## 1sycea2023001 - 34.35 million (about US$46 million)

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### Program purpose and access requests
- Cancellation request: authorities requested cancellation of the current EFF approved on July 29, 2021, and approval of a new Extended Fund Facility (EFF) to pivot toward deeper medium-term structural reforms.
- New EFF objectives:
  - Rebuild fiscal and external buffers.
  - Strengthen the monetary policy operating framework.
  - Advance reforms to boost inclusive growth and increase economic resilience.
- Staff proposal for EFF access: 185 percent of quota (SDR 42.365 million, or around US$57 million).
- RSF request and objectives:
  - Support climate-resilience by lifting bottlenecks to climate-related investments and integrating climate considerations into macroeconomic policies and frameworks.
  - Exploit synergies with other sources of public financing and help catalyze private financing for climate-related investments.
  - RSF reform focus areas: (i) enabling climate-smart infrastructure investment and fiscal management; (ii) financial sector resilience and climate finance mobilization; (iii) climate mitigation, adaptation, and disaster risk financing.
- Staff proposal for RSF access: 150 percent of quota (SDR 34.35 million, or around US$46 million).

### Performance under the 2021 EFF and recent program implementation
- Implementation outcomes:
  - Authorities “satisfactorily implemented policies to restore macroeconomic stability” amid multiple shocks including the COVID-19 pandemic.
  - All quantitative targets through end-December 2022 were met.
  - All but one structural benchmark were met or implemented with delay.
  - For the 4th review: all quantitative targets were met; four out of six structural benchmarks were met; one was implemented with delay.
- Attributed outcomes:
  - Supported post-pandemic growth.
  - Achieved substantial fiscal consolidation and debt sustainability.
  - Rapid decline in public debt and restoration of macroeconomic stability.

### Macroeconomic developments and outlook
- Growth and activity:
  - Tourism recovery: arrivals reached about 87 percent of pre-pandemic levels in 2022.
  - Real GDP growth: 9.0 percent in 2022; projected 4.3 percent in 2023, 4.1 percent in 2024, 3.9 percent in 2025, 3.8 percent in 2026, 3.9 percent in 2027, 3.6 percent in 2028.
  - Employment: overall employment increased by 8.4 percent in 2022; tourism-related industries employment rose by 19.1 percent.
- Inflation and monetary stance:
  - CPI (annual average): 9.8 percent in 2021; 2.6 percent in 2022; projected 1.4 percent in 2023, 2.0 percent in 2024, 3.5 percent in 2025–2028.
  - Year-over-year inflation as of March 2023: 0.9 percent.
  - Monetary policy rate: held at 2 percent since mid-2021; CBS maintained an accommodative stance while noting vigilance to inflationary pressures.
  - Exchange rate: SCR 13.68 per US$1 at end-March 2023 (from SCR 14.28 in March 2022); five-year pre-pandemic average SCR 13.66.
- External sector:
  - Current account deficit: estimated -7.6 percent of GDP in 2022; ESA estimates current account gap narrowed from -17.3 percent in 2020, to -7.7 percent in 2021 and -1.9 percent in 2022.
  - Gross international reserves (end-2022): US$639 million (3.6 months of imports), down from US$702 million in 2021.
  - Total external debt outstanding (millions of U.S. dollars): 5,391 in 2022; projected 5,584 in 2023, 5,791 in 2024, 5,994 in 2025, 6,111 in 2026, 6,191 in 2027, 6,050 in 2028.
  - External debt (percent of GDP): 293.2 in 2022; projected 285.0 in 2023, 279.0 in 2024, 269.8 in 2025, 257.2 in 2026, 243.4 in 2027, 223.0 in 2028.
  - Gross official reserves (end of year, millions of U.S. dollars): 639 in 2022; projected 655 in 2023, 700 in 2024, 787 in 2025, 824 in 2026, 847 in 2027, 858 in 2028.
  - Months of imports, c.i.f.: 3.6 in 2022; projected 3.4 in 2023, 3.5 in 2024, 3.8 in 2025–2027, 3.7 in 2028.
  - Reserves in percent of ARA metric: 100 in 2022; projected 100 in 2023, 102 in 2024, 112 in 2025, 115 in 2026, 117 in 2027, 115 in 2028.

### Fiscal outcomes, projections, and policy emphasis
- Fiscal performance (percent of GDP unless indicated):
  - Total revenue, excluding grants: 33.3 in 2020; 33.0 in 2021; 33.3 in 2022; projected 34.3 in 2023, 34.8 in 2024, 34.9 in 2025–2026, 34.7 in 2027, 34.6 in 2028.
  - Expenditure and net lending: 53.3 in 2020; 42.4 in 2021; 35.3 in 2022; projected 38.7 in 2023, 38.8 in 2024, 37.3 in 2025, 36.0 in 2026, 34.8 in 2027, 34.0 in 2028.
  - Current expenditure: 46.8 in 2020; 36.6 in 2021; 32.5 in 2022; projected 33.0 in 2023, 32.3 in 2024, 31.1 in 2025, 29.8 in 2026, 28.7 in 2027, 28.1 in 2028.
  - Capital expenditure: 4.8 in 2020; 5.7 in 2021; 2.7 in 2022; projected 5.2 in 2023, 6.3 in 2024, 6.4 in 2025, 6.2 in 2026–2027, 6.1 in 2028.
  - Overall balance, including grants: -19.0 in 2020; -6.0 in 2021; -1.6 in 2022; projected -2.9 in 2023, -2.5 in 2024, -1.4 in 2025, -0.2 in 2026, 0.8 in 2027, 1.3 in 2028.
  - Primary balance: -15.2 in 2020; -3.2 in 2021; 0.7 in 2022; projected -0.4 in 2023, 0.2 in 2024, 1.0 in 2025, 2.0 in 2026, 2.8 in 2027, 3.0 in 2028.
- Public debt:
  - Total government and government-guaranteed debt: 91.9 percent of GDP in 2020; 80.8 in 2021; 69.2 in 2022; projected 67.6 in 2023, 66.0 in 2024, 63.1 in 2025, 59.6 in 2026, 55.3 in 2027, 51.2 in 2028.
- Staff emphasis:
  - Fiscal consolidation through revenue gains, prudent spending, and improvements in Public Financial Management to reduce debt vulnerabilities and create fiscal space for priority spending including social spending and investment in climate change adaptation and mitigation.
  - Strengthen social protection targeting and invest in human capital to boost inclusive growth.

### Financial sector and governance priorities
- Financial stability and credit:
  - NPLs increased and need careful monitoring despite risks being “contained.”
  - Private credit growth in 2022: 5 percent (after contracting by 12 percent in 2021).
  - Average lending rate: 9.32 percent at end-2022 (increase of 30 basis points between end-2021 and end-2022).
  - 1-year T-bill yields: historical low of 1.01 percent at end-2021, increased by 119 basis points by end-2022.
  - Overall NPLs: 7.6 percent at end-2022 (up from 5.5 percent at end-2021).
  - Regulatory capital: around 20.3 percent of risk-weighted assets at end-2022.
  - Provisioning level: 20.7 percent of NPLs; collateral covers 70.3 percent of NPLs.
  - FX loan share: 24 percent of total loans.
- Governance and SOEs:
  - Continued reforms planned to improve public financial management and governance to support fiscal consolidation and public investment efficiency.
  - Transfers to state-owned enterprises reduced from 2.0 percent of GDP in 2020 to 0.16 percent forecasted for 2023.
  - Public Enterprise bill gazetted in October 2022; PEMC to publish Public Enterprises' Annual Report (structural benchmark end-June 2023).

### Climate adaptation, RSF specifics, and financing needs
- Climate financing needs and spending:
  - 2021 NDC estimates US$670 million needed between now and 2030 for climate adaptation and mitigation activities, equivalent to about 5 percent of GDP per year.
  - Current annual climate-related public spending: around 0.9 percent of GDP per year.
  - Authorities estimate investment needs of: US$331 million for mitigation; US$339 million for adaptation.
- RSF role and reform areas:
  - Mainstream climate change in the government budget.
  - Strengthen climate-related risk management for financial institutions.
  - Undertake climate adaptation and mitigation reforms, including measures to facilitate energy transition.
  - Catalyze further private financing and exploit synergies with other official financing.
- RSF reform pillars and selected Reform Measures (RMs):
  - Reform Area 1 — Enabling Climate-Smart Infrastructure Investment and Fiscal Management (e.g., integrate priority climate objectives into National Development Strategy; revise PIM policy; identify/report climate-related expenditures; conduct long-term fiscal sustainability analysis including climate risks).
  - Reform Area 2 — Financial Sector Resilience and Climate Finance Mobilization (e.g., initiate climate risk disclosure and reporting; implement climate stress testing; adopt a national climate finance mobilization strategy).
  - Reform Area 3 — Climate Mitigation, Adaptation and Disaster Risk Financing (e.g., operationalize Electricity Act mechanisms, adopt building legislation integrating climate aspects, adopt Disaster Risk Financing Strategy, introduce green fiscal incentives).

### Program design, financing, and monitoring
- Proposed EFF arrangement: 36-month arrangement under the EFF with semi-annual reviews.
- Financing, access, and use of funds:
  - EFF access proposed: 185 percent of quota (SDR 42.365 million, or around US$57 million) to be used as budget support.
  - RSF access proposed: 150 percent of quota (SDR 34.35 million, or around US$46 million).
  - EFF expected near-term impact: international reserves would rise to nearly 4 months of imports and catalyze financing from other sources including the World Bank and the AfDB (US$ 77 million in 2023).
- Disbursement and sequencing:
  - EFF disbursements scheduled across semi-annual reviews (detailed SDR schedule provided in program tables).
  - RSF disbursements split evenly among reform measures; reform measures phased (e.g., national climate finance mobilization strategy by September 2024; funding for at least one major adaptation/mitigation project by October 2025).
- Safeguards and capacity:
  - Update of the safeguards assessment of the CBS to be conducted ahead of completion of the first EFF and RSF reviews; last safeguards assessment completed in June 2021.
  - Authorities committed to submit to Cabinet by June 2023 amendments to the CBS Act (structural benchmark for end-June 2023).
  - Capacity development focus: DRM, PIMA priorities, monetary policy operational framework, and green PFM/climate-sensitive PIM practices.

### Social protection assessment and reforms
- Consolidated social protection spending: around 6.6 percent of GDP in 2022.
- Composition and key statistics (shares of GDP):
  - Social pensions: around 3.6 percent of GDP.
  - Home Care Scheme: 1.1 percent of GDP.
  - Disability benefits: 0.5 percent of GDP.
  - Invalidity benefits: 0.4 percent of GDP.
  - Temporary financial support during COVID-19 (including utility and electricity subsidies): 0.2 percent of GDP (set to end in March 2023).
- Coverage and targeting:
  - Gaps in coverage of the most vulnerable; Home Care Scheme reaches around 12 percent of the population.
  - Planned reforms: create a social registry by end-March 2024 to improve targeting; professionalize home caregiving via the home care agency.
- Pension reform:
  - Retirement age increased from 63 to 65 years in January 2023.

### Public investment management, PFM and digitalization priorities
- Public Investment Management (PIM):
  - Implement January 2023 PIMA recommendations to improve investment execution.
  - Draft action plan for PIMA recommendations expected to be adopted by Cabinet by end-September (structural benchmark).
  - Public Investment Management Policy review by end-June 2023.
  - Reliable database of appraised projects aimed by end-2024.
- PFM and digitalization:
  - Install new Integrated Financial Management Information System (IFMIS) by January 2025.
  - Cash Flow Unit (CFU) to be staffed by end of May 2023; improve consolidated cash flow forecasting.
  - Digitalization projects: new Human Resource Management System, Agency of Social Protection system; SR 421.61 million medium-term allocation for digitalization projects.
- Expenditure and wage bill:
  - Wage bill will increase in 2023 due to salary adjustments and 13th-month bonus; wage bill represents about 39 percent of tax revenue in 2023.
  - Authorities expect wage bill to decline by 0.9 percentage point of GDP over the program period through modernization and digitalization.

### Debt sustainability, baseline trajectory and risks
- Baseline public debt trajectory (percent of GDP): 69.2 (2022), 67.6 (2023), 66.0 (2024), 63.1 (2025), 59.6 (2026), 55.3 (2027), 51.2 (2028), 50.1 (2029), 50.0 (2030).
- Staff projection: debt-to-GDP ratio decline from 69.2 percent at end-2022 to 60.9 percent at end-2026 (end of the program); authorities aim to reach about 50 percent by 2029 by gradually increasing the primary balance to 3 percent of GDP over the medium term.
- DSA assessment:
  - Overall risk of sovereign stress: Moderate.
  - DSA summary assessment: Sustainable with high probability.
  - Public debt declined by over 20 percent of GDP from 89.5 percent of GDP in 2020 to 69.2 percent in 2022.
- Debt composition highlights (2022):
  - Total debt stock (US$ million): 1,215.2 (2022); nominal GDP: 1,838.9 (US$ million).
  - External: 575.5 (2022); Domestic: 639.7 (2022).
  - Multilateral creditors total: 389.1 (2022).
  - Bonds: 74.1 (2022); Commercial creditors: 31.0 (2022).

### Key program risks and recommended policy responses
- Conjunctural and structural risks:
  - Intensification of regional conflict(s) — Relative Likelihood: High; Expected Impact: High.
  - Abrupt global slowdown or recession — Relative Likelihood: Medium; Expected Impact: High.
  - Commodity price volatility — Relative Likelihood: Medium; Expected Impact: Medium.
  - Higher NPL levels in the banking sector — Relative Likelihood: Medium; Expected Impact: Medium.
  - Limited access to external grants due to high-income status — Relative Likelihood: Medium; Expected Impact: Medium.
  - Extreme climate events — Relative Likelihood: Medium; Expected Impact: Medium.
- Recommended policy responses:
  - Maintain a flexible exchange rate while increasing external buffers.
  - Continue fiscal consolidation via revenue gains and prudent spending to keep debt-to-GDP on a downward trajectory.
  - Boost investment in critical infrastructure, including climate-related infrastructure.
  - Improve targeting and efficiency of social spending.
  - Strengthen monetary policy implementation (drain excess liquidity, re-operationalize repo instrument).
  - Strengthen financial system resilience: follow-up CBS stress test on NPLs; prepare Financial Stability Bill and Bank Recovery and Resolution Bill.
  - Use RSF to catalyze private financing and exploit synergies with other development partner financing.

### Monitoring, reporting and program conditionality highlights
- Program monitoring instruments:
  - Quantitative performance criteria (QPCs), indicative targets (ITs), continuous performance criteria, and structural benchmarks (timing detailed in MEFP/TMU).
  - First review set for December 2023 (end-June 2023 QPCs); subsequent reviews semi-annually.
- Reporting requirements:
  - CBS will provide weekly and monthly monetary and reserves data; Ministry of Finance to provide monthly consolidated government operations and public debt reports.
  - Net domestic financing (NDF), primary balance, NIR and other key aggregates defined and subject to adjustors as specified in the MEFP.
- Safeguards and audits:
  - Semiannual audit of NIR data by CBS internal audit at each test date; update safeguards assessment ahead of first reviews.

### Select key single figures and projections (select)
- SDR access proposed under EFF: SDR 42.365 million.
- SDR access proposed under RSF: SDR 34.35 million.
- RSF SDR amount in USD equivalent: about US$46 million.
- EFF SDR amount in USD equivalent: around US$57 million.
- Nominal GDP (millions of Seychelles rupees): 27,666 in 2023; 29,309 in 2024; 31,366 in 2025; 33,554 in 2026; 35,909 in 2027; 38,317 in 2028.
- Real GDP (millions of Seychelles rupees): 23,952 in 2023; 24,943 in 2024; 25,908 in 2025; 26,901 in 2026; 27,942 in 2027; 28,948 in 2028.
- Real GDP growth rates: -7.7 in 2020; 5.4 in 2021; 9.0 in 2022; 4.3 in 2023; 4.1 in 2024; 3.9 in 2025; 3.8 in 2026; 3.9 in 2027; 3.6 in 2028.
- Gross official reserves (US$ millions): 575 in 2020; 702 in 2021; 639 in 2022.

*Source: 1sycea2023001 - 34.35 million (about US$46 million).*

### 34.35 million (about US$46 million).

### 1sycea2023001 - 34.35 million (about US$46 million)

### Program purpose and requests
- Cancellation request: Authorities requested cancellation of the current EFF approved on July 29, 2021, and approval of a new Extended Fund Facility (EFF) to pivot toward deeper medium-term structural reforms.
- New EFF objectives:
  - Rebuild fiscal and external buffers.
  - Strengthen the monetary policy operating framework.
  - Advance reforms to boost inclusive growth and increase economic resilience.
- Staff proposal for EFF access: 185 percent of quota (SDR 42.365 million, or around US$57 million).
- RSF request and objectives:
  - Support climate-resilience by lifting bottlenecks to climate-related investments and integrating climate considerations into macroeconomic policies and frameworks.
  - Exploit synergies with other sources of public financing and help catalyze private financing for climate-related investments.
  - RSF reform focus areas: (i) enabling climate-smart infrastructure investment and fiscal management; (ii) financial sector resilience and climate finance mobilization; (iii) climate mitigation, adaptation, and disaster risk financing.
- Staff proposal for RSF access: 150 percent of quota (SDR 34.35 million, or around US$46 million).

### Performance under the 2021 EFF and recent program implementation
- Under the 2021 EFF arrangement:
  - Authorities “satisfactorily implemented policies to restore macroeconomic stability” amid multiple shocks including the COVID-19 pandemic.
  - All quantitative targets through end-December 2022 were met.
  - All but one structural benchmark were met or implemented with delay.
  - For the 4th review: all quantitative targets were met; four out of six structural benchmarks were met; one was implemented with delay.
- Outcomes attributed to the EFF policies:
  - Supported post-pandemic growth.
  - Achieved substantial fiscal consolidation and debt sustainability.
  - Rapid decline in public debt and restoration of macroeconomic stability.

### Macroeconomic developments and outlook
- Growth and activity:
  - Tourism recovery: arrivals reached about 87 percent of pre-pandemic levels in 2022.
  - Real GDP growth: 9.0 percent in 2022; projected 4.3 percent in 2023, 4.1 percent in 2024, 3.9 percent in 2025, 3.8 percent in 2026, 3.9 percent in 2027, 3.6 percent in 2028.
  - Employment: overall employment increased by 8.4 percent in 2022; tourism-related industries employment rose by 19.1 percent.
- Inflation and monetary stance:
  - CPI (annual average): 9.8 percent in 2021; 2.6 percent in 2022; projected 1.4 percent in 2023, 2.0 percent in 2024, 3.5 percent in 2025–2028.
  - Year-over-year inflation as of March 2023: 0.9 percent.
  - Monetary policy rate: held at 2 percent since mid-2021; CBS maintained an accommodative stance while noting vigilance to inflationary pressures.
  - Exchange rate: SCR 13.68 per US$1 at end-March 2023 (from SCR 14.28 in March 2022); five-year pre-pandemic average SCR 13.66.
- External sector:
  - Current account deficit: estimated -7.6 percent of GDP in 2022; ESA estimates current account gap narrowed from -17.3 percent in 2020, to -7.7 percent in 2021 and -1.9 percent in 2022.
  - Gross international reserves (end-2022): US$639 million (3.6 months of imports), down from US$702 million in 2021.
  - Total external debt outstanding (millions of U.S. dollars): 5,391 in 2022; projected 5,584 in 2023, 5,791 in 2024, 5,994 in 2025, 6,111 in 2026, 6,191 in 2027, 6,050 in 2028.
  - External debt (percent of GDP): 293.2 in 2022; projected 285.0 in 2023, 279.0 in 2024, 269.8 in 2025, 257.2 in 2026, 243.4 in 2027, 223.0 in 2028.
  - Gross official reserves (end of year, millions of U.S. dollars): 639 in 2022; projected 655 in 2023, 700 in 2024, 787 in 2025, 824 in 2026, 847 in 2027, 858 in 2028.
  - Months of imports, c.i.f.: 3.6 in 2022; projected 3.4 in 2023, 3.5 in 2024, 3.8 in 2025–2027, 3.7 in 2028.
  - Reserves in percent of ARA metric: 100 in 2022; projected 100 in 2023, 102 in 2024, 112 in 2025, 115 in 2026, 117 in 2027, 115 in 2028.

