## 1sycea2023004

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---

### Context and Recent Developments
- Tourist arrivals through September 2023: 254,320 — an increase of 5 percent over the same period in 2022 and about 92 percent of pre-pandemic highs.
- Employment: increased by 4.2 percent year-on-year in Q2 2023; accommodation and food service activities rose 12.0 percent.
- Average earnings: increased by 3.3 percent in Q2 2023.
- Inflation (year‑on‑year): became negative in May 2023, reaching -2.4 percent by September 2023; core inflation dropped to -0.7 percent.
- Steepest price declines: housing, electricity and utilities (-8.5 percent); transport (-5.9 percent); services including health (-5.3 percent).
- CBS policy rate: maintained at 2 percent since mid-2021; excess liquidity absorbed via deposit auctions (DAA).
- Fiscal H1 2023:
  - Primary balance including grants: surplus of 1.2 percent (vs. projected deficit of 0.2 percent).
  - Overall revenue about 0.8 ppt of GDP higher than budgeted at SR 4.3 billion (program target SR 3.8 billion).
  - Capital expenditure in H1 2023: 0.4 percent of GDP lower than budgeted.
- Financial sector:
  - Credit to the private sector growth: 9.6 percent y-o-y in July 2023 (compared to 5 percent at end-2022).
  - Credit stock: about 32 percent of GDP.
  - Currency composition of credit: rupee share 81 percent in July 2023 (77 percent in July 2022).
  - Average lending rate: 9.62 percent in August 2023 (30 basis points higher than end-2022).
  - Nonperforming loans: about 7.8 percent of gross loans in September 2023 (roughly same as end-2022; pre-pandemic around 3 percent in 2018-2020).

### Outlook and Projections
- Real GDP growth:
  - 2023: 3.8 percent
  - 2024: projected to rise modestly to 4.0 percent
  - Medium term: stabilize around 4.0 percent
- Inflation (average annual):
  - 2023: -0.8 percent
  - 2024: 0.3 percent
- Current account balance:
  - 2023: expected to decline to -5.4 percent of GDP
  - Medium term: expected to widen as tourism growth stabilizes and imports increase with capital projects
- Gross international reserves:
  - Projected to reach US$733 million by end-2023 (compared to US$655 million at program start)
  - Equivalent to 3.7 months of imports at end-2023
  - Reserve coverage forecast to increase gradually to around 4 months of imports over the medium term
- Credit growth: expected to accelerate to 8.4 percent in 2023 (from 5 percent in 2022), converging to the economy’s nominal growth over the medium term

### Risks
- External downside risks:
  - Rebound in international commodity prices (food and fuel)
  - External shocks to tourism demand: increased competition, slowing growth in traditional European markets, geopolitical tensions (war in Ukraine, conflict in Israel and Gaza), OPEC/Russia production decisions
- Domestic risks:
  - Financial stability vulnerabilities: high large exposures, credit concentration, high NPLs
  - Climate change risks: vulnerability to sea level rise and natural disasters affecting coastal infrastructure and tourism

### Program Performance and Structural Reforms
- QPCs and ITs:
  - All end-June 2023 quantitative performance criteria (QPCs) and indicative targets (ITs) were met.
  - QPCs on the primary balance of the consolidated government and on net international reserves of the CBS were met by wide margins.
- Structural benchmarks (SBs):
  - Out of 10 SBs: four met on time; four implemented with minor delays; two re-set due to capacity, legislative schedules, or technical issues.
  - RSF reform measure for this review (RM1) implemented as scheduled.
- Notable SB outcomes:
  - 2021 SOE Annual Report published (implemented with delay).
  - Amendments to the CBS Act approved by Cabinet (implemented with delay).
  - Cabinet approved action plan to improve public investment efficiency based on January 2023 PIMA (SB end-September 2023).
  - CBS Board approved monetary policy operational reforms plan; published in Monetary Policy Report (SB end-July 2023).
  - Terms-of-reference for study on tourism dynamics (SB end-June 2023) completed as scheduled.
  - Upgrade of customs system (ASYCUDA) completed as scheduled (E-Manifest and Express Courier modules; Excise Tax module deployed).
  - Delayed SBs: ringfencing ground-handling at Seychelles Airport (rescheduled end-December), NPLs study finalized in November (delayed), Cabinet approval of draft Bank Resolution Bill now expected by end-March 2024.
  - Annual reporting of budgeted tax expenditure SB for end-October implemented in November.

### Policy Recommendations and Authorities’ Priorities
- Near-term priorities:
  - Support ongoing economic recovery
  - Continue to build fiscal and external buffers
  - Maintain macroeconomic stability
- Medium-term measures:
  - Increase revenues
  - Boost efficiency of capital expenditure with focus on climate change mitigation and adaptation
- Structural reform priorities:
  - Revenue administration, public financial and investment management, governance reforms including digitalization and state-owned enterprise reform
  - Reduce public debt, rebuild fiscal space, increase foreign exchange buffers
  - Increase efficiency of public investment and support vulnerable populations
- Staff recommendation:
  - Considering strong program implementation and policy commitments, staff recommends completion of the first review

### RSF Reform Measure (Implementation and Tourism / Inflation Indicators)
- RSF reform measure (RM1): implemented as scheduled — integration of priority climate adaptation and mitigation objectives into the National Development Strategy 2023-2027 implemented in September.
- Tourism indicators:
  - Average number of international flights: returned to pre-pandemic level.
  - Average length of stay: fully recovered to pre-pandemic levels.
  - Tourism earnings in 2023: approached around 90 percent of pre-pandemic levels.
- Inflation indicators:
  - Cumulative inflation 2021–2023: among the lowest compared with peers.
  - Declines mostly in housing, electricity and utilities, recreation and culture, and transport.
  - Moderation aided by exchange rate stabilization and decline in global fuel prices since peak in September 2022.

### Fiscal Policy — Near Term, 2023 Performance, and 2024 Outlook
- 2023 fiscal performance and expectations:
  - Primary fiscal balance: expected to be near zero in 2023 — slightly contractionary compared to a deficit of 0.4 percent of GDP projected at program approval.
  - Strong business tax collection offsets weaker nontax revenues; VAT refunds significant (linked to hotel construction/refurbishment).
  - External grant disbursements: expected largely in line with projections by end-year.
  - Recurrent spending: expected in line with 2023 mid-year revised budget.
  - Wage and salary spending: wage increase of 10 percent in 2023 but wage bill contained due to vacancies and lower 13th-month provisioning.
  - Capital spending: likely under-executed by about 1 ppt of GDP due to project appraisal and selection weaknesses.
- 2024 fiscal outlook:
  - Fiscal stance: remain tight to facilitate public debt reduction.
  - Revenue increases: property tax rate increase and higher securities dealer’s tax.
  - VAT changes: streamlined registration and refund efficiency; completion of large tourism projects should reduce refunds and increase VAT collection.
  - Expenditure effects: full impact of 10-percent salary increase visible in 2024 wage bill; reclassification of current grants affects recurrent expenditure composition.
  - Expected primary fiscal surplus: 1.1 percent of GDP in 2024 (0.9 ppt of GDP higher than projected at program approval).
  - Debt-to-GDP: expected to increase by 0.3 percentage point of GDP in 2024 due to increase in external guarantees for public infrastructure projects.
  - Government guarantees: continue to provide guarantees to the Development Bank of Seychelles averaging about 0.7 percent of GDP annually.

### Medium-term Revenue and Debt Projections
- Debt-to-GDP trajectory:
  - Decline from 64.1 percent at end-2022 to 61.2 percent at end-2026 (end of program).
  - Authorities’ aim: reduce to about 50 percent by 2029 by gradually increasing the primary surplus to 3 percent of GDP over the medium term.
- Financing needs and composition:
  - Annual net external financing averages 2 percent of GDP during 2023-26, dominated by multilateral creditors (including EFF purchases and RSF disbursements).
  - Shift to annual net repayments of 1.3 percent of GDP during 2027-28 after IMF arrangements conclude.

### Central Government Operations, 2023 (Millions of Seychelles rupees)
- EFF/RSF approval | First Review
  - Revenue: 9899 | 9944
  - Taxes: 8393 | 8431
  - Grants: 423 | 367
  - Other revenue: 1083 | 1146
  - Expense: 9132 | 9515
  - Wages and salaries: 3305 | 3264
  - Purchase of goods and services: 3557 | 3904
  - Interest: 715 | 804
  - Transfers: 1555 | 1542
  - Capital expenditure: 1407 | 1183
  - Net lending, contingency: 175 | 53
  - Primary balance: -100 | -3
  - Overall balance: -815 | -807
  - Financing: 815 | 807
  - Domestic: -20 | -106
  - Foreign: 742 | 898
  - Other flows: 93 | 15

### Public Debt Management and Government Financing
- Public debt composition and metrics:
  - Almost half (47 percent) of total public debt is external; about 72 percent of external debt are loans from multilateral creditors.
  - Over 80 percent of external debt is on non-concessional terms; average maturity 19.6 years.
  - Concessional financing secured from AfDB: $45 million for Governance and Economic Reforms Support Program.
  - Public debt assessed sustainable with high probability in June 2023; projected decline from about 64 percent of GDP in 2022 to about 52 percent of GDP by 2028.
- Domestic debt market development:
  - Annual average net domestic market financing: negative 0.8 percent of GDP during 2023-25; positive 0.3 percent of GDP during 2026-28.
  - Government bonds held by banking sector: 9.2 percent of assets in 2021 → 11.6 percent in 2022.
  - 10-year treasury bonds issued in June and September 2023 with average yields to maturity 7.77 percent and 7.12 percent, respectively.
  - Government to initiate framework for buy-back facility for trading government securities through commercial banks aiming to start in 2024.

### External Borrowing Program Summary (selected items)
- PPG external debt contracted or guaranteed — Sources of debt financing: 12293
  - Concessional debt, of which2/: 4524
    - Multilateral: 4524
    - Bilateral: 00
  - Non-concessional debt, of which: 7770
    - Semi-concessional debt3/: 7770
    - Commercial term4/: 00
- Uses of debt financing: 122
  - Infrastructure: 14
  - Budget financing: 108
- Memorandum items — Indicative projections: 2024: 103 | 2025: 112

### Monetary and Exchange Rate Policy
- CBS policy rate: 2 percent since mid-2021.
- DAA developments:
  - DAA interest rate reached 1.2 percent in September 2023 (up from 0.5 percent to January 2023); authorities introduced longer maturity deposits up to 360 days in October.
  - DAA process estimated to end in the first half of 2024.
- Monetary policy operating framework needs strengthening:
  - Monetary Policy Rate (MPR) serves to signal stance; interest-rate operational framework early in development.
  - Key measures: enhance monetary policy communication, improve modeling tools, introduce reverse repos, consider other long-term liquidity absorption instruments.
- FX interventions and reserves:
  - CBS net purchases: €54.9 million in first half of 2023 ($59.3 million, compared to $2.4 million in all of 2022).
  - CBS committed to build international reserves while keeping a floating exchange rate; exploring common FX negotiation platform.
- CBS balance sheet and capitalization:
  - Structural recapitalization plan in progress.
  - Authorities committed to retain 100 percent of distributable earnings every year until capital target achieved; dividend retention to start at end of current fiscal year; cost-recovery and cost-cutting exercises planned for 2024.

### Banking System Health, NPLs, and Supervision
- System assessment:
  - Banking system: "stable, well capitalized, and liquid".
  - NPL ratio: 7.8 percent in September 2023 (above historical pre-pandemic levels).
  - Provisioning: 20 percent of NPLs (driven by reliance on collateral).
  - Industry average for banks’ large credit exposures: 72 percent of core capital.
  - Loan dollarization: 21.2 percent of the total.
- Supervisory actions and timeline:
  - One large foreign-owned bank expected to reduce NPLs to "lower single digits in 2024" following agreed reduction plan.
  - Reassessment of collateral and provisioning across banks expected to take until March 2024.
  - Supervisory authorities to maintain intense monitoring and implement structural policies to prevent/manage crises.
- Banking metrics (selected, end-of-period / recent):
  - Regulatory capital to risk weighted assets: 21.7 (2023 Sep).
  - Non-performing loans to gross loans: 7.8 (2023 Sep).
  - Provision as percentage of NPLs: 20.0 (2023 Sep).
  - Liquid assets (broad) to short term liabilities: 71.1 (2023 Sep).
  - As at end-July 2023: industry aggregated regulatory capital to RWA 22.7 percent; NPLs to gross loans ratio 7.5 percent; ROA 2.9 percent; ROE 30.2 percent; liquid asset to total liabilities 50.2 percent.

### Financial Stability, Regulatory Reforms, and CD Needs
- Legislative reforms targeted by end-March 2024:
  - New CBS Act to strengthen governance and autonomy.
  - Bank Recovery and Resolution Bill to enhance crisis management framework.
- Supporting frameworks:
  - New Credit Information System; supporting legal framework for Financial Stability Committee; align National Payment System with best practice.
- Capacity development priorities:
  - Operationalize financial stability framework, macroprudential policies, stress testing, Emergency Liquidity Assistance, repo arrangements, broader monetary policy operational reforms.
  - IMF CD to assist with operationalizing these reforms.

### Climate Change and RSF-Related Reforms
- RM1 implemented: NDS 2023-2027 integrated priority climate adaptation and mitigation objectives (implemented Sep 2023).
- Climate targets and financing:
  - NDC greenhouse gas emission reduction target: 26.4 percent below business-as-usual by 2030.
  - Net-zero target by 2050.
  - Estimated financing need to achieve 2030 target: US$670 million by 2030.
- Planned climate-related reform measures and timelines (selected RM items and targets preserved):
  - RM2: draft building legislation integrating climate adaptation/mitigation — target Mar 2024.
  - RM3: update Public Investment Management Policy to include climate methodologies and apply to at least two major projects — target Sep 2024.
  - RM4: identify climate-related expenditures in FY2025 PPBB and conduct long-term fiscal sustainability analysis under climate scenarios — target Oct 2024.
  - RM5: cabinet adopts national climate finance mobilization strategy and pipeline of appraised climate projects — target Sep 2024.
  - RM6: CBS issues guidelines for banks on reporting/disclosure of climate-related risks and publishes summary report — target Mar 2025.
  - RM9: CBS adopts and implements climate-related stress testing framework — target Sep 2025.
  - RM10: cabinet adopts implementation framework and secure funding for at least one major adaptation/mitigation project — target Oct 2025.
  - RM11: MoFNPT introduces green fiscal and tax incentives — target Mar 2026.
- Monitoring and capacity needs:
  - Authorities note high technical requirements under RSF; sustained external expertise and a resident climate finance advisor required.

### Program Modalities, Financing, and Macro Targets
- Financing and disbursement upon first review:
  - SDR 6.107 million and SDR 3.123 million will be disbursed under the EFF and RSF arrangements, respectively (first review).
  - EFF fully financed; EFF purchases under first review help close 2023 financing gap.
  - Financing commitments for next 12 months include World Bank "$30 million" and AfDB "$58 million".
- IMF access and schedule (selected):
  - EFF Access total: 42.365 SDR million (185 percent of quota); multiple scheduled purchases of 6.107 SDR million on specified dates.
  - RSF Access total: 34.350 SDR million (150 percent of quota); RSF disbursements of 3.123 SDR million across reform measures.
  - Upon approval of the first review, SDR 3.123 million (13.6 percent of quota) on account of meeting RM1.
- International reserves and Fund exposure:
  - International reserves projected to cover around 3.7 months of prospective imports by end-2023; reserves expected to reach around 4 months of import cover over the medium term.
  - Fund credit-to-GDP ratio projected to peak at 8 percent in 2025.
  - Ratio of Fund credit to GIR projected to peak at 20.9 percent in 2025.
  - Fund exposure to Seychelles will remain high for an extended period.

