IMF Staff Completes Visit to Seychelles – International Monetary Fund

April 4, 2017

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMFs Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

An International Monetary Fund (IMF) staff team led by Mr. Wendell Samuel visited Victoria from March 22April 4 to conduct discussions on the 2017 Article IV consultation and the sixth review under the Extended Fund Facility (EFF) [1] Arrangement with Seychelles.

At the conclusion of the visit, Mr. Samuel issued the following statement:

Macroeconomic performance continued to be strong in 2016. Economic growth reached 4.5 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 2016. The external current account deficit remained largely unchanged, while net international reserves exceeded the program target by US$14 million. Supported by lower than budgeted capital outlays and strong tax revenue growth, the 2016 primary fiscal surplus reached 3.4 percent of GDP, comfortably exceeding the program target. The end-2016 reserve money ceiling was missed by a very narrow margin, due to stronger-than-expected growth in foreign currency deposits.

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.

In view of the fact that the 2017 budget is supported mainly by one-off revenue measures, the mission discussed permanent fiscal measures in 2018 that would help secure the medium-term debt reduction target. It stressed that inability to contain fiscal spending pressures could undermine governments efforts to sustain strong fiscal primary surpluses and jeopardize medium-term public debt reduction goals. The team concurred with the authorities about the need to address structural weaknesses and promote inclusive growth, including through further diversification in the context of the Blue Economy initiatives, improving the business climate, and strengthening the state-owned enterprise sector. The central bank should continue to maintain a flexible exchange rate while limiting foreign exchange interventions to the extent needed to avoid excess volatility and preserve reserve coverage at an adequate level. At the same time, the bank is called upon to remain vigilant to inflationary pressure stemming from rising international commodity prices and fiscal measures in the 2017 budget.

As a small archipelagic country, Seychelles is becoming increasingly vulnerable to natural disasters and to climate change. Over the long run, the economic costs of such events could be large and unpredictable. To better address these challenges, the authorities jointly with international partners need to pursue a medium-term strategy that would create additional fiscal space to undertake the necessary climate change mitigation and adaptation measures. In addition, climate change should be integrated into public financial management and options for risk sharing need to be carefully explored.

Subject to the approval of IMF Management, the IMF Executive Board is expected to discuss the completion of the review and the Article IV consultation in June 2017. The mission appreciates the high quality of the discussions and thanks the authorities for their hospitality, as well as the open and constructive dialogue.

The team met with His Excellency President Danny Faure, Minister of Finance, Trade, and Planning Peter Larose, and Governor of the CBS Caroline Abel, as well as other government officials, members of the National Assembly, and representatives of the private sector and civil society.

[1] The Extended Fund Facility under the Extended Arrangement is an instrument of the IMF designed for countries facing medium-term balance of payments problems because of structural weaknesses that require time to address. Assistance under the Extended Fund Facility features longer program engagementto help countries implement medium-term structural reformsand a longer repayment period. (See http://www.imf.org/external/np/exr/facts/eff.htm ). Details on Seychelles Extended Arrangement are available at http://www.imf.org/seychelles .

PRESS OFFICER: Andrew Kanyegirire

Phone:+1 202 623-7100Email: MEDIA@IMF.org

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IMF Staff Completes Visit to Seychelles - International Monetary Fund