### Fiscal outcomes and projections
- Fiscal performance:
  - Total revenue, excluding grants: 33.3 percent of GDP in 2020; 33.0 in 2021; 33.3 in 2022; projected 34.3 in 2023, 34.8 in 2024, 34.9 in 2025–2026, 34.7 in 2027, 34.6 in 2028.
  - Expenditure and net lending: 53.3 percent of GDP in 2020; 42.4 in 2021; 35.3 in 2022; projected 38.7 in 2023, 38.8 in 2024, 37.3 in 2025, 36.0 in 2026, 34.8 in 2027, 34.0 in 2028.
  - Current expenditure: 46.8 percent of GDP in 2020; 36.6 in 2021; 32.5 in 2022; projected 33.0 in 2023, 32.3 in 2024, 31.1 in 2025, 29.8 in 2026, 28.7 in 2027, 28.1 in 2028.
  - Capital expenditure: 4.8 percent of GDP in 2020; 5.7 in 2021; 2.7 in 2022; projected 5.2 in 2023, 6.3 in 2024, 6.4 in 2025, 6.2 in 2026–2027, 6.1 in 2028.
  - Overall balance, including grants: -19.0 percent of GDP in 2020; -6.0 in 2021; -1.6 in 2022; projected -2.9 in 2023, -2.5 in 2024, -1.4 in 2025, -0.2 in 2026, 0.8 in 2027, 1.3 in 2028.
  - Primary balance: -15.2 percent of GDP in 2020; -3.2 in 2021; 0.7 in 2022; projected -0.4 in 2023, 0.2 in 2024, 1.0 in 2025, 2.0 in 2026, 2.8 in 2027, 3.0 in 2028.
- Public debt:
  - Total government and government-guaranteed debt: 91.9 percent of GDP in 2020; 80.8 in 2021; 69.2 in 2022; projected 67.6 in 2023, 66.0 in 2024, 63.1 in 2025, 59.6 in 2026, 55.3 in 2027, 51.2 in 2028.
- Staff emphasis on fiscal policy:
  - Fiscal consolidation through revenue gains, prudent spending, and improvements in Public Financial Management to reduce debt vulnerabilities and create fiscal space for priority spending including social spending and investment in climate change adaptation and mitigation.
  - Strengthen social protection targeting and invest in human capital to boost inclusive growth.

### Financial sector and governance priorities
- Financial stability:
  - NPLs increased and need careful monitoring despite risks being “contained.”
  - Planned reforms to improve monetary policy implementation framework and strengthen resilience of the financial system.
  - RSF emphasis on strengthening climate-related risk management for financial institutions.
- Governance and SOEs:
  - Continued reforms planned to improve public financial management and governance to support fiscal consolidation and public investment efficiency.

### Climate adaptation, RSF specifics, and financing needs
- Climate financing needs:
  - 2021 Nationally Determined Contribution (NDC) estimates US$670 million needed between now and 2030 for climate adaptation and mitigation activities, equivalent to about 5 percent of GDP per year.
- RSF role:
  - Mainstream climate change in the government budget.
  - Strengthen climate-related risk management for financial institutions.
  - Undertake climate adaptation and mitigation reforms, including measures to facilitate energy transition.
  - Catalyze further private financing and exploit synergies with other official financing.

### Key single figures and projections (select)
- SDR access proposed under EFF: SDR 42.365 million.
- SDR access proposed under RSF: SDR 34.35 million.
- RSF SDR amount in USD equivalent: about US$46 million.
- EFF SDR amount in USD equivalent: around US$57 million.
- Nominal GDP (millions of Seychelles rupees): 27,666 in 2023; 29,309 in 2024; 31,366 in 2025; 33,554 in 2026; 35,909 in 2027; 38,317 in 2028.
- Real GDP (millions of Seychelles rupees): 23,952 in 2023; 24,943 in 2024; 25,908 in 2025; 26,901 in 2026; 27,942 in 2027; 28,948 in 2028.
- Real GDP growth rates: -7.7 in 2020; 5.4 in 2021; 9.0 in 2022; 4.3 in 2023; 4.1 in 2024; 3.9 in 2025; 3.8 in 2026; 3.9 in 2027; 3.6 in 2028.
- Gross official reserves (US$ millions): 575 in 2020; 702 in 2021; 639 in 2022.

*Source: 1sycea2023001 - 34.35 million (about US$46 million).*

### 7. Budget under-execution led to an unexpected primary surplus in 2022, and the

### 7. Budget under-execution led to an unexpected primary surplus in 2022, and the

### Fiscal outcomes in 2022 and public debt
- Primary fiscal balance in 2022: surplus of 0.7 percent of GDP (vs. projected deficit of 1.1 percent of GDP at the time of the 3rd review of the current EFF).
- Main drivers of overperformance:
  - Under-execution of domestically financed capital projects: -1.5 percent of GDP.
  - Current expenditures below projections: 1.4 percent of GDP (due to recruiting difficulties and under-execution of various programs).
- Revenue and grants grew by 10 percent year over year; however, this was lower than projected at the last review due to:
  - Business tax receipts: 16.4 percent lower year over year at end-December 2022 (large tax refunds were needed to correct earlier 2022 tax assessments based on inflated 2021 collections).
  - Excise taxes underperformed mainly due to higher duty-free sales for alcohol and tobacco.
  - VAT growth: 27.5 percent year-over-year between 2021 and 2022, but slightly lower than projected due to higher-than-expected refunds.
  - Grants: 0.3 percent of GDP lower than planned due to associated delays in capital projects.
- Debt dynamics:
  - Debt-to-GDP ratio at end-2022: 69.2 percent (a 11.6 percentage points reduction since end-2021).
  - Contribution to decline: GDP recovery contributed -6.7 percent of GDP to the decline.

### Monetary policy and inflation considerations
- Monetary stance described as accommodative and appropriate given expected benign inflation and nascent recovery in private credit growth.
- Authorities committed to adjust policy if inflationary pressures emerge.
- Inflation drivers and risks emphasized:
  - External sector developments that impact the exchange rate.
  - Higher global commodity prices.
  - Weakening of the currency.
  - Potential impact on prices and private sector wages of the impending public sector wage increase.

### Banking system, credit, and financial stability
- Credit growth:
  - Private credit growth in 2022: 5 percent (after contracting by 12 percent in 2021).
  - Drivers: turnaround in private households, continued buoyant mortgage growth, slowdown in credit contraction to local tourism establishments.
  - Average lending rate: 9.32 percent at end-2022 (increase of 30 basis points between end-2021 and end-2022).
  - 1-year T-bill yields: historical low of 1.01 percent at end-2021, increased by 119 basis points by end-2022.
- Non-performing loans (NPLs) and capitalization:
  - Overall NPLs: 7.6 percent at end-2022 (up from 5.5 percent at end-2021), mainly due to unwinding of pandemic-related forbearance measures in February 2022.
  - Increase concentrated in one bank under close monitoring by CBS.
  - Regulatory capital: around 20.3 percent of risk-weighted assets at end-2022.
  - Provisioning level: 20.7 percent of NPLs (low, mainly due to reliance on collateral: 70.3 percent of NPLs).
  - FX loan share: 24 percent of total loans; FX loan repayments usually based on FX income or FX deposits (natural hedges in absence of derivative markets).
- Structural vulnerabilities:
  - Small tourism-dominant economy with structural exposure to high credit risks from large exposures and concentration risks.
  - Industry averages mentioned: large exposure to credit 89 percent of core capital; credit concentration 47 percent of core capital (based on CBS guidelines).

### Program performance under the current EFF
- Quantitative and structural progress:
  - All end-December 2022 quantitative performance criteria (QPCs) and indicative targets (ITs) were met.
  - Four out of six structural benchmarks (SBs) have been met; one implemented with delay.
  - Published new debt management strategy: December 2022 (inserted in 2023 budget document) (SB end-December 2022).
  - Government securities trading framework plan published April 2023 (SB end-March 2023).
  - SB on ring-fencing ground handling operations of Air Seychelles not implemented due to processing time for registration and asset transfer (SB end-December 2022).

### Outlook and risks (short- and medium-term)
- Growth and inflation projections:
  - Real GDP growth expected to moderate to 4.3 percent in 2023.
  - Growth in accommodation and food service industry anticipated: 3 percent increase in 2023.
  - Overall GDP growth projected at around 3.6 percent over the medium term.
  - Headline CPI projected to rise by 1.4 percent (annual average) in 2023 (reflecting projected reduction of electricity prices).
- External sector and reserves:
  - Current account deficit expected to widen to 9.5 percent of GDP in 2023 (recovery in tourism slows and imports rise reflecting rebound in capital investments).
  - FX reserves projected: 3.4 months of imports at end-2023; increase gradually to 3.7 months of imports by 2028.
- Credit outlook:
  - Overall credit growth expected to accelerate to 7.3 percent in 2023.
  - Foreign currency credit may remain weak due to rising lending rates from global tightening and more risk-averse borrowers after exchange rate volatility.
- Tourism and services:
  - Exports of services benefited from rebound in tourism earnings in late 2021 and early 2022 (high-spending tourists, including Russian tourists).
  - Average spending per tourist was significantly lower during the first two months of 2023 compared to same period of 2022:
    - Lower spending attributed to weakening of the euro and shift in tourist demographics back to traditional European markets with more contained spending.
    - Projected 5 percent increase in total number of arrivals in 2023; however, lower spending per arrival (about 13 percent lower than in 2022) expected to result in lower tourism earnings in 2023.
  - Government will seek development partner support for a study on the tourism sector’s impact on the overall economy:
    - Terms of reference to be finalized by end-June 2023; aim to complete the study by June 2024 (structural benchmarks).
- Downside risks:
  - Susceptibility to external shocks (regional conflicts, abrupt global slowdown/recession) that can severely affect tourism and growth.
  - Retrenchment of tourism FX inflows could trigger sharp rupee weakening with high pass-through to inflation.
  - Weaker prospects for external grants due to high-income status may limit financing options and weaken the balance of payments.
  - Domestic financial stability risks from further NPL increases given high large exposures and credit concentration.
  - Vulnerability to sea level rises due to climate change, affecting coastal infrastructure and tourism development.
- Recommended policy stances if risks materialize:
  - Maintain a flexible exchange rate while increasing external buffers.
  - Consider targeted support based on available policy space and contingency planning.

### Program design and objectives (New EFF arrangement)
- Overall program focus:
  - Address underlying structural challenges to strengthen resilience to shocks and promote more sustainable and inclusive growth.
  - Main aims: (i) boost medium-term growth while protecting the most vulnerable (higher investment and social spending), (ii) create fiscal space and rebuild fiscal buffers to safeguard debt sustainability, and (iii) strengthen monetary policy operating framework and preserve financial stability.
- Fiscal policy anchor and debt target:
  - Fiscal policy anchored by the primary fiscal balance.
  - Medium-term objective: rebuild policy buffers by gradually reducing public debt to 50 percent of GDP.
  - Program envisages fiscal consolidation of about 2.3 percentage points of GDP (revenue and expenditure efforts) while boosting capital investment and protecting social spending.
  - 2023 projection: small primary deficit of 0.4 percent of GDP (delayed recovery in public investment; 10 percent increase in public sector salaries).
  - Fiscal path projected to return to surplus in 2024.
  - Debt-to-GDP ratio projection: decline from 69.2 percent at end-2022 to 60.9 percent at end-2026 (end of the program).
  - Authorities aim to reduce debt-to-GDP ratio to about 50 percent by 2029 by gradually increasing the primary balance to 3 percent of GDP over the medium term.
  - Fiscal consolidation emphasis: efficiency gains (modernization of public administration and digitalization) rather than spending cuts; higher capital expenditure envisaged to support growth.

### Revenue measures and tax policy
- Revenue targets and measures:
  - Aim to bring tax-to-GDP ratio back to pre-pandemic level: about 31.5 percent of GDP over the program period.
  - New tourism turnover taxes (to limit transfer pricing): additional revenue of 0.5 percent of GDP per year.
  - Nightly environmental charge for tourists (planned for second half of year): about $5 per room/night; should yield 0.2 percent of GDP annually.
  - New securities dealer’s business tax: expected to add 0.8 percent of GDP in 2023 and 1.3 percent of GDP in 2024.
  - Doubling of property tax rates: expected to add 0.1 percent of GDP to revenues from 2024.
  - Medium-term tax-to-GDP ratio target: 31.6 percent in 2026, supported by:
    - Streamlined VAT exemptions (notably for digital services) with prospective amendments to the VAT law by December 2023 (structural benchmark).
    - Higher business and excise tax collections helped by ongoing digitalization agenda.

### Strengthening tax and customs administration
- Transparency and anti-evasion measures:
  - Disclosure of budgeted tax expenditure as part of the 2024 annual budget exercise (structural benchmark for end-October 2023).
  - Business Tax Act amended December 2022; implementation regulations for transfer pricing being finalized with World Bank support (MEFP paragraph 14) to enhance enforcement of the “arms’ length” principle.
- Customs administration reforms:
  - Implementation of the Compliance Improvement Plan to enhance risk-based compliance at the Seychelles Revenue Commission (SRC).
  - Upgrades to the Automated System for Customs Data with new modules (Excise Warehouses, E-Payment, E-Government, Single Window, Express Courier, E-Manifest for Courier) to improve custom clearance, payments, risk management targeting, data sharing and transparency across government institutions (structural benchmark for end-September 2023).

### Expenditure, public investment, and PFM reforms
- Current primary expenditure and wage bill:
  - Current primary expenditure will increase in 2023 but projected to decline by 3 percentage points of GDP over the medium term due to modernization of public administration.
  - Wage bill changes:
    - Wage bill will increase in 2023 due to reintroduction of a performance-based 13th-month bonus and reallocation of cleaning services from goods and services.
    - Wage bill represents about 39 percent of tax revenue in 2023.
    - Authorities plan to modernize public administration to improve efficiency and lower wage-to-tax revenue ratio (MEFP para 15).
    - Natural attrition and digitalization expected to contain the wage bill, which will decline by 0.9 percentage point of GDP over the program period.
  - Goods and services will increase in near term (reclassification of some social programs and digitalization), then decline over medium term.
- Public investment scaling and efficiency:
  - Public investment increase relative to 2022: by 2.4 percentage points of GDP in 2023 and by 3.4-3.6 percentage points of GDP over the medium term.
  - Near-term projects: social housing, renovation of Department of Internal Affair infrastructure, new hospital on Mahe.
  - Medium-term: additional investment in critical infrastructure, including climate-related projects.
  - Reforms to improve PIM efficiency and resilience:
    - Implement January 2023 PIMA recommendations to improve investment execution (better project selection and appraisal).
    - Draft action plan for PIMA recommendations expected to be adopted by Cabinet by end-September (structural benchmark).
    - Review of the Public Investment Management Policy by end-June 2023.
    - Reliable database of appraised projects aimed by end-2024 (MEFP ¶ 39).
    - Seek World Bank assistance to review Public Financial Management and Procurement Act and establish PPP framework for climate-related investments (structural benchmark for end-March 2025).
- PFM and digitalization initiatives:
  - AFRITAC South to assist with capacity and alignment of Medium-Term Debt Strategy and National Development Strategy.
  - World Bank assisting with public expenditure review in 2023 (education and health sectors).
  - Planned digitalization: new Integrated Financial Management Information System, new Human Resource Management System, new system for the Agency of Social Protection (ASP) to improve processes and tracking of public finances.

*IMF staff summary based on the provided content.*

### 22. The consolidated level of spending on social protection appears adequate, but

### 22. The consolidated level of spending on social protection appears adequate, but 

### Overview
- Government spending on social protection is spread across budget lines and is evaluated at around 6.6 percent of GDP in 2022.
- This level is compared with International Labour Organization estimates: 7.3 percent of GDP for Asia and the Pacific (public social protection expenditure excluding health) and 3.4 percent of GDP for Africa.
- There are gaps in coverage of the most vulnerable population and targeting of social programs should be improved.

### Coverage, targeting, and vulnerabilities
- Gaps identified in coverage of the most vulnerable in Seychelles; targeting needs improvement.
- Home Care Scheme accrues to around 12 percent of the population (MEFP ¶ 33).
- Substance abuse identified as a longstanding health and social issue; in 2021 the Agency for the Prevention of Drug Abuse and Rehabilitation (Apdar) was integrated into the Ministry of Health to streamline treatments and programs.
- The World Bank is helping the authorities undertake an assessment of social spending and targeting; results will inform the authorities’ approach going forward.

### Planned reforms and measures
- Authorities plan to create a social registry by end-March 2024 to better understand the profile of beneficiaries and to improve targeting.
- Home care agency was recently created to encourage the professionalization of care giving and to improve the efficiency of the Home Care Scheme; management, monitoring, and provision of training for home care givers is now managed by the new home care agency and accounted under wages and salaries and goods and services in the budget.
- Pension sustainability measure: retirement age increased from 63 to 65 years in January 2023.
- Health sector integration measure: Apdar integrated into the Ministry of Health in 2021 to streamline treatments and programs addressing substance abuse.

### Social protection composition and key statistics (Box 1)
- Social protection assessed across budget lines including goods and services and capital projects; broadly summarized categories and reported shares of GDP:
  - Social pensions: around 3.6 percent of GDP (retirement benefits; retirement age changed to 65 years).
  - Home Care Scheme: 1.1 percent of GDP (long-term care at home for the elderly and persons with reduced functional capacity).
  - Disability benefits: 0.5 percent of GDP.
  - Invalidity benefits: 0.4 percent of GDP.
  - Foster care scheme, maternity, funeral, orphans, survivors and injury benefits: total of 0.15 percent of GDP.
  - Children Special Fund: 0.02 percent of GDP.
  - Employment reskilling programs, apprentice and youth employment scheme: 0.06 percent of GDP (budget allocation remains very low).
  - Transport fee waivers: 0.24 percent of GDP.
  - Post-Secondary Student Bursary: 0.08 percent of GDP.
  - Housing subsidies and allowances: 0.08 percent of GDP.
  - Temporary financial support during COVID-19 pandemic (including utility and electricity subsidies): 0.2 percent of GDP (set to end in March 2023).
- School feeding programs: primary students receive free breakfast and lunch; secondary students receive free breakfast. Presently 834 primary pupils and 367 secondary pupils receive this assistance.
- Social housing continues to be provided under capital investments.

### Policy implications and recommendations (implied by assessment)
- Improve targeting of social programs through creation and use of a social registry (deadline end-March 2024).
- Enhance professionalization and efficiency of home-based long-term care via the home care agency (management, monitoring, and training).
- Continue measures to improve pension sustainability (retirement age change to 65 years as of January 2023).
- Strengthen integration of substance abuse treatment and programs within the Ministry of Health (Apdar integration in 2021).
- Use forthcoming World Bank assessment of social spending and targeting to guide policy adjustments and resource allocation.

*Source: 1sycea2023001 - 22. The consolidated level of spending on social protection appears adequate, but*

### 37. The authorities are taking steps to increase private investment and promote medium-

### 1sycea2023001 - 37. The authorities are taking steps to increase private investment and promote medium-

### Medium-term development plan and private investment
- The government is drafting the National Development Plan (2023-2027).
- Priority areas under the plan include:
  - modernization of public service
  - a transformative economy agenda (including for tourism, agriculture and fisheries)
  - improving public health
  - a modernization of the education system to meet needs
  - climate change resilience
- The National Strategy emphasizes enhancing value-addition and diversification within the targeted sectors and promoting digitalization of the economy, with particular emphasis on modernization of public service systems and digital banking.
- Detailed policies to implement the strategy will be discussed with Fund staff once finalized by the authorities.

### Boosting potential growth and inclusion
- Further efforts are needed to lift potential growth and strengthen inclusion, building on measures undertaken during the current EFF.
- Proposed policies under the new program align broadly with the authorities’ medium-term development plan under preparation and cut across:
  - fiscal policy (investment level and increased efficiency and a floor on social spending)
  - the financial sector (credit to the private sector)
  - modernization of public administration
  - improving the contributions of the tourism sector to the economy
- Specific planned reforms and actions:
  - improve efficiency and user-friendliness of digital payments platforms for government transactions (MEFP ¶ 11)
  - streamline bureaucratic processes and pursue digitalization to encourage new investors and improve access to services (MEFP ¶ 18)
  - make digital skills compulsory for all students at all levels of education through national curriculum reforms (MEFP ¶ 19)
  - invest in human capital to address skills shortages to support inclusive growth (¶ 22)
  - finalize a study by end-June 2024 to better determine tourism spillovers and inform policies to support local businesses in tourism activities

### Climate change vulnerabilities and national response
- Major climate risks identified for Seychelles:
  - rising temperatures
  - increased intensity and frequency of storms and heavy rainfalls
  - water shortages
  - coral bleaching
  - sea-level rise leading to coastal erosion and saltwater intrusion
- Impacts on tourism and infrastructure:
  - potential decrease in tourism arrivals
  - risks to coastal infrastructure and reduction of available coastal areas for tourism development
- Seychelles has placed climate change adaptation at the center of its sustainable development strategy and is integrating efforts with multilateral institutions.

