International Monetary Fund Report-Seychelles’ economy on solid path despite shocks |09 February 2012

It commends our marketing efforts and notes there is more affordable accommodation, which should mitigate negative effects impacting tourism globally.

It notes Real GDP increased by 6.7% in 2010 and is expected to have gained another 5% percent in 2011.

“Quantitative targets for end-2011 are unchanged. The macroeconomic outlook remains favourable. Real GDP growth in 2012 is projected to slow to 4%, reflecting the weakening global environment. The downside risk to tourism from the crisis in Europe, however, is partly mitigated by Seychelles’ successful marketing efforts, and the increasing supply of more affordable accommodation. Annual inflation is expected to decline to about 3.5 percent.

“The envisaged fiscal stance for 2012 will allow maintaining a steady course toward debt reduction. The 2012 primary fiscal surplus is projected at 4.7% of GDP,” says the IMF.

“The authorities’ decisions to downsize the loss-making national airline and raise tariffs of public enterprises are crucial steps for easing fiscal pressures and ensuring sufficient capital expenditure, in particular in much-needed infrastructure projects.

“Price subsidies through the Stabilisation Fund will be replaced with targeted transfers to low-income households.

“Monetary policy will continue to focus on containing second-round inflationary effects of global commodities’ prices and external pressures.

“The issuance of T-bills for monetary purposes will help the central bank manage commercial banks’ liquidity,” says the report, noting the structural reform agenda for 2012 builds on progress made to date, focusing on taxation, public finance management, public enterprises, and the financial
sector.

“Key measures include the launching of a value-added tax, enhanced budget procedures, the restructuring of Air Seychelles and two state-owned financial institutions, and the introduction of a credit information system.

“A robust recovery has continued in the face of mounting concerns of a slowdown in Western Europe. “Revised national accounts data indicate that real GDP rebounded by some 6.7% in 2010. Favourable tourism data and better-than-anticipated production indicators for the rest of the economy suggest momentum was maintained in 2011, with growth projected at 5%, 1 percentage point above that projected at the time of the third review.

Tourist arrivals and hotel bookings have displayed impressive resilience to the uncertainty surrounding economic and financial conditions in Europe, the primary tourism market for Seychelles.

“Macroeconomic stability has been maintained despite external shocks. 12-month consumer price inflation picked up from near zero in 2010 to 3.8% in October 2011, largely because of pass-through from the sharp increase in global food and fuel prices.

“As the pass-through continues, inflation is expected to peak at around 5.4% by year end.”