IMF says inflation will drop


A shopper buying food items at the People’s supermarket yesterday. The IMF says prices will drop later this year (Photo by GT)The analysis and forecast are contained in a press statement just issued by the IMF following the completion of its fifth review of the economic reform under the Extended Fund Facility (EFF) for Seychelles.

The IMF blames the risen inflation – which stood at 5.5% by the end of 2011 but rose to 8.7% in May – on higher international food and fuel prices and a depreciating exchange rate.

It says the trend will be changed by a tightened monetary policy which should alleviate pressures on the exchange rate.

The IMF’s executive board recently completed the fifth review under the three-year EFF for Seychelles, paving the way for Seychelles to get US $5.6 million.

“In 2011, the solid recovery that was set in motion by decisive policy changes after the 2008 crisis continued, supported by a vibrant tourism sector and continued high foreign direct investment,” said the IMF statement.

“Consumer price inflation increased from near-zero levels at the beginning of 2011 to 5.5% by year end, reflecting higher international food and fuel prices and, late in the year, a depreciating exchange rate. “Fiscal performance was stronger than projected, despite higher losses from the national airline’s operations.

“Public debt remained on a downward trend, and the country continued to rebuild international reserves. The economic programme supported by the EFF remains on track, and all quantitative performance criteria at end-December 2011 were met.”

The IMF goes on to say that in 2012, economic growth is expected to moderate owing to less favourable external conditions making inflation to peak in mid-year, “once recent adjustments of fuel prices and utility tariffs are fully reflected in the consumer price index”.

“Monetary policy is appropriately being tightened, which should alleviate pressures on the exchange rate and bring down inflation during the second half of 2012. Public finances will need to absorb the one-off costs of restructuring Air Seychelles, but an improved fiscal revenues outlook will ensure that the primary balance target is met.”

The fund talks about the possible implementation of the value added tax (Vat) next month, although the private sector is petitioning the government and the IMF to delay the move, with Seychelles Chamber of Commerce and Industry chairman saying businesses are not ready for the implementation.

The IMF says Vat would improve the efficiency of the tax system, adding that public finances should be strengthened by enhanced oversight of public enterprises, the launch of the public sector investment programme and the implementation of further public utility tariff reforms.

It says the financial infrastructure will be improved by the introduction of a new electronic clearing system.