Debt sustainable but euro zone woes raise concern


07-October-2011

The principal secretary for Finance Ahmed Afif said this yesterday as an International Monetary Fund team started their fact finding mission, as Seychelles eyes the December 2012 end of the IMF-led programme.

The Seychelles and IMF delegations at yesterday’s opening meeting

The debts, which threatened to spiral out of control – standing at nearly US $800 million before President James Michel launched the programme in 2008 – now stand at US $470 million.

This level is manageable and the country has neither arrears nor difficulties in repaying the loans balance, but the economic turmoil hitting our European tourism markets could send local prices upward unless prudent measures to stop this are put in place and are effective, he said.

“The developments in the euro zone are worrying because most of our earnings are in euros and most of our payments are in US dollars.

“When the euros fetch fewer dollars and our earnings remain more or less the same despite increasing visitor numbers – because the average tourist spends less than we are used to – we are getting the same amount of euros, which are increasingly worth fewer dollars, yet most of our payments for food and fuel are fixed in dollars.”

He said this way there will be a rising demand for dollars, making them less available and causing the currency to appreciate against the rupee as has happened in recent weeks.

“The dollar has appreciated but will only do so to a certain extent to which the market can sustain because if it goes too high its market will drop and it will therefore contain itself. It is a market situation and a mechanism that has served us well and been proven to work over the last three years, so we are very confident that despite the difficulties we may have, provided we find ways to mitigate against inflation, we should be able to contain the inflation levels,” he said.

Among the measures the country could adopt is repricing by concerns in the tourism sector, over which government has no control, though Mr Afif said they have done well in the past.

Advance buying of commodities, including of fuel, might help stall possible price hikes, he said.

He said technically our visitors are less able to spend, which could influence the country’s income.

The IMF mission is here to do its fourth review under the Extended Fund Facility of the reform programme to assess how we have been performing.

“The mission is also here to measure the specific quantitative performance criteria set under the programme and to discuss the way forward with the government on the constraints we may face and how we see the future ahead of us and if there is a need to revise some of the targets we have set,” he said.

He described the mission as a normal review mission, adding the country is perfectly on track with the programme.

The opening meeting with the IMF team was yesterday chaired by Vice-President and Finance and Trade Minister Danny Faure, and in addition to Central Bank governor Pierre Laporte and his team, also had finance ministry officials in attendance.

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