OREANDA-NEWS. December 24, 2015. Executive Board of the International Monetary Fund (IMF) today completed the third review under the Extended Fund Facility arrangement (EFF)1 with Seychelles. The completion of the review enables a disbursement of SDR 1.635 million (about US\\$2.3 million), bringing total disbursements under the arrangement to SDR 6.540 million (about US\\$9.1 million). The Executive Board’s decision was taken without a meeting.2

The EFF was approved on June 4, 2014 (see Press Release No. 14/262) for SDR 11.445 million (about US\\$15.7 million, at the time of approval of the arrangement or 105 percent of Seychelles’ quota), and follows the expiration of the previous EFF in December 2013.

Macroeconomic outcomes in 2015 have been positive and the external current account deficit is estimated to have narrowed substantially, supported by low commodity prices and higher than expected tourism receipts. Program implementation remains on track, and all end-June performance criteria were met. Economic growth for 2015 has been revised up from 3.5 to 4.3 percent, reflecting strong tourist arrivals and expanding credit to the private sector. The exchange rate appreciated 6.7 percent against the US dollar during the first three quarters of the year. Together with low oil and food prices internationally, this supports a subdued outlook for inflation. The Central Bank of Seychelles (CBS) continued accumulating foreign exchange, bringing the reserve coverage to just under five months of imports. With the primary fiscal surplus expected to be close to 4 percent of GDP in 2015, the authorities are continuing to make progress in reducing the country’s debt burden. The outlook for 2016 remains benign, with growth projected at around 3.3 percent.

With inflation and private sector credit growth slowing, the authorities can now move to normalize monetary conditions. Given the commendable progress in building external buffers, further foreign exchange purchases can now be limited to those necessary to preserve coverage at adequate levels. Continued fiscal discipline will be a critical anchor for macroeconomic stability. At the same time, improved attention to the quality of fiscal expenditures should ensure sufficient space for critical investment in human and physical capital, and thereby support inclusive and sustainable growth. Looking ahead, the structural agenda should focus on improving the business climate, particularly with regard to small and medium-sized enterprises. Further progress in reducing vulnerabilities will also be critical, including addressing potential fiscal risks stemming from public enterprises, and ensuring that the offshore sector operates in line with international best practice.

1 The Extended Fund Facility under the Extended Arrangement is an instrument of the IMF designed for countries facing medium-term balance of payments problems because of structural weaknesses that require time to address. Assistance under the Extended Fund Facility features longer program engagement—to help countries implement medium-term structural reforms—and a longer repayment period. (See http://www.imf.org/external/np/exr/facts/eff.htm). Details on Seychelles’ Extended Arrangement are available at www.imf.org/seychelles.

2 The Executive Board takes decisions without a meeting (based on lapse-of-time procedures) when it is agreed by the Board that a proposal can be considered without convening formal discussions.