IMF approves $31 mn for Seychelles to boost reforms

IMF approves $31 mn for Seychelles to boost reforms

Antananarivo: The Seychelles government said on Saturday a new $31 million loan from the International Monetary Fund would support a second wave of reforms on the heavily indebted Indian Ocean archipelago.

IMF approved the loan in the early hours of Saturday and cancelled an existing two-year standby arrangement (SBA) for $26 million which had a year outstanding.

Finance minister Danny Faure said the new Extended Fund Facility (EFF) would kick in immediately.

“The EFF will bring funds of $31 million to support our medium term reform strategy which is looking at debt restructuring, public sector reform and preserving the macroeconomic stabilisation," he told Reuters in a phone interview from Seychelles’ capital, Victoria.

An interest payment default last year by Seychelles on its 2011 eurobond highlighted an acute balance of payments crisis and triggered a raft of fiscal and monetary reforms to liberalise the once state-controlled economy in late 2008.

The Indian Ocean archipelago last week launched an exchange offer on the $230 million bond and three other debt instruments to help place it on a more sustainable footing.

The impact of the global crisis and decades of unsustainable spending had left Seychelles close to collapse.

This year, the tourism-driven economy is expected to contract by 7.5% before re-bounding to 4% in 2010, although Faure said the recovery in the tourism sector would be vulnerable to external wobbles.

Central Bank governor Pierre Laporte told Reuters last week disciplined monetary policy and aggressive cuts in government spending had stabilised the economy far faster than he had predicted.

Smooth second round

Seychelles’ external debt topped $800 million at the start of 2009.

Faure said the EFF would allow for a smoother second round of reforms after the shock-therapy of 2008-2009.

“But now it is more of a well-structured reform, the pace will be smoother, we will build on the first round of reforms," he said.

Faure added the Treasury’s priority was to overhaul the tax sector.

In his Budget speech last month, he said business tax rates would be reduced while a flat-rate income tax would replace social security fund contributions.