### Climate mitigation, adaptation achievements and financing
- Notable climate-related actions and instruments:
  - Seychelles secured private financial support for the Seychelles Conservation and Climate Adaptation Trust.
  - Issued the world’s first sovereign Blue Bond in 2019 and raised US$15 million to finance the sustainable use of marine resources.
  - Progress toward GHG emissions reduction primarily via transition to renewable energy and electric vehicles; exploring Blue Carbon initiatives.
- International climate fund engagement:
  - Green Climate Fund (GCF): supporting 4 regional projects with a total share of US$23.4 million going to Seychelles to support climate resilience and renewable energy.
  - Global Environmental Facility (GEF): 10 active national projects with Seychelles amounting to US$30.3 million of financial support.
- National targets (from updated NDC submitted in 2021):
  - greenhouse gas emission reduction target of 26.4 percent below a business-as-usual emission level by 2030
  - net-zero emission target by 2050

### Climate financing gap and investment needs
- Current annual climate-related public spending: around 0.9 percent of GDP per year.
- Estimated needs: approximately 5 percent of GDP per year.
- Authorities estimate investment needs of:
  - US$331 million for mitigation
  - US$339 million for adaptation
- Implications:
  - climate financing gap is large and contributes to slow implementation of some initiatives
  - climate change adaptation and mitigation will require larger gross financing needs and result in higher public debt over the long run (long-term debt assessment under the DSA)
  - limited financial resources, capacity constraints and policy bottlenecks identified in the 2023 Climate PIMA are slowing implementation

### RSF objectives and focus areas
- The RSF will support outcome-oriented reforms to catalyze finance flows for climate adaptation, mitigation, and transition and exploit synergies across partners.
- Three focal areas for the RSF:
  1. enabling climate-responsive infrastructure investment and fiscal management
  2. building financial sector resilience and mobilizing climate finance
  3. implementing climate mitigation and adaptation policy and disaster risk financing
- Expected RSF contributions:
  - establish a climate finance mobilization framework to unlock public and private finance
  - better manage climate-related risks in the financial sector to support scaling up private climate finance
  - strengthen enabling institutions to promote climate investments and enhance climate-spending efficiency
  - promote private sector climate-related investments
  - work in synergy with programs from other Development Partners to help catalyze private finance

### Diagnostics informing reform measures
- Key diagnostics and inputs:
  - January 2023 PIMA and Climate PIMA (C-PIMA)
  - 2017 Climate Change Policy Assessment (CCPA)
  - 2021 NDC
- Identified critical reform areas:
  - Climate Resilient Infrastructure Investment:
    - climate considerations not adequately integrated into national/sectoral investment planning
    - gaps in appraisal, selection, and budgeting reflecting NDCs
    - need to incorporate fiscal risks from climate change and natural disasters into fiscal risk management
  - Climate Financing and Risk Management:
    - financial sector preparedness to manage climate-related risks is inadequate
    - absence of mechanism for collecting/reporting banks’ lending exposure to climate-related risks
    - government has used innovative instruments (Blue Bond, debt-for-nature swap) but lacks an overarching strategy to deploy alternative financing instruments at scale
  - Mitigation, Adaptation and Disaster Financing:
    - need for rapid expansion of renewable energy investment with private sector role (utility and small-scale)
    - requirement for fiscal policy and operational frameworks to facilitate mitigation investments
    - absence of institutional framework and guidelines for transition to renewable energy
    - need to make building sector green and resilient and to adopt a national disaster risk financing framework

### RSF reform areas and specific reform measures (RMs)
- Reform Area 1: Enabling Climate-Smart Infrastructure Investment and Fiscal Management
  - integrate priority climate adaptation and mitigation objectives in the National Development Strategy 2023-2027 (RM1)
  - identify/report climate-related expenditures and conduct a quantitative long-term fiscal sustainability analysis including climate risks as part of the FY2025 budget process (RM4)
  - revise PIM policy to include methodologies that incorporate climate-related issues in project selection criteria and project appraisals, apply to at least two major infrastructure projects by September-2024 and to all new major infrastructure projects going forward (RM3)
  - implement core PIMA recommendations concurrently (e.g., enforce PIM Policy appraisal information, review thresholds, develop database of appraised projects)
- Reform Area 2: Financial Sector Resilience and Climate Finance Mobilization
  - initiate climate risk disclosure: issue guidelines, establish data repository and reporting template, and publish disclosure reports of at least two major commercial banks (RM6)
  - implement climate stress testing for the overall financial system based on a macro-prudential approach (RM9)
  - adopt a national climate finance mobilization strategy considering different financing instruments and develop a robust pipeline of climate investment projects (RM5)
  - establish an implementation framework setting institutional mechanisms and financing modalities, and secure funding for at least one major adaptation or mitigation project (RM10)
- Reform Area 3: Climate Mitigation, Adaptation and Disaster Risk Financing
  - operationalize mechanisms under the new Electricity Act to:
    - determine rates under net billing and gross metering schemes
    - adopt renewable Power Procurement Plan and establish a competitive selection process for renewable energy IPPs
    - implement a multi-year electricity tariff system for end-use electricity tariffs that are cost-reflective (RM8)
  - approve new building legislation integrating climate adaptation and mitigation aspects (RM2)
  - adopt a comprehensive national Disaster Risk Financing Strategy including scope, coverage and financial sources (RM7)
  - introduce additional green fiscal incentives to promote green and environmentally sustainable investments (RM11)
  - authorities reaffirmed commitment to achieving carbon emission targets, including in context of oil exploration agreements with necessary environmental protection measures (MEFP ¶79)

### Coordination with World Bank and Development Partners
- RSF measures are coordinated with World Bank operations to exploit synergies and avoid overlap:
  - World Bank focusing near term on implementation regulations of the Electricity Bill; RSF focuses on medium-term reforms (cost-reflective multi-year tariffs, enabling IPPs, net billing/gross metering rates)
  - World Bank operations promote sector-specific climate actions (waste management, fisheries); RSF focuses on cross-cutting reforms (fiscal incentives, financial sector regulations, PIM and PFM measures)
- Ongoing consultations and planned support:
  - World Bank preparing a US$25 million package for the Third Fiscal Sustainability and Climate Resilience Development Policy Loan (or DPF3) for approval in November 2023
  - Staff collaborated with DPs to ensure appropriate sequencing of reform measures and considered authorities’ capacity and TA needs

### Capacity development, implementation support, and investment priorities
- Capacity development (CD) needs assessed for each RM; consultations with IMF functional departments and World Bank underway.
- Specific CD engagements:
  - authorities consulting with FAD for CD support on RM3 and RM4 and implementation of C-PIMA action plans
  - World Bank providing partial technical support for RM3 and assistance with electricity regulations
  - authorities engaged an external advisor to develop a climate finance strategy and are in contact with MCM and US OTA for technical assistance on stress-testing exercises
- Expected medium-term climate-related investments (examples included in budget and to be expanded as RMs are implemented):
  - marine life and coastal management projects (Restoring Marine Ecosystem Services – Coral Reefs Project)
  - energy transition projects (Government Building Rooftop Photo Voltaic project, Shift to Electric Mobility project)
  - waste management projects (Islands Projects – chemical and waste management in various Islands)
- RSF role:
  - augment investment in climate change adaptation and transition initiatives
  - strengthen capacity and build infrastructure for effective adaptation and transition
  - help remove bottlenecks and strengthen climate-resilience of public investment to enable higher public spending on climate-related investments over the medium term
  - address prospective BOP financing needs arising from climate-related imports and investments

*Source: IMF staff.*

### 48. Staff proposes a 36-month arrangement under the EFF with semi-annual reviews (Table 9).

### 48. Staff proposes a 36-month arrangement under the EFF with semi-annual reviews (Table 9).

### Program design and monitoring
- Proposed duration: 36-month arrangement under the EFF with semi-annual reviews.
- Monitoring instruments:
  - Quantitative performance criteria (QPCs) and indicative targets (ITs) (MEFP, Table 1).
  - Several structural benchmarks to monitor structural reforms (MEFP, Table 2).
- The authorities have cancelled the current extended arrangement under the EFF, but “the strong performance on the targets associated with its fourth review contributes to the track record of the authorities’ sustained policy commitment.”

### Financing, access, and use of funds
- EFF access proposed: 185 percent of quota (SDR 42.365 million, or around US$57 million) to be used as budget support.
  - Justification: structural BOP needs persist, near and medium-term investment and import needs would be higher, reserves need bolstering (they are now at the lower end of the adequacy range).
  - Expected near-term impact: international reserves would rise to nearly 4 months of imports.
  - Aim: catalyze financing from other sources, including the World Bank and the AfDB (US$ 77 million in 2023, Table 6).
- RSF access proposed: 150 percent of quota (SDR 34.35 million, or around US$46 million).
  - Rationale: eligibility for RSF, large prospective BOP needs from RSF implementation, long-term climate objectives, adequate capacity to repay, and a comprehensive policy package.

### RSF arrangement and reform sequencing
- Proposed RSF arrangement: 36-month RSF arrangement with reform measures attached to each review (MEFP, Table 3).
  - Focus: make Seychelles more resilient to climate change and achieve NDC commitments through outcome-oriented cross-sectoral reforms and climate adaptation and mitigation measures.
  - Disbursements: will follow the schedule of reform measures and will be unequal across reviews for the EFF; for the RSF, disbursements will be equally split among the reform measures adopted under the RSF.
- Reform timing and targets (phased approach):
  - By September 2024: cabinet aims to adopt a national climate finance mobilization strategy that covers financing instruments from public and private sources; ministry of finance to submit a pipeline of appraised climate-related projects as part of the budget process. An external advisor from the Commonwealth Secretariat will assist.
  - By October 2025: adopt an implementation strategy and secure funding for at least one significant adaptation or mitigation project that directly contributes to the NDC (funds in the budget and/or signing a loan agreement).

### Climate finance instruments and past innovative financing
- Seychelles Conservation and Climate Adaptation Trust (SeyCCAT) debt conversion (2015):
  - TNC loan: $15.2 million; philanthropic grants: $5 million.
  - SeyCCAT extended a loan of $20.2 million to the Seychelles government to re-purchase $21.6 million of sovereign debt owed to Paris Club creditors at a 6.5 percent discount.
  - SeyCCAT provides grants of at least US$750,000 per annum to promote stewardship of ocean resources, blue economy, and climate change adaptation.
- Sovereign Blue Bond (2018):
  - Total: US$15 million (grants US$3 million and loans US$12 million).
  - Proceeds distributed via the Blue Grants Fund and Blue Investment Fund; Fund managed by SeyCCAT; Grant managed by Development Bank of Seychelles (DBS).
- Multilateral climate financing:
  - GCF: currently supporting 4 regional projects with a total share of US$23.4 million going to Seychelles, including SRMI Facility and Global Fund for Coral Reefs Investment Window.
  - GEF: currently has 10 active national projects with Seychelles amounting to US$30.3 million.

### Capacity to repay and Fund exposure
- Seychelles’ capacity to repay is assessed as adequate but subject to risks.
  - Fund credit-to-GDP ratio projection: will peak at 7.9 percent in 2025.
  - Fund credit to GIR ratio projection: will peak at 22.3 percent in 2025.
  - With the proposed new EFF arrangement, Fund exposure to Seychelles will remain high for an extended period.
- Financing status: the EFF arrangement is fully financed in the first 12 months, with good prospects for the remainder of the program.

### Safeguards, capacity development, and partner engagement
- Safeguards:
  - An update of the safeguards assessment of the CBS will be conducted ahead of completion of the first EFF and RSF reviews.
  - Last safeguards assessment completed in June 2021; most recommendations implemented except amending the CBS Act.
  - Authorities committed to submit to Cabinet by June 2023 amendments to the CBS Act (structural benchmark for end-June 2023) to strengthen governance, oversight, institutional and personal autonomy, and safeguard financial autonomy.
  - The MoU between the CBS and the government on responsibilities for servicing IMF financial obligations will need updating.
- Capacity development (CD):
  - Under EFF: focus on DRM, PIMA priorities, and the monetary policy operational framework.
  - Under RSF: focus on adopting green PFM and climate-sensitive PIM practices.
- Development partners:
  - Staff worked closely with development partners; Bank staff provided an assessment letter on authorities’ climate policies for IMF Executive Board discussion of the RSF request.
  - Development partners actively engaged in technical assistance related to climate policy reforms (Annex IV).

### Risks and staff appraisal highlights
- Risk assessment: risks to the new EFF and RSF arrangements are assessed to be moderate; program risks from high global and regional uncertainty and decline in available concessional resources remain.
  - Mitigants: Seychelles’ strong track record under Fund-supported programs and commitments to strengthen fiscal risk management and contingent planning.
- Staff appraisal summary:
  - Performance under current EFF: supported strong recovery, lowered public debt, contained inflation, and provided pandemic-related support; also addressed fallout of Russia’s war in Ukraine.
  - Remaining challenges: public debt-to-GDP remains above pre-pandemic level; tax revenue-to-GDP is below pre-pandemic level; monetary policy implementation framework needs strengthening; external position assessed as moderately weaker than implied by medium-term fundamentals and desirable policies.
  - Policy priorities:
    - Continue fiscal consolidation via revenue gains and prudent spending to keep debt-to-GDP on a downward trajectory.
    - Boost investment in critical infrastructure, including climate-related infrastructure.
    - Improve targeting and efficiency of social spending.
    - Strengthen monetary policy implementation (actions underway include draining excess liquidity since January 2023 via increased weekly deposit auctions and finalizing an action plan to re-operationalize CBS’s repo instrument).
    - Use exchange rate as a shock absorber; limit FX interventions to smoothing disorderly fluctuations.
    - Strengthen financial system resilience: follow-up CBS stress test on NPLs; prepare Financial Stability Bill and Bank Recovery and Resolution Bill.
    - Continue strengthening climate policies and their implementation using diagnostic tools including the NDC, the Climate-PIMA, and the CCPA.

*Source: 1sycea2023001 - 48. Staff proposes a 36-month arrangement under the EFF with semi-annual reviews (Table 9).*

### 62. Staff supports the authorities’ request for a 36-month EFF and 36-month RSF. The

### 1sycea2023001 - 62. Staff supports the authorities’ request for a 36-month EFF and 36-month RSF. The

### Program support and IMF recommendations
- Staff supports the authorities’ request for a 36-month EFF and 36-month RSF.
- The arrangements “would support Seychelles’ commendable efforts to tackle medium-term economic challenges and address climate risks.”
- Staff supports an arrangement under the EFF given “Seychelles’ external financing needs and the authorities’ strong policy commitments.”
- Staff encourages authorities to “leverage the RSF to exploit synergies with other official financing and catalyze further private financing for climate mitigation and adaptation efforts.”

### Program access, schedule, and composition (Table 9)
- EFF: Total Access 42.365 SDR million (185 percent of quota).
  - May 31, 2023 (Approval): 6.107 SDR million (26.7 percent of quota).
  - Nov 15, 2023 (1st Review): 6.107 SDR million (26.7 percent of quota).
  - May 15, 2024 (2nd Review): 6.107 SDR million (26.7 percent of quota).
  - Nov 15, 2024 (3rd Review): 6.107 SDR million (26.7 percent of quota).
  - May 15, 2025 (4th Review): 6.107 SDR million (26.7 percent of quota).
  - Nov 15, 2025 (5th Review): 6.107 SDR million (26.7 percent of quota).
  - May 15, 2026 (6th Review): 5.723 SDR million (25.0 percent of quota).
- RSF: Total Access 34.350 SDR million (150 percent of quota).
  - Disbursements split evenly among reform measures.
  - Nov 15, 2023: 3.123 SDR million (13.6 percent of quota).
  - Repeated 3.123 SDR million (13.6 percent of quota) disbursements across subsequent RSF reviews up to May 15, 2026.
  - May 15, 2026: 3.120 SDR million (13.6 percent of quota).

### Macroeconomic developments and projections (selected indicators)
- Real GDP (millions of Seychelles rupees): 19,987 21,062 22,966 23,952 24,943 25,908 26,901 27,942 28,948
- Real GDP (growth):  -7.75.49.04.34.13.93.83.93.6
- Nominal GDP (millions of Seychelles rupees): 21,458 23,209 26,112 27,666 29,309 31,366 33,554 35,909 38,317
- CPI (annual average): 1.29.82.61.42.03.53.53.53.5
- CPI (end-of-period): 3.87.92.52.22.43.63.53.53.5
- GDP deflator average: 0.72.63.21.61.73.03.03.03.0
- Credit to the private sector (annual % change): 20.2-11.94.97.38.07.87.67.47.4
- Gross official reserves (end of year, millions of U.S. dollars): 575 702 639 655 700 787 824 847 858
- Months of imports, c.i.f.: 3.8 3.7 3.6 3.4 3.5 3.8 3.8 3.8 3.7
- ARA metric (percent of Assessing Reserve Adequacy): 111 119 100 100 102 112 115 117 115

### External sector (Table 2, selected)
- Current account balance (in percent of GDP): -14.0 -11.0 -7.6 -9.5 -10.1 -10.7 -10.7 -10.8 -11.5
- Total external debt outstanding (millions of U.S. dollars): 5,049 5,261 5,391 5,584 5,791 5,994 6,111 6,191 6,050
- Total external debt (percent of GDP): 414.2 382.9 293.2 285.0 279.0 269.8 257.2 243.4 223.0
- Exports of goods (millions of US$): 47 35 516 563 565 608 634 655 680 707 (table lists exports across years)
- Tourism earnings (exports of services component, millions of US$): 327 588 932 854 910 947 985 1,024 1,066
- Balance of goods and services (in percent of GDP values across years): -92 -70 -45 -83 -91 -130 -128 -131 -135
- Change in gross official reserves (increase: +): -32 143 -63 16 46 86 37 23 11 (Table 6 financing flows)

### Fiscal policy and public finances (Tables 3a and 3b, selected)
- Total revenue, excluding grants (percent of GDP): 33.3 33.0 33.3 34.3 34.8 34.9 34.9 34.7 34.6
- Expenditure and net lending (percent of GDP): 53.3 42.4 35.3 38.7 38.8 37.3 36.0 34.8 34.0
- Current expenditure (percent of GDP): 46.8 36.6 32.5 33.0 32.3 31.1 29.8 28.7 28.1
- Primary balance (millions of Seychelles rupees, Table 3a): -3,257 -736 188.4 -100 56 315 667 988 1,148
- Overall balance, cash basis (after grants): -4,086 -1,390 -407 -815 -728 -447 -76 269 500
- Total government and government-guaranteed debt (percent of GDP, Table 1): 91.9 80.8 69.2 67.6 66.0 63.1 59.6 55.3 51.2
- Of which: government savings (percent of GDP): -13.4 -3.3 0.8 1.4 2.5 4.0 5.0 6.0 6.5
- Private consumption (percent of GDP): 38.5 42.8 46.8 45.6 45.3 48.0 48.8 49.6 50.3
- Total social spending (memorandum item): ... 1,514 1,689 1,780 1,782 1,850 1,852 1,854 ...

### Program monitoring, performance criteria, and structural benchmarks (Tables 7 and 8)
- Quantitative performance: Multiple performance criteria and Indicative Targets monitored across 2021–22 (Table 7). Example outcome entries: Net domestic financing of the government (ceiling) shows multiple periods with status “Met”; Primary balance of the consolidated government (floor) shows “Met” across listed periods.
- Remaining structural benchmarks (Table 8) with timing and status:
  - Publish a new domestic debt management strategy document. End-December 2022 — Met.
  - The Ministry of Finance to publish quarterly reports on debt management operations — End-September 2021 and quarterly thereafter — Met.
  - Approve a plan for government securities trading framework — End-March 2023 — Not met. Implemented with delay in April 2023.
  - National Public Debt Management Committee to approve quarterly borrowing plan — End-March 2022 and quarterly thereafter — Met.
  - Government to publish issuance calendar for bonds on Ministry website — End-March 2022 and quarterly thereafter — Met.
  - As part of Air Seychelles operational restructuring, ringfence ground handling operation as a separate legal entity — End-December 2022 — Not Met.

