IMF Executive Board Completes Article IV and Second Review Under the Extended Fund Facility for Seychelles
IMF News, June 29, 2022
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- IMF Executive Board Completes Article IV and Second Review Under the Extended Fund Facility for Seychelles
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- Published: June 29, 2022
Key developments and program status
- Date of press release: June 29, 2022.
- The Executive Board completed the second review of Seychelles’ economic performance under the 32-month Extended Fund Facility (EFF) arrangement that was approved on July 29, 2021.
- Completion of the review allows the authorities to draw the equivalent of SDR 6.5 million (about $8.7 million), bringing total disbursements under the current EFF to SDR 54.5 million (about $72.6 million).
- Program implementation: “Program implementation remains strong and all program targets at end-December 2021, except the floor on social spending, and all end-March 2022 targets were met, and appropriate progress was made toward structural benchmarks.”
Economic performance and outlook
- 2021 recovery: “The Seychellois economy strongly recovered in 2021, with GDP growth exceeding expectations” and “Seychelles’ economic recovery in 2021 vastly outperformed projections, fueled by a faster-than-expected rebound of the tourism sector.”
- 2022 projection: “The recovery is expected to continue in 2022 with projected real GDP growth of 7.1 percent as the tourism sector shows resilience to COVID-19 waves and geopolitical tensions.”
- Fiscal performance: “The recovery has been accompanied by a significant fiscal overperformance,” creating fiscal space to address current challenges.
Risks and vulnerabilities
- External risks: “The economic outlook, while positive, remains subject to external risks including a further surge of commodity prices and fewer tourist arrivals.”
- Commodity price impact: Surging commodity prices are expected to weigh on the external and fiscal balances in 2022.
- Financial sector risk: “Higher nonperforming loans in the banking sector could emerge as COVID-support and forbearance measures are being withdrawn.”
- Climate vulnerability: “The country remains vulnerable to climate change.”
Policy priorities and recommendations
- Near-term priorities: “Supporting the post-pandemic recovery and addressing the repercussions of the war in Ukraine while reducing debt vulnerabilities and creating fiscal space to address future risks.”
- Fiscal approach: Authorities requested “the modification of performance criteria to allow a more gradual fiscal consolidation. This will permit increased social spending to attenuate the impact of surging commodity prices on the most vulnerable households.”
- Monetary policy: “Monetary policy remains appropriately accommodative, and the authorities are committed to closely monitoring inflationary pressures.”
- Structural reform agenda to continue focusing on:
- revenue administration,
- public financial management,
- governance, including digitalization,
- state-owned enterprise reform,
- climate change adaptation and mitigation policies.
- Transparency measure: “In line with their commitment, the authorities published the audit of COVID-related emergency expenditures.”
Statements by IMF leadership
- Mr. Bo Li, Deputy Managing Director and Chair, stated:
- “Program implementation remains strong and all program targets at end-December 2021, except the floor on social spending, and all end-March 2022 targets were met, and appropriate progress was made toward structural benchmarks. In line with their commitment, the authorities published the audit of COVID-related emergency expenditures. To address current challenges, the authorities requested the modification of performance criteria to allow a more gradual fiscal consolidation. This will permit increased social spending to attenuate the impact of surging commodity prices on the most vulnerable households. Monetary policy remains appropriately accommodative, and the authorities are committed to closely monitoring inflationary pressures.
- “The authorities are committed to reducing debt vulnerabilities and creating fiscal space to address future risks. The structural reform agenda will continue to focus on revenue administration, public financial management, and governance, including digitalization, state-owned enterprise reform, and climate change adaptation and mitigation policies.
- “The Seychellois economy continues to face significant risks. The economic outlook, while positive, remains subject to external risks including a further surge of commodity prices and fewer tourist arrivals. Higher nonperforming loans in the banking sector could emerge as COVID-support and forbearance measures are being withdrawn. The country remains vulnerable to climate change.”
- Following the Executive Board discussion, Mr. Li, Deputy Managing Director and Acting Chair, reiterated:
- “Fueled by a fast rebound of the tourism sector, Seychelles’ economic recovery in 2021 outperformed expectations, with stronger-than-expected growth and fiscal outturns. The tourism sector has shown resilience to COVID-19 waves and geopolitical tensions. The recovery has been accompanied by a significant fiscal overperformance, creating fiscal space to address current challenges. The economic outlook, while positive, remains subject to external risks including from spillovers of the war in Ukraine, a further surge of commodity prices and fewer tourist arrivals.
- Monetary policy remains appropriately accommodative, and the authorities are committed to closely monitoring inflationary pressures. Higher nonperforming loans in the banking sector could emerge as COVID support and forbearance measures are being withdrawn.
- The country remains vulnerable to climate change.”
International Monetary Fund — Press Release No. 22/241