The Seychelles’ economy has begun recovering from the shock caused by the COVID-19 pandemic. Real GDP growth is projected to increase from an annual average of 1.1% for 2019 to 2021, to 4.6% in 2022. Inflation is projected to increase from an annual average of 4.3% for 2019 to 2021, to 5.6% in 2022. The elevated inflation is caused by the recovery in aggregate demand; and sanctions against Russia which have increased the price of crucial imports. In the medium-term period from 2023 to 2025, real GDP growth is projected to increase to an annual average of 5.0%. Meanwhile, inflation is projected to deteriorate to an average of -0.3% over the medium-term from 2023 to 2025.
The Government of the Seychelles’ debt is projected to increase after decreasing in 2021. The Seychelles’ gross public debt is projected to increase from an annual average of 71.9% of GDP for 2019 to 2021, to 76.7% of GDP in 2022. The increase in public debt is largely due to the Government of the Seychelles implementing procyclical fiscal expansion to support the economic recovery from the shock caused by the global lockdown response to the COVID-19 pandemic. The fiscal deficit is projected to narrow from an annual average of -7.4% of GDP for 2019 to 2021, to -6.7% in 2022. This shows the procyclical fiscal stance taken by the government as spending and further borrowing outpace revenue growth. In the medium-term period from 2023 to 2025, the fiscal balance is projected to improve to an annual average of 0.7% of GDP. Therefore, public debt is projected to decrease to an average of 69.8% of GDP over the medium-term from 2023 to 2025.
The Seychelles’ external sector was negatively affected by the COVID-19 pandemic in 2020 and the sector’s brief recovery in 2021 has been disrupted by the sanctions against Russia, which has raised the price of imports. The Seychelles’ current account deficit is projected to widen from an annual average of -USD 282.3 million (approx. -19.8% of GDP) for 2019 to 2021, to -USD 525.0 million (approx. -30.0% of GDP) in 2022. In the medium-term period from 2023 to 2025, the current account deficit is projected to narrow to an annual average of -USD 377.7 million (approx. -20.0% of GDP). This illustrates a short-lived deterioration of the current account balance due to the impact of sanctions against Russia on import prices. However, Seychellois authorities will have to take a proactive approach to macroeconomic management given the uncertainty of how long the conflict and sanctions will last. The impact of the Russia-Ukraine conflict on capital markets, specifically the withdrawal of capital from emerging markets, will also become a major concern for the balance of payment and the SCR exchange rate.
The Seychelles is scheduled to hold its national elections in 2025 and the election campaigning cycle is still a long way ahead. Incumbent President H.E. Wavel Ramkalawan defeated former President Danny Faure in the 2020 elections and may be vying for a second term in office using his economic recovery rhetoric. The current political climate remains calm despite pressures caused by the rising cost of living and reduced tourism. President H.E. Wavel Ramkalawan will seek to strike a balance between attracting foreign investment and tourism to the Seychelles; and establishing more stable domestic sources of economic growth.