Context: The robust recovery from the 2008 balance of payments and debt crisis has resulted in improved economic and social outcomes. Continued policy discipline and reforms are needed for the microstate to mitigate its geographical and population constraints and maintain momentum in developing a diversified and resilient economy. Focus: With the fiscal stance anchored by the authorities’ debt reduction objective, macroeconomic discussions concentrated on the smooth functioning of monetary and exchange rate policies. On the structural agenda, the dialogue focused on policies to promote sustained and inclusive growth, particularly on the appropriate role for state-owned enterprises (SOEs). Review: The program is on track. The authorities met the end-December quantitative performance criteria except for narrowly exceeding the ceiling on reserve money. The structural agenda remains broadly on track despite some delays. Staff recommends completion of the second review under the Extended Arrangement and modification of the performance criteria for end-June and end-December 2015, and supports the authorities’ request for a waiver for the end-December 2014 performance criterion for reserve money. Outlook and risks: With the external position having stabilized since the last review, fundamentals are strengthening. However, the economy remains highly vulnerable to global developments, including weakness in the key European markets, while domestic risks center on the role of the SOEs. Recommendations: The authorities’ objective of reducing public debt below 50 percent of GDP by 2018 remains an appropriate and attainable anchor for fiscal policy. The monetary policy framework should be further enhanced by increasing its forward orientation in the context of a flexible exchange rate. Structural measures should focus on fostering inclusiveness and private sector-led growth, while improving economic governance and the focus of SOEs. Data: Data provision is broadly adequate for surveillance. Priority areas include improved GDP statistics, strengthening external sector statistics, and extending coverage of the international investment position.
The Executive Board of the International Monetary Fund (IMF) completed today the second review of the arrangement under the Extended Fund Facility (EFF) with Seychelles. The completion of the review enables the disbursement of an amount equivalent to SDR 1.635 million (about US$2.3 million) bringing the total disbursements to SDR 4.905 million (about US$6.9 million).
In completing the review, the Executive Board also approved the authorities’ request for waiver and modification of performance criteria. The 36-month, SDR 11.445 million arrangement under the EFF (about US$16.1 million, the equivalent of 105 percent of Seychelles’ quota) was approved by the Executive Board in June 2014 (see Press Release No. 14/262.).
Following the Executive Board’s discussion, Mr. Min Zhu, Deputy Managing Director and Acting Chair issued the following statement:
“Sound macroeconomic management has strengthened the Seychelles’ economy significantly. The near-term growth outlook is favorable and prospects in the tourism sector remain strong, with noticeable gains in both traditional and non-traditional markets.
“Policies have aimed at reinforcing resilience and entrenching macroeconomic stability. The authorities remain on track to achieve their objective of reducing the debt burden below 50 percent of GDP by 2018. Balancing this objective with the need to address critical infrastructure needs will require tight control of current expenditure and improved governance and financial performance of state-owned enterprises. Further progress in building international reserves has ensured an effective buffer against external pressures.
“The authorities should continue to improve the forward-looking elements of their monetary policy framework, including inflation forecasting and liquidity management. The exchange rate should continue to be allowed to adjust freely to changes in the economic external and internal conditions.
“To support sustained and inclusive growth, structural reforms should aim to increase the role for the private sector in the economy and enhance competition. In this regard, caution should be exercised in expanding the roles and mandates of public enterprises. Accession to the World Trade Organization is welcome, while further improvements in the business climate should aim to make growth more inclusive by broadening access to credit, enhancing infrastructure, and reducing skills mismatches in the labor market.”