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Seychelles

Author(s):
International Monetary Fund
Published Date:
December 2000
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I. Real Sector Developments in 1998 and 19991.

A. Output Developments

1. Real GDP growth slowed in 1998 and 1999, while inflation rose sharply, ending above 10 percent, at end-1999, for the first time since the early 1980s.

2. Declining tourist arrivals and tourism earnings (and the negative multiplier effects through the rest of the economy), the heightened shortage of foreign exchange, and global weather phenomena were the main factors accounting for a slowdown in overall output during the 1998-99 period. This slowdown occurred despite the strong growth in manufacturing output—owing to the expansion of the Indian Ocean Tuna (IOT) Company—and the continuing expansion of the construction sector, owing largely to public sector housing and infrastructure projects.

3. The slide in tourism arrivals, which began in 1997, continued in 1998-99. However, because of an increase in the average length of stay in 1998, the total number of visitor nights increased in 1998 before declining in 1999 (Statistical Appendix Table 9). In addition, tourism expenditure fell by 3 percent between 1997 and 1999.2 Even before this decline, however, the tourism sector had been underperforming, especially relative to East Africa. In the ten years ended 1997, visitor arrivals to Seychelles grew by an average annual rate of 6 percent, better than the worldwide growth rate of 5 percent but markedly lower than the 10 percent growth rate of East Africa, where Seychelles placed 10th out of 16 countries. In this regard, it is important to note that, while visitor arrivals for the first half of 2000 were up 7 percent from the same period in 1999, such arrivals have increased some 14 percent in Mauritius.

4. One possible cause of the relative underperformance could be poor price competitiveness. Although Seychelles’s tourism development strategy calls for a focus on the luxury “five-star” segment of the market, where price competitiveness may arguably be less important, the majority of hotel capacity exists in the “three-star” and “four-star” categories, where price competitiveness remains an important issue. However, in a comparison with Mauritius, Seychelles appears significantly more price competitive in the luxury segment than in the less sophisticated segments of the market. Available data indicate that the cost of a Seychelles holiday package in peak season to a four-and-a-half- or five-star hotel (including airfare) is insignificantly different from that of a comparable package to Mauritius. However, for the three- and four-star categories, Seychelles appears to be from 20 percent to 40 percent more costly.

5. To address the disappointing performance of the tourism sector, the authorities have launched a number of initiatives in the past two years, the most notable of which are the following:

  • The restructuring of tourism administration. Actions have been taken in three areas: (1) the Ministry of Tourism and Civil Aviation was reorganized in 1998 with the removal of land transportation from the ministry’s portfolio; (2) the Seychelles Tourism Advisory Board was established in 1998 and consists of 12 individuals from the public and private sectors, including industry, who will advise on tourism policy and its integration with the rest of the economy; and (3) the Seychelles Tourism Marketing Authority was also launched in 1998 and was given the responsibility for overseeing the operation of Seychelles’s overseas tourism offices and also for marketing, including developing and implementing a specific marketing strategy and image for Seychelles.

  • The reorganization of Air Seychelles. A comprehensive management overhaul of Air Seychelles in 1998 resulted in a sharp reduction in losses that year and the generation of a profit in 1999. An important factor in the financial improvement was the establishment of strategic alliances with other international carriers that helped cushion competition on those routes, thus helping to solve the problem of low loads and low yields.3

  • The granting of incentives. In July 2000, the government announced the introduction of several measures to boost the tourism sector. These included tax incentives, increased allocation of foreign exchange, reduction in social security payments, permission to hold foreign exchange accounts, authorization to import commodities for which the Seychelles Marketing Board (SMB) had exclusive importation rights, and the loosening of administrative procedures for foreign employment.4

6. The strong performance of the manufacturing sector during 1998-99 was almost exclusively the result of the expansion of the IOT. The rest of the sector was hampered by the foreign exchange shortage. Following the completion of its “Diamond” expansion project in 1999, the IOT had raised its tuna processing capacity from 165 tons per day at end-1997 to 350 tons making it the third-largest tuna cannery in the world and the second-most-important foreign exchange earner for Seychelles. Production increased by 19 percent in 1998 and by a further 39 percent in 1999 and would have been even higher, had it not been for the effect of adverse weather conditions during 1998-99.

7. The weather phenomena El Niño and La Niña negatively affected the fisheries sector but also hurt economic activity in other sectors during 1998. The El Niño effect, which had begun a year earlier, caused the migration of tuna away from the Seychelles Exclusive Zone, and, as the fishing fleets went in pursuit, the port activity at Victoria suffered through reduced transshipment activity, port fees, fishing license fees, oil reexports, and other auxiliary income associated with the port’s activity. The main effect of La Niña, which began in the second half of 1998 and continued into 1999, was a drought. Agriculture was hard hit, as was manufacturing, where, because of the water shortage, both the IOT and Seychelles Breweries were forced to suspend operations for a number of weeks.

8. The diversion of foreign exchange to the parallel market increased during 1998 and 1999, as evidenced by the 21 percent drop in foreign exchange inflow to the commercial banks between 1997 and 1999. The shortage of foreign exchange in the official market negatively affected sectors such as construction, manufacturing, and trading, which rely heavily on imported raw materials and finished goods.

B. Price Developments

9. After averaging less than 2 percent a year over the previous ten years, inflation, as measured by the retail price index (RPI), began to rise in the last quarter of 1998 and reached 10.5 percent in December 1999, the highest level since 1981. It since declined slightly to 8.4 percent in August 2000.5

10. Inflation has risen within the context of an economy subject to substantial regulation of prices. For the most part, prices in Seychelles are either subject to controls on absolute levels, as in the case of beer and other alcoholic beverages, electricity, and other utilities, or limits on markups, as in the case of most imported goods, such as food (excluding fish), clothing, and household items. For those goods subject to controls on absolute prices, a series of discrete price changes took place between the third quarter of 1998 and the fourth quarter of 1999: a 17 percent increase in the price of beer (September 1998); a 30 percent increase in fuel and electricity (January 1999); and a 11 percent increase in housing costs (November 1999).

11. Although they were one-off occurrences, those price adjustments reflected growing underlying inflationary pressures caused by high rates of growth of broad money and the large depreciation of the parallel market exchange rate (upon which the local prices of a growing proportion of imports are based).

12. These pressures have been more obvious in the prices of imported goods, such as clothing, household items, and personal items, which have steadily trended upward since the second half of 1998. Those price increases reflect to some degree the depreciation of the parallel market exchange rate and an increased tendency on the part of importers, wholesalers, and retailers to violate the markup limits in an environment of scarce goods. The exception to the steady upward trend in the prices of imported goods has been food price inflation, which has remained relatively muted. This is because the RPI food basket is dominated by goods for which the SMB has exclusive importation rights, and for which it receives a foreign exchange allocation based on the official fixed exchange rate.6

II. Fiscal Sector7

13. Developments in government finances during 1998-99 were characterized by a significant weakening of the fiscal position, with the budget deficit (after grants) increasing from about 9 percent of GDP during 1996-97 to an average of about 18 percent of GDP (Table 13). Indeed, in the election year of 1998, Seychelles’s fiscal deficit reached a record high of about 24 percent of GDP. Many factors contributed to this sharp deterioration in government finances. On the one hand, domestic revenues, boosted by a significant strengthening of tax administration, rebounded from about 43 percent of GDP during 1996-97 to about 45 percent of GDP in 1998 and 47 percent of GDP in 1999. On the other hand, total expenditures and net lending, led primarily by a surge in capital spending, mushroomed from about 52½ percent of GDP during 1996-97 to about 70 percent of GDP in 1998, before receding to 61 percent of GDP in 1999.

A. Expenditures

14. The largest increases occurred in capital expenditures and net lending, which grew from about 9 percent and 3 percent of GDP in 1997 to about 13½ percent and 4½ percent of GDP in 1998, respectively. However, current expenditures also grew significantly in 1998, in particular wages and salaries, as well as interest payments.8 The steep rise in capital outlays has been driven by a number of large capital projects, including roads, power generation, sewerage, water desalination, and water distribution, in addition to the construction of private dwellings by the Ministry of Land Use and Habitat and the Seychelles House Development Corporation.

15. Budgetary savings in 1999 were realized both in current and capital expenditures. While wages and salaries remained largely unchanged as a percent of GDP, major cuts were made in purchases of goods and services, which fell from about 10 percent of GDP in 1998 to about 7 percent in 1999 (Statistical Appendix, Table 15). Significant cuts were also made in domestic interest payments by administratively reducing the interest rates paid by the government on its securities in the fourth quarter of 1998. Thus, for example, interest rates on three-month treasury bills were cut from 10 percent to 4.5 percent, necessitating a downward revision of the whole interest rate structure (see the section on monetary policy). Finally in 1999, current transfers in the form of benefits to private households from the Social Security Fund (SSF) were significantly streamlined and subjected to rigorous administrative controls and means testing (Statistic Appendix, Table 16). Nevertheless, the combined transfers from the SSF and the government to private households and parastatal bodies actually grew slightly in 1999 as a percent of GDP.

16. The authorities implemented strong measures to restructure loss-making state-owned enterprises, notably the Seychelles Petroleum Corporation (SEPEC) and Air Seychelles, by bringing in new management teams, subjecting them to hard budget constraints, and generally demanding that they operate on commercially viable terms. These measures resulted in a sharp reduction in net lending to parastatal bodies, from 4½ percent of GDP in 1998 to 1 percent of GDP in 1999. As regards capital expenditures, the budgetary outcome in 1999 was somewhat mixed. On the one hand, efforts were undertaken to achieve savings on an annual basis by stretching out the execution of capital projects already approved under the budget.9 On the other hand, a large new capital project, the East Coast Land Reclamation Project, Phase III (ECP), was initiated in February 1999. The ECP, as originally planned, was estimated to cost about US$191 million (about SR 1,020 million, or some 30 percent of GDP) and be completed by 2006 (see Box 1). While the ECP remains a high priority for the government of Seychelles, revisions have been made to its original design, with a view to limiting its impact over the medium term on the government’s capital expenditures and external borrowing requirement.

B. Revenues

17. On the revenue side, both tax and nontax revenues have shown marked increases during 1998-99 on account of a number of factors (Statistical Appendix, Table 14). A strengthening of tax administration has yielded significant improvements in tax collections, particularly in the areas of taxes on income and profits, which increased from 4.4 percent of GDP in 1997 to 6.8 percent of GDP in 1999. In early 1999, the Taxation Division embarked on a major exercise to strengthen tax administration and enhance staff productivity, by streamlining internal procedures and providing targeted on-the-job training programs. A full, ongoing review of the written communications system was established to ensure that correspondence with taxpayers would be followed up in a prompt and courteous manner, while remaining mindful of legally binding deadlines. In the assessment unit, a checklist of basic tests was devised to guide staff in the preliminary assessment of incoming tax returns. Special procedures were introduced to deal with large taxpayers. In addition, the audit unit of the Taxation Division was expanded and the number of actual audits increased substantially, leading to significant additional revenue.

18. Trade taxes on domestic goods and services grew from about 7 percent of GDP in 1997 to about 8 percent of GDP in 1999. At the same time, however, trade taxes on imports, which averaged about 11 percent of GDP during 1997-98, fell to less than 10 percent of GDP in 1999, owing to shrinking volumes of taxable imports, which, in turn, resulted from ever-growing foreign exchange shortages and increasingly restrictive government-imposed import quotas and other trade regulations. Moreover, the widespread statutory and discretionary tax exemptions and concessions10 have considerably complicated tax collection and compromised tax buoyancy, particularly in the area of trade taxes on imports. These include internationally standard and common concessions (including for samples, diplomatic missions, churches and religious bodies), but also concessions for government departments and parastatal bodies, and those provided under various incentive programs, in particular the Investment Promotion Act (IPA) and the International Trade Zone Act (ITZA). In addition, significant tax concessions and exemptions are of a discretionary nature and are provided by the ministry of finance for the importation primarily of investment goods and raw materials. It is estimated that about two-thirds of the country’s imports in 1999 were exempted from import taxes and that the total cost of concessions in 1999 amounted to about SR 280 million, or roughly equal to the total revenue actually collected on import taxes.

Box 1.Seychelles: East Coast Land Reclamation Project

In February 1999, the government of Seychelles started work on the East Coast Land Reclamation Project, Phase III (ECP), which has been described as the largest public sector project in the country’s history.1 The ECP envisages the reclamation of about 360 hectares of land off the northeastern coast of Mahé, the largest of Seychelles’s islands, Just north and south of Victoria, the capital city. An additional 36 hectares are also being reclaimed in the Bay of St. Anne, the southeast of Praslin, the second-largest island in the Seychelles archipelago.

The ECP was planned to comprise four distinct stages: (1) bunding (i.e., delimitation by rock boundaries) and shore protection; (2) dredging and land reclamation; (3) basic infrastructure and the provision of utilities (roads, electricity, water, and telephone systems); and (4) development of “downstream projects,” such as port facilities for commercial activities, fishing, and cruise ships, a new airport terminal, and social housing complexes.

In 1999, capital expenditures of about SR 107 million were incurred in connection with the ECP, of which some SR 39 million (or about US$7.3 million) was in foreign currency. By mid-2000, almost all the bunding work had been completed, and a foreign dredging company had begun on the dredging and landfill phase. Following a technical breakdown of the dredging machine in June 2000, work on stage 2 was briefly interrupted in the third quarter of 2000. Dredging and landfill operations were expected to resume in the fourth quarter of 2000, albeit with a smaller dredging machine, which was expected to complete work on stage 2 by the end of 2001.

Seychelles: East Land Reclamation Project, Phase III
StagesCompletion PeriodTotal Estimated Cost

(In millions of U.S. dollars)
1. Bunding and shore protection1999-200020.7
2. Dredging and landfill1999-200149.2
3. Infrastructure, including utilities2001-0661.6
4. Downstream projects2001-0659.7
Total191.2
Source: Ministry of Finance.
1 Earlier land reclamation projects in or around the capital Victoria were completed in 1985 (Phase I) and in 1991 (Phase II).

19. The boost in nontax revenues in 1999 was led by buoyant receipts from administrative fees and charges, which increased from about 4 percent of GDP in 1998 to over 5 percent of GDP in 1999, mainly as a result of the newly introduced passenger service fees for departure from Mahé International Airport (SR 500 for residents and US$40 for nonresidents). Also, enhanced property income (which doubled from about 2½ percent of GDP during 1996-97 to about 5 percent of GDP during 1998-99) contributed significantly to the pickup in nontax revenues, reflecting primarily improvements in the profitability of SEPEC and the resulting resumption of dividend payments to the budget on the order of about SR 60-70 million annually.

III. Monetary Policy, And Banking System Issues11

A. Monetary Policy

20. Although no formal monetary policy objectives are specified, in practice monetary policy in Seychelles has been geared toward achieving two objectives: keeping the cost of financing the government’s present and past budget deficits low, and promoting the development of priority sectors. Until now, external and price objectives have not been of immediate concern in the monetary policy decision-making process, as both the exchange rate and (a substantial part of) prices are administratively set. These objectives are also in line with the institutional setup, in which close links exist between the Central Bank of Seychelles (CBS) and the Ministry of Finance.

21. The CBS does not target any particular level of reserve money. Reserve money and, more specifically, bank reserves are—at least in the short term—determined by bank actions in the government securities’ markets. In the medium term, bank reserves are predominantly determined by deposit growth, which, in turn, is largely a function of the government’s fiscal performance. As a result, the CBS has very little control over its own balance sheet.