### Key Macro-Financial Indicators (selected series from projections table)
- Nominal GDP (millions of Seychelles rupees): 24,294 (2020 act.), 25,347 (2021 act.), 28,222 (2022 act.), 27,666 (2023 prel.), 29,095 (2024 proj.), 29,309 (2025 proj.), 30,318 (2026 proj.), 32,012 (2027 proj.), 34,057 (2028 proj.), 36,432 (2029 proj.), 39,037 (2030 proj.).
- Real GDP growth (annual percent): -8.5 (2020), 2.5 (2021), 8.9 (2022), 4.3 (2023), 3.8 (2024), 4.1 (2025), 4.0 (2026), 3.9 (2027), 3.9 (2028), 3.9 (2029), 3.8 (2030).
- CPI (annual average): 1.2 (2020), 9.8 (2021), 2.6 (2022), 1.4 (2023), -0.8 (2024), 2.0 (2025), 0.3 (2026), 2.0 (2027), 3.0 (2028), 3.5 (2029), 3.5 (2030).
- Overall balance, including grants (percent of GDP): -16.8 (2020), -5.5 (2021), -1.3 (2022), -2.9 (2023), -2.8 (2024), -2.5 (2025), -1.5 (2026), -1.1 (2027), -0.5 (2028), 0.6 (2029), 1.0 (2030).
- Total government and government-guaranteed debt (percent of GDP): 81.1 (2020), 73.9 (2021), 64.1 (2022), 67.6 (2023), 64.4 (2024), 66.0 (2025), 65.6 (2026), 64.3 (2027), 61.2 (2028), 56.1 (2029), 51.3 (2030).
- Gross official reserves (end of year, US$ million): 575 (2020), 702 (2021), 639 (2022), 655 (2023), 733 (2024), 700 (2025), 791 (2026), 843 (2027), 904 (2028), 953 (2029), 997 (2030).
- Months of imports, c.i.f. (reserves): 3.8 (2020), 3.7 (2021), 3.4 (2022), 3.4 (2023), 3.7 (2024), 3.5 (2025), 3.7 (2026), 3.8 (2027), 3.9 (2028), 4.0 (2029), 4.1 (2030).

### Risk Assessment Matrix — Conjunctural and Structural Risks (summary)
- High-likelihood / high-impact: Intensification of regional conflict(s) — policy responses: contingency planning, contingent line of credit, rule-based cash buffer, targeted temporary support, let exchange rate act as shock absorber.
- High-likelihood / medium-impact: Commodity price volatility — policy responses: CBS vigilance, tighten monetary stance if needed, targeted support to vulnerable populations.
- Medium-likelihood / high-impact: Abrupt global slowdown or recession — policy responses: contingency planning, fiscal consolidation if needed, let exchange rate act as shock absorber and utilize FXI to prevent disorderly conditions.
- Medium-likelihood / medium-impact: Sovereign debt distress and limited access to concessional financing due to high-income status — policy responses: prudent macro-fiscal stance, rebuild fiscal and FX buffers, explore alternative external financing.
- Medium-likelihood / medium-impact: Higher NPL levels — policy responses: prudent restructuring, enhanced NPL management guidance, monitor implementation.

### Capacity Development Strategy (2023–25) — Priority Areas
- Macro-fiscal policies, Public Financial Management, Revenue administration and tax policy, Debt Management, Monetary policy implementation, Financial stability and crisis management, Financial integrity (AML/CFT), Payments and infrastructure, Real sector statistics, Government Finance Statistics (GFS), Financial sector statistics.

*Source: IMF staff report, 1sycea2023004.*

### 3.8 percent in 2023 and is projected to rise modestly to 4.0 percent in 2024. Average annual

### SEYCHELLES — FIRST REVIEWS UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY AND THE ARRANGEMENT UNDER THE RESILIENCE AND SUSTAINABILITY FACILITY

### Context and Recent Developments
- Tourist arrivals through September 2023 reached 254,320—an increase of 5 percent over the same period in 2022 and about 92 percent of pre-pandemic highs.
- Employment increased by 4.2 percent year-on-year in Q2 2023, with a 12.0 percent rise in accommodation and food service activities.
- Average earnings increased by 3.3 percent in Q2 2023.
- Year-on-year headline inflation became negative in May 2023, reaching -2.4 percent by September 2023; core inflation dropped to -0.7 percent.
- Steepest price declines: housing, electricity and utilities (-8.5 percent); transport (-5.9 percent); services including health (-5.3 percent).
- CBS policy: policy rate maintained at 2 percent since mid-2021; excess liquidity gradually absorbed via deposit auctions.
- Fiscal H1 2023: primary balance including grants showed a surplus of 1.2 percent (vs. projected deficit of 0.2 percent); overall revenue about 0.8 ppt of GDP higher than budgeted at SR 4.3 billion (program target SR 3.8 billion).
- Capital expenditure in H1 2023 was 0.4 percent of GDP lower than budgeted.
- Financial sector: credit to the private sector grew by 9.6 percent y-o-y in July 2023 (compared to 5 percent at end-2022); credit stock about 32 percent of GDP.
- Currency composition of credit: rupee share increased to 81 percent in July 2023 (77 percent in July 2022).
- Average lending rate: 9.62 percent in August 2023 (30 basis points higher than end-2022).
- Nonperforming loans about 7.8 percent of gross loans in September 2023 (roughly same as end-2022; pre-pandemic around 3 percent in 2018-2020).

### Outlook and Projections
- Real GDP growth:
  - 2023: 3.8 percent (moderation from earlier rebound)
  - 2024: projected to rise modestly to 4.0 percent
  - Medium term: stabilize around 4.0 percent
- Inflation (average annual):
  - 2023: -0.8 percent
  - 2024: 0.3 percent
- Current account balance:
  - 2023: expected to decline to -5.4 percent of GDP
  - Medium term: expected to widen as tourism growth stabilizes and imports increase with capital projects
- Gross international reserves:
  - Projected to reach US$733 million by end-2023 (compared to US$655 million at program start)
  - Equivalent to 3.7 months of imports at end-2023
  - Reserve coverage forecast to increase gradually to around 4 months of imports over the medium term
- Credit growth: expected to accelerate to 8.4 percent in 2023 (from 5 percent in 2022), converging to the economy’s nominal growth over the medium term

### Risks
- External downside risks:
  - Rebound in international commodity prices (food and fuel)
  - External shocks to tourism demand driven by increased competition, slowing growth in traditional European markets, geopolitical tensions (war in Ukraine, conflict in Israel and Gaza), and OPEC/Russia production decisions
- Domestic risks:
  - Financial stability vulnerabilities from high large exposures, credit concentration, and high NPLs
  - Climate change risks: vulnerability to sea level rise and natural disasters affecting coastal infrastructure and tourism

### Program Performance and Structural Reforms
- Program implementation:
  - All end-June 2023 quantitative performance criteria (QPCs) and indicative targets (ITs) were met
  - QPCs on the primary balance of the consolidated government and on net international reserves of the CBS were met by wide margins
- Structural benchmarks (SBs):
  - Out of 10 SBs, four were met on time
  - Four implemented with minor delays; two re-set due to capacity constraints, legislative schedules, or technical issues
  - RSF reform measure envisaged for this review (RM1) was implemented as scheduled
- Notable SB outcomes:
  - 2021 SOE Annual Report published (implemented with delay)
  - Amendments to the CBS Act approved by Cabinet (implemented with delay)
  - Cabinet approved action plan to improve public investment efficiency based on January 2023 PIMA (SB end-September 2023)
  - CBS Board approved monetary policy operational reforms plan; published in Monetary Policy Report (SB end-July 2023)
  - Terms-of-reference for study on tourism dynamics (SB end-June 2023) completed as scheduled
  - Upgrade of customs system (SB end-September 2023) completed as scheduled
  - Delayed SBs: ringfencing ground-handling at Seychelles Airport (rescheduled end-December), NPLs study finalized in November (delayed), Cabinet approval of draft Bank Resolution Bill now expected by end-March 2024
  - Annual reporting of budgeted tax expenditure SB for end-October implemented in November

### Policy Recommendations and Authorities’ Priorities
- Near-term authorities’ priorities:
  - Support ongoing economic recovery
  - Continue to build fiscal and external buffers
  - Maintain macroeconomic stability
- Medium-term policy measures:
  - Increase revenues
  - Boost efficiency of capital expenditure with focus on climate change mitigation and adaptation
- Structural reform priorities:
  - Revenue administration
  - Public financial and investment management
  - Governance reforms including digitalization and state-owned enterprise reform
  - State to continue reducing public debt, rebuilding fiscal space, and increasing foreign exchange buffers
  - Increase efficiency of public investment and continue to support the most vulnerable segments of the population
- Staff recommendation:
  - Considering strong program implementation and policy commitments, staff recommends completion of the first review

*Source: IMF staff report, November 13, 2023.*

### 10. The RSF reform measure for this review was implemented as scheduled. The

### 1sycea2023004 - 10. The RSF reform measure for this review was implemented as scheduled. The

### Implementation and Reform Measure
- The RSF reform measure for this review was implemented as scheduled.
- The integration of priority climate adaptation and mitigation objectives into the National Development Strategy 2023-2027 (RM1) was implemented in September (Table 3 of the MEFP).
- The authorities plan to publish the National Development Strategy at the end of this year.
- The report was prepared and shared with staff, but was not published until the FY24 annual budget documents were released in November.

### Tourism indicators and performance
- Seychelles continued to show resilient recovery in the tourism sector.
- The average number of international flights has returned to its pre-pandemic level.
- Divergent economic growth in source markets continues to affect arrivals, with less traditional markets contributing to an overall rise in tourist arrivals thus far in 2023.
- The average length of stay for tourists has fully recovered to pre-pandemic levels.
- Tourism earnings in 2023 have approached around 90 percent of pre-pandemic levels.
- Sources: Flightradar24, Authorities data, CBS, United Nations WTO, and IMF staff calculations.

### Inflation indicators
- The cumulative inflation in Seychelles between 2021 and 2023 has been one of the lowest among similar countries.
- The steepest declines were observed in housing, electricity, and utilities, recreation and culture, and transport.
- Both headline and core inflation have decreased.
- The moderation in prices is partly attributed to the stabilization of exchange rates, since most goods are imported abroad.
- The decline in global fuel prices, since their peak in September 2022, has also placed downward pressure on transport, import, and utility costs.
- Sources: IMF WEO, Haver Analytics, National Statistics Institutes, and IMF staff estimates.

### Fiscal policy — near term and 2023 performance
- Discussions focused on ensuring macroeconomic stability and resilience, addressing bottlenecks in government spending, rebuilding fiscal space, strengthening the monetary policy operating framework, and preserving financial stability.
- The primary fiscal balance is expected to be near zero in 2023—slightly contractionary compared to a deficit of 0.4 percent of GDP projected at program approval.
- Net lending is lower while projected revenue and expenses are broadly in line with program targets in nominal terms (lower GDP ratios are due to a statistical revision of nominal GDP).
- Strong business tax collection should more than offset weaker nontax revenues in 2023, but overall tax collection is forecast to be less than expected due to significant VAT refunds (linked to hotel construction and refurbishment).
- Despite delays in H1, external grant disbursements are expected to be largely in line with projections by end-year.
- The authorities expect recurrent spending to be in line with the 2023 mid-year revised budget.
- Wage and salary spending will likely remain contained (despite a 10 percent government wage increase4) due to difficulties in filling vacancies and lower provisioning for the 13th-month-based bonus.
- Capital spending will likely be under executed (by about 1 ppt of GDP), due mainly to weaknesses in project appraisal and selection.

### Fiscal outlook for 2024 and medium term
- Continued fiscal discipline will facilitate a reduction in the public debt-to-GDP ratio. In 2024, the fiscal stance will remain tight.
- Revenue collection is set to rise from an increase in the property tax rate and higher securities dealer’s tax.
- The 2024 budget introduces significant changes to VAT registration, aiming to streamline the process and enhance refund efficiency, while completion of large tourism projects should reduce refunds and increase VAT collection.
- On the expenditure side, the full impact of the 10-percent salary increase granted in 2023 will be visible in the wage bill together with the move of cleaning services from goods and services to public wages.
- A reclassification of current grants from capital projects to goods and services will also shift the balance between budget lines within overall recurrent expenditure.
- A more realistic projection for capital expenditures, together with a one-off stamp duty windfall, are expected to increase the primary fiscal surplus to 1.1 percent in GDP in 2024 (0.9 ppt of GDP higher than projected at program approval).
- Debt-to-GDP is expected to increase by 0.3 percentage point of GDP in 2024 due to an increase in external guarantees for public infrastructure projects.
- Over the medium term, the government will continue to provide guarantees to the Development Bank of Seychelles, by an average of about 0.7 percent of GDP annually, as well as for some major projects in the pipeline.

### Medium-term revenue and debt projections
- In the medium term, revenue performance is expected to remain strong due to collection efforts on new taxes and levies together with implementation of program measures, including stronger tax compliance and collection due to ongoing digitalization efforts.
- As a result, the debt-to-GDP ratio will decline from 64.1 percent at end-2022 to 61.2 percent at end-2026 (end of the program).5
- The authorities aim to reduce the debt-to-GDP ratio to about 50 percent by 2029 by gradually increasing the primary surplus to 3 percent of GDP over the medium term.
- 5 Debt-to-GDP is expected to increase by 0.3 percentage point of GDP in 2024 due to an increase in external guarantees for public infrastructure projects. Over the medium term, the government will continue to provide guarantees to the Development Bank of Seychelles, by an average of about 0.7 percent of GDP annually, as well as for some major projects in the pipeline.

