World Bank unveils $9 million Seychelles loan

ANTANANARIVO (Reuters) - The World Bank has approved a $9 million development policy loan (DPL) to help the heavily indebted Seychelles restore economic stability after years of economic and fiscal imbalance, it said in a statement.

The DPL would support last year's economic reforms to liberalise the once state-controlled economy which has been buffeted by the global economic slump, it added in the statement issued late on Thursday.

Last November, the International Monetary Fund rolled out a $26 million rescue package after the Seychelles defaulted on interest payments from $230 million of bonds. In return, the government implemented a raft of reforms which included lifting exchange rate controls and slashing the public wage bill.

"The global economic crisis has particularly hit the Seychelles hard as it affected tourism, which has been the traditional driver of growth," said Tracey Lane, the World Bank's senior economist for Seychelles.

The global downturn and rampant piracy in the waters off the Horn of Africa have curbed the archipelago's tourism revenues and slowed the fisheries sector, both key sources of much-needed foreign exchange.

Tourism chiefs expect revenue from the sector to slump by 20 percent in 2009 from $321 million last year.

Earlier this week, the IMF upgraded its growth forecast for Seychelles to a 7.5 percent contraction in 2009 and 4 percent growth next year.

Alongside the DPL, a fixed-spread facility with a 25.5 years maturity, the World Bank board said it also discussed the Seychelles' Interim Strategy Note (ISN), which lays out a two-year re-engagement strategy for the country, the first in 17 years.

In April, the Paris Club said it had cancelled debt worth nearly $70 million to the archipelago. At the start of 2009, Seychelles owed more than $800 million split fairly evenly between commercial and official debt.