22. To achieve its objectives, the CBS uses only direct instruments. Interest rates on treasury bills and bonds are administratively set, and bills and bonds are made available through a tap facility run by the CBS at those administratively fixed rates. The CBS also sets binding minimum savings and maximum lending rates for the commercial banks. The current minimum savings rate is 3 percent, and the maximum lending rate is 10 percent. In addition to administered interest rates, CBS instruments include reserve requirements, a local assets ratio (LAR), and a number of standing facilities.

23. The latest substantial changes in the monetary policy framework date from September 15, 1998. They comprise an increase in the LAR from 50 percent to 70 percent, a concomitant decrease in the reserve requirement from 20 percent to 2.5 percent—along with an end to the practice of remunerating required reserves (previously done at a rate of 8.5 percent)—and a substantial cut in all interest rates. Interest rates on 91-day treasury bills were cut in half, from 10 percent to 4.5 percent, and the minimum deposit rate and maximum lending rate were cut from 7 percent to 3 percent and from 14 to 10 percent, respectively.

24. Reserve requirements apply uniformly on all demand, savings, and time deposits, with the exception of interbank and foreign currency deposits.

25. The LAR requires commercial banks to hold 70 percent of their deposits (excluding interbank and foreign currency deposits) in government securities, that is, treasury bills, treasury bonds, and other claims payable by the government of Seychelles. Although prudential purposes are sometimes used to justify the LAR, its main goal is to create a captive market for the public debt. However, despite the high level at which the LAR is currently set, five of the six commercial banks have held a considerably larger than required part of their deposit base in the prescribed assets. These five banks have consistently exceeded the 70 percent level since it was imposed in June 1998, holding over 85 percent for most of the time, while some banks at times have exceeded even 95 percent. However, one bank has consistently fallen short of the LAR by a significant margin, and obtained the required waiver.

26. The CBS operates four standing facilities: the rediscount facility, an emergency lending facility, a short-term facility, and a repurchase facility. All facilities involve transactions in government securities at rates based on the rate at which the security was first issued. Presumably, this is done to ensure that banks do not arbitrage the CBS by borrowing at a rate less than the running yield on the security. There are no restrictions on the size of transactions and only some minor restrictions on the frequency of use. However, the CBS would question any bank that made an unusually large or irregular use of the facilities.

27. Efforts to promote the development of priority sectors continue. A refinancing scheme for the promotion of the export and other approved infant industries has been in place since 1990. The purpose is to provide working capital (not investment capital) to the selected industries. Under the scheme, an intermediating bank borrows from the CBS at 1 percent and then on-lends to the approved party at a margin of no greater than 2 percent. The commercial bank takes on all the credit risk of the transaction. Each loan made under the scheme is for a maximum of five years but has to be renewed every six months. The Ministry of Finance determines the eligibility of candidates, and, while the loan is encouraged by the CBS, any bank is free to approve or decline as it sees fit. The borrower, if an exporter, has to agree to export collections being made through the intermediating bank. The renewal of the loan not only depends on a favorable report by the intermediating bank, but is also influenced by the CBS’s assessment of the loan’s impact on domestic bank credit. This is less of a consideration now, as use of the refinancing scheme has fallen off significantly over the last three years. For 1998 and 1999, total credit advanced was SR 86.5 million and SR 37.6 million, respectively. As of March 31, 2000, only two loans were outstanding, for a total value of SR 3.8 million. These loans mature September 2000, as both would then have been in place for the maximum period of five years.

28. Recently, specific measures were announced to facilitate access to credit and foreign exchange for the export and tourism industries, and for small businesses. Under these schemes, the commercial banks are requested to provide concessional loans to qualifying borrowers. However, at least in the case of the first scheme, no incentives are provided for banks to participate.

29. In addition to providing credit to the economy, the CBS also provides direct credit to the treasury. However, in an attempt to limit money growth and tighten government budget constraints, the credit line of the treasury at the CBS was capped at the beginning of 2000 at SR 100 million. At the same time, the stock of outstanding advances from the CBS to the government was converted into a SR 625 million long-term, interest-free bond. Owing to the improving fiscal situation, as well as the large amounts of treasury bills and bonds that banks have been buying through the tap facility, the treasury has built up large deposits at the CBS throughout the year. In September 2000, those deposits amounted to SR 143 million.

30. These positive developments could signify an important break from the monetary experience of the last few years, during which successive large budget deficits have led to rapid money growth and a crowding out of private sector financing from the banking system. Thus, credit to the private sector as a percentage of total commercial bank credit outstanding dropped from 25 percent at the end of 1997 to 16 percent at the end of 1999 (see Figure 1). Over the same period, credit to the government increased by more than 130 percent in nominal terms.

Figure 1.Seychelles: Evolution of Commercial Bank Assets, 1995-99

(In millions of Seychelles rupees)

31. The June mission by the IMF’s Monetary and Exchange Affairs Department recommended a substantial overhaul of monetary policy, consisting of a gradual reduction of the LAR to a level required for prudential purposes, the gradual liberalization of interest rates, an increase in reserve requirements (which should be remunerated at near-market rates), and the eventual introduction of auctions for the primary issuance of treasury bills and bonds.

B. Banking System Issues

32. The financial system in Seychelles is characterized by (1) very limited bank lending to the private sector, compared with the situation in other countries at a similar level of development; (2) the dominant role played by state-owned nonbank financial institutions; (3) excess liquidity in the banking system and limited demand for credit, in part caused by the shortage of foreign exchange; (4) management preoccupation with the foreign exchange problem, the numerous regulations, and the overall economic situation, rather than with the core banking business; (5) a lack of domestic private sector participation in the capital of financial institutions; (6) the absence of a level playing field for both public and private institutions; and, despite all of the above, (7) a very high level of bank profitability.

33. Except for the real estate sector, which has expanded buoyantly since an acceleration in credit growth in early 1998, there are no indications of any speculative or asset price booms. There has been virtually no growth in total credit to the private sector over the past two years.

34. With almost two-thirds of banks’ assets in treasury bills, treasury bonds, and government stocks, and under the assumption that the Seychelles government will be able to service its debt in the future, potential asset quality problems are largely confined to the 15 percent of assets that make up banks’ loan portfolios. The loan portfolios of the banks are restricted in their market and credit risk diversification owing to their limited size and the concentration of activity in a small number of sectors. Reported nonperforming loans are very low, on the order of 2-3 percent of total loans. However, the prudential framework lacks regulations on loan classification and provisioning, among other things, and banks follow their own rules. Because of the absence of regulations and the lack of consistency in enforcement, underreporting, underprovisioning, and “evergreening” of nonperforming loans may become an issue in a more liberal market environment.

35. The financial sector in Seychelles is essentially sound and highly profitable. Non-performing loans, below 5 percent of loans outstanding for all banks, and capital adequacy ratios are very high, owing to the dominance of government paper in the balance sheets of banks (about two-thirds of total assets, see Table 1). However, in terms of total assets and total deposits, capital adequacy is less comfortable, in particular at one state-owned bank.

Table 1.Seychelles: Indicators of Banking System Soundness, April 2000(In percent)
IndicatorAverageHighestLowest
Capital adequacy ratio (Basel definition)37.61693.97.6
Capital / deposits6.812.43.4
Nonperforming loans / total loans2.64.50.4
Net interest margin3.52.64.9
Return on assets2.64.21.7
Return on equity28.562.012.3
Memorandum item: Number of banks6
Sources: Central Bank of Seychelles, and Fund staff estimates.

C. Offshore Sector Issues

36. In April 1999, the Financial Stability Forum (FSF) asked a working group to consider the implications of offshore financial centers (OFCs) for global financial stability and to make recommendations for addressing any concerns identified. The Working Group on Offshore Financial Centers completed its work in March 2000, and its report was endorsed by the FSF on March 26, 2000 and published on April 5, 2000. The report noted that offshore financial activities are not inimical to global financial stability, provided they are well supervised and supervisory authorities cooperate with other jurisdictions. To encourage OFCs to take steps toward achieving supervision standards, the FSF on May 26 published a classification of OFCs in three categories reflecting their perceived quality of supervision and perceived degree of cooperation, with Group I containing the best and Group III the worst performers. Seychelles was classified as a “Group III” offshore jurisdiction.

37. The Seychelles authorities felt this classification was unjustified. In their view, it was based on incomplete information and was decided without sufficient consultation with the country itself. Therefore, the authorities started a dialogue with the FSF (in May-June 2000), with the aim of obtaining a revision of its classification. In addition to disputing the findings of the FSF, the Seychelles authorities pointed out that—although efforts had been made to promote its development—its offshore financial sector remained very small, consisting of just one insurance company as of June 2000. They also pointed out that they faced serious resource limitations, and requested technical assistance in order to improve their legislation and supervision standards.

38. The Seychelles authorities also started a dialogue with the Financial Action Task Force on Money Laundering (FATF). The FATF identified a number of weaknesses in Seychelles’ anti-money laundering framework, which comprised of the Anti-Money Laundering Act (April 1996) and the Guidance Notes on Anti-Money Laundering Procedures (March 1998), both of which are applicable to all financial institutions doing business in Seychelles. However, in view of the ongoing dialogue with the authorities, the FATF did not include Seychelles in its list, published on June 22, 2000, of countries assessed as non-cooperative. Moreover, despite the identified weaknesses, the FATF nevertheless concluded that the legal and regulatory framework “will largely reinforce the prevention and detection of money laundering activities in the Seychelles.”

39. The FATF’s main grievance was with the Economic Development Act (EDA), which Seychelles enacted in 1995 but never put into force. The act, which had promised constitutionally guaranteed immunity from prosecution for investors who brought into Seychelles US$10 million or more under the specifications of the law, had triggered an international outcry at the time of its approval. On August 2,2000, Seychelles repealed the EDA. This action was endorsed by the FATF and resulted in its retracting a previous warning that financial institutions worldwide exercise caution in dealing with individuals and companies domiciled in Seychelles.

40. In further steps to address offshore issues, the authorities attended the IMF’s outreach program in Paris in mid-2000, and officially requested technical assistance from the IMF in order to strengthen the legal framework and to setup proper supervision of offshore banking. The authorities stated that they looked forward to continued cooperation with the IMF and other international organizations in this area.

IV. External Sector Developments12

41. Reflecting large fiscal deficits and deteriorating external competitiveness, Seychelles’s balance of payments was under significant strain during the past two years. The official reserves dwindled while the country accumulated substantial external arrears, including on debt service. In an attempt to address the acute shortage of foreign exchange, the government has tightened trade and exchange restrictions, which have proved ineffective in stemming the foreign exchange crisis.

A. The Balance of Payments

Current account

Merchandise trade

42. The country’s main domestic exports are canned tuna and frozen prawns, which together accounted for more than 90 percent of the total exports in 1999. A rapid expansion of canned tuna exports began in 1995, when the U.S. conglomerate H.J. Heinz acquired a 60 percent stake in Indian Ocean Tuna (IOT).13 From 1995 to 1997, US$18 million to US$54 million. During 1998-1999, the IOT invested US$35 million to expand production capacity. With the completion of this investment program in 1999; export receipts from canned tuna increased to US$102 million in 1999.

43. The other important development in the merchandise export sector has been the marked growth of frozen prawns. As a result of the ongoing investment in plant expansion, production from a prawns farm run by the Seychelles Marketing Board (SMB) in the outer island of Coëtivy rose to 644 tons in 1998 (from 164 tons in 1994), contributing about US$7 million to export earnings. In 1999, production collapsed to about 160 tons, owing to the unavailability of brood stocks. However, production is on track to double in 2000 from the 1999 level.

44. Despite the foreign exchange shortage and the imposition of import quotas, total imports continued their upward trend, largely because of the success of investment programs with high import content during 1998-99. These included big construction projects, such as the Victoria Modernization and Expansion project; the airport in Praslin; the highway leading to Mahé’s airport; the IOT’s tuna cannery plant; Orion Mall, investments in luxury hotels and associated recreational facilities; expansion of the Seychelles Public Utility Company’s power generation plant; the SMB’s acquisition of a new landing craft; and the Victoria Sewage Treatment project.

Services

45. The services account is dominated by the tourism sector, which is the biggest foreign exchange provider, accounting for 60 percent of the country’s foreign exchange earnings. Tourism receipts through commercial banks stagnated over the past two years at about US$110 million, owing mainly to leakages to the parallel foreign exchange market.

46. Foreign exchange inflows from ticket sales to nonresidents have been on an upward trend as a result of improvements in the operations of Air Seychelles. In addition to its code-sharing arrangements with Air Mauritius and Air France, Air Seychelles expanded in 1998 its network of alliances by entering into cooperative agreements with British Airways and Alitalia, Italy’s national carrier.

Income

47. Three main factors contributed to the sharp worsening of the income balance. First, interest payments by the government and Central Bank of Seychelles (CBS) rose markedly, reflecting increased external borrowing. Second, because of the large foreign direct investment inflows during 1993-94 (about US$150 million), net outflow of direct investment income rose during 1998-99. Finally, outflows related to wage incomes have surged, owing to the rising employment of foreign workers in the tourism sector and the IOT factory.14

Capital and financial account

48. Foreign direct investment increased substantially, owing to the development of the offshore sector and the granting of tax incentives and concessions to foreign investors under the Investment Promotion Act (IPA) of 1994. The surge in foreign direct investment during 1998-99 was caused mainly by the Heinz Company’s investment in the IOT factory and foreign investments in the Lemuria Hotel on Praslin, as well as in other “five-star” hotels on the islands of Fregate and Alphonse. It should be noted that, while there appeared to be heightened interest among foreign investors in bringing capital into Seychelles’s tourism sector, foreign inflows to the rest of the economy have been discouraged by macroeconomic problems, including foreign exchange shortages.

49. In response to the poor debt-service record, bilateral loans have dried up, and it has become increasingly difficult for the government to contract external commercial loans. During 1998-99, the government was able to secure only three bilateral loans. Commercial loans were contracted at relatively high spreads. In addition, despite the tougher terms of these loans, part of the foreign exchange earnings of the government, the CBS, and some parastatals had to be pledged and channeled into a blocked escrow account controlled by the creditor banks.

Financing of the balance of payments

50. Seychelles’ external reserves are for the most part held and managed by the central bank. During 1998-99, official reserves were very low, despite the increased accumulation of external arrears. On a net basis, official reserves increased from US$10 million in 1997 to US$14.7 million in 1999, equivalent to 1.7 weeks of imports. Meanwhile, external arrears increased by US$13.4 million in 1998, and by US$19.1 million in 1999. At end-1999, the external payment arrears stock was estimated at US$ 52.4 million.

B. External Debt

51. The large fiscal and external imbalances have led to a growing burden of external debt for the government and to problems in debt management. In 1999, Seychelles’s external public debt outstanding (excluding arrears) was estimated at US$188.5 million (31 percent of GDP), compared with US$153 million in 1997 (26 percent of GDP). The arrears accumulated on public debt amounted to about US$14.5 million at end-1999, of which US$11 million represented arrears on principal. As to the composition of the public debt, 44.1 percent was mobilized from bilateral creditors, 23.7 percent from multilateral institutions, and the remainder from commercial sources.

