This is according to the International Monetary Fund (IMF) who led a staff mission to the island for its first review under the IMF’s Extended Fund Facility (EFF) arrangement.
Seychelles’ tuna and tourism revenues remained weak after reporting exceptional results in 2013 while domestic demand and imports has grown strongly following a 13 per cent boost in earnings an a 16 per cent growth in credit to the private sector.
“The combination of weak export earnings and rising imports has led to pressure on the balance of payments,” said Marshall Mills, mission chief at the IMF.
“The authorities have the tools and determination to manage these short-term pressures. Monetary and fiscal policies are being tightened, with lower reserve money targets and higher primary surplus targets than envisaged in the program.”
Overall, the IMF is confident that the Seychellois government is on track to meet its key objective of reducing public debt below 50 per cent of GDP by 2018. Also, inflation is projected to be at 2.3 per cent for this year.
“The Seychellois authorities continue to strengthen the fundamentals of the economy, as well as the conditions for its sustained growth. The authorities successfully met all their quantitative program targets for end-June. The sizeable fiscal primary surplus and increase in international reserves this year bolster the resilience of the economy, in line with the objectives of the IMF-supported program,” added Mills.
For 2015, the IMF expects economic growth to increase slightly to three per cent due to policy adjustments and a gradual recovery in tourism and tuna exports.
“Fiscal policy will remain on track to meet the debt reduction target, while monetary policy is expected to steer inflation back to low single digits by the end of 2015, despite pressures from depreciation. International reserves are expected to remain stable in 2015, with adequate import coverage, according to staff assessments,” he added.
The IMF noted that wage levels need to also stay compatible in order to preserve gains made in macroeconomic stability and to ensure international competitiveness.
“The authorities’ structural reform agenda continues to advance. The authorities are on track to implement all structural measures planned for the first review in a timely manner. Staff highlighted the risks that public enterprises can pose to the public finances and development of the private sector and stressed the importance of pursuing plans to strengthen their oversight and governance, while enlarging the private sector’s role in the economy.”