The Republic of Seychelles lies to the northeast of Madagascar, an archipelago of 115 islands with almost 95,000 inhabitants (2016), ¾ of whom live on the main island of Mahé. Seychelles has the highest Gross Domestic Products (GDPs) per capita in Africa ($15,410 in 2016), but increasingly the effects of climate change are placing its economy—which relies heavily on high-end tourism and exports of tuna—at risk.
Independent since 1976, the Seychelles is a relatively young democracy: the first multiparty presidential election was held in 1993, after the adoption of a new constitution. A presidential election in December 2015 was closely-fought, and President James Michel narrowly elected for a third and last term by just 193 votes out of the 62,831 valid votes cast. He resigned in October
President Faure did not stand for the leadership of the governing Parti Lepep during its elective congress in June 2017, saying he wished to separate partisan politics from his role as head of state. In his place, Vincent Meriton, Vice-President of the Republic, was elected the party’s president.
In September 2016, legislative elections were held, with the opposition coalition winning the country’s parliamentary elections for the first time. The Linyon Demokratik Seselwa (LDS) is a coalition of four main parties, including the Seychelles National Party (SNP), which had boycotted previous parliamentary polls in 2011. The LDS holds 19 seats in the Sixth National Assembly, while Parti Lepep retains 14 seats. This is the first time since the return of multi-party democracy in 1993 that Parti Lepep has not had a parliamentary majority. Before the elections, Parti Lepep held all 25 directly elected seats in the assembly and an additional 7 proportionate seats, leaving just 1 seat held by the opposition.
Elections for district boards will be held in 2018. The next presidential election is due only in 2020.
The strong tourism sector has continued to buoy up Seychelles’ economy; the number of visitors rose by 9.8% in 2016 to reach a record high of over 300,000 (three times to the size of the local population). Up to July 2017, visitor arrivals were up 21.2% over the same period last year.
Despite the robust pace of growth, the economy does not appear to be overheating. Inflation picked up, to 3.2% year-on-year in July 2017, but this reflects supply-side pressures from increases in administered tobacco prices and tariffs. Food prices have remained moderate (with inflation at about 2%). Private sector credit growth stood at 8.0% year-on-year at the end of Q1 2017.
The external position has been sound: the merchandise trade deficit has remained broadly stable, at about $450m on a 12-month rolling basis through June 2017. The Seychellois rupee has depreciated slightly against the US Dollar (by 1.2% in 2017 through July), while gross official reserves have remained little-changed, at $545m in June (equivalent to 4.2 months import cover).
The budget, passed in February for the current calendar year, set a target of a primary, fiscal surplus of 3.0% of GDP, which is consistent with the government’s goal of continuing to reduce its debt burden. This debt burden has continued despite substantial, primary surpluses recorded in recent years and, as such, the Seychelles' fiscal stance is broadly neutral for growth.
For the third quarter of 2016, the unemployment rate was 4.5%, indicative of a tight labor market in line with robust recent economic conditions. Rising demand for labor has been met by a surge in expatriate workers, their numbers measured by new and renewed Gainful Occupation Permits, which rose to 16,792 in 2016, an approximate doubling since 2014 to account. Expatriates now account for about a quarter of the Seychelles' total
In view of the ongoing robustness of tourism, the baseline growth outlook remains favorable, although the current pace of real GDP growth, of above 4%, is expected to moderate itself to about 3.5% as construction linked to new tourism slows (a moratorium on new permits for large hotels was extended recently to 2020).
Debt dynamics are positive, although the Seychelles remains highly vulnerable to exogenous shocks. This vulnerability is due to the significant public debt burden of approximately 70% of GDP, and Seychelles’ very small, tourism- and import-dependent economy. Since the 2008 global debt crisis, however, the country has made major progress in reducing public debt and maintaining macroeconomic stability.
This progress is expected to continue to play out in terms of the economy's baseline scenario, allowing public debt/GDP to fall to the 50% level in 2020, as targeted by the government.
Seychelles has a very small population in a relatively isolated location. This makes it reliant on external demand, especially tourism. Its small pool of local skilled labor and high cost of external transport and energy present a challenge in terms of deepening or diversifying its sources of growth.
Last Updated: Oct 12, 2017