Extended Fund Facility arrangement (EFF)1 for Seychelles |16 December 2014

IMF approves US $2.4 million disbursement

The executive board of the International Monetary Fund (IMF) has completed the first review under the Extended Fund Facility arrangement (EFF) for Seychelles. The completion of the review enables a disbursement of SDR 1.635 million (about US $2.4 million), bringing total disbursements under the arrangement to SDR 3.27 million (about US $4.8 million).

The executive board’s decision was taken without a meeting. The EFF was approved in June 2014 for SDR 11.445 million (about US $ 16.8 million, or 105 percent of Seychelles’ quota), and follows the expiration of the previous EFF in December 2013.

Programme implementation and economic fundamentals continue to be strong, although the external position weakened in mid-2014. At the first test date of end-June 2014, all performance criteria were met; based on preliminary data, all third quarter indicative targets were also achieved.

The structural agenda remains broadly on track, although there were some technical delays, notably with respect to amending tax legislation to make it consistent with international transparency norms.

Projected growth for 2014 has been revised down to 2.8 percent from 3.7 percent, due to weaker demand for Seychelles’ two main exports -- tourism and canned tuna. At the same time, strong growth in personal earnings and private sector credit have fueled a surge in imports, putting further pressure on the balance of payments. As a result, the exchange rate depreciated by 11 percent in nominal effective terms from early August to late-October.

The authorities have taken appropriate monetary and fiscal policy actions to address balance of payment pressures. The Central Bank’s decision to tighten the reserve money target for the fourth quarter of 2014 by 7 percent and maintain this stance into 2015 is a strong response to the demand and external pressures, which will serve to dampen any inflationary second-round effects following the depreciation.

The fiscal targets for 2014 and 2015 were also tightened to support the restoration of external balance and maintain progress toward the target of reducing the debt-to-GDP ratio below 50 percent by 2018.

The flexible exchange rate regime continues to serve the country well, and can act as an important safety valve in helping to manage the pressures and restore external equilibrium. Steadfast implementation of the authorities’ structural agenda should continue to lay the groundwork to promote inclusive growth and reduce risks. This agenda focuses on ensuring transparency and efficiency in the use of public resources, strengthening the governance of state-owned enterprises, and enhancing the environment for private sector development.