Executive Board completes 4^th and 5^th reviews, approves US $4.4 million disbursement

The Executive Board of the International Monetary Fund (IMF) has completed the fourth and fifth reviews under the Extended Fund Facility arrangement (EFF) with Seychelles.

The completion of the reviews enables a disbursement of SDR3.27 million (about US $4.4 million), bringing total disbursements under the arrangement to SDR9.81 million (about US $13.2 million).

In completing the review, the Executive Board also approved the authorities’ request for modification and waiver of applicability of the performance criterion on fiscal surplus for end-December 2016.

The EFF for the Seychelles was originally approved on June 4, 2014 for SDR11.445 million (about US $17.6 million at the time of approval of the arrangement).

At the conclusion of the Executive Board meeting, Mitsuhiro Furusawa, deputy managing director and acting chair made the following statement:

“Macroeconomic activity has been robust in 2016. The external current account deficit is estimated to have narrowed, supported by low international commodity prices and strong tourism receipts. Reflecting buoyant tourist arrivals and expanding credit, economic growth for 2016 is projected to reach around 4.5 percent. Year-on-year inflation has been negative since January 2016, largely due to the low commodity prices and stable exchange rates. With strong economic activity, the primary surplus is estimated to reach 3 percent of GDP in 2016, despite the expansionary impact of the fiscal initiatives announced in the State of the Nation Address (SONA) in early 2016. All the programme performance criteria up to end-June 2016 were met and the programme remained broadly on track in the second half of 2016. The economic outlook for 2017 remains positive.

“The authorities’ attempts to ensure that the benefits of economic growth are widely shared should be balanced with measures to safeguard hard-earned macroeconomic stability. The SONA initiatives entailed substantial fiscal costs, around 3 percent of GDP on a full-year basis. The 2017 budget, submitted to the parliament, includes some measures to moderate the expansionary impact of the SONA initiatives. However, given that the 2017 budget includes several one-off measures, additional and permanent measures to boost revenue and contain expenditure will be needed to ensure a steady debt reduction over the medium term.

“Implementation of the SONA initiatives could put pressure on domestic inflation and credit growth in coming months. In this context, the Central Bank of Seychelles (CBS) should stand ready to further tighten policy stance if needed to contain inflationary pressures. Given adequate levels of external buffers, the CBS is advised to limit further foreign exchange purchases to the extent needed to maintain the current level of external reserve coverage. The structural agenda should focus on minimising the fiscal risks arising from state-owned enterprises and avoiding further loss of correspondent banking relationships.”

The Extended Fund Facility under the Extended Arrangement is an instrument of the IMF designed for countries facing medium-term balance of payments problems because of structural weaknesses that require time to address. Assistance under the Extended Fund Facility features longer programme engagement – to help countries implement medium-term structural reforms – and a longer repayment period.

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