### Monetary and financial sector (selected)
- Interest rates: “Interest rates remain unchanged as inflation remains moderate and monetary policy rate unchanged since 2021.” (text)
- Deposit and reserve dynamics (Table 4):
  - Broad money (levels, millions of Seychelles rupees across years): 15,888 17,115 19,494 25,160 26,629 27,791 28,827 30,216 31,974 33,638
  - Reserve money (end-of-period, 12–month percent change): 18.9 4.5 22.7 40.4 11.1 -3.0 3.7 4.8 5.8 5.2
  - Broad money growth (12–month percent change): 16.4 7.7 13.9 29.1 5.8 4.4 3.7 4.8 5.8 5.2
  - Credit to the private sector (12–month percent change): 17.8 11.5 22.3 20.2 -11.9 4.9 7.3 8.0 7.8 7.6
- Financial soundness indicators (Table 5, banking sector):
  - Regulatory capital to risk weighted assets: 20.5 19.5 17.1 22.7 20.3
  - Non-performing loans to gross loans: 3.5 2.7 3.3 5.5 7.6
  - Return on assets (annualized): 3.7 2.5 1.0 2.6 2.2
  - Core liquid assets to total assets: 45.2 44.1 44.1 43.6 47.8

### External financing plan and reserve adequacy (Table 6 and Figure notes)
- Gross financing requirements (millions of US$): 213 192 185 247 281 296 316 324 359 (2020–28, Table 6 header).
- Change in reserves (Table 6 financing): 32 -143 63 -16 -46 -86 -37 -23 -11
- GIR (percent of ARA) including RSF: 111 119 100 100 102 112 115 117 115
- GIR (percent of ARA) excluding RSF: 100 100 107 110 113 111 (Table 6 memo items)

### Fund credit and capacity to repay (Table 10 and Figure 8 highlights)
- Prospective Fund credit disbursements (SDR million): 15.3 24.7 27.8 8.8 (prospective schedule across 2023–26).
  - GRA portion: 12.2 12.2 12.2 5.7
  - RSF portion: 3.1 12.5 15.6 3.1
- Stock of existing and prospective Fund credit (SDR million, end-of-period examples): 97.7 109.2 130.1 130.1 118.5 106.3 91.6 74.8 57.6 ...
- In percent of quota (existing + prospective): 426.8 476.9 568.1 568.2 517.4 464.3 399.9 326.8 251.5 ...
- Notes on Capacity to Repay charts: comparator series reflect GRA arrangements approved between 2008 and 2022; several charts compare Seychelles (GRA+RSF) to median and interquartile ranges for GRA-only comparators.

*Source: IMF staff; Seychelles authorities; data and tables as presented in the cited content unit.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Conjunctural Risks: Sources, Likelihood, Impact, and Policy Responses
- Intensification of regional conflict(s).
  - Relative Likelihood: High
  - Expected Impact if Realized: High
  - Policy Response:
    - Develop a contingency plan (including risk management tools such as establishing contingent line of credit and a rule-based cash buffer (¶15)) that would lower the impact of a delayed economic recovery.
    - Consider further fiscal consolidation and targeted and temporary support as needed for vulnerable sectors in case such risk materializes.
    - Let the exchange rate act as a shock absorber to protect reserve buffers.

- Supply disruptions and sharper-than-anticipated increases in international energy prices raise the costs of energy imports and other imported goods.
  - (No explicit likelihood/impact cells shown in the extract; policy responses for related global slowdown risk apply below.)

- Abrupt global slowdown or recession. Global and idiosyncratic risk factors combine to cause a synchronized sharp growth downturn, with recessions in some countries, adverse spillovers through trade and financial channels, and markets fragmentation.
  - Relative Likelihood: Medium
  - Expected Impact if Realized: High
  - Policy Response:
    - Develop a contingency plan (including risk management tools such as establishing contingent line of credit and a rule-based cash buffer (¶15)) that would lower the impact of a delayed economic recovery.
    - Consider further fiscal consolidation and targeted support as needed for vulnerable sectors in case such risk materializes.
    - Let the exchange rate act as a shock absorber to protect reserve buffers, and utilize FXI to prevent disorderly market conditions.

- Recession in key tourist markets would lower tourist arrivals and hamper economic recovery and revenues.
  - (Listed as a conjunctural risk; specific likelihood/impact cells not shown in the extract.)

- Commodity price volatility. A succession of supply disruptions (e.g., due to conflicts and export restrictions) and demand fluctuations (e.g., reflecting China reopening) causes recurrent commodity price volatility, external and fiscal pressures, and social and economic instability.
  - Relative Likelihood: Medium
  - Expected Impact if Realized: Medium
  - Policy Response:
    - CBS to maintain vigilant monitoring and be ready to tighten monetary stance to anchor inflation expectations.
    - Enhance the effectiveness of the government’s planned targeted support for the most vulnerable population to deal with rising prices of a delayed economic recovery.
  - Expected Impact note from text:
    - Exchange rate-inflation pass-through is slow in Seychelles. However, higher food and energy prices would hurt vulnerable consumers (particularly low-income households).

- Higher NPL levels in the banking sector in Seychelles.
  - Relative Likelihood: Medium
  - Expected Impact if Realized: Medium
  - Policy Response:
    - Encourage and facilitate prudent restructuring of loans and enhance management and monitoring of NPLs.
    - The authorities should provide guidance on prudential treatment of moratoria and NPL management strategies and assess their implementation.
  - Expected Impact note from text:
    - Higher NPL levels in the banking sector, which increased mainly due to the withdrawal of forbearance measures, could pose risks to financial stability.

- Limited access to external grants and concessional financing due to Seychelles’ high-income status.
  - Relative Likelihood: Medium
  - Expected Impact if Realized: Medium
  - Policy Response:
    - Consider tapping alternative sources of external financing in the medium-term.
    - Ensuring a prudent macro-fiscal stance to foster market access at reasonable terms.
    - Preemptively rebuild fiscal and FX buffers.
  - Expected Impact note from text:
    - A reduction in external financing could worsen the balance of payments with implications for the exchange rate.

### Structural Risks: Sources, Likelihood, Impact, and Policy Responses
- Extreme climate events. Extreme climate events cause more severe than expected damage to infrastructure (especially in smaller vulnerable economies) and loss of human lives and livelihoods, amplifying supply chain disruptions and inflationary pressures, causing water and food shortages, and reducing growth.
  - Relative Likelihood: Medium
  - Expected Impact if Realized: Medium
  - Policy Response:
    - Prioritize the implementation of projects related to climate change.
  - Expected Impact note from text:
    - The materialization of risks related to natural disasters could trigger further public expenditures and alter the planned reduction of public debt.

### Sovereign Risk and Debt Sustainability: Summary Assessment and Key Facts
- Overall risk of sovereign stress: Moderate.
- DSA summary assessment: Sustainable with high probability.
- Commentary and key statistics from staff assessment:
  - Public debt declined by over 20 percent of GDP from 89.5 percent of GDP in 2020 to 69.2 percent in 2022, thanks to the stronger than-projected economic recovery and fiscal consolidation efforts vastly overperforming program targets.
  - Medium-term liquidity risks as analyzed by the GFN Financeability Module are moderate.
  - Long-term risks are moderate as the need for climate-related expenditures feed into debt dynamics.
  - Over the longer run, Seychelles should continue with policies to tackle risks arising from climate change.
  - Fund's support through RSF will help contain risks.
  - Health spending needs will also rise, in part due to high percentage of population suffering from substance abuse.
- Additional notes from the risk framework:
  - The overall risk of sovereign stress is moderate, reflecting moderate levels of vulnerability in the medium-, and long-term horizons.
  - The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement.
  - A debt sustainability assessment is optional for surveillance-only cases and mandatory in cases where there is a Fund arrangement.

*Source: IMF staff (Annex I. Risk Assessment Matrix; Annex II. Sovereign Risk Debt Sustainability Framework).*

### 5. Debt consolidation across sectors:

### 1sycea2023001 - 5. Debt consolidation across sectors

### Coverage and public-debt structure indicators
- Coverage in this SRDSA is for the general government. Government guarantees are included. There are no outstanding arrears.
- Commentary: The composition of domestic debt rose in recent years, and is expected to remain roughly the same over the projection period. Over the medium and long-term, market financing both from domestic and external financial markets will increase gradually. External creditors are largely multilaterals (IMF, World Bank and AfDB) and bilaterals (Paris and non-Paris club). There are also commercial creditors (e.g., TDB) and also bond holders. Banks are the largest domestic creditors.
- Government bonds held by the banking sector increased from 9.2 percent of their assets in 2021 to 11.6 percent in 2022.
- The potential for greater domestic bond financing to replace external financing could be constrained by the absence of a secondary market mechanism for government securities. Authorities are working with the Fund to improve secondary market mechanism.

### Baseline scenario: public debt trajectory and drivers (percent of GDP unless indicated otherwise)
- Public debt (actual/projections): 69.2 (2022), 67.6 (2023), 66.0 (2024), 63.1 (2025), 59.6 (2026), 55.3 (2027), 51.2 (2028), 50.1 (2029), 50.0 (2030), 50.3 (2031), 50.8 (2032), 51.5 (2033).
- Change in public debt: -11.5 (2022), -1.7 (2023), -1.6 (2024), -2.8 (2025), -3.6 (2026), -4.2 (2027), -4.1 (2028), -1.1 (2029), -0.1 (2030), 0.2 (2031), 0.6 (2032), 0.7 (2033).
- Contribution of identified flows: -15.2 (2022), -1.9 (2023), -1.7 (2024), -2.5 (2025), -3.2 (2026), -3.9 (2027), -3.9 (2028), -1.2 (2029), -0.2 (2030), 0.1 (2031), 0.4 (2032), 0.7 (2033).
- Primary deficit: -0.7 (2022), 0.4 (2023), -0.2 (2024), -1.0 (2025), -2.0 (2026), -2.7 (2027), -3.0 (2028), -0.8 (2029), 0.1 (2030), 0.3 (2031), 0.5 (2032), 0.6 (2033).
- Noninterest revenues: 33.7 (2022), 35.8 (2023), 36.3 (2024), 35.8 (2025), 35.8 (2026), 35.5 (2027), 35.3 (2028), 34.1 (2029), 33.5 (2030), 33.0 (2031), 32.8 (2032), 32.5 (2033).
- Noninterest expenditures: 33.0 (2022), 36.1 (2023), 36.1 (2024), 34.8 (2025), 33.8 (2026), 32.8 (2027), 32.3 (2028), 33.3 (2029), 33.6 (2030), 33.4 (2031), 33.3 (2032), 33.2 (2033).
- Automatic debt dynamics: -14.1 (2022), -1.9 (2023), -1.2 (2024), -1.2 (2025), -1.0 (2026), -0.9 (2027), -0.6 (2028), -0.4 (2029), -0.3 (2030), -0.2 (2031), -0.1 (2032), 0.1 (2033).
  - Real interest rate and relative inflation: -3.5 (2022), 1.0 (2023), 1.5 (2024), 1.3 (2025), 1.4 (2026), 1.3 (2027), 1.3 (2028), 1.3 (2029), 1.4 (2030), 1.5 (2031), 1.6 (2032), 1.8 (2033).
  - Real interest rate: -2.3 (2022), 1.5 (2023), 1.6 (2024), 0.9 (2025), 1.0 (2026), 1.0 (2027), 1.0 (2028), 1.1 (2029), 1.2 (2030), 1.3 (2031), 1.4 (2032), 1.7 (2033).
  - Relative inflation: -1.2 (2022), -0.6 (2023), -0.1 (2024), 0.4 (2025), 0.3 (2026), 0.3 (2027), 0.3 (2028), 0.2 (2029), 0.2 (2030), 0.2 (2031), 0.2 (2032), 0.1 (2033).
  - Real growth rate: -6.7 (2022), -2.8 (2023), -2.7 (2024), -2.5 (2025), -2.3 (2026), -2.2 (2027), -1.9 (2028), n.a. (2029), -1.7 (2030), -1.7 (2031), -1.7 (2032), -1.7 (2033), -1.7 (2034).
- Other identified flows / Other transactions: -0.4 (2022), -0.4 (2023), -0.3 (2024), -0.3 (2025), -0.3 (2026), -0.3 (2027), -0.3 (2028), 0.0 (2029), 0.0 (2030), 0.0 (2031), 0.0 (2032), 0.0 (2033).
- Contribution of residual: 3.7 (2022), 0.2 (2023), 0.1 (2024), -0.4 (2025), -0.3 (2026), -0.3 (2027), -0.3 (2028), 0.1 (2029), 0.1 (2030), 0.1 (2031), 0.2 (2032), 0.0 (2033).
- Contingent liabilities: 0.0 for all years shown.
- Gross financing needs: 16.1 (2022), 16.4 (2023), 15.5 (2024), 13.6 (2025), 11.2 (2026), 10.9 (2027), 10.5 (2028), 11.4 (2029), 12.7 (2030), 13.7 (2031), 14.3 (2032), 15.2 (2033).
  - Of which: debt service: 16.9 (2022), 16.1 (2023), 15.7 (2024), 14.6 (2025), 13.2 (2026), 13.6 (2027), 13.5 (2028), 12.2 (2029), 12.6 (2030), 13.4 (2031), 13.8 (2032), 14.7 (2033).
  - Local currency: 14.5 (2022), 12.4 (2023), 11.3 (2024), 10.8 (2025), 9.3 (2026), 10.4 (2027), 10.6 (2028), 9.3 (2029), 9.9 (2030), 11.0 (2031), 11.8 (2032), 12.8 (2033).
  - Foreign currency: 2.5 (2022), 3.7 (2023), 4.3 (2024), 3.8 (2025), 3.9 (2026), 3.2 (2027), 2.9 (2028), 2.8 (2029), 2.7 (2030), 2.5 (2031), 2.1 (2032), 1.9 (2033).
- Memo:
  - Real GDP growth (percent): 9.0 (2022), 4.3 (2023), 4.1 (2024), 3.9 (2025), 3.8 (2026), 3.9 (2027), 3.6 (2028), 3.5 (2029), 3.5 (2030), 3.5 (2031), 3.5 (2032), 3.5 (2033).
  - Inflation (GDP deflator; percent): 3.2 (2022), 1.6 (2023), 1.7 (2024), 3.0 (2025), 3.0 (2026), 3.0 (2027), 3.0 (2028), 3.0 (2029), 3.0 (2030), 3.0 (2031), 3.0 (2032), 2.4 (2033).
  - Nominal GDP growth (percent): 12.5 (2022), 5.9 (2023), 5.9 (2024), 7.0 (2025), 7.0 (2026), 7.0 (2027), 6.7 (2028), 6.6 (2029), 6.6 (2030), 6.6 (2031), 6.4 (2032), 6.4 (2033).
  - Effective interest rate (percent): 0.0 (2022), 4.0 (2023), 4.2 (2024), 4.5 (2025), 4.8 (2026), 4.8 (2027), 5.0 (2028), 5.2 (2029), 5.5 (2030), 5.7 (2031), 5.9 (2032), 5.9 (2033).

- Staff commentary: Public debt has been put on a downward debt trajectory after a temporary increase during the pandemic. Debt reduction is projected to continue to meet the authorities' medium term target of 50 percent of GDP and possibly even lower over the longer term, mainly driven by continued fiscal prudence and growth. Changes compared to previous DSA (July 2022) reflect better than expected primary balance in 2022 and higher expenditure anticipated for 2023.

### Realism of baseline assumptions and historical context
- Commentary: The materialization of a v-shaped economic recovery from the Covid pandemic combined with larger than expected fiscal consolidation have significantly improved public indebtedness.
- Debt reduction of over 20 percent of GDP over two years and the authorities' strong commitment to prudent fiscal management make Seychelles standout among other comparable countries.
- The country's reliance on tourism which caters high-end niche market complicates growth projections. Over the medium to long-term, the economy is vulnerable to climate change.

### Medium-term risk analysis (Figure 6): indices and stress insights
- Fanchart and GFN financeability indicators:
  - Fanchart width: 80.8 1.2
  - Probability of debt not stabilizing (pct): 5.1 0.0
  - Terminal debt level x institutions index: 21.7 0.5
  - Debt fanchart index: ...1.7
  - Average GFN in baseline: 13.0 4.4
  - Bank claims on government (pct bank assets): 14.6 4.7
  - Change in claims on government in stress (pct bank assets): 8.6 2.9
  - GFN financeability index: ...12.0
- Probabilities (2023-2028):
  - Prob. of missed crisis, 2023-2028 (if stress not predicted): 18.2 pct.
  - Prob. of false alarm, 2023-2028 (if stress predicted): 27.3 pct.
- Commentary: Both of the medium-term tools indicate that risk is moderate. The fan chart analysis estimates risks to be moderate partly due to a high assessed probability of debt stabilization. The GFN module also indicates moderate risk for Seychelles in relation to its comparators.
- Stress test notes: In a standard stress scenario, the natural disaster shock would elevate financing needs in the short term but the financing needs would stabilize albeit at higher level than in the baseline. In reality, due to geographical location, Seychelles has not experienced much natural disasters; however the country is highly vulnerable to the rise in sea level from climate change. Engagement with the Fund should help in addressing climate concerns.

### Long-term risk analysis and vulnerabilities (Figures 7–9)
- Key vulnerability factors highlighted:
  - Climate change: highly vulnerable to rise in sea level; authorities actively engaging development partners and seeking Fund assistance (RSF).
  - Demographics: population aging poses medium- to long-term fiscal risks.
  - Health: increasing share of population suffering from substance abuse may raise health spending needs above model suggestions; authorities seeking external partners for medical/health infrastructure and social programs.
- Pension policy action: retirement age increased from 63 to 65 in from 2023. Authorities prepared to take additional measures (e.g., raise pension contribution) to ensure financial sustainability.
- Pension financing needs and required permanent adjustments to keep pension assets positive:
  - Permanent adjustment needed in the pension system (pp of GDP per year): 1.97% (50 years), 3.37% (Until 2100), 5.20% (30 years).
- Commentary: Over the long-run, Seychelles faces risks from population aging. External financing (grants and concessional loans) to address climate changes and fiscal reforms to identify new sources of fiscal revenues and growth will be critical over the longer run.

### Decomposition of public debt and debt service by creditor (2022–24)
- Debt stock (end of period) and breakdown (In US$ million; Percent total debt; Percent GDP):
  - Total debt stock: 1,215.2 (2022); 100 (percent total debt); 66.1 (percent GDP).
  - Debt service (In US$ million / Percent GDP): 336.3 / 18.3 (2022); 225.9 / 11.5 (2023); 172.3 / 8.3 (2024).
- External vs Domestic (2022 figures and projections):
  - External: 575.5 (2022); 47.4 (percent total debt); 31.3 (percent GDP). Debt service: 57.7 (2022), 72.7 (2023), 80.7 (2024). Percent GDP: 3.1 (2022), 3.7 (2023), 3.9 (2024).
  - Domestic: 639.7 (2022); 52.6 (percent total debt); 34.8 (percent GDP). Debt service: 278.6 (2022), 153.2 (2023), 91.6 (2024). Percent GDP: 15.2 (2022), 7.8 (2023), 4.4 (2024).
- Multilateral creditors (2022 totals and selected components):
  - Multilateral creditors total: 389.1 (2022); 32.0 (percent total debt); 21.2 (percent GDP). Debt service: 18.2 (2022), 25.3 (2023), 32.4 (2024). Percent GDP: 1.0 (2022), 1.3 (2023), 1.6 (2024).
  - IMF: 120.9 (2022); World Bank: 135.9 (2022); AfDB: 76.5 (2022); Other Multilaterals: 55.8 (2022).
    - o/w: EIB: 29.4 (2022).
    - o/w: BADEA: 18.1 (2022).
- Bilateral creditors: 81.3 (2022); 6.7 (percent total debt); 4.4 (percent GDP). Debt service: 13.7 (2022), 15.3 (2023), 16.4 (2024). Percent GDP: 0.7 (2022), 0.8 (2023), 0.8 (2024).
  - Paris Club: 44.8 (2022); 3.7 (percent total debt); 2.4 (percent GDP). Debt service: 6.5 (2022), 8.8 (2023), 9.8 (2024). Percent GDP: 0.4 (2022), 0.4 (2023), 0.5 (2024).
    - o/w: France: 23.7 (2022); o/w: UK: 5.5 (2022).
  - Non-Paris Club: 36.6 (2022); 3.0 (percent total debt); 2.0 (percent GDP). Debt service: 7.3 (2022), 6.5 (2023), 6.6 (2024). Percent GDP: 0.4 (2022), 0.3 (2023), 0.3 (2024).
    - o/w: China: 14.0 (2022); o/w: Saudi Arabia: 12.2 (2022).
- Bonds and commercial creditors:
  - Bonds: 74.1 (2022); 6.1 (percent total debt); 4.0 (percent GDP). Debt service: 23.6 (2022), 22.3 (2023), 20.9 (2024). Percent GDP: 1.3 (2022), 1.1 (2023), 1.0 (2024).
  - Commercial creditors: 31.0 (2022); 2.5 (percent total debt); 1.7 (percent GDP). Debt service: 2.1 (2022), 9.8 (2023), 11.0 (2024). Percent GDP: 0.1 (2022), 0.5 (2023), 0.5 (2024).
    - o/w: Nedbank: 10.0 (2022); Habib Bank: 4.6 (2022); MCB: 3.4 (2022); TDB: 13.0 (2022).
- Domestic instruments (2022 domestic debt composition and selected flows):
  - T-Bills: 161.4 (2022); 13.3 (percent total debt); 8.8 (percent GDP). Debt service: 261.3 (2022), 73.6 (2023), 0.6 (2024). Percent GDP: 14.2 (2022), 3.8 (2023), 0.0 (2024).
  - Bonds: 429.7 (2022); 35.4 (percent total debt); 23.4 (percent GDP). Debt service: 10.6 (2022), 71.9 (2023), 82.3 (2024). Percent GDP: 0.6 (2022), 3.7 (2023), 4.0 (2024).
  - Loans: 48.6 (2022); 4.0 (percent total debt); 2.6 (percent GDP). Debt service: 6.8 (2022), 7.7 (2023), 8.7 (2024). Percent GDP: 0.4 (2022), 0.4 (2023), 0.4 (2024).
- Memo items (2022):
  - Collateralized debt (total): 8.3 (percent GDP).
  - Nominal GDP: 1,838.9 (US$ million).

