Press Release No. 16/130

Press Release: IMF Staff Completes Review Mission to Seychelles

March 23, 2016

An International Monetary Fund (IMF) staff mission led by Wendell Samuel visited Victoria during March 9‒22, 2016 to conduct discussions on the fourth review under the Extended Fund Facility (EFF)¹ arrangement with Seychelles.

At the conclusion of the visit, Mr. Samuel issued the following statement:

“Macroeconomic outcomes in 2015 were positive and all end-December 2015 performance criteria were met. Real economic activity expanded by about 5 percent, somewhat higher than potential GDP growth. However, slowing growth or recession in a number of key tourism markets could weigh on economic developments in 2016. Meanwhile, inflation continued on a downward trend supported by the low commodity prices and the Central Bank of Seychelles (CBS) tight monetary policy. The balance of payments strengthened on the back of robust tourism arrivals and the low international commodity prices, allowing the CBS to continue accumulating foreign reserves. Fiscal discipline resulted in the government exceeding the fiscal primary surplus target in 2015. The 2016 budget approved by the parliament in December 2015 was in line with the understanding reached during the previous mission.

“In light of the widespread concern over progress in poverty reduction and growing inequality, President James Michel has announced a number of measures, including minimum wage and pension increases as well as income tax cuts, in the State of the Nation Address in February. The IMF mission estimates that the announced measures would entail substantial fiscal costs—around 3 percent of GDP on a full-year basis.

“It is important that policies to ensure that the economic benefits from years of strong fiscal consolidation are shared more widely do not undermine macroeconomic stability. The mission therefore recommends that proposed increases in pension and minimum wages, together with income tax cuts, be accompanied by offsetting measures to avoid putting pressure on the balance of payments, inflation, and public debt. The mission had constructive discussions with the authorities on possible responses to counterbalance the expansionary impacts of the initiatives announced in the State of the Nation Address. These discussions will continue in coming weeks.

“The mission met with Vice President Danny Faure, Minister of Finance, Trade, and the Blue Economy Jean Paul Adam, and Governor of the CBS Caroline Abel, as well as other members of the government, and representatives of the private sector.

“The mission thanks the authorities for their hospitality and the candid and helpful discussions. Mission staff looks forward to an active and continued dialogue with the aim of maintaining macroeconomic stability and achieving inclusive growth in Seychelles.”

¹ The Extended Fund Facility under the Extended Arrangement is an instrument of the IMF designed for countries facing medium-term balance of payments problems because of structural weaknesses that require time to address. Assistance under the Extended Fund Facility features longer program engagement—to help countries implement medium-term structural reforms—and a longer repayment period. (See http://www.imf.org/external/np/exr/facts/eff.htm). Details on Seychelles’ Extended Arrangement are available at www.imf.org/seychelles.