Press Release No. 11/86

Press Release No.11/86
March 17, 2011

An International Monetary Fund (IMF) mission led by Jean Le Dem visited Victoria during March 4-17, 2011 to conduct discussions for the third program review under the Extended Fund Facility (EFF) Arrangement with Seychelles. The mission met with His Excellency President James Michel, Vice President Danny Faure, Governor of the Central Bank of Seychelles Pierre Laporte, Principal Secretary of Finance Ahmed Afif, and other senior government officials as well as representatives of the private sector and parliamentarians.

At the conclusion of the visit, Mr. Le Dem issued the following statement:

“Progress continues to be made by the Seychelles authorities in their reform program. Economic recovery has strengthened in 2010: real gross domestic product (GDP) growth is likely to have exceeded 6 percent and consumer price index (CPI) inflation was almost nil. The program is on track despite some technical delays in government payments to one parastatal. All end-December 2010 quantitative targets under the program were met and good progress has been achieved in the ambitious program of structural reforms. Over the last two years, Seychelles has successfully restructured most of its public external debt in the context of the current and a previous IMF-supported programs. As a result, external debt has been almost halved, to 48.7 percent of GDP at end-2010.

“Prospects remain good in 2011, despite a volatile global environment, including surges in commodity prices. Real GDP growth is projected at 4 percent, supported by the tourism industry. Twelve-month inflation, which has been close to zero in 2010, is expected to pick up to about 5.5 percent by year-end. The increase in food and fuel prices will weigh on the trade balance by about 5 percentage points of GDP.

“In this context, macroeconomic policies should be appropriately geared towards coping with the external shock while consolidating macroeconomic stabilization and improving debt sustainability. Delaying the pass-through of international prices on domestic prices could slow down the ongoing fiscal consolidation. In this context, we welcome the upward adjustment in petroleum prices since the beginning of the year, and the government’s intention to cap the use of the domestic price stabilization fund to the equivalent of 0.4 percentage points of GDP in 2011. We also support the authorities’ planned tightening of the monetary policy stance to contain the risk from excess liquidity in the banking system and prevent the buildup of domestic inflationary pressure.

“The modernization of the tax system continues, including important steps toward the launching of a value-added tax, scheduled for mid-2012; the authorities are also stepping up efforts to further strengthen revenue collection, especially in the customs area. Performance of public enterprises needs to be closely monitored, and the authorities’ efforts to address the current losses at Air Seychelles are crucial to limit the additional burden on the still fragile public finance situation. We welcome several new program measures aimed at developing a modern financial sector that can better contribute to the development of the country, through improved competition in the sector and a redefined role of the state-owned financial institutions.

“Staff expects to bring the program review to the attention of the IMF's Executive Board, tentatively in May 2011. The EFF arrangement was approved on December 22, 2009, for SDR19.8 million (about US$30.9 million), of which SDR 9.2 million (about US$14.3 million) has so far been disbursed. SDR 3.52 million (about US$5.5 million) would be available upon completion of the third review.

“The mission wishes to thank the authorities for their warm hospitality and the high quality of the technical discussions.”