*Source: IMF staff calculations and authorities data. — 1sycea2023001 - 5. Debt consolidation across sectors*

### Annex III. External Sector Assessment

### Annex III. External Sector Assessment

### External position overview
- The external position of Seychelles in 2022 was moderately weaker than the level implied by medium-term fundamentals and desirable policies.
- Seychelles’ external position improved significantly since the last external sector assessment, helped by a strong recovery in tourism and prudent fiscal management that exceeded program targets.
- Policy guidance: continue to maintain a flexible exchange rate regime, build external buffers against external shocks, and implement structural reforms to diversify and improve overall competitiveness.

### Current account developments and drivers (2021–2022)
- Current account deficit narrowed to 7.6 percent of GDP in 2022 from 11 percent in 2021 owing to a strong recovery in the tourism sector.
- Tourist arrivals in 2022 reached 86 percent of the peak pre-pandemic arrival of 384,000.
- Recovery drivers included increased visitors from new markets (e.g., Russia, UAE, and Israel) with some higher spenders, resulting in increased average spending per arrival.
- Higher international oil prices had limited impact because the government-owned fuel importer had purchased a larger bulk of petroleum than usual in anticipation of oil price surges.
- Improved current account was reflected in a large increase in holdings of foreign currency assets by the private sector.
- New external debt in 2022 was provided mostly by multilateral IFIs with favorable borrowing terms, posing limited risks to future debt service and external sustainability.

### Outlook and medium-term projections
- The current account deficit is expected to widen to around 9.5 percent of GDP in 2023 despite continued recovery in tourism arrivals.
- Tourist arrivals are expected to record a 5 percent growth in 2023.
- Arrivals from Russia have declined due to the war in Ukraine, resulting in projected 14 percent lower spending per arrival compared to 2022, and a fall in tourism earnings.
- While lower international fuel price would help, the current account deficit is projected to widen to around 10.5 to 11.5 percent of GDP over the medium-term reflecting the need for higher imports for infrastructural needs in areas such as climate change and green economy, health/medical, and housing sectors.

### International Investment Position (IIP) and financial account
- Net IIP improved to around -138 percent of GDP at end-2022 compared to -162 percent at end-2021.
- Improvement mainly driven by sharp recovery in tourism which resulted in appreciation of the local currency and narrowing of the current account deficit.
- FDI remains an important component of the financial account and continues to finance the current account deficit.
- At end-2022:
  - Direct investment was about 40 percent of gross assets and 69 percent of gross liabilities.
  - Portfolio investment was about 20 percent of gross assets and about 3 percent of gross liabilities.

### External position assessment: EBA-lite and REER results (2022)
- EBA-lite CA model results:
  - CA-Actual: -7.6 (in percent of GDP)
  - Cyclical contributions (from model): 0.0 (in percent of GDP)
  - COVID-19 adjustors: -3.5 (in percent of GDP)
  - Natural disasters and conflicts: -0.5 (in percent of GDP)
  - Adjusted CA: -3.6 (in percent of GDP)
  - CA Norm (from model): -1.7 (in percent of GDP)
  - Adjusted CA Norm (for ES, NFA stabilizing CA): -1.7 (in percent of GDP)
  - CA Gap: -1.9 (in percent of GDP)
  - o/w Relative policy gap: 1.4 (in percent of GDP)
  - Elasticity: -0.8
  - REER Gap (in percent): 2.3
- Interpretation:
  - The EBA-lite model suggests Seychelles’ external position is moderately weaker than the level implied by medium-term fundamentals and desirable policies (current account gap of minus 1.9 percent of GDP).
  - Using estimated current account elasticities, this implies a small overvaluation of the REER of 2.3 percentage points.
  - The REER approach, by contrast, suggests the external position to be broadly consistent with fundamentals and desirable policies.

### Exchange rate regime and reserves
- Exchange rate regime classified as floating; foreign exchange interventions are aimed at addressing disorderly market conditions and maintaining an adequate level of international reserves.
- In 2022, the authorities conducted a foreign exchange auction once to purchase US$2.45 million in response to a significant influx of foreign currency.
- Gross International Reserves (GIR) at end-2022: US$639 million (3.6 months of imports), a decline of 9.0 percent compared to US$702 million at end-2021.
- Decline in GIR driven by lower inflows of financial support from multilateral creditors and donors and increased external debt service obligations.
- GIR are projected to maintain import coverage in the range of 3-4 months over the medium term.

### Policy recommendations and technical assistance
- Staff recommends building further external buffers given Seychelles’ high dependency on tourism and the sector’s vulnerability to external shocks.
- Assessment: international reserves at end-2022 are within but at the lower end of the advisable range per the standard reserve adequacy metric.
- Authorities agree on the need to build further external buffers and requested technical assistance.
- Staff agreed on the need for technical assistance in effectively managing international reserves that takes into account Seychelles’ country-specific circumstances.

*Source: Annex III. External Sector Assessment, 1sycea2023001*

### 13. Seychelles has put climate change at the center of its sustainable development strategy.

### 13. Seychelles has put climate change at the center of its sustainable development strategy.

### National strategies, plans, and targets
- National Agriculture Investment Plan (SNAIP, 2015-2020) provided a development strategy and investment plan for agriculture and fisheries.
- Seychelles Marine Spatial Plan (SMSP) Initiative (begun 2014) addresses climate change adaptation, marine biodiversity protection and supports the Blue Economy.
- Seychelles Coastal Management Plan (CMP, 2019 – 2024) developed to protect coast with World Bank support.
- Seychelles plans to meet its 2030 emission reduction targets (NDC 2021) mainly by:
  - switching to renewable energy,
  - improving energy efficiency,
  - e-mobility.

### Coastal Management Plan (CMP): objectives and costs
- CMP provides a framework for coastal erosion protection and risk management in response to sea level rise and storm risk.
- CMP aims:
  - formulate priorities and actions to reduce coastal flood risk and coastal erosion,
  - provide an implementation agenda,
  - outline priority projects and their cost estimates.
- Total costs for implementation of the CMP are estimated to be US$13.2 million.
- Selected CMP priority actions (from project list):
  - conduct coastal surveys in 13 priority sites listed in the Coastal Management Plan,
  - build capacity to monitor coastal data,
  - undertake feasibility study on coastal setbacks on the inner and outer islands.
- Government priority for Coastal Management Planning: High.

### Blue Carbon Roadmap: carbon sequestration potential and financing mechanisms
- Blue Carbon ecosystems and scale:
  - Mangrove forests: occur across 1,700 ha of Seychelles' coastline.
  - Seagrass meadows: cover 143,000 ha.
- Carbon sequestration potential:
  - Combined, it is estimated that more than 65 million tons of CO2 can be held by the two vegetations.
  - This is equivalent to the average CO2 emission by 15 million passenger vehicles annually.
- Roadmap objectives:
  - restore marine vegetation for climate change mitigation,
  - potentially sell carbon credits through market mechanisms.
- Financing mechanisms under consideration:
  - Market mechanisms: Voluntary Carbon Market to sell carbon credits.
  - Non-market mechanisms: philanthropy giving.
  - Financing support: multilateral development banks.
- Selected Blue Carbon Roadmap priority actions:
  - advance Blue Carbon scientists and empower local scientists,
  - integrate Blue Carbon into National Policy Frameworks,
  - connect Blue Carbon projects to carbon markets and other finance mechanisms.
- Government priority for Blue Carbon Roadmap: Medium.

### Climate financing and governance initiatives
- Initiatives include:
  - establishing institutional arrangements for monitoring, reporting and verification (MRV) of climate change actions,
  - founding a clearing house mechanism to exchange climate change adaptation and mitigation information,
  - engaging international organizations and multilateral development banks for financial support and capacity development.
- Selected Climate Change Financing and Governance actions:
  - build capacity to develop project proposals,
  - pursue GCF Accreditation by a National Implementing Entity,
  - develop a National Climate Finance Policy,
  - establish Climate Finance Governance Arrangement to track and mobilize climate finance.
- Government priority for Climate Change Financing and Governance: High.

### Collaboration with multilateral partners and key climate-related financial support
- Major partners: World Bank and African Development Bank (AfDB) for concessional financing and capacity development.
- Seychelles executed an early debt-for-nature swap to establish the Seychelles Conservation and Climate Adaptation Trust.
- World Bank support:
  - Fiscal Sustainability and Climate Resilience Development Policy program — US$35 million (2022 - present).
  - Catastrophe Deferred Drawdown (CAT-DDO) — US$7 million (credit line, already drawn during the pandemic) (2014 - present).
  - Prior actions for the DPO included publication of the Physical Planning bill and adoption of the Fisheries Regulation.
  - World Bank provided capacity development (e.g., operation on solar energy) and is preparing a follow-up DPO with a strong focus on climate resilience.
- AfDB support:
  - Middle-Income Country Technical Assistance Fund (MIC-TAF) for Seychelles — Fund size: TBD; Program period: TBD.
  - Under MIC-TAF Seychelles is developing an Integrated Resource Plan to revise energy policy and set renewable energy targets by the end of 2022; the Seychelles Energy Commission is in the Request-for-Proposal phase of procurement.
  - Mahe Sustainable Water Augmentation Project — US$20.6 million (2015-2023).

### DIGNAD model: structure, calibration, and scenario experiments
- Model overview:
  - DIGNAD: Debt, Investment, Growth, and Natural Disasters model for low-income or emerging countries.
  - Includes natural disasters and resilient infrastructure; examines public investment, growth, financing strategies (external concessional, external commercial, and domestic), and fiscal reaction rules.
  - Natural disaster channels: (i) damages to public capital, (ii) damages to private capital, (iii) temporary productivity loss, (iv) decline in public investment efficiency, (v) loss in credit worthiness.
  - Accounts for public investment inefficiencies and absorptive capacity constraints; demonstrates benefits of ex-ante adaptation investment.
  - Investing in adaptation infrastructure initially raises public debt partly due to higher initial costs (20 percent), but reduces: (i) adverse impact of disasters on output, (ii) damages to physical assets, (iii) post-disaster fiscal rebuilding and lifeline costs.
- Calibration to Seychelles:
  - Initial values set to data available at end-2022 and/or historical averages.
  - Standard capital infrastructure investment in steady state: 5.3 percent of GDP.
  - Public external debt split evenly between concessional debt and commercial debt (15.6 percent of GDP each).
  - Natural disaster calibrated to affect 20 percent of public and private capital stock.
  - Comparative disaster damage references: Fiji (Cyclone Winston wiped out over a third of GDP); Vanuatu 2015 Cyclone Pam assessed at 60.8 percent of GDP.
- Scenario analysis questions:
  - Gains from adaptation infrastructure,
  - Role of a contingency Fund in reducing debt and accelerating recovery,
  - Effect of fiscal adjustment in recovery,
  - Impact of financing adaptation with international grants versus private financing/PPPs,
  - Impact of reforms to improve public investment efficiency.
- Simulated scenarios (key parameters preserved exactly as in source):
  - Scenario 1 (baseline): no policy changes; standard investment; natural disaster occurs in year 6.
  - Scenario 2: additional adaptation investment of 2 percent of GDP per year in years 1–5; financed by concessional public borrowing of about 0.6 percent of GDP (RSF request amount, 5 disbursement until 2026) and Grants (0.4 percent of GDP); remaining financing by PPPs/private financing; no fiscal adjustments; public domestic and external commercial debt can cover remaining gap.
  - Scenario 3: adaptation investment 2 percent of GDP per year in years 1–5; financed by concessional public borrowing of about 0.6 percent of GDP (RSF request amount, 5 disbursement until 2026) and stepped-up grants raising an additional 0.1 percent of GDP per year to reach 0.8 percent of GDP in 2026; remaining by PPPs/private financing; no fiscal adjustments; improved public investment management (PIM) efficiency by 25 percent.
  - Scenario 4: adaptation investment 1 percent of GDP per year in years 1–5; financed by concessional public borrowing of about 0.6 percent of GDP (RSF request amount, 5 disbursement until 2026); authorities set up a contingency fund and contribute 0.5 percent of GDP per year financed by international grants; contingency fund disburses 2.5 percent of GDP when disaster strikes; residual fiscal gap covered by fiscal instruments conditional on exogenous paths for grants and concessional debt.
  - Scenario 5: adaptation investment 1 percent of GDP per year in years 1–5; financed by concessional public borrowing of about 0.6 percent of GDP (RSF request amount, 5 disbursement until 2026); remaining financed by PPPs/private financing; no fiscal adjustments; authorities set up a contingency fund and contribute 0.5 percent of GDP per year financed by international grants; contingency fund disburses 2.5 percent of GDP when disaster strikes.

### Capacity development and institutional strengthening (CD strategy 2023–25)
- CD priorities aligned with authorities’ reform agenda to secure economic stability and sustain inclusive growth given vulnerability to external shocks and reliance on tourism.
- Main CD priority areas and objectives:
  - Public Financial Management: strengthen medium-term budget planning, fiscal risk management, efficiency of public investment, debt and cash management, fiscal reporting, macro-fiscal forecasting, and IT systems integration.
  - Revenue administration and tax policy: strengthen administration and governance, Customs and tax core functions, assess VAT efficiency, improve tax expenditure reporting.
  - Financial Integrity (AML/CFT): implement a risk-based approach to supervision; reduce reputational risk of the offshore banking sector.
  - Monetary Policy Implementation: strengthen CBS capacity for inflation forecasting and liquidity management; deepen money market and policy transmission; develop ELA framework, government securities market, market infrastructure, and CBS communication strategy.
  - Debt Management: produce a Medium-Term Debt Management Strategy (MTDS) and Annual Borrowing Plan (ABP); improve debt recording, reporting and monitoring; develop secondary market for government securities.
  - Financial Stability and Crisis Management: implement risk-based supervision; amend capital adequacy regulation; strengthen legal basis and mandate of Financial Stability Commission (FSC).
  - Payments and Infrastructure: advise on national payment system development and reform.
  - External and Real Sectors Statistics: strengthen national accounts, price, and external sector statistics to international standards.
  - Government Finance Statistics (GFS): build capacity and improve quality of fiscal and debt statistics.
  - Monetary and Finance Statistics (MFS): increase scope to include credit-providing nonbank financial institutions and payment companies; assist with financial soundness indicators in line with the 2019 FSI Guide.
- Implementation considerations:
  - Small institutional size, high staff turnover, and capacity limitations pose risks; intensified hands-on training and resident advisors recommended; peer learning and enhanced coordination with IMF CD departments, AFRITAC South, and other CD providers emphasized.

*Source: Authorities data.*

### 1. Economic performance in 2022 was positive and marked the continued recovery of key

### 1sycea2023001 - 1. Economic performance in 2022 was positive and marked the continued recovery of key

### Economic performance and sectoral developments (2022)
- Tourism arrivals recorded an 82 percent growth in arrivals in 2022; arrivals stood at 332,068 by end-2022, which is about 14 percent below the 2019 level.
- ICT sector: data traffic increased by about 30 percent over 2021.
- Construction: building of some new hotels; construction activities picked up.
- Manufacturing: slowdown in canned tuna production lowered the outlook for manufacturing activities.
- Preliminary GDP growth for 2022 estimated at 9 percent (below the initial 10.6 percent forecast at the time of the last review).

### Outlook and projections (2023)
- GDP growth: slowdown expected in 2023 to 4.3 percent compared to the last review.
- Tourism:
  - Arrivals growth expected at 5 percent (compared to 15 percent forecasted initially).
  - Tourism earnings expected to decline due to lower spending per arrival, complete re-opening of rival destinations, increasing number of visitors to guesthouses, weaker Euro against the US Dollar.
  - Outlook on tourism earnings subject to downside risks (global developments and industry-specific factors such as flight connections).
- ICT sector: predicted growth of 15 percent in 2023, in line with rapid increases in data traffic.
- Transportation and storage activities: steady recovery expected at 10 percent.
- Current account: projected current account shortfall for 2023 at 9.5 percent of GDP.

### External sector and reserves
- Domestic currency: strengthened against major trading partners for most of 2022; appreciating trend continued during the first two months of 2023.
- Gross International Reserves (GIR): ended 2022 at US$639 million, a decline of 9.0 percent compared to US$702 million end-2021.
- Net International Reserves (NIR): closed at US$472 million at the end of December 2022, surpassing the target of US$426 million by US$46 million.
- Central Bank FX operations: CBS conducted only one foreign exchange auction (FEA) in 2022—February purchase of US$2.45 million.

### Inflation and monetary policy
- Inflation:
  - February 2023: 12-month average inflation rate was 2.4 percent; year-on-year inflation stood at 1.1 percent.
  - Projected December 2023: year-on-year change in consumer prices at 2.2 percent and 12-month average inflation rate at 1.4 percent.
- Monetary policy stance (2022):
  - Monetary Policy Rate (MPR) remained at 2.0 percent.
  - Standing Deposit Facility (SDF) interest rate: 0.5 percent.
  - Standing Credit Facility (SCF) interest rate: 3.5 percent.
- Interest rates and yields:
  - February 2023: average savings rate relatively unchanged; average lending rate on rupee loans fell by 15 basis points relative to February 2022; overall lending rate rose by 30 basis points due to higher foreign currency loan rates.
  - Average yield on T-bills in February 2023: 91-day bills 1.01 percent, 182-day bills 1.43 percent, 365-day bills 2.16 percent.

### Banking sector and financial stability (as at end-February 2023)
- Capitalisation: all banks above prudential capital requirement of 12 percent; aggregated regulatory capital to risk weighted assets stood at 21.2 percent (year-on-year).
- Non-performing loans (NPLs): ratio of NPLs to gross loans increased by 0.6 percentage point to 7.1 percent.
- NPL increases concentrated in real estate, tourism, trade and residential development sectors.
- Profitability: return on assets 3.4 percent; return on equity 38.8 percent.
- Liquidity: liquid asset to total liabilities ratio at 47.2 percent (well above minimum requirement of 20 percent).
- Foreign currency risk exposure: long position at 8.2 percent (up 0.3 percentage points); short position at -3.5 percent (up 0.1 percentage points); both within prescribed limits.

### Fiscal performance and public debt (2022 and 2023 budget)
- 2022 fiscal outcome: primary surplus of 0.7 percent of GDP; expenditures at 35.3 percent of GDP compared with 36.5 percent forecast at the third review.
- Revenues: revenue excluding grant reached 33.3 percent of GDP for 2022 (marginal increase over 2021); taxes were lower in 2022 by about 0.7 percent of GDP compared to 2021. Business tax accounted for almost 2/3 of total tax under-performance.
- Grants: total grants fell below the previous forecast by SR 69.6m.
- Current account deficit: improved from 11.0 percent of GDP in 2021 to 7.6 percent of GDP in 2022.
- Public debt:
  - End-2022 debt to GDP ratio: 69.9 percent.
  - Government and government guaranteed debt projected to decline by about 1.8 percentage points to 68.1 percent of GDP by end-2023.
  - Guaranteed debt projected to increase by about 0.7 percent average annually due to guarantees to the Development Bank of Seychelles (DBS).
  - Government target: achieve a debt target of around 50 percent of GDP by 2030.
- 2023 budget aims:
  - Primary deficit target of 0.4 percent of GDP.
  - Revenue excluding grants targeted at 34.3 percent of GDP (increase of 0.9 percentage points compared to 2022).
  - Current expenditure targeted at 38.7 percent of GDP (increase of 0.5 percentage points).
  - Tax changes: introduction of securities dealer’s business tax and new tourism taxes; environmental levy policy revised downwards by about SR 60m; tourism turnover tax could yield higher than SR 118 million initially forecasted.
  - Salary adjustments: salary increase to be introduced in April 2023 after freeze since 2019; home carers’ scheme costing around 1.1 percent of GDP moved under wages and salaries and goods and services.
  - Capital outlays to increase by 2.4 percent of GDP, partly financed by grants; medium-term investments include construction of a new modern hospital on Mahe and continuation of social housing projects.

