‘Reforms pulled Seychelles from economic brink’ |02 July 2009

The economy nearly stalled in mid-2008, but the reforms we started in November turned things around, says the IMFSurvey magazine which is focusing on small island economies.

It says the economy stabilised after we launched exchange liberalisation, fiscal reforms and a tight monetary policy.

The publication says our focus is to shift to structural measures to set the economy on a sustainable growth path “Less than a year after experiencing economic crisis and introducing bold economic reforms, Seychelles is seeing the fruits of its efforts,” says the magazine calling the liberalisation and “bold” measures historic.

“Following its float, the rupee stabilised at a level about 50% lower against the US dollar and in spring 2009 appreciated significantly. Interest rates which went up sharply with the new market-based monetary policy have begun easing from their peaks and disinflation is firmly entrenched. The focus is now shifting to structural measures needed to set the economy on a sustainable growth path,” says IMFSurvey.

“The tourism-based economy was pushed over the financial brink on which it had teetered for many years due to the spike in commodity prices.”

It says from the late 1970s the government raised living standards but had to borrow on international capital markets and notes there were various reform efforts from 2003 through 2007 whose paces were too gradual to address the magnitude of the macroeconomic imbalances.

“In 2007-08, the petroleum and food price shock hit Seychelles particularly hard and inflation shot up. The crisis came to a head in mid-2008 when the authorities missed payments on their private foreign debt and Standard & Poor’s downgraded Seychelles to selective default,” the magazine says.

The magazine says there are two overriding objectives ahead:
“A fundamental reform of the tax system is needed to level the playing field and remove distortions and inefficiencies. The 2010 budget will introduce a broader and flatter business tax, and a personal income tax. A value-added tax will be introduced by 2012. Secondly, a major reinforcement of control over the parastatal sector is needed to address weaknesses which, if left unaddressed, could put at risk the hard-won recent gains in macrostabilisation and public finances.”

It is to be noted that measures along these lines have already been taken.