Wednesday, February 18, 2009

Statement at the Conclusion of an IMF Mission to Seychelles

Press Release No.09/35  -  February 13, 2009

An International Monetary Fund (IMF) mission led by Mr. Paul Mathieu visited Victoria from January 30 to February 15, 2009 to conduct the first review of Seychelles' economic reform program supported by a two-year Stand-By Arrangement (SBA). The mission met with President James Michel, Finance Minister Danny Faure, Central Bank Governor Pierre Laporte, and other senior government officials, as well as with representatives of the business and diplomatic communities, parliamentarians, and civil society. The SBA, approved on November 14, 2008, is for about US$24 million (SDR17.6 million), of which US$9.2 million was disbursed upon approval. About US$1.3 million (SDR 0.88 million) would be available upon completion of the first review, scheduled for consideration by the IMF Executive Board in late March.

The mission issued the following statement in Victoria today:

"The Seychelles authorities have been implementing a far-reaching and fundamental reform program with determination. All quantitative performance criteria at end-December 2008 were met, except for those on the primary fiscal balance and a small temporary accumulation of non reschedulable external arrears. The three structural benchmarks at end-December 2008 were also met. An updated Memorandum of Economic and Financial Policies for 2009 was agreed, ad referendum. The program for 2009 features continued tight fiscal and monetary policies, a major reinforcement of public financial management and control over state enterprises, and modernization of financial sector laws, norms, and regulation. A fundamental reform of the tax regime will be launched in mid-2009."

"Growth in 2008 slowed considerably as a result of Seychelles' balance of payments crisis and increasingly on account of the deteriorating 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 percent against the US dollar and interest rates rose to near 30 percent, helping stabilize the exchange rate. Official reserves rose strongly to US$51 million. Inflation spiked in November, largely a one-off price level adjustment to the float of the rupee, increases in the goods and services tax (GST) and administered prices on several products, and removal of indirect subsidies. Government finances have been significantly tightened and public sector employment is being reduced sharply, in part under a voluntary departure scheme. While unemployment has remained in the low single digits, the removal of subsidies and the decline in purchasing power are placing a strain on many households. A targeted social assistance program to protect the most vulnerable segments of the population is operational."

"In early 2009, signs of success of the reform effort are beginning to appear and the mission believes the program will achieve its macroeconomic stabilization and reform objectives. The exchange rate stabilized and the parallel exchange market has disappeared. Interest rates have begun to ease from their peak, and inflation is declining sharply, thanks to the tightened fiscal and monetary policies. 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 percent for 2009 and GDP is projected to contract by about 9½ percent. The decline in commodity prices, especially for petroleum, and higher public revenue from fisheries will partially offset the loss of tourism receipts in the balance of payments."

"Seychelles' public debt remains unsustainable. The authorities have pressed ahead with their debt restructuring strategy. In consideration of Seychelles' unsustainable public debt, Paris Club creditors have agreed to treat Seychelles' debt under the Evian approach and further discussions with creditors are planned shortly."