The Republic of Seychelles lies northeast of Madagascar, an archipelago of 115 islands with almost 95,000 inhabitants (2016), three-quarters of whom live on the main island of Mahé. Seychelles has the highest Gross Domestic Product (GDP) per capita in Africa ($15,410 in 2016), but inequality is significant, placing the prospect of continued shared prosperity in tighter focus. Climate change also poses long-term sustainability risks.
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.
Michel resigned in October 2016, and was replaced by his deputy, Danny Faure. President Faure did not stand for the leadership of the governing Parti Lepep 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. The next presidential election is due in 2020.
In September 2016’s legislative elections the opposition coalition won the parliamentary elections for the first time. The Linyon Demokratik Seselwa (LDS) is a coalition of four parties, including the Seychelles National Party (SNP), which boycotted 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 1993 that Parti Lepep has not had a parliamentary majority. Before the elections, it held all 25 directly elected seats in the assembly and an additional 7 proportional seats, leaving just one seat for the opposition. In a surprise move, the Speaker of the National Assembly, Patrick Pillay, resigned in January 2018. His former deputy, Nicholas Prea, has been elected the new speaker.
Recent Economic Developments
Seychelles’ economy has benefited from continued robust growth in tourist arrivals, which rose by 15.4% in 2017 to a record high of 349,861 (more than three times its resident population). Other real activity indicators have also been strong, especially in the services sectors, which accounts for close to three-quarters of the economy. Electricity consumption rose by 4%, and total data traffic by 60%, in the first three quarters of 2017 compared to the same period in 2016.
Overall, real GDP is estimated to have grown by 4.2% in 2017. To meet the associated, strong growth in demand for labor, the Seychelles has relied increasingly on expatriate workers.
The Central Bank of Seychelles has maintained generally tight monetary conditions to prevent the economy from overheating. Broad money growth (M2) decelerated to 13% in December 2017 (year-on-year) and private sector credit growth stabilized at 15%. Consumer price inflation picked up to 3.5% in December 2017, mainly because of increases in administered prices, especially alcohol and tobacco taxes. Fiscal policy has remained prudent: Sizable primary budget surpluses help achieve the government’s objective of rapidly reducing its indebtedness. The debt-to-GDP ratio has approximately halved to 69% in 2017 since the country’s economic crisis and sovereign debt default of 2008.
Seychelles has established a track record over the past decade of sound macroeconomic management and this is expected to continue—including now with the support of a new, three-year International Monetary Fund (IMF) Policy Coordination Instrument, which began in December 2017.
The economy’s external position has also remained stable. The value of exported, canned tuna, which accounts for almost all goods exports, fell by 9% percent in Q1–Q3 2017 (compared with the same period in 2016) as the regional authority overseeing fishing cut quotas to protect tuna species. Combined with the continued rise in goods imports, the trade and current account deficits widened. Yet Seychelles’ balance of payments has a large structural component linked to FDI-related imports, and FDI continued to be sufficient to fund most of the current account financing needs. Gross official reserves remained broadly unchanged at $544.7 million in December 2017 (equivalent to 4.2 months of imports).
With a formal unemployment rate of 4.5%, the Seychelles is at full employment. Rising labor demand has been met by a surge in expatriate workers—their numbers, as measured by new and renewed Gainful Occupation Permits, approximately doubling since 2014, to 16,792 in 2016. Foreign workers are employed mostly in construction and tourism and account for about a quarter of the total workforce.
The baseline growth outlook remains favorable in view of the buoyant tourism industry, although, at above 4%, the current pace of real GDP growth is expected to moderate to 3.5% in the medium-term, as construction linked to capacity development for new tourism slows down. A moratorium on new construction permits for large hotel was recently extended to 2020.
The baseline scenario assumes the Seychelles will maintain prudent fiscal policy aimed at reducing the government’s indebtedness. The 2018 Budget sets a target of a primary surplus of 2.5% of GDP. Although reduced from previous years’ targets of 3%, this surplus remains consistent with the authorities’ medium-term objective of reducing the debt-to-GDP ratio to 50% by 2021. This will require continued expenditure control as well as new, permanent measures to raise revenues beyond and above the one-off measures taken in 2017. The government plans to shift from a flat-rate tax to a progressive income tax in mid-2018. This would effectively lessen the tax burden on those with a lower ability to pay but possibly increase the challenge of generating offsetting revenues to fund pro-poor public expenditure. Inflation is expected to remain moderate at about 3.5%. The positive base effect of the 2017 administered price increases should be offset by the projected higher fuel import prices.
With this favorable growth, inflation, and employment outlook, poverty in Seychelles is likely to remain negligible, even within the middle-income poverty line of $3.2 a day per capita. The proportion of the Seychelles’ population living below the upper-middle income line ($5.5 a day) is projected to decline slightly to 5.1% in 2019, from an initial 6.6% in 2013.
Seychelles is a small island nation whose prospects rely heavily on external demand, especially tourism. This poses major challenges for diversification and resilience. Both the small pool of local, skilled labor, and high external transport and energy costs need to be overcome to generate wealth sustainably. For long-term prosperity, the government is placing strong emphasis on developing a “blue economy,” one that goes beyond current models of marine-based tourism and fishing to include, for example, sustainable mariculture and more value-added fish processing,.
In the nearer term, Seychelles’ overarching policy challenge is to consolidate the major gains it has made in macroeconomic and fiscal management, institutional reforms, and in the expanded role of the private sector since the country’s 2008 debt default. The continued development of a more efficient and focused public sector would help bring down costs and support a better environment for inclusive, and more diversified, private sector activity. Over the long-term, lifting educational outcomes would support inclusive growth too, by strengthening the quantity and quality of local skills available to an increasingly sophisticated and diversified economy.
Seychelles’ economy is mainly vulnerable to external shocks. A weakening of tourism entries—for instance because of increased competition from newer markets in the Middle East and Asia, or a series of price hikes in international food and oil prices—could easily cast a shadow on its economic outlook. Domestically, a relaxation of fiscal efforts could threaten macroeconomic stability, given Seychelles’ still high debt burden. Increased political competition may lead to spending pressures. These risks are, however, mitigated by the IMF-supported program.
Last Updated: Apr 17, 2018