December 6, 2022

IMF says Seychellois economy strongly recovered in 2021 but spillover effects from Russia’s war Ukraine threatening progress

IMF Managing Director Kristalina Georgieva at the International Monetary and Financial Committee (IFMC) Plenary meeting held at IMF Headquarters during the 2019 IMF/World Bank Annual Meetings
IMF Managing Director Kristalina Georgieva at the International Monetary and Financial Committee (IFMC) Plenary meeting held at IMF Headquarters during the 2019 IMF/World Bank Annual Meetings

The International Monetary Fund (IMF) said on Monday that the Seychellois economy strongly recovered in 2021 but spillover effects from war in Ukraine remain a threat.

“The Seychellois economy strongly recovered in 2021, but spillover effects from the war in Ukraine are expected to weigh on the external and fiscal balances in 2022 due to a surge in commodity prices,” the IMF wrote following a mission to the country led by Boriana Yontcheva.

The IMF team visited Victoria from April 26-May 9, 2022 to conduct discussions on the second review of Seychelles’ economic and financial program supported by the Extended Fund Facility (EFF) Arrangement, and the 2022 Article IV consultation. It met with President Ramkalawan, Minister of Finance, National Planning and Trade Hassan, Governor of the Central Bank of Seychelles Abel, and other senior government officials as well as representatives of the private sector.

The team reported that the government made “impressive progress in implementing the EFF and restoring macroeconomic balances, meeting all quantitative targets under the program,” but warned that maintaining the buildup of buffers against shocks remains critical in the current global environment.

Ms. Yontcheva, the head of the mission to Seychelles wrote, “The Seychellois economy strongly recovered in 2021 with real GDP growing to an estimated 8 percent, driven by a swift rebound of the tourism sector. In spite of the deterioration of the international environment associated with the war in Ukraine, tourism earnings in March 2022 surpassed the 2019 level and GDP growth is expected to reach 7 percent in 2022.

“Price inflation rose to 10.1 percent in December 2021 up from 1.2 percent in 2020, reflecting the lagged impact of the large depreciation of the rupee in 2020 as well as pandemic-related cost-push factors but declined to 2.2 in March 2022 due to the impact of the 2021 appreciation of the currency. Looking ahead, the surge of global prices is expected to bring inflation to 5.7 percent at the end of year.

“The primary fiscal deficit declined from 15.4 percent in 2020 to 3 percent of GDP in 2021 overperforming program targets by 3.3 percent of GDP—mainly owing to gains from strengthened revenue efforts, and lower current and capital spending.

“The authorities’ efforts have substantially reduced debt vulnerabilities. Combined with the strong recovery, the successful implementation of the Liability Management Operation and a sharp appreciation of the currency in 2021, the ambitious fiscal consolidation has substantially reduced debt vulnerabilities. The debt-to-GDP ratio declined to around 76 percent of GDP in 2021 from 93 percent in 2020.

“The government has made impressive progress in implementing the IMF-supported program and restoring macroeconomic balances. All end-December 2021 quantitative targets under the program were met—some, including the fiscal primary balance target, by a wide margin. The broader structural reform agenda is also moving ahead.

“The government is pursuing its commitment to bolstering governance and fighting corruption. As of end April 2022, ninety percent of the international business companies submitted information to the beneficial ownership database launched in July 2021. The authorities are pursuing efforts to ensure accuracy and availability of the collected information.

“The Central Bank of Seychelles (CBS) has maintained an appropriately accommodative monetary policy. The CBS continues its efforts to strengthen Seychelles monetary policy framework and closely monitor financial sector soundness to reinforce banks’ ability to support the recovery.

“Contingent liabilities from Air Seychelles have been reduced since Air Seychelles has gone under administration and its debt got restructured. Staff underlined the need to ensure that the government should incur no further liability from Air Seychelles and welcomed the recently approved public enterprise monitoring bill.

“The macroeconomic outlook is favorable, but challenges remain. In the short run, spillover effects from the war in Ukraine are expected to weigh on the external and fiscal balances in 2022 due to a surge in commodity prices. While inflationary pressures should remain broadly contained, rising food and fuel prices are expected to disproportionately affect the poor. The authorities plan a set of temporary means-tested support measures to contain the effects of commodity price surges on the most vulnerable while ensuring that such measures do not generate market distortions, remain temporary and well-targeted towards the most vulnerable, and are kept in line with medium-term fiscal sustainability targets.

“In the long run, Seychelles’ open economy remains highly vulnerable to external shocks and climate change. Maintaining the buildup of buffers against shocks remains critical in the current global environment and requires the continuation of prudent macroeconomic policies and the safeguarding of international reserves.

“The team would like to thank the Seychellois authorities for their close collaboration and the openness that prevailed during the discussions.”

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