52. In 1999, steps were taken to improve the management of public external debt statistics. The Ministry of Finance put in place new debt-management software that would provide up-to-date information on recording, contracting, and servicing of debt obligations. It has also compiled loan-by-loan data on external debt, which is being verified with foreign creditors. Although some data have been compiled on the debt stock of the parastatal sector (including government-guaranteed debt), further data collection work is needed to provide comprehensive information on the debt stock, debt-service payment due, and expected disbursements to parastatals.

C. Trade and Exchange Regime

53. Mindful of the foreign exchange shortages, the government introduced in 1998 a series of trade restrictions aimed at limiting imports of goods and services. These included the following measures:

  • Introduction of import permits. For each shipment of commodities, an importer must submit an application for an import permit, the approval of which is at the discretion of the Ministry of Finance. Personal imports above SR 2,500 and public sector imports also require import permits.

  • Continuation of import quotas. Import quotas have remained in effect during 1998-2000. Applicable to most imports, the quota (in value) was set as a percentage of the previous year’s imports. In 1999, the annual import quota was set at 75 percent of 1998 imports. Imports related to the tourism industry were granted higher percentages, and new importers were allocated SR 50,000.

  • Bans on imports of second-hand vehicles and some nonessential commodities such as worked ivory, bone, and tortoise shell.

  • Reduction in the number of expatriate workers, with a view to limiting foreign exchange outflow related to employees’ compensation. This measure has proved difficult to implement, and the wage bill for foreign workers in the IOT’s factory and the tourism sector remains high.

  • Reimpositionof withholding taxes on interests and dividends remitted abroad.

54. Furthermore, in an attempt to stem the growth of the parallel market in foreign currency, the government enacted in April 1999 two amendments to foreign exchange regulations:

  • An amendment to the Foreign Earnings Regulation Act, 1996 requires tourists to settle their bills in foreign exchange.

  • An amendment to the Exchange Control Act makes it illegal for residents to possess foreign exchange not obtained through the banking system.

D. The Exchange Rate and Competitiveness

55. Seychelles has followed an exchange rate regime based on a peg to a currency basket. Until 1996, the peg was in terms of the SDR. Meanwhile, the authorities have changed the definition of the basket several times over the past decade. In July 1997, while maintaining the same currency basket, the authorities revised the weights in favor of the U.S. dollar at the expense of the pound sterling and the other European currencies. With the introduction of the euro, the weights for the French franc, the Italian lira, and the deutsche mark were combined. Every working morning, the CBS computes the rupee rates (buying, selling, and mid-rates) for all the major currencies, strictly adhering to a nominal effective peg to the official basket based on cross rates provided by the U.S. Federal Reserve Bank of New York. The CBS uses these rates for all official transactions and communicates them to the commercial banks. Banks are bound by the regulation to transact foreign exchange strictly within these rates. The margin between the buying and the selling rates is narrow and provides virtually no room for maneuver to banks that are forced to compete on the basis of criteria other than prices. In this environment, banks spend significant amounts of time gathering foreign exchange, complying with the surrender requirement, and allocating the remainder to their client base.

56. As far as the real effective exchange rate is concerned, a broad stability was recorded in 1995-98, but an appreciation took place in 1998-99 as a result of price increases higher than in partner countries15 (see Figure 2). Between 1994 and 1999, the official exchange rate of the Seychelles rupee appreciated substantially in relation to the currencies of neighboring tourist destinations, such as Kenya (19 percent), Mauritius (33 percent), and South Africa (63 percent).

57. In the context of a rigid exchange rate, the chronic lack of foreign exchange in the market has led to an acute foreign exchange shortage in the banking sector, in the form of queues (or “pipeline”) at commercial banks. The size of these queues, as well as the average duration of a bank customer’s wait in a queue, has increased substantially. Estimates of the unsatisfied demand for foreign exchange currently in the queues range between US$52 million (including official arrears) and US$150 million.

58. To cope with the foreign exchange shortages without changing the exchange rate regime, the authorities have put in place an elaborate system of foreign exchange controls, surrender requirements, and priority rules. With the exception of those residents explicitly exempt, all resident foreign exchange earners are required to surrender 100 percent of their foreign exchange earnings to the commercial banks. Exemptions include the Seychelles Marketing Board (SMB) and companies benefiting from the Investment Promotion Act; moreover—since July 3, 2000—major foreign exchange earners can open a foreign exchange account and keep a part (15 percent) of their foreign exchange earnings for their own import needs.

59. Commercial banks themselves are also subject to surrender requirements. Surrender requirements for banks have varied over time, generally becoming more and more onerous. Currently, commercial banks surrender 27 percent of the foreign exchange accrued to them to the CBS for the import of essential goods.16 Another 13 percent has to be kept in a special account maintained at the banks and later transferred to the CBS to meet the external debt-servicing obligations of the government. Five percent is transferred to the CBS for the external obligations of the nonresident airlines servicing Seychelles.17 A further 2.5 percent of the total foreign exchange receipts remain at the banks but have to be sold to the Seychelles Tourist Board (STAB) for the promotion of Seychelles as a tourist destination. Furthermore, to the extent a bank has arrears outstanding in the so-called frozen pipeline, it is obliged to use an additional 10 percent of its foreign exchange receipts to eliminate the arrears. Finally, since July 2000, banks are required to reserve 2 percent of their foreign exchange earnings for the needs of small businesses.

60. To encourage earners of foreign exchange to route their foreign exchange transactions through the domestic banking sector, banks are allowed to “allocate back,” that is, resell to major earners of foreign exchange, part of the foreign exchange sold by those same companies. Initially, such companies were allowed to buy back 25 percent of their receipts, but later the rules became stricter. On January 16, 1997, this ratio was cut to 20 percent, and at present it is only 15 percent. The foreign exchange obtained on the basis of the 15 percent repurchase possibility may be used only for imports.

61. According to the regulations in force, the remaining 35-40 percent18 de jure should be used for payments in accordance with a list of priorities. Payments within each of the categories are supposed to be made on a first-come, first-served basis. In practice, however, the central bank does not supervise adherence to this regulation. Consequently, this portion of the foreign exchange accruals is used at the discretion of the banks.

Appendix I: Seychelles: Summary of Tax System at End-June 2000
TaxNature of TaxExemptions and DeductionsRates
1. Taxes on the net income or profit of a business

This tax is payable by

(a) companies, corporations or enterprises;

(b) partnerships;

(c) trusts; and

(d) sole traders,
A tax that is payable on the taxable income of a business derived from a source in Seychelles (and in the case where a nonresident carries on a business in Seychelles) during the immediate preceding year by the owner of a business.Deductions include normal expenses incurred by a business in carrying on the business. Specific deductions allowable are expenses of borrowing loans, discharge of mortgage or lease documents, and certain expenditure on land for primary production, e.g., clearing, draining, fencing, and pest control.



Income derived from property used exclusively as a dwelling is exempt.
The rates of tax payable on the taxable income by the owner of a business (companies, partnership, trust, or sole traders), being a resident or a nonresident of Seychelles, are as follows:



0 percent on the first SR 24,000 of taxable income;

25 percent on the next SR 24,000 of taxable

income;

30 percent on the next SR 48,000 of taxable

income; and

40 percent on the remainder.
Administered by the Business Tax Act, 1987 and Regulations, and the Investment Promotion Act, 1994.Withholding tax is a final tax payable on certain payments of royalties and dividends to nonresidents, payments to musicians, and salaries paid by the government to nonresidents.A loss in any year is deductible within a maximum of five subsequent years.



Contributions made to certain public funds and charitable organizations are 100 percent deductible. There are deductions of up to 200 percent for expenditure qualifying as “special deductions”.



Normal depreciation is straight line of historic cost (they are broad banded into six main categories): building, plant and machinery, vehicles, computers, furniture and fittings.
For certain holders of certificates of approval under the Investment Promotion Act, the rates per year are as follows:



0 percent on the first SR 24,000 of taxable income; and 15 percent on the remainder.



Withholding tax rates applicable are as follows:



15 percent on dividends paid to nonresidents;

40 percent on interest paid on bearer security;

15 percent on royalties paid to nonresidents:

5 percent on salaries paid to nonresident government employees; and

10 percent on amount paid to musicians.
Assets purchased on or after



January 1,1995 qualify for accelerated depreciation. An election in writing must be made to have the accelerated rates applied.



Holders of Investment Promotion Act certificates may depreciate assets up to 150 percent of historic cost.
2. Trades taxes on goods



manufactured in Seychelles, on services and on imported goods



The law governing implementation is the Trade Tax Act (1992), which came into operation on January 1, 1992.



Implementation details are contained in the Trades Tax Regulations (1997), which supplements the act.
The Trades Tax Act provides for the assessment and payment of trades tax on specified goods manufactured in Seychelles for sale and on a number of specified service providers.
2.1 Trades tax on locally manufactured goodsTrades tax on locally manufactured or produced goods is calculated on the monthly gross sales.Locally manufactured goods:
CigarettesSR 104 per 200 cigarettes
BeerSR 20.35 per liter
Guinness/Celebration beersSR 17.55 per liter
Soft drinksSR 0.80 per liter
Fortified fermented beveragesSR 20.25 per liter
Undenatured ethyl alcoholSR 67.50 per liter
2.2 Trades tax on servicesTrades tax on specified services is calculated on gross payments received on a monthly basis at rates specified in the regulations.Services:
Accountant/bookkeeper15 percent
Architect/Draftsmen15 percent
Surveyor, excluding marine surveyor15 percent
Marine surveyor5 percent
Tax agent15 percent
Auctioneer15 percent
Insurer12 percent
Engineer15 percent
Medical practitioner5 percent
Dentist5 percent
Optician5 percent
Legal practitioner, excluding legal aid15 percent
Notary15 percent
Secretarial services15 percent
Cable & Wireless & Telecom (Sey) Ltd10 percent
Travel agent (own services)6 percent
Tour operator (own services)6 percent
Hotels (effective 12/1/00)7 percent
Guest house (effective 12/1/007 percent
Debt collector5 percent
Management consultant15 percent
Property management or estate agent5 percent
Public Utilities Corp. (water)5 percent
Public Utilities Corp. (electricity)Per tariffs
2.3 Trades tax on imported goodsThe trades tax on imported goods is calculated on the c.i.f. value of goods imported into Seychelles.As part of an exercise to upgrade tourist establishments, hotels and restaurants have been granted, on a case-by-case basis, a reduced or a 100 percent tax concession onImported goods:



Various duty rates ranging from 0 to 225 percent ad valorem.



imported capital equipment. A 50 percent tax concession is also granted on all service items.
3. Taxes on property, and property transfers
3.1 Stamp Duties Ordinance, 1975, No. 4 of 1975 (Immovable Property Transfer Restriction Fee Regulations, 1974), S.I. 56 of 1974.



Immovable Property (Transfer Restriction) Act, Decree No. 13 of 1977.



Stamp Duty (Amendment) Regulations, S.I. 116 of 1980.
Levied on the value of immovable property transferred and on the consideration for the grant of an option.Transfers to the government are exempt.4 percent on the first SR 50,000 of value; 10 percent on the remainder.



The fee is to be paid by the transferor or the transferee if the latter retains the duty when making payment of the consideration (plus 1.5 percent license fee when property is acquired by a non-Seychellois, as explained in 3.25 below).
Amendment of the first schedule to Act 4 of 1975, last amended by S.I. 20 of 1982.Levied on movable property or rights.



Levied on shares of capital of a company.
3 percent of the value of the property or rights.



2.5 percent of the value of the shares.
3.2 Taxes on use of goods and services or property, or permission to perform activities
3.21 Business license fees. The License Ordinance (Cap. 113), License (miscellaneous services)All businesses, including agents and brokers, auctioneers, owners of vessels engaged in coastal trade in Seychelles, and music orFees range from SR100 for blacksmiths, masons, carpenters, performing artists, etc., to SR 425 for retailers, SR 1,000 insurance agency, SR 2,050 for a chandler/wholesaler, SR 3,500 for professional
Regulations, 2000 License (Trade) (Amendment Regulations 1992),gaming machines, are required to be licensed annually. Hotels and banks are licensed annually under separate legislation (hotels at SR 310 per room per year, guest house and self-catering establishments at SR 160 per room per year).services, and SR 5,050 for labor contractors, as well as for general merchants, shipping and aircraft agents.
3.22 Motor vehicles taxes. The Road Transport Act (Cap. 206); the Road Regulations (S.I. No. 104 of 1986) License (Road Transport) (Amendment) Regulations, 1994.Annual fees that increase with the cylinder capacity of motorcycles and passenger-carrying vehicles, and with the weight or load capacity or other vehicles, whichever is the greater. Additional fees are charged for an omnibus, taxi, or self-drive hire car. An annual driving license fee is also payable.Motorcycles, SR 1 per cubic centimeter (cc) subject to a minimum fee of SR 200. Passenger vehicles, private and public, SR 1 per cc of engine displacement (effective January 1,1994). Commercial vehicles SR 0.50 per kg. subject to a minimum fee of SR 1,000. Heavy duty vehicles SR 1 per kg. subject to a minimum fee of SR 5,000.
Additional fees - trade license:
TaxiSR 700 per month
Self driveSR 5 per hire vehicle for each day
Driving licenseSR 250 for 1 year
Driving license.SR 550 for 5 years
3.23 Hire craft license fees. Control of Hire Craft Act (Cap. 46). The Control of Hire Craft Regulations (S.I. No. 63 of 1978). Licenses (Trade) (Amendment) Regulations 1992.All hire craft are required to be licensed annually on the basis of their overall length. (The regulations also impose minor fees for surveys of craft and certification of crews.)Length in meter per year:
3 m but not exceeding 6 mSR 1,500
6 m but not exceeding 9 mSR 4,000
9 m but not exceeding 12mSR 6,000
12 m but not exceeding 20SR 8,000
exceeding 20SR 10,000
Beach craftSR 100
Double fees payable by non-Seychellois operators.
3.24 Foreign fishing vessel license fees. License (Fisheries) Regulations, 1987All foreign fishing vessels fishing within the exclusive economic zone or fishing for sedentary species on the continental shelf require a license.When license fees are not specified in the fishing agreement the rates are as follows:
Tuna long lining:
One monthSR 60 per gross registered ton
Four monthsSR 1 SO per gross registered ton
Eight months or moreSR 300 per gross registered ton
One yearSR 1,000 per gross ton
3.25 Property transfer fees. The Immovable Property Transfer Restriction Ordinance (Cap. 96 and Regulations) (S.I. 96 or 1974)A fee is imposed (additional to any stamp duty) on sanctions, for any non-Seychellois to acquire or lease immovable property, or to purchase shares in a company owning immovable property.1 percent of value transferred or of annual rent.



Options: SR 100.



Purchase or share: SR500.
3.3 Stamp duties



The Stamp Duty Ordinance 1975 (No. 4 of 1975).
Stamp duties are imposed on an extensive range of legal instruments at low ad valorem or fixed rates.Fixed duties range from SR 0.10 on receipts and checks to SR 25 on performance bonds. Ad valorem duties include losses of between 2 percent and 10 percent of the annual rent; on transfers of shares, 2.5 percent; on movable property, 3 percent; and on mortgages, 0.125 percent of the sum secured.
4. Social security contributions
Social Security Act, 1987. Investment Promotion Act, 1994Contributions to Social Security Fund to be made by employee and employer.Certain holders of certificates of approval under the Investment Promotion Act are exempt from the employers’ contribution.Employee:



5 percent of monthly gross emoluments.



