An International Monetary Fund (IMF) staff mission led by Mr. Marshall Mills visited Victoria from September 17–30, 2014 to assess performance under the first review of the Extended Fund Facility (EFF) Arrangement with Seychelles.1
At the conclusion of the visit, Mr. Mills issued the following statement:
“The Seychellois authorities continue to strengthen the fundamentals of the economy, as well as the conditions for its sustained growth. The authorities successfully met all their quantitative program targets for end-June. The sizeable fiscal primary surplus and increase in international reserves this year bolster the resilience of the economy, in line with the objectives of the IMF-supported program. The authorities remain on track to meet their key objective of reducing public debt below 50 percent of GDP by 2018. In addition, monetary policy has made significant strides, eliminating the structural excess liquidity in the economy and steering average inflation to a projected 2.3 percent this year.
“However, balance of payments developments have been less favorable than expected. Tourism revenues and tuna exports are weak, after exceptionally good results last year. Growth will also slow this year to a projected 2.8 percent, compared to 5.3 percent in 2013. At the same time, domestic demand and imports have grown strongly, following a 13-percent boost in earnings and 16-percent growth in credit to the private sector. The combination of weak export earnings and rising imports has led to pressure on the balance of payments.
“The authorities have the tools and determination to manage these short-term pressures. Monetary and fiscal policies are being tightened, with lower reserve money targets and higher primary surplus targets than envisaged in the program. Exchange rate flexibility is also a vital adjustment mechanism. Staff are confident that the authorities’ policy plans, including continuing exchange rate flexibility, are appropriate to address the current pressures and that the authorities stand ready to strengthen measures if necessary to maintain stability.
“With these policy adjustments and a gradual recovery in tourism and tuna exports, growth is expected to recover slightly in 2015 to 3.0 percent. Fiscal policy will remain on track to meet the debt reduction target, while monetary policy is expected to steer inflation back to low single digits by the end of 2015, despite pressures from depreciation. International reserves are expected to remain stable in 2015, with adequate import coverage, according to staff assessments. In addition, it is important that wage levels stay compatible with preserving the gains in macroeconomic stability and ensuring international competitiveness.
“The authorities’ structural reform agenda continues to advance. The authorities are on track to implement all structural measures planned for the first review in a timely manner. Staff highlighted the risks that public enterprises can pose to the public finances and development of the private sector and stressed the importance of pursuing plans to strengthen their oversight and governance, while enlarging the private sector’s role in the economy. The on-going review of the procurement policies of large state-owned enterprises could contribute importantly to enhancing their governance. The adoption of medium-term strategies for national development, financial sector development and the fiscal framework will also help lay the foundations for inclusive growth in the future. The on-going review of the air transport policy is particularly important given the sluggish performance of the tourism industry and the importance of flight connections.
“Subject to management’s approval, the IMF Executive Board is expected to discuss the completion of the review in December.
“The mission met with His Excellency President James Michel, Vice President Danny Faure, Minister of Finance, Trade, and Investment Pierre Laporte, and Governor of the Central Bank of Seychelles Caroline Abel, as well other members of government, members of the National Assembly, and representatives of the private sector and civil society.
“The mission appreciates the high quality of the discussions and thanks the authorities for their warm hospitality, as well as the open and constructive dialogue.”
1 The Extended Fund Facility under the Extended Arrangement is an instrument of the IMF designed for countries facing serious medium-term balance of payments problems because of structural weaknesses that require time to address. Assistance under the extended facility features longer program engagement—to help countries implement medium-term structural reforms—and a longer repayment period. (See http://www.imf.org/external/np/exr/facts/eff.htm). Details on Seychelles’ current arrangement are available at http://www.imf.org/seychelles
International Monetary Fund (IMF)