A. Recommendations

An overview of the report

3. For easy reference, the report broadly replicates the recommended structure of the NDC: it first discusses general preparedness for climate change; the mitigation commitment and strategy; adaptation needs and strategy; national processes; and financing. However, the focus of the report is on the macroeconomic challenges that may be confronted in dealing with climate change, and policy recommendations for responding adequately to these.²

A. Impact of climate change risks on the macro-framework/long-term outlook

• How vulnerable is Seychelles’ economy to climate change?

4. Seychelles is seriously vulnerable to climate change, though the location of many of its islands slightly outside the cyclone belt has meant relatively less exposure to catastrophic natural disaster. Its primary concerns are from the economic costs of temperature rise (coral bleaching and losses to fisheries and tourism); extreme rainfall (crop and fish losses, flooding); and sea-level rise (coastal erosion and salinization, and consequent losses to tourism and food and water security)—see Table 1. Seychelles has been hit only once in recent years by a major natural disaster which imposed economic damage of over 3 percent of GDP. With this record, it ranks 26^th among 33 small states worldwide in vulnerability to natural disasters (2 percent of GDP is the average annual cost of natural disasters for small states).³ Nonetheless, its topography and landscape leave it extremely vulnerable to strong winds, tsunamis, storm surge, extreme rainfall, flooding, landslides, rockslides and forest fires, the frequency of which has been rising. Moreover, the cyclone belt may be shifting (though evidence is still inconclusive).

Table 1.

Seychelles—Recent and Expected Climatic Developments¹

¹See ThinkHazard (GFDRR/World Bank) for a list of most common geophysical disasters http://thinkhazard.org/report/220-seychelles. Climate Change data are provided by The World Bank’s Climate Change Knowledge Portal (CCKP) www.climateknowledgeportal.worldbank.org. The CCKP will include a comprehensive climate profile for Seychelles by mid-2017.

Table 1.

Seychelles—Recent and Expected Climatic Developments¹

Temperatures	Seychelles had an average warming of 0.25°C over the 1972–1997 period. The number of very warm days and nights is increasing dramatically, while the number of very cool days and nights is declining; in 1998 these extremes led to a loss of 90 percent of coral reefs (only partly reversed).
Precipitation and flooding	Annual rainfall anomaly trends on Mahé are upward by 13.7 mm per year (1972–2006), indicating a wetter climate. Extreme rainfall has caused significant crop losses in the last decade. Heavy rainfall during 1997–98 El Nino and 1998–00 La Nina events caused widespread flooding with significant losses to the economy. The government reported that fisheries accounted for 45% of El Nino/La Nina losses, followed by agriculture (28%) and tourism. Increases in rainfall intensity may also result in greater surface runoff and reduced water capture in storage facilities and could pose health risks.
Droughts	In 2010 Seychelles suffered its worst drought in decades, followed by severe flooding. This notably affected farmers’ productivity. It is projected that the climate will likely be characterized by extreme dry (i.e., prolonged dry spells) and hot episodes.
Sea level rise	Sea level rise is already affecting Seychelles, such as in May 2007 when very high tides resulted in flooding up to 50m inland causing damage to roads, public infrastructure. Sea level rise is expected to lead to coastal erosion, impacting infrastructure especially tourism and roads. Sea level change is also expected to increase salination of the soil and aquifers impacting food and water supply.
Landslides	Short, intense rain events are known to trigger landslides, such as in Jan 2013 when Pointe Au Sel in the southeast of the island reported 184mm of rain in a 24-hour period – nearly half the amount of rain expected in the entire month of January Landslides and rock falls cause damage to transport infrastructure and houses and are expected to worsen.

¹See ThinkHazard (GFDRR/World Bank) for a list of most common geophysical disasters http://thinkhazard.org/report/220-seychelles. Climate Change data are provided by The World Bank’s Climate Change Knowledge Portal (CCKP) www.climateknowledgeportal.worldbank.org. The CCKP will include a comprehensive climate profile for Seychelles by mid-2017.

View Table

Table 1.

Seychelles—Recent and Expected Climatic Developments¹

Temperatures	Seychelles had an average warming of 0.25°C over the 1972–1997 period. The number of very warm days and nights is increasing dramatically, while the number of very cool days and nights is declining; in 1998 these extremes led to a loss of 90 percent of coral reefs (only partly reversed).
Precipitation and flooding	Annual rainfall anomaly trends on Mahé are upward by 13.7 mm per year (1972–2006), indicating a wetter climate. Extreme rainfall has caused significant crop losses in the last decade. Heavy rainfall during 1997–98 El Nino and 1998–00 La Nina events caused widespread flooding with significant losses to the economy. The government reported that fisheries accounted for 45% of El Nino/La Nina losses, followed by agriculture (28%) and tourism. Increases in rainfall intensity may also result in greater surface runoff and reduced water capture in storage facilities and could pose health risks.
Droughts	In 2010 Seychelles suffered its worst drought in decades, followed by severe flooding. This notably affected farmers’ productivity. It is projected that the climate will likely be characterized by extreme dry (i.e., prolonged dry spells) and hot episodes.
Sea level rise	Sea level rise is already affecting Seychelles, such as in May 2007 when very high tides resulted in flooding up to 50m inland causing damage to roads, public infrastructure. Sea level rise is expected to lead to coastal erosion, impacting infrastructure especially tourism and roads. Sea level change is also expected to increase salination of the soil and aquifers impacting food and water supply.
Landslides	Short, intense rain events are known to trigger landslides, such as in Jan 2013 when Pointe Au Sel in the southeast of the island reported 184mm of rain in a 24-hour period – nearly half the amount of rain expected in the entire month of January Landslides and rock falls cause damage to transport infrastructure and houses and are expected to worsen.

¹See ThinkHazard (GFDRR/World Bank) for a list of most common geophysical disasters http://thinkhazard.org/report/220-seychelles. Climate Change data are provided by The World Bank’s Climate Change Knowledge Portal (CCKP) www.climateknowledgeportal.worldbank.org. The CCKP will include a comprehensive climate profile for Seychelles by mid-2017.

Seychelles: Major Natural Disasters

Source: EM-DAT

Seychelles: Major Natural Disasters

Year	Disaster type	Number of people affected	Estimated economic damage (in percent of GDP)
1997	Flood	1,237	0.5
2004	Tsunami	4,830	3.6
2013	Tropical storm	3,000	0.7

Source: EM-DAT

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Seychelles: Major Natural Disasters

Year	Disaster type	Number of people affected	Estimated economic damage (in percent of GDP)
1997	Flood	1,237	0.5
2004	Tsunami	4,830	3.6
2013	Tropical storm	3,000	0.7

Source: EM-DAT

• What impact could climate change have on macro-sustainability?

