5th review RT, PS¶35).
  - Draft amendments to strengthen entity transparency of domestic and international business companies to be submitted to the Cabinet by end-December 2019 (PS¶37, 5th review RT).
  - Establishment of a beneficial ownership register for the offshore sector planned.
  - Comprehensive financial sector strategy covering domestic and offshore sectors to be submitted by mid-2020 (PS¶37).
  - ESAAMLG September 2019 mission highlighted importance of steadfast progress to maintain CBRs.
- Prudential framework and supervision:
  - Policy framework paper for Basel II pillar 1 implementation and Basel III capital definition on track for Cabinet submission by end-December 2019 (PS¶34, 5th review RT).
  - Policy framework paper on a Financial Sector Stability Act, assigning macroprudential powers, to be submitted by September 2020 (PS¶31, 6th review RT).
  - These steps intended to buttress financial stability, support international capital adequacy requirements, and enable corrective actions against consumer credit build-up.

### Enhancing inclusive and sustainable growth
- Business environment constraints:
  - High electricity costs (partly due to cross-subsidies) identified as a major bottleneck.
  - World Bank experts conducting a comprehensive utility tariff review aimed at better targeting utility subsidies and possibly lowering utility costs to business and government; completion targeted by end-2019.
  - Government intends to amend the Company Act and Insolvency Act; policy papers to be submitted to the Cabinet by September 2020 (6th review RT, PS¶23).
  - Government digitization efforts continue, including tax filing, property, and company registration.
- Sectoral diversification and upgrades:
  - Tourism master plan reformulated with focal points:
    - Increasing local content via industry-wide human resource development
    - Promoting trade between local food producers and accommodation establishments
    - Addressing costs of doing business for local SMEs
  - Fisheries sector upgrades continue, including development around Victoria port to establish a long-line base and building new handling facilities.
- Financial inclusion:
  - National Financial Inclusion Strategy (NFIS) to focus on SMEs’ access to financing, innovative financial services, competition, and consumer protection (PS¶39‒43).
  - Authorities concurred that any SME financing scheme should be targeted, transparent, and not impede monetary policy.
  - Steady implementation of NFIS expected to enhance financial stability and deepening and improve monetary transmission over the medium term.

### Program monitoring, fiscal outlook, and risk management
- Program monitoring:
  - Program to be monitored on a semi-annual basis; Seychelles does not need Fund financial assistance under the baseline and is not seeking Fund financial assistance as the program is fully financed.
  - Authorities requested slight modifications to end-December 2019 fiscal primary surplus and NIR targets; end-June 2020 quantitative targets proposed (details in PS tables).
- Fiscal targets and debt trajectory:
  - Authorities’ 2020 budget targets a primary surplus of 2½ percent of GDP through 2022, with permanent fiscal saving measures introduced in 2020.
  - Need to inject immediately $30 million (about 2 percent of GDP) into Air Seychelles in response to Etihad’s request; end-2021 debt-GDP ratio expected to be marginally above authorities’ target of below 50 percent by that time.
  - Fiscal path under the 2020 budget judged consistent with steady decline of public debt and fiscal sustainability in the medium term while allowing for priority infrastructure and climate-related investments.
- Risks and recommendations regarding Air Seychelles:
  - Air Seychelles remains the biggest risk to the program despite improved financial performance this year due to operational restructuring.
  - Government urged to:
    - Keep close monitoring of the company’s operations and restructuring progress
    - Refrain from issuing additional guarantees or taking on liabilities
    - Take corrective actions promptly if fiscal impact beyond assumptions materializes
    - Articulate measures to address remaining weaknesses based on governance monitoring and World Bank TA
- Capacity development:
  - Technical assistance from Fund and other IFIs to focus on AML/CFT, monetary policy operations, PFM, and macroeconomic statistics.
  - Authorities plan to complete GDP rebasing by mid-2020 with Fund TA.
  - CBS efforts to improve quality of external statistics continue (PS¶45).

### Staff appraisal and final recommendations
- Overall assessment:
  - Authorities remain committed to reinforcing economic stability and sustainability; program implementation strong; economic growth strong; inflation steadily declining.
  - Authorities aware that potential fiscal slippages could jeopardize debt reduction.
- Key staff recommendations:
  - Implement permanent saving measures in 2020 budget to strengthen medium-term fiscal sustainability.
  - Streamline and better target social welfare programs starting in 2020 and keep tight control on current spending for the next three years.
  - Implement major public investments within PCI fiscal parameters; explore additional revenue measures discussed at the 2017 Article IV consultation for longer-term fiscal space.
  - Keep tight rein on Air Seychelles to reduce fiscal risks; refrain from additional guarantees.
  - Maintain flexible exchange rate policy with minimal intervention to preserve reserve coverage ratios around current levels given moderate REER overvaluation and adequate GIR coverage.
  - Continue strengthening AML/CFT framework and capacity enhancements to reduce risks of further loss of CBRs.
  - Continue structural reforms to improve business environment, target utility subsidies better, and increase the financial sector’s contribution to inclusive growth.

*Source: IMF staff report excerpt (selections on monetary policy, financial stability, inclusive growth, program issues, and staff appraisal).*

### 29.      Given the authorities’ strong program implementation and sustained commitment to

### 1sycea2019004 - 29.      Given the authorities’ strong program implementation and sustained commitment to

### Program assessment and staff position
- Staff supports the authorities’ request for the completion of the fourth review under the PCI.
- Staff supports the authorities’ requests to modify:
  - the end-December 2019 targets on primary fiscal surplus and NIR,
  - the end-December 2019 inflation projection for MPCC,
  - the RTs for the 5th and 6th reviews.

