Economic Reforms Helped Seychelles Weather Two Crises

Move to float exchange rate was most critical decision Seychelles took

Capacity building still an area that needs urgent attention

Vital to consolidate macroeconomic stabilization, second-generation reforms

Seychelles’ 2008 reform program included a decision to float the exchange rate—the most critical move in the country’s policies to address the crises, the meeting was told.

The 1st Economic Symposium for Parliamentarians, held in Victoria, Seychelles, brought the islands’ legislators together with IMF staff to take stock of achievements and assess remaining vulnerabilities facing the country. Jointly organized by the Seychelles authorities and the IMF, the October 20 event also discussed global and regional economic prospects and the priorities for small island economies.

Since independence in 1976, Seychelles—an archipelago of about 115 islands in the middle of the Indian Ocean—had built up a successful economy, supported by a growing tourism sector. But a combination of overly expansionary fiscal and monetary policies, a pegged exchange regime, and a complex system of exchange controls, state subsidies and financial sector restrictions culminated in a severe balance of payments and public debt crisis in the second half of 2008.

Seychelles’ subsequent default on its external debt led to a fundamental reform program supported by the IMF, first through $26 million Stand-by Arrangement, and then by a $31 million Extended Fund Facility.

The symposium was held as the authorities and the IMF completed their 2010 Article IV consultation—the regular economic health check that the IMF carries out with each of its member countries, and Seychelles’ first Article IV consultation since the crisis.

Critical decision

Vice President and Finance Minister Danny Faure recalled that when the government of Seychelles decided to embark on the reform program in October 2008, the move to float the exchange rate was the most critical decision Seychelles had to take. This was a historic time when the parliamentarians had risen to the occasion and amended the country’s Central Bank Act accordingly, Faure said.

National Assembly Speaker Herminie at symposium: Seychelles’ arrangements with IMF brought country’s boldest-ever reforms (photo: Rainer Koehler/IMF)

Faure also noted that parliamentarians from both sides of the legislature had voted in favor of...