### Fiscal reform elements and policy actions
- The authorities intend to continue their modernization agenda to contain current expenditure.
  - An expenditure review of the education sector by the World Bank has been finalized and an assessment of the health sector is ongoing.
  - These will facilitate a broader functional review by June 2024 to identify business needs and redundant positions, complemented by a new Human Resource Management System (HRMS) by 2025.
  - Overall, these efforts should facilitate streamlining of the wage bill.
  - The authorities also intend to implement an IFMIS system in time for the 2026 budget to streamline financial operations, automate processes, create real-time access to financial data, and improve financial planning and management of financial resources.
- Public investment reforms need to accelerate.
  - Increased investment, including in climate resilient infrastructure, will be necessary for continued growth.
  - Weaknesses in project selection and appraisal, together with delays in financing for foreign-funded projects, continue to affect capital expenditure execution.
  - In the short term, the authorities will refine the criteria for categorizing "major" projects and reduce bottlenecks in the appraisal process.
  - Going forward, climate-related considerations will need to be integrated into appraisals, and the procurement system will need to expand to facilitate Public-Private Partnerships (PPPs).
- Targeting of social spending needs to be enhanced.
  - Social spending (about 6 percent of GDP in 2023) is fragmented and split across budget lines.
  - With support from the World Bank, the government is working to address weaknesses in social targeting.
  - Better targeting will first require the adoption of a revised socioeconomic needs assessment by the Agency of Social Protection (ASP), creation of a social registry to better understand the profile of beneficiaries and better coordinate across MDAs, and a comprehensive review of ASP’s internal controls.
- Continued efforts will be needed to ensure robust revenue collection.
  - The business tax is expected to improve with better collection of the securities dealers’ turnover tax.
  - The 10-percent public salary increase is also expected to positively impact income tax.
  - VAT collections are expected to rise in 2024 due to lower refunds together with significant changes to VAT registration aimed at streamlining the collection process and enhancing refund efficiency.
  - Cabinet is expected to approve legislative amendments to streamline VAT exemptions by December 2023 (SB).
  - To increase transparency on foregone revenues, a full report of tax expenditures on VAT and business tax and their cost in terms of foregone revenue is expected by December 2024 (SB).
- Digitalization of customs administration will help improve compliance and collection.
  - Enhancement of ASYCUDA World is progressing. The E-Manifest modules and Express Courier modules have been completed and deployed (SB for end-September 2023) along with the Excise Tax module.
  - The completion of both E-payment and single window are due at the end of Q2 2024.
  - The implementation of the Tax Management System (TMS) should help improve collection, management and, in the medium term, integration with other government systems.
  - The authorities continue to seek technical assistance on transfer-pricing regulation and plan to implement a transfer pricing database to better assess risks.
  - The authorities and staff concurred that the legal framework should be modified to better enforce sanctioning of the transfer-pricing regulation and enhance enforcement of the “arms’ length” principle, which should result in lower revenue loss from transfer pricing/profit shifting.

### Central government operations, 2023 (Millions of Seychelles rupees)
- EFF/RSF approval | First Review
- Revenue: 9899 | 9944
- Taxes: 8393 | 8431
- Grants: 423 | 367
- Other revenue: 1083 | 1146
- Expense: 9132 | 9515
- Wages and salaries: 3305 | 3264
- Purchase of goods and services: 3557 | 3904
- Interest: 715 | 804
- Transfers: 1555 | 1542
- Capital expenditure: 1407 | 1183
- Net lending, contingency: 175 | 53
- Primary balance: -100 | -3
- Overall balance: -815 | -807
- Financing: 815 | 807
- Domestic: -20 | -106
- Foreign: 742 | 898
- Other flows: 93 | 15
- Sources: Seychelles authorities and IMF staff estimates and projections.

### Public debt management and government financing
- Progress has been made in reestablishing debt sustainability and reducing debt vulnerabilities.
- Almost half (47 percent) of total public debt is external, of which about 72 percent are loans from multilateral creditors.
- Over 80 percent of external debt is on non-concessional terms, and average maturity is 19.6 years.
- The authorities secured concessional financing from the AfDB ($45 million) for a Governance and Economic Reforms Support Program.
- Financing needs have decreased since 2020.
- Public debt has been assessed as sustainable with high probability in June 2023, and is projected to decline from about 64 percent of GDP in 2022 to about 52 percent of GDP by 2028.
- Continued reduction in gross financing needs over the medium term should keep domestic bond financing at sustainable levels and balance of payments needs manageable.
- Seychelles could face external financing challenges over the longer term as its high-income status further reduces access to concessional financing.
- Annual net external financing averages 2 percent of GDP during 2023-26, dominated by multilateral creditors (including the EFF purchases and RSF disbursements). This flow shifts to annual net repayments of 1.3 percent of GDP during 2027-28 after both IMF arrangements have concluded.
- The authorities reiterated their desire to see a Multidimensional Vulnerability Index (MVI) for Small Island Developing States and vulnerable countries to be accepted within the UN framework and by international financial institutions to enable access to concessional financing.
- Significant progress has been made to develop the domestic debt market as a stable source of financing, but more work remains to be done.
  - Annual average net domestic market financing will remain negative at 0.8 percent of GDP during 2023-25 and turn positive at 0.3 percent of GDP during 2026-28.
  - Government bonds held by the banking sector increased from 9.2 percent of assets in 2021 to 11.6 percent in 2022.
  - 10-year treasury bonds were issued in June and September 2023, with average yields to maturity of 7.77 percent and 7.12 percent, respectively.
  - The Government will initiate the framework to operate a buy-back facility for trading of government securities through commercial banks (MEFP ¶ 42) with the aim of starting the trading arrangement in 2024.

### External borrowing program summary (selected items)
- PPG external debt contracted or guaranteed — Sources of debt financing: 12293
- Concessional debt, of which2/: 4524
  - Multilateral: 4524
  - Bilateral: 00
- Non-concessional debt, of which: 7770
  - Semi-concessional debt3/: 7770
  - Commercial term4/: 00
- Uses of debt financing: 122
  - Infrastructure: 14
  - Budget financing: 108
- Memorandum items — Indicative projections: 2024: 103 | 2025: 112
- Notes:
  - 1/ Contracting and guaranteeing of new debt. The present value of debt is calculated using the terms of individual loans and applying the 5 percent program discount rate.
  - 2/ Debt with a grant element that exceeds a minimum threshold. The minimal is 35 percent.
  - 3/ Debt with a positive grant element which does not meet the minimum grant element.
  - 4/ Debt without a positive grant element. For commercial debt, the present value would be defined as the nominal/face value.
- Sources: Seychelles authorities and IMF staff calculations.

### Monetary and exchange rate policy
- While low inflation indicates that price pressures remain contained, the CBS should remain vigilant of risks from global commodity market shocks and exchange rate volatility.
- The CBS policy rate has been held at 2 percent since mid-2021.
- Both headline and core inflation have been mostly negative over the past six months, with notable declines in the service sector, as well as in electricity, gas, and utilities.
- Inflation expectation surveys suggest that inflation is at an inflection point but still anchored in the low single digits (2.7 percent expected for the next 12 months).6
- At the same time, the volatility of the rupee/US$ and rupee/Euro exchange rates has converged to pre-pandemic levels (Figure 3).
- Substantial excess liquidity remaining from the pandemic period raises a concern.
  - There is a potential for capital to move offshore due to the expansion of interest rate differentials vis-a-vis the Euro and the dollar.
  - The credit recovery is still nascent and there is space for faster growth, which would support liquidity absorption.
  - The CBS has been slow to increase efforts to absorb the extra liquidity.7
- CBS is gradually increasing the intervention volume using the 7-day Deposit Auction Arrangement (DAA).
  - The DAA interest rate reached 1.2 percent in September 2023, up from 0.5 percent observed up to January 2023, but remains below the monetary policy rate.
  - The mission recommended lengthening the auctioned deposits maturity to better assist liquidity absorption and reduce rollover risk.
  - Authorities introduced longer maturity deposits in their DAA (up to 360 days) in October, without visible market disruptions.
  - The one-year deposit is instrumental for mopping up structural excess liquidity; introduction of shorter maturities (one and two months) and maintaining the existing 7-day instrument will also be useful to determine short term rates.
  - The CBS has committed to continue the liquidity absorption process through the DAA (MEFP ¶ 44). It is estimated that process will end in the first half of 2024.
- The monetary policy operating framework needs to be strengthened to enhance CBS’ response to inflationary pressures.
  - A monetary policy framework based on interest rates as an operational target in Seychelles is in the early stages of development—having been delayed by the pandemic and subsequent price volatility.
  - The Monetary Policy Rate (MPR) serves in principle as the key policy rate to signal the monetary policy stance.
  - The interest rate transmission mechanism is weakened by the lack of market-based monetary policy instruments, nascent money markets, and excess liquidity.
  - The authorities are implementing an action plan based on Fund TA, published in the July 2023 Monetary Policy Report (structural benchmark).
  - Main measures include enhancing monetary policy communication, improving modeling tools, introducing the use of reverse repos for liquidity absorption, and considering other instruments for long-term liquidity absorption.
- Foreign exchange market developments and reserves
  - FX interventions generally aim at smoothing out excessive volatility in the exchange rate, but CBS has also used seasonal windows of opportunity in the market to increase its reserve buffers (as committed under the program) while keeping a floating exchange rate.
  - CBS net purchases amounted to €54.9 million in the first half of 2023 ($59.3 million, compared to $2.4 million in all of 2022) taking advantage of increased Euro liquidity as trade flows and tourism normalized.8
  - While the authorities remain committed to a floating exchange rate regime, they recognize the need to build further international reserves as a buffer against external shocks.
  - To help enhance market efficiency and increase interbank trading, the CBS will analyze putting in place a common FX negotiation platform.
- CBS balance sheet and capitalization
  - The CBS balance sheet needs to be strengthened; the authorities have committed to key balance sheet strengthening measures.
  - In recent years, the financial solvency of the CBS has been eroded by several structural operational elements, and by the impact of soft lending measures taken in the context of the pandemic.
  - While CBS’ net earnings are expected to stay positive in the near term, its balance sheet remains vulnerable to shocks and a structural recapitalization plan is in progress.9
  - The authorities committed to retain 100 percent of distributable earnings every year until the capital target is achieved (compared to a previous fifty-fifty sharing rule with the treasury) as well as to undertake cost-recovery (e.g., from supervised entities) and cost-cutting exercises (MEFP ¶ 58).
  - The dividend retention will start at the end of the current fiscal year and the work on cost rationalization is expected to take place in 2024.
  - The new dividend retention rule is part of the reforms of the CBS Act and in line with best practice.

6 According to the CBS Financial Indicators Expectations Survey for the Banking Sector – Q2 2023.
7 Absorption of excess liquidity through credit growth tends to be slow in Seychelles given limited investment opportunities.
8
9

*Source: 1sycea2023004 - 10. The RSF reform measure for this review was implemented as scheduled. The — https://www.imf.org/-/media/files/publications/cr/2023/english/1sycea2023004.pdf*

### 23. The banking system remains stable, well capitalized, and liquid, but high NPLs suggest

### 23. The banking system remains stable, well capitalized, and liquid, but high NPLs suggest

### Banking system health and credit risks
- Systemic assessment:
  - The banking system is described as "stable, well capitalized, and liquid".
  - Credit risks persist due to legacy pandemic effects and high NPLs.
- Nonperforming loans and provisioning:
  - NPL ratios remain above historical levels: "7.8 percent in September".
  - Provisioning levels are low: "20 percent of NPLs", driven mainly by reliance on collateral.
  - One foreign-owned large bank had been driving system NPL growth until early this year; supervisors agreed an NPL reduction plan with bank owners expected to bring its NPLs to "lower single digits in 2024".
  - Supervisors expect a reassessment of collateral and provisioning across the banking system; this process "will take until March 2024."
- Other relevant banking metrics:
  - Industry average for banks’ large credit exposures: "72 percent of core capital".
  - Loan dollarization: "21.2 percent of the total".
- Supervisory actions requested:
  - Authorities urged to undertake similar NPL reduction exercises across banks, reassess collateral and provisioning, and ensure consistent application of credit risk and loan classification best practices.
  - Supervisory authorities need to "maintain intense monitoring of banks’ credit portfolios" and prepare to implement structural policies to better prevent and manage crises.

### Regulatory framework, crisis prevention, and supervision upgrades
- Legislative and institutional reforms (structural benchmarks targeted by end-March 2024):
  - A new CBS Act to strengthen the central bank’s governance and institutional, personal, and financial autonomy.
  - The Bank Recovery and Resolution Bill to provide an enhanced crisis management framework.
- Supporting frameworks in finalization:
  - Implementation of a new Credit Information System.
  - Supporting legal framework for the Financial Stability Committee.
  - Aligning the National Payment System with best practice.
- Additional supervisory measures:
  - Continued onsite bank inspections restarted by the CBS to ensure credit risk is adequately reported and mitigated.
  - Steps welcomed to reduce NPLs, including collateral reassessments and provisioning for all banks.
  - Authorities committed to measures to gradually bring CBS capital to a more solvent position.

### Capacity development (CD) needs and IMF support
- CD priorities:
  - Operationalizing the financial stability framework, including macroprudential policies and stress testing.
  - Implementation of Emergency Liquidity Assistance as an effective lender-of-last-resort mechanism.
  - Additional CD to assist with introducing repo arrangements and broader monetary policy operational reforms.
- Expected role of Fund CD:
  - Assist authorities with operationalizing the financial stability framework and other technical reforms.

### Other structural reforms affecting risk and governance
- Air Seychelles and SOE governance:
  - Ground handling assets transferred to the government in March 2023 as part of Air Seychelles restructuring.
  - Remaining steps: transfer those assets to the Seychelles Aviation Handling Company and signing the lease agreement between the new company and Air Seychelles—"expected to take place by December 2023".
  - New public enterprise legislation discussed in May 2023; the Public Enterprise Monitoring Commission (PEMC) published the SOE Annual Report for 2021 in July 2023.
  - PEMC will conduct governance audits and operational assessments of six key public enterprises "by March 2024 (MEFP ¶ 38)".
- Beneficial ownership (BO) transparency:
  - As of "end-July 2023", around "94 percent of the 43,710 international business companies (IBCs) in good standing have submitted information to the BO database".
  - BO regulations amended in April 2023 to provide more clarity in identification of beneficial owners.
  - The BO Act will be amended "by December 2024" to broaden access to the central BO database to financial institutions and reporting institutions with AML/CFT obligations (new structural benchmark).
  - A new digital platform will be implemented in 2024 to provide direct and complete access to all supervisory authorities and law enforcement agencies to the central BO database.

### Measures to increase private investment and medium-term growth
- Tourism and national strategy:
  - Terms-of-reference for a tourism study finalized with aim of completing the study "by end-June 2024 (structural benchmark)".
  - National Development Strategy 2023-2027 highlights: (i) modernization of public service, (ii) transformative economy agenda (tourism, agriculture, fisheries), (iii) improvement of public health, (iv) modernization of the education system, (v) climate change resilience.
- Payments and digitalization:
  - Action plan launched in "2023Q1" to develop a digital payment system and prepare the country to move towards a cash-lite society.

### Climate change mitigation and adaptation reforms (RSF-related)
- Integration into national planning:
  - The National Development Strategy (NDS) 2023-2027 integrated priority climate adaptation and mitigation objectives stipulated in the Nationally Determined Contribution (RM1, target September 2023).
  - Draft NDS designates Environmental Sustainability and Climate Change Resilience as one of six priority areas; NDS set to be released "by the end of 2023".
  - New draft building legislation to integrate climate adaptation/mitigation elements is scheduled for submission to cabinet in "early 2024 (RM2, target March 2024)".
- Additional reform measures and capacity needs:
  - Updated Public Investment Management Policy integrating climate change considerations (RM3).
  - CBS plans to request technical assistance from the IMF on climate resilience in the financial sector (RM5 and RM6).
  - RM4 focuses on climate budget tagging; a more systematic approach to tracking climate-related government expenditures is being developed.
  - Authorities expressed concern about high technical requirements under the RSF and the need for sustained external expertise and funding for a resident climate finance advisor (linked to RM5).

