central bank of seychelles report 2007.pdfsection one highlights of the seychelles economy 1 ......

CENTRAL BANK OF SEYCHELLES

ANNUAL REPORT

2007

CONTENTS

Page Letter of Transmittal Board of Directors List of Charts and Tables Section One Highlights of the Seychelles Economy 1 Section Two Financial Survey 12 Section Three Government Finance 28 Section Four The External Sector 41 Section Five The Real Sector: Production, Labour and Prices 61 Section Six Operations and Administration of the Central Bank 80 Annex I Annual Accounts and Auditor’s Report 96 Annex II Officers of the Central Bank of Seychelles


Board of Directors

(as at 31st December 2007)

Francis Chang Leng - Governor and Chairman

Jennifer Morel - Deputy Governor - Member

Errol Dias - Member

Francis Chang-Sam - Member

Jean Weeling-Lee - Member

Wilfred Jackson - Member

Secretary to the Board

Jean-Claude d’Offay

List of Charts and Tables

Chart No. Title Page Financial Survey 2.1 Net Foreign and Domestic Assets; 1998-2007 14

2.2 Money Supply; 1998-2007 18

2.3 Total Domestic Credit; 1998-2007 18

2.4 Commercial Banks’ Credit; 1998-2007 20

2.5 Commercial Banks’ Loans and Advances to Non-Government

Sector; 1998-2007 22

2.6 Loans by Development Bank by Economic Sectors; 1998-2007 23

2.7 Central Bank advances to Commercial Banks; 1998-2007 24

2.8 Credit and Deposits of Commercial Banks; 1998-2007 25

2.9 Interest Rates; 1998-2007 27 Government Finance 3.1 Government Finance Outcome; 1998-2007 29

3.2 Major Revenue Flows in Current Receipts; 1998- 2007 33

3.3 Government Expenditure by Main Headings; 1998-2007 34

3.4 Government’s Capital Expenditure; 1998-2007 37

3.5 Stock of Domestic Debt; 2007 40 The External Sector

4.1 The Overall Balance, Current Account and Capital & Financial

Account of the BOP; 1998-2007 42

4.2 Trade in Goods; 1998-2007 47

4.3 Exports; 2007 49

4.4 Imports (f.o.b.); 2007 51

4.5 Exchange Rate Movements of the Three Main Currencies in the STTWB; 1998-2007 59

The Real Sector: Production, Labour and Prices 5.1 Visitor Arrivals; 1998-2007 73

5.2 Price Movements; 1998-2007 79

Chart No. Title Page Operations and Administration of the Central Bank 6.1 Notes and Coins in Circulation; 1998-2007 83

6.2 Minimum Reserve Requirement; 1998-2007 88

6.3 Minimum Local Asset Ratio; 1998-2007 88

6.4 Average Tender Rate of 91-day bill; 2007 90

6.5 Total Stock of Outstanding Treasury Bills; 1998-2007 92

6.6 Total Stock of Outstanding Treasury Bonds; 1998-2007 93

Table No. Title Page Financial Survey 2.1 Monetary Survey; 2003-2007 16 2.2 Credit; 2003-2007 19 2.3 Commercial Banks – Loans and Advances to Non-Government Sector by Economic Sectors; 2003-2007 21 2.4 Loans by Development Bank by Economic Sectors; 2003-2007 23 2.5 CBS Advances to Commercial Banks; 2003-2007 24 2.7 Liquidity Indicators of Commercial Banks; 2003-2007 25 2.8 Interest Rates; 2003-2007 26 Government Finance 3.1 Government Budget; Summary 2005-2008 30

3.2 Government Budget; Revenue 2005-2008 32

3.3 Government Budget; Expenditure 2005-2008 35

3.4 Public Sector Capital Project Expenditure; 2004-2007 38

The External Sector 4.1 Balance of Payments; 2003-2007 45

4.2 Domestic Exports; 2003-2007 48

4.3 Imports (c.i.f.) – by HS Sections; 2003-2007 50

4.4 Goods Procured in Ports; 2003-2007 52

4.5 Services; 2003-2007 55

4.6 External Reserves; 2003-2007 58

4.7 Exchange Rates; 2003-2007 60

The Real Sector: Production, Labour and Prices 5.1 Gross Domestic Product – Production Account by Industry (at constant market prices); 2004-2007 63 5.2 Gross Domestic Product – Production Account by Industry (at current market prices); 2004-2007 65 5.3 Estimates of Fish Landed; 2003-2007 66

5.4 Production of Import of Crops and Livestock products; 2003-2007 68

5.5 Tourism; 2003-2007 72

5.6 Employment and Unemployment Rate; 2003-2007 76

5.7 Average Monthly Earnings ; 2003-2007 78

5.8 Annual Average Inflation Rates; 2003-2007 79

Table No. Title Page Operations and Administration of the Central Bank 6.1 Circulation of Notes and Coins; 2003-2007 83

6.2 Bankers’ Clearing House Activities; 2003-2007 85

6.3 Minimum Reserves and Local Assets Ratio; 2003-2007 89

6.4 Treasury Bills; 2003-2007 91

6.5 Treasury Bonds; 2003-2007 93

6.6 Government Stocks; 2003-2007 94

Technical Note

Owing to rounding of figures, the sum of separate items may not always add up to the total shown. Abbreviations used in this Report are: R = Seychelles Rupee n.a = Figure not available .. = Negligible -/0 = Nil

CBS - Central Bank of Seychelles

DBS - Development Bank of Seychelles

IBC - International Business Company

IOT - Indian Ocean Tuna Limited

ITZ - International Trade Zone

SEPEC - Seychelles Petroleum Company

SFA - Seychelles Fishing Authority

SMB - Seychelles Marketing Board

SSF - Social Security Fund

STB - Seychelles Tourism Board

STTWB - Seychelles Trade and Tourism Weighted Basket

SECTION ONE

Highlights of the Seychelles Economy

Overview

2007 was a year which clearly demonstrated both the opportunities and challenges that Seychelles

face as a small open island State in economic transition. Whilst the prospects for medium-term

growth were visibly strong, the country’s susceptibility to external shocks was conversely

prominently exposed.

Since mid-2004, when the government embarked on a macroeconomic reform program within the

framework of greater economic liberalisation, the country’s economic performance has rebounded

quite remarkably with real growth switching from a negative to positive trend. On the policy front,

greater autonomy granted to the Central Bank and the fiscal authorities have moreover extended the

scope and range of instruments available for more effective macroeconomic management.

Increasing flexibility in economic management has enhanced the authorities’ ability to detect, assess

and respond to economic events. This, coupled with progress in macroeconomic consolidation, has

led to greater business confidence, resulting in strong investment inflows into the economy not only

from foreign investors, but increasingly, from local investors.

To build on the momentum of the emerging new economic order, and outline the dynamism and

change in philosophy, the government launched its economic vision under the aegis of Strategy 2017

in March 2007.

This vision takes a more forward-looking approach in doing business in Seychelles across all levels,

and redefines the role of the government sector as facilitator of growth. Under the strategy, tourism,

fisheries and financial services are identified as the economic mainstays and catalysts for future

wealth creation. For each of those sectors, broad implementation plans have been drawn for the

guidance of the respective government ministries, agencies and the business community. Critical to

the success of the national roadmap, is the response of the private sector to exploit growth

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Annual Report 2007 Highlights of the Seychelles Economy

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opportunities and undertake new business initiatives; in such connection its participation in the

government’s privatisation program will be a key, if symbolic, step of its willingness to take

ownership of - and lead - the next economic growth phase. In support of the expansion in private

business, government will need to fast track the ongoing process of revamping outdated regulatory

practices and embracing policy changes necessary to spur the development of the expanding sectors1.

