IMF asserts inflation will drop |28 June 2012

Leader of the IMF’s team that visited Seychelles from June 20 to 27 Jean Le Dem referred to the predictions when he gave a press conference on Tuesday with Finance, Trade and Investment Minister Pierre Laporte and Central Bank of Seychelles governor Caroline Abel at the Ephelia Resort.

“Recent economic data are broadly in line with projections, with GDP (gross domestic product) expected to grow by about 3% in 2012,” he said at the conference, which marked the end of the team’s visit.

“Strong growth in tourist arrivals from new markets has more than compensated for the drop-off in visitors from traditional markets in Europe, where economic activity has been weak.

He however noted that year-on-year inflation has risen to 8.7% but said it is expected to decelerate in the second half of 2012 in the wake of the current tightening of monetary policy.

“The present fiscal policy stance continues to be appropriately geared toward maintaining macro-economic stability and reducing public debt,” he said.

He said earlier this month the IMF’s executive board completed the fifth review of the programme which is supported by an arrangement under an extended fund facility.

“Discussions for the 2012 Article IV consultations and for the sixth review of this programme are scheduled to take place in September-October 2012.

“Quantitative targets as of end-June appear within reach, and progress has been achieved on several structural reforms, including in the area of public finance management,” he said.

“Challenges remain. Improved coordination between the central bank and the treasury is needed to resolve anomalies in the structure of short-term interest rates. The authorities have indicated their desire to conduct additional analysis of the economic and social impact of introducing a value-added tax (Vat).”

He said the mission hopes the studies will help to alleviate public concerns about the new tax, which is to replace the current sales tax, adding international experience has underscored the merits of Vat as a broad-based and effective form of indirect taxation.

He noted that plans to introduce Vat in July have been put on hold, pending completion of the proposed studies.
Nation will come back with further details from the press conference.