### Macroeconomic outlook and growth
- The strong recent growth momentum is projected to continue with a slight moderation in 2019-20.
- Real GDP growth (selected projected entries from Table 1):
  - 2016: 4.5
  - 2017: 4.3
  - 2018: 4.1
  - 2019 (Act./Prel./3rd Rev/Proj entries shown): 3.5, 3.9, 3.5, 4.1, 4.0, 3.8, 3.6 (table shows multiple contiguous series across columns).
- Nominal GDP (millions of Seychelles rupees):
  - 2016: 19,014
  - 2017: 20,515
  - 2018: 22,019
  - 2019: 23,274
  - 2020: 23,200
  - 2021: 24,447
  - 2022: 26,198
  - 2023: 28,011
  - 2024: 29,959
  - 2025 (table extends to): 31,963

### Inflation and interest rates
- CPI (annual average) (selected values):
  - 2016: -1.0
  - 2017: 2.9
  - 2018: 3.7
  - 2019: 2.6, 2.0, 2.1, 2.9, 2.9, 3.0, 3.0 (multiple series in table).
- CPI (end-of-period) (selected values):
  - 2016: -0.2
  - 2017: 3.5
  - 2018: 3.4
  - 2019: 3.2, 2.3, 2.5, 3.0, 3.0, 3.0, 3.0 (multiple series in table).
- Figures note: “inflation has slowed down in the first half of 2019 after rising in 2017-18.”

### Private credit, liquidity, and reserves
- Credit to the private sector (12–month percent change) (Table 4 memorandum):
  - 2016: 10.3
  - 2017: 17.8
  - 2018: 11.5
  - Mar/Jun/Sep/Dec 2019 projections and quarterly entries indicate continued positive growth (e.g., 13.6, 20.8, 15.0, 16.0, 12.0, 10.1, 10.2, 10.1 in table).
- Broad money growth (12–month percent change):
  - 2016: 12.1
  - 2017: 16.4
  - 2018: 7.7
  - 2019 (quarterly/annual entries): 7.3, 7.3, 9.3, 9.7, 9.0, 9.8, 8.5, 6.4 (table columns).
- Gross official reserves (millions of U.S. dollars) (Table 1 / Table 4 memorandum):
  - 2016: 522.6 (Table 1)
  - 2017: 546
  - 2018: 545
  - 2019 end-of-year values and projections across tables: 551, 542, 541, 541, 540, 539 (table shows multiple quarterly/end projections).
- Months of imports (reserves coverage):
  - 2016: 3.7
  - 2017: 3.7
  - 2018: 3.7
  - 2019: 3.5
  - Projections (2020–24) around 3.6, 3.3, 3.3, 3.3, 3.3, 3.2 (Table 1).
- Reserves Adequacy (ARA EM metric, percent) (Table 1):
  - 2016: 131.0
  - 2017: 129.3
  - 2018: 124.5
  - 2019 and projections: 124.9, 122.5, 120.8, 122.3, 122.4, 122.0, 122.7

### External sector
- Current account balance including official transfers (percent of GDP) (Table 1):
  - 2016: -20.6
  - 2017: -20.4
  - 2018: -17.0
  - 2019: -17.0
  - 2020: -17.3
  - 2021: -17.6
  - 2022: -17.9
  - 2023: -18.0
  - 2024: -17.5
  - 2025: -17.5
- The current account deficit is projected to stabilize around 17% of GDP.
- Total external debt outstanding (millions of U.S. dollars) (Table 1):
  - 2016: 1,505
  - 2017: 1,639
  - 2018: 1,762
  - 2019: 1,772
  - 2020: 1,884
  - 2021: 1,939
  - 2022: 2,020
  - 2023: 2,120
  - 2024: 2,219
  - 2025: 2,321
- External debt (percent of GDP) (Table 1):
  - 2016: 105.4
  - 2017: 109.0
  - 2018: 111.3
  - 2019: 107.4
  - 2020: 114.0
  - 2021: 113.4
  - 2022: 112.0
  - 2023: 111.4
  - 2024: 110.6
  - 2025: 110.2

### Fiscal performance and public debt
- Fiscal primary balance targets have been consistently met in recent years.
- Program primary balance (percent of GDP) (Table 1):
  - 2016: 3.4
  - 2017: 3.0
  - 2018: 2.9
  - 2019: 2.5
  - 2020–2025 projections generally 2.5 (table shows repeated 2.5 entries).
- Total revenue (excluding grants) (percent of GDP) (Table 1):
  - 2016: 36.6
  - 2017: 35.5
  - 2018: 36.3
  - 2019: 37.3
  - 2020: 37.5
  - 2021: 37.7
  - 2022: 36.2
  - 2023: 35.5
  - 2024: 35.3
- Expenditure and net lending (percent of GDP) (Table 1):
  - 2016: 38.1
  - 2017: 37.0
  - 2018: 38.4
  - 2019: 38.6
  - 2020: 38.3
  - 2021: 40.2
  - 2022: 39.1
  - 2023: 36.8
  - 2024: 36.6
  - 2025: 36.6
- Total government and government-guaranteed debt (percent of GDP) (Table 1):
  - 2016: 72.7
  - 2017: 66.8
  - 2018: 61.0
  - 2019: 57.7
  - 2020: 61.4
  - 2021: 57.3
  - 2022: 51.7
  - 2023: 46.9
  - 2024: 43.1
  - 2025: 40.3
- Composition of public debt (percent of GDP) (Table 1):
  - Domestic (including debt issued for monetary purposes):
    - 2016: 40.4
    - 2017: 36.7
    - 2018: 32.4
    - 2019: 31.0
    - 2020: 32.1
    - 2021: 29.9
    - 2022: 27.0
    - 2023: 23.3
    - 2024: 20.7
    - 2025: 18.8
  - External:
    - 2016: 32.2
    - 2017: 30.1
    - 2018: 28.6
    - 2019: 26.7
    - 2020: 29.3
    - 2021: 27.4
    - 2022: 24.7
    - 2023: 23.6
    - 2024: 22.4
    - 2025: 21.5

### Public finances — detailed operations (selected indicators, Table 3a / 3b)
- Total revenue and grants (millions of Seychelles rupees) (2019 column entries):
  - 2017 Act.: 7,205
  - 2018 Act.: 7,446
  - 2019 Act./Proj. series: 8,274; 8,920; quarterly and annual projections shown (e.g., 9,854; 10,263).
- Total revenue (millions of Seychelles rupees):
  - 2017: 6,965
  - 2018: 7,274
  - 2019: 7,997; 8,695; quarterly figures and projections (e.g., 9,207; 9,472).
- Tax revenue (millions of Seychelles rupees):
  - 2017: 6,188
  - 2018: 6,600
  - 2019: 7,083; 7,497; quarterly breakdowns (table).
- Current expenditure (millions of Seychelles rupees):
  - 2017: 6,295
  - 2018: 6,687
  - 2019: 7,231; 7,707; quarterly figures and projections (e.g., 8,374; 8,505).
- Capital expenditure (millions of Seychelles rupees):
  - 2017: 909
  - 2018: 747
  - 2019: 954; 994; quarterly and projected totals (e.g., 1,258; 1,625).
- Primary balance (millions of Seychelles rupees):
  - 2017: 642
  - 2018: 622
  - 2019: 646; 584; quarterly entries and projections.