Against the above backdrop, the recent upswing in economic gains was reinforced in 2007.

According to the preliminary estimates, the rate of growth in real terms was 7.3 per cent. The main

growth impulses came from the tourism, construction, telecommunications and other services all of

which can be linked with the transformation of the hotel sector and improved air access to the

archipelago.

During the year new records in tourist arrivals were achieved in both traditional and emerging

markets. Such an outcome was achieved on the back of some gains in external competitiveness and is

set to consolidate further in the years to come with the increase in industry capacity that is currently

being undertaken. Compared to 2006, itself a record year, arrivals rose by 15 per cent to 161,273

generating a rise in income of 52 per cent in rupee terms.

With the ongoing capacity expansion in the tourism industry, the construction industry remained in

the upward phase of a boom cycle during the year. Major civil works on ongoing projects continued,

whilst new developments, such as the Ephelia Resort of the Corvina/Constance alliance, were signed

off in the second half of the year. In addition to resort development, residential construction was also

at a peak level mostly by the government sector consistent with the country’s housing development

agenda. By most accounts, construction activity would have been higher still were it not for supply

bottlenecks in essential quarry products, notably aggregate and crusher dust.

Whilst there were strong gains in the real economy and some important consolidation in the monetary

domain, other fundamentals, notably the external accounts, remained under severe strain. Although

the balance of payments continued to strengthen in statistical terms, conditions in the official foreign

exchange market generally tightened. This stated, some improvements were realised in the first half

of the year but later on with the rapid rise in the international price of fuel and essential commodities,

these were totally eroded as more resources were required to pay for these strategic items, thus

displacing other critical payments such as raw materials and spare parts. 1 In recent years, the quality of the business environment has improved tremendously but residual weaknesses remain. Still, Seychelles currently ranks fifth in Africa in the Transparency International 2007 Corruption Perception Index whilst under the new Ibrahim Index of African Governance the country is ranked second after Mauritius. For further information, visit the websites: www.transparency.org/policy_research/surveys_indices/CPI and www.moibrahimfoundation.org.


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Thus, notwithstanding a general weakening in the external value of the domestic currency and the rise

in tourism earnings, no visible improvement in currency availability could be discerned at retail

banking level, leaving unmet demand to be satisfied outside the official market. However, some

progress was achieved in the unification of the official and unofficial market in the sense that the

parallel rate premium fell in percentage terms for the key US$ currency with the added observation of

a general convergence of cross-rates in the unofficial market closer to prevailing international levels.

In light of the stringency in the official foreign exchange market, for yet another year, a major share of

the country’s non-FDI imports was thus financed through the parallel market. From external data,

such payments are estimated to have been in the order of R300 million (see Section 4, The External

Sector). The revision in the exchange rate regime in October, encompassing the effective targeting of

the currency at the mid-rate R8/US$ went some way to subdue activity in the parallel market, but not

significantly, as its full effects are expected to feed through in a medium-term context and only until

such time the monetary overhang (external arrears problem) is substantially eliminated.

Hastening macroeconomic convergence against the prevailing challenging economic backdrop

remained the policy dilemma of the year. From a conventional economics perspective, the Rupee,

even after the recent correction, can be deemed to be overvalued given the undisputed existence of

active parallel currency trading2. However, it is the considered view of the authorities that simply

moving the exchange rate to the parallel market rate will not immediately eliminate the parallel

market. This assessment follows from the view that such a measure cannot possibly lead to the on-

demand availability of hard currency at the banks through a corresponding rise in external earnings in

light of “imperfect exchange rate pass-through effects” and capacity limitations in the export sectors.

Any early gain in the external sector will thus need to follow more from demand compression arising

from the inflationary consequences (real balance effect) of the currency movement. In the process,

there are strong downside risks, especially on fiscal stability, stemming directly from the exchange

rate change and indirectly from possible interest rate, price and wage adjustments which would in

time be triggered by the exchange rate adjustment.

Mindful of the above issues, the authorities continued to monitor the economy’s responses to recent

policy changes whilst deploying significant resources in better understanding the complex dynamics

that underpin economic relationships in the imperfect markets of a small island developing state.

2 According to a recent authoritative estimate derived from an “External Sustainability Approach”, the country’s Real Exchange Rate (RER) was between 12-25 per cent overvalued (depending on assumptions on benchmark net foreign exchange target from +10 to -35 per cent of GDP) in 2007. This result was generated on the basis of 2007 current account data transactions which reflected average period exchange rates of R6.7/US$ and R9.2/€ for the key trading currencies. It is thus highly probable that as the full effects of the October 2007 currency realignment pass through, the corresponding results for 2008 may show a correction of the overvaluation.


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Paradoxically however, one must concede that following trade liberalisation, imports funded through

the parallel market have contributed immensely to the remarkable strengthening in the fiscal position

since 2005. Through higher imports, tax collections, especially through the goods and services tax

(GST) and trades’ tax, have surged, paving the way to some degree of debt consolidation and

reduction.

In 2007, total revenue amounted to R2,549 million most of which represented GST revenue and other

taxes. These revenue flows helped the government achieve another year of fiscal surplus amounting

to R65 million or 1.1 per cent of GDP. However, at this level, the fiscal outcome was well below its

target of R327 million set at the beginning of the year. Nevertheless, this result was a commendable

one given the external shocks that hit the economy, especially in terms of the rising price of fuel and

other commodities.

Despite the budgetary pressures in the second half of the year, the government continued with its debt

restructuring process. Through an integrated debt and monetary restructuring exercise, involving the

mobilisation of additional external resources, the government was able to reduce its domestic

indebtedness and in the process, discharge a substantial portion of commercial arrears in the banking

system.

Following from this, there was a marked decline in the monetary mass in the banking system, thus

reversing an emerging growth trend in domestic liquidity. The success of the operation is best

illustrated that by the end of the year, M2(p) the broad money aggregate, showed a fall of 2.4 per cent

relative to the previous year. This contraction was a welcomed development and was an important

intermediate objective of the Central Bank to tighten liquidity conditions, improve the effectiveness of

policy instruments, and contribute to the national macroeconomic adjustment efforts.

As a result of the above developments, the Bank was able to reinforce its monetary and exchange rate

policies in the last quarter of the year.

On October 5, as earlier mentioned, the Bank announced a change in the exchange rate policy in a

move to bring about greater stability and competitiveness to the national economy. In addition, there

was an increase in the minimum deposit rate from 2.5 per cent to 3.5 per cent, which took effect on

December 1. Viewed against external and price developments, the change in interest rate was more

symbolic than material, but even so was highly significant from a signalling perspective as it

conveyed a national drive to encourage more savings in the economy and the willingness of the

Central Bank to embrace more active use of interest rate as an important tool for demand management

in the short to medium term.


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The present set of policies being adopted by the Central Bank, though conservative in scope and

depth, tie in well with other elements in the macroeconomic reform program; a further tightening

during this transitional phase of the process could destabilise government finances, and needlessly

unsettle other economic and social fundamentals (money, prices, wages, social cohesion, crime, etc.),

and thus even delay correction of the imbalances in the external sector.

However, whilst the Balance of Payments recorded another year of surplus, the current account

maintained a deficit position, explained to a large extent by the high demand for FDI imports and the

payment for oil imports; additionally, it reflected the acquisition of a fourth oil tanker by the local oil

company SEPEC. Arguably, a narrowing in the current account deficit will follow once all the FDI

inflows are fully transformed into an expansion in external earning capacity but over the interim,

prudent economic management requires that the level of non-FDI domestic demand be maintained

within the natural financing constraint of current earnings such that external borrowings for funding

energy and consumption imports are minimised. With the orientation of the exchange rate policy

towards competitiveness, the export sectors, namely tourism and fishing, the outlook for a

strengthening of the external accounts are in this sense, positive.

