Seychelles Pioneers Novel Financing Instruments and Taps IMF Climate Facility

IMF News, July 5, 2023

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Seychelles is balancing conservation and economic development by tapping innovative financing instruments to pursue an ambitious climate change agenda.
The country relies largely on tourism and fishing for revenue and was the first country to issue a blue bond and to designate fragile coastal areas for protection in return for a novel deal relieving it of part of its sovereign debt.
Seychelles is the second African country, after Rwanda, to access the IMF’s Resilience and Sustainability Facility (RSF).

Geographic and demographic exposure:
- About 90 percent of the population and most critical infrastructure are concentrated in the narrow coastal plateau surrounding Mahé, Praslin, and La Digue.
Key sector vulnerabilities:
- Tourism contributes to over 20 percent of GDP and a quarter of employment.
- Climate change threatens beaches and coral reefs that underpin tourism.
- Fisheries are affected through altered ocean currents, water temperatures, and ecosystems, leading to reduced fish stocks and economic impacts on livelihoods.
National targets and cost estimates:
- Long-term goal of switching to renewable energy to meet the target of zero emissions by 2050.
- Implementation costs estimated at over US$ 600 million over the next decade, or about 5 percent of GDP per year.
Policy orientation:
- Seychelles has comprehensive adaptation and mitigation strategies and is seeking financial assistance from international organizations.

Past and existing instruments:
- First sovereign blue bond issued in 2018, raising US$15 million from international investors to support sustainable marine and fisheries projects.
- First country to undertake a debt-for-climate swap aimed at marine conservation.
Future financing options under consideration:
- Carbon trading.
- Sustainability bonds.
Expected complementarities:
- RSF funding is expected to provide fiscal space, help catalyze private financing for climate projects, and be supported by IMF technical assistance and capacity building.

Purpose:
- RSF funding is aimed at helping countries with limited budgetary room address long-term challenges such as climate change and pandemic preparedness.
Three groups of reform measures under the RSF:

1. Public investment and fiscal management

Revise budget and project appraisal procedures to promote climate-resilient infrastructure investments.

2. Financial sector

Improve access to climate finance.
Strengthen climate resilience of the financial sector by stress testing banks and collecting and disseminating relevant data.

3. Climate change mitigation and adaptation

Review process:
- RSF reviews will take place concurrently with reviews of the Extended Fund Facility (EFF).
- The EFF aims to strengthen macroeconomic stability and policy frameworks and boost inclusive growth.
Performance assessment:
- Reviews will assess progress on each RSF reform measure against predetermined targets.
- The government will provide updates on its broader climate change agenda.
Expected capacity support:
- IMF technical assistance and capacity building to strengthen institutional and policy frameworks.

Source: Seychelles Pioneers Novel Financing Instruments and Taps IMF Climate Facility — July 5, 2023, International Monetary Fund.