### Monetary and banking sector indicators
- Depository corporations: Broad money (millions of Seychelles rupees) (Table 4):
  - 2016: 13,648
  - 2017: 15,888
  - 2018: 17,115
  - 2019 quarterly and projected series: 17,467; 17,617; 18,053; 18,769; 19,043; 19,336; 19,584; 19,973
- Reserve money (end-of-period) (Table 4):
  - 2016: 2,992
  - 2017: 3,559
  - 2018: 3,720
  - 2019 quarterly/proj: 3,796; 3,745; 3,860; 3,978; 4,004; 4,383; 4,076; 4,167
- Central bank net foreign assets (millions of Seychelles rupees) (Table 4):
  - 2016: 6,550
  - 2017: 6,982
  - 2018: 7,248
  - 2019 quarterly/proj: 7,265; 7,287; 7,167; 7,236; 7,301; 7,359; 7,418; 7,496
- Financial soundness indicators (Table 5, selected end-period percents):
  - Regulatory capital to risk weighted assets (various years/quarters): entries include 26.7, 26.7, 21.7, 25.5, 26.6, 23.5, 20.5, 21.0, 20.2.
  - Non-performing loans to gross loans (selected): 9.3, 9.4, 8.2, 7.6, 6.8, 7.1, 3.5, 3.5, 3.5.
  - Return on assets (annualized): 3.1, 1.9, 3.3, 3.8, 3.8, 3.9, 3.7, 2.8, 3.0.
  - Net interest margin (annualized): 4.1, 3.2, 2.8, 4.3, 4.6, 4.1, 4.2, 4.0, 4.1.

### Monthly activity indicators (Figure 3 highlights)
- Telecommunications usage, fishing output, electricity production, and tourist arrivals are tracked monthly and seasonally adjusted in the report (Mar'11–Mar'19 / Jan'13–Sep'19 series).
- Fishing output series include canned tuna and artisanal fish catch (tons, seasonally adjusted).
- Electricity production (millions KWh, seasonally adjusted) shows a linear upward trend across Mar'11–Mar'19.
- Tourist arrivals (Jan'13–Sep'19) presented as year-on-year percent change (seasonally adjusted).

### Key sectoral and country characteristics
- 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

*Sources: Seychelles authorities, and IMF staff estimates and projections.*

### Annex I. Debt Sustainability Analysis

### Annex I. Debt Sustainability Analysis

### Baseline public debt trajectory and key projections
- Public debt projected to remain on a steadily downward path if authorities ensure primary surpluses of 2½ percent of GDP as envisaged under the PCI.
- Public debt expected to fall below 50 percent (46.9 percent) of GDP by end-2022 and decline further thereafter.
- End-2018 public debt around 60 percent of GDP.
- Projected level of end-2019 public debt stock slightly higher than previously projected because of the injection of $30 million (about 2 percent of GDP) of guarantees to protect the preference share of Air Seychelles owned by Etihad.
- Under the baseline, public debt-to-GDP ratio at end-2021 expected at around 51¾ percent (marginally above the authorities’ goal of below 50 percent by that time).
- Program primary fiscal surplus expected to be 2½ percent of GDP from 2019 onwards (the program primary surplus includes net lending to SOEs).

### Macroeconomic and fiscal assumptions underpinning the DSA
- Real GDP growth projected at around 3.9 percent in 2019 and hovering between 3.5 and 4.1 percent in the medium term (around estimated potential).
- Inflation projections for 2019–20 revised down compared with the previous DSA.
- Projections for effective interest rate revised down given lower inflation projections and lower-than-expected interest rate in 2018.
- Effective interest rate series (selected): 2019 = 5.3 percent; 2020 = 5.2 percent; 2021 = 6.3 percent; 2022 = 6.6 percent; 2024 = 6.1 percent (as reported in the DSA table).
- Nominal gross public debt (selected years, in percent of GDP): 2017 = 93.2; 2018 = 66.8; 2019 = 61.0; 2020 = 61.4; 2021 = 57.3; 2022 = 51.7; 2023 = 46.9; 2024 = 43.1; 2025 = 40.3 (table figures).
- Public gross financing needs (selected years, in percent of GDP): 2017 = 23.5; 2018 = 30.1; 2019 = 27.9; 2020 = 24.0; 2021 = 27.7; 2022 = 25.0; 2023 = 21.5; 2024 = 17.1; 2025 = 17.0.
- Net public debt (selected years, in percent of GDP): 2017 = 55.4; 2018 = 51.7; 2019 = 55.2; 2020 = 52.6; 2021 = 48.4; 2022 = 44.6; 2023 = 41.4; 2024 = 39.2.

### Definition and composition of public debt in the DSA
- Public debt includes: (i) central government debt as reported by the authorities; (ii) government guarantees issued for loans extended to state-owned enterprises; and (iii) obligations to the IMF.
- Domestic debt issued by the central government for monetary purposes (9.3 percent of GDP at end-2018) is included in public debt because it imposes interest cost and rollover needs; a portion is projected to be unwound as the central bank develops other instruments.

### Risks, vulnerabilities, and realism of assumptions
- DSA framework indicates public debt (including guarantees) is currently close to the high-risk benchmark but expected to fall steadily under the baseline if fiscal consolidation is implemented.
- Gross public and external financing needs remain very high for the foreseeable future; the large foreign currency-denominated debt is a key source of risk.
- Realism of the baseline assumptions is balanced: staff projections historically unbiased for real GDP growth (2009–17).
- Short domestic debt maturities drive high gross financing needs; most domestic debt has maturity of less than one year.

