The government of Seychelles is pursuing its economic reform agenda with determination. Our Seychellois authorities launched their ambitious reform agenda in early-November 2008 and since then have: floated the rupee and removed foreign exchange restrictions; introduced a market-based monetary policy framework; reduced the dominance of the public sector through privatization of some commercial public enterprises and a substantial voluntary and involuntary departure scheme for civil servants; and replaced indirect subsidies on essential goods and services with a targeted social safety net. While placing a substantial up-front adjustment burden on the people of Seychelles, these measures are now starting to bear fruit.
The rupee depreciated around 60 per cent following the float, but has since stabilized at about 16.5 rupees to the $US. Interest rates on Treasury Bills rose to almost 30 per cent in January, but have since eased to around 24 per cent. After the severe foreign exchange shortages experienced in early- and mid-2008, the NIR target for end-December was comfortably met. The public sector workforce has been reduced by some 3,300 employees (17 per cent of staff), supporting a projected reduction in the public sector wage bill of some 3 percentage points of GDP from 2008 to 2010. Replacing indirect subsidies with a means-tested social safety net has improved both the government’s fiscal position and its ability to target income support at the most vulnerable elements of society. And the coherence of fiscal and monetary policy has improved considerably, supported by Seychelles’ macroeconomic framework and enhanced by frequent coordination meetings involving the President, Minister of Finance and Central Bank Governor.
These measures were a bold and convincing response to the macroeconomic imbalances that emerged over time, exacerbated and pushed to crisis point by the global food and fuel price shock. The results thus far are largely as anticipated, which is a credit to the initial program design, the discipline of Seychellois policymakers to stay the course through the early difficult adjustment period, and further tangible evidence of the government’s strong resolve to lay the policy foundations for macro stabilization and sustainable medium-term growth. The government has also pursued a strategy of communicating challenges and the evolving reform agenda openly, including through regular press conferences involving opposition party journalists. This has helped to reinforce the constituency for change, support confidence and shape public expectations for the future.