- Seychelles, Africa's richest country, may have to adopt very painful reform strategies if it is to maintain macroeconomic stability and reduce its public debt service obligations. The IMF said this today, following approval of a two-year Stand-By Arrangement (SBA) to support country' economic reform effort to a tune of US$ 26 million.
Amongst hard-line reforms that Seychelles will have to adopt, it will have to limit its government role in the economy and boost private sector development by further privatisation, enhanced fiscal governance and a review of the tax regime which has in past offered very lenient package benefits and exemptions.
According to the IMF's Deputy Managing Director and Acting Chairman, Takatoshi Kato, even with significant fiscal tightening envisaged, Seychelles' public debt would remain unsustainable, saying the country would need good faith negotiations with official bilateral and commercial external creditors, in order to secure a debt restructuring aimed at re-establishing public debt sustainability, consistent with the country's long-term payment capacity.
"The comprehensive and bold nature of the authorities' reform programme merits support of the international community. While there are risks to the programme, including from a global downturn, early and important policy reforms authorities have already undertaken are indicative of their strong ownership of the reform effort," Mr Kato said.
The IMF has already committed to helping Seychelles to implement a package of major macroeconomic and structural reforms, which will include, a fundamental liberalisation of exchange regime, involving elimination of all exchange restrictions and a float of the local currency rupee, which was introduced in early November.
The programme will also look into significant and sustained tightening of fiscal policy backed by a reduction in public employment and replacement of indirect subsidies by a targeted social safety net, while also reform of monetary policy framework will focus on liquidity management based on indirect instruments.
"Strong fiscal policy reforms, including removal of tax exemptions and strengthening of public financial management, need to be sustained in order to secure substantial primary surpluses over the medium term. The public sector employment retrenchment exercise, together with the replacement of indirect product subsidies by a targeted social safety net, are important reform components," Mr Kato said.
With a total access of about US$ 26.1 million under the support programme, the IMF will make available US$ 9.13 million immediately, while the balance was to be disbursed in seven quarterly instalments over next two years, and subject to the Fund's reviews of performance under the arrangement.
Seychelles, with primary earnings from fishing and tourism, has had its ups and downs since being exposed in the aftermath of the 2005 Tsunami effects. With current GDP growth estimated at 3.1 percent, the IMF has commended the country's authorities for bold steps taken towards reforms, saying this could be a good start in, implementing a far-reaching reform programme to address macroeconomic imbalances that have built up over past decades.
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