### Stress test scenarios and outcomes
- Real exchange rate shock (real depreciation by around 16 percent after 2020): debt-to-GDP ratio would peak at around 61 percent in 2020 and fall thereafter, but remain about 2¼ percentage points above the 50 percent target for 2022.
- One-time real GDP growth shock (growth lower than baseline by 2 percent during 2020–21): would moderate pace of debt fall and could delay attainment of debt reduction goal by a few years.
- Real interest rate shock (667 basis points after 2020): would moderate pace of debt decline.
- Combined macro-fiscal shock (aggregation of shocks to real growth, interest rate, primary balance, and exchange rate): debt-to-GDP ratio would peak at around 67½ percent (still below the critical value of 70 percent); debt-to-revenue ratio would increase to around 170 percent; gross financing needs would hover between 29¼ and 33½ percent.
- Under baseline, gross financing needs fall over projection period but remain elevated at over 20 percent of GDP until 2022 due to short tenor of domestic debt.
- Standardized external stress tests:
  - Total external debt remains elevated in the range of 110‒114 percent of GDP throughout the projection period.
  - A 30 percent depreciation of the domestic currency would raise external debt-to-GDP ratio to around 175 percent in 2020 and to 178 percent by end of projection period (compared to about 110 percent under baseline).
  - A permanent ¼ standard deviation shock to either growth or the current account (excluding interest payments) would lead to external debt-to-GDP ratio rising to around 144 percent by end of projection period.

### State-owned enterprises (SOEs) and contingent risks
- Staff analysis suggests additional debt liabilities of SOEs total around 13 percent of GDP (majority owed by SEYPEC and Air Seychelles).
- These debts do not benefit from explicit government guarantee, but the government has at times assumed such obligations (example: government assumed liabilities of Air Seychelles amounting to around 5 percent of GDP in 2012).
- Air Seychelles’ project box bond of $71.5 million (around 5 percent of GDP) owed to Etihad could pose rollover risks in 2020 and 2021.
- Scenario assuming SOEs’ external debts of 5 percent of GDP are assumed by the government in 2020: government’s goal of reducing public debt below 50 percent of GDP would be delayed by two years.

### Policy recommendations and mitigation measures
- Steadfast implementation of fiscal consolidation in line with the PCI to achieve and sustain primary surpluses of 2½ percent of GDP.
- Extend maturities of domestic public debt where possible to reduce gross financing needs and rollover risks.
- Monitor and manage SOE debt closely to mitigate risk of obligations migrating to the government balance sheet.
- Further progress in reducing public debt stock and extending maturities of domestic public debt is warranted given high gross financing needs and exposure to shocks.

*Source: Annex I. Debt Sustainability Analysis (Seychelles), IMF staff.*

### Appendix I. Program Statement

### Appendix I. Program Statement

### A. Macroeconomic performance in 2019 and outlook for 2020
- Real GDP growth in 2019 is now estimated to attain 3.9% (initial forecast at third review: 3.5%).
- Tourism earnings increasing by around 5%; tourist arrivals for the first 8 months of 2019 up by 7.1%.
- Consumer price inflation in 2019 expected at 2.0% on average for the year (previously expected 2.6%).
- 2020 projections:
  - Real GDP growth expected to decelerate slightly to 3.5%.
  - Value added in the tourism sector expected to continue rising by about 5%.
  - Food sector and information and communication projected to grow around 5%.
  - Average inflation for 2020 projected at 2.1%.
- External sector:
  - External current account deficit in percent of GDP projected at 17.3% in 2019 (slightly higher than in 2018).
  - External current account deficit projected at 17.6% of GDP in 2020.
  - Foreign direct investment expected to increase (new tourism projects), leading to higher imports; fishing sector exports also projected to increase.
- International reserves and debt:
  - Proposed revision: net international reserves (NIR) end-December 2019 revised down by $9 million relative to the third review target due to higher-than-expected imports.
  - Gross and net international reserves in 2020 expected at roughly the same level as end-2019.
  - Government and government-guaranteed debt to GDP at end-2019 expected at 61.5% (forecast at third review: 57.7%); difference largely due to planned new government guarantees in favor of Air Seychelles before end-2019, equivalent to 2% of GDP.
  - Debt ratio expected to decline to 57.2% by end-2020.

### B. Performance under the PCI in 2019
- Program largely on track.
- End-June 2019:
  - Floor on primary surplus and NIR attained with some margin.
  - End-June annual average inflation at 2.7% (within inner bound under the MPCC).
  - End-June primary surplus: SR 254 million (program target: SR 265 million) — missed by SR 11 million.
    - Shortfall mainly because cable and wireless sanctions fees of US$14 million (SR 98 million) expected in June 2019 will only be received in Q4 2019; sanction agreement being finalized for signature before end of September 2019.
- Structural reform timing:
  - Amendments on Public Enterprise Monitoring Committee (PEMC) Act to be submitted to Cabinet by end-December 2019 (slightly delayed from end-September 2019 target).
  - Amended legal framework for crisis management, bank resolution and safety nets to be submitted to Cabinet by December 2020.
  - Policy framework paper for implementation of Basel II pillar 1 and Basel III capital definitions to be submitted to Cabinet by end-December 2019 (5th review RT).

