Seychelles

Country Summary

Macroeconomic performance and outlook

Real GDP growth was estimated at 3.5% in 2019, down slightly from 4.1% in 2018, driven by tourism, fisheries, and financial services. The decline was due to emerging uncertainty over economic performance in the eurozone, where most tourists originate. Inflation remained low at 2.6% in 2019, with lower import prices than anticipated and a tight monetary policy.

The service sector (mainly tourism) contributes more than 80% of GDP and employment, while industry con- tributes a meager 16% (5% from manufacturing). The exchange rate remained stable over the past three years, averaging 13.3 Seychelles rupees per dollar in 2017 and 13.5 in 2018–19, due mainly to a robust tourist presence and prudent macroeconomic management.

The fiscal balance declined to a slight deficit in 2019 (0.1%) due to increased capital outlays. The current account remained in deficit, hovering around 17% of GDP, substantially financed by foreign direct investment (FDI). Current debt is 58% of GDP, down from 130% during the 2008 financial crisis.

GDP per capita growth, 3.4% in 2018, declined to an estimated 2.8% in 2019, due to lower GDP growth. Inequality is high. Although the unemployment rate was low in 2018 (3.5%), youth unemployment was four times as high (14.5%).

Tailwinds and headwinds

GDP growth is projected at 3.3% in 2020 before rebounding to 4.2% in 2021. Tourism and fisheries will continue to drive growth, along with robust private investment in hospitality. The government’s announce- ment of plans to address key electricity bottlenecks and to expand Seychelles’ role in the marine economy value chain are also potential economic boosts. A continuing prudent monetary stance will keep inflation to around 

3% in 2020 and 2021. The government targets reducing its debt to 50% of GDP by 2021 through fiscal discipline and debt management. As GDP rebounds, per capita GDP growth is projected to rise to 3.6% in 2021.

Private sector development, infrastructure development (particularly water and sanitation) should improve living standards, and technical assistance to micro, small, and medium enterprises in entrepreneurship, human development, and financial market development should enhance industrial competitiveness.

Key opportunities include high-value tourism; greater value addition in fisheries through nontraditional shrimp production, seaweed cultivation, and processing for regional and global markets, all supporting a sustainable blue economy; and efficient financial services and information and communication technology. Strong FDI inflows, especially in hospitality, also boost the economy.

Seychelles has a small domestic market, insufficient economic diversification, and vulnerability to external shocks. Medium-term risks largely arise from uncertainty and potential recession in the eurozone due to Brexit and US–China trade tensions. The government’s persistent efforts at fiscal consolidation could com- pete with its ambitious plans for opening infrastructure bottlenecks and expanding the marine economy value chain, creating a budgetary challenge.

Insufficient economic diversification remains problematic. Since 2015, economic activity has concentrated even further in the dominant service sector. Such concentration lowers the country’s resilience, as in the 2008 global financial crisis when Seychelles defaulted on its debt payments. The public sector, including state-owned enterprises, predominates in production and employment. To bridge income inequality and elim- inate pockets of poverty, removing constraints on private sector will create jobs, notably for youth. The youth NEET (not in employment, education, or training) rate is 22.5% (25.4% for men and 19.3% for women).

Health sector preparedness

Seychelles has attained universal health coverage with free access to health care for all at the point of use, but the pandemic is likely to test these gains. The 2019 Global Health Security Index ranked Seychelles 133 among 195 countries, with an overall index score of 31.9, indicating that the system needs close attention. Public spending on health is over 90% of the total health expenditure. Due to increased health costs amid reduced revenues, the pandemic will clearly strain capacity and preparedness of the health system, particularly given the vulnerability of the country to substance abuse, obesity, and HIV. The demographic structure with 18% of the population aged 55 years and above, is also a concern.

Policy responses

The government established a response and solidarity fund of CFAC 1 trillion to fight the effects of COVID–19. Opera- tionalizing this fund involves redirecting budget policy. As a result, the government should significantly increase sub- sidies by CFAF 250 billion to strengthen the health system and support households affected by the crisis.

Reprioritizing investment projects has already allowed a reallocation of CFAF 100 billion. Some projects financed by external resources will be reprogrammed in agreement with donors. By not passing on the fall in the price of oil to domestic prices, there should be savings in fuel and electricity subsidies. The government has also planned to accelerate payments to state suppliers, an estimated CFAF 302 billion, to generate recovery in the private sector. In partnership with the banking sector, the government cre- ated a financing mechanism, in the form of cash loans or investment, to support companies affected by the crisis. To deal with the fall in demand due to public health require- ments on social distancing, the government has also taken a series of tax measures to support the formal sector.

Source: African Economic Outlook 2020

Fixed Income

Summary 

  • Seychelles is 10th in the ABMDI 2017 Ranking Report. 
  • Debt issuance is mainly for fiscal purposes.
  •  The Government of Seychelles mainly uses Treasury bills for its debt issuance purposes.

