Sixth IMF Review encouraging for small countries like Seychelles, but doesn’t mean that we have to be complacent, we need to follow the indicators, says Minister Peter Larose.
April 06, 2017
Macro-economic performance continued to be strong in 2016, growth outlook for 2017 remains positive on account of foreign investments and rising arrivals in the tourism sector andthe 2016 primary fiscal surplus reached 3.4 percent of GDP, comfortably exceeding the program target.
These are the main findings of the International Monetary Fund (IMF) delegation, led by Mr. Wendell Samuel on their working visit to Seychelles from March 22 to April 4. They were here to conduct discussions on the 2017 Article IV Consultation and the sixth review under the Extended Fund Facility (EFF) [1] Arrangement with Seychelles.
According to Mr. Wendell, “economic growth reached 4.5 percent, reflecting increased tourist arrivals, stronger output in the fishing industry, and expanding credit to the private sector. Helped by low commodity prices and a stable exchange rate, inflation (year-on-year) was negative throughout 2016. The external current account deficit remained largely unchanged, while net international reserves exceeded the program target by US$14 million. Supported by lower than budgeted capital outlays and strong tax revenue growth, the 2016 primary fiscal surplus reached 3.4 percent of GDP, comfortably exceeding the program target. The end-2016 reserve money ceiling was missed by a very narrow margin, due to stronger-than-expected growth in foreign currency deposits’
Mr. Wendell was speaking at a press conference, organised in collaboration with Ministry of Finance, Trade and Economic Planning and the Central Bank of Seychelles (CBS) in the CBS Conference Room on Tuesday 4th April 2017. Also attending was the Minister for Finance, Trade and Economic Planning, Dr. Peter Larose, Ms. Caroline Abel, Governor of the Central Bank of Seychelles, the principal Secretary for Finance, Patrick payet, Mrs. Elizabeth Agathine, Principal Secretary for Economic Planning as well as staff from the CBS and the MFTEP.
On his part, the Minister for Finance, Trade and Economic Planning, Dr. Peter Larose, said this sixth review is a wakeup call. “It is true that our performance is not that bad but there can be an increase in inflation. When there is inflation in a country it can affect the cost of operation, can affect our purchasing power and affect external debts’, says Minister Larose.
Minister Larose pointed out that the review is encouraging for small countries like Seychelles. He said that in 2016, our economic growth was 4.5%, when other countries were struggling. Dr. Larose said that with our limited resources we have managed to achieve this percentage. According to Dr. Larose, “it shows that we have this prospect and also our macro-economic performance is so stable, our foreign exchange reserve is encouraging”.
The Central Bank, has also played a major role in the outcome of the sixth review. The Governor, Ms. Caroline Abel stated that the objective of CBS is stability in prices and they need to put this into consideration; ‘if the future predicts that the price will increase, we need to start adjusting our policy today so that we will not face any difficulties in the future. We don’t have to tighten our policy more; it is done gradually'.
Ms. Abel said that as announced last week, the Board discussed on its monetary policy stance, and it has kept it tight as in the last three months. She said that the fact that the CBS policy is for the future; …”and the future shows us that there is a great possibility that inflation will rise, like we have observed in the past few months, exchange rates especially in regards to dollars is depreciating. An increase in the dollar means that the price of commodities will increase; because we are very import dependent.
At the same time, Governor Abel said that she is confident that the position taken by the Board to maintain a tight monetary policy is appropriate at this time and that if the Bank is concerned about the way things are going, then it will tighten the monetary policy in the next three months, if the need arise. She said that the Board takes a position every three months based on how it sees the future given all the economic indicators.
This position was echoed by Mr. Wendell. He said that inflation remains under control, exchange rates remains stable and that the current policy of CBS was appropriate. Mr. Wendell continued by saying that there can be some inflationary pressure prices that can arise from external environment, such as increase in international oil prices since late 2016. In addition, fiscal measures introduced in the 2017 budget could put pressure on inflation and on the balance of payments and if that happens, then the CBS should stand ready to take action. Mr. Wendell said that with continued foreign investments and rising arrivals in the tourism sector, the growth outlook for 2017 remains positive.
On the issue of permanent measures for next year,Minister Larose said that in 2018 the Ministry of Finance, Trade and Economic Planning must conduct an assessment on 2017. Dr Larose said that there is a need to take concrete measures, and that we cannot continue to increase tax as it has its adverse effect; “ we are a small country and the concessions given should be revised. The productivity of the country is important to ensure that we do not continue to increase tax”.
Subject to the approval of IMF Management, the IMF Executive Board is expected to discuss the completion of the review and the Article IV consultation in June 2017. The mission appreciates the high quality of the discussions and thanks the authorities for their hospitality, as well as the open and constructive dialogue.
The team met with President Danny Faure, Minister of Finance, Trade, and Economic Planning, Dr. Peter Larose, and Governor of the Central Bank Seychelles, Caroline Abel, as well as other government officials, members of the National Assembly, and representatives of the private sector and civil society.