For a second consecutive year, the labour market continued to remain tight with many vacancies

staying unfilled, especially in tourism, construction and professional services such as in the financial

sector. In many instances businesses had to import labour to be able to maintain the pace of demand

for their services. This was particularly the case for tourism and construction where both sectors

continued to operate with hundreds of unfilled vacancies. The total number of people employed at the

end of the year stood at 41,948, a rise of 6.0 per cent relative to 2006. Given this increase, the

unemployment rate fell to 1.9 per cent, the lowest since records have been maintained.

As stipulated in the last Annual Report, 2007 price prospects were very uncertain at the beginning of

the year in view of instability in the world economy and currency markets. As the year unravelled,

these uncertainties came to the fore, especially the impact of higher import prices on the domestic

price-level, a development compounded by the exchange rate correction and the change in

government pricing policies. Whilst in the first half of the year, the rise in prices was moderate, in the

following six months, there was a rapid pace in the change in overall domestic prices. By year end

the annual average inflation rate as stipulated by the Consumer Price Index stood at 5.3 per cent with

a year-on-year growth of 17 per cent. During 2008, movements in prices is expected to be stronger as

the full impact of the currency adjustment – and changes in world prices and government pricing

policy – feeds through the general spectrum of the economy.


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Monetary Developments

Following from the major policy decisions and actions which took effect in the second half of 2006,

the Central Bank monitored very closely the outcomes of the key economic indicators especially those

of the money supply, credit and BOP performance. In addition, it continued with the foreign

exchange liberalisation roadmap, which in 2007 concentrated on the further reduction of the pipeline

deposits. Towards the end of the year, the Bank undertook a major assessment of the macroeconomic

policy landscape, analysing present economic dynamics within the limitations of policy instruments,

before cautiously announcing changes to its monetary and exchange rate policies.

Effective October 5, the exchange rate policy was judiciously adjusted to maintain the value of the

domestic currency vis-à-vis the US dollar at the mid-rate of R/US$8. This change concluded the end

of a process, involving a progressive adjustment of the currency which began in October 2006

intended to enhance the international competitiveness of the fisheries and tourism sectors as well as

creating a more stable environment to facilitate both local and international investment. In addition to

the above policy move, the Bank increased the minimum interest paid on deposits by one percentage

point to 3.50 per cent which became effective as of December 1, 2007.

In a separate measure, the Central Bank announced its intention to introduce a secondary market for

Treasury bonds. This was conceived as an enabling platform to improve money market dynamics by

offering investors greater flexibility and choice in their investment decisions. To further increase

investor confidence and promote the orderly development of financial services in Seychelles, a

Securities and Financial Markets Division was created within the realm of the Central Bank. This

division will oversee regulation and supervision of non-bank financial services such as mutual funds,

securities dealings and insurance business in line with international best practices.

Apart from the assessment and implementation of policies, the Bank also sought expertise from

international institutions in its efforts to develop new policy tools and regulation/supervisory

techniques and additionally, enhance its capacity in economic management for a country undergoing

“complex multi-dimensional transformation”. In that endeavour, the Bank received the technical

assistance of an IMF mission from the Monetary and Capital Markets Department in November.

From that visit an 18-month action plan was drawn which will be implemented from the beginning of

2008. Similar assistance for other sectors will be requested in the future.

Fiscal Developments

The achievement of a strong sustained fiscal outcome is one of the key elements of the government

economic reform agenda. Debt reduction and consolidation are especially critical not only in

promoting macroeconomic convergence, but in reducing fiscal vulnerabilities to adverse interest and


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exchange rate movements. In the short term restructuring and improving the debt profile can provide

some fiscal relief, but ultimately, debt can only be reduced through annual budget surpluses.

However, whilst the government may have committed to a prudent fiscal strategy, a successful

outcome is often highly conditional on favourable external conditions. This was clearly evident in

2007 when energy and commodity price shocks compounded by an exchange rate policy change,

derailed the fiscal efforts by a significant degree.

For a fifth consecutive year, the budget performance registered an overall surplus of R65 million with

a primary surplus of R482 million. The overall outcome was however short of the target of R327

million, much of the slippage being attributable to the impact of the aforesaid external shocks.

Nonetheless, the revenue streams remained strong during the year, driven largely by the stronger

economic growth. Total revenue inclusive of grants amounted to R2,549 million, collected mostly

from goods and services tax (GST), income/business tax, trades tax and dividends and interests.

GST collections increased slightly above its target to reach R884 million. This outcome was in line

with the improved economic activity, especially from tourism and related services, which translated in

stronger revenue generated from imports. Further evidence of enhanced tax buoyancy came in the

form of business/income tax which performed significantly above expectations and was above its

forecast by R44 million.

From an expenditure perspective, the fiscal performance was somewhat disappointing with excess

spending recorded on both current and capital outlays with only net lending posting a net repayment.

Current spending was above its approved limit by R316 million, whilst capital expenditure exceeded

target by R135 million. The overruns in current outlays were related mainly to increased subsidies

extended to the parastatals, namely the Public Utilities Corporation (PUC) and the Seychelles

Marketing Board (SMB), associated with the rising prices for fuel and commodities on the

international market. Against the constraint of an unchanged tariff/price structure for electricity and

certain basic commodities, these two companies experienced rising operational costs which forced

them into loss positions, forcing them to resort to government for assistance.

However, in the second half of the year, the government engaged in a full re-assessment of the policy

environment centred on fixed prices for certain strategic commodities, including energy products.

This resulted in the adoption of a market-driven pricing policy, with the first announcement being

made in respect of fuel prices at the pump in September. From that month, the domestic prices for

fuel was increased to reflect international costs and were now to be revised on a quarterly basis to

reflect the movements in the international oil market. This was construed as a signal that the


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government was now prepared to change other commodity prices that were under its control either

directly or indirectly so as to minimise or eliminate unsustainable cost burden on the budget. This

new price policy was announced in the Budget 2008 presentation in December to the National

Assembly. Prices in line for review included certain goods imported and/or produced by the SMB as

well as the utility charges of PUC. The new prices will be announced early in the new year by the

two respective companies.

In terms of capital expenditure, the expenditure overrun was in respect of increased cost, especially in

the financing of housing. This reflected the cost inflation in the procurement of imported material

arising both from higher cif import price and the exchange rate movement. Despite the higher costs,

government remained committed to its housing development programme in line with its electoral

pledge. On the domestic side, various domestic building materials and transportation costs similarly

rose after the adjustment in the price of vehicle fuel.

External Sector Developments

For a second consecutive year, the Balance of Payments registered a surplus. Based on provisional

estimates, the overall balance amounted to a surplus of R190 million (US$28 million). This outcome

though lower in magnitude compared to the previous year was again driven by the performance of the

financial account.

Given the characteristics of the Seychelles economy, the current account is invariably in a deficit

position and for 2007, the shortfall widened from R738 million (US$132 million) in 2006 to R1,820

million (US$272 million). The deterioration in the current account balance was largely explained by

the increased shortfall in the trade balance, which arose out of a surge in imports. The rise in the level

of imports was closely related to the increased level of economic activity, especially in terms of

foreign direct investments (FDI) in the tourism sector. A record rise in FDI-related imports was thus

recorded. Furthermore, with the rise in the price of fuel as well as other commodities on the

international market, and the depreciation of the rupee, the import value of merchandises in domestic

currency terms correspondingly increased. The acquisition of the fourth tanker by the local oil

company SEPEC similarly influenced the year’s current account outcome.