5. Seychelles could withstand a disaster more serious than in recent history while remaining financially sustainable, but is vulnerable to a tail-risk catastrophe. Two scenarios were considered for assessing Seychelles’ financial resilience to intensified disasters: a storm causing damage of 30 percent of GDP (the threshold for access to the IMF shocks facility) and a more plausible-but-still-extreme storm causing 10 percent of GDP in damages.

• Seychelles could withstand a natural disaster costing up to 10 percent of GDP without losing debt sustainability. The first-hand chart below illustrates long-term public debt dynamics if Seychelles were hit by a storm causing economic damage of 10 percent of GDP in 2017. The shock to GDP and subsequent reconstruction costs,⁴ coupled with some pressure on inflation and the exchange rate over the following two years, would cause the debt ratio to spike to around 85 percent of GDP in 2017 (from slightly over 70 percent in 2016), gradually declining to around 50 percent by 2036. In other words, Seychelles has enough financial resilience to withstand a reasonably large disaster but would suffer a significantly heavier debt burden.

Seychelles: Public Debt

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 162; 10.5089/9781484304808.002.A001

Source: IMF Staff projections.

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Seychelles: Public Debt

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 162; 10.5089/9781484304808.002.A001

Source: IMF Staff projections.

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Seychelles: Public Debt

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 162; 10.5089/9781484304808.002.A001

Source: IMF Staff projections.

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• A more catastrophic tail risk scenario would make debt unsustainable. A storm causing economic damage of 30 percent of GDP in 2017 would push up public debt to around 120 percent of GDP in the long run.⁵ Under similar assumptions to the first scenario (but with reconstruction investments costing 15 percent of GDP), GDP growth would be depressed for two years after the storm, with much sharper inflation and exchange rate depreciation. Public debt would spike to 115 percent of GDP in the year of the storm. Even with reasonable assumptions about concessional help for reconstruction from the international community, the rising trend in debt would be difficult if not impossible to reverse. Debt would decline for the next several years to around 90 percent, but would then start rising unsustainably, given principal repayments on concessional borrowing and a much heavier interest burden (second chart below).⁶

Seychelles: Public Debt

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 162; 10.5089/9781484304808.002.A001

Source: IMF Staff projections.

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Seychelles: Public Debt

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 162; 10.5089/9781484304808.002.A001

Source: IMF Staff projections.

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Seychelles: Public Debt

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 162; 10.5089/9781484304808.002.A001

Source: IMF Staff projections.

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A. The NDC and other national resilience-building strategies

• Does the NDC present a comprehensive and costed strategy for climate change response?

6. Yes, though an update would make it even better. The NDC submitted by Seychelles for the Paris Agreement presents a clearly-articulated national strategy for responding to climate change⁷

7. It includes a commitment to emissions reduction, a quantified mitigation strategy to meet the reduction target, adaptation plans, and costing of identified projects on both the mitigation and adaptation sides. The strategy is comprehensive in coverage compared with many other NDCs, particularly those of other small states; the NDC is considered a model for other small states to follow. However, the authorities intend to expand the treatment of the Blue Economy when they update the NDC.

• Is the climate change strategy consistent with broader development goals?

8. Yes. Climate change has for some time been deemed the likely greatest threat to Seychelles’ sustainable development, because of its heavy dependence on tourism and fisheries. Public awareness of environmental fragility and the need for government policy action appears to be at a high level. The country’s broader vision of sustainable development is heavily focused on environmental management and was summarized in Seychelles’ Sustainable Development Strategy 2012–2020 (SSDS). The NDC is broadly consistent with the SSDS, although some targets have been updated. The SSDS is being updated and expanded into a comprehensive National Economic Development Plan which will draw on sectoral plans and have more focus on resource mobilization; this is expected by end-2017. Other documents are being prepared to operationalize aspects of the development strategy, notably the Roadmap for Renewables from the Ministry of Environment and Energy, and the Roadmap for the Blue Economy from the Vice-Presidency.

B. Disaster planning and other contingency plans

• How well-prepared is Seychelles to cope with possible intensified disasters?

9. Disaster planning is a relatively strong point, although the preparedness challenge is large and unfinished. The government subscribed to the Hyogo Framework, and developed a National Disaster Risk Policy, most recently updated in 2014. The Division of Risk and Disaster Management (DRDM), now under the Ministry of Environment, Energy and Climate Change (MEECC), is responsible for coordinating both Seychelles’ disaster risk reduction effort and emergency response to a natural catastrophe or manmade emergency. It has established a National Emergency Operations Center. (For more detail, see Annex I.)

10. While funding doubtless remains inadequate to cover the cost of a large catastrophic event, Seychelles has mobilized some innovative financing. It is the only small state to have negotiated a CatDDO with the World Bank—a contingency credit line with drawdown in the event of an emergency. This is expected to be renewed for another three years and expanded. Seychelles also has a small budget contingency line (discussed further below).

11. In spite of considerable progress, work remains needed. The legal framework requires updating to clarify DRDM’s mandate. Land-use planning needs to be improved, for instance to reduce vulnerability to floods. And despite improvements in institutional capacity to manage disaster risk, there are still gaps in financial and staff resources and in technical and operational capacity.

A. Clean energy plans

12. Seychelles’ mitigation plan envisages cutting emissions by: (i) a shift to solar energy, in amounts eventually large enough to supply most public electricity; (ii) switching 30 percent of private vehicles to electricity; and (iii) capturing landfill methane (see text table 2). The NDC includes the calculations used to verify that this strategy would be adequate to achieve the emissions reduction.

Table 2.

Cost of Priority Mitigation Options for Seychelles’ NDC

Source. Seychelles’ NDC.Notes. Assumed capital costs for solar PV are $1.75 million per MW and operations/maintenance costs are $19,000 per MW per year. Electric cars are assumed to cost $10,000 more than their traditional fuel equivalent (and a projected 6,667 of them are needed by 2030).

Table 2.

Cost of Priority Mitigation Options for Seychelles’ NDC

Sector	Mitigation action	Cost, US$mn
Public electricity	90 MW of solar PV (capital expenditure and operation and maintenance cost over 20 year lifetime	191.7
Waste management	Retrofitting landfill (Providence 1) methane capture and flaring equipment	20.8
Land transport	30% of private in-use vehicles are electric by 2030	66.7
	15.8 MW of solar PV for meeting the energy demand of electric vehicles	29.8
Total		309

Source. Seychelles’ NDC.Notes. Assumed capital costs for solar PV are $1.75 million per MW and operations/maintenance costs are $19,000 per MW per year. Electric cars are assumed to cost $10,000 more than their traditional fuel equivalent (and a projected 6,667 of them are needed by 2030).

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Table 2.

Cost of Priority Mitigation Options for Seychelles’ NDC

Sector	Mitigation action	Cost, US$mn
Public electricity	90 MW of solar PV (capital expenditure and operation and maintenance cost over 20 year lifetime	191.7
Waste management	Retrofitting landfill (Providence 1) methane capture and flaring equipment	20.8
Land transport	30% of private in-use vehicles are electric by 2030	66.7
	15.8 MW of solar PV for meeting the energy demand of electric vehicles	29.8
Total		309

Source. Seychelles’ NDC.Notes. Assumed capital costs for solar PV are $1.75 million per MW and operations/maintenance costs are $19,000 per MW per year. Electric cars are assumed to cost $10,000 more than their traditional fuel equivalent (and a projected 6,667 of them are needed by 2030).

