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Seychelles Government to Re-Examine Public Investment Program Amid Pandemic-Induced Supply Disruptions

Victoria, Seychelles - The Seychelles government has announced plans to re-examine its public investment program at the end of the second quarter of 2020 to ensure it aligns with financing availability and debt sustainability objectives. This move comes as the country grapples with supply disruptions caused by the COVID-19 pandemic.

Increased External Borrowing

The government is expected to increase external borrowing in 2020 to finance a wide financing gap opened up by the pandemic without straining the domestic financial sector. In addition to already identified budget support loans from International Financial Institutions (IFIs) worth $55 million and the RFI purchase of $31 million, the government will seek an additional $40 million in external budget support.

Central Bank of Seychelles Advances

The Central Bank of Seychelles (CBS) has also been tapped for advances worth SCR250 million, half of the maximum amount stipulated in the CBS Act. Furthermore, the government plans to issue government securities to commercial banks and other private sector entities, equivalent to about 2¼ percent of GDP.

Government’s Commitment

“If external budget support does not increase as planned, greater domestic policy actions would need to be considered,” said a government spokesperson.

Impact on Public Debt

The pandemic has significantly impacted Seychelles’ public debt, with the public debt-to-GDP ratio expected to jump from 59% at end-2019 to around 85¾% by end-2020. Gross financing needs are also expected to rise from 24% in 2019 to 39¼% in 2020.

Fiscal Saving Measures

However, the government is committed to implementing fiscal saving measures to bring back the public debt ratio on a downward path once the pandemic’s impact dissipates and confidence is restored. The primary balance is expected to improve steadily from 2021 onwards, reaching a surplus of 2½ percent of GDP by 2025.

Air Seychelles’ Uncertain Future

Government Support

The future of Air Seychelles, the country’s national airline, remains uncertain amidst the pandemic-induced economic downturn. The government has allocated an additional SCR109 million (around 1% of GDP) to the airline in the revised 2020 budget, on top of financial support already incorporated into its medium-term debt projections.

IMF Advice

The International Monetary Fund (IMF) has advised the government to consider privatizing some state-owned enterprises, including Air Seychelles, to reduce fiscal risks and improve economic efficiency over the medium term.

Central Bank Maintains Prudent Monetary Policy

The CBS is committed to maintaining prudent monetary and financial policies while mitigating pressures from increased capital outflows. The central bank has already loosened its policy stance by reducing the policy rate by 100 basis points and increasing liquidity in the banking system.

Support for Businesses

The CBS has also set up a long-term lending instrument of SCR500 million for commercial banks to assist businesses struggling with the financial impact of the pandemic, as well as calling on commercial banks to grant a six-month moratorium on loan repayments to impacted sectors. The central bank is closely monitoring inflation developments and will limit foreign exchange interventions to address disorderly market conditions.

IMF Offers Support

The IMF has offered support to Seychelles in its response to the pandemic, urging the government to maintain flexible exchange rate policies and limit foreign exchange interventions only when necessary to address disorderly market conditions. The fund also advises borrowers who were already unlikely to repay before the crisis started not to unduly benefit from wide-ranging repayment holidays, while borrowers facing temporary difficulties should not be disincentivized to resume loan repayment at the end of the moratorium.

Continued Monitoring

The IMF will continue to monitor Seychelles’ economic situation and offer guidance as needed.