Nevertheless, despite the widening in the trade account, the shortfall was somewhat outweighed by

the good performance of the services account which increased its surplus from R862 million (US$156

million) in the previous year to R1,165 million (US$174 million) in 2007. The record number in

tourist arrivals led to record earnings and significantly strengthened the services account in the

process.


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In the financial account, the year was subjected to a further rise in financial flows, namely in the form

of FDI mostly targeting the tourism industry. Flows for the year rose to R1,663 million (US$248

million) compared to R804 million (US$146 million) in 2006. Such flows are expected to continue

given the list of projects that are ongoing or in the pipeline.

Real Sector Developments

Most key economic indicators point to another year of strong growth in 2007. Provisional GDP data

suggest a real GDP growth rate of 7.3 per cent, down a percentage point from the previous year.

Growth momentum was underpinned by a record tourism performance, and an ongoing boom in

investment activity, namely in the construction of new tourism projects. Tourism arrivals increased

by 15 per cent relative to the previous year to peak at 161,273 and recorded a rise in earnings of 52

per cent. In the year, some US$248 million was reportedly spent on FDI projects in the country, of

which an estimated 15 percent of the amount would represent direct local spending.

On the production side, there were mixed outcomes. Agriculture fared much better than in the

previous year but there was a decline in activity in manufacturing. For agricultural output, there was a

broad-based increase in production to meet the rise in domestic demand, especially from the tourism

sector. On the other hand, the foreign exchange shortage at banking sector level continued to disrupt

output in the manufacturing sector, a situation aggravated by the increasing need to finance fuel

imports in view of rising international oil prices. The decline in output of the manufacturing sector

was however mostly due to unfavourable climatic conditions, which occasioned a drop in tuna catch

and hence resulting in a fall in the production of canned tuna.

Further evidence of the firming up of economic growth was observed in labour market statistics. At

the end of the year 2007, the total number of persons employed stood at 41,948, representing an

increase of 6.0 per cent over 2006. As a result of the increase in employment, there was also a decline

in the unemployment rate from 2.6 per cent to 1.9 per cent. Given the level of vacancies outweighing

the supply of labour, it could be concluded that at this level of unemployment, the economy has

attained its full employment level thus increasing prospects for wage inflation. For the economy to

maintain its growth trend, increased dependence on foreign labour is unavoidable and must be seen as

an integral component of the 2017 Strategy.

One downside risk in the real sector during 2007 was the emergence of inflation tendencies. With the

recent rise in the price of fuel and other commodities internationally, the consumer price index (CPI)

increased significantly, corresponding to an annual average inflation rate of 5.3 percent. Price

pressures accelerated after the October currency realignment with the end-December CPI rising to 17

percent on a year-on-year.


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Outlook for 2008

In the absence of debilitating external shocks, the short to medium-term outlook for the domestic

economy remains generally positive. The year closed with confidence in the economy at a high level,

as evidenced by record investment commitments. The underlying trend in tourism continues to

strengthen even ahead of the programmed level whilst in the fisheries sector, tuna catch levels are

expected to normalise as the El Nino climactic conditions dissipate. In the financial services arena,

the enabling legislations and regulatory framework are in place to support a growth in international

business, including an expansion in offshore banking services. Against this backdrop, the vision of

Strategy 2017 is thus seemingly realisable.

However, many challenges remain to secure the credibility of the development roadmap and ensure its

successful closure. Above all, growth cannot indefinitely be sustained under the distorted

environment of the prevailing monetary and external disequilibria. These must be tackled with utmost

priority within a realistic timeframe whilst successfully rolling back official debt in both nominal and

relative terms. In addition, adjustment must be achieved with the least collateral damage to social

cohesion, resource sustainability and the environment since these are the bedrocks of the country’s

economic pillars. These salient points, in a nutshell, set out the policy agenda for 2008 and beyond.

The policy challenge is to a large extent made easier by the underlying strength of FDI activity. To

ensure that such growth momentum continues, investment commitments must be transformed in

additional realised export capacity and in this connection, the constraining lack of domestic quarry

products and other critical products must be earnestly resolved. In addition, government regulatory

agencies must adopt a more proactive business-friendly approach in the discharge of their functions so

as to minimise bureaucratic bottlenecks in the planning and construction process. Improvements in

this regard would ensure that projects are completed on schedule and on budget, rather than be

needlessly delayed as in earlier instances, to the detriment of the country.

On a positive note, certain concrete steps have been initiated by the government to address these

supply-side concerns. Of major significance is the plan to set up the Seychelles University which will

provide for future manpower needs, especially for the services industry. In addition, other committees

have been instituted to identify the input needs for the construction industry over the plan period as

well as the labour requirement needed to support the realised investments.

As in 2007, the year closed with continued uncertainties with regards to the future evolution of

energy prices amidst threats of world economic slowdown, following the international liquidity

squeeze resulting from the collapse of the sub-prime mortgage market in the USA. Prospects are


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further clouded by the associated turmoil in the currency and equity markets as well as in the price

volatility in commodity markets. Such risks only serve to glaringly expose the vulnerability of

Seychelles to the vagaries of international economic developments. Without a substantial softening

in international energy and food prices, the country’s adjustment roadmap faces the strong risk of

derailment as resources are shifted from growth activity to the national priority of ensuring energy and

food security.

SECTION TWO

Financial Survey

2. Overview

The effects of the monetary policy revisions implemented by the Central Bank in the second half of

2006 crystallised during the year 2007. These were mostly visible in the movements of key monetary

fundamentals which overall pointed to a tightening of monetary conditions and thus providing the

enabling condition for more effective macroeconomic convergence within the framework of the

ongoing foreign exchange liberalisation process and a more competitive domestic currency.

Against the above backdrop, the Central Bank acted as a key facilitator of the reform process.

Relative to recent years, the use of monetary policy tools became more important even if they

remained limited in scope and effect within the ‘stylised’ context of a small island developing state

(SIDS).

Nonetheless, some normalisation in monetary conditions was achieved during 2007. Measured in its

broadest sense, M2(p), the money stock contracted significantly in 2007, a result which was partly

promulgated by a key event in the foreign exchange liberalisation process which started in October

2006. This manifested as a notable contraction in pipeline deposits in respect of foreign exchange

demand for goods which have already entered the country. From R384 million in December 2006, the

stock of pipeline deposits fell to R92 million at the end of December 2007.

The clearance of external arrears from the system which occurred in the month of August was made

possible through resources released in the banking system by the authorities, which resulted in a drop

of 16 per cent in the broadest monetary aggregate. At the end of 2007 however, the monetary situation

recovered somewhat with the decrease amounting to a lower 2.4 per cent relative to the corresponding

end-2006 level.

The stock reduction in the broad monetary aggregate was an important intermediate policy objective in

the Central Bank’s roadmap to rollback the longstanding monetary overhang and restore equilibrium

in the money market. This would in turn improve the effectiveness of monetary instruments in

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Annual Report 2007 Financial Survey

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influencing macroeconomic fundamentals. From an external account perspective, an effective

tightening in monetary conditions would reduce aggregate spending and hence promote external

convergence through a moderation in import demand.

On the asset side of the monetary survey, a contraction of 20 per cent in net foreign assets of the

banking sector was recorded whilst conversely domestic assets increased by 8.4 per cent. The

deterioration in the foreign asset position was wholly driven by a decline in the Central Bank’s net

external holdings which fell from R653 million to R323 million. In contrast, the position of

commercial banks improved from negative R115 million to positive R109 million on account of strong

inflows from the tourism sector.

