IMF OKs $12.1M Disbursement for Seychelles

• The Executive Board of the International Monetary Fund (IMF) completed today the third reviews of Seychelles' economic performance under the Extended Fund Facility and Resilience and Sustainability Facility Arrangements. The completion of the reviews allows for an immediate disbursement of about US$12.1 million to help strengthen macroeconomic stability, boost growth, and strengthen fiscal and monetary policy frameworks, while also supporting efforts to strengthen resilience to climate change, exploit synergies with other sources of official financing, and catalyze financing for climate-related investments.
• Economic growth in Seychelles appears to have slowed relative to earlier forecasts, reflecting lower tourist arrivals and lower tourist spending in Q2 and Q3. Inflation remains low, fiscal performance in the first half the year was tighter than budgeted, and central bank accumulation of foreign exchange reserves was above the program target.
• Performance under the EFF and RSF programs has been good. All quantitative targets for end-June 2024 were met, and significant progress has been made on structural benchmarks under the EFF and reform measures under the RSF.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed today the third reviews of Seychelles' economic performance under the 36-month EFF and RSF Arrangements approved on May 31, 2023 . The completion of the reviews allows for the authorities to draw the equivalent of SDR 6.1 million (about $8 million) under the EFF and SDR 3.1 million (about $4.1 million) under the RSF, bringing total disbursements to SDR 24.4 million (about $32.1 million) and SDR 9.3 million (about $12.2 million) under the EFF and RSF, respectively.

Economic growth in Seychelles appears to have slowed relative to earlier forecasts, due in part to lower tourist arrivals from most regions as well as shorter stays and less spending per tourist. Fisheries and related product manufacturing is also lower than expected, driven by lower tuna production targets. Year-on-year inflation rose to 0.6 percent by September 2024, compared to -2.7 percent in December 2023, due primarily to higher utility tariffs. The Central Bank of Seychelles (CBS) has maintained an accommodative monetary stance. Fiscal performance in the first half of the year was tighter than budgeted, driven by robust tax collection. Lower than expected tourist arrivals and lower spending per capita is expected to contribute to a wider current account deficit by year-end. Nonetheless, gross international reserves rose to $754 million by August 2024, equivalent to 3.5 months of import cover.

Program performance remains good. All end-June 2024 quantitative performance criteria (QPCs) and all end-September 2024 indicative targets (ITs) were met. Good progress was made toward structural benchmarks, although some were implemented with a delay or rescheduled to a later implementation date due to capacity constraints. Three reform measures (RMs) under the RSF for the third review have been adjusted, with two now extended to September 2025. The third RM—adoption of a National Climate Finance Strategy—was achieved with a short delay.

The outlook is stable but faces significant near- and medium-term challenges. Real GDP growth is projected at 4.3 percent in 2025, stabilizing at around 3.5 percent in the medium term. Average annual inflation is expected to reach 2.3 percent in 2025, stabilizing at around 3 percent thereafter. The current account deficit is anticipated to average about 9 percent of GDP over the medium term. A balance of payments surplus, supported by modest improvements in the goods and services balance and continued FDI, is projected to raise reserve coverage to approximately 3.8 months of imports. Potential downside risks include rising global commodity prices, external shocks to tourism demand, and climate change.

The authorities' near-term priorities are to bolster economic growth, enhance fiscal and external buffers, and maintain macroeconomic stability. In the medium term, the authorities' focus is on gradual fiscal consolidation to reduce the ratio of public debt to GDP, while simultaneously improving the efficiency of public spending. Building capacity with respect to public financial management and financial sector supervision—particularly with respect to climate change, is another key focus. The structural reform agenda emphasizes revenue administration, public financial and investment management, and governance improvements, including digitalization and fiscal transparency.

Following the Executive Board's discussion, Mr. Bo Li, Deputy Managing Director, and acting Chair, issued the following statement:

"Seychelles continues to demonstrate sound macroeconomic management and progress on structural reforms under the EFF and RSF, despite volatility in the external environment and intensification of climate shocks.

"While growth in 2024 is likely to slow moderately, macroeconomic stability has been maintained, and continued progress has been made on critical macrostructural reforms. Better than expected fiscal outturns have contributed to a decline in public debt. Monetary policy remains accommodative in the context of low inflation and high real interest rates, but the authorities should remain vigilant to inflationary pressures and adjust the monetary policy stance if needed.

"The outlook is broadly stable but there are risks to near- and medium-term growth. These include a slowdown in tourism, risks from global economic and geopolitical developments, and the accelerating effects of climate change.

"The EFF arrangement will continue to help to protect macroeconomic stability and support stronger fiscal and external buffers, while supporting the authorities' structural reform agenda. Fiscal consolidation through revenue gains, prudent spending, and improvements in public financial management will help reduce debt and create space for priority expenditure, including social spending and investment in climate change adaptation and mitigation. The authorities are committed to continue reforms to boost inclusive growth by supporting economic diversification and value added, improving social protection, and investing in human capital. Ongoing reforms are also geared to improve the monetary policy implementation framework and to strengthen financial system resilience.

"Implementation of reform measures under the RSF will help to strengthen the climate-resilience of public investment, integrate climate change into the budget process and financing strategy, and bring climate risks to the fore in financial sector supervision. Looking ahead, continued implementation of the RSF will also help authorities strengthen climate-related risk management for financial institutions, and undertake climate adaptation and mitigation reforms, including through measures to facilitate energy transition."