Press Release No. 22/241

IMF Executive Board Completes Article IV and Second Review Under the Extended Fund Facility for Seychelles

June 29, 2022

• The Seychellois economy strongly recovered in 2021, with GDP growth exceeding expectations but the surging commodity prices are expected to weigh on the external and fiscal balances in 2022.
• The government made impressive progress in implementing the EFF program and restoring macroeconomic balances.
• Maintaining the buildup of buffers against shocks remains critical in the current global environment

Washington, DC: The executive Board of the International Monetary Fund (IMF) completed today the second review of Seychelles’ economic performance under the 32-month Extended Fund Facility (EFF) arrangement that was approved on July 29, 2021. The 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).

Seychelles’ economic recovery in 2021 vastly outperformed projections, fueled by a faster-than-expected rebound of the tourism sector. 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. The recovery has been accompanied by a significant fiscal overperformance.

The authorities’ near-term priorities aim at 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.

At the conclusion of the Executive Board’s discussion, 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, made the following statement:

“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.

“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. Higher nonperforming loans in the banking sector could emerge as COVID support and forbearance measures are being withdrawn.

“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 country remains vulnerable to climate change.”