November 2, 2009 / 9:04 AM / 10 years ago

UPDATE 1-IMF agrees new Seychelles package, sees 2010 growth

* Economy to contract less than expected in 2009

* New three-year package worth $30.7 million

(Adds details, quotes, background)

By George Thande

VICTORIA, Nov 2 (Reuters) - The International Monetary Fund (IMF) said on Monday the Seychelles had made rapid progress in restoring economic stability after a rescue package last year and the Indian Ocean archipelago economy should grow 4 percent in 2010.

In a statement, the IMF said it had agreed a third stand by arrangement (SBA) to provide the Seychelles support, as well as a new three-year arrangement under the extended fund facility (EFF) worth $30.7 million, to replace the existing SBA.

“Rapid progress has been made on restoring macroeconomic stability, the result of the liberalisation of the exchange regime, strong fiscal adjustment, and prudent monetary policies,” the IMF mission said after a two-week visit.

“Programme implementation has been exemplary, even in the face of strong head winds from the global recession,” it said.

The IMF agreed a two-year $26 million rescue package for the heavily-indebted Seychelles’ economy in November last year.

As part of the deal, the government lifted long-standing foreign exchange controls, prompting a 48 percent slide in the value of the rupee SCR=.

The rupee’s fall in the import-dependent luxury tourist destination sent year-on-year inflation rocketing to a peak of 63.3 percent last December, but prices have started falling back leaving the September inflation rate at 29.3 percent.

The IMF said the economy would contract 7.5 percent this year, less than a 8-9 percent fall forecast in August, and grow 4 percent in 2010.

“The focus now shifts to implementation of a second generation of reforms aimed at putting public finances on a sustainable footing and durably raising growth,” the IMF said.

“The key programme objectives are to consolidate macroeconomic stability, remove constraints to growth and improve the performance of the public sector,” it said.

Best known as a retreat for tycoons and celebrities, the cash-strapped archipelago launched sweeping IMF-led reforms on its once state-controlled economy in November last year after defaulting on interest payments from $230 million of bonds.

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. (Editing by David Clarke)

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