Seychelles’ debt remains on a downward path

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Seychelles’ debt remains on a downward path

Post  Sirop14 on Fri Aug 11, 2017 8:25 am

Seychelles’ debt remains on a downward path

Seychelles’ set target of reducing public debt to 50% by 2018 was pushed back by the government in February last year to 2020, but still the country’s debt remains on a downward path.
Central Bank of Seychelles (CBS) governor Caroline Abel has explained that the target was pushed back because the government increased its borrowing as a result of the increase in minimum wage, social security payments and the introduction of the 13th month pay.
Ms Abel nonetheless confirmed that “Seychelles has a sustainable external debt and the government is not borrowing more than it should”.
She was speaking in the context of the results provided by Fitch Ratings which has maintained Seychelles’ long-term foreign and local-currency issuer default ratings (IDRs) at ‘BB-’ with a stable outlook.
The issue rating on Seychelles' unsecured foreign-currency bond has also been affirmed at ‘BB-’. The short-term foreign and local-currency IDRs have been affirmed at 'B' and the country ceiling at 'BB'.
The rating acts as a sort of seal that attests to the reliability of the country before foreign investors. In maintaining the rating, the agency stressed that it reflects the progress made under the country's International Monetary Fund (IMF) Extended Fund Facility programmes since 2010 when Seychelles was cured of default on its external debt.
“Seychelles has consistently over-performed on its primary budget surplus targets. Timely implementation and strong willingness to execute the structural reforms in the programmes have resulted in more robust and coherent fiscal and monetary policy frameworks,” wrote a press release from Fitch Ratings.
Figures from the Ministry of Finance, Trade and Economic Planning show that total public debt excluding guarantees and International Monetary Fund (IMF) debt was R12,408 million at end-2016, which equates to 65.2% of GDP, down from 69.5% in 2015. This includes debt (T-bills and T-bonds) issued for monetary purposes, which accounted for 15.5% of GDP in 2016. Fitch excludes this debt issued for monetary purposes from its calculation (and includes debt owed to the IMF).
At end-2016, the public debt/GDP was 52.4%, down from 54.6% in 2015 (and 80.7% in 2010). Fitch has forecast this ratio will fall further, to 45% in 2019.
Ms Abel explained that all governments have their programmes which fall in their budgets.
“Sometimes, a budget can be financed through acquisition of debts ‒ domestic (through treasury bills and treasury bonds) or external. All these will depend on the interest rate of the loans. Domestic and external debts have their own ratings. Therefore, when Fitch Ratings evaluates Seychelles, it also evaluates its debts and its ability to repay the debts,” said Ms Abel.
She added that the basis for the evaluation was our ability to review our debt to make it sustainable. Despite the target having been pushed back to 2020, the governor has confirmed that the country’s foreign reserve has increased and that it covers 3.7 months of current external payments, making it possible for the country to repay its debts.
“A primary surplus in budget performance has also helped the government to reduce its debts. This is why Fitch Ratings has given Seychelles a positive country rating. On top of that there is also the country’s economic grading and we have received a stable outlook, meaning all economic developments being made by the country are OK. There is almost no short term risks because the country’s fiscal and monetary positions are in equilibrium,” noted CBS governor Abel.
It is important that inflation level remains stable and the country’s foreign reserve increases for the country to be able to repay its debts, continue to import products even if there is an increase in the price of commodities on the international market.
“The flexible exchange rate also helps the country’s economy to maintain a good position which helps all actors in the economy to understand when there are changes happening. Depreciation in the exchange rate is not good for any business because the level of inflation increases,” explained Ms Abel.
On the other hand, the country’s rating can drop if there is an increase in importation compared to the country’s earnings, resulting in a decrease of the country’s foreign reserve. If the government also goes on a spending spree, this could also have a negative effect on our bank reserve.
To improve the country’s rating, one of the key things we have to do is improve our foreign reserve and this will make us become more resilient to external shocks. It will also help the government reduce its debt level.
Governor Abel added that “the CBS is continuously improving the monetary and fiscal policies as well as monitoring a possible drop in interest rates which favour the borrowing of money through loans”.
“We have to see what kind of effect, especially through inflation, the increase in borrowing has on the foreign currency market as most of the time businessmen and ordinary people take loans to purchase things abroad,” she stressed.

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