### Program modalities, financing, and macro targets
- Program targets and revisions for 2024:
  - New ITs and QPCs proposed for March and June and new ITs for September and December 2024.
  - Targets related to the primary balance and total revenue adjusted upwards to reflect overperformance in 2023; net domestic financing target proposed to be increased to compensate for less external financing.
  - NIR targets for 2024 proposed for upwards revision; the NIR target for December 2023 left unchanged.
  - Targets for net change in public and publicly guaranteed debt proposed for upwards revision in line with projected increase in external guarantees in 2024.
- Structural benchmarks (new SBs, MEFP Table 2):
  - Compile a full inventory of existing tax expenditures on the VAT and business tax (end-December 2024).
  - Improve capital expenditure execution by adopting reforms to strengthen appraisal and selection of capital projects (end-June 2024).
  - Submit amendments to the CBS Act to strengthen CBS governance and incorporate revisions related to CBS recapitalization (end-March 2024).
  - Further amend BO Act to broaden access to the central BO database (end-December 2024).
- Financing and reserves:
  - Upon approval of the first review, "SDR 6.107 million and SDR 3.123 million will be disbursed under the EFF and RSF arrangements, respectively".
  - EFF fully financed; EFF purchases under the first review will help close the 2023 financing gap.
  - Financing commitments for next 12 months include World Bank "$30 million" and AfDB "$58 million".
  - International reserves projected to cover around "3.7 months of prospective imports by end-2023"; reserves expected to reach around "4 months of import cover over the medium term".
  - Fund credit-to-GDP ratio projected to peak at "8 percent in 2025".
  - Ratio of Fund credit to GIR projected to peak at "20.9 percent in 2025".
  - Fund exposure to Seychelles will remain high for an extended period.

### Safeguards, capacity, and staff appraisal highlights
- Safeguards:
  - An updated safeguards assessment substantially completed; CBS has implemented all previous recommendations.
  - Legal reforms to further align governance and autonomy provisions expected to be enacted "by end-March 2024 (structural benchmark)".
  - A MoU between the CBS and the government on responsibilities for servicing IMF financial obligations signed in October.
- Capacity development linkage:
  - CD activities linked to EFF and RSF priorities: domestic revenue mobilization, PIMA-identified priorities, improvements in monetary policy operational framework; under the RSF, green PFM and climate-sensitive PIM.
- Staff appraisal: key observations and priorities
  - Recovery continues with reversion toward pre-pandemic equilibrium, but challenges remain including excess liquidity in the banking system and vulnerability to shocks given tourism dependence and import reliance.
  - Fiscal and external buffers restoration remains central; steady, growth-friendly fiscal consolidation needed to reduce vulnerability to debt shocks.
  - Authorities committed to fiscal discipline, transparency in tax expenditures, VAT amendments (on track for end-December), and IFMIS implementation in early 2025.
  - Monetary policy framework reforms are progressing; CBS published a plan and timeline in its July Monetary Policy Report; need to continue draining excess liquidity and consider a fixed rate full allotment method once absorption concludes.
  - Implementation of RSF reforms is on track but will be challenging over the next 12 months; additional external support and expertise will be needed to meet technical requirements and fill capacity gaps.

*Source: 1sycea2023004 - 23. The banking system remains stable, well capitalized, and liquid, but high NPLs suggest*

### 46. Staff supports the authorities’ request for completion of the first review of the

### 1sycea2023004 - 46. Staff supports the authorities’ request for completion of the first review of the

### Program approval and disbursement
- Staff supports the authorities’ request for completion of the first review of the arrangements under the EFF and the RSF.
- Staff supports a disbursement totaling SDR 3.123 million (13.6 percent of quota) on account of meeting the RSF reform measure (RM1).
- The attached Letter of Intent and Memorandum of Economic and Financial Policies set out appropriate policies to pursue the program’s objectives.
- The capacity to repay the Fund is adequate but subject to risks. Risks to program implementation are manageable.

### Key macroeconomic indicators and outlook (selected)
- Nominal GDP (millions of Seychelles rupees): 24,294 (2020 act.), 25,347 (2021 act.), 28,222 (2022 act.), 27,666 (2023 prel.), 29,095 (2024 proj.), 29,309 (2025 proj.), 30,318 (2026 proj.), 32,012 (2027 proj.), 34,057 (2028 proj.), 36,432 (2029 proj.), 39,037 (2030 proj.).
- Real GDP (millions of Seychelles rupees): 23,810 (2020), 24,410 (2021), 26,593 (2022), 23,952 (2023), 27,604 (2024), 24,943 (2025), 28,695 (2026), 29,822 (2027), 30,983 (2028), 32,178 (2029), 33,411 (2030).
- Real GDP growth (annual percent): -8.5 (2020), 2.5 (2021), 8.9 (2022), 4.3 (2023), 3.8 (2024), 4.1 (2025), 4.0 (2026), 3.9 (2027), 3.9 (2028), 3.9 (2029), 3.8 (2030).
- CPI (annual average): 1.2 (2020), 9.8 (2021), 2.6 (2022), 1.4 (2023), -0.8 (2024), 2.0 (2025), 0.3 (2026), 2.0 (2027), 3.0 (2028), 3.5 (2029), 3.5 (2030).
- CPI (end-of-period): 3.8 (2020), 7.9 (2021), 2.5 (2022), 2.2 (2023), -1.6 (2024), 2.4 (2025), 0.9 (2026), 2.8 (2027), 3.5 (2028), 3.5 (2029), 3.5 (2030).
- GDP deflator average: 1.2 (2020), 1.8 (2021), 2.2 (2022), 1.6 (2023), -0.7 (2024), 1.7 (2025), 0.2 (2026), 1.6 (2027), 2.4 (2028), 3.0 (2029), 3.2 (2030).

### Fiscal stance and public finances (selected)
- Total revenue, excluding grants (percent of GDP): 29.5 (2020), 30.2 (2021), 30.8 (2022), 34.3 (2023), 32.9 (2024), 34.8 (2025), 34.5 (2026), 34.5 (2027), 34.5 (2028), 34.2 (2029), 33.9 (2030).
- Expenditure and net lending (percent of GDP): 47.1 (2020), 38.8 (2021), 32.7 (2022), 38.7 (2023), 37.0 (2024), 38.8 (2025), 37.2 (2026), 36.8 (2027), 35.8 (2028), 34.3 (2029), 33.5 (2030).
- Current expenditure (percent of GDP): 41.3 (2020), 33.5 (2021), 29.8 (2022), 33.0 (2023), 32.7 (2024), 32.3 (2025), 31.6 (2026), 30.4 (2027), 29.4 (2028), 28.6 (2029), 27.9 (2030).
- Capital expenditure (percent of GDP): 4.3 (2020), 5.2 (2021), 2.4 (2022), 5.2 (2023), 4.3 (2024), 6.3 (2025), 5.3 (2026), 6.1 (2027), 6.1 (2028), 5.9 (2029), 5.8 (2030).
- Overall balance, including grants (percent of GDP): -16.8 (2020), -5.5 (2021), -1.3 (2022), -2.9 (2023), -2.8 (2024), -2.5 (2025), -1.5 (2026), -1.1 (2027), -0.5 (2028), 0.6 (2029), 1.0 (2030).
- Primary balance (percent of GDP): -13.4 (2020), -2.9 (2021), 0.8 (2022), -0.4 (2023), 0.0 (2024), 0.2 (2025), 1.1 (2026), 1.1 (2027), 1.6 (2028), 2.5 (2029), 2.9 (2030).
- Total government and government-guaranteed debt (percent of GDP): 81.1 (2020), 73.9 (2021), 64.1 (2022), 67.6 (2023), 64.4 (2024), 66.0 (2025), 65.6 (2026), 64.3 (2027), 61.2 (2028), 56.1 (2029), 51.3 (2030).

### External sector and reserves
- Current account balance including official transfers (in percent of GDP): -12.3 (2020), -10.1 (2021), -7.1 (2022), -9.5 (2023), -5.4 (2024), -10.1 (2025), -7.1 (2026), -7.4 (2027), -7.9 (2028), -8.6 (2029), -9.2 (2030).
- Total external debt outstanding (millions of U.S. dollars): 5,049 (2020), 5,261 (2021), 5,391 (2022), 5,584 (2023), 5,583 (2024), 5,791 (2025), 5,825 (2026), 6,029 (2027), 6,157 (2028), 6,252 (2029), 6,111 (2030).
- Total external debt outstanding (percent of GDP): 365.8 (2020), 350.6 (2021), 272.7 (2022), 285.0 (2023), 267.9 (2024), 279.0 (2025), 277.6 (2026), 273.6 (2027), 262.6 (2028), 249.3 (2029), 227.4 (2030).
- Gross official reserves (end of year, millions of U.S. dollars): 575 (2020), 702 (2021), 639 (2022), 655 (2023), 733 (2024), 700 (2025), 791 (2026), 843 (2027), 904 (2028), 953 (2029), 997 (2030).
- Months of imports, c.i.f. (reserves): 3.8 (2020), 3.7 (2021), 3.4 (2022), 3.4 (2023), 3.7 (2024), 3.5 (2025), 3.7 (2026), 3.8 (2027), 3.9 (2028), 4.0 (2029), 4.1 (2030).
- Gross official reserves (with RSF, stock, e.o.p.) (millions of US dollars): 575 (2020), 702 (2021), 639 (2022), 655 (2023), 733 (2024), 700 (2025), 791 (2026), 843 (2027), 904 (2028), 953 (2029), 997 (2030).
- Gross international reserves with RSF (percent of ARA metric): 112 (2020), 121 (2021), 101 (2022), 100 (2023), 110 (2024), 102 (2025), 112 (2026), 116 (2027), 122 (2028), 126 (2029), 128 (2030).

### External financing and IMF access
- EFF approvals and purchases schedule (SDR million per date): Approval May 31, 2023 — 6.107 (26.7 percent of quota); November 15, 2023 (1st Review) — 6.107 (26.7); May 15, 2024 — 6.107 (26.7); November 15, 2024 — 6.107 (26.7); May 15, 2025 — 6.107 (26.7); November 15, 2025 — 6.107 (26.7); May 15, 2026 — 5.723 (25.0). Total EFF Access: 42.365 SDR million (185 percent of quota).
- RSF disbursement schedule (SDR million): November 15, 2023 (completion of RM1) — 3.123 (13.6 percent of quota); subsequent RSF disbursements of 3.123 SDR million (13.6 percent of quota) for reform measures 2 through 10; May 15, 2026 (RM11) — 3.120 (13.6 percent). Total RSF Access: 34.350 SDR million (150 percent of quota).
- Table 6 gross financing requirements (Millions of US$): Gross Financing Requirements — 213 (2020), 192 (2021), 184 (2022), 171 (2023), 217 (2024), 218 (2025), 245 (2026), 265 (2027), 299 (2028).
- Net FDI (Millions US$): 135 (2020), 160 (2021), 226 (2022), 235 (2023), 244 (2024), 322 (2025), 342 (2026), 369 (2027), 391 (2028).
- Change in reserves (without RSF, increase: -) (Millions US$): 32 (2020), -143 (2021), 62 (2022), -89 (2023), -42 (2024), -30 (2025), -58 (2026), -49 (2027), -44 (2028).

### Financial sector and banking indicators (selected)
- Broad money growth (12–month percent change): 7.7 (2019), 13.9 (2020), 27.0 (2021), -5.1 (2022), 3.7 (2023 proj.), 2.4 (2024 proj.), 5.6 (2025 proj.), 9.0 (2026 proj.), 6.8 (2027 proj.), 4.8 (2028 proj.), 6.6 (2029 proj.).
- Credit to the private sector (12–month percent change): 11.5 (2019), 22.3 (2020), 20.2 (2021), -11.9 (2022), 5.0 (2023 proj.), 5.1 (2024 proj.), 9.4 (2025 proj.), 8.4 (2026 proj.), 8.8 (2027 proj.), 8.2 (2028 proj.), 7.9 (2029 proj.).
- Reserve money (end-of-period; 12–month percent change): 4.5 (2019), 22.7 (2020), 40.4 (2021), 11.1 (2022), -3.0 (2023 proj.), -9.5 (2024 proj.), 6.2 (2025 proj.), 9.0 (2026 proj.), 6.8 (2027 proj.), 4.8 (2028 proj.), 6.6 (2029 proj.).
- Banking sector asset quality and liquidity (selected, end-of-period):
  - Regulatory capital to risk weighted assets: 20.5 (2018), 19.5 (2019), 17.1 (2020), 22.7 (2021), 20.3 (2022), 21.5 (2023 Mar), 22.3 (2023 Jun), 21.7 (2023 Sep).
  - Non-performing loans to gross loans: 3.5 (2018), 2.7 (2019), 3.3 (2020), 5.5 (2021), 7.6 (2022), 7.7 (2023 Mar), 7.4 (2023 Jun), 7.8 (2023 Sep).
  - Provision as percentage of non-performing loans: 19.2 (2018), 25.1 (2019), 38.3 (2020), 32.5 (2021), 20.7 (2022), 19.7 (2023 Mar), 22.6 (2023 Jun), 20.0 (2023 Sep).
  - Liquid assets (broad) to short term liabilities: 63.7 (2018), 60.6 (2019), 62.3 (2020), 66.3 (2021), 68.9 (2022), 73.5 (2023 Mar), 73.2 (2023 Jun), 71.1 (2023 Sep).

### Public debt composition and debt service (selected)
- Total public debt (US$ million): 1,220 (2022).
- External debt component (US$ million): 573 (2022) — 47.0 percent of total debt; 28.7 percent of GDP.
- Multilateral creditors (US$ million): 392 (2022) — 32.1 percent of total debt; 19.6 percent of GDP.
  - IMF: 121 (2022).
  - World Bank: 135 (2022).
  - AfDB: 80 (2022).
- Domestic debt component (US$ million): 646 (2022) — 53.0 percent of total debt; 32.3 percent of GDP.
- Debt service (US$ million) — total: 335 (2022), 210 (2023), 178 (2024).
- Memo: Nominal GDP (US$ million) 1,977 (2022).

*Source: IMF staff report materials contained in the provided content unit.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Conjunctural Risks — Summary of Risks, 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) that would lower the impact of a delayed economic recovery.
    - Consider further fiscal consolidation and targeted and temporary support as needed for vulnerable sectors.
    - Let the exchange rate act as a shock absorber to protect reserve buffers.
- Supply disruptions and sharper-than-anticipated increases in international energy prices.
  - (Listed as source of risk; policy responses overlap with other conjunctural risks.)
- Abrupt global slowdown or recession.
  - 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) 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.
- Commodity price volatility.
  - Relative Likelihood: High
  - Expected Impact if Realized: Medium
  - Policy Response:
    - CBS to maintain vigilant monitoring and be ready to tighten monetary stance to anchor inflation expectations.
    - Provide targeted support for the most vulnerable population to deal with rising prices amid a delayed economic recovery.
  - Note: The exchange rate pass-through is slow in Seychelles. However, higher food and energy prices would hurt vulnerable consumers.
- Sovereign debt distress.
  - Relative Likelihood: Medium
  - Expected Impact if Realized: Medium
  - Policy Response:
    - Ensuring a prudent macro-fiscal stance to foster market access at reasonable terms.
    - Preemptively rebuild fiscal and FX buffers.
  - Note: A reduction in external financing could worsen the balance of payments with implications for the exchange rate.
- 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.
- 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.
  - Note: Higher NPL levels, which increased mainly due to the withdrawal of forbearance measures, could pose risks to financial stability.

### Structural Risks — Summary and Policy Responses
- Extreme climate events.
  - Relative Likelihood: Medium
  - Expected Impact if Realized: Medium
  - Policy Response:
    - Prioritize the implementation of projects related to climate change.
    - Continue rebuilding fiscal space, reducing public debt, increasing foreign exchange buffers, and improving the effectiveness of social protection.
  - Note: Materialization of risks related to natural disasters could trigger further public expenditures and alter the planned reduction of public debt.

