Economy weathers tough conditions to stay stable


The principal secretary for Finance Ahmed Afif said this on Thursday when the agency gave Seychelles a ‘B’ rating.

“The euro zone is in problems with certain countries being unable to pay their debts and we are talking of bail-outs all over, the euro is depreciating against the US dollar, the cost of fuel stays high, the rupee continues to depreciate against the US dollar, yet we have been able to maintain the rating,” he said.

He said for Seychelles to move on well ahead the country needs to maintain the fiscal discipline it has so as to ensure inflation does not climb too high.

In its report, which has been widely published around the world, Fitch affirms Seychelles' long-term
foreign currency Issuer Default Ratings (IDR) at 'B' and long-term local currency IDR at ‘B+’.

“The outlook on the long-term ratings is stable,” it says, affirming Seychelles' country ceiling at 'B' and short-term foreign currency rating at 'B'.

“Seychelles’ credit profile balances strong structural features – including a high level of
GDP per capita (USD11,500) compared to the ‘B’ rated median (USD3,300) –  and relatively well functioning institutions, against relatively weak public and external finances,” says the report.

“Debt restructuring from 2009, including extension of maturities, led to a marked fall in external debt and debt service.

“The performance of Seychelles under its International Monetary Fund (IMF) Extended Fund Facility programme, initiated at end-2009, has been strong, reflecting the authorities’ commitment to
budget discipline.

“In 2011, the primary budget surplus is estimated to have reached 5.8% of GDP (after 8.6% in 2010 and 14.3% in 2009) as a result of reforms on tax and public spending, including a marked reduction in public sector employment from 33% of total employment in 2007 to 18% in 2011,” the report says.

Fitch says it expects public debt to decline from 78.5% of GDP in 2011 to 71% by 2013, and in the  medium-term, the authorities aim to lower public debt to 50% of GDP by 2018.

“Fiscal control has been enforced with the support of the IMF, setting the public debt dynamic on a firm downward path,” says Arnaud Louis, associate director at Fitch ratings.

“However, given the dependence of the island on tourism flows from Europe – 73% of tourist arrivals in 2011, primarily from France and Italy – and despite Seychelles’ success in attracting a growing number of tourists in 2010 and 2011, the current economic slowdown in Europe poses downside risks to the short-term outlook,” he says.

“GDP growth is estimated to have been strong in 2011, at 5%, mainly supported by tourism – which is the source of 26% of current account receipts – and construction. Tourism on the island has so far shown resilience to a difficult external environment thanks to its traditional strength in the luxury segment, and a diversification strategy to attract tourists from new countries, including China, and extend the range of prices on offer.

“However, the expected slowdown in European economies could affect tourism flows in 2012.”
Fitch says despite efforts to increase the number of carriers flying to Seychelles, the closure of

Air Seychelles’ direct flights from Europe adds uncertainty to the outlook so it expects growth to slow, but to remain solid, at 4% in 2012 and 2013.

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