Seychelles is currently confronted by a challenging macroeconomic environment characterized by, among other issues, unsustainable debt and sharp increases in food and fuel prices. In October 2008, the country defaulted on the interest payment on its US$230 million Eurobond issued in 2006 and remains, in as far as public debt is concerned, one of the most debt-distressed countries in the world. However, the Government is undertaking concerted efforts to address the challenges with support from the international community.

Recent trends in major economic indicators point to a challenging macroeconomic environment in the Seychelles. Economic growth was low during 2001-2007 at an average of 1 percent per annum, mainly reflecting the contraction in real GDP growth in three out of the seven years (2001, 2003 and 2004).  This trend was reversed in 2005 when the economy started to recover and grew by 1.2 per cent, driven mainly by a construction boom and higher tourism arrivals. The recovery continued in 2006 and 2007 with real GDP growing by 5.4 percent and 7.3 percent, respectively, and ushering in improved overall growth prospects. GDP growth is projected to slow down to about 3.1 per cent in 2008, mainly due to lower tourism earnings.

During the same period, the rate of inflation remained low, averaging about 2.0 percent per annum. This reflected factors including the maintenance of strict price controls, weak domestic demand and an over-valued exchange rate that limited price increases. Inflationary pressures started to emerge in 2007 and continued in 2008, reflecting higher oil and food prices and the fall in the value of the Seychelles Rupee.

With a Human Development Index of 0.842 in 2007, Seychelles ranks highest among the African countries, a ratio which makes it comparable to many OECD countries. In terms of GDP per capita, it is the country that ranks second in Africa after Equatorial Guinea with a level of around US $ 8,154 in 2007.  Other key indicators such as life expectancy, adult literacy rate, population growth rate and gender equality compare favourably with achievements in developed countries. Most MDGs, including education and maternal health, have already been met and it is expected that the remaining ones will be achieved by 2015.

The most recent study on poverty, carried out in 2005 by the Ministry of Social Affairs, concluded that absolute poverty did not exist in Seychelles, but that there were "pockets of poverty".  The study nonetheless pointed out the need for further research in order to ascertain the poverty status of vulnerable groups, such as children and persons with disabilities.

The African Development Bank Group and the Seychelles

The African Development Bank suspended operations in the Seychelles several years ago after the country fell into default on loan repayments. The Bank Group has recently re-engaged the Government of the Seychelles with the view of re-establishing cooperation.

The ADB recognizes that the success of Seychelles’ comprehensive structural reform effort requires that development partners work together with the authorities to sustain growth and competitiveness over the medium term. The short-term goal of the African Development Bank Group is to provide support to the Government’s fast evolving economic stabilization and debt reduction programs as a complement to other donors and financiers. The longer-term aim is, however, to provide a flexible, high quality and cost-effective menu of tailored financial and knowledge services in support of Strategy 2017, the country’s blueprint for achieving job-creating, equitable, and sustainable growth while at the same time addressing the  issues of regional integration and associated vulnerabilities to global shocks.

To this end, the African Development Bank Group and the World Bank are working on a Joint Interim Strategy Note (ISN) to inform their interventions. This Concept Note is the first step in the formulation of the ISN. It assesses the country’s development prospects and challenges as well as the Government’s strategic options. It also indicates areas in which the Bank Group and the World Bank, in collaboration with others, can assist the Government’s reform efforts.