The International Monetary Fund (IMF) has reached a staff-level agreement with Seychelles on the second review of the Extended Fund Facility (EFF) arrangement and the Resilience and Sustainability Facility (RSF).

An IMF delegation, led by Todd Schneider, was in Seychelles from March 21 to April 3, to conduct discussions on the second review of the island nation's economic and financial programme, which is supported by the EFF arrangement and the RSF.

The team met with the authorities and private sector representatives for the 2024 Article IV consultation.

The three-year arrangement for Seychelles under the Extended Fund Facility (EFF), in an amount equivalent to $56 million, as well as a three-year arrangement under the Resilience and Sustainability Facility (RSF), amounts to the equivalent of $46 million.

The IMF said that Seychelles' economy continued to recover in 2023 and is moving closer to prepandemic norms despite external shocks and a complex disaster from flooding and an industrial explosion.

"Following a post-pandemic surge in economic activity in 2022, real GDP (Gross Domestic Product) growth slowed to an estimated 3.2 percent in 2023, despite a continued increase in tourism activity, with visitor arrivals reaching a level equivalent to over 91 percent of the prepandemic high and tourism earnings continuing to rise," said Schneider.

This was echoed by Seychelles Minster for Finance, Trade and National Panning, Naadir Hassan, who said, "In 2023, we experienced a 3.2 percent growth in GDP, which is in line with the long-term trend that we have experienced in Seychelles, getting back to our pre-pandemic levels." 

Hassam added "We can expect that the economy will continue to grow in the next year, and we are forecast a growth of 3.69 percent," while noting the impact of the December 7 disasters, of flooding and explosions at a quarrying company, on  Seychelles' economy. 

Schneider said Seychelles' real GDP growth is expected to reach about 3.7 percent in 2024 on the back of a continued increase in visitor arrivals together with buoyant activity in IT, construction, and the financial sector.

"This outlook incorporates some drag on activity linked to the impact of the December 2023 flooding and explosion at Providence Industrial Estates," he added.

According to the IMF, Seychelles' government made good progress in implementing the EFF and RSF meeting almost all quantitative targets under the programme and making notable progress on macro-structural benchmarks and climate-related reform measures.

"The government achieved a primary fiscal surplus of 1.7 percent of GDP in 2023. This was an over-performance relative to the EFF programme target. Underspending on both recurrent and capital budget lines more than offset lower-than-expected revenues," said Schneider.

IMF said that Seychelles' economic outlook is generally positive but given its high vulnerability to external shocks and climate change, continued efforts to reduce public debt, rebuild fiscal and external buffers, bolster the efficiency of public spending, and ensure support for the most vulnerable segments of the population, are critical.

"While the outlook remains positive and risks are roughly balanced, the Seychellois economy remains highly vulnerable to external shocks and climate change in the medium- to long-term," said Schneider.

He added that "the downside risks to the outlook include potential upward pressure on commodity and transport prices from the conflict in Israel and Gaza, continued attacks in the Red Sea, the ongoing war in Ukraine, and continued vulnerability to climate-related shocks."