The executive board of the International Monetary Fund (IMF) has completed the first review of the Seychelles’ economic performance under the three-year Extended Fund Facility Arrangement (EFF). The completion of the review makes available a disbursement of SDR 2.2 million (about US$3.3 million dollars), bringing total disbursements under the arrangement to SDR 5.28 million (about US$7.8 million). The board’s decision was taken on a lapse of time basis. The executive board takes decisions under its lapse of time procedure when it is agreed by the board that a proposal can be considered without convening formal discussions. The EFF for Seychelles became effective on December 23, 2009 in the amount of SDR 19.8 million (about US$29.3 million, or 225 percent of Seychelles’ quota in the fund.
The Seychelles economy has proved remarkably resilient to the double crisis it experienced. Following a turnaround in its economic policies to address an external debt crisis and a global financial crisis in 2008, the country appears to have emerged from the recession. Real gross domestic product (GDP) grew by 0.7 percent in 2009 and growth is projected to recover further to 4 percent in 2010.
The program remains fully on track and all quantitative performance criteria at end-March 2010 were met. Economic policies continue to be anchored by prudent fiscal policies. Government revenue is exceeding expectations in 2010, facilitating the implementation of key public infrastructure projects, while the decision to save part of the revenue overperformance will strengthen fiscal and external sustainability. The maintenance of prudent policies has given credibility to the currency float introduced in November 2008. Inflation has virtually disappeared, allowing a reduction in key policy interest rates, and international reserves are being rebuilt.
Progress on structural reforms is also good. On tax reforms, the business tax was rationalized and a personal income tax introduced. The next challenges will be to further broaden the tax base, reduce tax rates, modernize customs, and introduce a value-added tax in 2012. The authorities have also strengthened public finance and central bank management and are starting to address the restructuring of several key public enterprises and financial institutions, with a view to reducing the risks to the government budget and fostering sustained private sector-led growth.
Restructuring of Seychelles’ external debt is progressing well. Strong policy implementation has convinced most external creditors to bring back external debt to sustainable levels, including through the completion of a debt exchange with private creditors in February 2010.