### Capacity Development Strategy for 2023–25 — Priority Areas and Objectives
- Macro-Fiscal Policies
  - Strengthen the credibility of medium-term budget planning; balancing fiscal consolidations; strengthen the identification, monitoring, and management of fiscal risks; improve coverage and quality of fiscal reporting; strengthen macro-fiscal forecasting capacities.
- Public Financial Management
  - Enhance the efficiency of public investment, including from a climate perspective for RSF reform measures; improve debt and cash management practices; and improve the efficiency and integration of the government’s financial management information systems.
- Revenue administration and tax policy
  - Strengthen revenue administration and governance arrangements and strengthen Customs and tax administration core functions; assess the efficiency of VAT in a small island country and improve tax expenditure reporting.
- Debt Management
  - Continue to produce a comprehensive Medium-Term Debt Management Strategy (MTDS) and Annual Borrowing Plan (ABP); strengthen processes for accurate debt recording, reporting, and monitoring; develop the secondary market for government securities.
- Monetary Policy Implementation
  - Strengthen the CBS staff’s capacity for inflation forecasting and liquidity management; deepen the money market and improve the transmission mechanism of monetary policy in the context of an interest rated-based framework; develop the Emergency Liquidity Assistance (ELA) framework; develop the government securities; develop the market infrastructure; enhance the communication strategy/policy of the CBS; develop a FXI strategy.
- Financial Stability and Crisis Management
  - Implement a risk-based supervision system and upgrade other supervisory processes; amend the capital adequacy regulation; strengthen the legal basis and the mandate of the Financial Stability Commission (FSC); enhance the macroprudential policy toolkit; management of climate-related risks.
- Financial Integrity (AML/CFT)
  - Improve the AML/CFT supervision/regulatory framework by implementing a risk-based approach to supervision; reduce the reputational risk to which the offshore banking and international business sectors is exposed (including on transparency of beneficial ownership information).
- Payments and Infrastructure
  - Advise and assist the central bank and other relevant authorities in developing and reforming the national payment system.
- Real Sector Statistics
  - Strengthen the compilation and dissemination of national accounts, price, and external sector statistics according to internationally accepted statistical standards.
- Government Finance Statistics (GFS)
  - Build capacity and improve the quality of fiscal and debt statistics.
- Financial Sector Statistics
  - Increase the scope of monetary and financial statistics data to include credit providing nonbank financial institutions and payment companies and compile Financial Soundness Indicators in line with the latest international standards (2019 FSI Guide).

### Key Macroeconomic and Financial Statistics and Developments (from Letter of Intent and MEFP)
- Real GDP growth for 2023 revised to 3.8 percent (compared to initial 4.3 percent forecast at program discussion).
- Tourist arrivals growth forecast for 2023: 5 percent.
- Projected decline in annual average expenditure per visitor: 4.6 per cent.
- ICT sector growth prediction: about 16 percent.
- Transportation and storage activities growth prediction: 11 percent.
- Inflation and prices:
  - In August 2023, year-on-year inflation: negative 2.4 percent.
  - In August 2023, 12-month average inflation rate: 0.8 percent.
  - End-2023 projection: year-on-year change in average prices: negative 1.6 percent.
  - End-2023 projection: 12-month average inflation rate: negative 0.8 percent.
- Monetary policy settings in 2023:
  - Monetary Policy Rate (MPR): 2 percent.
  - Standing Deposit Facility (SDF) interest rate: 0.5 percent.
  - Standing Credit Facility (SCF) interest rate: 3.5 percent.
  - Intervention volume per MRR maintenance period increased by R100 million under the 7-day Deposit Auction Arrangement (DAA).
  - Interest rates rose from 0.5 percent as at end-January 2023 to 1.23 percent as at end-September 2023.
- Interest rates and returns (July 2023):
  - Average lending rate on rupee loans: declined by 17 basis points compared to July 2022.
  - Interest rate on foreign currency loans: rose by 2.1 percentage points.
  - Overall average lending rate: increased by 50 basis points.
  - Average return on T-bills in the first seven months of 2023:
    - 91-day bills: 1.28 percent.
    - 182-day bills: 1.56 percent.
    - 365-day bills: 2.14 percent.
- Fiscal performance:
  - Primary surplus in first six months of 2023: 1.2 percent of GDP.
  - Revenue in first six months of 2023: SR 4.3 billion (program target SR 3.8 million noted in source).
  - Revenue excluding grants for 2023 expected to reach 33 per cent of GDP (up from 30.8 per cent in 2022).
  - Expenditures for 2023 expected at 37 per cent of GDP (compared with 38.7 per cent forecast during the new program); current expenditure expected to remain 0.5 per cent of GDP below program estimate.
- External sector and reserves:
  - Current account deficit: 10.1 percent of GDP in 2021; 7.1 percent of GDP in 2022.
  - Current account shortfall forecast for 2023: 5.4 per cent of GDP (improvement from previous projection of 9.5 percent of GDP).
  - Gross International Reserves (GIR) as at end-September 2023: US$708 million (decline of 2.7 percent compared to US$728 million as at June 2023).
  - Net International Reserves as at end-Q2 2023: US$562 million, 19 percent above the target of US$474 million.
  - CBS had purchased an equivalent of US$59 million by the end of June 2023 through its foreign exchange auction (FEA).

*Source: Annex I. Risk Assessment Matrix, 1sycea2023004*

### 9.  As at end of July 2023, the banking industry remained well capitalised although NPLs

### 1sycea2023004 - 9.  As at end of July 2023, the banking industry remained well capitalised although NPLs

### Banking sector health and performance (as at end‑July 2023)
- All banks held regulatory capital above the prudential capital requirement of 12 percent.
- Industry aggregated regulatory capital to risk weighted assets: increased by 2.0 percentage points to 22.7 percent as at July 2023.
- Nonperforming loans (NPLs) and gross loans (year‑on‑year): NPLs rose by 1.1 percent and gross loans rose by 9.8 percent.
- NPLs to gross loans ratio: declined by 0.6 percentage points to 7.5 percent at end‑July 2023.
- Sectoral concentration of NPLs: year‑on‑year rise mostly in the commercial development and tourism sectors.
- Profitability:
  - Return on Assets (ROA): 2.9 percent.
  - Return on Equity (ROE): 30.2 percent.
- Liquidity: liquid asset to total liabilities ratio stood at 50.2 percent at the end of July 2023, above the minimum requirement of 20 percent.
- Foreign currency risk exposure:
  - Long position: declined by 2.6 percentage points to stand at 11.0 percent.
  - Short position: rose by 0.8 percentage points to stand at -3.4 percent.
  - Both ratios remained within prescribed foreign currency exposure limits.

### Real sector reforms — Diversification and digitalization
- Promote digital payments for Government transactions:
  - Government launched an action plan during the 1st quarter of 2023 to improve Government digital payments systems, including awareness/sensitization, standard procedures and coding across government to streamline processes and prepare the country for a cash‑lite society.
- Tourism sector:
  - Tourism Master Plan being executed.
  - Seychelles developed a first tourism satellite account (TSA) with assistance from UNWTO to measure tourism’s contribution to GDP.
  - Terms of reference for a tourism study finalized as a structural benchmark; study aimed to be completed by end‑June 2024 (structural benchmark).

### Fiscal policy, budget outcomes, and medium‑term framework
- Debt dynamics:
  - Debt to GDP ratio estimated at 64 percent of GDP by end of 2023, down from 64.2 percent in 2022.
  - Debt expected to reach 50.7 percent in 2028.
  - Government target: around 50 percent of GDP by 2029.
  - Guaranteed debt anticipated to increase by an average of about 0.7 percent annually due to guarantees to the Development Bank of Seychelles and major projects (e.g., Port extension).
- Revised budget 2023:
  - Revised budget will achieve a zero primary balance compared to program deficit of 0.4 percent of GDP.
  - Revenue (excluding grants) targeted to increase by 2.1 percentage points to 33 percent of GDP (compared to 2022).
  - Current expenditure targeted to increase by 2.9 percentage points to 32.7 percent of GDP.
- New taxes and revenue:
  - Accommodation turnover tax: 2 percent for tourism accommodation operators earning yearly turnover of SR 100 million and above; implemented in January 2023.
  - Tourism Environment Sustainability Levy: implemented from 1st of August 2023.
  - Combined revenue from both new taxes: SR 190.5 million for 2023 and SR 327.9 million for 2024.
  - Revised securities dealer’s business tax structure to come into force in January 2024.
- Wages, goods, and capital expenditure:
  - Salary increase implemented April 2023 after freeze since 2019.
  - Savings under wages and salaries: SR 41 million due to recruitment delays and deferred thirteenth month pay.
  - Wages and salaries budget reduced to 11.2 percent of GDP from 11.9 percent of GDP.
  - Goods and Services budget increased to 13.4 percent of GDP from 12.9 percent of GDP.
  - Capital expenditure reduced to 4.1 percent of GDP from 5.1 percent of GDP due to slower project execution and public investment management reforms.
- Tax policy and reform milestones:
  - Business tax amendment enacted end‑December 2022 includes transfer pricing provisions.
  - World Bank assisting to finalize general transfer pricing regulations; aim to publish before end‑October 2023.
  - Desk review to assist tax gap exercise expected to be completed in the first six months of 2024.
  - VAT legislative amendments being phased 2023–2025; Cabinet due to approve 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); further assessment for VAT and business tax expenditure forecast for 2025 budget (structural benchmark).
- Public sector review:
  - Comprehensive functional review of whole of government to start in January and be completed by June 2024.
  - Complemented by digitalization agenda and strengthening of monitoring and evaluation framework.

### Public sector wages, staffing, and programmatic adjustments
- Cost of new salary grid in 2023:
  - SR 171.9 million under wages.
  - SR 23.8 million under goods and services.
  - Full annualized impact: SR 229.2 million under wages and SR 31.68 million under goods and services.
- Recruitment freeze in non‑critical areas in 2023: resulted in savings of SR 41 million or 0.1 percent of GDP.
- Reallocation of cleaning services from goods and services to wages and salaries from 2024: expected annual saving of SR 5.1 million.
- Home Care Agency 2023 allocations:
  - SR 4.2 million under wages and salaries.
  - SR 313.3 million under goods and services.
  - Home Care budget previously financed under benefits and approved programs of Agency for Social Protection.

### Digital transformation and public service digitalization investments
- Medium‑term digital investment: SR 421.61 million allocated for several digitalization projects, including:
  - New Integrated Financial Management Information System (IFMIS).
  - New Human Resource Management System (HRMS).
  - New system for the Agency of Social Protection.
- Legislative and regulatory improvements:
  - New Communications Bill (approved by Parliament in March) to address anti‑competitive practices and create an independent ICT regulator.
  - Data Protection legislation expected to be enacted by second half 2023.
- Public service digital platforms and payments infrastructure:
  - Full implementation of Health Information System expected by end‑2023.
  - National Payment System (Electronic‑Money) Regulation issued in December 2022.
  - Real Time Gross Settlement System (RTGS) vendor awarded in September 2023; RTGS and Central Securities Depository (CSD) expected to go live in Q3 2024.
  - HRMS expected to come online in time for 2025 budget preparation.

### Tax and customs administration modernization
- ASYCUDA World enhancements:
  - E‑Manifest and Express Courier modules completed and deployed (structural benchmark).
  - Excise Tax module deployed.
  - E‑payment and single window completion due at end of 2nd quarter of 2024.
- REX system:
  - REX went live on 1st July 2023 to replace EUR.1 certificate, simplifying export processes and potentially attracting exporters; work ongoing with COMESA on e‑certificate of origin.
- Tax online portal and taxpayer engagement:
  - Online portal being finalized; completion depends on transaction data clean up to be fully functional and enable taxpayers to view accounts online.
  - Law to be amended to compel large taxpayers to transact through new online portal by end of December 2023.
  - Training sessions through regional outreach programs to be organized in last quarter of 2023 to assist taxpayers in registering and navigating the portal.
- Tax Management System (TMS) implementation milestones:
  - Four core tax modules (registration, filing, payment, accounting) developed and deployed.
  - Return processing module completed and to start pilot phase end‑October 2023.
  - Payment and cashier system deployed since 1st of September 2023.
  - SRC and SPF agreed to start consolidated payroll implementation as of 1st January 2024; 4th quarter of 2023 for employer education.
  - TMS server purchased and installed; second server in procurement for backup.
  - Medium term: IFMIS in Ministry of Finance to be integrated with SRC TMS.
- Business process reengineering at SRC:
  - RPR completed for registration, returns processing, payment, and accounting; User Requirement Specification documents completed and signed off.
  - Similar exercise planned for debt collection, audit, and risk during 4th quarter of 2023 to 2024.
  - Efforts to integrate with other government systems for data matching and validation to improve ease of doing business and detect non‑compliance.
- Data cleansing and migration:
  - SRC with GOPA in final phase of registration data cleansing for TMS; outreach ongoing to taxpayers who have not updated information.
  - Accounting data cleanup underway to prepare for migration to new TMS.
- Compliance Improvement Plan (CIP) and capacity building:
  - SRC started piloting its first CIP developed with AFRITAC South to strengthen voluntary compliance, including prompt detection and follow up on late/non‑filing and payments, education, and audit.
  - SRC redesigned its website to be more user‑friendly for taxpayers.
  - SRC received technical assistance from TIWB for Transfer Pricing; assistance includes capacity building and development of risk assessment framework and audit program to strengthen enforcement of the arm’s length principle and reduce revenue loss from transfer pricing/profit shifting.

*Source: 1sycea2023004 - 9.  As at end of July 2023, the banking industry remained well capitalised although NPLs*

### 26.  SRC has also recruited a Technical Advisor (TA) to assist and provide guidance on

### 1sycea2023004 - 26. SRC has also recruited a Technical Advisor (TA) to assist and provide guidance on

### Tax Administration Capacity and Transfer Pricing (SRC)
- SRC recruited a Technical Advisor (TA) to assist and provide guidance on practical audit casework including Transfer Pricing (TP) cases.
- The TA collaborated closely with the Word Bank and MOF during drafting of the Transfer Pricing (TP) legislation and the 2 new TP regulations.
- The TA led stakeholders’ presentations and is continuously building the capacity of SRC officers in the TP area.
- Potential TP cases identified are under risk review.
- SRC is receiving specialized Audit trainings from the African Tax Administration Forum for the Telecommunications and Financial Sectors.
  - Next mission for the telecommunication sector is scheduled for the first week of October 2023.
- Ongoing training for Basic, Intermediate and Advanced Audit aims to:
  - Better understand business structures and tax planning schemes.
  - Improve compliance in accurate and complete reporting.
  - Contribute towards an increase in tax revenue in the medium to long-term.

### Automatic Exchange of Information (AEOI) / Common Reporting Standard (CRS)
- The AEOI system has been improved to meet OECD standards and is now working well for automatic exchange of information (Common Reporting Standard (CRS)).
- The Unit conducted two sessions with the Financial Services Industry on the onboarding system.
- FI Onboarding went live on Monday the 12th of June 2023.
- For entities that onboarded on the (User Acceptance Testing) UAT, data was migrated to the Production server.
- All Financial Institutions that have been successfully registered can submit their XML files.
- System functionalities:
  - ‘Request for extension’ application.
  - FI can submit the Nil notification in the system.
- EOIR Case Management system:
  - Designed and still in the testing phase.
  - Consultant conducted an onsite session for additional requested functionalities.
  - Expected to be in full production by end of September 2023.

