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Seychelles Economic Outlook
Recent macroeconomic and financial developments
GDP growth rebounded to 7.9% in 2021 and 9.5% in 2022, exceeding the East Africa averages of 4.7% and 4.4%. Growth was driven by tourism and fisheries on the supply side and by household consumption and investment on the demand side. A successful vaccination program helped reduce the COVID-19 pandemic’s impact on the economy. Overreliance on imports exposed the economy to external shocks. Monetary policy remained accommodative, and inflation declined to 2.8% in 2022 from 9.8% in 2021 as supply disruptions eased but remained higher than before the pandemic. The Seychellois rupee appreciated 33% in 2022, to 14.4 per US dollar, on higher tourism. The fiscal deficit narrowed to 3.6% in 2022 from 6.8% in 2021 as revenue collection improved. The current account deficit also narrowed, to 7.0% of GDP in 2022 from 10.8% in 2021, on buoyant tourism performance. Both deficits were financed by concessional loans and domestic borrowing. Reserves remained strong at around 4 months of import cover in 2021/22. Debt declined to 75.0% of GDP in 2022 from 89.5% in 2020 amid rebounding GDP and an effective debt management strategy. The financial sector is well developed, though highly concentrated, with the three largest firms holding 80% of assets, deposits, and loans. The nonperforming loans ratio remained low, at less than 6% in 2021 and 2022. with 15 social welfare programs, the COVID-19 pandemic’s impact on poverty was low, though unemployment increased to 4.8% in 2020 from 2.3% in 2019. Income inequality is also low, with a Gini coefficient of 0.28 in 2017/18.
Outlook and risks
GDP growth is projected to slow to 5.1% in 2023 and 4.2% in 2024 amid global supply chain disruptions due to Russia’s invasion of Ukraine. Tourism and fisheries remain key growth drivers, but opportunities in knowledge-intensive services (notably digital finance) are untapped. Monetary policy is projected to remain accommodative, and inflation is projected to rise to 4.3% in 2023 and 4.4% in 2024 on slower growth and higher import prices. The fiscal deficit is projected to decline to 1.6% of GDP in 2023 and 0.4% in 2024, driven by recovery in tourism and increased revenue, while the current account deficit is projected to narrow to 5.4% in 2023 and 4.9% in 2024 amid buoyant tourism. Debt is projected to fall below 70% in 2023 due to continued GDP growth and effective debt management. Uncertainty about the global economic recovery and supply chains remain major risks. Economic diversification and climate adaptation are crucial to build resilience.
Climate change issues and policy options
The government’s climate change policy and strategies prioritize transitioning to a low-carbon economy through reforms in energy, refrigeration and air conditioning, transport, and waste. For 2020–30, Seychelles needs an estimated $61.3 million a year and faces an average financing gap of $14.4 million a year. The government has had several financing arrangements for climate resilience. It raised $15 million through a blue bond backed by the world Bank and introduced the world’s first debt refinancing for ocean conservation, protecting a third of its ocean territory against climate change. The government spends more than 4% of its budget on the environment and climate change, and to complement this, it introduced the sustainable environment levy for visitors as of April 2023. while Seychelles aims to address the bulk of its climate resilience through concessionary financing, the private sector can complement these efforts given the country’s clear strategies and climate resilience commitments; a public–private partnership law that can facilitate investment in green energy and eco-friendly transport; and the country’s well developed and capitalized financial sector, capable of facilitating investment in eco-friendly energy and transport. Seychelles should capitalize on its globally recognized brand of natural beauty.