### Fiscal structural reforms and revenue mobilization
- Transfer pricing and tax administration:
  - Business tax amendment (end-December 2022) includes new provisions for transfer pricing.
  - World Bank assistance to finalize transfer pricing regulations; aim to publish regulations before end-June 2023.
  - Tax gap exercise on transfer pricing/profit shifting expected completed by end-June 2023.
- VAT and tax policy:
  - VAT report assessed by end-2022 with FAD assistance; further support required to amend legislation based on 2022 technical report.
  - Cabinet due to approve legislative amendments to streamline VAT exemptions by December 2023 (structural benchmark).
  - Government to publish budgeted tax expenditure forecast as part of 2024 budget document (structural benchmark for end-October 2023).
- Review of yacht industry taxation and review of income and non-monetary benefits tax to assess implications of introducing tax return.

### Public sector management, remuneration and digitalization
- Public sector review:
  - Comprehensive functional review of whole of government to start in January 2024; complemented by digitalization agenda.
  - Near-term focus on managerial efficiency, role and functions of departments and agencies, strengthening monitoring and evaluation and targeted training.
- Public sector remuneration reform (April 2023):
  - Current ratio between Basic Salary and allowances: 57:43.
  - Four allowances to be merged into basic salary: 5 percent supplementation allowance; Marketable Skills Allowance; Graduate Allowance; PSC Performance Allowance.
  - After consolidation: proposed 10 percent increase to each salary with minimum increase SCR1,000.00; new ratio proposed 72:28.
  - Implementation costs in 2023: SR 171.9 million under wages and SR 23.8 million under goods and services.
  - Full annual impact: SR 229.2 million under wages and SR 31.68 million under goods and services.
  - Additional 2023 measures: recruitment freeze in non-critical areas; cleaning services moved from goods and services to wages and salaries from 2024; one-off compensation SR 24.7 million in 2023; wages and salaries increasing by around SR 65 million from 2024 onwards; expected savings SR 5.1 million annually.
- Digitalization agenda and investments:
  - Medium-term allocation of SR 421.61 million for several digitalization projects (Integrated Financial Management Information System, Human Resource Management System, Agency of Social Protection system).
  - Legislative and infrastructure actions:
    - New Communications Bill approved by Parliament to address anti-competitive practices and create independent ICT regulator.
    - Data Protection legislation expected to be enacted by second quarter 2023.
    - Key platforms launched in last quarter of 2022: digital ID system, online Business, Company & Association registration, online License Application.
    - Health Information System delayed, expected online by end-2023.
    - Digital skills to be compulsory in national curriculum; ICT in Education policy approved by Cabinet in October 2022.
    - Promotion of digital financial services and access to affordable financial products; new e-money legislation support.
    - Payments systems improvement: Real Time Gross Settlement System (RTGS) expected to come online by first quarter 2024.
    - HRMS to connect HR and payroll, talent management, people analytics; expected online in time for 2025 budget preparation.
  - Immediate business process reforms: focus on 8 key processes integral to the business sector and integration into new investment portal expected completed by end of June 2023.

*IMF staff report chapter: Economic performance and policy measures for Seychelles (excerpts).*

### 20. The enhancement of the ASYCUDA World is underway. The system is being upgraded to

### 20. The enhancement of the ASYCUDA World is underway. The system is being upgraded to

### ASYCUDA World upgrade
- System being upgraded to accommodate new modules: Excise Warehouses, E-Payment, E-Government, Single Window, Express Courier, E-Manifest for Courier.
- Continuous technical training included.
- Modules developed in phases and deployed as ready.
- Expected completion timelines:
  - E-Manifest modules, Express Courier and Excise warehouse modules by September 2023 (structural benchmark).
  - E-payment to be completed by December 2023.
  - Single Window platform fully developed by the second quarter of 2024.

### REX (EU self-certification system) implementation
- REX replaces the EUR.1 certificate; based on self-certification.
- Stakeholder engagement:
  - Series of workshops conducted with non-government stakeholders, particularly exporters of fish or fish products to the EU.
  - Designated Customs officers trained.
- Go-live scheduled: 01 July 2023.
- Registration process for potential users (exporters or authorised agents):
  - Two-stage application and registration: pre-application on an EU website and registration at the Seychelles Customs (in person or electronically).
  - Upon completion, exporter authorised to self-certify origin by including appropriate statement of origin on the invoice, a delivery note, or any other commercial document describing the products concerned in sufficient detail to enable identification.

### Seychelles Revenue Commission (SRC) modernization and Tax Management System (TMS)
- Strategic objectives:
  - Empower and enable taxpayers to meet obligations timely via innovative and transparent processes and diversified online services.
  - Simplify SRC business processes to reduce compliance time and cost and improve ease of doing business.
  - Maximize revenue growth through innovative practices and technology-driven products and services.
- Registration and portal:
  - Registration module completed and went live in October 2022.
  - New tax portal launched in December 2022 to facilitate online registration of businesses.
  - Portal functions: register and de-register a business or activity, modify and update information, monitor application progress, view account and notifications, automatically generate and download tax clearance certificate.
  - Taxpayers no longer required to come to SRC for registration on new portal versus old portal.
  - Portal extension timeline:
    - Online filing in June 2023.
    - Payment in December 2023.
- TMS project phases and features:
  - Project currently in phase 3: design and development of core modules: returns processing, payment processing and accounting.
  - Emphasis on dynamic configuration framework to reduce need for programming and increase flexibility via a workflow system.
  - Consolidation of Web Portal and Back-office functions to reduce development workload.
  - Upcoming activities expected to be completed by end-June 2023:
    - completing development of the returns processing module and commencement of user acceptance testing;
    - development of the payment processing and cashier system;
    - technical discussion with banks and DICT on payment system integration;
    - technical discussion with Pension fund for payroll and system integration;
    - configuring and deployment of the new servers acquired for the TMS system;
    - ongoing technical discussions with Ministry of Finance (treasury) regarding system integration and financial reporting and reconciliation;
    - engage in public education regarding the use of the new bank account as well as the use of the portal and additional changes relating to filing returns.
  - Key deliverables:
    - develop a modern Tax Management System to increase revenue collection;
    - increase use of digital services to lower compliance costs for taxpayers and improve voluntary compliance;
    - increase taxpayer registrations;
    - offer additional opportunities for taxpayer education.
- Business process reengineering:
  - Processes for registration, returns processing and payment completed.
  - Debt collection, audit and risk to be conducted in 2023 to 2024.
  - Accounting user requirement in final draft.
  - Aim to incorporate international best practices, increase automation and move towards paperless revenue administration.
  - Integration with other government systems being considered to facilitate sharing and validation of information.
- Data cleansing and readiness:
  - SRC with support from GOPA conducting data cleansing for registration module; public outreach to validate and provide missing information.
  - Plan to complete most of the exercise by end of second quarter 2023 due to low taxpayer updates by end of 2022.
  - Staff training and public awareness ongoing.
  - Assistance received from students from the School of Business Studies and Accounting for data clean up.
- Returns, payment, compliance and outreach:
  - Modernize processing of tax returns and payment to improve tax collection and ensure businesses meet obligations.
  - Voluntary compliance encouraged via educational outreach, easier filing and payment, enforcement for late filers/payors.
  - System to send automatic reminders before due date and automatic notices after due date for non-filers/non-payers.
  - Review and simplification of tax returns to facilitate compliance to be implemented in new tax system.
  - Lodgment outreach on inner islands and Mahe assisting taxpayers with lodgment, registration, deregistration, information updates.
  - Pilot of Compliance Improvement Plan (CIP) started; developed with assistance from AFRITAC South and expected to increase overall tax compliance rate.
  - CIP sector focus in first year:
    - I. Wholesale/retail: audit projects, awareness sessions, publishing educational materials.
    - II. Tourism: start with yacht category, progressively include boat charter, short-term accommodation and restaurants; targeted workshops and guidance notes for yacht operation.
    - III. Financial Sector: Bureau de change targeted first year; subsequent years to include insurance and banks.
  - Compliance approach: combine education and better services to facilitate voluntary compliance with coercive actions (audits, prosecution) depending on taxpayer attitude and risk.
  - Website redesign to be more user-friendly for easier taxpayer access to information.

### Transfer Pricing, International Tax Capacity Building and Technical Assistance
- TIWB assistance for Transfer Pricing to transfer audit knowledge and skills through real time “learning by doing”.
- Support includes formal and informal training, conducting transfer pricing compliance.
- Expected impacts:
  - strengthen and enforce the arm’s length principle;
  - reduction in revenue loss from transfer pricing/profit shifting;
  - increase in revenue collected from transfer pricing non-compliance via risk assessment framework and audit program execution.
- SRC recruitment and training:
  - SRC recruited a Technical Advisor (TA) to assist with practical audit casework including Transfer Pricing cases, review of Intelligence framework, risk profiling and case selection, International Tax Unit international tax issues (BEPS Actions and Exchange of Information).
  - TA to build capacity of SRC officers; training plan developed; training of officers within Audit and International Tax units already started.
  - Specialized Audit trainings received from the African Tax Administration Forum for Telecommunications and Financial Sectors.
  - Ongoing training for Basic, Intermediate and Advanced Audit.

### Automatic Exchange of Information (AEOI) system improvements
- System improvements to enhance efficiency and OECD standards compliance.
- New functionality:
  - Financial Institutions (FI) onboarding developed.
  - Integration with OECD CTS system to ensure full automation.
- Process automation details:
  - FIs register on new platform and submit files which will be downloaded, decrypted, validated and send a status message automatically without ITU staff intervention.
  - System linked with OECD CTS to send all files automatically rather than manual country-by-country uploads.
  - Full automation applicable for files received from other countries.
- Technical support and training:
  - Consultant in-country resolving technical issues and conducting training on new functionalities.
  - Training for Exchange of Information Upon Request (EOIR) case management system and AEOI audit program and tool.
  - EOIR case management system to facilitate tracking of cases; audit tool to facilitate and automate auditing of AEOI information.
  - Five officers including Manager of the International Tax Unit to be trained and able to prepare and conduct audits per Action Plan.
  - CRS administration Compliance strategy to be developed based on system data.
- Due date for finalization of the system: May 2023.

### Expenditure management, fiscal framework and social protection reforms
- Medium-Term Fiscal/Budget Framework and integrated financing:
  - Government working with UNDP to prepare an integrated financing framework to guide resource mobilization.
  - First step: development finance assessment to be completed by third quarter 2023.
  - AFRITAC South support (August 2021) in strengthening macrofiscal forecast capacities: (i) assessing fiscal risk and sustainability through a public sector balance sheet (PSBS) approach; (ii) preparing debt scenarios to monitor medium-term fiscal strategy and IMF EFF program targets.
  - Additional AFRITAC South support to link Medium-Term Debt Strategy and National Development Strategy in context of 2024 budget.
  - Ministry of Finance working with MDAs to improve the Public Sector Investment Plan (PSIP) over the medium term to align with budget framework.
  - Seychelles Infrastructure Agency set up in January 2022 to improve planning and execution of capital projects.
  - Work on result-based management to align government strategies with budget planning.

- Temporary support programs and social spending
  - Temporary Salary Support (TSS) and Temporary Energy Support (TES) programs introduced in July 2022 expected to close at end-March (year not re-stated in source).
  - ASP beneficiaries previously on program to continue to be assisted until revision of statutory benefits completed.
  - As at end-March 2023 a cumulative sum of SCR 71 million has been disbursed.
- Social protection Program-for-Results (PforR) reforms and recommendations:
  - World Bank-assisted survey of past and present beneficiaries to address decline in SWA beneficiaries.
  - Recommendations: greater awareness and outreach campaign and improved communication of application outcome.
  - Program development objectives: improve efficiency and effectiveness of social protection programs while remaining above social expenditure floor established under the program.
  - Analysis of social spending to be refined to better capture budget allocation towards human capital development.
- Focus in 2023 and measures:
  - Improve fiscal sustainability of Retirement Pension by enacting law increasing retirement age to 65 years old beginning on January 1, 2023; amendments enacted by end of December 2022.
  - Improve efficiency and transparency of social protection programs through:
    - ASP to adopt revised socioeconomic needs assessment incorporating non-income dimensions of poverty.
    - Comprehensive Review of ASP internal controls and payroll systems by PWC; Government provided funds in 2023 budget for procurement of IT system by ASP.
    - Access to home care better targeted through establishment of an Agency; trained caregivers within HCA, ASP, and MOH providing home care to at least 60 percent of new high-need HCP beneficiaries.
    - Adopt interdisciplinary approach and establish a social registry to coordinate services across MDAs by end March 2024.

### Public procurement, PEFA and public expenditure review
- Public procurement legal framework review:
  - Comprehensive review started in 2021; first phase enacted at End-December 2022.
  - IMF TA to be provided in 2023 for additional review of public procurement act and public finance management act to ensure consistency and incorporate digitalization agenda.
  - Adoption of a Public-Private Partnership framework including climate-related investment and approval of relevant legislation by end of December 2024.
- PEFA assessment and action plan:
  - With World Bank assistance, PEFA assessment to be undertaken during first quarter 2024.
  - Action plan to be prepared for Cabinet endorsement by June 2024 to correct any deficiencies identified by PEFA assessment.
  - World Bank assisting with public expenditure review for education and health sector expected to be completed by July 2023.

*Source: 1sycea2023001 - 20. The enhancement of the ASYCUDA World is underway. The system is being upgraded to*

### 35. We will enhance the Program Performance Based Budgeting framework to improve

### 1sycea2023001 - 35. We will enhance the Program Performance Based Budgeting framework to improve

### Program Performance-Based Budgeting and Zero-Based Budgeting
- Rollout: With World Bank support, the Government will roll out Zero-Based Budgeting in five Portfolio for the budget process 2024-2026.
- Objective: Show clear link between an MDA’s strategic priorities, interventions, activities and budget to realign expenditure to strategy.
- Standardization: The MoFNPT will provide standard cost for some common use items to ensure consistency of unit cost when calculating the cost of different activities using the Zero-based costing template.

### Integrated Financial Management Information System (IFMIS)
- Implementation target: Install a new IFMIS platform by January 2025.
- Budgeting and procurement timeline:
  - A budget for the new IFMIS is included in the 2023 budget and over the medium term.
  - Review of System Requirements Specifications documents to be completed by end of April 2023.
  - Tender for procurement of the core system expected to be launched in June 2023.
  - Contract for core system expected to be signed by December 2023.
- Phased contextualization:
  - Budget preparation and management module to be done first with the objective of preparing the 2025 budget in the new system.
  - Subsequent configuration: budget execution, accounting and reporting modules.
- Functional scope: Review to determine cross-cutting functional requirements and interface system requirements such as the SRC, debt management, Payroll and asset management systems.
- Assistance: IFMIS task team reviewing requirements with the assistance of AFS.

### Cash Flow Forecasting and Cash Flow Unit (CFU)
- Problem: Current deviations in cash flow forecasts are considered too large.
- Commitment: Improve spending efficiency through strengthening cash management.
- Recent action: Ministerial circular in October 2022 to reduce deviation between forecast and outcome in the monthly cash flow plan.
- CFU milestones:
  - CFU to be staffed with competent staff by the end of May 2023.
  - CFU will work closely with MDAs to receive information on large payments beforehand and include in the cash flow plan.
  - CFU will improve consolidated and comprehensive cash flow plan template, expand classification details for expenditure, and include revised forecasts as actuals are entered.
  - CFU will ensure forecasting errors are systematically analyzed and discussed with stakeholders.
- Linkages: Improved cash flow forecasts will inform Debt Management Division (DMD) borrowing planning and liquidity management for the Central Bank of Seychelles (CBS) to support monetary policy.

### Public Investment Management and PIMA/C-PIMA
- Priority: Improve efficiency of public investment funding; investment in public infrastructure remains a government priority.
- Assessments: First Public Investment Management Assessment (PIMA) and Climate PIMA (C-PIMA) conducted in Q1 2023 with IMF Fiscal Department and World Bank assistance.
- Identified causes of under-execution of capital projects:
  - Weaknesses in national and sectoral planning processes.
  - Challenges and gaps in appraisal and selection processes for projects entering the budget.
  - Limited capacity for preparing and analyzing project information across government.
  - Maintenance budgeting and planning shortcomings, including outdated fixed asset registers not available in the Fixed Asset Management System.
- Action plan: Submitted for Cabinet endorsement on 3rd May 2023 to improve under-execution of capital investment and address gaps in public investment management institutions.

### Public Investment Management Policy and PFM Act Revisions
- Policy review: Public Investment Management Policy to be reviewed by the end of June 2023.
  - Updates to requirement for project appraisal.
  - Review of thresholds for determining major projects to ensure major projects undergo rigorous appraisal.
  - Incorporate routine maintenance methodologies.
- Database target: By the end of 2024, develop a well-detailed database of all appraised projects for financing decisions.
- Legislative change: PFM Act to be reviewed to include ex-post independent reviews of all major and strategic capital projects to ensure value for money.

### Asset Registers, Maintenance Standards, and Program Classification
- Problem: Asset registries are neither comprehensive nor regularly updated, hampering fiscal accountability and asset management.
- Priorities:
  - Identify major and critical fixed assets managed by MDAs and prioritize updating their asset registries and uploading this information in the Fixed Asset Management System.
  - Develop routine and capital maintenance methodologies for MDA assets.
  - Adopt revised program classification to better measure maintenance costs and identify routine vs capital maintenance.

### Minimizing Risks of State-Owned Enterprises (SOEs)
- Transfer reductions: Transfers to state-owned enterprises reduced from 2.0 percent of GDP in 2020 to 0.16 percent forecasted for 2023.
- Legislation: Public Enterprise bill gazetted in October 2022; to be discussed in the National Assembly in May 2023.
  - New legislation to establish governance, monitoring, and a harmonized framework for Public Enterprises.
- Transparency and monitoring:
  - Public Enterprises Monitoring Commission (PEMC) to publish a Public Enterprises' Annual Report in accordance with new legislation (structural benchmark for end-June 2023); report to present overall financial performance, including outstanding debt, based on audited financial statements and published six months after financial year-end.
  - PEMC through an independent audit firm to conduct governance audit and operational assessment of five key public enterprises by December 2023: Public Utilities Corporation (PUC), Seychelles Petroleum Company (SEYPEC), Air Seychelles, Island Development Company Limited, and Seychelles Trading Company Ltd (STC).
- Specific SOE actions:
  - Work with SEYPEC on tanker replacement strategy to address potential risk.
  - Creation of Seychelles Aviation Handling Company to own ground handling assets at Seychelles International Airport; lease agreement with Air Seychelles (framework signed by September 2023; lease agreement including admin fee, initial investment payment and monthly lease payment to be signed by end-September 2023).
  - Review of executive compensation at SOEs with U.S. Treasury OTA assistance; draft recommends implementation of a comprehensive job grading scheme such as the Hay Method.
  - Government to work with PEMC to set consistent and transparent criteria for SOE salary packages and publish information about state-owned compensation by end of June 2023.

### Public Debt Management Strategy and Domestic Market Development
- Transparency measures: Quarterly debt bulletins published; quarterly borrowing and issuance plans approved by the National Debt Committee and published.
- Legal modernization: Revise relevant acts to provide more flexibility to debt management and promote debt sustainability.
- Settlement: As part of settlement agreement in December 2022 between Libyan and Seychellois authorities, Government paid off outstanding principal from the escrow account in January 2023; remaining penalty interest to be paid in two equal installments in 2023.
- Domestic market development:
  - Diversified instruments: Issuance of T-Bonds on a quarterly basis to lengthen weighted average maturity of domestic debt stock by almost one year and reduce refinancing risks.
  - Explore issuance of 10-year bonds given domestic market evolution.
  - Support issuance via trading reforms in government securities and development of repo market; action plan published by relevant stakeholders (structural benchmark for end-March 2023).
  - Continued reliance on external concessional financing in the medium term to reduce borrowing cost.