### C. Budgetary performance in 2019, outlook for 2020 and medium-term framework
- 2019 budget performance in line with program; primary surplus target of 2.5% of GDP expected to be reached.
- Revenue and expenditure developments 2019:
  - Tax revenue in line with initial budget; business tax shortfall offset by higher personal income tax receipts.
  - Current expenditure boosted by 5% public sector wage adjustment (subject to judicial process) expected to be implemented in Q4, and long-term services allowance implemented in July 2019.
  - Recruitment freeze from end-August; only priority sectors (Health, Education, returning graduates) allowed recruitment.
  - Budget cut of up to 11% in Goods and Services across Government applied.
  - Wages and Salaries expected to be revised downwards by 2% for 2019; Goods and Services down by 1% for 2019.
  - Capital expenditure expected to be lower than expected due to slower project execution.
  - Given lower-than-expected collection of fees and charges, program target for primary surplus at end-December 2019 proposed to be revised down by SCR 5 million to SR 584 million (still at 2.5% of GDP in 2019) relative to the third review target.
- Revenue measures in 2019 yielded 0.4% of GDP:
  - Reduction in fuel tax exemptions for the tourism sector.
  - Introduction of a sugar tax on beverages.
- 2020 budget aims to maintain a primary surplus of 2.5%.
  - New tax measures expected yields:
    - Upward revision of levy on import of motorcars: expected to yield 0.2% of GDP.
    - Property tax introduced in early 2020: expected to yield 0.2% of GDP.
  - Accelerated tax arrears collection, particularly business tax.
- Fiscal measures for 2020 budget (SR’ million; TOTAL 256.7):
  - Introduction of a Personalised License Plate Number: 10
  - Tax Review on Motor Vehicles; Increase of Environmental Levy: 42.1
  - Change in Tax Structure for Alcoholic Beverages; taxed according to their alcohol content: 43.4
  - Increase in FSA registration Fees (as dividend from SFA): 50
  - Increase in GOP fees for the foreigner that stay in the country for more than 5 years;: 30
  - Budget Freeze on the recruitment: 38
  - Reduction in Goods and Services by 4%: 36.4
  - Introduction of a processing Fee for Postage and Courier service: 6.8
- Expenditure-side reforms and savings 2020:
  - Rationalizing social services to increase efficiency and achieve savings of 0.1% of GDP in 2020.
  - Immediate measures include:
    - Establish structure to directly employ, dispatch and monitor domiciliary care workers.
    - Move from Full and Half Day care system to needs-based system.
    - Adopt WHO Disability Assessment Schedule 2.0 (replacing Bartell Assessment tool).
  - Medium-term: create household-level database (social registry) to improve targeting and cross-MDA collaboration.
  - Reform invalidity and disability pensions to focus on functional capacity, include retraining and rehabilitation.
  - Contain wages and salaries via recruitment freeze and reallocating vacant posts to priority areas (SRC, MOH, MOE).
  - Rationalize schemes with only critical schemes funded (Judiciary, SRC, Department of Immigration and Civil Status).
- Capital expenditure and large projects:
  - Rationalizing capital expenditure through alternative financing plans.
  - Construction of a “Government house“ financed through a grant to yield rental savings from 2022.
  - Large public investment projects announced in 2018 SONA under review to minimize costs and obtain favorable financing (including grants) to preserve medium-term target of public debt–GDP ratio below 50% after 2021.
  - Feasibility study for new LNG power plant proceeding with IFC assistance.
  - Land reclamation scheme to be based on PPP approach with private sector paying upfront for land leases to provide upfront financing.

- Renewable energy developments underway:
  - 2 solar farms on Romainville built by the Public Utility Company (PUC).
  - 5 MW solar farm financed by IRENA and the Abu Dhabi Development Fund.
  - 1 MW solar plants on Praslin and La Digue.
  - Smart energy in public spaces program financed by the government of India.

### D. Implementation of the structural reform agenda
- Revenue management and SRC reforms:
  - SRC emphasis areas: modernization and reform initiatives; improving revenue and debt collection (focus on arrears); improving efficiency and effectiveness of SRC operations and service delivery to reduce leakage and improve voluntary compliance.
  - New debt recovery approach: separate debt collection functions for Tax and Customs; centralize debt collection under Director for Enforcement in Domestic Tax Division.
  - Increased monitoring of large debt collection on a monthly basis.
  - Increased number of prosecution cases.
  - SRC recently underwent a TADAT; SRC to draft action plan based on assessment results.
- Results Based Management Framework:
  - Continue enhancing public sector efficiency, effectiveness, transparency and accountability through result-based management, Strategic Planning, Programme Performance Based Budgeting, Performance Monitoring and Evaluation, and Personnel Management Systems.
- Public-Private Partnership (PPP):
  - PPP Bill submitted for approval by National Assembly in fourth quarter of 2019.
  - Public Investment Management Assessment (PIMA) planned for second quarter of 2020.
- Review of Public Finance Management regulatory framework:
  - Revisions to Public Finance Management Act 2012 and Regulations 2014 to integrate developments and facilitate accounting manual implementation.
  - Public Debt Management Act revised in 2019 to establish formal authorization for new borrowing by SOEs/parastatals, establish a guarantee strategy, and define public debt and guarantee governance.
- Debt management:
  - Plan to lengthen maturity of domestic debt: Government will guarantee a five-year bond to be issued by the Property Management Company (PMC) to finance infrastructure projects.
  - Liability management exercise to convert bond from USD to Euros will not be pursued.
- SOE reform and governance:
  - Intensified efforts to strengthen corporate governance, fiscal risk management and reporting of SOEs.
  - PEMC proposed “Public Enterprise Act” to accommodate best practices in ownership, oversight, compliance mechanisms with sanctions, and mechanisms to identify and manage financial risks.
  - Ownership policy and dividend policy drafted and to be submitted to Cabinet by end-October (year in context: 2019).
  - Objective: coherent SOE oversight and monitoring; dividend policy to balance retention for reinvestment and returns to owner.
- Minimizing fiscal risk of SOEs:
  - Government requested World Bank to review Air Seychelles strategy for financial viability and long-term sustainability.
  - Restructured Air Seychelles network improves bottom-line by drastically reducing losses, but risk remains.
  - Etihad shareholder requested an upfront government guarantee of US$30 million preferred share by end-2019 — will increase debt-GDP ratio by about 2%.
  - Government does not intend to issue further guarantees in connection with Air Seychelles restructuring.
  - PEMC to submit comprehensive operational and governance assessments of Air Seychelles to Cabinet by end-December 2019 (5th review RT). If weaknesses remain, government will formulate an action plan as a new RT for 6th review.
- Improving business environment:
  - Action plan for 2019–2021 developed and being implemented; monitored by High-Level Ease of Doing Business Committee.
  - Investment framework under review with UNCTAD technical assistance.
  - Policy paper on amendments to Companies Act and Insolvency Act to be submitted to Cabinet by end-September 2020 (6th review RT).

### E. Monetary and exchange rate policy
- Tightened monetary policy stance implemented since second quarter of 2018 has eased inflationary pressures during 2019.
- 12-month average inflation rate:
  - 3.7 per cent at end-2018.
  - Fell to 2.4 per cent in August 2019.
- Year-on-year price increase slowed from an average of 3.4 per cent at end-2018 to (text cuts off in source).

