Seychelles: Third Review Under the Stand-By Arrangement, Financing Assurances Review, Cancellation of the Stand-By-Arrangement, and Request for an Extended Arrangement—Informational Annex

This paper discusses key findings of the Third Review Under the Stand-By Arrangement for Seychelles. The program is on track, and macroeconomic stabilization has advanced rapidly. The authorities continue to implement the program with a high degree of ownership and success. All quantitative performance criteria (PC) and structural benchmarks at end-September 2009 were met. The structural reform effort is progressing well. Key progress has been made on public financial management, notably through the treasury single account. The 2010 budget features a much improved and complete presentation of government finance.

Abstract

This paper discusses key findings of the Third Review Under the Stand-By Arrangement for Seychelles. The program is on track, and macroeconomic stabilization has advanced rapidly. The authorities continue to implement the program with a high degree of ownership and success. All quantitative performance criteria (PC) and structural benchmarks at end-September 2009 were met. The structural reform effort is progressing well. Key progress has been made on public financial management, notably through the treasury single account. The 2010 budget features a much improved and complete presentation of government finance.

I. Seychelles: Relations with the Fund

(As of October 31, 2009)

I. Membership Status: Joined 6/30/77. Article VIII.

II. General Resources Account

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Financial Arrangements:

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VI. Projected Obligations to the Fund (SDR Million: based on existing use of resources and present holdings of SDRs):

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VII. Implementation of HIPC Initiative: Not applicable

VIII. Safeguards Assessments:

  • As part of the Stand-By Arrangement, a safeguards assessment mission was conducted in September 2008. It found high risks in all areas of the central bank (CBS) safeguards assessment framework, including significant weaknesses in financial reporting that were not identified by the external auditor and internal control vulnerabilities. The authorities are implementing remedial measures including steps monitored under the program. In late November the CBS appointed a new external auditor, PricewaterhouseCoopers, on a five-year contract. The authorities continue to make strong progress in addressing the areas of concern identified in the safeguards assessment, including a new central bank act that meets international best practice.

IX. Exchange Rate Arrangement:

  • The authorities launched a comprehensive reform effort in November 2008, with reforms including a fundamental liberalization of the exchange regime. The exchange market liberalization resulted in all the elimination of restrictions on the making of payments and transfers for current international transactions that are subject to Fund approval under Article VIII Sections 2, 3, and 4. The exchange rate policy is a float. On December 1, 2009, US$ 1 = SR 11.08 (mid rate).

X. Article IV Consultations:

  • Seychelles is currently under a two year Stand-By Arrangement, with semi-annual reviews.

XI. Technical Assistance (2004–March 2009):

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XII. Resident Representative: None

II. Seychelles: Joint World Bank-IMF Work Program, 2009–10

(As of November 30, 2009)

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III. Seychelles: Relations with the African Development Bank Group

(As of November 16, 2009)

The African Development Bank Group commenced operations with the Republic of Seychelles in 1978 and has since approved 19 operations comprising 15 projects, one study and three lines of credit for the country. Cumulative approvals as of October 2008 (there were no approvals between 2001 and 2006 when the country was under sanctions) amounted to UA 84.87 million,1 of which 73 percent was from the African Development Bank (ADB), 14 percent from the Nigeria Trust Fund (NTF), and the remaining 13 percent from the African Development Fund (ADF) (Table 1). Reflecting government priorities, most of the operations were in the social sector (46 percent). This was followed by the financial sector (16 percent), agricultural sector (15 percent), transportation (13 percent), water supply and sanitation (10 percent) and industrial sector (1 percent). Before sanctions were imposed, about 76.8 percent of the total commitments on all approved loans had been disbursed and the balance of 23.2 percent was cancelled after sanctions were applied.

Table 1.

Operations Summary as at 5 June 2009

Operations since: 1978

Total Number of operations 19: 15 Projects, 1 Study; 3 Lines of Credit

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Excludes the grants from the African Water Facility and the MIC Technical Assistance Facility due to their unique nature and small magnitude.

The country was under sanctions with the African Development Bank Group since February 16, 2000 due to the arrears situation. The country cleared all the arrears (amounting to US$46.75 million) in November 2006 and the African Development Bank Group consequently lifted all sanctions and started discussions on possible reengagement with the country. The process was boosted by the launching of a comprehensive reform programme by the Government in November 2008. Following this, an Interim Strategy Note was approved by the Board on April 22, 2009. The ISN covers 2009 and 2010 and focuses on a single pillar namely supporting the Government’s reform programme to achieve sustainable growth. The lending programme during this period consists of a policy-based operation in the form of a budget support loan amounting to US$20 million. The operation is under preparation and it is expected to be disbursed in two equal tranches of US$10 million in 2009 and 2010. In addition, there is an ongoing non-lending programme under which the Bank Group is providing grant resources to the country, from the African Water Facility and the Middle Income Countries’ (MIC) Technical Assistance Fund. Under the African Water Facility, a grant amounting to € 955,000 was signed in May 2008 to finance the preparation of the Water Development Plan aimed at improved water management and governance, and identifying priority investment projects for funding, in order to meet Seychelles’ water needs up to 2030. The study is expected to be completed by December 2009. Under the MIC Technical Assistance Fund two grants have been approved to finance: (i) a study (amounting to UA 600,000) approved in December 2008 aimed mainly to support human resource development, training and capacity building as well as the establishment of the Seychelles University Foundation; and (ii) a study (amounting to US$ 500,000) approved in February 2009 to undertake the feasibility on a Submarine Cable System to link Seychelles to East Africa.

A policy based partial guarantee operation for US$10 million was approved on December 12, 2009 in support of an exchange bond offered to external commercial creditors in the context of the public debt restructuring effort.

1

UA 1 = US$ 1.54805 as at June 5, 2009.