As regards to the expansion in (net) domestic credit, this was due to the net effect of a growth in credit

accommodation to the private and parastatal sectors coupled with a drop of 3.8 per cent posted under

claims on the government. At the end of the year 2007, the government accounted for 53 per cent of

the commercial banks’ lending portfolio. This was a remarkable decline relative to the 63 per cent in

2006, a development consistent with the government’s objective to shift its role in the economy from

economic operator to that of a facilitator.

In nominal terms, commercial bank lending to government actually fell over the year. However, the

government’s international indebtedness increased, in part on account of an additional US$30 million

bond issued on the capital market in August. With the new issue, the total stock of funds raised

through the floatation of international paper increased to US$230 million. In line with the earlier

practice, the rupee proceeds arising from the sale of the US$30 million of hard currency to the Central

Bank were mainly used to retire domestic debt which significantly explained the decline in

government domestic debt in 2007 compared to 2006.

In terms of the opportunity cost of holding money, an overall hardening in conditions was observed.

In some small measure this was influenced by the increase in the minimum deposit rate from 2.50 per

cent to 3.50 per cent announced in October 2007 which became effective in December 2007. Such a

move was anticipated by the market following growing signs of a tightening in banking sector

liquidity. As such, over much of the year, the trend in interest rates was upward on most categories of

deposits with instruments with a maturity of ‘above seven days to 3 months’, showing the maximum

average weighted increase of 0.65 percentage points. Against this backdrop, the yield in the market

for government securities (Treasury bills) offered on tender understandably rose, by 0.48 percentage

points on the average.


- 14 -

Buckling the underlying trend was the observed reduction in the return on time deposits with a

maturity of above 12 months. Such a movement occurred alongside a noticeable reduction in this

category of deposits, following the liquidation of sizeable balances used to fund the clearance of

external commercial arrears from the system. The premature withdrawal of such long-dated term

deposits explains the reduction in yield on this deposit category on an average weighted basis.

Notwithstanding the overall progress made in the monetary domain, the banking sector remained fairly

liquid with quite a considerable level of cash overhang. The progressive elimination of such

overhang, estimated at about US$70 million, will be critical for restoring monetary equilibrium,

improving the effectiveness of monetary instruments and strengthening confidence in the domestic

currency. The successful achievement of this will not only encourage savings at a national level but in

the process curb consumption activity and thus reduce adverse pressures on the external accounts.

2.2 Net Foreign and Domestic Assets

The banking sector’s net foreign assets position remained positive in 2007 for the second consecutive

year. However, from R539 million, such assets fell to R432 million, an outcome wholly attributable to

the decline in the net balance of the Central Bank which dropped from R653 million to R323 million.

The drawdown on external resources reflected the considerable settlement of external debt service

obligations and other national payments (health, education, petroleum, etc.) which far exceeded the

level of foreign exchange inflows to the Central Bank reserve accounts. In addition, some resources

were deployed to clear requests under the pipeline scheme within the framework of the foreign

exchange liberalisation process.

Chart 2.1: Net Foreign and Domestic Assets (1998 – 2007)

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

R m

illio

n

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Perc

enta

ge

Net Foreign Assets Domestic Assets % Change in Total Assets

Source: Central Bank of Seychelles


- 15 -

On the other hand, the external position of commercial banks showed an improvement from negative

R115 million to positive R109 million between the end of December 2007 and 2006, respectively.

This commendable turnaround was primarily associated with the increase in foreign exchange inflows

through the domestic economy, primarily on account of the strong performance of the tourism sector.

On the domestic front, the monetary survey showed an expansion in credit creation from R4,870

million in 2006 to R5,277 million (8.4 per cent). The source of the expansion was the private and

parastatal sectors. Over the same period, government reduced its reliance on domestic financial

resources, an outcome which must however be contrasted against a corresponding increase in external

indebtedness.

The decline in net claims on the government amounted to R126 million (3.8 per cent) whereas the

growth in claims on the parastatal and private sectors was of the order of 42 per cent and 33 per cent

respectively. In regards to parastatals, the increased demand for credit was mainly to meet the cash

flow requirements of certain entities, which incurred massive operational losses arising out of adverse

currency movements and commodity and energy price shocks. This was particularly the case for

PUC, the utilities company which suffered losses as it maintained an unchanged tariff structure against

the backdrop of a major increase in production costs. As regards to the growth in claims on the private

sector, this was consistent with the period’s reported increase in economic activity, notably in the

tourism and peripheral sectors.

From an economic perspective, the shift in the sectoral allocation of banking sector resources to the

private sector is a most welcomed development as overall it mirrored an expansion in economic

activity. On the other hand, the growth in credit to the parastatal sector is of serious concern as such

additional resources were required to cover operational losses rather than to support a growth in

output.

2.3 Money Supply

In encouraging contrast to the upward trend in the money supply observed in the previous years, a

contraction in liquidity was registered at the end of 2007. This was of R110 million or 2.4 per cent,

with the contractionary impulse originating wholly from the foreign side of the monetary framework.

However, whilst the broad monetary aggregate declined, this occurred in the relatively least liquid

component of the money supply with M1, which is composed of the most liquid monetary aggregate

showing an increase of R210 million (15 per cent) relating to growths under both currency with the

public and demand deposits. Currency with the public grew from R393 million in 2006 to R408

million in 2007, a movement which was consistent with the reported increase in economic activity and


- 16 -

the need to hold higher transaction cash balances in view of increasing inflationary tendencies evident

from the second half of 2007.

Table 2.1 Monetary Survey1

2003 2004 2005 2006 2007 (R million)

Net Foreign Assets2 -516.4 -414.5 -273.7 538.8 431.6 Central Bank -324.2 -306.2 -85.7 653.3 322.5 Commercial banks -192.3 -108.3 -188.0 -114.5 109.0

Domestic Assets 5171.8 5250.4 5223.0 4869.7 5276.9 Claims on private sector 993.8 1164.1 1247.3 1320.3 1752.6 Claims on parastatals 102.8 183.3 296.8 240.1 340.9 Claims on government (net) 4075.2 3903.0 3678.8 3309.3 3183.4

Money Supply, M2(p) 4655.5 4835.9 4442.5 4659.7 4549.9 Money Supply, M2 4120.6 3679.1 3944.1 4275.8 4458.0 Money, M1 1570.9 1226.9 1397.0 1392.0 1602.0 Currency with public 305.9 295.8 325.7 392.8 407.8 Demand deposits 1265.0 931.1 1071.4 999.2 1194.2 (of which public entities) 477.2 283.9 264.6 192.7 130.5

Quasi-money 2549.7 2452.2 2547.1 2883.8 2855.9 Time deposits 1537.8 1420.9 1452.9 1613.3 1168.1 (of which parastatals) 227.5 152.2 152.8 312.5 330.7 Savings deposits 806.7 805.6 847.9 952.6 1044.3 Foreign Currency deposits 205.2 225.7 246.2 317.9 643.5

Pipeline deposits 102.1 589.5 498.4 383.9 92.0

Other items, net 425.1 561.0 506.9 748.8 1158.6Figures do not necessarily add up due to rounding. 1 End-of-period data. 2 Excludes government balances. Source: Central Bank of Seychelles

As regards to demand deposits, following their decline to R999 million in 2006, these increased by

R195 million (20 per cent). It is as yet not clear whether this is a temporary development or a general

portfolio shift in deposit composition in response to the changes in underlying economic

fundamentals. However some preliminary evidence would suggest that this could have occurred as a

result of an increased conversion of foreign currency deposits into domestic currency.