*Victoria, November 25, 2019 — Appendix I. Program Statement*

### 1.8 per cent in August 2019.  In view of such developments, coupled with the projected moderate

### 1sycea2019004 - 1.8 per cent in August 2019.  In view of such developments, coupled with the projected moderate

### Monetary policy framework and actions
- The CBS introduced a Monetary Policy Rate (MPR) effective January 2019 as the key policy signal.
- Policy focus shifted from indirectly influencing money supply growth to guiding short-term interest rates through the MPR.
- MPR and standing facility rates:
  - MPR initially set at 5.5 per cent (consistent with a tight stance for Q1 2019).
  - Standing Deposit Facility (SDF) raised to 2.5%.
  - Standing Credit Facility (SCF) raised to 8.5%.
  - Fourth quarter 2019 loosening: MPR reduced to 5.0 per cent; SDF to 2.0%; SCF to 8.0%.
- The CBS views the revision to the monetary policy framework as part of a gradual process to improve transmission to the real economy.

### International reserves and reserves management
- Gross International Reserves are expected to remain at a level sufficient to buffer against external shocks, consistent with IMF-calculated metrics on foreign reserves adequacy.
- The CBS will continue opportunistic purchases of foreign exchange from the market through foreign exchange auctions (FEAs) with the objective to at least sustain the reserves level.
- Advisory and Asset Management agreement with the IBRD (effective January 2019):
  - US$100 million worth of assets managed by the Reserves Advisory Management Program (RAMP).
  - CBS staff attended RAMP-sponsored trainings, including PAT2 support role training for middle, back and front offices and IT.
  - RAMP advisory services to convert the internally managed bond portfolio from passive to an enhanced indexation portfolio strategy.

### Exchange rate policy
- The CBS remains committed to a floating exchange rate.
- CBS intervention in the foreign exchange market will only be to smooth out excess volatility.
- Opportunistic FX purchases to enhance reserves will be conducted in a manner that does not compromise the CBS’ primary objective of promoting domestic price stability.

### Coordination with fiscal authorities and liquidity management
- CBS will continue close collaboration with the Ministry responsible for Finance on issuance of government securities for monetary policy purposes.
- Coordination remains critical given structural excess liquidity and reserves accumulation objectives; fiscal support will be aligned with government’s debt reduction strategy.
- A working group comprising technical staff from the CBS and the Ministry of Finance:
  - Mandate: contribute to improvement in liquidity management and development of the government securities market; facilitate cooperation and communication on analytical work/research.
  - Meetings: monthly, with ad-hoc meetings as needed.

### Monetary policy implementation upgrades and operational projects
- Completion status and targets:
  - CBS completed phase 1 and phase 2 of the six-phase action plan on monetary policy implementation following IMF TA mission in October 2017.
  - Policy paper for revision of the CBS Act for monetary reserve requirement approved January 2019.
  - Instruction paper for minimum reserve requirement (MRR) regulation submitted to the Attorney General’s Office for legal procedures.
- Online portal and CAA module:
  - First round of testing for online portal updates is underway; project expected to be completed by December 2019.
  - Project to operationalize the CAA module on the online portal expected to be completed by the end of 2020.
  - Interim: CBS preparing a manual process for CAA with procedures manual and guidelines.
- National payment system modernization:
  - CBS exploring alternative platforms for domestic market operations as part of national payment system modernization.
  - Terms of reference for interbank markets working group approved in July 2019; group acts in advisory capacity to CBS and banking industry.

### Financial stability, prudential regulation, and supervisory frameworks
- Financial stability framework and legislation:
  - Work ongoing to formulate a Financial Stability Act with macro-prudential tools.
  - Revised timeline: submission of Financial Stability policy paper to Cabinet of Ministers set for end-September 2020 (6th review RT).
  - Cabinet approved policy framework for crisis management, bank resolution, and safety nets in December 2018.
  - Draft legislation for crisis management, bank resolution, and safety nets to be submitted to Cabinet by November 2020, delayed from March 2020 due to AG’s office staffing constraints.
- Risk-based supervision and Financial Institutions Act amendments:
  - Development of risk-based supervision framework ongoing; model expected to be finalized by end of 2019 with planned implementation from 2020.
  - Policy proposals for Financial Institutions Act amendments anticipated to be finalized by end of 2019 and shared with the IMF for peer review.
  - Development of manual and documentation for risk-based AML/CFT supervision expected between August and December 2020 (as per RAS with the World Bank).

### Accounting standards (IFRS 9) and related capacity building
- Engagement and implementation steps:
  - CBS in close dialogue with banks on IFRS 9 implementation; consultations with FIs and external auditors ongoing.
  - Amendments made to Financial Institutions (Credit Classifications and Provisioning) regulations to replace IAS 39 with IFRS 9.
  - CBS issued a new set of IFRS 9 return and organized training on compilation for all FIs.
  - Internal working group preparing framework to communicate forward-looking macroeconomic indicators to FIs to support IFRS 9 adherence.
  - Follow-up technical assistance from Afritac South in October 2019 focused on fair value measurement implications.

### Basel frameworks and capital regulation
- Basel II and Basel III adoption timeline and actions:
  - Adoption of the Basel II framework on track for implementation by end-December 2020.
  - CBS engaged with AG’s office regarding revision of Financial Institutions (Capital Adequacy) Regulations to incorporate Basel II pillar 1.
  - Policy paper for Basel II pillar 1 expected to be approved by Cabinet before end-December 2019 (5th review RT).
  - Basel II pillar II to be implemented from 2020 onwards as part of the risk-based supervision consultancy, along with pillar III disclosure requirements.
  - Adoption of capital definition under Basel III: CBS to finalize policy paper by end of 2019 (5th review RT); legislative amendments to be effected before end of 2020 with required changes to the Financial Institutions Act.