Issuance strategy 

Debt issuance is mainly for fiscal purposes. Although the short-term plan is to reduce the share of domestic debt in the total debt portfolio, the Medium-Term Debt Strategy indicates that a lengthening of the maturity profile of the domestic debt portfolio is preferred, while the development of the domestic securities market is a stated objective of the plan.The debt managment  target in the medium term is:The government debt as percentage of GDP  to  reach 50 percent by  2021. 

With the economic  crisis due to covid 19, certain measures have been taken: 

  • monetary policy: Monetary Policy Rate (MPR) was reduced by 100bp to 4.0% for Q2 2020. The MPR was further reduced by 100bp to 3.0% for Q3 2020.
  • Advances to Government :  In line with section 40A of the Central Bank Act (2004), as amended, the Bank will grant temporary advances to government of a limit of R500 million at interest rate of 0.0 per cent, to address the deficiency in revenue for the financial year 2020.
  • State-backed loan guarantee :

Private Sector (Small Enterprises) Relief Scheme

- CBS will provide SCR500m at 0% for banks and OFIs to lend out at 1.5%. 

- This relief scheme includes a moratorium of 12 months on repayment of both principal and interest following disbursement of the loan.

- Only MSME businesses with sales turnover not exceeding SCR25 million are able to avail to the relief loans which will be for a maximum tenor of 3 years.

- At a minimum, existing loans must be in good order as at February 2020.

- The stakeholders – notably CBS, Government and the participating credit-granting institutions - have agreed to share the risks of the credit facilities. Government is providing a guarantee to CBS of 70 per cent of the funds disbursed under this scheme. 

Private Sector (Large Enterprises) Relief Scheme

-CBS will provide SCR750m at 0% for banks and OFIs to lend at 4.5%.

-This relief scheme includes a moratorium of 12 months (on repayment of both principal and interest following disbursement of the loan.

-Large enterprises with sales turnover above SCR25m will be able to avail to the relief loans which will be for a maximum tenor of 3 years.

-At a minimum, existing loans must be in good order as at February 2020.

-The stakeholders - notably CBS, Government and the participating credit-granting institutions - have agreed to share the risks of the credit facilities. Government is providing a guarantee to CBS of 50 per cent of the funds disbursed under this scheme.

Benchmark issues 

The government of Seychelles does not have benchmarks in its issues. 

Yield curve 

There is no benchmark yield curve in Seychelles. 

Challenges in building an efficient yield curve 

  • Lack of issuance strategy: government bond issuance is infrequent. Whenever there is an issuance, it is on a tap basis. 
  • Illiquid and limited secondary market: most investors buy and hold securities.

Guide to Buying Bonds

Procedures for market participation

Applicants must ensure they have a local currency domestic bank account.
Applications are open to adult individuals (singly or jointly) and legal entities, both residents and non-residents. 
Application forms can be collected from the CBS or downloaded from its website. Duly completed tender form(s) may be placed in a sealed envelope and deposited in the Tender Box at the CBS for tbills and for tbonds is submitted to the respective division , during working hours on any working day, or may be emailed to tbillsauction@cbs.sc.  In either case, before 08:30 am on auction day to be considered in the day’s auction. 

Settlement cycle

All securities settle on a T+3 basis.

Taxation

There is no capital gains tax in Seychelles; moreover Seychelles signed (28) double taxation agreements with the following countries: Barbados, Bahrain, Belgium, Botswana, Bermuda, Cyprus, China, Ethiopia, Indonesia, Guernsey, Isle of Man, Kenya, Jersey, Malaysia, Luxembourg, Monaco, Mauritius, Oman, Qatar, Singapore, San Marino, Sri Lanka, South Africa, Swaziland, UAE, Thailand, Vietnam, and Zambia. 

Market restrictions

Openness to international investors 

Foreign investors need not get approval to invest in the capital markets. Bonds can be purchased by any individual; in the case of a body of persons, they should be incorporated or registered under the laws of their country of domicile.

To encourage investments in the country, the Seychelles has instituted an investment bureau and board, the Seychelles Investment Board (SIB). A new investment code was also enacted in 2005.

Capital controls 

The implementation of macroeconomic reforms in 2008 was accompanied with the removal of capital controls.

Restrictions on foreign exchange and profit repatriation

The Central Bank Act of 2004 was amended in a session of the National Assembly on October 31, 2008 removing the Bank’s control of the exchange rate. A new exchange rate system was then implemented; the rupee now operates under a free floating regime.

There are no restrictions on repatriation and conversion of foreign exchange, investment income.

Credit rating

Rating Agency Current Rating Outlook
Moody's No rating No outlook
Fitch BB No outlook
Standard & Poor's No rating No outlook

List of Primary Dealers

N/A.

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