Seychelles' Path to Macroeconomic Stability and Resilience

IMF News, July 1, 2025

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Comprehensive reforms have fueled Seychelles’ journey out of crisis and its continued resilience in the face of shocks.
Key current outcomes highlighted:
- Inflation is below 2 percent.
- Real GDP has largely recovered from the pandemic.
- Public debt is on course to reach the government’s target of less than 50 percent of GDP before 2030.
- Per capita income is the highest in Sub-Saharan Africa.

Mid-2000s macroeconomic challenges:
- Expansionary fiscal policies and a rigid state-led economy.
- Large fiscal deficits driven by high public spending on capital projects, subsidies, transfers to state enterprises and high debt service payments.
- Government revenues constrained by significant tax concessions to foreign investors in the growing tourism sector.
- Expansionary monetary policy within a fixed exchange rate framework and extensive exchange controls led to external imbalances and depletion of foreign reserves.
Peak crisis indicators:
- By 2008, gross public debt exceeded 192 percent of GDP.
- Reserves had dwindled to just 2 weeks of import cover.
- In mid-2008 the authorities missed payments on the nation’s private foreign debt and Standard & Poor’s downgraded Seychelles to selective default.

Major reform actions taken with IMF and development partner support:
- Abolishing all exchange restrictions and floating the rupee.
- Consolidating public finances.
- Reforming state enterprises.
- Abolishing indirect product subsidies in favor of a targeted social safety net.
- Paris Club creditors agreed to a debt stock reduction.
Outcomes within five years of reforms:
- Inflation fell.
- Foreign reserves were restored to over 3 months of import cover.
- Public debt declined to below 70 percent of GDP.
- Restoration of macroeconomic stability rebuilt investor confidence and enabled a shift toward macro-structural reforms supporting sustainable growth.

Pandemic shock and immediate policy response:
- The COVID-19 pandemic caused a sudden collapse in global tourism and an economic contraction of nearly 12 percent in 2020.
- The government implemented timely fiscal and monetary measures, utilized emergency financing from the IMF, and moved quickly to resume tourism.
Recovery dynamics:
- Tourism rebounded in 2021 and 2022.
- Economic growth surged to nearly 13 percent in 2022.
- Foreign exchange reserves were maintained above 3 months of import cover.
- The exchange rate was allowed to move to facilitate adjustment.
The role of prior buffers:
- Fiscal and foreign exchange buffers built up in prior years and a commitment to macro fiscal discipline were key to managing the effects of the pandemic and the international commodity shock that followed.

Ongoing vulnerabilities and constraints:
- Highly volatile global economic and financial conditions will likely test Seychelles’ macroeconomic stability again.
- Environmental pressures limit scope to expand tourism.
- Vulnerability to external shocks argues for continued strong fiscal discipline and external buffers.
Priority policy areas to ensure continued growth and resilience:
- Vital investments in infrastructure.
- Deeper development of human capital.
- More efficient public services.
- Financial sector deepening and inclusion.
- Strengthening the social safety net and addressing critical social ills that hamper productivity and economic development.
Program context:
- Some areas fall within the reform agenda under the current IMF-supported Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF), while others will require new policy commitments.

Source: Seychelles' Path to Macroeconomic Stability and Resilience, July 1, 2025.