### Medium-Term Fiscal Framework and Budgeting
- Government is adopting a Medium-Term Fiscal or Budget Framework to bolster sustainability of public finances.
- Government working with UNDP to prepare an integrated financing framework guiding resource mobilization.
  - First step: development finance assessment to be completed by fourth quarter 2023.
- AFS will support integration of the MTFF with the MTBF during the first quarter of 2024.
- AFRITAC South to provide additional support in the context of the 2024 budget to link the Medium-Term Debt Strategy and National Development Strategy.

### Social Protection Reforms (Program for Results - PforR)
- World Bank assisted Government with a survey among past and present beneficiaries due to decline in number of beneficiaries in social welfare assistance (SWA).
- Recommendations include greater awareness and outreach campaigns and improved communication of application outcomes.
- Program development objectives:
  - Improve efficiency and effectiveness of social protection programs while remaining above the floor on social expenditure established under the program.
  - Refine analysis of social spending to better capture budget allocation towards human capital development.
- 2023 focus to improve efficiency and transparency through measures:
  - ASP will adopt a revised socioeconomic needs assessment incorporating non-income dimensions of poverty.
  - Comprehensive Review of ASP internal controls and payroll systems conducted by PWC.
    - Government provided funds in the 2023 budget for procurement of the IT system by ASP.
    - Tender of the IT system has been completed; work expected to begin in the last quarter of 2023.
    - IT system will contribute to an interdisciplinary approach by coordinating across MDA’s and establishing a social registry.
  - Access to home care better targeted via establishment of an Agency.
    - Trained caregivers within HCA, ASP, and MOH are providing home care to at least 60 percent of new high-need HCP beneficiaries.
  - Establishment of the National Functional Assessment Board to streamline assessment procedures for eligibility of invalidity and disability benefits.

### Public Financial Management (PFM) Reforms and Expenditure Efficiency
- IMF TA will be provided during 2024 to review the Public Procurement Act and the Public Finance Management Act to ensure consistency and incorporate digitalization agenda changes.
- Adoption of a Public-Private Partnership framework including climate-related investment; include legislative provisions in Public Finance Management legislation and approve relevant legislation by end of December 2024.
- With World Bank assistance:
  - PEFA assessment to be undertaken during the first quarter 2024.
  - Action plan for Cabinet endorsement by June 2024 to correct deficiencies identified by the PEFA assessment.
  - Public expenditure review for education completed; results for health sector expected by November 2023.
- Program Performance Based Budgeting enhancements:
  - Roll-out of Zero-Based Budgeting in five Portfolio for the budget process 2024-2026.
  - For 2024 budget process, MoFNPT provided standard cost for some common use items for consistency when using the Zero-based costing template.
- New IFMIS platform to be installed by January 2025.
  - Budget for the new IFMIS included in the 2024 budget and over the medium term.
  - Review of systems requirements specifications completed.
  - Tender documents being prepared; expected to be launched by end October 2023.
  - Contract expected to be signed in January 2024.
  - Contextualization and validation of modules phased, with budget preparation and management module first to prepare the 2025 budget in the new system.
  - Subsequent modules: budget execution, accounting and reporting.

### Cash Flow Forecasting and Cash Management
- Current deviations in cash flow forecasts are considered too large; improving forecasting is a medium-term priority.
- Ministerial circular in October 2022 issued to reduce deviation between forecast and outcome in monthly cash flow plan.
- New Cash Flow Unit (CFU) within the Ministry of Finance created and partially staffed.
  - CFU working with MDAs to build capacity and awareness.
  - AFRITAC assisting with capacity building; training on cash flow forecasting for Department of Finance (including CFU) and MDAs in November 2023.
  - CFU will collect information on large payments beforehand for inclusion in the cash flow plan.
  - CFU will improve the consolidated cash flow plan template, expand classification details for expenditure, and ensure revised forecasts are included as actuals are entered.
  - CFU will ensure forecasting errors are systematically analyzed and discussed with stakeholders.
- Improved cash flow forecasts will inform debt management and borrowing planning for the Debt Management Division (DMD) and liquidity management for the Central Bank of Seychelles (CBS) to support monetary policy.

### Public Investment Management (PIMA / C-PIMA)
- Seychelles undertook its first Public Investment Management Assessment (PIMA) and Climate PIMA (C-PIMA) during the first quarter of 2023 with IMF Fiscal Department and World Bank assistance.
- PIMA identified causes for under-execution of capital projects:
  - Weakness 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 improvements needed, including updating fixed asset registers and availability in the Fixed Asset Management System.
- In May 2023, Cabinet approved an action plan to improve under-execution of capital investment and address PIM institutional gaps.
- Reforms for appraisal and selection of capital projects:
  - Annual budget circular will stipulate projects will not be included in the Medium Term Expenditure Strategy (MTES) if appraisal information is absent or materially incomplete.
  - MDAs will be provided a set of minimum criteria (design, costing, engineering elements) to assess projects in the MTES 3-year Public Sector Investment Plan (PSIP).
  - PIMU will recommend to the Inter-Ministerial Committee (IMC) for inclusion/deferral based on criteria met.
  - Detailed assessment of staffing requirements for SIA and PIMU to ensure fitness for purpose (structural benchmark).
- Maintenance budgeting and planning:
  - SIA undertaking a stock taking exercise to compile a database of all government buildings and structures; expected completion by June 2024.
  - Government will adopt maintenance standards for routine and capital maintenance; program classification to better measure maintenance costs.

### Minimizing Risks of State-Owned Enterprises (SOEs)
- Transfers to state-owned enterprises reduced from 2.0 percent of GDP in 2020 to 0.16 percent forecasted for the year 2023.
- New Public Enterprise act enacted on the 31st of May 2023:
  - Provisions for efficient governance and monitoring of Public Enterprises.
  - Harmonized framework for establishment, governance, and operation.
- Public Enterprises Monitoring Commission (PEMC):
  - Published the 2021 Public Enterprises’ Annual Report in accordance with the new legislation (structural benchmark for end-June 2023).
  - 2022 annual report expected to be published by end of December 2023.
  - Annual report presents overall financial performance, including outstanding debt, based on audited financial statements.
  - PEMC through an independent audit firm will conduct governance audit and operational assessment of six key public enterprises by March 2024.
    - Procurement process launching during the first week of October 2023.
    - Key public enterprises to be audited: Public Utilities Corporation (PUC), Seychelles Petroleum Company (SEYPEC), Air Seychelles, Island Development Company Limited, Seychelles Civil Aviation Authority (SCAA) and Seychelles Trading Company Ltd (STC).
  - Government will work with SEYPEC on tanker replacement strategy to address potential risk; to be completed by end of March 2024.

### U.S. Treasury Technical Assistance to PEMC
- Planned assistance areas:
  1. Technical staff capacity building to improve analytical skills and quality of PEMC reporting; development of an orientation program for new staff.
  2. Development of comprehensive written policies and procedures for PEMC staff that comply with the 2023 PE Act.
  3. Support with implementation of the web-based reporting portal, including business needs identification and training for portal users.
  4. Assistance with development of performance indicators and targets for public enterprises that comply with the 2023 PE Act.
  5. Support with implementation of a comprehensive job grading scheme for public enterprise boards and executives, including establishing an oversight body and sensitization.
- PEMC will publish information about state owned compensation by end of October 2023.

### Seychelles Aviation Handling Company and Ground Handling
- New entity, the Seychelles Aviation Handling Company, established to assume legal ownership of ground handling assets.
  - New company will enter into a lease agreement with Air Seychelles for use of these assets.
  - Asset transfer from Air Seychelles to the government has been completed.
  - Framework for key terms and conditions of lease agreement and asset transfer expected to be finalized by October 2023 (structural benchmarks).
  - Discussion on transfer of IT infrastructure ongoing; action plan to be submitted to Government by end December 2023.

### Public Debt Management Strategy
- Progress over past three years: continued publication of quarterly debt bulletins and quarterly borrowing and issuance plans.
- Foreign interest costs have increased more than 50 percent in comparison to 2022.
- As part of Medium Term Debt Management Strategy (MTDS), Government will conduct an assessment to determine the optimum debt model to align with the Medium Term Fiscal Framework.
- Government will revise the Public Debt Management Act in parallel with the Public Finance Management Act to provide more flexibility to debt management and promote debt sustainability.
- Domestic market development:
  - Diversified domestic instruments beyond T-Bills; Government issuing T-Bonds on a quarterly basis to lengthen weighted average maturity and reduce refinancing risks.
  - Government issued a 10-year Bond in June and another one early September; both bonds fully subscribed and a total of SCR 134m and SCR 104m were allotted respectively.
  - With IMF MCM assistance, Government will initiate framework to operate a buy-back facility for trading government securities through commercial banks.
  - Government will aim to expand and rely on external concessional financing in the medium term to reduce borrowing cost.

### Monetary and Exchange Rate Policy (CBS)
- CBS considers current monetary policy stance appropriate but remains ready to adjust for potential shocks.
- Financial Indicators Expectations Survey with households anticipated to be carried out in the second quarter of 2024.
  - Revised timeline reflects National Bureau of Statistics workplan; Labour Force Survey resumed in second half of this year.
  - Survey expected to complement outcomes from the quarterly exercise with the Banking sector.
- Transmission of interest rates remains weak.
  - CBS implementing recommendations from IMF MCM technical assistance received in April 2022 to strengthen monetary policy operations and develop money and FX markets.
  - CBS workplan on modernisation of the monetary policy framework and operations published within the Monetary Policy Report in July 2023 (structural benchmark).
  - Key reform: re-operationalisation of the Repo instrument by end-December 2024 (structural benchmark), following IMF technical assistance.
  - CBS will use longer term instruments including one-month and two-month DAA to mop up excess liquidity in Q4 2023.
  - In 2024, CBS will conduct optimal intervention such that the interest rate on the 7-day DAA targets the prevailing monetary policy rate.

*Source: 1sycea2023004 - 26.  SRC has also recruited a Technical Advisor (TA) to assist and provide guidance on*

### 45. CBS remains committed to a floating exchange rate and will only intervene to facilitate

### 45. CBS remains committed to a floating exchange rate and will only intervene to facilitate

### Exchange rate policy and reserve accumulation
- CBS will maintain a floating exchange rate and intervene only to facilitate orderly market conduct and reserve accumulation.
- Market-clearing conditions are expected to prevail in the domestic FX market in 2023.
- CBS will purchase from the market on an opportunistic basis for reserve accumulation as determined by specified market indicators, and based on transparent market auctions.
- CBS purchased an equivalent of US$59 million during the first half of the year through its foreign exchange auction (FEA).
- CBS will analyze, in coordination with the IMF, the possibility of implementing an FX negotiation platform providing all wholesale market participants real-time access to pricing and transaction volumes.
- Given Seychelles is a net importer and highly vulnerable to external shocks, CBS recognizes the need to accumulate more reserves and will increase its foreign exchange buffer when opportunities arise.
- CBS renewed its partnership with the 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 an investment management mandate for US$100 million and technical advisory services.

### External sector statistics and data quality
- Compiling net international financial flows of nonbank private sectors (a significant subcomponent of the Financial account) remains a challenge.
- Building on 2021 IMF capacity development on External Sector Statistics, CBS will organize and meet semi-annually with the Financial Supervisory Authority (FSA) and representatives of International Corporate Service Providers to discuss trends in financial flows of Special Licensed Companies (CSLs) to enhance balance of payments data quality.

### Efforts to improve real sector statistics
- The National Bureau of Statistics (NBS) faces constraints affecting timely and quality statistics.
- NBS received IMF Technical Assistance in the first half of 2023 to enhance internal capacity for real sector statistics, including improving data quality, sources, and methodology.
- Authorities have requested a diagnostic review to be carried out with support from the IMF Statistics Department; further assistance will be required to improve quality and coverage across the National Statistical System.

### Modernizing the financial system and ensuring financial stability — supervisory priorities
- CBS is committed to maintaining a stable, well-capitalized banking system and has intensified supervisory effectiveness.
- CBS will take appropriate and timely enforcement actions to address elevated levels of NPLs; viable but undercapitalized banks must submit capital plans, nonviable banks will be subject to resolution actions.
- CBS is collecting additional information on restructured and rescheduled loans as part of enhanced monitoring.

Key statistics on restructured and forborne loans (as at June 2023 unless otherwise stated):
- Outstanding restructured loans decreased from R2.8 billion in December 2022 to R2.5 billion in June 2023.
- Restructured loans made up 23.1 percent of the industry’s total loans and advances as at June 2023.
- Forborne loans constitute 89 percent (R2.2 billion) of all restructured loans.
- Causes of restructured loans: 87 percent due to COVID-19 pandemic economic deterioration; 12 percent due to issues faced by individual borrowers; 1.0 percent due to other reasons (e.g., business disputes or unforeseen project delays).
- Of restructured loans, 96 percent saw a change in tenor, largely from term extensions on forborne loans post-forbearance.
- Restructured loans are backed by R2.3 billion of eligible collateral; adequacy depends on ongoing reappraisal value.

### On-site examinations, NPLs, and supervisory actions
- CBS has completed an on-site examination of the bank holding the highest proportion of the sector’s NPLs, met senior management, and engaged the home regulator.
- Based on examination outcomes and stakeholder feedback, appropriate enforcement actions will be taken; on-site asset quality assessment extended to remaining banks.
- The cycle of horizontal examinations is expected to be completed by the end of the first quarter of 2024.
- CBS will maintain enhanced monitoring of NPL levels and loan classification standards through offsite and periodic onsite inspections (structural benchmark).

### Risk-based supervision, regulatory reforms, and legal framework
- CBS is finalizing implementation of a risk-based supervision (RBS) framework integrating Basel II Pillar 2 requirements and is operationalizing regular off-site analyses and on-site examinations.
- As at September 2023 CBS completed two onsite examinations in 2023, including a limited scope and a horizontal examination focusing on asset quality.
- CBS continued engagement 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 expected to be finalized by end of 2023.
- The Financial Stability Bill was approved by the Cabinet of Ministers on October 4, 2023, and is expected to be presented to the National Assembly before end of December 2023.
- A draft macroprudential framework and toolkit has been developed; CBS plans to request IMF technical assistance to finalise the framework and build operational capacity.

### Crisis management, resolution framework, and bank safeguards
- Cabinet approved an updated policy paper on bank resolution in October 2022.
- CBS received IMF technical assistance on bank resolution policy and implementation in January and April 2023.
- The Bank Recovery and Resolution Bill is expected to be approved by Cabinet by December 2023 (structural benchmark) and gazetted by March 2024; the legislation will strengthen early intervention measures and clarify enforcement stages.
- CBS presented a policy paper including proposed improvements to the Bank’s financial and institutional autonomy to Cabinet on July 19, 2023 (structural benchmark); the paper was settled on August 17, 2023 and detailed drafting instructions sent to the Attorney General’s Office on August 31, 2023.
- CBS received IMF MCM technical assistance in July 2023 on balance sheet stress tests; key recommendations include a capital injection and adopting a multi-year budgeting process; CBS Act will be amended to allow the Bank to retain all distributable earnings if statutory capital is below the target level of 10 percent of monetary liabilities.

