The Board of Directors of the African Development Bank Group (www.AfDB.org) has approved a $20 million flexible loan to finance Seychelles’ Governance and Economic Reforms Support Program, expected to help drive the island nation’s macroeconomic stability and recovery from Covid-19 in the medium-term.
The government program aims to deepen reforms introduced through the Bank’s Covid-19 Crisis Response Budget Support Program, approved in June 2020 for $10 million. These reforms are expected to advance fiscal sustainability, improve the business environment and Seychelles’ climate change and environmental resilience.
The Bank’s financing will complement funds from the World Bank and the International Monetary Fund in support of reforms that will benefit the Seychelles’ private sector, dominated by small enterprises. By ensuring that such businesses stay afloat during these challenging times, the operation will positively impact women and the youth, while creating employment and equal opportunities.
Seychelles’ Minister of Finance, Trade, Investment and Economic Planning, Naadir N.H. Hassan thanked the Bank for being a trusted partner in the country’s development. “The facility comes at an opportune time and will provide much-needed relief given the economic hardship we are faced with in light of the Covid-19 pandemic. It will help the government meet the current budgetary financing gap and help achieve economic development targets as we steer the country on the path to recovery and debt sustainability,” Hassan said.
The global downturn emanating from the Covid-19 pandemic has unfavorably impacted Seychelles’ economy, in spite of government interventions. “The Covid-19 pandemic has devastated the tourism sector, which contributes about 25% of GDP and accounts for the largest share of total employment,” said Nnenna Nwabufo, Director General of the Bank Group’s East Africa Regional Development and Business Delivery Office.
She noted that on the same day the loan was approved, the IMF and the Seychelles government reached a staff-level agreement for a $107 million arrangement under the Fund’s Extended Fund Facility, which underscores the timeliness of the Bank’s intervention and the strength of the partnership between the Bank and the IMF.
The pandemic has severely impacted Seychelles’ macroeconomic performance. Real GDP growth, which averaged 4.2% in 2016-2019, contracted by 12.9% in 2020. The overall fiscal deficit of between -1.4% and 0.7% of GDP in the 2016-2019 period widened to -19.5% in 2020, while public debt that stood at 62.3% of GDP at the end-2018, is now projected at 87.7% by the end of 2021, according to the Bank’s appraisal report.
The Bank’s approved and ongoing portfolio in Seychelles as of July 2021 comprises five operations in the public sector totaling $45.7 million. Of these 53% are in the water supply and sanitation sector, and 47% in the multi-sector.