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

December 13, 2017

On December 13, 2017, the Executive Board of the International Monetary Fund (IMF) approved a new three-year Policy Coordination Instrument (PCI) for Seychelles. [1] Seychelles is the first IMF member country to request a PCI.

The PCI for Seychelles will build on the lessons from the previous programs supported by the IMF. It aims to support the authorities’ efforts to consolidate macroeconomic stabilization and foster sustained and inclusive growth. Program reviews take place on a semi-annual fixed schedule. While 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.

Following the Executive Board discussion, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, said:

“Seychelles has made considerable progress toward external viability and fiscal sustainability since the crisis in 2008 under three successive Fund arrangements. The authorities’ strong ownership has played an important role in the success of the Fund-supported programs. However, the country remains vulnerable to external shocks and further efforts are needed to address challenges in maintaining fiscal discipline.

“The authorities’ economic program supported by the Policy Coordination Instrument (PCI) aims at locking in economic stability while fostering sustained and inclusive growth. Fiscal policy will be anchored by the medium-term target of bringing the public debt-to-GDP ratio below 50 percent by 2021. To reconcile this debt reduction target with the authorities’ emphasis on infrastructure investments and measures to enhance the resilience of the economy to climate change, it is critical to steadfastly implement the permanent fiscal saving measures identified in the 2018 budget and the Program Statement.

“It is important to maintain the flexible exchange rate policy and limit foreign exchange intervention to preserve the international reserve buffers at around the current level. The authorities’ continued efforts to ensure a successful transition to the recently introduced monetary policy framework in which interest rates play a prominent role are welcome.

“The structural reform agenda is ambitious and targeted. The authorities’ commitment to strengthen the AML/CFT framework is critical in maintaining correspondent banking relationships. The authorities’ state-owned enterprise (SOE) Action Plan aims to minimize potential fiscal risks arising from the SOE sector while the public finance management Action Plan seeks to address remaining issues in public investment management. These efforts will help shore up fiscal sustainability and boost growth prospects. Continued efforts to diversify the economy under the “Blue Economy” initiatives will go a long way toward promoting shared prosperity.”


Recent economic development

Seychelles has made considerable progress toward macroeconomic stability since the 2008 crisis under three consecutive IMF programs. The public debt to GDP ratio has been reduced by almost two thirds during the period, while international reserves coverage has improved to around four months of prospective imports from less than one month at end-2008. Consequently, the country does not need the IMF’s financial assistance now.

The near- and medium-term economic outlook is favorable. Macroeconomic performance has been robust in 2017. The external current account deficit is estimated to have narrowed, supported by strong tourist arrivals. Reflecting strong performance in the tourism sector, economic growth for 2017 is projected to reach around 4¼ percent. The growth outlook after 2018 remains positive, buoyed by the tourism sector. While a strengthening in international commodity prices could have some negative impacts on the balance of payments, the country’s international reserves coverage is expected to remain at an adequate level, anchored by the authorities’ prudent policies.

Nonetheless, Seychelles still faces vulnerabilities and pressures, as a small island economy dependent on tourism in a challenging global economic environment. Downside risks to the outlook largely lie in the external factors which could dampen tourism performance.

Program Summary

The program is designed to consolidate macroeconomic stabilization, enhance resilience to external shocks, and foster sustained and inclusive growth, building on the achievements under the previous IMF-supported programs. The authorities’ fiscal policy aims at buttressing medium-term fiscal sustainability while addressing the infrastructure gap and enhancing resilience to climate change. The authorities’ primary surplus target of 2½ percent of GDP from 2018 onwards is estimated to be sufficient to keep the public debt to GDP ratio on a firm declining track and reduce it below 50 percent by 2021. Thus, the authorities proposed fiscal path strikes the right balance between preserving macroeconomic stability and addressing key investment needs.

The Central Bank of Seychelles (CBS) continues its efforts to ensure a successful transition to the recently introduced monetary policy framework where interest rates play a prominent role. The CBS is committed to a flexible exchange rate and will limit intervention to the extent needed to preserve reserves coverage at around the current level.

Structural reforms focus on raising economic efficiency and promoting inclusive growth, including by improving the efficiency of public investments, safeguarding the performance of state-owned enterprises, and strengthening the regulation of the offshore financial sector.

[1] The PCI is available to all IMF members that do not need Fund financial resources at the time of approval. It 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. (see

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