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Seychelles Economic Outlook

Economic performance and outlook

Overall economic performance has been remarkable, especially over the past decade, albeit with a few setbacks. The 5.9% real GDP growth in 2016 was driven primarily by tourism and fisheries. These sectors also contributed considerably to foreign exchange earnings, employment, and growth in auxiliary sectors. The medium-term growth outlook is favorable. GDP growth was estimated at 4% in 2017 and is projected to be 3.4% in 2018, resulting in a continued increase in real GDP per capita; the traditional tourism and fisheries sectors are expected to remain the main growth drivers. Inflation was –1% in 2016, due to lower than anticipated prices of oil and other imports, as well as tight monetary policy.

Macroeconomic evolution

Inflation is expected to remain low, although rising international fuel prices since late 2016 and the government’s expansionary fiscal measures in 2017 could trigger inflationary pressures. The increase in current expenditure (which rose from 26.9% of GDP in 2014 to an estimated 33.5% in 2017) was partially offset by a corresponding increase in total revenue (from 34.5% of GDP in 2015 to an estimated 39.5% in 2017) and the continued tight monetary policy. Lower than budgeted capital outlays and strong tax revenue growth helped increase the 2016 budget surplus to almost 1% of GDP. The budget position remained in surplus in 2017 but is projected to decline to a small deficit in 2018 and 2019. The government is mindful of its debt management policy and commitment to reduce the debt-toGDP ratio from its present 64% to less than 50% by 2020. Fiscal discipline, coupled with effective debt restructuring in the wake of the 2008 financial crisis, have supported the debt reduction strategy. Gross official reserves in 2016 and 2017 were equivalent to around 4 months of imports.

Tailwinds

Foreign direct investment (FDI) continued to be strong, notably in the hospitality sector, helping finance the current account deficit and build up international reserves. Continued vibrant tourist arrivals and higher revenue from tourism (which saw almost 20% growth in mid-2017 from one year before), have been key drivers of economic growth. Domestic private investment is increasingly important, notably in growing small and medium-size enterprises. The sustainability of this source of growth depends on the extent to which challenges in access to finance and  a skilled labor force are addressed. The government is paving the way for private sector–led growth by promoting FDI and improving the business environment for local investors. Public investment is expected to increase in 2018–19 as the government continues its infrastructural development program. The reintroduction of the Unemployment Relief Scheme in 2017 is likely to increase employment.

Headwinds

Growth rates in 2017 and 2018 are expected to be slightly lower than in 2016, due largely to risks associated with the external sector. These risks include vulnerability to developments in Europe—the origin of most tourists—including Brexit and rising international fuel prices since late 2016 that could put pressure on inflation and the balance of payments. Domestically, a slowdown in the construction sector is expected to hinder growth. There is need for continued focus on economic diversification, structural transformation, and regional integration to deal with major challenges, notably a small domestic economy, geographical remoteness, high transportation costs, insufficient skilled labor, and vulnerability to external shocks.