Employer with respect to any employee: 10 percent of first SR 1,000 per month gross
Certain holders of certificates of approval under the Investment Promotion Act qualify for a 50 percent reduction of the employers’ contribution.emoluments; 20 percent on next SR 1,000; 35 percent on next SR 8,000; and 40 percent on remainder.
Source: Ministry of Finance and Communications.
Appendix II: Monetary Policy in Small Financial Systems

1. One of the concerns often heard in so-called small countries is that economic policies that are optimal for big industrial countries might not be well suited for small-scale economies. This section looks at financial sector and monetary policy issues that are specific to small-scale economies and applies them to Seychelles.

A. Characteristics of Small Financial Systems

2. Little research has been done into the specifics of (very) small financial systems, but, the studies that are available suggest that there are indeed some important differences between large and small economies that policymakers need to take into account.

3. Worrell (1997) observes that financial systems in small, open economies are often characterized by wide spreads between deposit and loan interest rates, stickiness of interest rates, and banks’ holding of non-earning assets in excess of the requirements imposed by monetary authorities. These characteristics are due to the countries’ inability to exploit economies of scale and the segmentation of financial markets; as a result, in small financial systems, financial products can be produced only at a relatively high unit cost, and dominant financial institutions are likely to be able to exercise market power.

4. Worrell notes that there is substantial empirical evidence of economies of scale in the provision of financial services. He also argues that there is a geographical segmentation of financial markets because they are largely defined by national boundaries, owing mainly to the importance of legal, tax, regulatory, and currency differences between nations. In addition, regardless of the presence of boundaries, there is empirical evidence that financial services have a local character. A constraining physical obstacle (the sea, in the case of island economies) can only reinforce this local character. As a result, competition from foreign financial institutions that have not established local operations is ineffective. Moreover, there is usually little incentive for foreign financial institutions to incur the costs needed to enter a small market, where they would have to compete with established and locally dominant institutions. In addition to geographical segmentation, there is also product segmentation, because the possibilities are limited for substitution among certain types of financial services.

5. Bossone, Honohan, and Long (2000) argue that small financial systems are less efficient than larger ones, because of their inability to exploit economies of scale in financial intermediation, financial markets, financial infrastructure, and regulation. In particular, small financial systems usually consist of fewer institutions and, hence, are less competitive, resulting in wider interest rate spreads. Small financial systems are also incomplete, as the market is too small to profitably offer certain financial services.

6. Nevertheless, Bossone et al argue that many of the disadvantages of smallness can be mitigated through several forms of openness. Options include foreign ownership of intermediaries, regional financial markets, shared regional infrastructure or imported infrastructural services (including regulation), tailored regulations, and free capital movements. However, such openness carries substantial risks, among them volatility in capital flows, a reduction in investable resources, loss of autonomy for the national policy maker, and contagion. As a result, most small economies have not opened up as much as might be optimal from point of view of the financial sector.

B. Monetary and Exchange Rate Policy in Small Financial Systems

7. Mussa et al (2000) argue that in highly open economies, where most goods and services produced are exported and where most consumption goods are imported, the microeconomic benefits of reducing transaction costs and exchange rate risks by pegging the exchange rate can be substantial. Since most small countries are highly open they have therefore tended to opt for fixed exchange rates.1Khatkhate and Short (1980) also remark that, as a result of this openness, the price level in a small economy is determined mainly by international prices and by the exchange rate. Therefore, internal and external stability are intimately linked, because domestic price stability requires exchange rate stability.2

8. Because financial markets and financial intermediation in small-country economies do not function as efficiently as in large industrial countries, the monetary transmission mechanism in the former countries is surrounded by uncertainty. Worrell (2000) mentions two particular problems. First, discontinuities in the reaction to interest rate changes, owing to the importance of information and transaction costs, prevent rapid and full portfolio adjustment. Furthermore, there is evidence that banks in small financial systems often vary the spread between deposit and lending rates in response changes in the monetary policy stance, rather than moving the level of their interest rate structures. If so, banks in these systems do not really adjust their balance sheets in response to monetary policy actions. Second, interest rate changes may affect the proportion of domestic money that is held in foreign currency by altering the domestic currency premium. As a result, capital flows and information asymmetries limit the interest responses of the financial markets and make it difficult to interpret market signals.

9. These uncertainties imply that the output cost of a tight monetary policy stance in small-country economies can be particularly severe. Worse, the very high real interest rates that might be required can be detrimental to investment, thus preventing the economy from reaching a sustainable expansion path. In the context of this specific monetary policy framework, Worrell (2000) argues that, in very small economies, central bank autonomy should not go as far as in big industrial economies. Because the market mechanism is missing in the monetary transmission process, a separation of responsibilities by itself will not guarantee the desired outcome. Instead, close ex ante coordination between monetary and fiscal policies is needed, so that their impact on the financial markets is mutually consistent. This coordination should allow the country to cope better with the “lumpiness” of fiscal and balance of payments transactions. Worrell says that, empirically, no relationship can be found between an index of central bank independence and inflation in a sample of small island economies.

10. Instead of full central bank independence, Worrell proposes a system in which the monetary and fiscal authorities try to attain a consensus on economic policy, based on the preference function of the general public. Both fiscal and monetary authorities should interact with each other to present information to the general public about economic conditions and prospects; solicit information about public preferences and acceptable trade offs; jointly commit themselves to targets that reflect public preferences, and explain the policies to be implemented to support those targets; and maintain an ongoing dialogue among the central bank, the treasury, and the financial markets on economic performance, policy, and prospects. Although such arrangements are not free of tension, and have indeed proven to be dysfunctional in big countries, Worrell argues that they might be more workable in small countries, where institutional independence is less effective as a coordinating and balancing mechanism.

C. Application to Seychelles

11. Seychelles certainly qualifies as a small economy, as defined by Khatkhate and Short. Its economy largely conforms to the stylized facts put forward by these authors: it is very open (exports and imports of goods and services each amount to 80 percent or more of GDP), tourism and offshore activities are two of the three main pillars of the economy, most of the goods sold locally are imported, and local production is mainly service oriented.

12. The Seychelles financial system also conforms to the stylized facts put forward by Worrell (1997) and Bossone, Honohan, and Long: spreads between deposit and lending rates are relatively wide, interest rates are sticky (actually, fixed by the Central Bank of Seychelles) (CBS), banks do hold excess reserves over and above the regulatory minima (although mainly in the form of government securities), and the financial sector is incomplete. For example, there are no organized markets for stocks or bonds, there are no mutual funds, and the banks tend to offer only a limited number of products (as of June 2000, for example, only two of the six banks offered mortgage loans to their customers).

13. The Seychelles financial sector is open in the sense that four of the six banks are branches of foreign banks, while a fifth bank is linked to an international banking group. However, by other criteria, the Seychelles financial system is very closed. There is no shared financial or regulatory infrastructure with other countries, no participation in regional or international financial markets, and the capital account is de facto closed to private sector transactions as a result of the foreign currency problem. Hence, and especially given the very small size of Seychelles—even compared with other small economies—there seems to be great scope for Seychelles to realize gains from the further international integration of its financial system. Monetary policy in Seychelles is not independent; it has been set to accommodate fiscal policy, especially in the recent past. While full autonomy of the CBS might not be desirable in light of this discussion, there is room for the CBS to become sufficiently more independent in order for it to be able to negotiate on an equal footing, and at arm’s length, with the Ministry of Finance in formulating and executing macroeconomic policies.

Figure 2.Seychelles: Exchange Rate Indices, January 1990 - July 2000 1/

(1990=100; foreign currency per Seychelles rupee)

Source: IMF, Information Notice System.

1/ Information Notice System multilateral weights based on the geographical pattern of trade and tourism.

2/ Relative consumer prices; the ratio of the domestic price Index to weighted partner price indices. Changes In the real effective exchange rate do not truly reflect the underlying loss of competitiveness because of the weakness in the retail price Index as a measure of underlying inflation.

3/ Based on relative consumer prices.

Appendix III
Table 1.Seychelles: Gross Domestic Product by Industrial Origin at Constant 1986 Market Pnces, 1994-99(Annual percentage change)
19941995199619971998

Prov.
1999

Prel.
Agriculture, forestry, and fishing7.6-3.84.61.2-1.70.2
Agriculture22.5-2.96.87.40.4-3.4
Forestry4.84.5-8.761.90.0-5.9
Fishing-17.5-6.90.6-23.8-10.417.9
Manufacturing, and handicrafts-3.311.315.028.27.84.7
Manufacturing-2.313.115.829.78.25.3
Handicrafts-14.9-12.31.50.0-2.2-11.2
Electricity and water120.8118.932.519.56.81.8
Electricity89.398.520.218.06.81.8
Water17.611.5-82.5-76.50.00.0
Building and construction-2.712.114.311.729.017.8
Transport, distribution, and communications-1.5-1.114.921.15.8-7.9
Distribution and road freight-9.8-2.913.417.00.0-10.6
Water transport, etc.9.0-5.7-0.562.323.4-10.6
Air transport, etc.47.0-19.158.535.326.10.0
Passenger transport-9.623.65.922.6-0.4-10.2
Tour operators-8.414.817.85.2-5.9-6.3
Communications and storage19.516.23.39.23.4-3.1
Hotels and restaurants-0.516.1-12.1-14.9-0.3-10.0
Finance and business services12.811.74.13.0-3.0-4.9
Banks13.021.96.5-1.1-7.0-4.7
Insurance67.114.8-12.337.11.0-4.5
Business services32.72.75.3-20.70.5-4.8
Real estate-1.78.8-8.10.03.5-5.1
Ownership of dwellings1.3-1.94.312.71.8-5.4
Government services-1.810.04.1-7.48.5-0.5
Other services-0.712.0-1.36.1-6.1-5.4
Private nonprofit institutions-3.3-6.97.4-17.2-8.3-4.5
Domestic services0.09.41.40.7-3.5-4.4
Recreation0.02.919.414.02.0-10.0
Other-1.327.6-15.519.5-13.3-4.7
Subtotal1.58.410.612.96.4-1.8
Adjustments
Net interest payments by banks-10.241.4-9.1-8.61.8-4.8
Import duty-16.2-22.50.61.80.0-10.6
Statistical discrepancies-5.6-10.3-3.2-3.5
GDP at 1986 market prices 1/-0.8-0.64.75.33.4-3.0
Sources; Management and Information Systems Division (MISD); and staff estimates.

Figures might deviate from arithmetical sum owing to rounding errors.

Sources; Management and Information Systems Division (MISD); and staff estimates.

Figures might deviate from arithmetical sum owing to rounding errors.

Table 2.Seychelles: Gross Domestic Product by Industrial Origin at Current Market Prices, 1994-99(In millions of Seychelles rupees, unless otherwise indicated)
19941995199619971998

Prov.
1999

Prel.
Agriculture, forestry, and fishing101.6101.097.493.290.499.8
Agriculture55.854.755.256.056.758.1
Forestry1.81.91.71.91.91.9
Fishing44.044.440.535.331.839.8
Manufacturing, and handicrafts278.7306.4323.1406.8441.3489.0
Manufacturing261.4287.6301.4383.9418.7467.7
Handicrafts17.318.821.722.922.621.3
Electricity and water20.451.372.386.790.996.6
Electricity16.732.947.158.863.368.4
Water3.718.425.227.927.628.2
Building and construction180.7190.9198.4212.7276.5345.6
Transport, distribution, and
communications709.5717.5782.4926.11,024.6994.7
Distribution and road freight386.3389.2394.7429.5469.9445.6
Water transport, etc.64.056.564.690.8113.0107.2
Air transport, etc.66.353.685.0115.0145.0145.0
Passenger transport38.048.258.766.566.863.7
Tour operators24.628.032.834.231.829.4
Communications and storage130.3142.0146.6190.1198.1203.8
Hotels and restaurants215.1226.3247.2268.9270.3257.8
Finance and business services247.6254.6287.5320.8312.9315.7
Banks134.0141.9165.4179.2168.0169.8
Insurance20.019.618.728.328.929.2
Business services19.923.028.929.730.230.5
Real estate5.65.85.55.55.75.8
Ownership of dwellings68.164.369.078.180.180.4
Government services344.6338.8351.0376.0411.0434.0
Other services52.062.762.377.773.!72.9
Private nonprofit institutions9.610.711.911.611.111.2
Domestic services15.415.615.816.015.615.8
Recreation7.17.99.517.317.516.7
Other19.928.525.132.828.929.2
Subtotal2,150.22,249.52,421.62,768.92,991.03,106.1
Adjustments
Net interest payments by banks-899-131.4-144.9-136.6-140.2-141.7
Import duty399.1302.0306.3321.7348.7330.7
Statistical discrepancies-19.0-0.3142.7-0.6-22.5-20.1
GDP at current market prices2,440.42,419.82,725.72,953.43,177.03,275.0
Sources: Management and Information Systems Division (MISD); and staff estimates.
Table 3.Seychelles: Expenditure on Gross Domestic Product, 1994-97(In millions of Seychelles rupees at current prices, unless otherwise indicated)
1994199519961997
Consumption1,919.71,851.71,584.12,240.9
Public722.2710.0734.6752.8
Private 1/1,197.51,141.7849.51,488.1
Investment638.4734.11,285.1974.0
Gross fixed capital formation621.0733.91,280.0970.0
Public183.6163.6220.2261.8
Private437.4570.31,059.8708.2
Increase in stocks and herds17.40.25.14.0
Total expenditure2,558.12,585.82,869.23,214.9
Exports minus imports 2/-98.7-165.7-286.2-260.9
Statistical discrepancies-19.0-0.3142.7-0.6
Gross domestic product at market prices2,440.42,419.82,725.72,953.4
Memorandum items:
Net factor income from abroad-49.0-81.7-64.5-48.9
Gross national product at market prices2,391.42,338.12,661.22,904.5
Less net indirect taxes559.3384.6599.6599.6
Less depreciation211.5210.2394.2321.2
Net national product at factor cost (national income)1,620.61,743.31,667.41,983.6
Gross domestic savings520.7568.11,141.6712.5
Ratio of total expenditure to GDP (percent)104.8106.9105.3108.9
Sources: Management and Information Systems Division (MISD); and staff estimates.

Calculated as the residual.

Goods and nonfactor services; discrepancies with balance of payments figures are likely a result of parallel market transactions outside the banking system.

Sources: Management and Information Systems Division (MISD); and staff estimates.

Calculated as the residual.

Goods and nonfactor services; discrepancies with balance of payments figures are likely a result of parallel market transactions outside the banking system.

Table 4.Seychelles: Composition of Domestic Capital Formation, 1994-97(In millions of Seychelles rupees at current purchasers’ values)
1994199519961997
Gross fixed capital formation621.0733.9
Building and construction313.0443.4
Land improvement3.721.4
Transport equipment149.093.0
Machinery and equipment155.3176.1
Change in stocks and herds17.40.2
Gross domestic capital formation638.4734.1
Less depreciation211.5210.2
Net domestic capital formation426.9523.9
Source: Management and Information Systems Division (MISD).
Table 5.Seychelles: Production Indicators, 1994-99
199419951996199719981999

Prov.
(In metric tons)
Agricultural crops
Copra
Exports 1/1123530000
Deliveries to warehouse282344393314259301
Cinnamon bark
Exports 1/414487318220403471
Deliveries to warehouse469414280241478385
Tea, green leaf246226223270250236
Fish landed, artisanal sector4,4284,3134,5084,0953,3344,860
Canned tuna
Production5,0757,49512,70820,13223,98933,234
Exports7,3626,29112,81320,61121,62634,605
(In thousands of metric tons)
Fish transshipped 2/70.068.057.00.00.00.0
(In thousands of liters)
Beverage production
Beer and stout5,8385,8526,3657,1137,1816,768
Soft drinks8,0388,4637,8528,28610,25110,561
(In millions of units)
Cigarette production495662706160
(In millions of kilowatt-hours)
Electricity production126128133148159170
(In units indicated)
Slaughter (Le Rocher Abattoir)
Cattle (in heads)32918916291123139
Pigs (in heads)8,5166,7395,3025,1656,4306,629
Chickens (in thousands)530733720806684695
Sources: Management and Information Systems Division (MISD); and Central Bank of Seychelles.

