Washington, DC:
The executive Board of the International Monetary Fund (IMF) completed
today the third review of Seychelles’ economic performance under the
32-month Extended Fund Facility (EFF) arrangement that was approved on July
29, 2021. The completion of the review allows the authorities to draw the
equivalent of SDR 6.5 million (about $8.6 million), bringing total
disbursements under the current EFF to SDR 61 million (about $80.6
million). The Executive Board’s decision was taken on a lapse-of-time basis
[1]
.
Seychelles’ economic recovery has remained very strong in 2022, fueled by a
faster-than-expected rebound of the tourism sector. At end-September 2022,
tourist arrivals were 125 percent higher than the same period in 2021, with
stronger than expected demand from Europe and the Middle East. The recovery
is mostly concentrated in tourism-related industries. Real GDP growth is
expected to reach 10.6 percent in 2022, before moderating to 5.4 percent in
2023. Inflation has been relatively low (3.0 percent year-on-year at
end-September 2022), reflecting the effects of currency appreciation in
2021 and earlier this year as well as the base effect of higher inflation
in 2021. Average inflation is expected decline to 3.0 percent for 2022,
before rising to 4.5 percent in 2023, reflecting higher import prices and a
fading of the cushion provided by the lagged effect of the rupee
appreciation.
The recovery has been accompanied by a significant fiscal consolidation and
social support for the most vulnerable. The primary fiscal deficit in 2022
is expected to narrow to 1.1 percent of GDP, reflecting an extraordinary
consolidation of 13.6 percentage points over the last two years. Risks to
debt sustainability have been significantly reduced with the public
debt-to-GDP ratio expected to decline to about 68 percent at end-2022, a
21-percentage-point reduction in two years. In 2023 and over the medium
term, the primary balance will shift to a surplus, as revenue measures will
more than compensate for the planned increase in capital expenditure. The
government has provided social support for the population, including
through a program of targeted, temporary cash transfers to protect the most
vulnerable from rising food and fuel prices, which is expected to run
through early 2023.
Program performance remains strong. All end-June 2022 quantitative
performance criteria (QPCs) and indicative targets (ITs) as well as all
end-September 2022 ITs were met. Good progress was made toward structural
benchmarks, although some were implemented with a delay due to capacity
constraints.
The economic outlook, while positive, remains subject to risks, including a
worsening of economic prospects in many of Seychelles’ key tourist markets
(Russia, the European Union, and the United Kingdom), high food and fuel
prices and their effect on the most vulnerable, a resurgence of COVID-19,
higher-than-expected inflation, and higher non-performing loans from legacy
forborne loans. Climate-related shocks remain as medium- and long-term
risks.
The authorities’ near-term priorities are to support the post-pandemic
recovery and maintain debt sustainability as well as address the impacts of
rising food and fuel prices on the most vulnerable. Over the medium-term,
the authorities’ measures aim to increase revenues and bolster capital
expenditure, with a focus on climate-change mitigation and adaptation. In
addition, the structural reform agenda prioritizes revenue administration,
public financial management, and governance, including digitalization, and
state-owned enterprise reform.
[1]
The Executive Board takes decisions under its lapse-of-time
procedure when a proposal can be considered without convening
formal discussions.
