Abstract
IMF Country Report No. 22/249
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IMF Country Report No. 22/249
SEYCHELLES
2022 ARTICLE IV CONSULTATION, SECOND REVIEW UNDER THE EXTENDED FUND FACILITY ARRANGEMENT, AND REQUEST FOR MODIFICATION OF PERFORMANCE CRITERIA AND INDICATIVE TARGETS—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR SEYCHELLES
July 2022
In the context of the Staff Report for the 2022 Article IV Consultation, Request for EFF, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board and summarizing the views of the Executive Board as expressed during its June 29, 2022 consideration of the staff report on issues related to the Article IV Consultation and the IMF arrangement.
The Staff Report prepared by a staff team of the IMF for the Executive Board's consideration on June 29, 2022, following discussions that ended on May 9, 2022, with the officials of Seychelles on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 14, 2022.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for Seychelles.
The document listed below has been or will be separately released:
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2022 International Monetary Fund
Press Release
PR22/241
IMF Executive Board Completes Article IV and Second Review Under the Extended Fund Facility for Seychelles
FOR IMMEDIATE RELEASE
The Seychellois economy strongly recovered in 2021, with GDP growth exceeding expectations but the surging commodity prices are expected to weigh on the external and fiscal balances in 2022.
The government made impressive progress in implementing the EFF program and restoring macroeconomic balances.
Maintaining the buildup of buffers against shocks remains critical in the current global environment
Washington, DC – June 29, 2022: The executive Board of the International Monetary Fund (IMF) completed today the second review of Seychelles’ economic performance under the 32-month Extended Fund Facility (EFF) arrangement that was approved on July 29, 2021. The completion of the review allows the authorities to draw the equivalent of SDR 6.5 million (about $8.7 million), bringing total disbursements under the current EFF to SDR 54.5 million (about $72.6 million).
Seychelles’ economic recovery in 2021 vastly outperformed projections, fueled by a faster-than-expected rebound of the tourism sector. The recovery is expected to continue in 2022 with projected real GDP growth of 7.1 percent as the tourism sector shows resilience to COVID-19 waves and geopolitical tensions. The recovery has been accompanied by a significant fiscal overperformance.
The authorities’ near-term priorities aim at supporting the post-pandemic recovery and addressing the repercussions of the war in Ukraine while reducing debt vulnerabilities and creating fiscal space to address future risks.
At the conclusion of the Executive Board’s discussion, Mr. Bo Li, Deputy Managing Director and Chair stated:
“Program implementation remains strong and all program targets at end-December 2021, except the floor on social spending, and all end-March 2022 targets were met, and appropriate progress was made toward structural benchmarks. In line with their commitment, the authorities published the audit of COVID-related emergency expenditures. To address current challenges, the authorities requested the modification of performance criteria to allow a more gradual fiscal consolidation. This will permit increased social spending to attenuate the impact of surging commodity prices on the most vulnerable households. Monetary policy remains appropriately accommodative, and the authorities are committed to closely monitoring inf lationary pressures.
“The authorities are committed to reducing debt vulnerabilities and creating fiscal space to address future risks. The structural reform agenda will continue to focus on revenue administration, public financial management, and governance, including digitalization, state-owned enterprise reform, and climate change adaptation and mitigation policies.
“The Seychellois economy continues to face significant risks. The economic outlook, while positive, remains subject to external risks including a further surge of commodity prices and fewer tourist arrivals. Higher nonperforming loans in the banking sector could emerge as COVID-support and forbearance measures are being withdrawn. The country remains vulnerable to climate change.”
Following the Executive Board discussion, Mr. Li , Deputy Managing Director and Acting Chair, made the following statement:
“Fueled by a fast rebound of the tourism sector, Seychelles’ economic recovery in 2021 outperformed expectations, with stronger-than-expected growth and fiscal outturns. The tourism sector has shown resilience to COVID-19 waves and geopolitical tensions. The recovery has been accompanied by a significant fiscal overperformance, creating fiscal space to address current challenges. The economic outlook, while positive, remains subject to external risks including from spillovers of the war in Ukraine, a further surge of commodity prices and fewer tourist arrivals.
“Program implementation remains strong and all program targets at end-December 2021, except the floor on social spending, and all end-March 2022 targets were met, and appropriate progress was made toward structural benchmarks. In line with their commitment, the authorities published the audit of COVID-related emergency expenditures. To address current challenges, the authorities requested the modification of performance criteria to allow a more gradual fiscal consolidation. This will permit increased social spending to attenuate the impact of surging commodity prices on the most vulnerable households.
Monetary policy remains appropriately accommodative, and the authorities are committed to closely monitoring inflationary pressures. Higher nonperforming loans in the banking sector could emerge as COVID support and forbearance measures are being withdrawn.