Actual shipments by Union Lighterage Company.

Estimates relate to fish caught by foreign fishing vessels in the western Indian Ocean and transshipped in Seychelles.

Sources: Management and Information Systems Division (MISD); and Central Bank of Seychelles.

Actual shipments by Union Lighterage Company.

Estimates relate to fish caught by foreign fishing vessels in the western Indian Ocean and transshipped in Seychelles.

Table 6.Seychelles: Indicators of Prices, Wages, and Employment, 1994-99
199419951996199719981999
(Indices; period averages)
Retail prices, all income
groups(January 1993=100) 1/101.6101.3100.2100.8103.5109.2
Domestic goods (65.6) 2/105.0104.2102.8103.2106.5110.6
Fish(3.2)106.4113.6105.3117.9130.6113.0
Other food (11.9)100.298.997.098.099.599.6
Nonfood (50.5)106.0104.9104.0103.5106.6112.9
Imported goods (34.4)95.295.895.396.497.7106.6
Food(11.5)81.379.877.777.978.180.4
Nonfood (22.9)102.2103.8104.1105.6107.5119.8
External terms of trade (1986=100)150.4150.3155.1165.4
Export prices82.5105.3102.3110.2
Tourism prices126.0121.9127.2138.8
Import prices82.780.781.483.3
Average wages (1980= 100)179.6188.2191.0193.8205.6208.8
Formal employment (1980=100)145.0147.2150.1161.6168.0175.8
(Annual changes in percent)
Retail prices, all income groups1.8-0.3-1.10.62.75.5
Domestic goods5.0-0.8-1.30.43.23.8
Imported goods-4.20.6-0.51.21.39.1
Import prices0.1-2.40.92.3
Average wages0.74.81.51.56.11.6
Formal employment0.61.52.07.73.94.7
Source: Management and Information Systems Division (MISD).

Weights in percent shown in parentheses; new weights introduced in January 1993.

Includes goods with high import content.

Source: Management and Information Systems Division (MISD).

Weights in percent shown in parentheses; new weights introduced in January 1993.

Includes goods with high import content.

Table 7.Seychelles: Average Formal Employment by Principal Sectors, 1994-99
199419951996199719981999
(Number of people employed)
Agriculture, forestry, and fishing1,9591,8701,7171,7591,9792,301
Manufacturing, electricity, and water2,9132,9103,0823,5553,7354,454
Building and construction1,7981,8942,0712,5212,7812,797
Wholesale and retail trade1,9122,0112,1252,3602,5622,755
Transport, storage, and communications3,0043,0523,0983,1213,1873,213
Tourism related1,0931,1231,1471,1311,2071,237
Other1,9111,9291,9511,9901,9801,976
Restaurants488552538539613627
Hotels3,1453,1793,1613,3883,1283,203
Services10,15810,29510,48411,05411,42311,436
Public administration2,5802,4382,4562,5952,8712,794
Finance and business1,1121,2251,3891,5181,4471,540
Social and community5,7995,9135,7955,9445,9735,898
Other6677198449971,1321,204
All sectors25,37725,76326,27628,29729,40830,786
Government9,6479,5279,3579,5309,8689,989
Parastatal5,2214,5543,9233,9834,1874,508
Private10,50711,68312,99514,78515,35316,289
(In percent of total)
Agriculture, forestry, and fishing7.77.36.56.26.77.5
Manufacturing, electricity, and water11.511.311.712.612.714.5
Building and construction7.17.47.98.99.59.1
Wholesale and retail trade7.57.88.18.38.78.9
Transport, storage, and communications11.811.811.811.010.810.4
Tourism related4.34.44.44.04.14.0
Other7.57.57.47.06.76.4
Restaurants1.92.12.01.92.12.0
Hotels12.412.312.012.010.610.4
Services40.040.039.939.138.837.1
Public administration10.29.59.39.29.89.1
Finance and business4.44.85.35.44.95.0
Social and community22.923.022.121.020.319.2
Other2.62.83.23.53.83.9
All sectors100.0100.0100.0100.0100.0100.0
Government38.037.035.633.733.632.4
Parastatal20.617.714.914.114.214.6
Private41.445.349.552.252.252.9
Source: Management and Information Systems Division (MISD).
Table 8.Seychelles: Average Monthly Earnings in Formal Employment by Principal Sectors, 1994-99
199419951996199719981999

Prov.
(In millions of Seychelles rupees;)
Agriculture, forestry, and fishing2,3042,4432,3812,5542,8623,033
Manufacturing, electricity, and water2,7292,8013,1463,1523,0393,027
Building and construction2,4122,4882,5032,3152,5352,489
Wholesale and retail trade2,2142,3052,2912,3682,5192,536
Transport, storage, and communications
Tourism related3,7383,9904,1114,2434,3944,398
Other3,5643,6433,5863,7904,0984,242
Restaurants2,3062,0972,1872,2822,2752,014
Hotels2,3452,5292,4742,5022,7452,854
Public administration3,0103,2323,3153,4043,5403,726
Finance and business3,2293,9233,7303,6073,9563,784
Social and community2,9062,9143,0823,2033,3513,327
Other2,2352,4982,4922,4042,4912,530
All sectors2,7382,8692,9112,9543,1343,183
Government2,8852,9613,1033,2513,4083,448
Parastatal2,9612,9933,1803,4293,7253,697
Private2,5132,7722,7192,6512,8282,856
(Annual change in percent)
Agriculture, forestry, and fishing0.66.0-2.57.312.16.0
Manufacturing, electricity, and water0.72.612.30.2-3.6-0.4
Building and construction2.33.20.6-7.59.5-1.8
Wholesale and retail trade1.64.1-0.63.46.40.7
Transport, storage, and communications
Tourism related2.46.73.03.23.60.1
Other7.32.2-1.65.78.13.5
Restaurants6.6-9.14.34.3-0.3-11.5
Hotels0.67.8-2.21.19.74.0
Public administration1.87.42.62.74.05.3
Finance and business0.121.5-4.9-3.39.7-4.3
Social and community1.20.35.83.94.6-0.7
Other4.011.8-0.2-3.53.61.6
All sectors0.74.81.51.56.11.6
Government1.72.64.84.84.81.2
Parastatal-0.21.16.27.88.6-0.8
Private2.610.3-1.9-2.56.71.0
Source: Management and Information Systems Division (MISD).
Table 9.Seychelles: Tourism Statistics, 1994-99
199419951996199719981999
Visitor arrivals
Number (thousands)109.9120.7131.0130.1128.2124.8
Percent change-5.49.88.5-0.7-1.4-2.7
Purpose (thousands)
Holiday92.894.5111.4110.8110.6110.3
Business9.010.26.36.46.76.6
Transit and other8.116.113.212.810.97.9
Nights spent
Number (thousands)1,110.01,14681,270.31,339.71,346.71,298.6
Percent change-0.43.310.85.50.5-3.6
Average number of nights spent10.19.59.710.310.510.4
Value added in tourism (In millions of Seychelles rupees, current prices)355.8386.2426.5426.0
Tourism receipts 1/
Total (in millions of Seychelles rupees)510467531612584596
Per arrival (in Seychelles rupees)4,6403,8654,0584,7014,5554,776
Per night (in Seychelles rupees)459407418456434459
Purpose (percent of arrivals)
Holiday84.478.385.185.286.388.4
Business8.28.51.84.95.25.3
Transit and other7.413.310.19.98.56.3
Residency (percent of arrivals)
Europe81.576.975.678.679.880.9
Africa10.011.810.210.89.911.4
Other8.511.314.210.610.37.7
Beds available (average number)4,2444,3384,4784,5984,7304,780
Bed occupancy rate (percent)54.252.857.356.353.053.0
Cruise ship passengers (number) 2/9,8978,42210,7126,0206,1474,716
Air travelers (number)108,179115,181125,955125,426124,220121,370
Sources: Management and Information Systems Division (MISD); and Central Bank of Seychelles.

Commercial bank purchases of foreign exchange from tourism sector. Unadjusted figures, which include purchases from residents and sales to visitors returning home.

Not included as visitors.

Sources: Management and Information Systems Division (MISD); and Central Bank of Seychelles.

Commercial bank purchases of foreign exchange from tourism sector. Unadjusted figures, which include purchases from residents and sales to visitors returning home.

Not included as visitors.

Table 10.Seychelles: Visitor Arrivals by Country of Residence, 1994-99
199419951996199719981999
(In thousands of persons)
Europe89.692.999.0102.3102.3101.0
United Kingdom and Ireland19.317.615.416.016.315.6
Italy12.111.516.218.820.819.5
France22.324.925.525.125.224.3
Germany20.619.320.621.519.018.8
Switzerland3.95.15.95.65.35.3
Scandinavia2.12.32.42.93.54.1
Spain and Portugal4.05.25.13.02.63.1
Other Europe5.37.07.99.49.610.3
Africa11.014.313.414.012.714.2
Reunion, France2.53.53.02.82.23.0
Mauritius1.62.02.22.72.73.5
East Africa1.10.91.01.21.51.5
South Africa4.76.55.55.44.53.9
Other Africa1.11.21.71.81.82.3
Asia and Middle East5.36.411.36.45.75.0
Middle East2.12.05.81.71.51.5
India and Pakistan0.60.91.81.91.81.2
Hong Kong S.A.R.0.10.20.20.10.10.1
Japan1.21.41.10.70.50.4
Other Far East1.31.92.32.01.81.8
Western Hemisphere3.36.36.76.76.84.1
United States2.75.25.75.35.12.6
Other Western Hemisphere0.61.01.01.41.71.5
Other0.70.90.70.70.70.5
Total109.9120.7131.0130.1128.2124.8
(In percent of total)
Europe81.576.975.678.679.880.9
United Kingdom and Ireland17.614.611.812.312.712.5
Italy11.09.512.414.516.215.6
France20.320.619.519.319.719.5
Germany18.716.015.716.514.815.1
Switzerland3.54.24.54.34.14.2
Scandinavia1.91.91.82.22.73.3
Spain and Portugal3.64.33.92.32.02.5
Other Europe4.85.86.07.27.58.3
Africa10.011.810.210.89.911.4
Reunion, France2.32.92.32.21.72.4
Mauritius1.51.71.72.12.12.8
East Africa1.00.80.81.01.21.2
South Africa4.35.44.24.13.53.1
Other Africa1.01.01.31.41.41.8
Asia and Middle East4.85.38.64.94.44.0
Middle East1.91.74.41.31.21.2
India and Pakistan0.50.71.41.41.41.0
Hong Kong SAR0.10.20.20.10.10.1
Japan1.11.20.90.50.40.3
Other Far East1.21.61.81.51.41.4
Western Hemisphere3.05.25.15.25.33.3
United States2.54.34.34.14.02.1
Other Western Hemisphere0.50.90.71.11.31.2
Other0.60.70.50.50.50.4
Total100.0100.0100.0100.0100.0100.0
Source; Management and Information Systems Division (MISD)
Table 11.Seychelles; Value Added in Tourism by Subsector, 1994-97(In thousands of Seychelles rupees)
1994199519961997
Hotels and restaurants215.1226.3247.2268.9
Handicrafts17.318.821.722.9
Air transport, etc.66.353.685.0115.0
Tour operators24.628.032.834.2
Passenger transport 1/19.024.129.433.3
Communications 1/26.128.429.338.0
Recreational services 1/6.47.18.615.6
Total374.8386.3453.9527.8
Sources: Management and Information Systems Division (MISD); and staff estimates.

Not all value added of these subsectors is attributed to tourism.

Sources: Management and Information Systems Division (MISD); and staff estimates.

Not all value added of these subsectors is attributed to tourism.

Table 12.Seychelles: Retail Prices for All Income Groups by Types of Goods, 1994-99(Indices, January 1993 = 100, unless otherwise indicated; period averages)
Weights 1/199419951996199719981999
Fish (local)3.2106.4113.6105.3117.9130.6113.0
Other food23.390.989.587.588.189.090.2
Cereals, etc5.887.185.083.485.786.487.7
Meat and tinned fish3.199.999.897.397.397.298.3
Dairy products, oil, and fats4.984.784.783.783.783.985.6
Fruits and vegetables3.690.184.776.376.479.779.1
Other food and nonalcoholic beverages6.095.695.696.396.597.098.9
Nonfood items73.4104.8104.5104.1104.1106.9115.1
Alcoholic beverages and tobacco21.199.1125.5124.7124.4132.6148.1
Clothing and footwear8.697.698.5100.6102.5103.6106.4
Housing costs15.1100.897.399.699.8101.0101.2
Fuel, power, and water7.477.881.372.772.772.793.9
Household items4.799.799.1100.1101.2101.0106.6
Personal items1.999.599.4101.0102.2104.2108.2
Transport and communications8.0102.798.997.285.484.788.6
Services and recreation6.7100.0100.1100.4112.0112.7116.0
All items (index)100.0101.6101.3100.2100.8103.5110.0
All items (percentage change)1.8-0.3-1.10.62.76.3
Source: Management and Information Systems Division (MISD).

Weights used since January 1993 are based on the results of the Household Income and Expenditure Survey, 1991-92.

Source: Management and Information Systems Division (MISD).

Weights used since January 1993 are based on the results of the Household Income and Expenditure Survey, 1991-92.

