World Bank backs reforms but says more needs to be done |03 May 2005

Speaking at the airport on Saturday morning, the World Bank's James Bond said that his delegation supported the economic changes made to date, but that Seychelles' debt burden and the role of government in the economy still need to be addressed.

"I think that government has now realised that there was no GDP (Gross Domestic Product) growth last year and none the year before," he said and that there is a, "need to adjust to a new model."

"That model inevitably will have a smaller role for government in the production sector, perhaps a larger role in maintaining investment in people, making sure that the economy functions efficiently, but less role in producing stuff, owning supermarkets, being present in every part of the production economy."

According to Mr Bond the current debt burden means that Seychelles' leaders do not have a choice about making these reforms.

With government debt running at around 200 percent of GDP, Mr Bond said that Seychelles is, per person, the most heavily indebted country in the world.

During his six-day visit Mr Bond met with President James Michel, local World Bank representatives Minister Patrick Pillay, Minister Jacquelin Dugasse, and the principal secretaries for Foreign Affairs, Finance and Economic Planning and Employment.
In addition he held talks with a number of private sector and parastatal heads.

While the written recommendations from the visit are not due out until September, Mr Bond did give a few suggestions, before his departure for his base in Antananarivo, Madagascar.

"The government needs to reduce the debt burden, to change the nature of its participation in the economy, to promote the Seychellois private sector development, to become competitive again, to get back on a growth trajectory."

The World Bank director said that Seychelles' state–heavy development model had won gains in human development, but that by the middle of the 1990's, "it had run out of steam."

But while pressing for government withdrawal from the production side of the economy the World Bank official gave his backing to social welfare spending.

Mr Bond said that the Bank recognises the need for a social safety net, to, "minimise the impact of a transformation on the most vulnerable."

He said that there are many other areas in which spending can be cut before having to reduce welfare expenditure.

The World Bank director also said that it is too early to talk about the possibility of devaluation of the rupee.

"Devaluation is just one of a range of things.... it may or may not be part of a package, but is not a magic bullet to solve everything over night, in a similar way that the macro economic reform programme wasn't a magic bullet. There was a fair amount of pain, it did some good, but of itself it wasn't enough."

According to Mr Bond economic growth will require more than just devaluation.
"It needs to be broader, really a transformation of the economy," he said.

He also acknowledged the difficulties caused by the non-convertibility of the rupee.

"Currency convertibility is a major problem in the country," he said and, although the Bank had made no recommendations on measures to alleviate the problem, he said that he recognised that tackling it is a priority for the government.
Mr Bond acknowledged that the World Bank had achieved both successes and failures in its interventions in small island developing states (Sids) and also that working with Sids threw up specific challenges.

He said that Seychelles' production costs prevent local industry competing with other countries, but said that the high level of education in Seychelles opens up avenues in the service sector.

Mr Bond said that financial services, such as fund management and off-shore banking, similar to that carried out in Bermuda, could be an option.

Recommendations following the visit and on going dialogue between Seychelles and the World Bank will be used to seek support from the international financial community for future reforms, he said.