IMF Executive Board Approves Three-Year Policy Coordination Instrument for Seychelles

IMF News, December 13, 2017

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The Executive Board approved a new three-year Policy Coordination Instrument (PCI) for Seychelles on December 13, 2017.
Seychelles is the first IMF member country to request a PCI.
The PCI aims to consolidate macroeconomic stabilization and foster sustained and inclusive growth, building on lessons from previous IMF-supported programs.
Program reviews take place on a semi-annual fixed schedule.
The PCI involves no use of IMF resources; successful completion of program reviews would help signal Seychelles’ commitment to continued strong economic policies and structural reforms.

Medium-term target: bring the public debt-to-GDP ratio below 50 percent by 2021.
Authorities’ primary surplus target: 2½ percent of GDP from 2018 onwards.
International reserves coverage: improved to around four months of prospective imports from less than one month at end-2008.
Economic growth for 2017: projected to reach around 4¼ percent.

Seychelles has made considerable progress toward macroeconomic stability since the 2008 crisis under three consecutive IMF programs.
Public debt-to-GDP ratio has been reduced by almost two thirds during the period since 2008.
Current account: the external current account deficit is estimated to have narrowed in 2017, supported by strong tourist arrivals.
Reserves: the country does not need IMF financial assistance now; international reserves coverage is expected to remain at an adequate level, anchored by the authorities’ prudent policies.
Near- and medium-term outlook: favorable, with growth buoyed by the tourism sector after 2018.
Downside risks: the country remains vulnerable to external shocks; downside risks largely lie in external factors that could dampen tourism performance; strengthening in international commodity prices could have negative impacts on the balance of payments.

Fiscal policy
- Anchor fiscal policy by the medium-term debt target (public debt-to-GDP below 50 percent by 2021).
- Implement the permanent fiscal saving measures identified in the 2018 budget and the Program Statement to reconcile debt reduction with infrastructure and resilience investments.
- The authorities’ proposed fiscal path aims to balance preserving macroeconomic stability and addressing key investment needs.
Monetary and exchange rate policy
- Maintain a flexible exchange rate policy and limit foreign exchange intervention to preserve international reserve buffers at around the current level.
- Continue transition to the recently introduced monetary policy framework in which interest rates play a prominent role.
Structural reforms and governance
- Strengthen the AML/CFT framework to maintain correspondent banking relationships.
- Implement the state-owned enterprise (SOE) Action Plan to minimize potential fiscal risks from the SOE sector.
- Implement the public finance management Action Plan to address remaining issues in public investment management.
- Continue efforts to diversify the economy under the “Blue Economy” initiatives to promote shared prosperity.
Expected benefits: these efforts are intended to shore up fiscal sustainability, boost growth prospects, and enhance resilience to climate change and external shocks.

The PCI is available to IMF members that do not need Fund financial resources at the time of approval and is designed for countries seeking to demonstrate commitment to a reform agenda or to unlock and coordinate financing from other official creditors or private investors.
The authorities emphasize infrastructure investments and measures to enhance resilience to climate change while pursuing fiscal consolidation.
The Central Bank of Seychelles (CBS) is committed to a flexible exchange rate, limiting intervention to preserve reserves coverage, and to implementing the monetary policy framework where interest rates play a prominent role.

IMF Press Release No. 17/492 — December 13, 2017