Table 13.Seychelles: Consolidated Government Operations, 1994-99 1/
199419951996199719981999

Prel.
(In millions of Seychelles rupees)
Total revenue and grants1,328.51,167.51,174.91,296.91,453.81,581.8
Total revenue1,309.91,154.71,161.91,281.61,438.81,541.3
Tax1,025.6936.0857.3978.81,073.51,144.6
Nontax284.3218.7304.6302.8365.3396.7
External grants18.612.813.015.315.040.5
Expenditure and net lending1,271.91,282.81,455.41,713.82,111.31,827.0
Current expenditure1,135.61,081.21,200.91,366.11,545.31,391.1
Of which : wages and salaries335.1361.5395.2408.9482.7496.3
interest205.3234.7251.6276.2324.1234.7
Capital expenditure183.6163.6220.2261.8425.1402.3
Net lending-47.338.034.385.9140.933.5
Current balance (deficit -)174.373.5-39.0-84.5-106.5150.1
Overall deficit, commitment basis56.6-115.3-280.5-416.9-657.5-245.2
Arrears (net; reduction -) 2/0.60.61.20.64.10.0
Overall deficit, cash basis57.2-114.7-279.3-416.3-653.4-245.2
Less unidentified expenditures 3/184.841.0-27.9-151.099.3171.8
Overall deficit after adjustment-127.6-155.7-251.4-265.3-752.6-417.0
Financing127.6155.7251.4265.3752.6417.0
Foreign financing (net)-35.0-48.5-30.125.1-13.8-42.3
Gross borrowing51.029.032.668.552.735.1
Amortization 4/-87.2-83.6-70.0-49.4-80.5-77.5
Change in arrears1.26.17.36.014.00.0
Domestic financing162.6204.2281.5240.2766.4459.3
Banking system143.9205.1252.8302.7650.2431.6
Other nonbank financing 4/18.7-0.928.7-62.5116.227.7
Sales of financial assets0.00.00.00.00.00.0
(In percent of GDP, unless other wise indicated)
Total revenue and grants54.448.243.143.945.848.3
Total revenue53.747.742.643.445.347.1
External grants0.80.50.50.50.51.2
Expenditure and net lending59.754.752.452.969.661.0
Current expenditure46.544.744.146.348.642.5
Of which : wages and salaries13.714.914.513.815.215.2
interest8.49.79.29.410.27.2
Capital expenditure7.56.88.18.913.412.3
Net lending-1.91.61.32.94.41.0
Unidentified expenditures 3/7.61.7-1.0-5.13.15.2
Overall deficit, cash basis-5.2-6.4-9.2-9.0-23.7-12.7
Before grants-6.0-7.0-9.7-9.5-24.2-14.0
Financing5.26.49.29.023.712.7
External, excluding grants (net)-1.4-2.0-1.10.8-0.4-1.3
Domestic6.78.410.38.124.114.0
Banks5.98.59.310.220.513.2
Nonbanks 4/0.80.01.1-2.13.70.8
Sales of financial assets0.00.00.00.00.00.0
Memorandum item:
Nominal GDP (in millions of Scychelles rupees)2,440.42,419.82,725.72,953.43,177.03,275.0
Sources: Ministry of Finance; Social Security Fund; Central Bank of Seychelles; and staff estimates.

Includes the central government and the social security system.

Includes identified arrears on foreign interest payments.

This represents the difference between identified budget revenues and expenditures, on the one hand, and the financing of the consolidated budget, on the other.

Excludes government papers held by the Social Security Fund.

Sources: Ministry of Finance; Social Security Fund; Central Bank of Seychelles; and staff estimates.

Includes the central government and the social security system.

Includes identified arrears on foreign interest payments.

This represents the difference between identified budget revenues and expenditures, on the one hand, and the financing of the consolidated budget, on the other.

Excludes government papers held by the Social Security Fund.

Table 14.Seychelles: Consolidated Government Revenue, 1994-99(In millions of Seychelles rupees)
199419951996199719981999

Prel.
Tax revenue1,025.6936.0857.3978.81,073.51,144.6
Taxes on income and profits134.2141.8115.9129.2164.9222.7
Social Security Fund (SSF)246.3250.4184.7217.5228.8238.8
Government employees’ contribution15.414.516.817.516.020.0
Other contribution to the SSF215.2226.6164.6192.0204.9211.0
Other revenue 1/15.79.33.38.07.97.8
Taxes on goods, services, and trade573.7487.4462.6525.9575.0577.0
Trade taxes on imports398.9303.0269.0321.6348.8318.6
Trade taxes on domestic goods114.6113.6127.2126.5144.8170.3
Trade taxes on domestic services60.270.866.477.881.488.1
Other indirect domestic taxes63.646.484.193.892.293.8
Business and professional licenses50.332.969.076.573.976.5
Fishing38.118.151.741.732.232.8
Hotels0.90.90.816.819.915.4
Others11.313.916.518.021.828.3
Motor vehicles13.313.514.616.016.815.9
Other indirect taxes 2/0.00.00.51.31.51.4
Taxes on property0.52.00.00.00.00.0
Other taxes7.38.010.012.412.612.3
Nontax revenue284.3218.7304.6302.8365.3396.7
Administrative fees and charges176.197.7121.3147.9129.3171.3
Property income43.360.490.956.5156.2165.4
Of which : dividends from parastatals41.823.662.044.6133.1150.7
Transfer of profits from central bank27.137.049.062.738.636.9
Post office surplus3.54.14.94.74.90.0
Capital revenue21.015.024.817.635.321.1
Sale of land21.015.018.916.715.712.3
Sales of other fixed assets0.00.05.90.919.68.8
Other nontax13.34.513.713.41.01.9
Total revenue1,309.91,154.71,161.91,281.61,438.81,541.3
Sources: Ministry of Finance; Social Security Fund; Central Bank of Seychelles; and staff estimates.

Excluding interest from government

Including motor vehicle testing.

Sources: Ministry of Finance; Social Security Fund; Central Bank of Seychelles; and staff estimates.

Excluding interest from government

Including motor vehicle testing.

Table 15.Seychelles: Economic Classification of Consolidated Government Expenditure and Net Lending, 1994-99 1/(In millions of Seychelles rupees)
199419951996199719981999

Prel.
Current expenditure1,135.61,081.21,200.91,366.11,545.31,391.1
Wages and salaries 1/335.1361.5395.2408.9482.7496.3
Goods and services 1/380.3278.7268.5343.9379.6281.9
Scheduled interest 2/205.3234.7251.6276.2324.1234.7
Current transfers 3/214.9206.3285.6333.6357.1373.6
To households143.0151.4182.8258.0260.0301.8
To parastatals71.954.9102.875.697.171.8
Other current expenditures0.00.00.03.51.84.6
Capital expenditure183.6163.6220.2261.8425.1402.3
Acquisition of fixed assets157.3132.4202.1252.1402.9385.6
Purchase of land5.710.46.55.011.67.3
Capital transfers to nonfinancial
public enterprises 4/20.620.811.64.710.69.5
Total expenditure1,319.21,244.81,421.11,627.91,970.41,793.5
Net lending-47.338.034.385.9140.933.5
To parastatals23.5123.334.385.9146.833.5
Sale of equity in parastatals-70.8-85.30.00.0-5.90.0
Total expenditure and net lending1,271.91,282.81,455.41,713.82,111.31,827.0
Memorandum items:
Transfers and net lending to parastatals45.2113.7148.7166.2248.6114.8
Expenditure of Ministry of Defense60.055.252.451.155.260.8
Sources: Ministry of Finance; Social Security Fund; Central Bank of Seychelles; and staff estimates.

Including the Social Security Fund (SSF).

Excluding government interest to the SSF.

Transfers and benefits from the government and the SSF.

Excludes equity participation.

Sources: Ministry of Finance; Social Security Fund; Central Bank of Seychelles; and staff estimates.

Including the Social Security Fund (SSF).

Excluding government interest to the SSF.

Transfers and benefits from the government and the SSF.

Excludes equity participation.

Table 16.Seychelles: Revenue and Expenditure of the Social Security System, 1994-99(In millions of Seychelles rupees)
199419951996199719981999

Prel.
Total revenue352.5320.8270.6306.4334.3344.7
Contributions325.2301.6259.0291.3319.4330.0
Government 1/110.075.094.499.3114.5119.0
Employers94.660.577.681.898.599.0
Employees15.414.516.817.516.020.0
Other contributions215.2226.6164.6192.0204.9211.0
Other income29.619.211.615.114.914.7
Of which : interest from government papers13.99.98.37.17.06.9
Expenditure146.7158.5195.5227.5252.2244.9
Benefits 2/124.2122.9152.3169.1183.1156.4
Operating expenditure9.09.010.110.310.69.5
Approved payments and grants to agencies13.526.633.144.153.863.5
Transfer to Consolidated Fund204.0192.980.986.360.877.1
Gross surplus (including government)1.8-30.6-5.8-7.421.322.7
Less government contributions110.075.094.499.3114.5119.0
Less interest from government13.99.98.37.17.06.9
Plus payments to government204.0192.980.986.360.877.1
Net surplus (excluding government)81.977.4-27.6-27.5-39.4-26.1
Sources: Social Security Fund; and Ministry of Finance.

Excluding the armed forces and the National Youth Service.

Including the Full Employment Scheme.

Sources: Social Security Fund; and Ministry of Finance.

Excluding the armed forces and the National Youth Service.

Including the Full Employment Scheme.

Table 17.Seychelles: Monetary Survey, 1994-99
199419951996199719981999
(In millions of Seychelles rupees; end of period)
Foreign assets, net109.2107.393.3101.8-87.1-68.9
Central bank116.1109.586.7114.3-58.0-51.0
Assets142.7126.799.1127.2115.1160.2
Liabilities26.617.212.512.9173.1211.2
Commercial banks-6.9-2.26.6-12.5-29.1-17.9
Domestic credit1,408.31,620.71,872.62,295.93,002.13,448.6
Claims on government, net1,079.41,282.21,533.31,836.02,486.22,917.8
Claims on public entities118.992.468.771.855.943.6
Claims on private sector209.0245.1269.6387.6460.0503.5
Money and quasi money (M2)1,293.11,513.21,706.02,205.82,567.73,056.9
Money (M1)326.2336.7449.9648.7780.61,071.2
Quasi money768.7875.1939.01,339.11,608.81,837.7
Pipeline deposits 1/198.2301.4317.1218.0178.3148.0
Other items, net224.4214.8259.9191.8347.3322.9
(Annual change in percent)
Domestic credit18.315.115.522.630.814.9
Claims on government, net15.418.819.619.735.417.4
Claims on public entities47.0-22.3-25.64.5-22.1-22.0
Claims on private sector20.917.310.043.818.79.5
Money and quasi money (M2)16.917.012.729.316.419.1
Contributions to broad money growth(Annual change in percent of beginning-of-period

broad money, unless otherwise indicated)
Foreign assets, net-3.8-0.1-0.90.5-8.60.7
Domestic credit19.716.416.624.832.017.4
Claims on government, net13.015.716.617.729.516.8
Claims on public entities3.4-2.0-1.60.2-0.7-0.5
Claims on private sector3.32.81.66.93.31.7
Broad money12.729.316.419.1
Other hems, net-1.0-0.73.0-4.07.0-1.0
Memorandum items:
Velocity (GDP/average broad money)2.41.71.71.51.31.2
Sources: Central Bank of Seychelles.

The pipeline scheme for foreign currency allocation was introduced in April 1994.

Sources: Central Bank of Seychelles.

The pipeline scheme for foreign currency allocation was introduced in April 1994.

Table 18.Seychelles: Accounts of the Central Bank of Seychelles, 1994-99(In millions of Seychelles rupees, end of period)
199419951996199719981999
Foreign assets142.7126.799.1127.2115.1160.2
Balances held abroad131.7112.768.292.892.8118.2
Foreign securities5.18.125.028.622.141.8
SDR holdings0.10.10.20.20.20.2
IMF reserve position5.85.85.85.60.00.0
Claims on government529.3663.3790.5926.8575.1640.2
Advances to government248.6452.4503.6923.2469.0623.9
Treasury bills273.9184.0259.90.4106.016.2
Treasury bonds3.123.323.43.20.10.1
Government stocks3.73.63.60.00.00.0
Other0.00.00.00.00.00.0
Claims on commercial banks7.01.80.00.010.00.0
Advances and rediscounts 1/7.01.80.00.010.00.0
Export refinance0.00.00.00.00.00.0
Other refinance0.00.00.00.00.00.0
Other assets 2/23.326.125.422.523.723.2
Assets = liabilities702.3818.0915.01076.5723.9823.6
Reserve money566.3686.5778.2923.3468.0512.0
Currency in circulation141.6148.1165.7192.2206.4247.9
Currency with banks7.36.18.510.812.816.3
Bankers’ deposits417.2529.9603.8720.3248.8247.8
SSE demand deposits 3/4/0.22.40.20.00.00.0
SSB time deposits 3/0.00.00.00.00.00.0
Foreign liabilities26.617.212.512.9173.1211.2
Government deposits23.416.111.815.015.761.8
Treasury deposits 4/22.115.610.814.414.560.3
Counterpart funds 4/1.30.51.00.61.21.5
Capital accounts 5/13.913.913.913.914.125.9
Other liabilities72.184.298.6111.553.012.7
Special funds0.60.70.70.70.70.7
International agencies0.20.10.10.10.20.2
Other deposits 4/7.02.83.22.82.44.6
Unclassified liabilities64.380.694.6107.849.76.9
Memorandum item.
Other liabilities (net)48.858.173.389.029.3-10.5
Source: Central Bank of Seychelles.

Against government securities.

Includes counterpart of gold and silver coin in circulation (SR 28 million throughout)

SSB stands for Seychelles Savings Bank

Included in government deposits in publications of the Central Bank of Seychelles.

Capital, statutory reserves, and counterpart of SDR allocations (SR 29 million throughout).

Source: Central Bank of Seychelles.

Against government securities.

Includes counterpart of gold and silver coin in circulation (SR 28 million throughout)

SSB stands for Seychelles Savings Bank

Included in government deposits in publications of the Central Bank of Seychelles.

Capital, statutory reserves, and counterpart of SDR allocations (SR 29 million throughout).

Table 19.Seychelles: Accounts of the Commercial Banks, 1994-99(In millions of Seychelles rupees, end of period)
199419951996199719981999
Reserves424.5536.0612.3731.1261.6264.1
Cash at hand7.36.18.510.812.816.3
Balances with Cental Bank of Seychelles (CBS) 1/2/417.2529.9603.8720.3248.8247.8
Foreign assets25.048.296.3158.7160.1234.7
Claims on government692.3747.8843.11,086.82,106.72,526.6
Treasury bills378.5455.8431.6608.8832.21,621.6
Treasury bonds213.5171.0263.0326.11,130.7770.6
Government stocks56.559.263.182.089.196.2
Restructured loans0.00.00.00.00.00.0
Other43.861.885.470.054.738.2
Claims on public entities118.992.468.771.855.942.6
Claims on private sector209.0245.1269.6387.6460.0503.5
Claims on specialized banks 3/1.01.01.01.01.01.0
Other assets160.0178.2242.8458.3452.7368.1
Assets = liabilities1,630.71,848.72,133.82,895.33,498.03,940.6
Demand deposits 4/184.4186.2284.0456.5574.2823.3
Public entities73.667.077.5117.8124.5174.4
Private sector 5/310.8119.2206.5338.7449.7648.9
Time and savings deposits768.7875.1939.01,339.11,608.81,837.7
Public entities’ time45.645.450.897.0101.2102.1
Private sector time 5/419.7492.2596.0819.71,004.91,127.0
Savings deposits 4/299.3325.4282.2412.5484.9584.1
Specialized banks’ time 3,’4.112.110.09.917.824.5
Foreign liabilities 5/31.950.489.7171.2189.2252.6
Government deposits118.8112.888.5163.2180.9203.5
Demand20.336.824.044.139.247.1
Time98.576.064.5119.1141.7156.4
Credit from CBS7.01.80.00.010.00.0
Capital accounts76.076.080.896.5103.9110.8
Other liabilities443.9546.4651.8668.8831.0712.7
Memorandum items
Public entities’ deposits 6/119.2112.4128.3214.8225.7276.5
Claims on public entities (net) 6/-0.3-20.0-59.6-143.0-169.8-233.9
Pipeline deposits 2/198.2301.4317.1218.0178.3148.0
Other liabilities (net)85.766.891.9-7.6200.0196.7
Source Central Bank of Seychelles

Includes pipeline deposits

The pipeline scheme for foreign currency allocation was introduced in April 1994

Data shown pertain to Development Bank of Seychelles.

Savings deposits include interest-bearing checking accounts appropriate to demand deposits

Pivate demand and time deposits include some deposits of nonresidents.

Excludes specialized banks.

Source Central Bank of Seychelles

Includes pipeline deposits

The pipeline scheme for foreign currency allocation was introduced in April 1994

Data shown pertain to Development Bank of Seychelles.

