Seychelles’ macroeconomic performance continued to be strong in 2018; economic growth reached 4.1 percent, the 2018 primary fiscal surplus stood at 3.2 percent of GDP; delays in the implementation of Air Seychelles’ restructuring plan could undermine government’s efforts to sustain strong fiscal primary surpluses and jeopardize medium-term public debt reduction goals.
An International Monetary Fund (IMF) staff team led by Mr. Amadou Sy visited Victoria from March 6‒19 to conduct discussions on the 2019 Article IV consultation and the third review under the Policy Coordination Instrument Arrangement1 with Seychelles.
At the conclusion of the visit, Mr. Sy issued the following statement:
“Macroeconomic performance continued to be strong in 2018. Economic growth reached 4.1 percent, reflecting increased tourism earnings and stronger output in the fishing industry. Helped by prudent monetary policy and a stable exchange rate, inflation was contained throughout 2018. The external current account deficit narrowed to 17.1 percent of GDP, while net international reserves exceeded the program target by US$31 million. Supported by lower than budgeted capital outlays and strong tax revenue growth, the 2018 primary fiscal surplus reached 3.2 percent of GDP, comfortably exceeding the program target. The end-2018 inflation target (annual average) was met by a comfortable margin, due to prudent monetary policy and declining international fuel prices in late 2018.
“Economic outlook for 2019 remains positive. The declining trend in international fuel prices up to early 2019 could have a positive impact on the external balance in 2019, while some of the fiscal measures in the 2019 budget could put pressure on inflation and on the balance of payments. International reserves are expected to remain at an adequate level, anchored by prudent macroeconomic policies. Downside risks to the outlook stem largely from the external sector.
“The mission discussed permanent fiscal measures in 2020 that would help secure the medium-term debt reduction target. It also stressed that delays in the implementation of Air Seychelles’ restructuring plan could undermine government’s efforts to sustain strong fiscal primary surpluses and jeopardize medium-term public debt reduction goals. The team concurred with the authorities about the need to address structural weaknesses and promote inclusive growth, including through further diversification in the context of the Blue Economy initiatives, improving the business climate, Fintech, and strengthening the state-owned enterprise sector. The Central Bank of Seychelles (CBS) should continue to maintain a flexible exchange rate while limiting foreign exchange interventions to the extent needed to avoid excess volatility and preserve reserve coverage at an adequate level. At the same time, the CBS is called upon to remain vigilant to inflationary pressure stemming from rising domestic demand including from fiscal measures in the 2019 budget.
“Subject to the approval of IMF Management, the IMF Executive Board is expected to discuss the completion of the review and the Article IV consultation in June 2019. The mission appreciates the high quality of the discussions and thanks the authorities for their hospitality, as well as the open and constructive dialogue.”
The team met with His Excellency President Danny Faure, Minister of Finance, Trade, Investment, and Economic Planning Loustau-Lalanne, and Governor of the CBS Caroline Abel, as well as other government officials, members of the National Assembly, and representatives of the private sector and civil society.Distributed by APO Group on behalf of International Monetary Fund (IMF).