LONDON, February 14 (Fitch) Fitch Ratings has affirmed
foreign currency Issuer Default Rating (IDR) at 'B' and
Long-term local currency
IDR at 'B+'. The Outlooks are Positive. The issue rating on
unsecured foreign currency bond has also been affirmed at 'B'.
Fitch has also
affirmed Seychelles' Short-term foreign currency IDR at 'B' and
KEY RATING DRIVERS
Seychelles' 'B' IDR and Positive Outlook reflect the following
Strong budget discipline has been enforced since the start of
programme at end-2008. The primary budget surplus has averaged
8% of GDP since
2009 due to substantial reforms including a marked cut in public
employment, tighter control of expenditure and reform in public
Fitch expects the primary surplus to stand at 4% of GDP in 2014
and 2015. This
is slightly lower than the authorities' target of 4.4% of GDP
owing to more
conservative revenue assumptions. The agency is factoring in
some slippage in
VAT revenues and assumes this will not be offset by expenditure
deficit path remains conducive to debt reduction. Fitch expects
public debt to
decline to 54% of GDP by 2015 (from 70.5% in 2012).
Revenue growth under-performed budget plans in 2013, mainly due
to shortfalls in
VAT receipts and excise revenues. The underperformance of VAT
was partly due to
lower than projected collection from the tourism sector, some
in the first year of implementation of the new VAT regime and
the Seychelles rupee. The fall in excise revenues reflected a
decline in imports
of motor vehicles and reductions in some excise tax rates.
Despite the revenue under-performance, the authorities are on
track to meet the
year-end target under the IMF Extended Fund Facility (EFF)
programme (a primary
surplus of SCR788m equivalent to USD65m and 5.2% of GDP). The
was more than offset by a reduction in expenditure (2% of GDP).
In Fitch's view,
this shows the authorities' commitment to fiscal discipline.
Inflation has slowed since its peak in mid-2012 (8.9%) to 3.8%
supported by an appreciation of the Seychelles rupee (+7%%
against the USD from
end-2012). Fitch expects on-going reforms in liquidity
management, with the
introduction of longer maturity instruments, combined with a
gradual building of
foreign reserves, to benefit economic stability in the longer
GDP per capita, at USD13,600, is markedly higher than peers,
reflecting a high
value-added economy and a favourable business environment.
Scores on UN human
development indicators and World Bank governance indicators are
also much higher
than those of peers.
The main factors that could lead to an upgrade are:
-Continued reduction in public-sector debt in line with the
medium-term fiscal plan, including the adjustment of utility
prices to cost
-Establishing a track record of moderate inflation and greater
confidence in the
flexible exchange rate regime to absorb shocks without
threatening price and
-Continued increase in external liquidity through rising foreign
reserves. Increasing reserves is key to improving confidence in
given the large current account deficit, and as a buffer to meet
debt service which started to rise in 2013.
-Sustained GDP growth underpinned by continuing structural
reforms to improve
the business environment and diversify the economy.
The current Outlook is Positive. Consequently, Fitch's
sensitivity analysis does
not currently anticipate developments with a material likelihood
of leading to a
downgrade. However, any reversal of fiscal reforms or relaxation
control would likely result in negative rating action. A
prolonged period of
macroeconomic instability leading to significant fiscal
slippages could also
result in negative rating action.
Despite recent diversification, Seychelles' main tourism market
and especially eurozone countries (France and Italy). Fitch
growth to gradually recover to 1.3% in 2015 from -0.4% in 2013.
Seychelles' current account payments are dependent on commodity
especially oil. Fitch expects oil prices to remain in a range of
USD100-USD105/barrel between now and 2015.
Fitch's current judgement is that the authorities will continue
fiscal discipline in a way consistent with their debt reduction
target of 50% of
GDP by 2018.
Fitch expects continuing implementation of structural reforms
positive collaboration with the IMF. The agency assumes
Seychelles will enter
into a new programme with the IMF after the previous one ended
in early 2014.
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Applicable criteria, â€˜Sovereign Rating Criteria' dated 13
August 2012 and
â€˜Country Ceilingsâ€™ dated 09 August 2013, are available at
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