Fitch Ratings reports - Seychelles’ rating upgraded to BB- |03 August 2015
Cured of default on its external debt in 2010, Seychelles' long-term foreign currency Issuer Default Ratings (IDR) has been upgraded to 'BB-' from 'B+’ and its local currency IDR has improved to ‘BB’ from 'BB-’.
These have come out in an assessment done by Fitch Ratings – a global finance rating agency – and published in a report dated Friday July 31, 2015.
According to the same report, the country’s Outlooks are stable.
The IDRs on Seychelles' unsecured foreign currency bond has also been upgraded to 'BB-' from 'B+' and the country ceiling has also been raised to 'BB' from 'B+' while the short-term foreign currency IDR has been affirmed at 'B'.
According to Fitch Ratings, the upgrade of Seychelles' IDRs reflects the key rating drivers and their relative weights.
These include the authorities achieving impressive outcomes in the country's IMF Extended Fund Facility programmes since 2010, in particular consistently over-performing on its primary budget surplus targets.
“Timely implementation and strong willingness to execute on the structural reforms of the programmes have resulted in more robust and coherent fiscal and monetary policy frameworks,” writes the report.
The authorities have also increased the size of buffers to mitigate external vulnerabilities. As a result, gross international reserves cover rose to 4.5 months of imports in May 2015, up from 4.2 months in May 2014, and 2.1 months in 2009.
Still according to the Fitch Ratings’ statement, Seychelles' public debt dynamics are on a firm downward path. Fiscal policy is anchored by the government's commitment to reducing debt/GDP to 50% by 2018 (the authorities and the IMF's calculation includes t-bills and t-bonds issued for monetary policy purposes; Fitch's calculations excludes these debt instruments). By Fitch's calculations, this has led to gross general government debt/GDP falling to 58.5% in 2014, from 80.7% in 2010. They are also forecasting debt/GDP to fall further to 55.8% in 2015.
The report adds that the country has a large structural current account deficit, which widened in 2014 to 21% of GDP, from 16% of GDP in 2013. This is because the Seychelles economy depends on imports for basic foods and products, and roughly two-thirds of the current account deficit is financed by foreign direct investment flows, reflecting the large import-content of foreign investments in the tourism and hotel sectors.
The country’s gross external debt at 140% of current account receipts is high compared with peers, and this “reflects the high foreign currency share of public debt and debt-financed investments by the non-bank private sector”.
“However, adds the statement, sovereign external debt at 41% of GDP is significantly lower than Seychelles' peers, following the government's restructuring of its external debt in 2010.”
GDP per capita (US $15,657) and income per capita (US $23,270) are more than double the 'BB' median, reflecting the high value-added economy and its export market's concentration in wealthy western European countries.
“The World Bank recently re-classified Seychelles as a 'high income' country in July 2015, although the UN reports that income inequality is high with an income Gini coefficient of 65.8 in 2013. Seychelles also outperforms the 'BB' median in the UN human development indicators and World Bank governance indicators,” adds the Fitch statement.
The country’s five-year average real GDP growth is high at 5.5%, while the five-year average inflation rate is low at 3.9%.
The Fitch report adds: “Monetary policy tightening since end-2014 is expected to negatively affect economic activity in 2015. Fitch forecasts real GDP growth to remain low at 3.4% in 2015 (2014: 3.3%) despite a pick-up in tourist arrivals.”
Visitor arrival figures show that 126,603 visitors came to Seychelles as of June 28, 2015.