Savings deposits include interest-bearing checking accounts appropriate to demand deposits

Pivate demand and time deposits include some deposits of nonresidents.

Excludes specialized banks.

Table 20.Seychelles: Accounts of the Specialized Banks, 1994-99 1/(In millions of Seychelles rupees; end of period)
199419951996199719981999
Cash and balances6.515.811.939.627.835.2
Cash in hand (SSB)2.21.31.71.72.03.1
Deposits with central bank (SSB)0.22.40.228.08.07.6
Deposits with commercial banks (DBS)4.112.110.09.917.824.5
Claims on government (SSB)94.693.2115.8113.0165.5184.9
Claims on public entitites78.155.149.134.528.020.7
SSB25.07.27.20.00.00.0
DBS53.147.941.934.528.020.7
Claims on private sector124.9152.4186.6273.0306.3335.7
SSB18.730.045.0109.4130.1151.0
DBS106.2122.4141.6163.6176.2184.7
Other assets80.880.461.955.959.256.8
SSB54.549.236.130.335.638.5
DBS26.331.225.825.623.618.3
Assets = liabilities384.9396.9425.3516.0586.8633.3
Deposit liabilities182.8176.1196.9267.0319.0356.1
Time deposits (SSB)89.372.585.0140.7185.0204.4
Savings deposits (SSB)93.5103.6111.9126.3134.0151.7
Reserves52.953.956.276.491.1116.0
SSB9.44.20.81.41.95.0
DBS43.549.755.475.089.2111.0
Assigned capital (DBS)40.040.044.544.544.550.0
Other liabilities109.2126.8127.7128.4132.5111.2
SSB3.02.93.89.516.014.0
DBS106.2123.9123.9118.9132.5111.2
Source: Central Bank of Seychelles.

Seychelles Savings Bank (SSB) and Development Bank of Seychelles (DBS).

Source: Central Bank of Seychelles.

Seychelles Savings Bank (SSB) and Development Bank of Seychelles (DBS).

Table 21.Seychelles: Distribution of Commercial Bank Loans and Advances to Public Entities and Private Sector, 1994-99(In millions of Seychelles rupees; end of period)
199419951996199719981999
Agriculture4.03.83.53.73.64.7
Public entities0.30.30.40.30.00.4
Private sector3.73.53.13.33.64.3
Fishing6.08.28.54.34.73.1
Public entities5.00.90.30.00.00.0
Private sector1.07.28.34.24.73.1
Manufacturing38.523.91.92.04.83.4
Public entities33.715.00.00.21.00.8
Private sector4.78.91.91.83.82.6
Construction12.812.713.115.822.920.6
Public entities0.00.00.00.04.50.8
Private sector12.812.713.115.818.419.8
Transportation18.921.126.014.68.64.8
Public entities16.619.417.811.34.31.6
Private sector2.31.68.23.24.33.2
Hotels, restaurants,
and other tourism75.356.174.682.275.187.4
Public entities34.010.113.05.82.23.1
Private sector41.345.961.676.472.984.4
Wholesale and
retail trade76.082.963.964.058.651.3
Public entities27.834.411.23.60.00.0
Private sector48.348.552.760.558.651.3
Real estate13.416.113.015.915.132.8
Public entities0.00.00.00.00.00.0
Private sector13.416.113.015.915.132.8
Other businesses22.142.429.153.866.871.8
Public entities1.512.28.235.528.820.9
Private sector20.630.220.818.338.050.9
Households and nonprofit
Private sector60.670.538.977.8127.6133.1
Mortgage loans
Private sector29.387.580.5114.2
Total sectors327.6337.5301.8421.6468.2527.2
Public entities118.992.451.056.840.927.6
Private sector208.7245.1250.8364.8427.3499.6
Source: Central Bank of Seychelles.
Table 22.Seychelles: Indicators of Commercial Bank Liquidity, 1994-99(End of period)
Bank Credit 1/Bank DepositsCredit Deposit Rabo (Percent)Excess Reserves (In millions of SR) 2/Credit from Central Bank (In millions Of SR)Treasury Bill Discount Rate (Percent)
Total (In millions of SR)Change from year earlier (Percent)Total (In millions of SR)Change from year earlier (Percent)Advances and rediscountsRefinacing sehemesTap issue 3/Tender issue
1994
March1,086.319.61,128.727.796.25.28.00.013.912.7
June1,021.54.31,094.715.693.35.40.00.013.912.5
September1,051.55.11,083.04.097.16.739.00.012.4
December1,020.2-1.21,071.9-0.595.27.80.00.012.0
1995
March1,005.0-7.51,092.5-3.292.09.610.00.012.4
June1,045.62.41,115.11.993.818.924.80.012.3
September1,045.7-0.61,136.54.992.010.211.50.012.2
December1,085.36.41,174.19.592.418.21.80.00.012.3
1996
March1,102.49.71,218.411.590.516.57.50.00.012.3
June1,172.412.11,250.512.793.313.323.50.00.012.3
September1,159.510.91,225.37.894.610.59.30.00.010.4
December1,181.48.91,311.511.790.19.30.00.010.50.0
1997
March1,231.411.71,438.218.085.624.70.00.010.50.0
June1,472.025.61,702.535.586.536.90.00.010.50.0
September1,492.128.71,794.846.583.180.50.00.010.50.0
December1,546.330.91,958.849.478.9126.40.00.010.50.0
1998
March1594.829.52130.948.274.8196.50.00.09.50.0
June1666.613.22272.233.573.3245.20.00.09.50.0
September2422.162.32284.027.3106.0125.231.00.05.00.0
December2622.669.62364.020.7110.920.810.00.05.00.0
1999
March2683.168.22465.515.7108.816.10.00.05.00.0
June2868.572.12647.916.5108.324.44.00.05.00.0
September2934.721.22717.719.0108.029.30.00.05.00.0
December3072.717.22864.521.2107.333.50.00.05.00.0
Source: Central Bant of Seychelles

Excludes investment in Development Bank of Seychelles (SR 1.0 million throughout)

Actual reserves less required reserves; average for weeks ended during December or other month indicated

Tap issue was replaced by a Tender issue in September 1992 and reintroduced in 1996.

Source: Central Bant of Seychelles

Excludes investment in Development Bank of Seychelles (SR 1.0 million throughout)

Actual reserves less required reserves; average for weeks ended during December or other month indicated

Tap issue was replaced by a Tender issue in September 1992 and reintroduced in 1996.

Table 23.Seychelles; Structure of Interest Rates, 1994-99(Annual rates in percent, unless otherwise indicated; end of period)
199419951996199719981999
Lending rates
Central bank to government
Low10.210.28.58.56.85.0
High14.214.212.512.59.45.0
Central bank to banks
Temporary advances 1/12.812.811.011.08.65.5
Export refinance1.01.01.01.01.01.0
Other refinance0.00.00.00.00.00.0
Commercial banks to public, average 2/15.715.816.214.914.412.0
Prime rate
Low13.0
High14.0
Minimum13.0
Maximum20.0
Concessionary refinance3.03.03.03.03.03.0
Deposit rates (commercial banks) 3/
Savings, low8.08.08.08.05.83.0
Time 4/
3 months 2/9.39.29.99.27.55.1
Low8.0
High11.8
6 months 2/9.49.59.49.18.34.7
Low9.0
High11.0
12 months 2/10.710.810.59.98.95.1
Low9.0
High12.0
Over 12 months 2/10.511.011.38.56.75.!
Low10.5
High11.0
Treasury bill discount rate
Average during period, 91 day bill tap issue 5/10.58.04.5
Average during period, 91 day bill tender issue12.012.311.3
Memorandum items:
Change in retail prices (in percent)
Annual average1.8-0.3-1.10.62.66.3
From 12 months earlier2.6-1.30.11.03.510.6
Source; Central Bank of Seychelles.

Average annual rate reported on 14-day advances. Rediscount rates linked to treasury bill tender rates.

As of end-1994, the Central Bank of Seychelles reports the weighted average of all commercial bank rates.

Ranges reflect mainly differences among banks. In most cases, lower rates predominate.

Base rates. Actual rates are generally negotiable when large amounts are involved.

Tap issue discontinued after September 1993 but reintroduced in 1996.

Source; Central Bank of Seychelles.

Average annual rate reported on 14-day advances. Rediscount rates linked to treasury bill tender rates.

As of end-1994, the Central Bank of Seychelles reports the weighted average of all commercial bank rates.

Ranges reflect mainly differences among banks. In most cases, lower rates predominate.

Base rates. Actual rates are generally negotiable when large amounts are involved.

Tap issue discontinued after September 1993 but reintroduced in 1996.

Table 24.Seychelles: Balance of Payments, 1994-99(In millions of U.S. dollars, unless otherwise indicated)
19941995199619971998

Prov
1999

Est
Current account-21.2-44.3-65.9-63.3-101.6-104.8
Goods-136.0-160.4-184.7-188.5-228.2-233.9
Credit52.053.378.0115.0123.4145.2
Of which : merchandise exports, f.o b.27.326.946.073.390.6111.0
Debit-188.0-213.7-262.7-303.5-351.6-379.1
Of which : merchandise imports, f o.b.-175.0-197.4-244.9-288.2-342.6-368.1
Services, net116.4125.6122.9125.8134.0151.0
Credit198.1218.0237.1255.0277.0310.8
Of which. tourism income through commercial banks100.997.9105.5122.4110.9111.6
Debit-81.6-92.4-114.2-129.2-143.0-159.8
Income, net-9.1-17.2-14.1-8.8-17.0-25.7
Of which interest payments-12.7-22.7-18.7-15.7-19.6-25.0
Current transfers8.17.610.08.29.63.8
General government, net15.012.616.114.617.310.6
Other sectors, net-7.0-5.0-6.1-6.4-7.7-6.8
Capital and financial account30.041.545.662.882.499.6
Capital account0.00.05.66.821.716.5
Financial account30.041.540.056.060.78.3.1
Direct investment, net17.026.017.034.041.752.0
Other investment13.015.523.022.019.031.1
Government borrowing, net12.09.511.014.017.035.3
Disbursements20.018.020.025.030.049.8
Of which. East Coast Land Reclamation Project5.0
Amortization-8.0-8.5-9.0-11.0-13.0-14.5
Other sectors, net1.06.012.08.02.0-4.2
Disbursements15.021.030.030.025.020.0
Amortization-14.0-15.0-180-22.0-23.0-24.2
Net errors and omissions-15.8-3.48.3-6.13.6-5.6
Overall balance-7.0-6.2-12.0-6.6-15.6-10.8
Financial and overall balance7.06.212.06.615.610.8
Reserve assets6.08.24.0-5.52.2-8.3
Arrears1.0-2.08.012.113.419.1
Financing gap0.00.00.00.00.00.0
Memorandum items:
Official reserves30.322.118.123.621.429.7
In weeks of prospective imports6.43.82.62.92.43.5
Net official reserves 1/25.118.915.611.111.014.7
In weeks of prospective imports5.33.22.31.31.21.7
Outstanding stock of arrears2.00.08.019.933.352.4
Nominal GDP498.0493.8545.1590.7599.4612.1
Current account balance (in percent of GDP)-4.2-9.0-12.1-10.7-17.0-17.1
External debt service34.746.245.748.755.663.7
External debt service/ exports of GNFS (in percent) 2/13.917.014.513.213.914.0
External debt service/ GDP (in percent)7.09.48.48.29.310.4
Stock of estemal debt 3/313.9331.4346.4356.3361.9373.9
Stock of external debt/exports of GNFS (in percent) 3/125.5122.1109.996.390.472.4
Stock of external debt/GDP (in percent) 3/63.067.16.3.560.360.461.1
Sources Central Bank of Seychelles, and Fund staff estimates.

Defined as gross official reserves minus central bank’s short-term external liabilities

GNFS = goods and nonfactor services.

Including arrears.

Sources Central Bank of Seychelles, and Fund staff estimates.

Defined as gross official reserves minus central bank’s short-term external liabilities

GNFS = goods and nonfactor services.

Including arrears.

Table 25.Seychelles: Domestic Exports, Reexports, and Bunker Sales, 1994-99(In millions of Seychelles rupees)
199419951996199719981999
Domestic exports, f.o.b.114.3113.9204.4349.2473.8568.8
Canned tuna84.088.0169.8286.2413.3531.9
Fresh and frozen fish9.210.111.220.413.215.0
Sharks’ fins1.92.92.40.70.30.3
Frozen prawns1.96.910.922.734.17.2
Copra0.20.30.00.00.00.0
Cinnamon bark2.33.54.73.42.82.2
Other14.92.26.115.810.212.1
Reexports and bunker sales141.4139.6488.4220.1165.5194.0
Reexports 1/18.316.7332.713.819.515.7
Durables to carriers 2/1.12.61.72.23.11.8
Other reexports 3/17.214.1331.011.616.313.9
Bunker sales 1/123.1123.0155.7206.3146.0178.3
Petroleum products 2/119.9118.4151.5200.1139.9170.8
Food, beverages, tobacco, and chemicals 2/3.24.54.26.16.27.5
Total, customs basis255.7253.5692.8569.2639.3762.8
Memorandum items:
Exports and reexports,
balance of payments263.0253.8387.8361.0491.3582.5
Adjustments 4/7.30.3-305.00.00.00.0
Net petroleum earnings0.010.1-16.30.0-10.714.6
Bunker sales119.9118.4151.5200.1139.9170.8
Imports for bunkers119.9108.3167.8200.1150.6156.2
Sources: Management and Information Systems Division (MISD); Central Bank of Seychelles; and staff estimates.

Breakdown between reexports and bunkers is as made for the balance of payments, where bunker sales are regarded as service earnings under transportation (port services). Customs data treat all such merchandise as reexports.

Imported into bond and resold to international carriers.

Imported goods cleared through customs but not materially transformed before reexportation.

May reflect minor revisions of customs data not incorporated in balance of payments.

Sources: Management and Information Systems Division (MISD); Central Bank of Seychelles; and staff estimates.

Breakdown between reexports and bunkers is as made for the balance of payments, where bunker sales are regarded as service earnings under transportation (port services). Customs data treat all such merchandise as reexports.

Imported into bond and resold to international carriers.

Imported goods cleared through customs but not materially transformed before reexportation.

May reflect minor revisions of customs data not incorporated in balance of payments.

Table 26.Seychelles: Major Exports by Value, Volume, and Unit Value, 1994-99(Value in thousands of Seychelles rupees; volume in tons; and unit value in Seychelles rupees per kilogram)
199419951996199719981999
Canned tuna
Value89,16187,992169,900286,200413,300531,900
Volume7,3626,29112,81320,61121,62634,605
Unit value12.114.013.313.919.115.4
Fresh and frozen fish
Value9,18610,13011,20120,40013,20015,000
Volume438406487962334420
Unit value21.025.023.021.239.535.7
Copra 1/
Value1797410000
Volume1123530000
Unit value1.62.10.00.00.00.0
Cinnamon bark
Value1,4642,2692,2403,4002,8002,200
Volume270416320522402470
Unit value5.45.57.06.57.04.7
Other exports (value)14,30312,75721,06639,20044,50019,700
Total domestic exports (value)114,293113,889204,407349,200473,800568,800
Source: Management and Information Systems Division (MISD).

Copra exports dropped to zero during 1996-97.

Source: Management and Information Systems Division (MISD).

Copra exports dropped to zero during 1996-97.

