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International Monetary Fund. African Dept.
This Selected Issues paper discusses measures to enhance resilience to climate and natural disasters in Seychelles. Rising sea levels, changing rainfall patterns, increasingly intense and frequent tropical cyclones, and massive coral bleaching are compounding economic and social risks in Seychelles. A policy mix focused on combining adaptation and mitigation strategies is ideal for Seychelles. Such policies should not only be aligned with Seychelles’ Nationally Determined Contribution, but also with the technical and financial capacity of the government. Experience from other small states suggests that small policy changes can still have a significant impact. To the extent adaptation and mitigation measures are inadequate, insurance policies and innovative financial instruments need to be exploited further.
International Monetary Fund. African Dept.
This paper discusses Seychelles’ Third Review Under the Extended Arrangement and Request for Modification of Performance Criteria (PC). All PCs for end-June 2015, the program’s third test date, were met. Based on preliminary data, all the third-quarter indicative targets were also met. The structural agenda is proceeding, albeit with some delays. Growth for 2015 has been revised upward to slightly more than 4 percent. Presidential elections are taking place during December 3–5. The IMF staff recommends completion of the third review under the Extended Arrangement and modification of the PCs for end-December 2015.
Mr. Sebastian Acevedo Mejia, Aliona Cebotari, Kevin Greenidge, and Geoffrey N. Keim
The paper investigates whether the macroeconomic effects of external devaluations have systematically different effects in small states, which are typically more open and less diversified than larger peers. Through several analytical approaches -- DSGE model, event study, and regression analysis -- it finds that the effects of devaluation on growth and external balances are not significantly different between small and large states, with both groups equally likely to experience expansionary or contractionary outcomes. However, the transmission channels are different: devaluations in small states are more likely to affect demand through expenditure compression, rather than expenditure-switching channels. In particular, consumption tends to fall more sharply in small states due to adverse income effects, thereby reducing import demand. Policy conclusions point to the importance of social safety nets, complementary wage and antiinflation policies, investment-boosting reforms, and attention to potential adverse balance sheet effects to ensure positive outcomes.
Mr. Alexander Culiuc
The paper estimates the impact of macroeconomic supply- and demand-side determinants of tourism, one of the largest components of services exports globally, and the backbone of many smaller economies. It applies the gravity model to a large dataset comprising the full universe of bilateral tourism flows spanning over a decade. The results show that the gravity model explains tourism flows better than goods trade for equivalent specifications. The elasticity of tourism with respect to GDP of the origin (importing) country is lower than for goods trade. Tourism flows respond strongly to changes in the destination country’s real exchange rate, along both extensive (tourist arrivals) and intensive (duration of stay) margins. OECD countries generally exhibit higher elasticties with respect to economic variables (GDPs of the two economies, real exchange rate, bilateral trade) due to the larger share of business travel. Tourism to small islands is less sensitive to changes in the country’s real exchange rate, but more susceptible to the introduction/removal of direct flights.
International Monetary Fund
This paper presents Seychelles’ 2008 Article IV Consultation and Request for a Stand-By Arrangement. Large macroeconomic imbalances and vulnerabilities resulting from longstanding unsustainable macroeconomic policies, combined with recent external shocks, culminated in mid-2008 with the near-exhaustion of foreign reserves and missed payments on public debt obligations. Growth is declining, and inflation has risen sharply. The pegged exchange rate that was incompatible with fundamentals, together with a complex system of exchange restrictions and controls, has resulted in economic dislocation, a parallel exchange market, and pervasive dollarization.
International Monetary Fund
On the revenue side of Seychelles, both tax and nontax revenues have shown marked increases during 1998–99 on account of a number of factors. A strengthening of tax administration has yielded significant improvements in tax collections, particularly in the areas of taxes on income and profits, which has increased from 4.4 percent of GDP in 1997 to 6.8 percent of GDP in 1999. Trade taxes on domestic goods and services have grown from about 7 percent of GDP in 1997 to about 8 percent of GDP in 1999.