13. The plans have already got underway, in the sense that Seychelles has begun to install solar energy, with the help of the GEF, and electric cars receive substantial tax relief. However, the scope of the plans is ambitious relative to the starting point. For instance, Seychelles has a policy of openness to solar energy sales to the electricity grid, but will have to undertake large investments to stabilize the grid before solar energy supply could become as pervasive as envisaged in the NDC plan; moreover, it is not clear that technology is yet adequate to handle the energy storage needed. And, while the authorities report keen interest by private investors in commercial aspects of solar energy, the enabling investments will have to be financed by the government. Likewise, the mission listened to a heated debate about whether electric cars are adequate to handle Seychelles’ mountain gradients and stop-start traffic.

14. There would be many side-benefits to meeting the targets; notably, they would give Seychelles energy security and significantly reduce its imported fuel bill. Hence, the conclusion for now must be that the strategy is worthwhile but the goals ambitious and the outcome uncertain.

B. Carbon taxation and fuel subsidy policies

15. Since the feasibility of the clean energy strategy in the NDC remains to be tested, it would be valuable to support it by pricing carbon at a level high enough to encourage firms and households to reduce use of carbon-intensive fuels. This is in line with the IMF’s advice internationally, which is to favor more efficient and cost-effective price-based instruments for achieving emissions-reduction goals. Operationally, appropriate carbon-pricing would be achieved by raising taxes on the main carbon-emitting tax bases, with complementary reforms to reduce subsidies.

16. Ideally, carbon would be priced sufficiently high to change behavior enough to curb emissions without other direct measures or promotion of any single technology. In practice, however, many countries are considering a mix of carbon-pricing and clean energy policies to achieve their emissions targets.⁹ The Government of Seychelles is already taking steps toward better carbon pricing with the 50-cent increase in fuel tax announced in the 2017 budget speech.

• Does the current tax/subsidy system deliver appropriate carbon pricing?

17. Current fuel taxes fall short of delivering appropriate carbon pricing—and some subsidies in the system create additional distortions.

• Carbon tax base. In Seychelles, power generation is the largest source of emissions. Fuel oil (mainly used by PUC) accounted for 50 percent of emissions in 2015, and diesel (used by PUC, hotels, and some vehicles) for 35 percent Motor gasoline accounted for 13 percent.

• Current carbon-related taxes. As shown in table 3, power generation is lightly taxed, with fuel oil and diesel used by PUC taxed at 50c per liter, while diesel for hotel generators is taxed at 4 rupees per liter. Road fuels—meaning gasoline and diesel for vehicles—are taxed at 8 rupees per liter.¹⁰ As in other countries, LPG is lightly taxed, because it tends to be used by the poor for cooking. However, its high per unit distribution cost means that it is still one of the most expensive fuels (see figure 1 below).

• sides the tax preference for electric power generation, some other tax-subsidies are Beattached to the system. Notably, while there is no special fuel tax regime for public transport, fares are capped at a fixed unvarying charge at below cost, with a government transfer to compensate SPTC. Likewise, fuel for fisheries is rebated.

• Vehicles are taxed by engine size (which is a proxy for emissions, but a poor one), with hybrids paying substantially less than the normal excise and electric vehicles receiving even larger tax relief. The extremely favorable rate for hybrids has inspired a sharp jump in car imports, which has at least partly offset the emissions savings from switching to hybrids.

Table 3.

Fuel Tax Rates and Revenues, 2015

Source: MOFTEP.Note. Revenue is defined prior to rebates for (partially or fully) exempt fuel use.

Table 3.

Fuel Tax Rates and Revenues, 2015

Product		Consumption, liters	Gross revenue, Rs million	Effective excise, Rs/liter
Gasoline		25.2	201.3	8.0
Diesel		53.9	308.5	5.7
	Power	9.6	8.6	0.5
	Hotels	13.2	105.2	4.0
	vehicles	31.1	189.1	8.0
Fuel oil		75.4	36.0	0.5
	power	71.7	34.2	0.5
	other (brewery)	3.8	1.8	0.5
Jet fuel		2.9	23.2	8.0
Avgas		0.0	0.1	2.0
Kerosene (maritime and aviation)		0.1	0.6	8.0
LPG (cooking)		4.5	2.2	0.5
Lubricants		0.8	1.5	1.9
Total/average		137.6	573.4	4.2

Source: MOFTEP.Note. Revenue is defined prior to rebates for (partially or fully) exempt fuel use.

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Table 3.

Fuel Tax Rates and Revenues, 2015

Product		Consumption, liters	Gross revenue, Rs million	Effective excise, Rs/liter
Gasoline		25.2	201.3	8.0
Diesel		53.9	308.5	5.7
	Power	9.6	8.6	0.5
	Hotels	13.2	105.2	4.0
	vehicles	31.1	189.1	8.0
Fuel oil		75.4	36.0	0.5
	power	71.7	34.2	0.5
	other (brewery)	3.8	1.8	0.5
Jet fuel		2.9	23.2	8.0
Avgas		0.0	0.1	2.0
Kerosene (maritime and aviation)		0.1	0.6	8.0
LPG (cooking)		4.5	2.2	0.5
Lubricants		0.8	1.5	1.9
Total/average		137.6	573.4	4.2

Source: MOFTEP.Note. Revenue is defined prior to rebates for (partially or fully) exempt fuel use.

• What would Seychelles’ tax system look like with recommended carbon pricing?

18. Seychelles could shift gradually to recommended carbon pricing with relatively tolerable increases in fuel taxes, as long as the burden is spread across all sources of emissions. Figure 1 below shows the impact of increasing fuel taxes gradually across the board, to reach a carbon price of 1,260 rupees per ton by 2030. The tax increase on products would be around 1 rupee per liter by 2020, and between 3.0 and 3.7 rupees per liter for different petroleum products by 2030, compared with pre-budget 2017. In other words, for road fuels, the proposed 50c increase in road fuel taxes would put Seychelles well on the way to meeting the 2020 milestone. However, the mission also strongly recommends an extension of the tax to fuels for power generation, since that is the source of the majority of emissions. The increase proposed in Figure 1 still keeps fuel oil and power-diesel cheaper relative to other fuels—in line with the authorities’ policy preference for keeping down electricity prices. But since this leaves intact an untargeted subsidy, the mission also recommends increasing electricity tariffs at least to cover marginal generating costs (and using some of the gain to compensate those least able to pay).¹¹

Current Fuel Prices Augmented by Proposed 2020 and 2030 Carbon Tax

Citation: IMF Staff Country Reports 2017, 162; 10.5089/9781484304808.002.A001

Source. IMF staff estimates.

