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Tunis, 15 February 2010 – The Seychelles has restructured its debt, improved public finance and normalised its economic outlook, thanks to a unique financial support provided by the African Development Bank Group.
The AfDB Group in December 2009 approved a USD 10-million loan to finance the country’s Policy-based Partial Credit Guarantee (PBPCG), an unprecedented innovative transaction crafted to facilitate commercial debt restructuring while reinforcing the country’s financial governance.
With the AfDB guarantee the Seychelles government has completed its exchange of notes and other external commercial debts for new US dollar-denominated notes with a final maturity in 2020. The new notes were issued at a 50% discount to the face value of the original debts eligible under the exchange offer with a USD 168.9 million face value.
The Seychelles finance minister, Danny Faure, has said that the successful completion of the exchange offer had resulted in the cancellation of approximately USD 225 million in principal, accrued interest, and other charges. “Together with the debt relief recently granted by the Paris Club and other external creditors, it has transformed our economic outlook by making our debt position and public finances sustainable,” he added.
The global economic and financial crisis accentuated the economic problems faced by Seychelles. Prolonged unsustainable macroeconomic policies combined with external shock culminated in the near exhaustion of its foreign reserves and led to defaults on public debt obligations in mid-2008.
By early 2009, the government found it necessary to restructure the country’s external debt in a bid to clear accumulated arrears and place its debt on a sustainable path. It launched a heavily frontloaded economic and financial reform programme, which has brought a notable turnaround to the country’s macroeconomic environment.
The government’s reform efforts received commendation and support from key development partners, notably the AfDB and Bretton Woods Institutions. This notwithstanding, public debt burden, especially debt to commercial creditors, remained a serious impediment to the country’s sustainable development.
To resolve this issue, it reached an agreement with the Paris Club under which bilateral creditors agreed to a 45% reduction of their overall nominal debt. The Seychelles government then approached the AfDB in August 2009, requesting a USD 10m Bank partial credit guarantee aimed at supporting efforts to obtain a comparable arrangement with commercial creditors.
The PBPCG, which has enabled the country to restructure 100% of its eligible debt, was designed to complement a € 15-mllion budget support loan approved in July 2009, to finance the country’s Economic Governance Reforms Programme (EGRP).
The Bank Group’s Director for East Regional Department, Mrs. Diarietou Gaye said this was the first such transaction of its kind in the institution’s history. She noted that the request was processed over a relatively short period, a clear indication that the institution is able to responsive to clients’ urgent needs.
“The success of the operation was largely due to the mobilization of a multidisciplinary team including Finance, Legal, Governance, Policies with the Regional Department leading the process.” The IMF and the World Bank were supportive of the process.