The movement in quasi-money was from R2,884 million to R2,856 million, showing a contraction of

R28 million (1.0 per cent) against 2006’s corresponding level. This was due to a significant decline of

R463 million (36 per cent) in the balance of time deposits of the private sector. Such a development

was for the most part associated with the removal of rupee deposits from the system to clear

commercial arrears of the private sector. As for savings deposits, the end-2007 balance was


- 17 -

R92 million above the previous year’s amount corresponding to an annual percentage increase of 9.6

per cent compared to 12 per cent in 2006.

The upward revision in interest rate from 2.50 to 3.50 per cent effective December 2007 was under the

prevailing economic conditions modest in quantum but very significant as a signalling event to the

private and business fraternity. As such, such a move was not expected to contribute to an immediate

and major slowdown in aggregate demand, nor lend much support to the current account. However, it

demonstrated the Central Bank’s resolve to resort to more active use of interest rate policy as a

demand management instrument within the constraints posed by a small imperfect financial market

and the vulnerability of government finances to interest rate increases.

Moreover, with the emergence of inflationary tendencies, strong downward pressure is being exerted

on monetary balances as economic agents attempt to maintain volume consumption levels unchanged.

Such a trend is unlikely to be arrested in the short-term by the recent interest rate increase until savings

are drawn down to precautionary levels and adjustment in consumption pattern becomes obligatory

within a given budget constraint.

Of the various money components, foreign currency deposits registered the most significant

movement. Compared to R318 million in 2006, the balance more than doubled at the end of 2007.

This was partly on account of the weakening of the domestic currency between the two periods which

translated into a higher rupee balance for the same unit of foreign currency. Nonetheless, in euro

terms – the currency in which the majority of inflows to the country are denominated – foreign

currency deposits of residents in domestic banks was higher than in the previous year. The increase

was from €42 million to €55 million which was also consistent with the increase in tourism earnings

(and record visitor arrival level) recorded during the year.

As regards to pipeline deposits, this expectedly fell from R384 million in 2006 to R92 million in 2007.

The reduction reflected both withdrawals and payments were the latter corresponded to legitimate

requests for goods and services which have entered the country which were being cleared by the

Central Bank as part of the foreign exchange liberalisation process launched in October 2006. The

target is to systematically finance out all commercial arrears in 2008.


- 18 -

Chart 2.2: Money Supply (1998 – 2007)

0

500

1,000

1,500

2,0002,500

3,000

3,500

4,000

4,500

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

R m

illio

n

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Perc

enta

ge

Demand deposits Time depositsSavings deposits Pipeline depositsForeign Currency Deposits % Change in M2(p)


2.4 Domestic Credit 2.4.1 Central Bank and Commercial Bank Credit The drop of 4.0 per cent in aggregate domestic credit observed at the end of 2006 was reversed at the end of 2007 when a growth of 4.6 per cent was recorded, bringing the stock to R5,549 million. Such a movement was due to an increase in total credit extended by both the Central Bank and commercial banks, with the latter leading the expansion. During the year, the commercial banks recorded an increase of R218 million (5.2 per cent) in their exposure on the economy reflecting the net effect of a growth in claims on the private and parastatal sectors and a contraction in the amount extended to the government. Chart 2.3: Total Domestic Credit (1998 – 2007)

0

1,000

2,000

3,000

4,000

5,000

6,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Years

R m

illio

n

-10.0-5.00.05.010.015.020.025.030.035.0

Perc

enta

ge

Commercial Banks Central Bank % Change in Total Domestic Credit



- 19 -

Table 2.2 Credit1/2

2003 2004 2005 2006 2007

(R million)

Total Credit 5441.8 5492.6 5523.5 5302.7 5548.8

Commercial banks 4430.2 4092.1 4182.7 4191.7 4409.8 Claims on private sector 993.8 1162.1 1247.3 1320.3 1752.6 Claims on parastatals 100.9 183.3 296.8 240.1 340.9 Claims on government 3335.5 2746.6 2638.5 2631.3 2316.3 Of which: Dev. Fund Stocks (140.0) (147.1) (147.1) (147.1) (147.1) Treasury bonds (1167.4) (1079.4) (1095.0) (1342.4) (1055.1) Treasury bills (1003.9) (1511.6) (1302.2) (1132.8) (1092.6)

Central Bank 1011.7 1400.6 1340.8 1111.1 1139.0 Claims on government 1011.7 1400.6 1340.8 1111.1 1139.0 Of which: Advances (811.0) (1316.6) (0.0) (0.0) (86.4) Treasury bonds (200.0) (84.0) (1340.8) (1111.1) (1052.6) Treasury bills (0.7) (0.0) (0.0) (0.0) (0.0)

Figures do not necessarily add up due to rounding. 1 End-of period data. 2 All figures for stocks, bonds and bills are at cost value. Source: Central Bank of Seychelles

The increase in claims on private sector was of R432 million (33 per cent) whereas the growth in

claims on the parastatal sector amounted to R101 million (42 per cent). At the end of 2007, the share

of aggregate credit extended by commercial banks to the private sector was 40 per cent whilst

parastatals accounted for 7.7 per cent of the loans portfolio. In 2006, the ratio was 31 per cent and 5.7

per cent, respectively. Both sectors thus increased their respective share of banking resources in line

with the retrenchment of central government.

Claims on the government by the commercial banks declined by R315 million (12 per cent) whereas

an increase of R28 million (2.5 percent) was recorded by the Central Bank. Such a development does

not reflect a strong fiscal outcome but more a restructuring in the composition of public debt with the

decline in domestic debt being partly offset by a growth in foreign indebtedness.

At the end of the year, the government still accounted for the lion’s share of banking sector aggregate

credit. However, this ratio has been on a gradual declining trend from 80 per cent in 2003 to 71 per

cent in 2006 and fell further to 62 per cent at the close of 2007.


- 20 -

2.4.2 Sectoral Allocation of Credit to Private Sector and Parastatals

A number of factors appeared to have influenced the sectoral distribution of credit during 2007.

Foremost of all, the improved economic environment stemming from the success of government

policies to facilitate business activity particularly in tourism and fisheries had translated into a growth

in credit demand from the productive sector. Secondly, the combined impact of higher prices and a

weaker currency had increased the economy’s rupee requirement for both investment and working

capital. In the case of certain companies, including some key parastatals, added recourse to bank

credit was required to cover some serious cash shortfalls resulting from operational losses. Thirdly, a

restructuring in the composition of public debt intricately linked with certain important foreign

exchange liberalisation initiative led to a drop in domestic financing needs but an increase in external

indebtedness.

Chart 2.4: Commercial Banks Credit (1998 – 2007)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Years

R m

illio

n

Claims on private sector Claims on government Claims on parastal sector


Consequently, whilst the government remained the main borrower in the economy, its share of total

credit declined whilst an increase in credit allocation to the private and parastatals sectors was

reported. In growth terms, the increase in credit by the private and parastatals sectors was by a

significant 33 per cent and 42 per cent, respectively.

This credit expansion was experienced across all economic sectors. The dominant sector was ‘tourist

facilities’ which accounted for 35 per cent of commercial banks’ total lending to non-government

sectors. A total of R315 million was borrowed, representing a growth of 74 per cent compared to the

previous year. Such a development was consistent with the observed growth of the sector in terms of

infrastructural development and tourism arrivals.