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Current Fuel Prices Augmented by Proposed 2020 and 2030 Carbon Tax

Citation: IMF Staff Country Reports 2017, 162; 10.5089/9781484304808.002.A001

Source. IMF staff estimates.

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Current Fuel Prices Augmented by Proposed 2020 and 2030 Carbon Tax

Citation: IMF Staff Country Reports 2017, 162; 10.5089/9781484304808.002.A001

Source. IMF staff estimates.

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19. An important reason to bring in a carbon tax is that, the more successful the environmental gains, the lower the revenue from fuel excises—unless replaced by new taxes. The mission estimates that, even without any mitigation policies, fuel taxes could decline by 2 percent of GDP by 2030, given likely improvements in energy efficiency and vehicle stock growth lagging GDP. Success of the mitigation policies in the NDC would imply another 1 percent of GDP loss of revenue, unless new taxes were brought in, say, on solar energy and electric cars to compensate the loss of fuel excises. A carbon tax at the rate proposed above would stabilize revenue, and by 2030 somewhat increase it, by around 1.6 percent of GDP.¹²

20. The current vehicle tax system suffers from the same problem: the more successful the environmental gain, the worse the revenue loss. A shift in the design of vehicle taxation to an ad valorem tax combined with ‘feebates’ could preempt this problem: a uniform ad valorem rate could be chosen to meet fiscal needs, with a sliding scale of surcharges or rebates for cars with above/below average emissions. Denmark, France, Mauritius, Netherlands and Norway have already shifted to such a tax mechanism.

C. Other carbon pricing strategies

• What other carbon-pricing strategies could usefully contribute to mitigation?

21. Carbon taxation is probably the only practical way for Seychelles to price carbon. An alternative to a carbon tax would be an emissions trading system (ETS). Under an ETS, emissions sources are required to acquire allowances to cover their emissions, the government caps the total quantity of allowances (and hence emissions), and trading for allowances amongst firms establishes a market price for allowances (and emissions). However, an ETS would not be feasible for Seychelles given the inadequate size of trading markets—unless it could find other partners.

D. Other macro-relevant policies for mitigation

• Are any further large-scale mitigation policies relevant to Seychelles?

22. Landfill is responsible for 5 percent of Seychelles’ emissions, and the NDC mitigation strategy envisages containing it. Solid waste management is a mounting problem for Seychelles’ 93,000 inhabitants and 300,000 tourists, who generate about 65,000 tons of waste per year on an upward trend. The design and implementation of a national solid waste management strategy, incentivizing waste reduction and recycling and promoting the involvement of the private sector, has become a priority for the Government. Landfilling produces negative environmental externalities: besides the problems of greenhouse gases and leachate, it is also a bad option for Seychelles because it occupies scarce land. Reducing emissions from the landfill is among the mitigation priorities of the NDC, which identifies a flaring project budgeted at $21 million—for which the financing has not yet been identified. Price-based policies have also proven effective to contain waste, and could usefully be brought in to supplement the NDC strategy: for instance, ‘pay-per-bag’ trash schemes and deposit refunds for hazardous waste.¹³

23. Steps to address congestion would be complementary to the carbon tax measures in keeping traffic sustainable. An electronically collected congestion fee (modelled on other cities) could effectively manage road congestion in Victoria and, in the longer term, nationwide mileage tolls are a promising way to stabilize transportation revenues and manage pressure on road networks.

A. Public investment plans

24. The NDC is relatively well-developed (compared with the contribution of other small states) in that it provides an outline of the planned investment framework for adaptation.¹⁴ It identifies areas of key vulnerability—critical infrastructure, tourism and coastal management, food security, biodiversity, water security, health and the blue economy—and lists priority adaptation investments for them (although with little detail). The total cost of these investments is estimated at US$295 million, but the NDC does not specify a timeline for implementing them. They all appear to have an important public good component, which makes it less likely than for mitigation investments that they will elicit private investor interest. The NDC emphasizes that the impacts of climate change on Seychelles are uncertain and stresses the need for additional research and monitoring.

• What, if anything, is missing from the adaptation investment strategy?

25. The NDC costings are likely to be a lower bound to eventual estimates of adaptation needs. Sectoral plans, when completed, should provide more precision about needs, but are also likely to expand the list of priority investments.

• The case of Fisheries & Agriculture—one of the key sectors with a quantified investment plan already articulated—is a good illustration. The Seychelles National Agriculture Investment Plan (SNAIP, 2015-2020) provides a development strategy and investment plan for agriculture and fisheries. The SNAIP aims at making the sector resilient and plans for adaptation measures through the lens of climate-smart agriculture. The related budget amounts to $128 million over the six-year period, of which $86 million will be covered by the government and by external partners’ existing funding and pipeline commitments. The financing gap for 2015-2020 is therefore $42 million. We estimate that roughly 50 percent of the investment plan (say, $64 million) fits under the heading of adapting the sector to climate change. This is nearly twice as large as the NDC provision of $35 million for ‘Food Security’ (the category with activities consistent with the climate-eligible projects in the SNAIP).

• Notably, the strategic role of the blue economy is not reflected in the NDC.¹⁵ Published before the blue economy became a cornerstone of Seychelles’ development strategy, the NDC does not give it much importance, only listing as an adaptation action $15 million to set up a marine resource management institution. However, Seychelles now envisages a far more proactive strategy to adapt the blue economy to climate change, building its resilience by strengthening the management of fisheries and marine ecosystems, and expanding the coverage of marine protected areas. Using a combination of internal and external financing, including two innovative financing mechanisms—a debt-for-adaptation restructuring¹⁶ and a blue bond¹⁷—it expects to cover financing needs for fisheries management until 2023 while paying only a fraction of the costs related to the expansion of the protected areas network.¹⁸ The Blue Economy Roadmap to be published before end-2017 will mainstream climate change and detail the related investments.

26. The other sectors flagged in the NDC for priority adaptation actions lack sectoral strategies mainstreaming climate change, and their NDC priorities and budget are a rough estimate. Clearer investment plans would allow Seychelles to better identify financing gaps.

• Water. Protection of the vulnerable water sector is the greatest share of the NDC adaptation budget ($85 million or 29 percent). The main investments increase the capacity of the La Gogue dam (approximately $20 million), extend the sewerage network and build water infrastructure in the agricultural sector. A significant part of these projects is either underway or financed, but is difficult to identify in the PSIP.

• Critical infrastructure. The total amount the NDC allocates to the adaptation of critical infrastructure is $70 million. Considering that most of Seychelles’ critical infrastructure is on the shore, including the main roads, the main cities, the airport, the ports, the power and sewerage plants, and most hospitals and schools, the cost of climate-proofing this infrastructure could be several orders of magnitude greater. A more precise assessment of this cost, based on past events, climate modeling, and cost benefit analysis, would be valuable for estimating the underlying financing gap.