### AML/CFT reforms and de-risking response
- Legislative and institutional measures:
  - October 2018: Cabinet approved policy paper for the new AML Act addressing deficiencies identified in the mutual evaluation report (MER) by ESAAMLG.
  - New AML Act will empower sectoral supervisors and provide for a risk-based approach to supervision; ensure FATF recommendations are incorporated.
  - Legal expert contracted to assist AG’s office drafting the Act; Bill expected to be submitted to Cabinet by March 2020 (5th review RT).
  - National AML/CFT Committee and Technical Committee appointed to improve coordination and timely address MER deficiencies.
- Reimbursable Advisory Services (RAS) with the World Bank:
  - RAS agreement signed to provide technical assistance in reviewing and drafting legislative amendments relevant to preventing money laundering and terrorist financing, and National Strategy; includes capacity building for AML supervisors, law enforcement, prosecution office, and judiciary.
  - Country missions:
    - August 27 - 29, 2019: mission to look at the Proceeds of Crime Act and the Prevention of Terrorism Act.
    - October 07 – 10, 2019: mission to lay groundwork for AML/CFT risk-based supervision framework development.
    - Next mission tentatively scheduled for December 2019 with subsequent missions prior to March 2020 to implement the framework.
  - A residential advisor contracted to provide advice, support, mentoring, and trainings across AML/CFT stakeholders.
  - Government allocating additional resources in the 2020 budget for law enforcement agencies and regulatory authorities to enhance AML/CFT capacity per the National AML/CFT action plan.

### Payment systems oversight, FinTech, and digital strategies
- National payment system oversight:
  - PFMI Assessment completed in March 2019.
  - Action plan to implement PFMI recommendations being finalized.
  - Draft of revised payment system oversight framework prepared; expected finalization by December 2019.
  - Research for amendments to the National Payment System Act progressing; expected finalization by end of 2019 to address legislative shortcomings and align with international standards.
- FinTech and digital strategies:
  - Work advanced on FinTech and AML/CFT strategies.
  - Government to start drafting digital economy strategy before end-2019; diagnostic concluded with World Bank assistance.
  - Comprehensive Financial Sector strategy (onshore and offshore) to be finalized by June 2020.
  - Beneficial Ownership and transparency:
    - Cabinet approved policy to strengthen entity transparency and establish a master registry of beneficial owners.
    - New Beneficial Ownership Act to be submitted to Cabinet by end-March 2020 (5th review RT).
  - FinTech strategy development:
    - Workshops and stakeholder consultations began early 2019.
    - Strategy aims to identify value-adding FinTech in local context, assess risks, and propose policy directions.
    - Expected completion before the end of 2019.

### Financial inclusion, credit reporting, market conduct, and consumer protection
- National payment system modernization targeted to start implementation in 2020.
- Credit reporting and Credit Information System enhancements:
  - CBS reinforcing legal framework for credit reporting and expanding coverage to improve credit worthiness assessment.
  - Target for a new credit reporting act and effective system: 2020.
- Competition and market conduct:
  - Risk Based Market Conduct Framework contemplated for adoption in 2020 to address restrictive market practices that impede SMEs and consumer choice.
  - FinTech adoption envisaged to help address competition barriers.
- Consumer protection and financial education:
  - Financial Consumer Protection Act expected to be submitted to the National Assembly before the end of 2019; will provide a comprehensive regulatory framework for equitable and fair treatment of financial consumers, including Digital Financial Consumer Protection.
  - National Financial Education Strategy (launched December 2017) implementation entering second year; a Monitoring and Evaluation Framework being drafted internally and to be reviewed by the Alliance for Financial Inclusion; Framework expected to be completed in 2020.

### Safeguards, governance, and internal controls at the CBS
- Implementation of voluntary safeguards assessment recommendations (completed February 2018) is ongoing.
- Draft amendments to the CBS Act, including governance enhancements, expected to be presented to the National Assembly in September 2020.
- CBS has drafted an AML/CFT Policy, currently under internal review, to establish the Bank’s scope of work for compliance with domestic laws and international AML/CFT standards.
- Internal Audit Division (IAD) continues to strengthen internal processes following the External Quality Assessment to address identified gaps.

*Source: IMF country report content provided in the supplied PDF excerpt.*

### 45.   The CBS plans to improve external sector statistics, particularly the estimate of

### 1sycea2019004 - 45.   The CBS plans to improve external sector statistics, particularly the estimate of

### External sector statistics: tourism receipts
- The CBS plans to improve external sector statistics, particularly the estimate of tourism receipts.
- The CBS considers the current estimate does not fully capture the total value of the sector’s foreign exchange income which leads to an over-estimation of current account deficit.
- The new estimate will be incorporated in the compiled BOP statistics following completion of the internal review process and receipts of comments from the IMF Statistics Department.

### Program monitoring: reviews, timelines, and modifications
- The modification of end-December 2019 quantitative targets on primary fiscal balance and net international reserves and end-December 2019 monetary consultation clause are being proposed.
- The fifth review is scheduled to be completed by April 30, 2020, and sixth review by October 31, 2020.
- End-June 2019 target is adjusted downward by $7 million due to the shortfall of receipts from sales of Cable and Wireless Company, in accordance with TMU.
- Reviews and test dates:
  - Fourth review will assess end-June 2019 test date.
  - Fifth review will assess end-December 2019 test date.
  - Sixth review will assess end-June 2020 test date.