- 21 -

Table 2.3 Commercial Banks – Loans and Advances

To Non-Government Sector by Economic Sectors1 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 (R million) (per cent) Total Advances 1096.5 1345.4 1544.2 1568.8 2117.3 100.0 100.0 100.0 100.0 100.0

Of which:

Foreign Currency Loan 73.1 121.9 222.1 338.0 652.1 6.7 9.1 14.4 21.7 30.8 Agriculture & fishing 14.3 11.6 10.4 11.3 14.8 1.3 0.9 0.7 0.7 0.7 Of which: Refinance scheme 2.0 0.0 0.0 0.0 0.0 0.2 0.0 0.0 0.0 0.0 Manufacturing 10.4 7.9 7.0 12.2 14.6 0.9 0.6 0.5 0.8 0.7 Construction 43.2 87.0 85.9 80.5 86.6 3.9 6.5 5.6 5.2 4.1 Transportation 10.6 6.6 5.1 9.1 53.7 1.0 0.5 0.3 0.6 2.5 Tourist facilities 317.4 361.5 438.1 424.0 739.0 28.9 26.9 28.4 27.2 34.9 Wholesale & Retail trade 70.1 124.4 104.3 183.5 241.2 6.4 9.2 6.8 11.8 11.4 Other businesses 281.2 366.1 511.0 437.4 455.0 25.6 27.2 33.1 28.0 21.5 Private households & Non-profit organisations 349.4 380.4 382.4 402.3 491.8 31.9 28.3 24.8 25.8 23.2 Of which Mortgage loans 197.6 232.9 217.5 199.1 204.8 18.0 17.3 14.1 12.8 9.7 Figures do not necessarily add up due to rounding. 1 End-of-period data. Source: Central Bank of Seychelles

A notable growth was observed in the amount lent out to the transportation sector which grew from

R9.1 million in 2006 to R54.7 million in 2007, translating in an increase in its share of total credit to

the non-government sector from 0.6 per cent to 2.5 per cent. This unprecedented increase can be

linked with the record number of vehicles imported in the country during the year by car hire

businesses as well as private households.

The smallest increase in credit was of R2.3 million in respect of credit allocated to the manufacturing

sector which continued to be affected by shortages of key imported inputs arising from the stringency

in the foreign exchange situation.

It is interesting, albeit worrisome, to note that an increasing share of total credit was in foreign

currency, amounting to 31 per cent versus only 6.7 percent in 2003. Partly such an outcome is

explained by a weakened domestic currency. Compared with 2006, foreign-denominated advances

increased from R338 million in 2006 to R652 million in 2007. In US dollar terms, the increase was

still considerable, from US$58 million to US$82 million. The borrowers of such resources are foreign

exchange earners, particularly businesses in the tourism sector.

At the close of 2007, ‘tourists facilities’ accounted for 35 per cent of total non-government credit as

against 27 per cent in 2006. The next dominant sector was ‘other businesses’ with a share of 21 per


- 22 -

cent despite showing a drop compared to 28 per cent in 2006. Other sectors which observed a

reduction in their share allocation were ‘manufacturing’, ‘construction’, ‘wholesale and retail trade’

and ‘non-profit organisation’. The sectors which accounted for the smallest proportion of credit to the

non-government sectors were ‘agriculture and fisheries’ and ‘manufacturing’, both of which

represented only 0.7 per cent of the total credit extended to the private and parastatal sectors.

Chart 2.5: Commercial Banks’ Loans and Advances to the Non-Government Sector as Percentage of Total (1998 – 2007)

0

500

1,000

1,500

2,000

2,500

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Years

R m

illio

n

Agriculture and Fisheries ManufacturingConstruction TransportationTourists Facilities Wholesale & Retail tradeOther businesss Private households & Non profit organisaiton


2.4.3 Development Bank’s Credit3

The Development Bank of Seychelles (DBS) is the microfinance institution in the financial system,

providing advances across economic sectors. In 2005 and 2006, DBS’s loan portfolio has been

increasing at a decreasing pace. For the year 2007, the stock of outstanding loans at DBS stood at

R294 million, showing a contraction of R37 million (11 per cent) compared to the previous year.

Prior to 2007, the most recent contraction in DBS’ loan portfolio was registered in 1999.

3 Development Bank of Seychelles(DBS) was established in 1977 under Decree No. 21 as a development financing institution with a specific mandate to assist in the economic development of Seychelles. DBS finances new modernization and expansion projects in the fields of agriculture, fishery, industry, service and tourism as well as construction of commercial and residential complex. To qualify, the applicant must be a Seychellois citizen or a company incorporated in Seychelles with at least 51 per cent Seychellois ownership. Currently, DBS charges 9.5 per cent per annum on all loans and requires applicants to make a minimum personal contribution of 25 per cent of the total project cost. The Development Bank of Seychelles does not provide credit for working capital by itself.


- 23 -

In 2007, the decline in total advances reflected developments in lending to all sectors. This reflected

an increase in competitiveness of the loans disbursed by commercial banks, with the added advantage

of the client being able to borrow in hard currencies. The contraction ranged between R1.8 million

(‘Industry’) and R21 million (Tourism). The drop in credit extended under ‘other services’, which

accounted for the bulk of DBS’ advances, was R8.0 million (4.4 per cent). The agricultural sector

continued to represent the smallest proportion of DBS’s loan portfolio and at R8.3 million showed a

decrease of R4.1 million.

Table 2.4 Loans by Development Bank by Economic Sectors1

2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 (R million) (per cent) Total Advances 267.7 307.5 327.1 330.8 293.9 100.0 100.0 100.0 100.0 100.0

Agriculture 8.1 12.5 12.9 12.4 8.3 3.0 4.1 3.9 3.7 2.8Fishing 21.9 22.1 22.4 17.5 15.0 8.2 7.2 6.8 5.3 5.1Industry 13.8 14.9 17.5 17.6 15.8 5.2 4.8 5.4 5..3 5.4Tourism 85.0 103.2 106.3 101.5 81.0 31.8 33.6 32.5 30.7 27.6Other services 138.9 154.8 168.0 181.8 173.8 51.9 50.3 51.4 55.0 59.1

Figures do not necessarily add up due to rounding. 1 End-of-period data. Source: Development Bank of Seychelles

Chart 2.6: Loans By Development Bank by Economic Sectors (1998 – 2007)

020406080

100120140160180200

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

R m

illio

n

Agriculture Fishing Industry Tourism Other services



- 24 -

2.5 Liquidity of Commercial Banks

Based on the credit/deposit ratio which showed a small increase from 102.2 to 102.8, the consolidated

liquidity situation of commercial banks appeared unchanged at the end of 2007 compared to 2006.

Compared with preceding years, banks are currently operating within a tighter liquidity envelope.

Notwithstanding this, banks participated actively in the Treasury bill auctions during the year and at

the end of 2007, they continued as a group to hold excess consolidated balances over the prevailing

prescriptions on statutory cash reserves requirement and local assets ratio.

Table 2.5

CBS Advances to Commercial Banks 2003 2004 2005 2006 2007

(R million) Advances 379.5 1063.5 224.0 34.0 157.0 Repayments 360.5 962.5 344.0 34.0 157.0 Stock of credit1 19.0 120.0 0.0 0.0 0.0 1 End-of-period data.

Nonetheless, unlike in earlier years, at least two banks faced liquidity difficulties late in the year

following the withdrawal of deposits linked with the discharge of some large commercial arrears in the

banking sector. This is reflected in an increased tendency by these banks to resort to temporary

borrowings from the Central Bank. In its role as lender of last resort, the Central Bank increased its

volume of advances to the banks from R34 million in 2006 to R157 million in 2007. However, similar

to the previous year, the whole sum was repaid by the end of the year.