• Health. Climate change will affect the occurrence of diseases in Seychelles, and a few recent crises (e.g. dengue fever) signaled the need to adapt proactively. The NDC lists adaptation investments in health of $30 million but is vague on the specific investments to be undertaken. The Ministry is finalizing a sectoral strategy that will mainstream climate change in the health sector.

• Tourism. Tourism is addressed in the NDC under the headings of coastal management and disaster risk management, two areas important for tourism but encompassing most of Seychelles’ economy. The NDC does not list investments specific to adaptation of the tourism sector. Since tourism is the largest sector, it would be relevant to include a more detailed discussion in the next version of the NDC. The Tourism Master Plan 2012–2020 addresses climate change, but mostly in terms of reducing the environmental footprint of the sector.

B. Other public programs (regulation reform, zoning…)

• Adaptation isn’t just a matter of investment spending; what regulations support it?

27. Land use planning is needed for many projects listed in the NDC and is seen as an important tool for adaptation to climate change. For instance, the current moratorium on building big new hotels is intended to protect sustainability in the face of coastal erosion and pressure on energy, food, and water. Seychelles has a well-established legal framework for land use, the Town and Country Planning Act. Land use is guided by the 2015 Seychelles Strategic Land Use Plan, which is intended to steer land use planning until 2040. However, according to the government, the Plan does not adequately address sea-level rise and storm surges, the two main climate change impacts on infrastructure. Even though restricting land use for fear of flooding is difficult given the scarcity of land, a more protective update is called for.

C. Financial sector preparedness

• How is the financial sector contributing to the climate change effort?

28. The financial sector has not been much involved with the climate change strategy, and awareness of issues is relatively low. The influential view put forth by Mark Carney, Governor of the Bank of England, that the financial sector can play a significant role in supporting adaptation to climate change—both by mobilizing innovative financing and by being a positive force in disaster preparedness—has not yet got traction in Seychelles. ^{19 20} In the context of a small economy like Seychelles, safeguarding access to credit for households and businesses, and promoting a resilient mobile banking platform, could facilitate recovery after a natural disaster.

29. While the central bank was consulted on the debt swap and the blue bond, the banking system does not generally participate in innovative financing. Some commercial banks may have infrastructure in their loan portfolio but in general there is not much awareness of this type of lending opportunity. Nonbanks do not participate in big-project financing in Seychelles.

30. On the disaster-preparedness side, the central bank explained that it is not included in DRDM’s emergency planning. However, the central bank and FSA share a business resumption site and both banks and nonbanks are required to have business resumption plans.

31. As regards having available financial buffers, the central bank holds four months in gross reserves. These are deemed to be more-than-adequate (for normal circumstances), according to the IMF’s reserve metric (they amount to about 175 percent of the metric for reserve adequacy for floating exchange rate regimes), and broadly adequate taking into account also the smallness of the economy. Seychelles also has, as an additional buffer, the central bank’s ability to give within-year advances to government, which could significantly facilitate short-term financing in the wake of a disaster.

A. Current state of financing

• Does Seychelles have adequate financing to meet the needs of its climate change strategy?

32. The financing needs for capital projects identified in the NDC amount to 40 percent of 2017 GDP (see Table 4). If assumed to be spread over 13 years between 2017 and 2030, this would imply investment and funding needs of around 3 percent of GDP a year. This compares with ‘normal’ budget capital spending of 6–7 percent of GDP, implying a substantial but not extreme addition (not all of which would be net). As discussed below in more detail, such a scaling-up would be likely to be consistent with debt sustainability, depending on financing terms and other circumstances.

Table 4.

Seychelles NDC 2015--Costed Climate Change Projects

Table 4.

Seychelles NDC 2015--Costed Climate Change Projects

	10%	%GDP
Total	604	40%
Mitigation	309	20%
Public Electricity
90 MW of solar PV	191.7	13%
Waste Management
Retrofitting landfill for gas capture and flaring Land Transport	20.8	1%
30% private vehicles electric by 2030	66.7	4%
15.8 MW solar PV for electric vehicles	29.8	2%
Adaptation	295	19%
Critical Infrastructure Adaptation mainstreamed in all sectors with critical infrastructure; planning process; building codes; enforcement; community resilience	70	5%
Tourism/Coastal Management Coastal rehabilitation and resilience; cut vulnerability to flooding, landslides; strengthen early warning and capacity; improve co-management of sector by agencies	45	3%
Food Security Innovative technologies in food supply and value chains, skilled human resources, integrated with Blue Economy and Seychelles Strategic Plan 2015	35	2%
Biodiversity
Fully implement Biodiversity Strategy and Action Plan, and Biodiversity Law; fully bio-secure border	15	1%
Water Security
Fully integrated approach addressing ecosystem health, waste management, water treatment and supply, sewage, agriculture; increase storage by building dam; improve water management	85	6%
Health
Sector able to respond to population increase and climate-related health burden (e.g., dengue); exploration of science/technology innovation	30	2%
Blue Economy
Set up marine resource management institution	15	1%
Memo: GDP 2017 (US$, million)	1,516	100%

View Table

Table 4.

Seychelles NDC 2015--Costed Climate Change Projects

	10%	%GDP
Total	604	40%
Mitigation	309	20%
Public Electricity
90 MW of solar PV	191.7	13%
Waste Management
Retrofitting landfill for gas capture and flaring Land Transport	20.8	1%
30% private vehicles electric by 2030	66.7	4%
15.8 MW solar PV for electric vehicles	29.8	2%
Adaptation	295	19%
Critical Infrastructure Adaptation mainstreamed in all sectors with critical infrastructure; planning process; building codes; enforcement; community resilience	70	5%
Tourism/Coastal Management Coastal rehabilitation and resilience; cut vulnerability to flooding, landslides; strengthen early warning and capacity; improve co-management of sector by agencies	45	3%
Food Security Innovative technologies in food supply and value chains, skilled human resources, integrated with Blue Economy and Seychelles Strategic Plan 2015	35	2%
Biodiversity
Fully implement Biodiversity Strategy and Action Plan, and Biodiversity Law; fully bio-secure border	15	1%
Water Security
Fully integrated approach addressing ecosystem health, waste management, water treatment and supply, sewage, agriculture; increase storage by building dam; improve water management	85	6%
Health
Sector able to respond to population increase and climate-related health burden (e.g., dengue); exploration of science/technology innovation	30	2%
Blue Economy
Set up marine resource management institution	15	1%
Memo: GDP 2017 (US$, million)	1,516	100%

33. At the time of the 2017 budget, climate change projects amounting to 3½ percent of GDP had been included in the 2017–19 PSIP—meaning that funding has been identified and the project authorized or underway (see Table 5).²¹ So far, thus (since these are multi-year projects), the pace of mobilizing climate-investment is slower than consistent with completing the NDC package by 2030—i.e., faster investment would be called for in future years.

Table 5.

