This paper discusses key findings of the First Review for Seychelles under the Stand-By Arrangement. Developments under the program at end-December 2008 were broadly satisfactory. Although growth was lower and inflation higher than targeted in 2008, the liberalization of the exchange regime and interest rate have removed the severe distortions weighing on the economy, and early signs of stabilization are apparent. The program targets for 2009 have been adjusted, primarily in light of the much more difficult external environment.
The Executive Board of the International Monetary Fund (IMF) has completed the first review of Seychelles’ economic performance under the two-year Stand-by Arrangement. The approval enables Seychelles to draw immediately an amount equivalent to SDR 0.88 million from the IMF (about US$1.3 million).
The Executive Board also granted waivers for the nonobservance of the performance criterion related to the primary balance of the consolidated Government budget and the continuous performance criterion related to the nonaccumulation of external payment arrears by the public sector.
The two-year SDR 17.6 million (about US$26.6 million) Stand-By Arrangement for Seychelles was approved on November 14, 2008 (see Press release 08/282).
Following the Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:
“The authorities are to be commended for their determination to implement the program despite difficult circumstances and a major deterioration of the external environment. The program has made a good start, reflecting the authorities’ strong commitment and ownership of the reforms. Early signs of success of the macroeconomic stabilization efforts are encouraging and have strengthened confidence in the reforms. The establishment of the social welfare agency is an important element in the reform process, and it will be essential to ensure that the targeted social safety net protects the most vulnerable segments of society.
“Maintaining the tightened fiscal and monetary polices are critical to achieving the program’s objectives. The rise in real interest rates to positive levels has been a key component of the program’s progress so far. Further coordinated efforts by the Central Bank of Seychelles and Ministry of Finance on liquidity and treasury management need to be pursued as planned.
“The program includes an appropriate strengthening of public financial management, which is critical to support the fiscal sustainability effort and improved economic efficiency. A major program objective is to reinforce financial discipline and accountability of the parastatal sector through enhanced oversight by the Ministry of Finance.
“The authorities are committed to reinforce their debt management capacity and pursue their public external debt restructuring strategy, aimed at normalizing relations with creditors through good faith negotiation efforts. Given the impact of the deteriorating external environment on growth prospects, the program financing needs are now somewhat higher than previously expected, but the program is financed for 2009, assuming that a public debt restructuring consistent with Seychelles’ more limited payments capacity can be achieved.
“Increased technical assistance, and project and program financial support by development partners, are important to the success of the program. Donor coordination has been initiated and is expected to be strengthened in the months ahead,” Mr. Kato said.