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Seychelles Economic Outlook
Real GDP growth was an estimated 3.6% in 2018, down from 5.3% in 2017, due to rising international oil prices, a moratorium on construction, and uncertainty over the Eurozone, on which the country relies for its thriving tourist sector. The service sector— mainly tourism, finance, transport, and communications— led the growth, expanding by an estimated 5.4% in 2018, up from 5.3% in 2017. The primary fiscal deficit was an estimated 0.3% of GDP in 2018, up from a balanced budget in 2017, due mainly to increasing government spending and declining revenue. The country’s debt-to-GDP ratio has declined by almost two-thirds from 183% in 2011 to a relatively high 60% estimated for 2018. Authorities plan to reduce the ratio to less than 50% by 2021 through fiscal discipline coupled with an improved debt management strategy.
Inflation increased to an estimated 4.4% in 2018 from 2.9% in 2017 due to higher global energy prices and 2017 fiscal measures, which included a higher minimum wage, increased social spending (mainly state pensions), and higher civil service wages (raised through a new “13th month salary”). The exchange rate remained stable in 2018 at 13.9 Seychellois rupees per dollar. Average gross international reserves were estimated at 4 months of imports in 2018.
The current account continued to register a large but declining deficit in 2018. The deficit was an estimated 17.6% of GDP in 2018, down from 20.5% in 2017. The country’s main trading partners, Europe and the Middle East (mainly the United Arab Emirates), account for more than 60% of the country’s imports and exports.
Tailwinds and headwinds
Economic growth is projected to be 3.3% in 2019 and 2020, with the service sector remaining the primary driver of growth. The medium-term outlook remains positive, thanks to projected vibrant tourism and growing fishery sectors. On the demand side, growth will continue to be driven by robust investment, estimated at 34.6% of GDP in 2019 and 36.1% in 2020. Given the still high debt-to-GDP ratio, internal downward risks include the expansionary fiscal measures in the 2017 budget, which will continue to trigger inflationary pressures. Overdependence on tourism and fisheries makes the economy vulnerable to external shocks. A slowdown in the construction sector, resulting from a moratorium on large hotels and scarcity of construction materials, may also put a brake on growth. The economy enjoys a high-value tourism sector, a large fishing area, emerging financial services and information and technology sectors, an improving regulatory framework for private participation, and a strategic framework for climate change.
External downward risks include deterioration in the terms of trade, rising international fuel prices since late 2016, and uncertain economic performance in the Eurozone— the main source of tourism. The rising trend in international fuel prices is likely to have a negative effect on the balance of payments, inflation, and productivity because the country is an oil importer. In addition, as an island state, Seychelles is also exposed to climatic shocks, requiring additional resources for resilience building.