Table 27.Seychelles: Imports and Import Prices by Standard International Trade Classification (S1TC) Commodity Group, 1994-99
199419951996199719981999
Values(In millions of Seychelles rupees)
Food, live animals, beverages, and tobacco210.0222.1313.0402.7448.6500.4
Food and live animals190.7201.4290.3376.2418.8477.5
Beverages and tobacco19.420.722.826.529.822.9
Minerals, fuels, etc.162.3143.6211.3251.8189.5198.4
Products for home consumption42.435.343.551.738.942.3
Petroleum products for bunkers 1/119.9108.3167.8200.1150.6156.2
Machinery and transport equipment241.4320.0827.1376.1590.4553.2
Manufactures326.6308.2383.7500.9622.5583.3
Goods classified by material205.1186.8241.6329.8456.0427.2
Miscellaneous articles121.5121.4142.1171.1166.5156.0
Other groups102.2115.4146.8179.7164.6154.3
Crude materials18.219.725.434.921.319.9
Oils and fats11.519.728.434.432.930.8
Chemicals71.474.284.4108.0108.9102.1
Goods not classified1.01.88.52.41.51.4
Total imports, c.i.f1,042.51,109.31,881.81,711.12,015.51,989.6
Total imports, fob.884.1940.91,597.61,488.01,752.61,730.0
Less imports for cannery54.256.8109.7184.9267.0343.6
Less imports for resale118.2116.7408.2183.9138.3162.1
Retained imports711.7767.41,079.71,119.21,347.41,224.3
Prices 2/(Indices: 1986=100)
Food, live animals, beverages, and tobacco
Food and live animals107.2101.4104.4105.492.180.6
Beverages and tobacco109.8112.9111.4108.391.874.9
Minerals, fuels, etc.71.473.375.176.251.760.1
Machinery and transport equipment77.178.273.274.969.169.3
Manufactures
Goods classified by material91.887.379.981.775.475.7
Miscellaneous articles66.367.566.367.862.662.8
Other groups
Crude materials123.6126.8126.3129.2119.3119.6
Oils and fats79.786.794.396.589.089.3
Chemicals117.6126.2123.1125.9116.2116.6
Overall index82.780.781.483.381.481.6
Sources: Management and Information Systems Division (MISD); Central Bank of Seychelles; and staff estimates.

Valued at import prices. Imports for warehousing at reexport less imports for home consumption ex warehouse.

Paasche formula indices (current weights) applied to 109 items representing over 60 percent of total value of imports; less coverage for machinery and transport equipment and manufacturing.

Sources: Management and Information Systems Division (MISD); Central Bank of Seychelles; and staff estimates.

Valued at import prices. Imports for warehousing at reexport less imports for home consumption ex warehouse.

Paasche formula indices (current weights) applied to 109 items representing over 60 percent of total value of imports; less coverage for machinery and transport equipment and manufacturing.

Table 28.Seychelles: Imports by End Use, 1994-96
199419951996
(In millions of Seychelles rupees)
Retained imports, c.i.f.806.4847.21,045.4
Consumer goods117.9161.1209.9
Intermediate goods430.7424.8514.4
Capital goods257.8261.3321.1
Imports for cannery54.256.8109.7
Imports for resale, c.i.f.139.0139.6488.4
Petroleum products for bunkers 1/119.5118.4151.4
Other bunkers and reexports 2/19.521.2337.0
Statistical adjustment42.865.7238.4
Total imports, c.i.f1,042.51,109.31,881.8
Memorandum items:
Imports, f.o.b. 3/884.1940.91,597.5
Total imports, c.i.f.1,042.51,109.31,881.8
Less shipment 4/-156.4-2.0-282.3
Less returned imports-2.0-2.0-2.0
GDP at current market prices2,459.42,420.12,583.0
(In percent)
Rates of change
Retained imports, c.i.f-17.35.123.4
Total imports, c.i.f-15.66.469.6
Ratios to GDP
Retained imports, c.i.f32.835.040.5
Total imports, c.i.f42.445.872.9
Source: Management and Information Systems Division (MISD).

Imports of petroleum products for subsequent sale to ships and aircraft.

Reported as equal to nonpetroleum reexports and bunker sales.

As adjusted for balance of payments.

Freight and insurance, estimated as 15 percent of noncannery imports, c.i.f.

Source: Management and Information Systems Division (MISD).

Imports of petroleum products for subsequent sale to ships and aircraft.

Reported as equal to nonpetroleum reexports and bunker sales.

As adjusted for balance of payments.

Freight and insurance, estimated as 15 percent of noncannery imports, c.i.f.

Table 29.Seychelles: Direction of Trade, 1994-99(In percent of total)
199419951996199719981999

Prov.
Domestic exports, fob.100.0100.0100.0100.0100.0100.0
France4.32.221.130.317.214.7
Germany13.520.418.927.626.27.1
Hong Kong S.A.R.0.40.30.30.00.00.1
Italy9.40.115.724.317.123.4
Japan0.75.74.64.34.50.1
Mauritius1.41.00.40.20.10.1
Pakistan0.00.00.00.00.00.0
Reunion, France7.56.73.41.50.60.6
Singapore1.32.51.92.30.20.0
South Africa0.50.91.43.51.40.1
United Kingdom52.949.926.53.829.547.2
Other8.010.35.82.23.26.6
Total imports, c.i.f.100.0100.0100.0100.0100.0100.0
Australia1.61.31.32.24.11.7
Bahrain0.00.00.011.40.00.0
Belgium1.11.00.71.00.60.6
China, People’s Republic of1.00.80.40.90.80.9
France5.77.37.011.69.110.0
Germany1.41.62.11.71.81.8
Hong Kong S.A.R.0.70.60.40.40.30.7
India1.52.12.42.62.62.1
Italy3.13.63.64.88.313.3
Japan3.35.82.23.33.51.2
Kenya2.21.91.01.70.90.6
Malaysia1.21.20.91.11.91.3
Mauritius1.71.51.11.81.92.3
Netherlands2.32.41.32.61.30.9
Oman0.00.00.00.00.00.0
Singapore14.615.19.211.59.97.7
South Africa13.212.910.414.712.910.6
Thailand1.82.11.82.41.51.4
United Arab Emirates0.50.60.61.21.00.9
United Kingdom17.614.711.312.111.47.9
United States3.83.926.62.13.31.8
Yemen14.111.910.61.37.80.0
Other7.47.75.27.615.132.3
Source : Management and Information Systems Division (MISD).
Table 30.Seychelles: Terms of Trade and Related Indices, 1994-99(Indices in terms of Seychelles rupees: 1986= 100 unless otherwise indicated)
19941995199619971998

Est.
1999

Est.
Domestic exports
Value824.2821.81,474.92,423.23,259.44,218.3
Volume999.0804.11,480.82,437.42,531.93,962.2
Price index 1/82.5102.299.6100.7135.0106.5
Tourism
Value 2/179.2179.1206.8238.0239.2240.4
Volume 3/142.2146.9162.6171.5173.2174.9
Unit value126.0121.9127.2138.8138.1137.4
Combined unit value 4/124.3121.2126.2137.3138.0136.2
Imports
Value159.9170.1288.7268.9316.8312.7
Volume193.4210.8354.7312.3412.1405.6
Price index 1/82.780.781.483.376.977.1
Terms of trade150.4150.1155.0164.9179.5176.7
Percent change-7.5-0.23.26.48.8-1.6
Sources: Management and Information Systems Division (MISD); and staff estimates.

Paasche formula indices (current weights) covering virtually all domestic exports and over 60 percent of total imports.

Based on tourism earnings in balance of payments.

Based on nights spent rather than arrivals.

Staff estimate weighted by values of exports (3.8 percent) and tourism earnings (96.2 percent) in 1986.

Sources: Management and Information Systems Division (MISD); and staff estimates.

Paasche formula indices (current weights) covering virtually all domestic exports and over 60 percent of total imports.

Based on tourism earnings in balance of payments.

Based on nights spent rather than arrivals.

Staff estimate weighted by values of exports (3.8 percent) and tourism earnings (96.2 percent) in 1986.

Table 31.Seychelles: External Public Debt and Debt Service, 1994-99
199419951996199719981999
(In millions of Seychelles rupees)
Government external debt
(year’s end) 1/938.9918.6767.6789.7847.61,038.2
Bilateral loans277.4300.9324.5358.7415.8458.4
Multilateral loans424.2414.6269.6280.0265.5246.2
Commercial loans237.3203.1173.5151.0166.3333.5
Suppliers’ credits99.778.070.060.4
Financial institutions137.6125.1103.590.6166.3333.5
Debt service70.977.481.095.5118.2143.2
Repayments40.142.545.055.569.278.4
Interest and charges30.834.936.040.049.064.8
Memorandum items:
Exchange rate (Seychelles rupees per US dollar; end of period)5.04.95.05.15.55.4
GDP at current market price2,440.42,419.82,725.72,953.43,177.03,275-0
Exports of goods and services1,250.51,329.41,575.51,887.02,202.22,462.4
Reexports and bunkers123.5129.4160.0212.7180.4184.7
Exports of goods and services less reexports and bunker sales1,127.01,200.01,415.51,674.32,021.82,277.7
(In percent)
Share in total debt100.0100.0100.0100.0100.0100.0
Bilateral loans29.532.842.345.449.144.2
Multilateral loans45.245.135.135.531.323.7
Commercial loans25.322.122.619.119.632.1
Total debt-to-GDP ratio38.538.028.226.726.731.7
Debt service as a percent of
Exports of goods and services5.75.85.15.15.45.8
Same less reexports and bunker sales6.36.55.75.75.86.3
Sources: Ministry of Finance, Central Bank of Seychelles, and World Bank estimates.

Government-serviced debt of over one year’s maturity only. figures for 1994 are tentative World Bank estimates.

Central Bank, and parastatals (estimated); largely short term.

Sources: Ministry of Finance, Central Bank of Seychelles, and World Bank estimates.

Government-serviced debt of over one year’s maturity only. figures for 1994 are tentative World Bank estimates.

Central Bank, and parastatals (estimated); largely short term.

Table 32.Seychelles: Effective Exchange Rate Indices, 1994: Q1-99:Q4(Indices, 1990 = 100, unless otherwise indicated; period averages)
Nominal Effective Rate

Weighted by
Real Effective Rate

Weighted by
Trade

partners 1/
Tourism and

trade 2/
Trade

partners 1/
Tourism and

trade 2/
Seychelles Rupees

per U.S. Dollar
Annual
1994110.2143.0103.6101.55,0559
1995111.1143.6101.298.64,7620
1996110.0147.596.695.64,9700
1997116.7153.2100.694.65.0263
Quarterly
1994 I110.4149.5104.2106.75.2158
1994 II110.4145.4104.8103.65.1138
1994 III110.1142.9102.9100.94.9624
1994 IV109.9134.2102.594.64.9314
1995 I110.7136.2101.994.74.8511
1995 II112.5144.6102.7100.24.6207
1995 III111.6148.2101.5101.74.7311
1995 IV109.7145.598.697.84.8450
1996 I109.4146.596.896.94.9374
1996 II110.5148.796.797.04.9808
1996 III110.1148.196.795.54.9736
1996 IV110.2146.596.192.94.9881
1997 I114.7148.899.293.04.9933
1997 II116.1149.2100.091.94.9960
1997 III117.9156.7101.496.65.0637
1997 IV118.1157.9101.696.75.0523
1998 I118.6155.8102.194.45.1659
1998 II118.7157.3102.895.75.1609
1998 III117.1156.1101.394.95.2829
1998 IV108.3147.095.090.75.4391
1999 I112.1153.3100.296.05.3823
1999 II116.6162.1105.2102.05.3400
1999 III116.4165.0105.0103.35.3345
1999 IV116.3165.0108.8106.75.3135
December
1994110.2135.5102.895.64.9814
1995109.7145.698.297.14.8709
1996110.5146.096.392.44.9942
1997118.5157.7101.896.35.1008
1998107.3146.793.890.25.4944
1999117.6165.7111.7108.75.3646
Sources: Staff estimates based on International Financial Statistics and Directions of Trade Statistics data, and tourism data from Seychelles.

Weighted by shares of major trading partners in Seychelles’s trade; index used for IMF Information Notice System.

Weighted by shares of nearby competitor countries in tourism market (applied to Seychelles’s tourism earnings), as well as by trading partners’ weight in exports and imports.

Sources: Staff estimates based on International Financial Statistics and Directions of Trade Statistics data, and tourism data from Seychelles.

Weighted by shares of major trading partners in Seychelles’s trade; index used for IMF Information Notice System.

Weighted by shares of nearby competitor countries in tourism market (applied to Seychelles’s tourism earnings), as well as by trading partners’ weight in exports and imports.

References

This section was prepared by Mr. T. Alleyne and Mr. M. Haacker.

Official data on tourism expenditures are based upon foreign currency sales by the registered tourism enterprises to the commercial banks and thus exclude, for example, the revenue of unregistered guest houses and revenue that is diverted to the parallel foreign exchange market. As it is widely accepted that most of the supply of foreign currency to the burgeoning parallel market originates in the tourism sector, it is likely that the official numbers on tourism expenditure substantially understate actual figures.

Alliances were formed with British Airways and Alitalia in 1998 and Air Austral in 1999.

Most of these incentives were granted exclusively to the so-called five-start hotels.

The statistics assessment mission of March 1999 found Seychelles price statistics to be deficient. More recently, in June 2000, the IMF’s Monetary and Exchange Affairs Department mission concluded that the RPI most likely underestimated inflation by a significant amount.

There is some evidence that the SMB is also contravening the markup limits. According to a study by the Seychelles Chamber of Commerce, the SMB is able to exploit its monopoly power and mark up some imposts by as much as 350 percent.

This section was prepared by Mr. G. El-Masry.

Expenditure on interest included only actual interest payments on foreign loans, as compared to the higher scheduled payments. In 1998, as a result of foreign exchange shortages, arrears on foreign interest payments amounting to about SR 4 million, or about 0.1 percent of GDP, were accumulated.

While the recurrent budget is constitutionally subject to parliamentary approval and scrutiny, the capital budget is presented to the National Assembly for information only. The latter thus often represents a list of projects desired by the various line ministries, and its pace and extent of execution is largely determined by the Office of the Vice President and Minister of Finance.

The distinction between statutory and discretionary concessions is not always clear cut because the trade tax regulations give the minister of finance legal power to provide concessions “in the national interest.”

This section was prepared by Mr. W. Fonteyne.

This section was prepared by Mr. B. akitoby and Mr. W. Fonteyne.

The government of Seychelles owns the remaining 40 percent.

In 1999, foreign workers represented 45 percent of the IOT factory’s labor force.

Since underlying inflationary pressures are not reflected in the largely controlled price indices, the calculated REER based on the official retail price used is not very meaningful.

Since the right to import essential goods in held almost exclusively by the SMB, this 27 percent surrender requirement is, in fact, surrendered indirectly to the SMB.

Increased from 2.5 percent in July 2000.

Depending on whether the bank in question has already cleared the arrears, as well as, on the number of exporters at the bank qualifying for repurchase of foreign exchange.

Mussa et al (2000) also argue that for small economies, the costs of the institutions and technical expertise required for a well-behaved independent monetary policy (i.e. under a flexible exchange rate regime) can be too high relative to the potential benefits of exchange rate flexibility.

Francis (1986) gives an overview of empirical research that confirms the very close link between import prices and inflation in a number of small Caribbean countries.

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