Abstract
This paper presents key findings of the Second Review for Seychelles under the Stand-By Arrangement. The program is on track, and macroeconomic stabilization has advanced rapidly. The authorities are implementing the program with determination and a high degree of ownership. All quantitative performance criteria at end-March 2009 were met. One of two structural benchmarks for end-April was missed, reflecting capacity constraints in issuing new bank capitalization norms, but was completed in late May.
The Executive Board of the International Monetary Fund (IMF) today completed the second review of Seychelles’ economic performance under its two-year Stand-by Arrangement, and completed the latest quarterly financing assurances review. The Board’s decision enables Seychelles to receive a disbursement in an amount equivalent to SDR 0.88 million (about US$1.4 million).
The Executive Board also approved the modification of quarterly quantitative performance criteria, and agreed to establish a schedule of semi-annual program reviews, while maintaining quarterly quantitative performance criteria, and financing assurances reviews.
The two-year SDR 17.6 million (about US$27.3 million) Stand-By Arrangement for Seychelles was approved on November 14, 2008 (see Press Release No. 08/282).
Following the Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:
“Seychelles’ commitment to reform and prudent financial policies has brought about rapid progress on macroeconomic stabilization. The significant fiscal consolidation effort, backed by the new market-based monetary policy, has restored confidence in the Rupee and helped bring inflation down rapidly.
“Economic policies are geared toward consolidating this progress. The fiscal stance aims to support the disinflation objective and contribute to public debt sustainability, while preserving priority social spending. The market-based floating exchange rate regime is serving the economy well, and monetary policy should aim to maintain interest rates positive in real terms in order to anchor price stability. Efforts should continue to expand monetary policy instruments and modernize the legal and institutional framework for the financial sector.
“Structural reforms are needed to lay a firm foundation for sustained recovery. The authorities have strengthened tax administration and launched a fundamental tax policy reform, which are key to improving the investment climate, reducing economic distortions, and securing fiscal sustainability. Progress has also been made in strengthening public financial management and expenditure control. Further efforts in this direction, including to reinforce financial discipline and accountability in public enterprises, will be essential to ensuring fiscal sustainability and raising productivity.
“Good progress is being made with public external debt restructuring. Following the favorable agreement with the Paris Club, the authorities have shown good faith efforts to normalize relations with all creditor groups. In view of the high public debt level, the authorities are pursuing a debt restructuring with non-Paris Club creditors that is consistent with Seychelles’ limited payments capacity. The authorities should reinforce their debt management capacity, supported by Fund technical assistance,” said Mr. Kato.