### National Payment System (NPS) modernization and payment infrastructures
- Policy paper for NPSA amendments approved by Cabinet in February 2023; National Payment System (Amendment) Bill 2023 submitted to the National Assembly on September 1, 2023, approved by the National Assembly on September 27, 2023 after scrutiny on September 19, 2023.
- CBS will not establish a separate payments entity; focus will be on implementing systemically important payment infrastructures: RTGS and CSD.
- Implementation priorities include PFMI recommendations, building internal oversight capacity, and strengthening partner collaboration.
- Cheque sun-setting schedule:
  - Cessation of issuance of personal cheques in April 2024.
  - Cessation of issuance of corporate cheques in December 2025.
  - Deadline for banks and SCU to stop accepting cheques: June 2026.
- Study on affordability and reliability of internet and network connection final report submitted to CBS and DICT; the report will be presented to the CBS Board and Cabinet in Q4, 2023 and shared with the World Bank for support.

### Core banking, CSD, RTGS, and regulatory sandbox
- CBS initiated implementation of a Central Securities Depository (CSD) and Real Time Gross Settlement System (RTGS) alongside a new core banking system.
- Request for proposal for the CSD-RTGS issued in April 2023; concluded in August 2023; approved vendor awarded the contract in September 2023.
- CORE Banking is due to go live in Q1 2024; CSD and RTGS systems expected to go live in Q3 2024.
- Implementation of a regulatory sandbox for financial products/services postponed to 2024; intention is to launch the sandbox by Q3 2024.

### Consumer protection, credit information, and legislative reforms
- CBS continues financial education and a digital financial literacy roadmap focused on personal financial management, consumer rights, and financial soundness.
- Competent Authorities are developing Regulations under the Financial Consumer Protection Act: Complaints Handling Regulations and Fees and Charges Regulation expected by end of 2023.
- Framework for Credit Granting and Debt Recovery expected to be completed in 2024.
- CBS is finalizing a new Credit Information System and supporting legal framework; the legal framework was expected to be considered by Parliament in mid-October 2023; enactment will coincide with system implementation.

### AML/CFT reforms, VA/VASP regulation, and beneficial ownership
- Work is ongoing to implement ESAAMLG recommendations from the 2018 Mutual Evaluation Report; Seychelles received 10 Low ratings in the 11 Immediate Outcomes.
- A follow-up report to ESAAMLG in April 2023 detailed improvements in 5 of 11 technical compliance shortcomings and an upgrade was received for those five FATF recommendations (5, 19, 25, 28 and 34).
- In October 2023, Seychelles submitted another re-rating request to ESAAMLG for technical compliance with five FATF Recommendations (4, 6, 7, 8 and 33) for discussion at the April 2024 meeting; Recommendation 15 intended for re-rating and discussion at the September 2024 meeting.
- Second National Risk Assessment (NRA) on ML/TF completed; overall ML risk for Seychelles identified as medium high. In October the Cabinet approved an action plan to address deficiencies.
- Virtual Assets (VA) and Virtual Asset Service Providers (VASP): a July 2022 NRA assessed Seychelles’ exposure to ML/TF risks from VA/VASPs as very high due to absence of a regulatory framework. The National AML/CFT Committee is finalizing actions to mandate identification, registration and licensing of VASPs and to provide a risk-based supervisory approach. Policy and legislative framework to be submitted to Cabinet of Ministers by end-March 2024.
- Beneficial ownership (BO) progress as end-July 2023:
  - 41,381 or 94 percent of the 43,710 international business companies (IBCs) in good standing with the Financial Services Authority (FSA) have submitted BO information to the central BO database of the Financial Intelligence Unit (FIU).
- Beneficial Ownership Regulations amended in April 2023 to:
  1. Clarify that where 10 percent or more of any controlling ownership interest is held jointly, each joint owner shall be treated as a separate beneficial owner.
  2. Clarify that Limited Partnerships must follow the cascading approach to identify their beneficial owners including special rules.
  3. Improve requirements relating to beneficial interest of beneficial owners (means and mechanisms of ownership or control, and numerical value of interest held).
  4. Introduce periodic review and verification of BO information by legal persons and legal arrangements (at least once every calendar year).
  5. Customize the BO declaration for each type of legal person and legal arrangement (including requiring national identity number and tax identification number, if any, of the beneficial owner/s).
- FSA inspection program in H1 2023: Q1 and Q2 inspections covered 12 trust and company service providers and sanctions were imposed for AML/CFT deficiencies; directions issued to CSPs to verify Beneficial Owners or face fines if non-compliant by the due date for corrective measures.
- CSPs requested extended deadlines to rectify deficiencies; FSA to submit an end of June 2023 inspection report to the National AML/CFT Committee by October 2023; the Committee will develop an action plan to address identified deficiencies.

*IMF staff summary of Seychelles authorities’ policies and measures as presented in the source content.*

### 69. We will advance in verifying the accuracy of the BO information in the central BO

### 1sycea2023004 - 69. We will advance in verifying the accuracy of the BO information in the central BO

### Beneficial ownership (BO) verification and accessibility
- Revised BO Guidelines for effective collection and verification of information in the FIU central BO database are in the stages of finalization with technical assistance from the EU Global Facility for AML/CFT; these guidelines are expected to be issued by end-December 2023.
- Ensure FIU has effective access to all relevant databases for verifying information in the BO database and establish mechanisms for processing reports on information discrepancies found in the BO database.
- Structural benchmark: By end-December 2024, the BO Act will be amended to:
  - broaden access to the central BO database held by the FIU; and
  - provide information sufficient to identify the BO to financial institutions, and other reporting institutions with AML/CFT obligations.
- IT and digital platform measures:
  - National AML/CFT Committee to complete by end-October 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.
  - Upon completion of the new digital platform, registered agents will be given a specific time frame to rectify discrepancies in BO information of IBCs identified during the inspection program.

### Transparency and Exchange of Information on Request (EOIR) peer review outcome
- Second Round Supplementary Peer Review on EOIR launched by the Global Forum in June 2022; Seychelles submitted the Supplementary Review Questionnaire and underwent an on-site assessment in December 2022.
- Peer Review Group actions and results:
  - Draft report presented and approved by the Peer Review Group (PRG) in June 2023 and adopted by the Global Forum in July 2023.
  - Upgrades adopted for:
    - Element A2 (Availability of Accounting Information): Non-Compliant → Partially Compliant
    - Element B1 (Access to Information): Partially Compliant → Largely Compliant
    - Element C1 (EOIR Mechanisms): Largely Compliant → Compliant
  - Element A1 (Availability of Ownership and Identity Information) remained Partially Compliant; overall rating: Partially Compliant.
- Context and implications:
  - Element A1 rating largely due to statistics on exchanges in practice, particularly in 2019 and 2020, where Seychelles was unable to respond to a number of requests relating to one single registered agent which left Seychelles in 2018 with all their records.
  - Despite progress, Seychelles was again included on the EU list of non-cooperative jurisdictions for tax purposes; Seychelles remains committed to upgrading to overall Largely Compliant and will address the report recommendations and submit a request for supplementary review at the earliest.

### Climate change goals, targets, and financing needs
- Nationally Determined Contributions (NDC) targets:
  - Greenhouse gas emission reduction target of 26.4 percent below a business-as-usual emission level by 2030.
  - Net-zero emission target by 2050.
- Estimated financing need to achieve the 2030 target: US$670 million required by 2030 to fund implementation of climate adaptation and mitigation activities.
- Recent and planned climate-related public spending:
  - In 2024, additional spending allocated: SR 111.3 million for west coast road infrastructure development and SR 29.3 million for coastal erosion on Praslin.
  - Main medium-term investments: construction of a new modern hospital on Mahe and continuation of social housing projects.
- Climate finance mobilization and past instruments:
  - Seychelles issued the World’s first sovereign blue bond in 2018 raising US$15 million.
  - 2017 debt for nature swap mobilized US$21.6 million of adaptation financing and raised an additional US$5 million from the private sector.
  - Government tapping international funds: Green Climate Fund (GCF), Global Environmental Facility (GEF), multilateral development banks, and bilateral donors.
  - Government engaging Commonwealth Climate Finance Access Hub (CCFAH) for climate finance advisory support; recent training workshop conducted by the climate finance advisor.
- Financing gap: climate financing gap remains large; government aims to establish a national climate finance mobilization strategy to unlock international climate finance from public and private sources.

### Monitoring, Reporting, and Verification (MRV) and institutionalization
- Development of a National MRV system in the context of the Enhanced Transparency Framework with three main components:
  - MRV of emissions;
  - MRV of mitigation; and
  - MRV of support (finance, technology transfer and capacity building).
- Institutional arrangements based on the national policy on climate change with linkages to sub-national and sectoral institutions.
- Expected benefits of institutionalization: improved inventory quality; data documentation; archiving; and transparency.
- MRV to contribute to measurement, reporting and verification of emissions from different sectors and enhance transparency of mitigation actions.

### Climate-sensitive public investment and public investment management (PIM)
- Government actions:
  - Integrate climate considerations in the Public Investment Management Framework.
  - Ministry of Finance, National Planning and Trade (MoFNPT) to integrate priority NDC objectives in the National Development Strategy 2023-2027 to be launched early December (Reform Measure for end-September 2023).
  - MoFNPT to conduct a PIM policy revision to include methodologies incorporating climate-related issues in project selection criteria and project appraisals, and to apply the updated project appraisal to at least two major infrastructure projects (Reform Measure for end-September 2024).
  - Develop a Public-Private Partnership (PPP) framework reflecting climate-related risks and integrate it into the Public Financial Management Act and the Public Procurement Act to leverage private climate finance (structural benchmark for end-March 2025).

### Budget mainstreaming and fiscal risk management for climate
- Program-level measures:
  - Improvements to Program Performance Based Budgeting (PPBB) and alignment with the new NDS offer opportunity to integrate climate dimensions in planning and budgeting.
  - As part of the FY2025 budget, MoFNPT will:
    - identify climate-related expenditures including those with positive and negative climate effects in the PPBB; and
    - prepare scenarios of long-term fiscal sustainability analysis under different climate scenarios and publish the results in the Fiscal Risk Statement (Reform Measure for end-October 2024).
  - Enhance fiscal risk analysis by mapping fiscal risks from climate change and natural disasters and quantifying risks through long-term fiscal sustainability analysis and discrete risks to infrastructure and public assets from hazards analyzed in the coastal management policy.

### Financial sector resilience, disclosure, and stress testing
- Climate finance mobilization strategy and framework:
  - Government to develop a comprehensive climate finance strategy and ensure a robust pipeline of climate investment projects (Reform Measure for end-September 2024).
  - Implementation framework to set institutional mechanisms and financing modalities and to secure funding for at least one major adaptation or mitigation project (Reform Measure for end-October 2025).
- Central Bank of Seychelles actions:
  - Initiate implementation of climate-related risk disclosure for banks, including issuing guidelines, establishing data repository and reporting template, and publishing disclosure reports of at least two major commercial banks (Reform Measure for end-March 2025).
  - 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 referenced: Network for Greening the Financial System (NGFS) and Task Force on Climate-Related Financial Disclosures (TCFD).

### Transition, renewables, and regulatory reforms
- Renewables and electricity sector reform:
  - Scale-up renewable energy investment through the new Electricity Act and operating regulations to increase private sector climate investment using distributed electricity generation and renewable energy independent power producers (IPPs).
  - Government to ensure legal frameworks for rates determination under net billing and gross metering schemes, the renewable Power Procurement Plan, competitive selection of renewable energy IPPs, and a framework for multi-year electricity tariff system (Reform Measure for end-April 2025).
  - Work on legal frameworks already started; Electricity and Utilities Regulatory Commission Bills recently approved.
- Buildings, transport, and disaster financing:
  - Draft building legislation to integrate climate adaptation and mitigation aspects to improve energy performance of buildings (Reform Measure for end-March 2024).
  - Adopt an e-mobility regulatory framework to scale up electric vehicles and supporting infrastructure.
  - Adopt a comprehensive national Disaster Risk Financing Strategy (Reform Measure for end-March 2025).
- Fossil fuel exploration stance:
  - Government to ensure recently signed oil exploration is carried out under highest international environmental and governance standards and Seychelles’ strict environmental laws and does not compromise the NDC.

### Green fiscal incentives and budgeted support
- Existing incentives:
  - Goods imported for “conservation, generation or production of renewable energy or environment friendly" are exempt from Value added Tax.
  - Photovoltaic (PV) financial rebate scheme launched in May 2014 to encourage rooftop PV systems; resources exhausted and expected to be replenished in 2024.
  - All duties including environment levy removed on electric vehicles in 2015; further incentives being developed for importation and use of electric and hybrid vehicles.
- Planned fiscal regime review and new incentives (Reform Measure for end-March 2026):
  - Potential measures include congestion fees, feebates, environmental levy, price incentives for waste reduction, and new tax schedule to support development of utility-scaled renewable energy plants based on an IPP model.
- Budgeted funds for green finance initiatives:
  - Funds for additional support for green finance initiatives between 2025-2027: SR 90m (under social programmes of government targeting individuals).

### Program monitoring, reviews, and quantitative performance highlights
- EFF program monitoring tools: semi-annual reviews, quantitative performance criteria and indicative targets, continuous performance criteria, and structural benchmarks.
- Review schedule:
  - Second review: on or after May 15, 2024 based on end-December 2023 quantitative targets.
  - Third review: on or after November 15, 2024 based on end-June 2024 quantitative targets.
- Monitoring documentation: quantitative targets and structural benchmarks in Tables 1 and 2 of the MEFP; definitions and reporting requirements in the Technical Memorandum of Understanding (TMU).
- Selected figures from Table 1 (as presented):
  - Net domestic financing of the government (ceiling) reported program and actual values across quarters (table entries preserved in full in the source).
  - Total revenue (floor) example values: 3790.2; 4286.9; 6632.9; 6704.5; 9475.5; 2094.4; 4188.7; 7330.3; 10471.8 (values appear in the program table).
  - Net international reserves of the CBS, millions of US dollars (floor) example values: 474.0; 561.9; 475.8; 544.2; 477.7; 540.8; 547.3; 557.1; 566.8.
  - Indicative targets (examples): Net change in public and publicly guaranteed domestic and external debt (ceiling) values include 236.8; -342.5; 414.3; -515.0; 591.9; 230.3; 460.7; 806.1; 1151.6. Priority social expenditure (floor) example values include 712.0; 840.1; 1246.0; 1266.8; 1601.9; 367.0; 734.1; 1284.7; 1651.7.
- Notes included in source:
  - The performance criteria are cumulative from the beginning of the calendar year.
  - Adjustment rules for ceilings/floors related to external budgetary assistance, external non-project loans, non-project cash grants, external debt service payments, and potential new SDR allocations are specified in the TMU.
  - If nominal GDP is lower than projected, the revenues floor will be adjusted by the amount equivalent to the nominal GDP shortfall in percentage terms.