Seychelles--Climate-Related Projects Identified in the PSIP

Table 5.

Seychelles--Climate-Related Projects Identified in the PSIP

		total	govt	foreign
total cost of project (multi-year, in % 2017 GDP)
Total		3.4	1.9	1.5
La Gogue Dam		1.8	1.5	0.4
	Dept.Infrastructure	0.1	0.1
	Land Transport Auth.	0.02	0.02
	PUC	1.8	1.4	0.4
SWIOFISH3		0.1		0.1	WB
MEECC climate budget		0.6	0.1	0.5	GEF grant
Solar PV		0.9	0.3	0.6
	MEECC	0.1	0.0	0.0
	SEC	0.2		0.2	India
	PUC (Romainville)	0.6	0.2	0.4
Memo: GDP 2017 (rupees million)			20,013

View Table

Table 5.

Seychelles--Climate-Related Projects Identified in the PSIP

		total	govt	foreign
total cost of project (multi-year, in % 2017 GDP)
Total		3.4	1.9	1.5
La Gogue Dam		1.8	1.5	0.4
	Dept.Infrastructure	0.1	0.1
	Land Transport Auth.	0.02	0.02
	PUC	1.8	1.4	0.4
SWIOFISH3		0.1		0.1	WB
MEECC climate budget		0.6	0.1	0.5	GEF grant
Solar PV		0.9	0.3	0.6
	MEECC	0.1	0.0	0.0
	SEC	0.2		0.2	India
	PUC (Romainville)	0.6	0.2	0.4
Memo: GDP 2017 (rupees million)			20,013

34. Funding for the projects in the PSIP is slightly more than half domestic, and slightly less than half foreign (almost all concessional).²² Going forward, the government expects to be able to mobilize significant private investment to help finance the mitigation targets. However, the nature of the adaptation projects makes them less likely candidates for private investment, so official financing is likely to be needed for almost all.

• The blue bond being mobilized by the government with the World Bank and the GEF to finance fisheries adaptation is described in detail in Annex II. The US$15 million bond will be a sovereign obligation of the Government of Seychelles, so it will need to be counted within the envelope for official financing.²³ However, the combination of the sovereign liability with a World Bank guarantee and a substantial GEF grant is expected to make the bond attractive to a new class of private investors while keeping it affordable for Seychelles.

35. The discussion above leaves aside the point raised in Section V above—that the current NDC probably understates eventual adaptation needs. It also does not include the CatDDO, although mobilization of contingency financing is an extremely valuable contribution to the bill for climate change (valuable not only because of the money involved, but also because it shifts the burden of assuring the resources forward to a non-crisis time). Future exercises should attempt to construct a more comprehensive financing needs envelope, to make a better assessment of the potential macro-economic impact of paying for climate change.

B. Consistency of climate change spending and financing plans with fiscal and external debt sustainability

• Are Seychelles’ climate changes plans consistent with fiscal and external debt sustainability?

36. Implementation of planned mitigation and adaptation investments would delay the achievement of the authorities’ medium-term public debt reduction goal but debt would remain on a sustainable path. A gradual implementation of climate-related investment (meaning a net increase of 1–2 percent of GDP annually—the 3 percent gross needs, with the impact partly offset by lower ‘other’ public capital formation), financed equally by external project grants, concessional external project loans, and domestic loans would keep the debt on a firmly declining path. Under this scenario, the public debt declines each year and falls below 50 percent by 2022, two years later than the authorities’ target (see Figure below). Real GDP growth is assumed to be 1 percent of GDP higher from 2025 on, thanks to more efficient energy infrastructure and greater resilience to natural disasters.²⁴ The debt is projected to reach around 26 percent of GDP by 2036, a reasonably low level though significantly higher than under the baseline without investment scaling-up (15 percent).

Seychelles: Public Debt

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 162; 10.5089/9781484304808.002.A001

Source: IMF Staff projections.

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Seychelles: Public Debt

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 162; 10.5089/9781484304808.002.A001

Source: IMF Staff projections.

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Seychelles: Public Debt

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 162; 10.5089/9781484304808.002.A001

Source: IMF Staff projections.

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37. The type of financing used to fund the NDC investments will have an important impact on the debt path. In a variant of the scenario above which has all the climate change-related investments financed domestically, the debt to GDP ratio would decline at a much slower pace, reaching around 37 percent in 2036. In other words, the availability of concessional external Sources to finance NDC investments would make a material difference to the eventual debt burden. Further, the impact on the debt dynamics could also be reduced by making effective use of Public Private Partnerships (PPPs). But also, as discussed later in the paper, strengthening of capacity to manage both public investments and PPPs is likely to be a prerequisite for realizing efficiencies.

C. Other macro-considerations

• Would implementation of the climate change plans have any (good or bad) spillover effects to the macro-economy?

38. It is evident that the climate change agenda is intricately intermeshed with other developmental activities. This is appropriate, given that successful climate-change management will be a near-prerequisite for meeting the SDGs, especially in small states.²⁵ An analysis of all of the interlinkages between climate-related projects and other activity goes beyond the scope of this report. But some macro-effects are important to flag for the analysis in this paper (and, if they begin to materialize, should be reflected in an update to the debt sustainability analysis above):

• Balance of payments. Success with the mitigation effort—in particular the strategy of shifting to renewable energy—will substantially reduce Seychelles’ import bill and economize on foreign exchange (i.e., support the exchange rate). At current low oil prices, the net oil import bill is slightly less than 2½ percent of GDP; during the height of the oil price boom, it came to more than 5 percent of GDP. Thus, improvements in energy self-sufficiency are a valuable investment in the economy’s future macro stability.

• Revenue. As discussed in Section IV above, changes in energy use could hurt budget revenue, in the absence of a change in tax design. Under the current fuel and vehicle taxation system, success with the mitigation strategy would likely imply a loss of 3 percent of GDP in revenue (which is an additional reason for implementing a carbon tax and reforming the vehicle tax in such a way as to maintain more stable revenue).

• Growth. An exercise done for Caribbean small states estimated that energy investment that improves energy efficiency could materially improve GDP p.c. in small states.²⁶

• Possible overheating. Seychelles has remarkably full employment, compared with other small states. Hence, if investment happens to scale up fast, inflation and over-heating cannot be ruled out—and the macro-authorities should stand ready both to smooth the pace of investment and to take other offsetting fiscal or monetary action as needed.

D. Institutional issues

39. The government has taken important measures to strengthen financing capacity. Success in maintaining fiscal sustainability while carrying out the climate change agenda will depend on the government’s ability to mobilize concessional official financing and bring in private sector investors. It is building capacity to do this:

• Organization. It has set up a focused unit, the GoS/UNDP/GEF coordination unit, dedicated to mobilizing climate change funding and implementing donor projects. The unit has built up expertise in writing project proposals to climate funds and is in the process of preparing multiple requests. This should help Seychelles overcome the problem noted by many small states, of difficulties in overcoming hurdles to access climate funding.²⁷

• Innovative financing. Engagement with the World Bank on the blue bond, and previously with the Nature Conservancy and Paris Club for debt-for-nature swaps (see footnote 13), are building up valuable expertise in innovative financing.

