Seychelles' Fitch credit rating remains at 'BB-' with stable outlook

The tourist receipts are already above, indicating a higher 'yield' per tourist. (Joe Laurence)

Relatively high-income levels, strong World Bank governance indicators, and support from multilateral creditors have helped Seychelles maintain a credit rating of 'BB-' with a stable outlook from Fitch Ratings.

Released on Friday, September 15, the Ratings outlined that "a strong rebound in tourist arrivals in 2022 is ebbing in 2023, owing to sluggish economic growth in key Western European source markets and strong competition from other high-end tourism destinations."

"Even as tourist arrivals remain below pre-pandemic levels, tourist receipts are already above, indicating a higher 'yield' per tourist. The authorities now expect arrivals to recover to 2019 levels only by 2026, while tourism earnings growth will average 3 percent yearly in 2024-25," the Rating continues.

Despite these positive indicators, the island nation faces some challenges, including its high economic reliance on the tourism sector and its vulnerability to the effects of climate change.

Fitch foresees Seychelles' economic growth to fall to 4.5 percent in 2023 and 4.2 percent in 2024. Weaker growth is expected within the tuna industry "due to high energy costs and sluggish external demand."

In contrast, strong growth is expected in the information and communication technology (ICT) sector. Due to the relatively high levels of productivity in the sector, ICT could provide an upside to potential growth in the medium term.

The Ratings predicts the current account deficit will widen to around 9.4 percent of GDP in 2023 to 2025, "as a growing trade deficit offsets a recovering services surplus."

With large tourism projects being undertaken in the country, direct foreign investment inflow is foreseen to remain robust through to 2025. External borrowing, mainly from international financial institutions is set to maintain the international reserve position at around at around 3.3 months of current external payments over the forecast period - 2023 to 2025.

Fiscal deterioration is expected in the second half of 2023 despite an overperformance of revenues and an under-execution of expenditure in the year's first half. This comes as authorities have revised the 2023 budget considering policy priorities to increase capital expenditures.

"Seychelles' general government debt/GDP fell to 70 percent of GDP in 2022 from a peak of 80.4 percent in 2020 but remained well above its 2019 level of 51 percent. Along with the disbursements under the International Monterary Fund Resilience and Sustainable Facility (RSF) and a new $56 million Extended Fund Facility (EFF), and reflecting a depreciation of the rupee against the US dollar, higher fiscal deficit, and continued real GDP recovery, Fitch expects GGD/GDP to reach 70.7 percent of GDP by end-2023 and decline to an average of 68.4 percent in 2024-25," the Ratings outlined.

The highest ever Fitch Ratings for Seychelles, an archipelago in the western Indian Ocean, was a grade of BB in 2019.