Seychelles was hit hard by the COVID-19 crisis. The authorities reacted swiftly, by locking down the economy, thereby keeping infection and fatality rates low. However, the travel restrictions and global economic downturn triggered unprecedented economic contraction. The authorities responded with measures to mitigate the economic fallout on businesses and households. But the public debt ratio increased sharply, reflecting the primary balance deterioration, exchange rate depreciation, and GDP contraction. As soon as vaccines became available, Seychelles led the world in vaccination coverage and reopened its borders. With tourist arrivals bouncing back, a V-shaped recovery is now expected.
International Monetary Fund. Office of Budget and Planning
Amidst the unfolding COVID-19 crisis, the Fund faces twin challenges. Signs of early crisis recovery are uneven across countries, and many face daunting crisis legacies. At the same time, longer term challenges from climate change, digitalization and increasing divergence within and between countries demand stepped up effort by the Fund within its areas of expertise and in partnership with others. FY 22-24 budget framework. Considering these challenges and following a decade of flat real budgets, staff will propose a structural augmentation for consideration by fall 2021 to be implemented over two to three years beginning in FY 23. Recognizing the importance of ongoing fiscal prudence, the budget would remain stable thereafter on a real basis at a new, higher level. FY 22 administrative budget. The proposed FY 22 budget sustains crisis response and provides incremental resources for long-term priorities within the flat real budget envelope. The budget is built on extensive reprioritization; savings, including from modernization; and a proposed temporary increase in the carry forward ceiling to address crisis needs during the FY 22 to FY 24 period. Capital budget. Large-scale business modernization programs continue to be rolled out, strengthening the agility and efficiency of the Fund’s operations. In response to the shift towards cloud-based IT solutions, staff propose a change in the budgetary treatment of these expenses. Investment in facilities will focus on timely updates, repairs, and modernization, preparing for the post-crisis Fund where virtual engagement and a new hybrid office environment play a larger role. Budget sustainability. The FY 22–24 medium-term budget framework, including assumptions for a material augmentation, is consistent with a projected surplus in the Fund’s medium-term income position and with continued progress towards the precautionary balance target for coming years. Budget risks. In the midst of a global crisis, risks to the budget remain elevated and above risk acceptance levels, including from uncertainty around the level of demand for Fund programs and ensuing staffing needs, as well as future donor funding for CD. Enterprise risk management continues to be strengthened with this budget.
International Monetary Fund. Monetary and Capital Markets Department
This Technical Assistance (TA) mission focused on scoping the prospects of developing a secondary market for government securities in Seychelles. The Central Bank of Seychelles (CBS) has a leading role in developing the financial markets and thus acted as the primary counterpart for this mission. However, due to the mission being primarily fact-finding it reached out to all various possible stakeholders; the Ministry of Finance Trade Investment and Economic Planning (MoFTIEP), commercial banks, a pension fund, insurance companies, the securities exchange, securities dealers, etc. In addition, the mission sees the need to coordinate with the World bank (WB) and the IMF country (SYC) team as the former is providing assistance within the legal and payment system areas and the latter provides Seychelles with policy advice under the current PCI program.
This paper refers to Seychelles’ Request for Purchase Under the Rapid Financing Instrument (RFI). The near-term economic fallout of the coronavirus disease 2019 pandemic is expected to be severe. Restriction in travel will hinder tourism and weaken fiscal and external positions, creating large additional financing needs. The authorities reacted swiftly by taking immediate measures of containment, including border closures, strengthening health policy responses and supporting households and firms. The emergency IMF support under the RFI provides timely resources to the authorities to address the urgent balance of payments and budgetary needs. The assistance of other international financial institutions and development partners is crucial to close the remaining financing gaps, ease the adjustment burden, and preserve economic growth. The authorities are committed to transparency and good governance in the use of emergency financing by providing monthly reports of pandemic-related expenditure to the National Assembly and undertaking an independent audit of such spending and procurement and publishing the results.
This paper discusses Seychelles’ Fourth Review Under the Policy Coordination Instrument (PCI) and Request for Modification of Targets. Economic developments since the completion of the 2019 Article IV consultation and the third review under the PCI in June 2019 have been broadly in line with expectations. The program is largely on track. The 2020 budget recently submitted to the National Assembly is in line with the program and the major infrastructure and climate change related projects would be implemented within the fiscal parameters under the PCI. All quantitative targets for end-June 2019, the program’s fourth review test date, were met except for the primary fiscal surplus target, which was missed by a very small margin due to a delay in receipts from 2016 to 2017 sales of a telecom company. The economic outlook continues to be favorable. Downside risks to the outlook largely stem from possible external shocks, including weakness in the key tourism markets and global banks’ withdrawal of correspondent banking relationships.
Seychelles has made noticeable progress toward economic stability and sustainability under successive Fund programs through prudent macroeconomic policies and bold reforms since the crisis in 2008. Despite significant headway, the country remains vulnerable to external shocks as a small, open, and tourism-dependent economy. Seychelles could face challenges to reconcile its goals to reduce its infrastructure gap, enhance its resilience to climate change, and bolster its medium-term fiscal and external sustainability.