Seychelles' credit rating downgraded due to tourism shutdown

Fitch has calculated that we will lose money in our reserve from the level that we were at the end of 2019. (Seychelles News Agency)

(Seychelles News Agency) - Seychelles has dropped two notches from its 'BB' rating in 2019 to a 'B+' rating with a stable outlook this year, according to the latest grades from Fitch Ratings released this week.

The Minister of Finance, Maurice Loustau-Lalanne, told a press conference on Friday that the government was expecting this slide in ratings as "it reflects the reality" of the country at the moment.

The Seychelles' tourism industry, which is the top economic contributor, is almost at a halt as a result of the COVID-19 pandemic.

The Minister said the new rating allocated by Fitch is not far from what his ministry had forecast when presenting an updated 2020 budget for the country.

Published on May 6, the report forecasts that Seychelles' economy will contract by 14 percent this year mainly due to the impact of the tourism sector.

"When we were presenting the 2020 budget last year, we had said that we would have economic growth of 3.5 percent per GDP. However, looking at the new reality, we said that there will be a contraction, meaning that we will have a deficit in our budget of 10.8 percent," said Loustau-Lalanne.

Looking at the fiscal balance, the rating agency predicts that this is set to deteriorate from a surplus of 0.2 percent of GDP in 2019 to a deficit of 15.1 percent of GDP this year.

"We had forecast that our primary balance of 2.5 percent GDP, which represents about 600 million rupees, will go down and we will have a fiscal deficit of 14 percent," said Loustau-Lalanne.

He outlined that the lowest rating Seychelles ever had was in 2008 when the country had a rating of CCC with a negative outlook. The best rating was in 2019 where the island nation was rated twice at BB stable outlook.

Fitch Ratings forecast that the general government debt of the country will go up from 52 percent to 79.2 percent of GDP at the end of 2020. The Ministry of Finance made a higher prediction of 85.1 percent.

Loustau-Lalanne explained that the numbers differ as "Fitch does not take into account the monetary debt" of the country. He said Seychelles will continue with repayments of loans -- a total of $51.1 million for 2020 -- to international creditors.

The governor of the Central Bank of Seychelles (CBS), Caroline Abel, also present at the press conference said that "the external resilience - our reserve - will go down if the situation does not get better."

"Fitch has calculated that we will lose money in our reserve from the level that we were at the end of 2019. We become more vulnerable when it comes to this as we are losing the resource that we have saved over the years and now we are losing it rather fast," said Abel.

The next scheduled review date for Fitch's sovereign rating on Seychelles, an archipelago in the western Indian Ocean, will be June 19. 

In another press conference earlier on Friday, Abel said that as of May 7, the reserve balance remained the same at $579 million. CBS can use $428 million from this amount which will last for 17.8 months. Since then, the Central Bank has not injected any more money from the reserve into the system.

"The reserve of the private sector stands at $563 million according to information that we have gathered from commercial banks, and this shows us a reduction of $9 million and it represents transactions that different actors had to make, such as paying suppliers and employees," said Abel.

On the exchange rate, the governor said that after sharp movement in rates, the rates are now more or less stable.

"Yesterday, on average a dollar was SCR18.08 and a euro was SCR19.45. If we are to compare yesterday's position to that of March 31, this represents a depreciation of 28.3 percent on a dollar. As time went by, this depreciation has gone down and if we are to compare it to April 30, it is 1.2 percent on a dollar," said Abel.

Value-wise, comparing March 31 to May 7 represents an increase of SCR4 on a dollar and SCR3.83 on a euro.