40. In both cases, however, the test of cost-effectiveness will need to be applied on an ongoing basis. Care will have to be taken to ensure that climate fund financing is affordable:

• Fees. For one thing, the current system of requiring implementing agencies to prepare climate fund projects costs countries a reported 9.5 percent in fees; as the climate financing system becomes more mainstreamed, it will be in the interest of Seychelles and other countries to seek to economize on such fees.

• Value-for-money. Also, innovative financing packages will be worth constructing only if they are value-for-money or eliminate bottlenecks; care will be needed to avoid swapping an old liability for a new set of obligations that entail a new set of high costs.

A. Risk assessment procedures (e.g., fiscal risk statement)

• How well does Seychelles assess risk?

42. Seychelles meets formal standards for risk assessment procedures by including a short fiscal risk statement in documentation for the Budget Speech (Risks to the Budget’).²⁹ However, risks are not quantified, and while the statement mentions natural disasters, it does so only in general terms. Over time, Seychelles should develop costing of tail events, and use this costing (e.g., the need to cover a moderate disaster) to guide its contingency budgeting.

B. Self-insurance (government financial buffers including contingency provisions, rainy-day funds, NIR …)

• To what extent does Seychelles self-insure against risks?

43. The budget includes an explicit annual contingency allocation of 25 million rupees (0.3% of total government spending and 0.12 percent of GDP). It can be used for disasters, health crises, economic shocks, or emergency infrastructure needs. This allocation responds to a constitutional requirement for a contingency fund.

44. The contingency line is well-established (i.e., transparent and its role understood by other ministries) but is small compared with potential needs from a catastrophic event (“the size of one government building”). Officials see supplementary allocations as the appropriate solution to higher immediate crisis needs, and believe these would be approved without delay. Nothing in budget legislation impedes this, and short-term central bank financing of the budget is possible in exceptional cases. However, they also commented that they are still struggling to provide funds for build-back three years after tropical storm Feeleng, despite international assistance.

45. A larger fiscal buffer would be appropriate. Seychelles is in a better position to respond agilely to disasters than many other small states, because of its budgetary flexibility and independent monetary policy. However, financing a large tail event would be incompatible with monetary and fiscal stability. And delays in rebuilding the capital stock can be a drag on growth. Hence this report recommends the re-establishment of a contingency fund. This could be built gradually, by saving the contingency allocation in the fund every year it is not drawn down.³⁰

C. Risk reduction and transfer (other insurance, pooling arrangements,)

• To what extent does Seychelles transfer risk?

46. Seychelles has been innovative in some aspects of risk transfer but has left others unexplored. It broke new ground by having the first small-state CatDDO with the World Bank. However, it has not joined the regional sovereign-level risk pool, the African Risk Capacity (ARC), which offers African countries, including island states, drought and cyclone insurance. Its domestic insurance sector is underdeveloped.

47. The CatDDO is a contingency line of credit. Seychelles signed a Development Policy Loan in 2014, with a Catastrophe Deferred Drawdown Option (CatDDO) of US$7 million. This CatDDO is designed to provide liquidity in the case of medium-sized (or cumulative) disasters that cannot be funded with Seychelles’ internal reserves and to provide bridge financing while other sources of funding are being mobilized in the case of major disasters. The Government may draw funds upon declaration of a state of emergency from a natural disaster. The Cat DDO has a revolving feature which allows amounts repaid prior to the closing date to be available for subsequent drawdown. The drawdown period is three years. While the CatDDO provides concrete protection to Seychelles, it does not substitute for the development of additional provisions. To put it in context, it would have fallen short of covering the cost of 2013 Tropical Cyclone Felleng (US$ 8.4 million).

48. On the side of domestic risk management, however, Seychelles lags: insurance could contribute more to risk management. Seychelles has an underdeveloped insurance industry. The government does not buy insurance. While hotels have mandatory insurance and bigger businesses have insurance, there is little offloading of private risk beyond vehicle and mortgage insurance. A small scheme for farmers ran into difficulties with an unexpectedly large payout in 2016 after heavy rains. This illustrates on the one hand, the value of such insurance in the face of uncertain weather, and on the other the need to overcome design challenges, such as adverse selection and a small population pool.

49. An expansion of insurance could play a useful role in spreading risk. In the short run, the government should consider making insurance mandatory for buildings in flood-risk areas, for protection and as a way of influencing incentives to find safer alternatives. In the medium term— and in the context of fast evolution of public-sector-focused products in the insurance industry— the government should explore the cost-effectiveness of insurance as a supplementary buffer, for instance, to insure key government buildings.

A. Integration of climate change into national planning processes

• Have climate-related projects been mainstreamed into national planning?

50. The integration of climate change into national planning processes is a work-in-progress, both because national planning processes are being strengthened and because attention will have to be paid to ensure the climate change objective can be identified within the processes. The recent creation of the Economic Planning Department within the MFTEP could be an enabler of this mainstreaming of climate adaptation in national and sectoral planning.

51. As discussed earlier, national development objectives and climate change goals are closely aligned. The challenge is to articulate the plans in costed operational documents. Ideally, all planning documents—be they national or sectoral—should include investment plans and financing gaps from which to extract climate-related investments.

52. A comprehensive National Economic Development Plan, which builds on the SSDS, is in preparation for planned finalization by end-2017. It risks being delayed because it should draw on costed sectoral plans, not all of which yet exist. Importantly, the Ministry of Fisheries and Agriculture already has a fully-quantified investment strategy (SNAIP); a Roadmap for Renewables is being prepared by the Ministry of Environment and Energy, and a Roadmap for the Blue Economy by the Vice-Presidency. A key remaining input (from the climate change perspective) would be a costed plan from the Ministry of Habitat and Infrastructure.

53. A comprehensive Public Sector Investment Program (PSIP) already exists which is screened for consistency with national priorities (see more below). There is no system for identifying climate-change-related projects in the PSIP. However, the PSIP is fully integrated with the budget, and the budget is being shifted to a program basis (now in pilot, and for full implementation by 2019). Climate change is already identified in some pilot programs, so what remains to be done is to ensure that climate change objectives and activities are systematically identified throughout the budget, and investment projects explicitly linked to these. This would be facilitated by the new Programme Performance-Based Budgeting currently being implemented by the government. Critical next steps would be strengthening procedures for determining government priorities by the Cabinet within a credible budget envelope, capacity building, and enhancing awareness of PSIP processes.

54. Officials are conscious that the specification of sectoral strategies (as well as the reorganization of the government) may in some cases create a need to update legislation. For instance, the Energy Act will be reviewed for consistency with the energy strategy in the Renewables Roadmap and more broadly.