### Monetary and Exchange Rate Policy
- Policy stance: Accommodative monetary policy stance expected to remain unchanged in 2023; CBS stands ready to adjust policy if domestic or external developments alter inflation outlook.
- Forward guidance: Financial Indicators Expectations Survey conducted with banking sector as of Q1 2023; outcomes indicate banking expectations aligned with CBS on inflation outlook. Household survey expected in second half of 2023 with National Bureau of Statistics support.
- Transmission issues: Transmission of interest rates remains weak.
  - CBS implementing recommendations from IMF MCM technical assistance (April 2022) to strengthen monetary policy operations and develop money and FX markets.
  - CBS started absorbing excess liquidity since January 2023.
  - CBS developed a reform plan for strengthening monetary policy operations to be made public by end-July 2023 (structural benchmark).
  - Re-operationalise Repo instrument by end-December 2024 (new structural benchmark) with IMF TA support.
- Exchange rate: CBS committed to a floating exchange rate; will intervene only to facilitate orderly market conduct and reserve accumulation, purchasing opportunistically via transparent market auctions.
- Reserve accumulation: CBS will increase foreign exchange buffer when opportunities arise as determined by specified market indicators.
- Partnership: Renewed partnership with Reserves Advisory & Management Partnership (RAMP) of the World Bank in October 2022 with a new three-year Advisory and Investment Management Agreement (AIMA) that includes technical advisory and an investment management mandate for US$100 million.

### Real Sector Statistics
- Challenges: National Bureau of Statistics (NBS) capacity constraints adversely impact timely and quality statistics; compilation issues led to substantial post-publication revision of real GDP growth from 2.4 percent to 5.4 percent for 2021.
- Assistance: NBS receiving IMF technical assistance to strengthen compilation and dissemination of real sector statistics, enhance data quality and integrity, review methodology.
- Future work: Explore development of framework for compilation of a residential property price index (RPPI) with international partners due to systemic importance of real estate.

### Financial System Modernization and Stability
- Monitoring enhancements: CBS collecting additional information on restructured and rescheduled loans.
- Forbearance unwind and asset quality:
  - Total outstanding forborne loans decreased by SR 410 million to SR 2,589 million as at December 2022 compared to SR 2,999 million in June 2022, accounting for 24.77 percent of total loans and advances.
  - Sectoral shares of forborne loans as at December 2022: Tourism 41.88 percent; Mortgage loans 12.33 percent; Private household 7.21 percent.
  - Non-performing forborne loans increased by SR 180.46 million from June 2022 to SR 508.51 million as at end of December 2022, an increase of 55.01 percent, primarily driven by higher NPLs in the Tourism sector.
- Stress testing and supervisory actions:
  - Follow-up stress test study with forward-looking analysis to be conducted by end-September 2023 (structural benchmark) to assess banking sector resilience to potential shocks.
  - CBS conducting analysis of increases in NPL levels and possible impact on capital adequacy ratios of individual banks.
  - Possible enforcement actions: meetings with banks’ management and Boards on remedial measures; restrictions on dividends and other capital distributions; injection of additional capital.
  - CBS will ensure banks provide appropriate provisioning for their NPLs.
  - If banks become undercapitalized, CBS will use early intervention measures; viable but undercapitalized banks required to submit capital plans; nonviable banks subject to reorganisation or liquidation by the Central Bank.

*Source: Excerpt from the provided IMF content unit.*

### 57. CBS intends to strengthen its supervisory framework such that it is more risk-sensitive,

### CBS intends to strengthen its supervisory framework such that it is more risk-sensitive,

### Risk-based supervision (RBS) and supervisory assessments
- Implementation and adoption of the risk-based supervision (RBS) framework, which integrates Basel II Pillar 2 requirements.
- Review and necessary modifications are ongoing to ensure the RBS model is simplified to produce resourceful information and effective in the CBS’s supervisory mandate.
- Banks have started submitting their Internal Capital Adequacy Assessment Process (ICAAP) as per the Basel II Pillar 2 requirement.
- An IMF/Afritac South mission assisted the CBS in developing capacity to undertake effective supervisory assessment of banks’ ICAAP submissions as part of its Pillar 2 framework.
- CBS is working on a strategy to effectively implement its new RBS framework and to undertake regular and comprehensive off-site analysis and regular on-site examination.
- In accordance with its examination plan for 2023, CBS will conduct five onsite examinations in 2023; the examinations will include horizontal as well as limited scope and will cover an assessment of assets quality of banks.

### Basel II Pillars and disclosure
- During 2022, CBS engaged with the Attorney General’s Office to draft amendments to the Financial Institutions (Capital Adequacy) Regulations 2010 to incorporate Pillar 1 of Basel II; drafting is at an advanced stage and is expected to be finalized during the first half of 2023.
- CBS expects to issue Basel II Pillar 3 disclosure guidelines by the end of 2023.

### Financial Stability Committee (FSC) and macroprudential framework
- CBS is strengthening the legal basis of the Financial Stability Committee (FSC).
- The first full draft of the Financial Stability Bill has been prepared; next step is dissemination to stakeholders for review.
- The draft Financial Stability Bill is expected to be finalised by June 2023 for onward transmission to the Attorney General’s Office.
- A draft macroprudential framework and toolkit has been developed to address the build-up of systemic risks in the banking sector; technical assistance from IMF is being sought to finalise the framework and build capacity for operationalisation.

### Crisis management and bank resolution
- CBS remains committed to a robust crisis management and resolution framework; work is under way to enhance the crisis management and bank resolution framework.
- The Cabinet of Ministers approved the updated policy paper on bank resolution in October 2022.
- CBS received IMF technical assistance on high level policy matters and implementation of bank resolution in January 2023.
- CBS will receive IMF technical assistance to review the draft legislation in April 2023.
- The Bank Recovery and Resolution Bill is expected to be approved by Cabinet in September 2023 (structural benchmark) and gazetted by December 2023.
- The legislation will strengthen early intervention measures and clarify stages of enforcement actions (normal supervisory enforcement actions, early intervention and resolution).
- CBS will engage with the judiciary to explore options for ensuring that foreclosures happen in an appropriate time frame.

### Governance, safeguards, and CBS Act amendments
- CBS remains committed to implementing the safeguards assessment recommendations.
- CBS, in consultation with the IMF, will submit amendments to the CBS Act to the Cabinet by end-June 2023 (structural benchmark); amendments would strengthen governance and oversight, enhance institutional and personal autonomy, and safeguard financial autonomy.
- CBS is considering incorporating provisions for Emergency Lending Assistance (ELA) for liquidity support to solvent and viable banks in the proposed amendments to CBS Act.

### National Payment System (NPS) legal framework and modernization
- CBS will strengthen its legislative framework for the National Payment System to align with international standards and best practices; review of the National Payment System Act (NPSA) 2014 and supporting regulations is ongoing.
- The policy paper for NPSA amendments was approved by the Cabinet of Ministers in February 2023 and drafting instructions have been submitted to the Attorney General’s Office.
- CBS continues to modernize the National Payment System to achieve a payment environment that is convenient, affordable, reliable, efficient and safe.
- With US Office of Technical Assistance (OTA) support, CBS staff have engaged in peer learning exchanges to assist in formulating the entity to manage payment system infrastructures; CBS anticipates finalizing the way forward during Q2 2023.
- Work is ongoing to align the sun-setting of cheques with government digital projects so stakeholders have alternative facilities in lieu of cheques.
- CBS and the Department of Information and Communication Technology (DICT) commissioned a diagnostic study to assess affordability and reliability of internet and network connection; the study commenced in February 2023 with an in-country visit scheduled for April 2023; the report is expected to be published in Q3 2023.

### Payment and securities infrastructure projects
- CBS endeavors to implement a Central Securities Depository and a Real Time Gross Settlement System.
- The request for proposal for these systems was issued in April 2023.
- The systems will be implemented alongside the new core banking system, all scheduled to go live in 2024.

### Regulatory sandbox, innovation hub, and legal considerations
- CBS is finalizing establishment of a regulatory sandbox for financial products and services to create a flexible regulatory environment, promote competition and encourage innovation.
- Engagement with the Attorney General’s office to finalize legal considerations for operationalization of the sandbox in Q2 2023 is ongoing.
- In the interim, CBS is working with stakeholders to create an innovation hub/incubator to enable firms to engage with competent authorities on regulatory issues and seek guidance on conformity of innovative financial products and services.

### Financial consumer protection, literacy, and credit information
- CBS remains committed to enhancing financial literacy and financial capabilities via the National Financial Education Strategy and Digital Financial Literacy program, focusing on benefits, risks and responsibilities vis-à-vis digital payment products and services.
- CBS is working on Regulations under the Financial Consumer Protection Act, emphasizing Complaints Handling, Credit Granting and Debt Recovery, and Fees and Charges; the Regulations are expected to be published in 2023.
- A new Credit Information System and supporting legal framework are to be implemented in 2023; the system has been developed and audited; the new system and accompanied legal framework are expected to be in place in Q2 (2023).

### AML/CFT reforms and National Risk Assessment (NRA)
- CBS is committed to improving the effectiveness of the AML/CFT regime and to implement recommendations of the Eastern and Southern Africa AML Group (ESAAMLG) 2018 Mutual Evaluation Report, where Seychelles received 10 Low ratings in the 11 Immediate Outcomes.
- A follow-up report submitted for ESAAMLG discussion in April 2023 detailed improvements in 5 of the 11 technical compliance shortcomings; an upgrade was received for those five.
- The five FATF recommendations improved relate to Recommendations 5, 19, 25, 28 and 34 (Terrorist Financing offence, Higher-risk countries, Transparency and Beneficial Ownership of Legal Persons, Regulation and Supervision of DNFBPs, and Guidance and Feedback respectively).
- In 2023, Seychelles will continue to address the remaining six technical compliance shortcomings for discussion in ESAAMLG’s next meeting in March 2024.
- The second National Risk Assessment (NRA) on money laundering and terrorism financing is underway using the World Bank’s self-assessment tool; it is led by government officials with private sector participation and is expected to be completed by end-September 2023.
- After completion, the National AML/CFT Committee will submit an action plan to address deficiencies identified in the NRA for endorsement by the Cabinet of Ministers.

### Virtual assets (VA) and virtual asset service providers (VASPs)
- Tackling regulatory arbitrage involving VA and VASP is a priority reform.
- In July 2022, the Government completed the National Risk Assessment of VA/VASPs in line with FATF Recommendation 15; Seychelles’ exposure to ML/TF risks from VA/VASP was assessed as very high due to the absence of a regulatory framework.
- The National AML/CFT Committee is finalizing a course of action to enable mandatory identification, registration and licensing of VASPs and to provide a risk-based supervisory approach.
- The policy and legislative framework will be submitted to Cabinet of Ministers by end-June 2023.

### Beneficial ownership (BO) information, compliance, and verification
- Compliance rate: As end-February 2023, 6,988 of the 45,381 international business companies (IBCs) of good standing or around 15 percent have not submitted the BO information to the central BO database of the Financial Intelligence Unit (FIU).
- The FIU publishes quarterly statistical reports with the National AML/CFT Committee; the next quarterly report will be published by end-May (2023).
- Inspection report: In March 2023, the Financial Services Authority (FSA) submitted its 2022 Inspection Report on Beneficial Ownership on resident agents to the National AML/CFT Committee; a redacted version was published in May 2023.
- Based on inspections, 96 percent of the 1,443 inspected entities (IBCs, limited partnerships, trusts and foundation) had a Register of Beneficial Owners (RoBOs) filed with their respective resident agents.
- Comparison exercise found that out of inspected entities, 21 percent of the BO information in the RoBOs were exact matches to the BO information in the central BO database held by the FIU.
- Discrepancies observed included incomplete data submitted, different nature of interest held by the BO, and multiple entries.
- Sanctions: At the time of 2022 on-site inspections, the BO Act did not provide sanctions for failure to file BO information with the resident agent; this was rectified with December 2022 amendments to the BO Act that provide a penalty of SCR150,000 (US$12,000) for failing to submit declaration of beneficial ownership.
- Public consultations are taking place to revise implementing regulations and issue guidelines to be enacted by end-June (2023).

### Strengthening BO verification, access, and IT workflow
- With EU Global Facility for AML/CFT technical assistance, revised BO Guidelines for effective collection and verification of BO information in the central BO database held by the FIU will be issued by end-July 2023.
- FIU will be ensured effective access to all relevant databases for verifying BO information and mechanisms will be established for processing reports on information discrepancies.
- By end-December 2023, the BO Act will be amended to broaden access to the central BO database held by the FIU and provide limited BO information to financial institutions and other reporting institutions with AML/CFT obligations and all persons with legitimate interest.
- The National AML/CFT Committee will complete by end-September (2023) the IT BO Database Workflow that will underpin a new digital platform providing direct and complete access to all supervisory authorities and law enforcement agencies to the central BO database.

### Transparency and Exchange of Information on Request (EOIR) peer review
- Launch of Second Round Supplementary Peer Review on Transparency and Exchange of Information on Request (EOIR) for Seychelles commenced on 1st of October 2022 and covers period from 1 April 2019 to 31 March 2022.
- Seychelles was removed from Annex I of the EU’s list of non-cooperative jurisdictions for tax purposes following the EU meeting on the 5th of October 2021.
- The remaining step to be removed from Annex II (the “EU grey list”) for criterion 1.2 (tax transparency) is obtaining a Largely Compliant status in the forthcoming Supplementary Review.
- Seychelles filled the EOIR Supplementary Review Questionnaire; the draft report is planned to be submitted to the Peer Review Group for consideration at the PRG meeting of June 2023.
- After PRG consideration, the EU Economic and Financial Affairs Council will consider the report to remove Seychelles from Annex II for criterion 1.2.

### Climate change reforms, targets, and financing
- Seychelles set a greenhouse gas emission reduction target of 26.4 percent below a business-as-usual emission level by 2030 and a net-zero emission target by 2050 in its updated NDC submitted in 2021.
- To achieve the 2030 target, it is estimated that as much as US$670 million is required by 2030 to fund climate adaptation and mitigation activities.
- Climate and resilience initiatives include implementing the Coastal Management Plan, the Marine Spatial Plan, the National Integrated Emergency Management Plan, and Strategic Land Use Development Plan, and integrating climate considerations into public investment management and budget processes.
- Seychelles issued the World’s first sovereign blue bond in 2018 raising US$15 million for sustainable use of marine resources.
- In 2017, Seychelles undertook a debt for nature swap mobilizing US$21.6 million for adaptation financing and raising an additional US$5 million from the private sector.
- Seychelles is tapping international climate funds such as the Green Climate Fund (GCF) and the Global Environmental Facility (GEF) and climate-related support from multilateral development banks and bilateral donors.
- A climate finance advisor has been brought on board to support scaling up climate finance; despite efforts, the climate financing gap remains large.
- The Ministry of Finance, National Planning and Trade (MoFNPT) will integrate priority NDC objectives in the forthcoming National Development Strategy 2023-2027 (Reform Measure for end-September 2023) and in portfolio-based sector plans.
- MoFNPT will conduct a PIM policy revision to include methodologies that incorporate climate-related issues in project selection criteria and project appraisals, and apply the updated project appraisal to at least two major infrastructure projects (Reform Measure for end-September 2024).
- A Public-Private Partnership (PPP) framework that reflects climate-related risks will be developed and integrated in the Public Financial Management Act and the Public Procurement Act, with the aim to use PPPs to leverage private climate finance (structural benchmark for end-March 2025).

*Source: IMF staff report excerpt (Seychelles).*

### 77. The government will mainstream climate elements into the budget and fiscal risk

### The government will mainstream climate elements into the budget and fiscal risk

### Mainstreaming climate into planning, budget, and fiscal risk management
- Integrate climate change dimensions into the Program Performance Based Budgeting (PPBB) framework as part of FY2025 budget preparation.
- MoFNPT actions (Reform Measure for end-October 2024):
  - Identify climate-related expenditures, including those with positive and negative climate effects, in the PPBB.
  - Prepare scenarios of long-term fiscal sustainability analysis under different climate scenarios and publish results in the Fiscal Risk Statement.
- Enhance fiscal risk analysis by:
  - Incorporating a comprehensive mapping of fiscal risks from climate change and natural disasters.
  - Quantifying fiscal risks through long-term fiscal sustainability analysis across different climate scenarios.
  - Quantifying discrete risks to infrastructure and public assets from hazards analyzed in the coastal management policy.

### Financial sector resilience and climate finance mobilization
- Establish a national climate finance mobilization strategy and framework to unlock public and private finance (Reform Measure for end-September 2024).
- Develop a comprehensive climate finance strategy covering different financing instruments and ensure a robust pipeline of climate investment projects (Reform Measure for end-September 2024).
- Implementation framework and funding target:
  - Put in place an implementation framework with institutional mechanisms and financing modalities, and secure funding for at least one major adaptation or mitigation project (Reform Measure for end-October 2025).
- Strengthen climate-related risk management in the financial sector:
  - Central Bank of Seychelles (CBS) to initiate climate-related risk disclosure for banks, including issuing guidelines, establishing a data repository and reporting template, and publishing disclosure reports of at least two major commercial banks (Reform Measure for end-March 2025).
  - CBS to undertake a climate stress testing for the overall financial system based on a macro-prudential approach (Reform Measure for end-September 2025).
- International standards and best practices to be followed include the Network for Greening the Financial System (NGFS) and the Task Force on Climate-Related Financial Disclosures (TCFD).

### Transition, diversification, and renewable energy priorities
- Government commitment to the NDC with stepped-up adaptation and mitigation actions; renewables central to economic recovery and sustainable post-COVID recovery.
- Renewable energy scaling (Reform Measure for end-April 2025):
  - Use the new Electricity Act and operating regulations to scale-up renewable energy investment and increase private sector climate investment via distributed electricity generation and renewable energy independent power producers (IPPs).
  - Ensure frameworks for: rates determination under net billing and gross metering schemes; the renewable Power Procurement Plan; competitive selection process for renewable energy IPPs; and a framework for multi-year electricity tariff system.
- E-mobility and building legislation:
  - Adopt an e-mobility regulatory framework to scale up electric vehicle adoption and supporting infrastructure.
  - Approve new draft building legislation integrating climate adaptation and mitigation aspects (Reform Measure for end-March 2024).
- Disaster risk financing:
  - Adopt a comprehensive national Disaster Risk Financing Strategy (Reform Measure for end-March 2025).
- Natural resource management:
  - Ensure recently signed oil exploration complies with highest international environmental and governance standards and Seychelles’ environmental laws, and does not compromise the NDC.

### Green fiscal incentives and targeted support
- Existing incentives and past measures:
  - Goods imported for “conservation, generation or production of renewable energy or environment friendly are exempt from the payment of Value added Tax.”
  - Photovoltaic (PV) financial rebate scheme launched in May 2014; resources exhausted and expected to be replenished in 2024.
  - All duties including environment levy removed on electric vehicles in 2015.
- Planned fiscal regime review and new incentives (Reform Measure for end-March 2026):
  - Review fiscal regime and introduce other incentives to promote climate change and environmental related investment.
  - Potential measures include congestion fees, feebates, environmental levy, and/or price incentives for waste reduction.
- Budgeted support for green finance initiatives:
  - Funds for additional support for green finance initiatives between 2025-2027 are SR 90m (under the social programmes of government targeting individuals).

### Program monitoring, sequencing of reform measures, and timelines
- EFF program monitoring modalities:
  - Semi-annual reviews, quantitative performance criteria and indicative targets, continuous performance criteria, and structural benchmarks.
  - First review set for December 2023 based on end-June 2023 quantitative targets; second review set for June 2024 based on end-December 2023 quantitative targets.
  - Quantitative targets and structural benchmarks detailed in the MEFP and definitions/reporting in the Technical Memorandum of Understanding (TMU).
- Selected Reform Measures with target dates (as specified in the program):
  - RM1: Integrate NDC objectives in National Development Strategy 2023-2027 — Sep-2023 (1st Review).
  - RM3: Update Public Investment Management Policy to include methodologies for net GHG emissions, emission reduction alternatives, climate resilience, and apply to at least two major projects — Sep-2024 (3rd Review).
  - RM4: MoFNPT to identify climate-related expenditures in PPBB and conduct long-term fiscal sustainability analysis under different climate scenarios — Oct-2024 (3rd Review).
  - RM5: Cabinet adopts national climate finance mobilization strategy; MoFNPT submits pipeline of appraised climate projects — Sep-2024 (3rd Review).
  - RM6: CBS issues bank guidelines on climate-risk reporting, establishes data repository and publishes a summary climate risk exposure report including at least two major commercial banks — Mar-2025 (4th Review).
  - RM9: CBS adopts and implements climate-related stress testing framework and publishes a financial sector climate stress testing exercise — Sep-2025 (5th Review).
  - RM10: Cabinet adopts implementation framework for climate finance mobilization and MoFNPT secures funding for at least one major adaptation or mitigation project (funding secured in the budget and/or loan agreement signed) — Oct-2025 (5th Review).
  - RM2: Cabinet approves new draft building legislation integrating climate adaptation and mitigation aspects — Mar-2024 (2nd Review).
  - RM7: MoFNPT and Disaster Risk Management Division develop and adopt national Disaster Risk Financing Strategy — Mar-2025 (4th Review).
  - RM8: URC and MoACCE implement frameworks to scale-up renewable energy, IPP procurement, and multi-year tariff system — April-2025 (4th Review).
  - RM11: MoFNPT introduces green fiscal and tax incentives to support the NDC (examples: congestion fees, feebates, environmental levy, price incentives for waste reduction) — Mar-2026 (6th Review).

