Seychelles’ economy is strong, says IMF |21 March 2018

Seychelles economic performance for 2017 has been strong resulting into a healthy economic growth exceeding 5%, the International Monetary Fund (IMF) has said.

The IMF mission chief to Seychelles, Amadou Sy, made this announcement yesterday during a press conference held at the Central Bank of Seychelles (CBS) in the presence of the Minister for Finance, Trade and Economic Planning Peter Larose and the Governor of the Central Bank, Caroline Abel.

This follows his delegation’s two-week mission to the Seychelles to finalise the IMF’s first review of the country’s performance in relations to the Policy Coordination Instrument (PCI), a non-financing programme Seychelles has recently embarked on.

“For 2017 growth has exceeded 5% mainly due to the strong tourism and fisheries performance, and also strong private credit,” Mr Sy revealed. Inflation has been estimated to be at a satisfactory 3.5%.

Mr Sy affirmed that the PCI programme is on track and that is reflected through three key criteria -- foreign exchange reserve, the primary surplus of the government, and the debt-to-GDP (Gross Domestic Product) ratio.

“All of these criteria have been met and the growth outlook for 2018 is positive,” Mr Sy provided.

However Mr Sy also stated that there are various economical and fiscal challenges that still need to be addressed. These include our current account deficit which remains elevated, and inflation which is steadily increasing and which is attributable to the external impact of increasing fuel prices, internal administrative measures and high credit growth to the private sector.

The latter, high credit growth, refers to the rising demand for bank loans during these past six months of which the majority is going towards consumption rather than investments.

“Since the Central Bank relaxed its monetary policy in July 2017 we have seen a large amount of credit going towards the private sector for the main purpose of consumption,” Governor Abel stated.

“Because Seychelles relies heavily on importation, the high level of consumption puts significant pressure on foreign exchange and this is what is causing the depreciation, especially in regards to the dollar.”

For this reason the board of CBS will meet on Monday March 26 to discuss the possibility of re-tightening its monetary policy, which means that it will remove a certain amount of rupees circulating in the system.

In turn this is expected to increase interests on bank loans thereby discouraging people from borrowing.

Mr Sy stated that the IMF approves of this measure and described the high level of credit growth as “worrisome”, adding that it raises a question on the quality of economic growth of a country.

He also provided several recommendations for structural reforms such as the strengthening of the country’s anti-money laundering framework and the development of a strategy for the off-shore financial sector.

Mr Sy recommended that the country focuses on preserving its economic gains and not to increase its debt burden through big projects such as have been detailed in the 2018 State-of-the-nation address.

For reduced-risk developments to occur, Mr Sy continued, the country has to look into the implementation of Public Private Partnerships (PPPs) but also concluded that the government must evaluate the potential fiscal risks that come along with such partnerships.

During its stay in Seychelles, the IMF mission also met and had discussions with President Danny Faure, members of the National Assembly as well as representatives of the private sector and the civil society.

The IMF delegation is expected to come back on a semi-annual basis to review Seychelles’ performance under the PCI programme which will span three years.