The strong recovery of the Seychellois economy has continued in 2022, led by a rebounding tourism sector. Growth is uneven across other sectors of the economy. The government has made significant progress in restoring macroeconomic balances and performance under the EFF program is strong. Maintaining the buildup of buffers against shocks, while protecting the most vulnerable people remains critical in the current global environment.

The executive Board of the International Monetary Fund (IMF) completed today the third 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 $8.6 million), bringing total disbursements under the current EFF to SDR 61 million (about $80.6 million). The Executive Board’s decision was taken on a lapse-of-time basis [1].

Seychelles’ economic recovery has remained very strong in 2022, fueled by a faster-than-expected rebound of the tourism sector. At end-September 2022, tourist arrivals were 125 percent higher than the same period in 2021, with stronger than expected demand from Europe and the Middle East. The recovery is mostly concentrated in tourism-related industries. Real GDP growth is expected to reach 10.6 percent in 2022, before moderating to 5.4 percent in 2023. Inflation has been relatively low (3.0 percent year-on-year at end-September 2022), reflecting the effects of currency appreciation in 2021 and earlier this year as well as the base effect of higher inflation in 2021. Average inflation is expected decline to 3.0 percent for 2022, before rising to 4.5 percent in 2023, reflecting higher import prices and a fading of the cushion provided by the lagged effect of the rupee appreciation.

The recovery has been accompanied by a significant fiscal consolidation and social support for the most vulnerable. The primary fiscal deficit in 2022 is expected to narrow to 1.1 percent of GDP, reflecting an extraordinary consolidation of 13.6 percentage points over the last two years. Risks to debt sustainability have been significantly reduced with the public debt-to-GDP ratio expected to decline to about 68 percent at end-2022, a 21-percentage-point reduction in two years. In 2023 and over the medium term, the primary balance will shift to a surplus, as revenue measures will more than compensate for the planned increase in capital expenditure. The government has provided social support for the population, including through a program of targeted, temporary cash transfers to protect the most vulnerable from rising food and fuel prices, which is expected to run through early 2023.

Program performance remains strong. All end-June 2022 quantitative performance criteria (QPCs) and indicative targets (ITs) as well as all end-September 2022 ITs were met. Good progress was made toward structural benchmarks, although some were implemented with a delay due to capacity constraints.

The economic outlook, while positive, remains subject to risks, including a worsening of economic prospects in many of Seychelles’ key tourist markets (Russia, the European Union, and the United Kingdom), high food and fuel prices and their effect on the most vulnerable, a resurgence of COVID-19, higher-than-expected inflation, and higher non-performing loans from legacy forborne loans. Climate-related shocks remain as medium- and long-term risks.

The authorities’ near-term priorities are to support the post-pandemic recovery and maintain debt sustainability as well as address the impacts of rising food and fuel prices on the most vulnerable. Over the medium-term, the authorities’ measures aim to increase revenues and bolster capital expenditure, with a focus on climate-change mitigation and adaptation. In addition, the structural reform agenda prioritizes revenue administration, public financial management, and governance, including digitalization, and state-owned enterprise reform.

[1] The Executive Board takes decisions under its lapse-of-time procedure when a proposal can be considered without convening formal discussions.