CBS Report charts domestic growth, external vulnerability |05 April 2008

Distributed amongst ministries, the National Assembly, international central banks and a range of other institutions – after an advance copy had been sent to President James Michel – the report points to record levels of tourism arrivals and foreign direct investment, as well as a third consecutive year of economic growth and an unemployment rate of only 1.9% as indications of the health of the national economy.

However, it also says that continued international and domestic fuel and commodity price rises, a potential recession in the US and the persistent shortage of foreign exchange leave the national economy and consumers vulnerable.

“I think we can feel relatively confident about Seychelles’ economy at the domestic level,” said Central Bank governor Francis Chang Leng.

 “Tourism has hit record levels and the surge in foreign direct investment brings more money into the country and indicates that outside investors have a high degree of confidence in Seychelles. The main threat we face is from external factors, such as the price of fuel and commodities, which are beyond our control.”

The report highlighted positive economic developments such as continued economic growth in 2007, following on from 2006 and 2005, and a post-budget government surplus which had been used to help reduce the national debt burden.
While some sectors of the economy, notably tourism and construction, continue to suffer from a skills shortage, the report recorded a drop in unemployment from 2.6% in 2006 to 1.9% in 2007.

It also noted that the growth in gross domestic product – in both real and nominal terms – is in line with the Strategy 2017 target of doubling within 10 years.

However, the bank’s report also sets out some of the economic hurdles faced during 2007.
While foreign investment and a resurgent tourism sector may have increased the amount of foreign currency coming into Seychelles, the supply has still been outstripped by demand.

It also highlights the threat posed by the continued escalation of the international oil price, increasing commodity prices and the potential impact of the US sub-prime mortgage problems and possible American recession.

“A recession in the US could lead to a similar downturn in Europe, which may in turn impact on visitor arrivals to Seychelles. The sub-prime mortgage crisis has also made international banks cut back on lending, reducing potential revenue sources for investors,” said Mr Chang Leng.

While external factors could reduce the amount of foreign currency coming into Seychelles, they are also responsible for the upturn in the amount of foreign currency leaving the country.

“The higher cost of commodities has put pressure on importers to find an increasing amount of foreign exchange, both from the banking system and through unofficial channels.”

Increased international costs and the rise in the cost of foreign exchange have combined to increase the local prices of goods, resulting in the 2007 inflation rate of 5.3%. Since the increase in the cost of petrol and rupee realignment both took place in late 2007, the full impact of these moves is likely to be reflected in the figures for 2008.

“We are confident that tourism will continue to experience growth over the course of 2008, further strengthening the economy,” added Mr Chang Leng.

“We have to be hopeful that the international situation will stabilise, although the growth of Seychelles’ financial services sector should serve to buffer us from the worst effects of a possible US or European recession.”

The 2007 CBS annual report is available online at: www.cbs.sc