Seychelles' credit ratings remain at 'BB-' with a stable outlook from Fitch Ratings 2023, reflecting solid tourism recovery, stable growth prospects, low inflation and stable economic framework of the country.

According to the Ratings released on Friday, "Seychelles' tourism sector recorded a solid recovery in 2022, with tourist arrivals surging by 82 percent year-on-year and reaching 86.4 percent of 2019 levels."

Fitch warns that global economic uncertainty and competition from other high-end tourism destinations should lead to a slowdown in visitor growth to an estimated 5 percent in 2023-2024.

However, despite continued visitor growth, Fitch expects "tourism receipts will decline by about 14 percent in 2023 and 7 percent in 2024, reaching 41.3 percent of GDP, given the expected tapering in arrivals of high-spending tourists from Russia and other countries. There is upside from a larger than expected fall in oil prices - translating into lower airfares - and shallower than projected recessions in major European economies."

On the stable growth prospects, Fitch said that following real economic growth of 8.9 percent in 2022, it expects growth of 3.6 percent in 2023 and 4.2 percent in 2024, as tourism growth normalises.

It projects medium-term growth of about 4 percent and sees an upside mainly from investment, which has lagged in recent years due to execution challenges, rather than a boost to productivity or the labour force.

On inflation, the Ratings said a trend of currency appreciation since mid-2021 led to inflation falling to 2.6 percent on average in 2022 compared to 9.8 percent in 2021.

While macroeconomic and monetary policy is stable and largely predictable, in Fitch's view, transmission of monetary policy is somewhat constrained by the high levels of dollarisation in the economy.

Fitch expects Seychelles' current account deficit to continue to decline to 3.9 percent of GDP in 2023 and 3.5 percent in 2024 as tourism inflows continue to normalise. However, Seychelles' exceptionally high reliance on tourism for foreign exchange inflows, and heavy reliance on imports for most basic goods, remain a key weakness.

As for vulnerabilities, Fitch said Seychelles is heavily exposed to risks from rising sea levels, although a significant impact will likely only be felt in the medium to long term.

"In the short term, Seychelles' tourism industry faces constraints in expansion due to the saturation of coastal infrastructure, and various risks of environmental and biodiversity degradation. Climate-change adaptation measures are currently not factored into fiscal planning, although Seychelles receives technical assistance from international bodies in this regard," it added.

The highest ever Fitch Ratings for Seychelles, an archipelago in the western Indian Ocean, was a grade of BB,  in 2019.