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

### 1. The upgrade of the ASYCUDA system with new

### 1. The upgrade of the ASYCUDA system with new

### Structural benchmarks and tax transparency
- 1. The upgrade of the ASYCUDA system with new modules is completed for the E-Manifest, and Express Courier modules.  
  - Timing: End-September 2023  
  - Objective: Strengthen revenue mobilization.  
  - Status: Met
- 2. Cabinet approval of legislative amendments to streamline VAT exemptions, in consultation with IMF staff.  
  - Timing: End-December 2023  
  - Objective: Strengthen revenue mobilization.  
  - Status: (no explicit status reported)
- 3. Publish annual reporting of budgeted tax expenditure as a part of the annual budget exercise, in consultation with IMF staff.  
  - Timing: End-October 2023  
  - Objective: Increase transparency on tax expenditures.  
  - Status: Not met. Implemented with delay in November 2023.
- 4. The MoFNPT to compile an inventory of existing tax expenditures on VAT and business tax, together with an estimate of annual revenue cost, and to publish as part of the official budget.  
  - Timing: End-December 2024  
  - Objective: Increase transparency on tax expenditures and fiscal cost.  
  - Status: New SB

### Public investment management and PPPs
- 5. Cabinet adoption of a roadmap and timeline of actions necessary to improve the efficiency of public investment, including for climate-related investment, based on the January 2023 PIMA.  
  - Timing: End-September 2023  
  - Objective: Improve the efficiency of public investment.  
  - Status: Met
- 6. The MoFNPT develops and adopts a Public-Private Partnership (PPP) framework and explicitly include climate-related risks, while integrating this in the Public Financial Management Act and the Public Procurement Act.  
  - Timing: End-March 2025  
  - Objective: Improve the efficiency of public investment.  
  - Status: (no explicit status reported)
- 7. (i) MoFNPT to announce in the annual budget circular that projects will not be included in the Medium Term Expenditure Strategy (MTES) if appraisal information is absent or materially incomplete; (ii) MoFNPT to establish and distribute to MDAs a set of minimum criteria to assess projects in the MTES 3-year Public Sector Investment Plan (PSIP), on the basis of which (met or not met) PIMU will recommend to the Inter-Ministerial Committee (IMC) for inclusion/deferral in the current year’s budget.  
  - Timing: End-June 2024  
  - Objective: Improve capital expenditure execution by strengthening the framework and capacity for appraising and selecting capital projects.  
  - Status: New SB

### Monetary policy and financial stability
- 8. Submit amendments to the CBS Act, in consultation with IMF staff, to Cabinet.  
  - Timing: End-June 2023  
  - Objective: Finish implementing the 2021 safeguards assessment recommendations. The amendments aim to, inter alia, (i) strengthen governance and oversight; (ii) enhance institutional and personal autonomy; and (iii) safeguard financial autonomy.  
  - Status: Not met. Implemented with delay in July 2023.
- 9. Submit to the National Assembly amendments to the CBS Act in line with those approved by Cabinet in July 2023 and IMF staff recommendations.  
  - Timing: End-March 2024  
  - Objective: Address CBS recapitalization needs, in addition to safeguards assessment recommendations.  
  - Status: New SB
- 10. Implement the use of repo operations by CBS for liquidity management.  
  - Timing: End-December 2024  
  - Objective: Operationalize recent IMF TA recommendations to strengthen the monetary policy operating framework.  
  - Status: (no explicit status reported)
- 11. Adoption of a reform plan for monetary policy operational reforms and make it public.  
  - Timing: End-July 2023  
  - Objective: Establish a timeline for the implementation of IMF TA recommendations to strengthen the monetary policy operating framework and instruments, including the adoption of repos and the development of the interbank market.  
  - Status: Met
- 12. CBS to complete a study on NPLs by including a forward-looking analysis.  
  - Timing: End-September 2023  
  - Objective: Improve the study conducted by CBS on the impact of unwinding of forbearance measures extended during the pandemic on bank asset quality, through a forward-looking analysis, including stress testing.  
  - Status: Not met. Implemented with delay in November 2023.
- 13. Cabinet approval for draft Bank Resolution Bill aligned to provide an adequate institutional framework and effective powers for dealing with bank resolution and managing a crisis, thus contributing to financial stability, while limiting the use of public funds and addressing moral hazard concerns.  
  - Timing: End-September 2023  
  - Objective: Address shortcomings from previously approved cabinet policy paper for bank resolution and to align with ongoing revisions to the Financial Institutions Act, 2004 as amended and Insolvency Law, as well as cater recent developments stemming from the current crisis. Includes identification of consequential amendments in subsidiary legislations, with the objective of providing the regulators the necessary powers to effectively resolve troubled financial institutions.  
  - Status: Not met. Reset for end-March 2024.

### State-Owned Enterprises (SOEs)
- 14. Publication of SOE Annual Report.  
  - Timing: End-June 2023  
  - Objective: The annual report will present the overall financial performance of the Public Enterprises based on their audited financial statement and will publish eight months after the closing of the financial year.  
  - Status: Not met. Implemented with delay in July 2023.
- 15. Finalize ringfencing the ground-handling operation in Seychelles Airport by transferring the corresponding assets to Seychelles Aviation Handling Company and signing the lease agreement with Air Seychelles.  
  - Timing: End-September 2023  
  - Objective: Ensure that the ground-handling operations at the Seychelles International Airport, considered an important strategic asset, remain protected from creditors.  
  - Status: Not met. Reset for end-December 2023.

### Real sector reforms
- 16. Finalize the terms-of-reference for a study to better understand the dynamics of the tourism sector on the overall economy and its revenue potential.  
  - Timing: End-June 2023  
  - Objective: Conduct a tourism study, with the assistance of development partners, to better understand the dynamics of the tourism sector and its benefit to the economy. The study would cover all economic activities related to tourism, including accommodation, food and beverage services, recreation and entertainment, transportation, and travel services.  
  - Status: Met
- 17. Complete the study on the dynamics of tourism on overall economy and on revenue potential.  
  - Timing: End-June 2024  
  - Status: (no explicit status reported)

### Financial integrity / AML/CFT
- 18. Amend the Beneficial Ownership (BO) Act to broaden access to the FIU’s central BO database to financial institutions, reporting institutions with AML/CFT obligations.  
  - Timing: End-December 2024  
  - Objective: Advance accuracy and accessibility of beneficial ownership information of entities created in Seychelles (including international business companies, limited partnerships, trusts and foundations).  
  - Status: New SB

### Climate-related reform measures (RSF phasing and reform measures)
- RM1. The MoFNPT integrates priority climate adaptation and mitigation objectives stipulated in the National Determined Contribution (NDC) in the forthcoming National Development Strategy 2023-2027, to ensure that investment decisions are consistent with the outcomes expected in the NDC.  
  - Tentative target date: Sep 2023 (1st Review)  
  - Status: Implemented  
  - Analytical underpinning: Critical area identified in C-PIMA
- RM3. The MoFNPT updates the Public Investment Management Policy and includes (i) the requirements for the use of methodologies to identify net GHG emission, emission reduction alternatives, and climate resilience of projects in ex-ante project appraisals and (ii) project selection criteria that is fully aligned with the NDC; and (iii) applies the updated project appraisal to at least two major infrastructure projects by end-September 2024 and all new major infrastructure projects going forward.  
  - Tentative target date: Sep 2024 (3rd Review)  
  - Status: (no explicit status reported)  
  - Analytical underpinning: High priority reform identified in C-PIMA; a top priority identified by the authorities to facilitate access to climate finance  
  - Capacity development support needs: FAD support needed
- RM4. As part of the FY2025 budget process, the MoFNPT (i) identifies climate-related expenditures, including those with positive and negative climate effects, in Program Performance Based Budget (PPBB) and reports a summary climate statement in PPBB document, and (ii) conducts long-term fiscal sustainability analysis under different climate scenarios, assess the main discrete fiscal risks related to climate change.  
  - Tentative target date: Oct 2024 (3rd Review)  
  - Analytical underpinning: High priority reform identified in C-PIMA; climate finance tracking a top priority identified by the authorities  
  - Capacity development support needs: FAD support needed for both item (i) and (ii).
- RM5. To scale up climate finance, (i) the cabinet adopts a national climate finance mobilization strategy that comprehensively covers the financing instruments to unlock international climate finance from public and private sources; and (ii) the MoFNPT, together with relevant sector ministries, develop and submit a pipeline of appraised climate-related projects for recommendation by the Inter-Ministerial Committee and approval by the MoFNPT as part of the budget process.  
  - Tentative target date: Sep 2024 (3rd Review)  
  - Analytical underpinning: A high priority jointly determined with the authorities and development partners  
  - Capacity development support needs: Climate finance advisor, MCM to provide input
- RM6. The Central Bank of Seychelles (CBS) (i) issues guidelines for banks on reporting and disclosure of climate-related risks in accordance with international standards, (ii) establishes a data repository and reporting template for banks’ lending exposure to climate-related risks, and (iii) publishes a summary climate risk exposure report which includes at least two major commercial banks.  
  - Tentative target date: Mar 2025 (4th Review)  
  - Analytical underpinning: Important reform area based on Climate Change Policy Assessment  
  - Capacity development support needs: To confirm if MCM support needed
- RM9. The CBS adopts and implements a stress testing framework incorporating climate-related risks, and publishes a financial sector climate stress testing exercise starting with a macro prudential approach.  
  - Tentative target date: Sep 2025 (5th Review)  
  - Analytical underpinning: Important reform area based on Climate Change Policy Assessment  
  - Capacity development support needs: USOTA already providing support, to confirm if MCM support needed
- RM10. In accordance with the national climate finance mobilization strategy adopted in RM5, (i) the cabinet adopts an implementation framework including institutional mechanisms, financing modalities, and necessary guidelines; and (ii) the MoFNPT, together with relevant sector ministries, secure* funding for at least one major adaptation or mitigation project that contributes directly to the NDC. (*funding secured in the budget and/or loan agreement signed)  
  - Tentative target date: Oct 2025 (5th Review)  
  - Analytical underpinning: A high priority jointly determined with the authorities and development partners  
  - Capacity development support needs: Climate finance advisor, MCM to provide input
- Note: All projects costing over SCR 1 million are classified as “major” projects.

- RM2. The cabinet of ministers approves the new draft building legislation that integrate climate adaptation and mitigation aspects.  
  - Tentative target date: Mar 2024 (2nd Review)  
  - Analytical underpinning: Critical Area identified in C-PIMA
- RM7. The MoFNPT, together with the Disaster Risk Management Division, develop and adopt a comprehensive national Disaster Risk Financing Strategy (DRSF) considering complementary instruments that meet the financing needs.  
  - Tentative target date: Mar 2025 (4th Review)  
  - Analytical underpinning: Critical Area identified in C-PIMA
- RM8. To scale-up renewable energy in the context of the new Electricity Act and the NDC, (i) the Utility Regulatory Commission (URC) adopts and implements a rates determination framework for renewable energy sources under the net billing and gross metering schemes and publishes the cumulative installed capacity of distributed renewable energy in accordance with the Distributed Generation System Regulations, (ii) the Ministry of Agriculture, Climate Change, and Environment (MoACCE) adopts a Power Procurement Plan from independent power producers (IPPs) that is consistent with the Integrated Electricity Plan, and the URC approves a competitive selection process for renewable energy IPPs in accordance with the IPP Regulations, and (iii) the URC approves an implementation framework for a multi-year tariff system for end-use electricity tariffs that are cost-reflective and publishes tariff trajectory in accordance with the Electricity Tariff Setting Regulations.  
  - Tentative target date: April 2025 (4th Review)  
  - Analytical underpinning: Based on discussion with the authorities during PIMA mission; Top priority reform identified by the authority  
  - Capacity development support needs: WB providing technical input to sub-regulations.
- RM11. The MoFNPT introduces green fiscal and tax incentives to promote positive environmental outcomes and reduce greenhouse gas emissions to support the NDC (for example, congestion fees, feebates, environmental levy, and/or price incentives for waste reduction).  
  - Tentative target date: Mar 2026 (6th Review)  
  - Analytical underpinning: Top priority reform identified by the authority; Important reform area based on Climate Change Policy Assessment

### Technical Memorandum of Understanding (TMU) — selected definitions and quantitative framework
- Government definition: “government” refers to the central government of the Republic of Seychelles and excludes political subdivisions, the central bank, or other public or government-owned entities with autonomous legal personality not included in the government’s budget.
- Consolidated government debt: central government plus public guarantees.
- External debt: debt denominated in any currency other than the Seychellois rupee (SCR). The performance criterion or indicative target will include all forms of debt. The definition of "debt" follows paragraph 8(a) of the Guidelines on Public Debt Limits in Fund-Supported Programs attached to Executive Board Decision No. 16919-(20/103), adopted October 28, 2020, and includes:
  - loans (including deposits, bonds, debentures, commercial loans and buyers’ credits, repurchase agreements and official swap arrangements);
  - suppliers’ credits (deferred payments for goods or services);
  - leases (debt is the present value at inception of all lease payments expected during the agreement, excluding payments covering operation, repair, or maintenance).
- II. Quantitative Performance Criteria — Ceiling on Net Domestic Financing of the Government (NDF):  
  - NDF defined as the sum of: (i) net bank credit to the government; and (ii) net nonbank financing of the government, including proceeds of the sale of government assets (including privatizations), Treasury bills, other securitized obligations issued in rupees, and any Central Bank of Seychelles (CBS) credit to the government, including drawings on the rupees counterpart of the SDR allocation.  
  - Data deemed valid for the program: amounts for net bank credit to the government and 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.  
  - Gross external budgetary assistance 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 HIPC and MDRI Initiatives). Net external budgetary assistance is gross external budgetary assistance minus total debt service obligations on all public external debt (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.  
  - Adjustors: NDF will be adjusted downward (upward) if net external budgetary assistance, including the Resilience and Sustainability Facility (RSF), exceeds (falls short of) the program projections.  
  - Monitoring: data to 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.
- II.B Floor on the Primary Balance:  
  - Primary balance defined as total revenues and grants minus primary expenditure, measured cumulatively over the fiscal year and monitored from above the line.  
  - Revenues recorded when funds are transferred to a government revenue account; tax revenues recorded net of tax refunds; revenues include grants; capital revenues exclude revenues from non-financial asset sales from divestment operations.  
  - Central government primary expenditure recorded on a cash basis and includes recurrent expenditures, capital spending, and transfers to SOEs. Primary expenditures directly settled with bonds or other non-cash liabilities treated as one-off adjustments recorded as spending above-the-line, financed with debt issuance, and thus affect the primary balance.

*Source: IMF staff (content unit: 1sycea2023004).*

### 7. Adjustors: The primary balance target will be adjusted upward (downward) by the surplus

### 7. Adjustors: The primary balance target will be adjusted upward (downward) by the surplus (shortfall) in disbursements of grants relative to the baseline projection.

### A. Adjustor for Primary Balance Target
- 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.

### B. Floor on Total Revenue
- 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.

### C. Floor on Net International Reserves (NIR)
- Definition and scope:
  - 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:
  - the 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: 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 include:
  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).
- Adjustors to the NIR floor:
  - 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.
- Monitoring and audit:
  - For the purpose of 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.

### D. Non-Accumulation of New Domestic and External Arrears (continuous)
- Definitions and responsibilities:
  - 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.
- Commitments:
  - 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 definition:
  - 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.

### E. Indicative Targets
- 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 the 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. Covered items include:
    - 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.

### F. 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.

### G. Data and Information: Reporting Schedule and Content
- 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.

- 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.

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

*Source: 1sycea2023004 - 7. Adjustors: The primary balance target will be adjusted upward (downward) by the surplus (shortfall) in disbursements of grants relative to the baseline projection.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1sycea2023004.pdf_