(Ecofin Agency) - In 2021, Seychelles signed an agreement with the IMF for reforms that have accelerated economic recovery, improved public finances, and reduced debt. Building on this success, two new preliminary IMF arrangements have been secured by the archipelago.

Seychelles recently reached a staff-level agreement worth $103.15 million with the IMF to support economic policies and reforms and strengthen its climate resilience. The agreement was announced by the IMF in a release dated March 29, 2023. 

The agreement includes a new 36-month Extended Fund Facility (EFF) worth about $56.96 million and a new Resilience and Sustainability Facility (RSF) worth about $46.19 million.

“The new EFF and RSF will support the authorities’ efforts to maintain macroeconomic stability, advance structural reforms, including climate adaptation and mitigation, and insure against downside risks,” the release indicates. 

The archipelago, which concluded a previous Extended Fund Facility in July 2021,  has recorded positive macroeconomic results that were welcomed by the institution. In 2022, GDP growth accelerated to 9%, compared to 5.4% in 2021. It was driven by the tourism sector, whose arrivals have reached 87% of pre-pandemic levels. Meanwhile, inflation has declined to an average of 2.6 percent in 2022 from 9.8 percent in 2021, reflecting "the lagged effects of currency appreciation.”

In addition, Seychelles' public finances showed a primary budget surplus of 0.7 percent of GDP in 2022, compared to a deficit of 3.2 percent in 2021 and 15.2 percent in 2020. This also represents "an outperformance" against the projected primary fiscal deficit of 1.1 percent of GDP for 2022, the institution said.

The performance helped reduce public debt to “69.9 percent of GDP at end-2022 (11 percentage-points reduction since end-2021)."

According to the IMF, the archipelago’s economy is expected to grow at a slower pace of 4.3% in 2023 with inflation still falling at an average of 1.4%. Nevertheless, higher spending is expected in 2023 and the primary balance would reach a deficit of 0.4 percent of GDP.

Let’s note that the staff-level agreement is subject to approval by IMF management and the Executive Board. Board consideration is tentatively scheduled for May 2023.