IMF Executive Board Concludes 2017 Article IV Consultation with Seychelles – International Monetary Fund

June 20, 2017

On June 2, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Seychelles.

Macroeconomic performance continued to be strong in 2016. Economic growth reached 4 percent, reflecting increased tourist arrivals, stronger output in the fishing industry, and expanding credit to the private sector. Helped by low commodity prices and a stable exchange rate, inflation (year-on-year) was negative throughout early 2017. The external current account deficit remained largely unchanged, while gross international reserves at end-2016 reached 4 months of prospective imports of goods and services. Supported by lower than budgeted capital outlays and strong tax revenue growth, the 2016 primary fiscal surplus reached 3.4 percent of GDP, exceeding the target by 0.4 percent.

With continued foreign investments and rising arrivals in the tourism sector, the growth outlook for 2017 remains positive. The rising trend in international fuel prices since late 2016, along with fiscal measures in the 2017 budget, could put pressure on inflation and on the balance of payments. International reserves are expected to remain at an adequate level, anchored by strong macroeconomic policies. Downside risks to the outlook stem largely from the external sector.

Executive Board Assessment [2]

Executive Directors commended the authorities for making considerable progress toward macroeconomic stability under successive Fundsupported programs. While the growth outlook is favorable, the economy remains vulnerable to internal and external risks, including in the long run to climate change. Directors called for continued commitment to prudent policies and structural reforms to safeguard the gains thus far and promote sustainable and inclusive growth. In this regard, they noted the authorities intention for continued engagement with the Fund.

Directors encouraged the authorities to achieve their mediumterm debt target to preserve the macroeconomic stability gained through bold reforms implemented since the 2008 crisis. They noted that additional, permanent measures will be needed to meet the authorities target of bringing the public debt below 50 percent of GDP and to mitigate pressures on the countrys external position. Directors welcomed the progress made toward improving public finance management and strengthening the stateownedenterprise sector.

Directors highlighted the need to create further fiscal space over the medium term to accommodate priority investments to enhance resilience to climate change. In this regard, they called for efforts to boost revenue further and shift spending composition from current to capital expenditure over the medium term.

Directors supported the current monetary policy stance but advised the central bank to remain vigilant to inflationary pressures and further tighten policy if necessary. They noted that the flexible exchange rate policy has served the country well and advised the central bank to minimize intervention to keep reserve coverage broadly at the current level. They welcomed the progress made toward adopting a stronger monetary policy framework.

Directors supported continued efforts to reduce the financial sector risks and avoid further loss of corresponding banking relationships. They encouraged the authorities to move forward with a comprehensive strategy to strengthen the AML/CFT framework, aligning it with international standards.

Directors concurred that further structural reforms are important to promote economic diversification. They emphasized the need for measures to improve the business environment, including reducing crosssubsidies in electricity prices, using efficiently publicprivatepartnerships in infrastructure building, and addressing skills mismatch in the labor market.

Seychelles: Selected Economic and Financial Indicators, 2014-22

Main products and exports: Tourism, Canned Tuna

2014

2015

2016

2017

2018

2019

2020

2021

2022

Est.

Est.

Proj.

Proj.

Proj.

Proj.

Proj.

Proj.

Proj.

National income and prices

Nominal GDP (millions of Seychelles rupees)

17,119

18,336

19,033

20,022

21,259

22,539

23,969

25,498

27,123

Real GDP

4.5

5.0

4.5

4.1

3.4

3.3

3.3

3.3

3.3

CPI (annual average)

1.4

4.0

-1.0

1.8

2.7

2.7

3.0

3.0

3.0

CPI (end-of-period)

0.5

3.2

-0.2

2.8

2.3

3.0

3.1

3.0

3.0

GDP deflator average

2.3

2.0

-0.7

1.1

2.7

2.7

3.0

3.0

3.0

Money and credit

Broad money

26.6

2.9

12.1

5.2

Reserve money (end-of-period)

13.9

9.5

14.5

3.9

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IMF Executive Board Concludes 2017 Article IV Consultation with Seychelles - International Monetary Fund