Second IMF review: outlook ‘favourable’ for Seychelles, tight control needed over public funds

File photo: coins of the Seychelles currency. (Joe Laurence, Seychelles News Agency)

The economy of the Seychelles will soon receive another loan disbursement from the International Monetary Fund (IMF) after its second review under the IMF’s Extended Fund Facility (EFF) was completed this week in Washington.

The successful review means that the IMF’s Executive Board will release around $2.3 million to the small island developing state with its population of around 90,000. This will bring the amount disbursed to around $6.9 million out of the total amount of the three-year EFF arrangement’s SDR11.445 million, which is currently equal to $16.1 million, to be utilised for medium-term structural reforms over a longer repayment period.

In a press statement issued by the IMF on Wednesday, the IMF’s Deputy Managing Director and Acting Chair, Min Zhu, said that “sound macroeconomic management” by the Seychelles government had strengthened the country’s economy, which saw some weakening in the last half of 2014.

“The near-term growth outlook is favorable and prospects in the tourism sector remain strong, with noticeable gains in both traditional and non-traditional markets,” said Min in the statement.

The Deputy Managing Director said that the Seychelles authorities remained on track to bring the country’s debt ratio to below 50 percent of GDP by 2018.

“Balancing this objective with the need to address critical infrastructure needs will require tight control of current expenditure and improved governance and financial performance of state-owned enterprises,” he said. “Further progress in building international reserves has ensured an effective buffer against external pressures.”

Min further advised that finance authorities in Seychelles should continue to improve the forward-looking elements of their their monetary policy framework, including inflation forecasting and liquidity management.

He further welcomed the Seychelles’ recent accession to the World Trade Organisation, and encouraged the business climate to improve by broadening access to credit, enhancing infrastructure and “reducing skills mismatches” in the labour market.

“To support sustained and inclusive growth, structural reforms should aim to increase the role for the private sector in the economy and enhance competition. In this regard, caution should be exercised in expanding the roles and mandates of public enterprises,” concluded the Deputy Managing Director.

In 2008, the Indian Ocean island nation’s total public debt stood at 151 percent of GDP with external public debt representing almost 95 percent of GDP ($808 million). The current debt level now stands at around 36 percent.

The majority of the country’s debt was owed towards Paris Club creditors, and the inability to meet the debt repayments prompted Seychelles President James Michel to embark on a five-year IMF-backed economic reform programme in October 2008, ending in October 2013.

In March 2014, following the visit of an IMF mission to Seychelles, the IMF mission chief for Seychelles, Marshall Mills, announced that the Executive Board would consider proposals for the international financial institution to support a new generation of reforms for the Seychelles in June.

The resultant EFF programme currently in place is aimed at reducing the country’s high debt levels while at the same time strengthening macroeconomic stability, reducing Seychelles’ vulnerabilities, and supporting wide-ranging structural reforms for sustained and inclusive growth.