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GDP Growth and Public Finance in Seychelles: FY2019/20

GDP Growth and Public Finance in Seychelles: FY2019/20

The Seychelles are renowned for their natural splendour and vibrant cultures. But the economy has started to slow down, as can be seen by the real GDP growth rate, which has started declining since 2018. However, real GDP had increased from 4.9% in 2016 to 5.3% in 2017 until 2018. Real GDP growth then declined from an annual average of 4.9% from 2015 to 2017, to 3.6% in 2018[1]. The reduction in GDP growth was largely due to the increase in international oil prices, lower tourism volumes, and the global economic slowdown[2]. During the period of improving real GDP growth the Government of the Seychelles (GoS), took advantage of the rising government revenue and spurred on by the robust real GDP growth, to reduce its liabilities. The GoS reduced public debt, which declined from an annual average of 69.7% of GDP from 2015 to 2017, to 62.7% of GDP in 2018[3]. In response to the declining real GDP, the GoS increased public spending in 2019.

 

Figure 1: Real GDP Growth and Inflation in the Seychelles (2015-2023)

Real GDP Growth and Inflation in the Seychelles (2015-2023)

Sources: IMF 2019, Seychelles Second Review Under the Policy Coordination Instrument. Note: (*) Figures from 2018 onwards are projections from the IMF, 2019.

This increase in government spending was done to support a recovery in real GDP growth and dealing with rising political and economic uncertainty. The GoS has since been making a concerted effort to reduce the economic dependence on tourism, and develop other potential industries across the island nation. Hence, the GoS has increased capital expenditure on new sustainable construction projects and other public investments[4]. In 2019, the GoS increased total spending by 16.3% mainly through a 41.0% increase in capital expenditure and an 11.0% increase in recurrent expenditure[5]. In the forward-looking medium-term, public spending is projected to moderate as real GP growth recovers.

 

Figure 2: Sources of Government Revenue in the Seychelles (2015-2023)

Sources of Government Revenue in the Seychelles (2015-2023)

Sources: IMF 2019, Seychelles Second Review Under the Policy Coordination Instrument. Note: (*) Figures from 2018 onwards are projections from the IMF, 2019.

Real GDP growth projections on the Seychelles are optimistic about the future economic outlook. Real GDP growth is projected to remain steady around an average of 3.6% from 2019 to 2023[6], due to moderated government expenditure and investments. The GoS is also expected to continue its fiscal policy of reducing public debt in the forward-looking medium-term. New public debt will only be contracted to supplement the unavoidable shortfalls in government revenue and in a sustainable manner that does not compromise the GoS’s ability to repay in a medium to long term.

 

Figure 3: Government Revenue and Expenditure in the Seychelles (2015-2023)

Government Revenue and Expenditure in the Seychelles (2015-2023)

Sources: IMF 2019, Seychelles Second Review Under the Policy Coordination Instrument. Note: (*) Figures from 2018 onwards are projections from the IMF, 2019.

Total government expenditure is projected to moderate from 16.3% in 2019, to an annual average of 4.0% from 2020 to 2023[7]. Although there is some difference amongst the years, growth in recurrent expenditure is projected to moderate to an annual average of 3.0%, compared to capital expenditure growth at an average of 6.9% from 2020 to 2023[8]. Overall, the GoS short-term response to real GDP declining in 2018 and the fiscal policy approach for the forward-looking medium term, should contribute to declining public debt and a narrowing fiscal deficit.

 

Figure 4: Government Expenditure Composition in the Seychelles (2015-2023)

Government Expenditure Composition in the Seychelles (2015-2023)

Sources: IMF 2019, Seychelles Second Review Under the Policy Coordination Instrument. Note: (*) Figures from 2018 onwards are projections from the IMF, 2019.

Public debt is projected to decline from 59.0% of GDP in 2019, to 42.4% of GDP in 2019[9]. In addition, the fiscal deficit is projected to narrow from SCR 90 million (-0.4% of GDP) in 2018 to an annual average of -SCR 43.4 million (-0.2% of GDP) from 2019 to 2023[10]. As a result, public debt-servicing costs are projected to moderate slightly from SCR 705 million (8.2% of total government revenue) in 2018, to an annual average of SCR 712.6 million (7.4% of total government revenue) from 2019 to 2023[11]. Therefore, the GoS is expected to be responsive to real GDP movements by implementing countercyclical fiscal policy and improving the overall fiscal position of the nation.

 

Figure 5: Gross Government Debt in the Seychelles (2015-2023)

Gross Government Debt in the Seychelles (2015-2023)

Sources: IMF 2019, Seychelles Second Review Under the Policy Coordination Instrument. Note: (*) Figures from 2018 onwards are projections from the IMF, 2019.

Thus, in the short-term the GoS will respond to the declining real GDP growth by increasing public spending to stimulate aggregate demand. Barring any major external economic shocks, the GoS is expected to moderate public spending as real GDP growth recovers in the medium term. The moderated public spending will allow the GoS to continue reducing its liabilities and moderate public debt in the medium term.

 


[1] IMF 2019. Seychelles Second Review Under the Policy Coordination Instrument, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 18 August 2019].
[2] IMF 2019. Seychelles Second Review Under the Policy Coordination Instrument, ibid.
[3] IMF 2019. Seychelles Second Review Under the Policy Coordination Instrument, ibid.
[4] SMoF 2019. Summary of Fiscal Outcome for 2019 to 2021 Forecasts, Seychelles Ministry of Finance: Victoria. Available At: http://www.finance.gov.sc/ Last Accessed: 18 August 2019].
[5] IMF 2019. Seychelles Second Review Under the Policy Coordination Instrument, ibid.
[6] IMF 2019. Seychelles Second Review Under the Policy Coordination Instrument, ibid.
[7] IMF 2019. Seychelles Second Review Under the Policy Coordination Instrument, ibid.
[8] IMF 2019. Seychelles Second Review Under the Policy Coordination Instrument, ibid.
[9] IMF 2019. Seychelles Second Review Under the Policy Coordination Instrument, ibid.
[10] IMF 2019. Seychelles Second Review Under the Policy Coordination Instrument, ibid.
[11] IMF 2019. Seychelles Second Review Under the Policy Coordination Instrument, ibid.

 

 


Miguel Dos Santos

Role: Junior Regional Analyst
Contact: miguel@politicaleconomy.org.za
Miguel is a Research and Public Relations practitioner, with experience in the fields of human rights, publishing, social media and Africa-focused research...

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