The Seychellois economy continued to recover in 2023 and is moving closer to pre-pandemic norms despite external shocks and a complex disaster from flooding and an industrial explosion; The government made good progress in implementing the EFF and RSF—meeting almost all quantitative targets under the program and making notable progress on macro-structural benchmarks and climate related reform measures; Seychelles’ economic outlook is generally positive. However, given its high vulnerability to external shocks and climate change, continued efforts to reduce public debt, rebuild fiscal and external buffers, bolster the efficiency of public spending, and ensure support for the most vulnerable segments of the population are critical.

An International Monetary Fund (IMF) team led by Mr. Todd Schneider visited Victoria from March 21-April 3, 2024, to conduct discussions on the second reviews of Seychelles’ economic and financial program supported by the Extended Fund Facility (EFF) Arrangement and the Resilience and Sustainability Facility (RSF). The team met with the authorities and private sector representatives for the 2024 Article IV consultation.

At the end of the mission, Mr. Schneider issued the following statement:

“Following a post-pandemic surge in economic activity in 2022, real GDP growth slowed to an estimated 3.2 percent in 2023, despite a continued increase in tourism activity, with visitor arrivals reaching a level equivalent to over 91 percent of the pre-pandemic high and tourism earnings continuing to rise. Real GDP growth is expected to reach about 3.7 percent in 2024 on the back of a continued increase in visitor arrivals together with buoyant activity in IT, construction, and the financial sector. This outlook incorporates some drag on activity linked to the impact of the December 2023 flooding and explosion at Providence Industrial Estates.

“Year-on-year headline inflation entered negative territory in May 2023 and fell to a low of -2.7 percent in December. The steepest declines were in housing, electricity, and utilities (-5.3 percent). Significant decreases were also seen in transport and food, reflecting the pass-through of lower imported food and fuel prices and appreciation of the exchange rate. Year-over-year inflation is expected to rise to 1.6 percent in 2024, largely on the back of increases in utility prices.

“The government achieved a primary fiscal surplus of 1.7 percent of GDP in 2023. This was an over-performance relative to the EFF program target. Underspending on both recurrent and capital budget lines more than offset lower-than-expected revenues. While the fiscal position was moderately tighter than might be desired, the fiscal surplus contributed to a further decline in public and publicly guaranteed debt to 58.5 percent of GDP at end-2023.

“The external current account deficit is estimated to have widened slightly to around 7.2 percent of GDP in 2023, partly reflecting higher imports related to foreign direct investment (FDI). The Central Bank of Seychelles (CBS) overperformed modestly with respect to targets for foreign exchange reserves accumulation under the EFF program. Gross reserves stood at about $682 million at end-2023, equivalent to about 3.2 months of import cover.

“The CBS maintained the monetary policy rate at 2 percent during 2023. Given lower-than-projected growth, disinflation, and the rise in real interest rates, the mission sees the recent decision to lower the policy rate in March 2024 as appropriate. The CBS has also moved to increase absorption of domestic liquidity with a view to enhancing the effectiveness of monetary policy and is closely monitoring financial sector soundness.

“The government has made strong progress in implementing the IMF-supported programs. All but one of the quantitative targets under the program were met (a slight underperformance on the revenue target). The EFF structural reform agenda continues to move ahead, albeit with some technical delays. The reform measure linked to the second review under the RSF (cabinet approval of draft building legislation integrating climate adaptation and mitigation aspects) has been completed.

“While the outlook remains positive and risks are roughly balanced, the Seychellois economy remains highly vulnerable to external shocks and climate change in the medium- to long-term. Downside risks to the outlook include potential upward pressure on commodity and transport prices from the conflict in Israel and Gaza, continued attacks in the Red Sea, the ongoing war in Ukraine, and continued vulnerability to climate-related shocks. Maintaining the buildup of fiscal and external buffers remains critical in the current global environment and requires the continuation of prudent macroeconomic policies and the safeguarding of international reserves.

“The team thanks the Seychellois authorities for their close collaboration as well as frank and open exchange during the discussions.  Meetings were held with President Ramkalawan, Minister of Finance, National Planning and Trade Hassan, Governor of the Central Bank of Seychelles Abel, other senior government officials, and representatives of the private sector.”