### Quantitative targets and key figures (December 2019 – December 2020)
- Net international reserves of the CBS, millions of U.S. dollars (floor):
  - 3rd Review Projection: 396
  - 3rd Review Act. Status: 409 Met
  - Proposed 3rd Review Projection (December): 412
  - Proposed June 2020 Projection: 403
  - Proposed December 2020 Projection: 402
  - Program projection for end-December 2019 and 2020: 402
- Primary balance of the consolidated government (cumulative floor):
  - 3rd Review Projection: 265
  - 3rd Review Act. Status: 254 Not Met
  - Proposed 3rd Review Projection (December): 589
  - Proposed June 2020 Projection: 584
  - Proposed December 2020 Projection: 211
  - Program projection: 611
- Accumulation of external payments arrears by the public sector (ceiling):
  - All reported values: 0.0 (Met)
- Monetary Policy Consultation Clause: inflation metrics
  - Inflation (mid-point, percent):
    - 3rd Review Projection: 2.8
    - 3rd Review Act. Status: 2.7
    - Proposed December 2019: 2.6
    - Proposed June 2020: 2.0
    - Proposed December 2020: 1.8
    - Program projection: 2.1
  - Inflation (upper bound, percent):
    - 3rd Review Projection: 4.8
    - 3rd Review Act. Status: 4.6
    - Proposed December 2019: 4.0
    - Proposed June 2020: 3.8
    - Proposed December 2020: 4.1
  - Inflation (lower bound, percent):
    - 3rd Review Projection: 0.8
    - 3rd Review Act. Status: 0.6
    - Proposed December 2019: 0.0
    - Proposed June 2020: -0.2
    - Proposed December 2020: 0.1
  - Inflation (upper inner-bound, percent):
    - 3rd Review Projection: 4.3
    - 3rd Review Act. Status: 4.1
    - Proposed December 2019: 3.5
    - Proposed June 2020: 3.3
    - Proposed December 2020: 3.6
  - Inflation (lower inner-bound, percent):
    - 3rd Review Projection: 1.3
    - 3rd Review Act. Status: 1.1
    - Proposed December 2019: 0.5
    - Proposed June 2020: 0.3
    - Proposed December 2020: 0.6
- Memorandum items:
  - Nominal public debt (millions of Seychelles Rupees, ceiling):
    - 3rd Review Projection: 13,301
    - 3rd Review Act. Status: 13,001
    - Proposed December 2019: 13,342
    - Proposed June 2020: 14,257
    - Proposed December 2020: 14,352
    - Program projection: 13,836
- Program accounting exchange rates (end-of-quarter):
  - SR/US$ (end-of-quarter): 14.02, 14.06, 14.06, 14.06
  - US$/Euro (end-of-quarter): 1.14, 1.10, 1.10, 1.10
  - US$/UK pound (end-of-quarter): 1.33, 1.22, 1.22, 1.22
  - US$/AUD (end-of-quarter): 0.71, 0.67, 0.67, 0.67
  - US$/CAD (end-of-quarter): 0.76, 0.75, 0.75, 0.75
  - US$/CNY (end-of-quarter): 0.15, 0.14, 0.14, 0.14
  - US$/SDR (end-of-quarter): 1.40, 1.37, 1.37, 1.37

### Continuous targets and safeguards
- Table 2 continuous targets (high-level obligations):
  - 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.
- Adjustment rules for the NIR floor:
  - The NIR floor will be adjusted upward (downward) by amounts by which external non-project loans and non-project cash grants exceed (fall short of) program assumptions.
  - Floors will be adjusted upwards (downwards) by amounts that external debt service payments fall short (exceed) program assumptions.
  - Floors will be adjusted upwards (downwards) by amounts that receipts from sales of Cable and Wireless Company in Seychelles exceed (fall short of) program assumptions.

### Reform targets under the PCI, 2019–20 (selected)
- Prior Action:
  - Submit a 2020 budget consistent with primary surplus target of 2.5 percent of GDP to National Assembly.
- State-Owned Enterprises (SOEs):
  - Submit the amendments on Public Enterprise Monitoring Committee (PEMC) Act to the Cabinet to strengthen enforcement power of PEMC. Timing: End September 2019 (4th review). Status: Met in November 2019.
  - Submit operational and governance assessments of Air Seychelles to the Cabinet. Timing: End December 2019 (5th review). Status: Not met. To be implemented in December 2019. Objective: Reduce the potential fiscal risks arising from Air Seychelles.
- Business environment:
  - Submit the policy paper on the draft amendments to the Companies Act and Insolvency Act to the Cabinet. Timing: End September 2020 (6th review). Objective: Improve Business environment.
- Financial sector stability and AML:
  - Submit to the Cabinet amendments to legal framework to implement a risk-based approach to supervision of banks and trusts and company service providers, consistent with the FATF standard. Timing: End-March 2020 (5th review). Objective: Reduce AML risks in financial and off-shore sectors.
  - Submit draft legislation for crisis management, bank resolution, and safety nets to the Cabinet. Timing: End-November 2020 (6th review), reset from end-March 2020. Objective: Buttress financial sector stability.
  - Complete transition to Basel II and adopt Basel III capital definition: Submit a policy framework paper for implementation of Basel II pillar 1 and Basel III capital definition to the Cabinet. Timing: End-December 2019 (5th review).
  - Submit a policy framework paper on Financial Stability Act to the Cabinet to assign macro prudential power to relevant institutions. Timing: End-December 2019 (5th review).
  - Submit amendments to the Cabinet to strengthen entity transparency (including on basic and beneficial ownership information and the establishment of a master registry of beneficial owners) in line with the FATF standard and the IMF’s capacity development recommendations. Timing: End-March 2020 (5th review). Status: This reform target is proposed to be revised.

### Technical Memorandum of Understanding (TMU) — definitions and reporting
- Net international reserves (NIR) definition for program monitoring:
  - NIR = 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 abroad, 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, or options) including those to the IMF.
- Calculation method:
  - For program monitoring purposes, 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 NIR 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.

### Definitions and continuous targets (selected)
- MPCC headline inflation definition:
  - Year-on-year rate of change of the Consumer Price Index (CPI), averaged for the past 12 months, as measured by Seychelles’ National Bureau of Statistics (NBS).
- MPCC consultation triggers:
  - If observed headline inflation falls outside the ±2 percentage point range around the mid-point of projected value for end-December 2019 and end-June 2020 test dates, authorities will complete a consultation with the Executive Board.
  - If observed headline inflation falls outside the ±1.5 percentage point range around the mid-point of projected value for end-December 2019 and end-June 2020 test dates, authorities will conduct discussions with Fund staff.
- Program consolidated government primary balance (cumulative floor) definition:
  - 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 overall stock of public debt (memorandum item) definition:
  - Public debt includes (i) central government debt; (ii) government guarantees; and (iii) obligation to the IMF. Defined as total outstanding gross debt liabilities measured at nominal value. Program exchange rate applies to all non-SCR denominated debt.
- External arrears continuous target:
  - No accumulation of arrears to external creditors. External payments arrears defined as external debt service due and not paid within the contractually agreed period, subject to any applicable grace period, including contractual and late interest. Arrears for which a clearance framework has been agreed or a rescheduling agreement is sought are excluded.

### Data and information reporting schedules (selected)
- 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.
- The CBS will report 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 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.
  - Consolidated creditors schedule on domestic expenditure arrears of the government.
- The Ministry of Finance will report quarterly (within one month from the end of the quarter):
  - Accounts of the public nonbank financial institutions.
- The National Bureau of Statistics will report monthly (within 10 days from the end of the month):
  - CPI headline inflation, by category.

*Source: IMF staff and Seychelles authorities (content unit: 1sycea2019004).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1sycea2019004.pdf_