55. As discussed earlier, on the adaptation side the NDC falls short of offering a comprehensive strategy, and a broader framework is needed. But there is huge value in keeping the NDC aligned with the evolution of national strategies. Hence, in the next update, the revised NDC should put more emphasis on the blue economy and propose more accurate estimates of required investments across all sectors and in particular critical infrastructure.

B. Adequacy of public investment management system (effectiveness of procedures for identifying, evaluating, selecting, and implementing projects)

• Are adequate public investment management systems in place, to ensure climate- related investments will be well-spent?

56. Yes, in principle; but before their effectiveness can be assessed, more experience is needed, and preferably capacity-building. Seychelles has recently put in place many key elements of good public investment management (PIM). The PSIP is managed by the MFTEP, and is fully integrated with the budget. It is intended to be a fully comprehensive compendium of all government investments. A high-level Development Committee guides project selection for inclusion in the PSIP, based on cost-benefit analysis.³¹ Procurement is open and transparent. Finance Ministry officials monitor projects.

57. The mission did an overview assessment of Seychelles’ PIM practices using the IMF’s evaluation tool, PIMA.³² See Annex III. Some preliminary conclusions are:

Planning

• Seychelles does well in aligning its public investment plans with fiscal targets, anchored by the objective of reaching a debt/GDP ratio of 50 percent by 2020.

• Key for the effectiveness of planning will be to finish sectoral plans with full costing, and reflect priority projects in the National Development Plan.

• A step beyond that would be to specify targets for outputs and outcomes of the investments. This is envisaged as part of the shift to program budgeting.

• Seychelles is preparing for PPPs. A PPP Act has been presented to Cabinet, and the PIM unit in the MFTEP has been designated as the PPP unit. The Development Committee will scrutinize all PPP proposals (beyond a threshold size).

• Seychelles aims to have a regulatory framework which welcomes private sector investment in infrastructure, though with controls and Development Committee scrutiny of big projects. For instance, “IPPs are welcome, but proposals will be looked at carefully.”

Allocation

• A strong point of Seychelles’ PIM is that capital spending is almost all undertaken transparently through the budget, including foreign-financed projects. (The MFTEP cannot vouch that it captures all grant-funded projects, if other Ministries do not report them, and remarked that these unreported projects “are the ones that run into problems’.)

• Seychelles does multiyear planning, but probably not far enough ahead: the PSIP has a three-year horizon. This means that ministries’ investment ceilings are set only for three years, though the life of some projects may be longer. Also, appropriations are annual, which somewhat undermines the certainty associated with multi-year ceilings.

• The current and capital budgets are presented together (with clear distinctions between current and capital spending in line with international standards). Officials explained that appropriations are now made for recurrent costs of projects.

• Cost-benefit analysis is done for projects, according to a PIM manual (which is being updated). However, the Revenue and Expenditure Estimates 2017 note that “the Ministry of Finance has limited capacity to assess capital payment requests and appraise capital projects” (p. 122).

• The Development Committee serves as a central review point for project selection, taking a holistic perspective.

Implementation

• Seychelles does not have a system for multiyear allocations of project funding, or for carryover, but officials say that ongoing projects are given priority in annual allocations, and no virements to current spending are allowed.

• Most donor-funded projects are integrated into the TSA though some require dedicated accounts. Officials say cash is released punctually, with early release possible.

• The procurement process is transparent, requiring open tender, though the 2011 PEFA noted some difficulty in tracking the results of tenders.³³

• Projects are monitored by MFTEP officials throughout, including on-site; however, the Ministry notes the need to build capacity in this area. There is no procedure for ex-post audit

C. Adequacy of PFM systems for managing CC financing and outlays (transparent on-budget treatment of CC activities, multi-year budgeting, etc.)

• Are adequate public financial management systems in place, to protect climate-related funding?

58. Besides the positive PIM practices identified above, Seychelles has some other protective features of its public financial management (PFM) system, listed below. The 2016 PEFA update gave Seychelles a middle-grade B/C+ review, noting that reforms had generated improvements in 7 areas out of 31 compared with the 2011 assessment, so that three-quarters of indicators now ‘more than satisfy the basics of good management of public finances’ (p. 11), but with a D grade for donors’ reporting to government on their project execution.

• There is a medium-term fiscal framework designed to contain spending within sustainable limits, consistently with achieving Seychelles’ 2020 debt target of 50 percent of GDP.

• All borrowing has to be approved by the Debt Committee; grants, however, may be taken on by line ministries without Committee or MFTEP approval and their use may not be tracked.

• A single treasury account (TSA) covers 90–95 percent of government funds, with some dedicated donor accounts being an exception. Donors are identified in the chart of accounts.

• State-owned enterprises (SOEs) are not covered by the budget, but a regulatory body is responsible for oversight. SOEs must operate on a commercial basis unless a government directive allocates a subsidy to them.

A. What resources does Seychelles need to mobilize, to achieve its climate-change strategy?

59. An indicative tally of the priorities identified in this Assessment points to the following resource needs (though this list is not intended to be exhaustive and will evolve with time and experience):

• General preparedness (see Chapter III and Annex I for more detail)

  • Completion of the disaster-preparedness strategy (financial support and capacity-building)

  • Integration of climate-related activities into costed sectoral plans (capacity-building)

• Mitigation (see Chapter IV and Table 2 for more detail)

  • Solar PV for public electricity, including for electric vehicles (US$222 million in private investment)

  • Electric vehicles (US$67 million in private investment)

  • Waste management (US$21 million in private investment, and capacity-building)

  • Supporting quasi-public goods (primarily government financing or external support)

  • Strengthening the electricity grid

  • Charging stations for electric vehicles

  • Carbon taxation (follow-up capacity-building, especially to rationalize pricing of power and subsidies to fisheries, and possibly vehicle taxation and congestion pricing)

• Adaptation (see Chapter V and Table 4 for more detail)

  • Critical infrastructure (US$70 million costed; significantly more expected to be needed but not yet costed; primarily from public/external funds—though private investment should be sought where a business case can be made)

  • Tourism/coastal management (US$45 million costed; significantly more expected to be needed but not yet costed; primarily from public/external funds—though private investment should be sought where a business case can be made)

  • Food security (US$35 million costed; more expected to be needed…. as for previous items)

  • Biodiversity (US$15 million costed; more expected to be needed … as for previous items)

  • Water security (US$85 million costed; more expected to be needed … as for previous items)

  • Health (US$30 million costed; more expected to be needed when costed sectoral strategy is completed … as for previous items)

  • Blue economy: (US$15 million costed; significantly more expected to be needed when the Roadmap strategy is costed; private investment should be sought where a business case can be made, though the public good component will require substantial public investment/external funds)

  • Land use (not yet costed but public funding is expected to be needed to address sea-level rise and storm surges)

National processes (see Chapter VII and Annex III for more detail)

• Further development of public investment management skills (capacity-building)

• Further strengthening of public financial management skills (capacity-building)