Wednesday, February 18, 2009

Reform showing signs of success, says IMF

Seychelles Nation, 14/02/2009

Signs of success for Seychelles’ reform efforts are beginning to appear, the International Monetary Fund (IMF) said yesterday, and it believes the programme will achieve its objectives of stabilising and reforming the economy. 

All quantitative performance criteria for the economic reform at end-December 2008 were met, except for those on the primary fiscal balance and a small temporary accumulation of non-reschedulable external arrears, it said.

The head of a six-strong IMF team, Paul Mathieu, gave this assessment at a press conference hosted by the Ministry of Finance and attended by Finance Minister Danny Faure, principal secretary for Finance Ahmed Afif and Central Bank governor Pierre Laporte.

The team have been here for two weeks to review the programme, which they said was developed in Seychelles and is the most home-grown reform drive they have seen.

Mr Mathieu said Seychelles’ authorities have been carrying out the far-reaching and fundamental reform programme with determination, and all three structural benchmarks at end-December 2008 were met.

He said the programme for 2009 features continued tight fiscal and monetary policies, a major reinforcement of public financial management and control over state enterprises, and modernisation of financial sector laws, norms and regulations. Also, a fundamental reform of the tax regime will be launched in mid-2009. However, he noted that growth in 2008 slowed considerably as a result of Seychelles’ balance of payments crisis and increasingly due to the worsening global environment.

“Real GDP growth is now estimated at about zero on a sharp decline in tourism earnings in the fourth quarter. Following the float in early November, the rupee depreciated by about 50% against the US dollar and interest rates rose to nearly 30%, helping to stabilise the exchange rate,” he said.

Mr Mathieu added that official reserves rose strongly to US $51 million and inflation, which rose sharply in November, was largely a one-off price level adjustment to the float of the rupee, increases in goods and services tax (GST) and removal of indirect subsidies.

“Government finances have been significantly tightened, and public sector employment is being reduced sharply while unemployment has remained in the low single digits,” he said.

He noted that the social assistance programme to protect the most vulnerable segments of the population is now in operation.

“Interest rates have begun to ease from their peak, and inflation is declining sharply, thanks to the tightened fiscal and monetary policies,” said Mr Mathieu.

“However, 2009 will be a challenging year as Seychelles is being hard hit by the deterioration in the global economy. Tourism receipts are expected to decline by 25% for 2009, and GDP is projected to contract by about 9.5%.

“The decline in commodity prices, especially of petroleum, and higher public revenue from fisheries will partially offset the loss of tourism receipts in the balance of payments.”

Mr Mathieu said public debt remains unsustainable but the Paris Club creditors have agreed to treat Seychelles’ debt under the Evian approach, and further talks with creditors are planned shortly.

He also said the World Bank and the African Development Bank are ready to help Seychelles, which they would not have done without the IMF’s involvement.

Seychelles Nation hopes to publish further details of the press conference on Monday.