“The authorities are committed to reducing debt vulnerabilities and creating fiscal space to address future risks. The structural reform agenda will continue to focus on revenue administration, public financial management, and governance, including digitalization, state-owned enterprise reform, and climate change adaptation and mitigation policies. The country remains vulnerable to climate change.”
Title page
SEYCHELLES
STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION AND SECOND REVIEW UNDER THE EXTENDED FUND FACILITY ARRANGEMENT, AND REQUEST FOR MODIFICATION OF PERFORMANCE CRITERIA AND INDICATIVE TARGETS
June 14, 2022
EXECUTIVE SUMMARY
Context. Seychelles’ economic recovery in 2021 vastly outperformed projections, fueled by a faster-than-expected rebound of the tourism sector. The recovery is expected to continue in 2022 with projected real GDP growth of 7.1 percent as the tourism sector shows resilience to COVID-19 waves and geopolitical tensions. The recovery has been accompanied by a significant fiscal overperformance.
Outlook and Risks: The outlook is positive, but with downside risks from unanticipated spillovers of the war in Ukraine. External risks include a further surge of commodity prices and fewer tourist arrivals resulting from an erosion of real incomes in advanced economies. Higher nonperforming loans in the banking sector could emerge as COVID-support and forbearance measures are being withdrawn. The country remains vulnerable to climate change.
Program performance: Program implementation remains strong. As of end-December 2021, all quantitative performance criteria (QPCs) and indicative targets (ITs) were met, except the IT on priority social expenditures. All end-March ITs were met and appropriate progress made toward structural benchmarks.
Request for modification of performance criteria: The Seychellois authorities request modification of the June 2022 QPCs, as well as the September 2022 ITs, for a more gradual fiscal consolidation allowed by the past fiscal overperformance and reflecting increased social spending to attenuate the impact of surging commodity prices on the most vulnerable households.
Policy Recommendations. The authorities’ near-term priorities aim at supporting the post-pandemic recovery and addressing the repercussions of the war in Ukraine while reducing debt vulnerabilities and creating fiscal space to address future risks. This could be achieved through a policy mix consisting of domestic fuel price adjustment, revenue collection efforts, additional social spending, and a smoother path of fiscal deficit than initially envisaged, while keeping the debt-to-GDP ratio below the level originally envisaged in the program. The structural reform agenda will continue to focus on revenue administration, public financial management, and governance, including digitalization, state-owned enterprise reform, and climate change adaptation and mitigation policies
Staff’s views. Considering the authorities’ strong program implementation and policy commitments going forward, staff recommends completion of the second EFF review and supports the authorities’ requests for modification of performance criteria .
Approved By
Vivek Arora (AFR) and Maria Gonzalez (SPR)
The discussions in Victoria took place during April 27-May 9, 2022 and the team consisted of Boriana Yontcheva (head), Aissatou Diallo (resident representative), Erin Nephew, Taehoon Kim (all AFR), and Arindam Roy (MCM). Kyungsuk Lee (AFR) and Jonathan Pampolina (LEG) participated virtually in relevant meetings. Danielle Bieleu and Silvia Guadalupe Nunez (both AFR) assisted with the preparation of this report.
Contents
CONTEXT AND RECENT DEVELOPMENTS
OUTLOOK AND RISKS
PROGRAM PERFORMANCE
POLICY DISCUSSIONS
A. Short-Term Fiscal Policy: Dealing with the Commodity Price Shock
B. Medium-Term Fiscal Priorities
C. Monetary and Exchange Rate Policy
D. Debt Management Strategy
E. Financial Stability
F. Governance and Transparency
G. Structural Issues: Diversification, Climate Challenges, and Inclusive Growth
H. Data and Other Surveillance Issues
PROGRAM MODALITIES
STAFF APPRAISAL
BOX
1. Climate Change Initiatives
FIGURES
1. Tourism Indicators
2. Inf lation Indicators
3. Financing Indicators
4. Financial Soundness Indicators
5. Indicators of Economic Activity
6. Macroeconomic Indicators – 2015-27
7. Macroeconomic Developments and Projections
TABLES
1. Selected Economic and Financial Indicators, 2020-27
2. Balance of Payments, 2020-27
3a. Consolidated Government Operations, 2020-27
3b. Consolidated Government Operations, 2020-27 (Percent of GDP)
4. Depository Corporations Survey and Central Bank Accounts, 2017-21
5. Financial Soundness Indicators for the Banking Sector, 2018–21
6. Schedule of Purchases Under the EFF Arrangement
7. Indicators of Capacity to Repay the Fund, 2017-2032
8. Decomposition of Public Debt and Debt Service by Creditor, 2021-23
ANNEXES
I. Risk Assessment Matrix
II. Air Seychelles
III. Debt Sustainability Analysis
IV. External Sector Assessment
V. Main Recommendations of the 2019 Article IV Consultation
APPENDIX
1. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