*Source: IMF staff.*

### 1. Net domestic financing (NDF) of the government is defined as the sum of: (i) net bank credit

### 1. Net domestic financing (NDF) of the government is defined as the sum of: (i) net bank credit

### A. Definition and components of NDF
- Net domestic financing (NDF) of the government is defined as the sum of:
  - (i) net bank credit to the government, defined below; and
  - (ii) net nonbank financing of the government, including the proceeds of the sale of government assets, which includes proceeds from the divestiture of shares of public enterprises, that is privatizations, Treasury bills, and other securitized obligations issued by the government and listed in rupees in the domestic financial market, and any Central Bank of Seychelles (CBS) credit to the government, including any drawings on the rupees counterpart of the Special Drawing Rights (SDR) allocation.

### B. Data deemed valid under the program
- Valid program data:
  - Amounts for net bank credit to the government and for the net amount of Treasury bills and bonds issued in rupees on the domestic financial market, calculated by the CBS.
  - Amounts for nonbank financing calculated by the Treasury of Seychelles.

### C. External budgetary assistance and net definition
- Gross external budgetary assistance is defined as grants, loans, and non-earmarked debt relief operations (excluding project-related loans and grants, use of IMF resources, and debt relief under the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief (MDRI) Initiatives).
- Net external budgetary assistance is defined as the difference between gross external budgetary assistance and the sum of:
  - total debt service obligations on all public external debt (defined as the sum of interest payments and amortizations on all external loans, including interest payments and other charges to the IMF and on project-related loans, but excluding repayment obligations to the IMF), and
  - all payments of external arrears.

### D. Adjustors to NDF
- Net domestic financing of the government will be adjusted downward (upward) if net external budgetary assistance, including the Resilience and Sustainability Facility (RSF), exceeds (falls short of) the program projections.

### E. Reporting frequency for NDF monitoring
- For monitoring, data will be provided to the Fund by the authorities on a monthly basis with a lag of no more than four weeks from the end-of-period.

### F. Floor on the Primary Balance — definition and coverage
- The primary balance is defined as total revenues and grants minus primary expenditure and covers non-interest government activities as specified in the budget.
- The primary balance will be measured as cumulative over the fiscal year, and it will be monitored from above the line.
- Revenues:
  - Recorded when the funds are transferred to a government revenue account.
  - Tax revenues are recorded as net of tax refunds.
  - Revenues will also include grants.
  - Capital revenues will not include any revenues from non-financial asset sales proceeding from divestment operations.
- Central government primary expenditure:
  - Recorded on a cash basis and includes recurrent expenditures and capital spending.
  - Primary expenditure also includes transfers to State-Owned Enterprises (SOEs).
  - All primary expenditures directly settled with bonds, or any other form of non-cash liability will be treated as one-off adjustments and recorded as spending above-the-line, financed with debt issuance, and will therefore affect the primary balance.

### G. Adjustors and reporting for the Primary Balance
- Adjustors: The primary balance target will be adjusted upward (downward) by the surplus (shortfall) in disbursements of grants relative to the baseline projection.
- For monitoring, data will be provided to the Fund by the authorities monthly with a lag of no more than four weeks from the end-of-period.

### H. Floor on Total Revenue — scope, adjustor, reporting
- Total government revenue includes tax and nontax revenue, as shown in the fiscal table, but excludes external grants, revenue of autonomous agencies, and privatization receipts.
- The government revenue floor will be adjusted downward by the amount equivalent to the shortfall in nominal gross domestic product, in percentage terms, compared to the program projections.
- For monitoring, data will be provided to the Fund by the authorities on a monthly basis with a lag of no more than four weeks from the end-of-period.

### I. Floor on Net International Reserves (NIR) — definition and components
- Net International Reserves (NIR) of the CBS are defined as the difference between reserve assets and reserve liabilities with a maturity of less than one year.
- NIR exclude blocked assets. Blocked assets mostly consist of commercial banks foreign deposits and project accounts. Since those assets are controlled and readily available to the CBS to meet BOP needs, they are included in gross international reserves (GIR).
- Reserve assets include:
  - CBS’s holdings of monetary gold, SDRs, foreign currency cash, foreign currency securities, deposits abroad, and the country's reserve position at the Fund.
  - Excluded from reserve assets: any assets that are pledged, collateralized, or otherwise encumbered, claims on residents, claims in foreign exchange arising from derivatives in foreign currencies vis-a-vis domestic currency (such as futures, forwards, swaps, options et cetera), precious metals other than gold, assets in nonconvertible currencies, and illiquid assets.
- Reserve liabilities are:
  - (1) all foreign exchange liabilities to residents and nonresidents with original maturity of less than one year, including commitments to sell foreign exchange arising from derivatives (such as futures, forwards, swaps, options, et cetera); and
  - (2) all liabilities outstanding to the IMF (only the total outstanding use of Fund Credit and loans is included in reserve liabilities).

### J. Adjustors and audit requirements for NIR
- Adjustors:
  - The floor on the CBS’s NIR will be adjusted upward (downward) by the amount by which the external non-project loans, including the RSF, and non-project cash grants exceeds (falls short of) the amounts assumed in the program.
  - The floor will also be adjusted upwards (downwards) by the amount that external debt service payments fall short of (exceed) the amounts assumed in the program.
  - The floors will also be adjusted upwards by the amount of the new SDR allocation to Seychelles if the IMF makes a new allocation of SDRs to its membership.
- Audit and reporting:
  - For monitoring, semiannually, at each test date for program quantitative targets, the net international reserves data submitted by the CBS to the IMF will be audited by the CBS’ internal audit division in accordance with International Standards on Auditing, to ensure conformity with the program definition and calculation methods.
  - Reports will be submitted to the IMF no later than two months after each test date.

### K. Non-accumulation of New Domestic and External Arrears (continuous)
- Domestic payments arrears are defined as domestic payments due but not paid by the government after a 90-day grace period unless the payment arrangements specify a longer payment period.
- The Ministry of Finance records and updates the data on the accumulation and reduction of domestic payments arrears.
- The government undertakes not to accumulate any new domestic payments arrears. The non-accumulation of new domestic payments arrears will be continuously monitored throughout the program. The accumulation of any new domestic payments arrears will be reported immediately by the government to Fund staff.
- The government undertakes not to accumulate any new external public payments arrears, with the exception of arrears related to debt that is the subject of rescheduling.
- External public payments arrears are defined as payments due but not paid by the government as of the due date specified in the contract, taking into account any applicable grace periods, including contractual and late interest, on the external debt of the government or external debt guaranteed by the government.
- The performance criterion on the non-accumulation of new external public payments arrears will be continuously monitored throughout the program. The accumulation of any new external payments arrears will be reported immediately by the government to Fund staff.
- Standard continuous performance criteria include:
  - 1) prohibition on the imposition or intensification of restrictions on making of payments and transfers for current international transactions;
  - 2) prohibition on the introduction or modification of multiple currency practices;
  - 3) prohibition on the conclusion of bilateral payments agreements that is inconsistent with Article VIII; and
  - 4) prohibition on the imposition or intensification of import restrictions for balance of payments reasons.

### L. Indicative targets — public and guaranteed debt; social spending
- Net change in public and publicly guaranteed domestic and external debt:
  - The public and publicly guaranteed domestic and external debt is defined as the public debt and includes the central government debt plus domestic and external guarantees provided by the government.
- Floor on Government Social Spending:
  - The indicative floor on social spending will apply to expenditures incurred by the government on plans and programs intended to have a positive impact on education, health, social protection, housing and community services and recreational activities, including:
    - Goods and services: day care scheme under IECD; breakfast and lunch under education and dedicated fund; home care giver transferred to family affairs, SPTC Bus refund for students.
    - Capital project: vulnerable home repair.
    - Social program of government: Housing finance scheme, home improvement/re-roofing scheme for pensioners, youth employment scheme, temporary financial assistance.
    - Transfers to public enterprises: SPTC- refund of bus fare for elderly, disability and workers special.
    - Benefits and approved programs of agency for social protection: all budget lines under this code.

### M. Program reporting requirements
- Performance under the program will be monitored from data supplied to the IMF by the authorities.
- The authorities will transmit promptly to IMF staff any data revisions as well as other information necessary to monitor the arrangement under the EFF.

### N. Data and information reporting schedules — CBS
- The Seychelles authorities (government and CBS) will provide Fund staff with the following data and information according to the schedule provided.
- 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 auction, primary Treasury bill auctions, and secondary auctions.
  - Monthly (within four weeks from the end of the month):
    - The monetary survey in the standardized report form format.
    - The foreign exchange cash flow, actual and updated.
    - Financial soundness indicators.
    - Stock of government securities in circulation by holder (banks and nonbanks) and by original maturity and the debt service profile report.

### O. Data and information reporting schedules — Ministry of Finance
- The Ministry of Finance will report:
  - Monthly (within two weeks from the end of the month):
    - Consolidated government operations on a commitment basis and cash basis in the IMF supported program format and in GFSM2001 format.
    - The detailed revenues and expenditures of the central government and social security fund.
    - Import and export data from the customs department.
    - Public debt report reconciled with the cash operations to minimize any statistical discrepancy.
    - Consolidated creditors schedule on domestic expenditure arrears of the government.
  - Quarterly (within one month from the end of the quarter):
    - Accounts of the public nonbank financial institutions.
- The government and CBS will consult with Fund staff on all economic and financial measures that would have an impact on program implementation and will provide any additional relevant information as requested by Fund staff.

### P. World Bank assessment — Country vulnerability to climate change (summary points)
- Seychelles is highly vulnerable to climate change due to increased frequency and intensity of climate-induced disasters in combination with sea level rise and other oceanic impacts.
- As a small island state, Seychelles is exposed to a disproportionately high economic, social, and environmental impact arising from climatic shocks and natural disasters.
- Exposed hazards include tropical cyclones, tsunamis, storm surge, extreme rainfall, flooding, landslides, rockslides, and forest fires.
- Over 90 percent of the population, as well as economic activities, are located on the narrow coastal plateau of Mahé Island.
- Massive coral bleaching events in 1998 and 2016 eradicated an estimated 90 percent of the live coral cover around the three main islands.
- An increase in global temperatures of 2 degrees Celsius will be catastrophic to existing corals and related coastal ecosystems.
- Seychelles’ NDC estimates financing needed for coastal resilience and climate change mitigation at around US$ 670 million (covering both the immediate and long-term), which is roughly 30 percent of GDP in 2023, and almost half of Seychelles’ existing estimated public and publicly guaranteed debt stock (estimated at around 65 percent of GDP in 2023).
- Immediate financing needs from recent pre-feasibility studies could vary between US$15.4 million and US$33 million (or between 1 to 3 percent of GDP).
- Seychelles has been hit once by a major natural disaster which imposed economic damage of over 3 percent of GDP.
- The average annual loss from floods is estimated at US$2.5 million, (roughly 0.24 percent of Seychelles’ GDP).
- Past event: the 2013 flood at Point Laure resulted in a total estimated loss of 0.77 percent of GDP.
- Main barriers to climate adaptation: (i) scarce developable land, (ii) lack of capital to implement projects, and (iii) limited technical capacity.

### Q. Government climate policy and commitments — adaptation
- The Government of Seychelles integrates climate change adaptation into its policy framework with the Seychelles’ National Climate Policy (NCCP).
- The NCCP defines guiding climate principles including principles for climate justice and highlights relevant legal acts.
- The overall NCCP vision is to achieve a sustainable, climate resilient, and low-carbon Seychelles.
- In 2019, the Government developed the first national Coastal Management Plan (CMP) to address coastal flooding, erosion, and ecosystem degradation; implementation remains limited with only a few adaptation interventions operationalized.
- Commitments in updated Nationally Determined Contribution (NDC) include adaptation contributions focused on safeguarding the Blue Economy and Blue Carbon ecosystems, with policy objectives including:
  - (i) regulate coastal planning and infrastructure to prioritize “blue” Nature-based Solutions (NbS) for climate resilience;
  - (ii) protect Blue Carbon ecosystems to increase the carbon sink from seagrass and mangrove systems, by at least 50 percent by 2025, and 100 percent by 2030;
  - (iii) implement the Marine Spatial Plan to support health and sustainable long-term use of ocean waters (particularly the 30 percent marine protected areas within the Seychelles’ Exclusive Economic Zone).
- Seychelles commits to continue integrating climate change considerations into plans and strategies across all key sectors by 2030.

*Source: Excerpt from IMF program documentation and World Bank assessment materials contained in the provided content unit.*

### 7. Seychelles‘ greenhouse gas  emissions  are  low  with insignificant  contribution  to  the

### Seychelles‘ greenhouse gas emissions are low with insignificant contribution to the worldwide emissions

### Emissions profile and mitigation targets
- Seychelles’ updated NDC aims to reduce greenhouse gas emissions by 293.8 ktCO2e in 2030 (26.4%) compared to the business-as-usual scenario.
- Target: net zero emissions by 2050.
- Recent emissions trajectory: steadily increasing to over 610 ktCO2e (2019) in total.
- Per capita emissions: 6.2 metric tons.
- Sectoral and infrastructure commitments include:
  - Use of renewable energy for water supply mobilization by 2030.
  - Ensure sewage systems and wastewater treatment facilities include nutrients and energy recovery.
  - Modernize the entire electricity sector and increase electricity generation from renewable sources (including marine energy technologies, bio-energies such as biomass and waste-to-energy, and environment friendly intermittent energy storage technologies).
  - Improve energy efficiency across sectors.
  - Shift from fossil-fuel engineered transport to electrified transport and individual active mobility.
  - Enhance resource rehabilitation and land mitigation measures.
- Noted risk: ongoing oil exploration and the possibility of oil exports could potentially impact Seychelles’ contribution to global emissions.

### Climate policy implementation challenges and financing
- Capacity constraints: Remote location and a comparatively small economy make it difficult to develop and sustain capacities needed for climate action.
- Financing constraints: Tight fiscal space makes mobilizing private capital for mitigation and adaptation a key challenge.
- Priorities to mobilize domestic and international private capital:
  - Strengthen financial preparedness and rapid response to climate shocks to protect household investments and human capital.
  - Strengthen financial sector resilience through a data-driven assessment of the financial sector’s exposure to climate shocks, including strategies and stress tests of bank assets for climate shocks.
- Critical institutional measures recommended:
  - Implement the Disaster Risk Management Fund.
  - Adopt a national Disaster Risk Financing Strategy.
  - Conduct data collection, strategy development, and climate-shock stress testing for the financial sector.

### World Bank engagement and technical assistance
- Country Partnership Framework (CPF) FY18-FY23 aligned to inclusive and sustainable prosperity with focus areas of shared prosperity and inclusion and public-sector performance; supports retooling fisheries and tourism towards sustainability and inclusion and building human capital of the bottom 40 percent.
- Historic and ongoing World Bank support:
  - First African country to partner with a Development Policy Financing with a Catastrophe Deferred Drawdown Option (Cat DDO).
  - Support for Seychelles Coastal Management Plan (CMP) 2019-2024, endorsed in 2019.
  - CMP implementation support included:
    - Pre-feasibility study to identify effective coastal interventions in priority areas.
    - Concept and pilot approach for the “Blue Barrier”.
    - Coastal management and adaptation finance assessment.
    - Technical capacity building, including a certificate course on coastal management and adaptation delivered collaboratively with the University of Seychelles and the Government, and training on risk-based land use planning.
  - Work with Government on improving solid waste management, reducing marine pollution, and exploring blue carbon potential.
- Disaster preparedness and response support:
  - Support for “all hazard” National Integrated Emergency Management Plan (NIEMP) and realignment of District Emergency Plans.
  - Technical assistance for disaster and business continuity planning, contingency plans, capacity building for Ministries, Departments and Agencies (MDAs), and critical infrastructure operators.
  - Continued assistance under the Southwest Indian Ocean (SWIO) Climate Risk and Early Warning System (CREWS) program.
- Fiscal Sustainability and Climate Resilience Development Policy Loan (DPL) program support:
  - Regulatory reforms to enhance climate resilience (e.g., Physical Planning Bill integrating hazard and climate risks into land-use planning).
  - Assistance to update land-use regulations to incorporate hazard and climate risks and to mainstream ‘safe’ location and ‘climate change resilient’ design principles.
  - Technical guidance on climate-smart fisheries management.
- Energy transition and climate finance mobilization support:
  - Support to develop and operationalize secondary regulations following the Electricity Bill and Utilities Regulatory Commission (URC) Bill to mobilize private capital.
  - Next-phase reforms: prepare project pipeline and pre-feasibility studies for utility-scale renewable energy projects; analyze distributed renewable energy (DRE) impacts on public utility financials and tariff structure.
  - Technical assistance to develop carbon finance capabilities.

### IMF engagement, diagnostics, and program context
- Diagnostic work coordinated between IMF and World Bank (PIMA/climate-PIMA and World Bank public expenditure review) to prioritize reforms strengthening climate aspects of public investment management; diagnostics inform RSF and DPL reform focus.
- RSF reform package: reorganized into 3 pillars and 11 reform measures based on diagnostics (CCPA, PIMA, Climate-PIMA, NDC).
- Authorities requested RSF access of 150 percent of quota (SDR 34.35 million) to initiate key reforms and maximize catalytic effect of RSF.
- Climate finance mobilization actions planned:
  - Hire a climate finance advisor.
  - Adopt a national climate finance mobilization strategy to unlock financing from public and private sectors.
  - Tap multilateral development banks, bilateral donors, and international climate funds such as the Green Climate Fund and Global Environmental Facility.

### Macroeconomic context relevant to climate resilience
- Recent macro figures and outlook:
  - Real GDP growth: 9.0 percent for 2022 (estimated); 4.3 percent expected for 2023.
  - Current account deficit: estimated 7.6 percent of GDP in 2022; 14 percent in 2020.
  - Primary fiscal balance: surplus of 0.7 percent of GDP in 2022; expected -0.4 percent of GDP in 2023.
  - Authorities’ debt target: 50 percent of GDP by 2029 (debt-to-GDP ratio was 69 percent by 2022).
  - Inflation: annual average 2.6 percent in 2022; expected 1.4 percent in 2023.
  - Tourism and external vulnerabilities: heavy reliance on tourism and natural environment heightens susceptibility to climate shocks and external risks.
  - Historic climate-related financing instruments: debt-for-nature swap in 2017 mobilizing $21.6 million; issuance of the world’s first sovereign blue bond in 2018 to finance sustainable use of marine resources.

### Key policy recommendations and reform priorities
- Implement institutional financial instruments and strategies:
  - Establish the Disaster Risk Management Fund.
  - Adopt a national Disaster Risk Financing Strategy.
- Strengthen financial sector resilience:
  - Conduct data collection and climate-related stress tests of bank assets.
  - Develop risk assessment tools and early warning indicators for the banking sector.
  - Prepare Bank Recovery and Resolution framework.
- Mobilize private and international climate finance:
  - Operationalize secondary regulations for energy sector reform to attract private capital.
  - Prepare project pipelines and pre-feasibility studies for utility-scale renewable energy and DRE analysis.
  - Develop carbon finance capabilities and a national climate finance mobilization strategy.
- Build capacity for climate adaptation and coastal resilience:
  - Continue implementation of CMP 2019-2024 interventions and capacity-building programs.
  - Mainstream hazard and climate risk integration into land-use planning and public investment management.
- Coordinate multilateral support and diagnostics:
  - Use PIMA/climate-PIMA and public expenditure review findings to prioritize public investment reforms for climate resilience.
  - Coordinate IMF RSF and World Bank DPL reform measures to avoid duplication and maximize catalytic financing.

*Source: 1sycea2023001 - 7. Seychelles‘ greenhouse gas emissions are low with insignificant contribution to the worldwide emissions.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1sycea2023001.pdf_