Chart 2.7: Central Bank Advances to Commercial Banks (1998 – 2007)

0

200

400

600

800

1,000

1,200

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

R m

illio

n

Advances Repayments



- 25 -

Table 2.6 Liquidity Indicators of Commercial Banks1

2003 2004 2005 2006 2007

(R million) Credit 4430 4092 4183 4192 4410 Deposits2 4059 3659 3848 4103 4290

(per cent) Credit-deposit ratio 109.1 113.1 108.7 102.2 102.8

Figures do not necessarily add up due to rounding. 1 End-of-period data. 2 Excludes pipeline deposits Source: Central Bank of Seychelles

Chart 2.8: Credit and Deposits at Commercial Banks (1998 – 2007)

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Years

R m

illio

n

Credit Deposits


2.6 Interest rates

The prescription of a minimum deposit rate of 2.50 per cent – except on current accounts – in October

2006 was a landmark policy development. Prior to this, banks applied such a rate only on savings

deposit, a situation tantamount to the adoption of a de facto passive approach to interest rate policy.

The announcement of an increase in the minimum deposit rate from 2.50 per cent to 3.50 per cent in

October 2007 to take effect the following December further confirmed that the Central Bank was now

adopting a stronger and active stance in the determination of interest rates.


- 26 -

The shift in monetary policy resulted, as anticipated, in a general upward movement in the structure of

domestic interest rates.

On the deposit side, the most significant increase was of 0.65 percentage points in respect of deposits

of ‘above 7 days to 3 months’. An upward movement was also registered in the yield on deposits with

a maturity of ‘above 3 months to 6 months’ and ‘above 6 months to 12 months’ and this was of 0.17

percentage points and 0.25 percentage points respectively. Likewise, the average Treasury bill rate

increased from 3.96 per cent in 2006 to 4.44 per cent in 2007.

The average weighted interest rate on time deposits with a maturity of ‘up to 7 days’ and ‘above

twelve months’ showed a contraction compared to the previous year. The decline was of 0.75

percentage point and 0.79 percentage points respectively. These aberrations from the norm can be

deemed to be temporary in duration being associated with some exceptional events as explained

earlier.

Table 2.7 Interest Rates1

2003 2004 2005 2006 2007

(per cent) Volume-weighted average deposit rates:

Savings rate 2.85 2.80 2.97 2.78 3.39Time deposits 7 days 2.39 1.77 2.07 3.28 2.53 > 7 days < 3 months 3.99 4.75 3.07 3.12 3.77 > 3 months < 6 months 4.22 3.91 3.31 3.29 3.46 > 6 months < 12 months 3.98 3.12 3.02 3.23 3.48 > 12 months 3.75 3.01 3.01 3.48 2.69Volume-weighted Average lending rate 10.20 9.85 9.87 10.50 11.2391-day treasury bill rate (tap) 2.02 - - - -91-day treasury bill rate (tender) - 2.59 2.93 3.79 3.98365-day treasury bill rate (tender) - 3.83 4.24 4.12 4.891 Average of monthly data, compiled on an end-of-period basis.

As regards to the lending rate, the average movement was from 10.5 per cent to 11.23 percent which

followed the trend in other rates. Most small loans appeared to have incurred an increase in rates

whilst larger loans seemed to have enjoyed a drop in rates as competition in the banking intensified

following the decline in government domestic financing requirement.


- 27 -

Chart 2.9: Interest Rates (1998 – 2007)

0.01.02.03.04.05.06.07.08.09.0

10.011.012.013.014.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

Perc

enta

ge

Minimum Deposit rateTime deposits rate: <= 7daysTime Deposit Rate: > 6 months < =12 monthsAverage lending rate91-day treasury bill rate


SECTION THREE

Government Finance

3. Summary

As has been the case since 2003, the philosophy underlying the government budget strategy is a firm

and prudent fiscal stance, one that emphasises expenditure control and debt sustainability whilst at the

same time targeting a retrenchment in government intervention in the economy. This belief was

reinforced by the launch in March 2007 of Strategy 2017, which clearly redefines the role of

government to that of facilitator with an eye on raising efficiency, improving governance and

promoting responsiveness in service delivery. Many discussions, involving expert exchanges, were

undertaken during the year with the objective of helping government design and implement policies

that would allow for better management flexibility in responding to shocks and in promoting faster

macroeconomic convergence.

For 2007, the fiscal outcome showed an overall surplus of R65 million which amounted to 1.1 per cent

of the estimated GDP4. When compared to the original budget target of R327 million, this

outturn was somewhat disappointing. However, this occurred against the backdrop of some adverse

unanticipated events that happened throughout the year originating from both domestic and external

sources. Specifically, these related to the increases in the price of fuel and other commodities from

the international markets as well as the realignment of the domestic currency, events which had

negative impact both on spending levels and on revenue streams.

The above two factors affected key expenditure heads throughout the year, not least government

subsidies to PUC/SMB which became unavoidable as these parastatals saw themselves faced with

rising operating/procurement costs whilst having to function against the constraint of unchanged tariff

and price structures. For the full year, expenditure overruns were of the order of R389 million or 19

per cent in respect of both spending on current expenses and capital outlays. In contrast, a better

performance on revenue collection was recorded, amounting to some 5.2 percent above expectations.

This was consistent with the general rise in economic activity corresponding to a real GDP growth of 4 GDP data series have been revised upwards. This forms part of an exercise to enhance the national accounts which had been called for. The new series is seen to be more realistic of the level of income generation compared to the old series.

- 28 -

Annual Report 2007 Government Finance

- 29 -

7.3 per cent for the year, arising from higher tourism, construction, telecommunications and financial

services activities.

Chart 3.1: Government Finance Outcome (1998 – 2007)

-1000

-500

0

500

1000

1500

2000

2500

3000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

R m

illio

n

Total Receipts Total Outlays Overall Balance

Source: Ministry of Finance

3.1 Outcome for 2007

The achievement of debt sustainability through budgetary consolidation is one of the key elements of

the government reform agenda and underpins the whole spectrum of the internal/external economic

convergence roadmap. However, in the prevailing context, adjustment efforts are severely constrained

by the high level of official (domestic and external) indebtedness, more specifically by its

sensitiveness to both interest rate and exchange rate movements. Moreover, whilst government may

pursue a conservative fiscal policy, the budgetary performance of a small island economy like

Seychelles will continue to be vulnerable to adverse exogenous developments as experienced in 2007.

Hence, in addition to changes in domestic monetary/exchange rate policies, external shocks such as

the rise in international energy and commodity prices can have a great bearing on fiscal performance

of the country.

The fiscal outcome for 2007 portrayed all the opportunities and downside risks that the country can

conceivably face from a budgetary management standpoint.

The budget posted a surplus of R65 million compared to R174 million in 2006. This outcome

reflected another year of peak revenue, especially achieved under ‘current receipts’ which was above

the previous year’s level by R129 million or 5.4 per cent. This reflected the increased economic

growth, especially arising from the tourism sector through higher Goods and Services tax collections

as well as income/business tax and trades tax.


- 30 -

Table 3.1

Government Budget Summary

2005 2005 2006 2006 2007 2007 2008 Budget Actual1 Budget Actual1 Budget Actual1 Budget

R million

Total Receipts 2004 2168 1929 2476 2422 2549 2547Current receipts 1999 2118 1924 2403 2362 2532 2532 Of which: Trades tax [306] [281] [199] [225] [260] [265] [360] Transfers from Social Security [125] [325] [125] [125] [125] [125] [135] Business/income tax [317] [277] [304] [297] [316] [360] [359] Other indirect taxes [628] [684] [673] [723] [883] [884] [1023]

Grants 5 50 5 73 60 17 15

Total Outlays 1725 1816 1751 2302 2095 2484 2278 Current outlays 1507 1555 1514 1901 1856 2172 1968 Appropriation items 1196 1301 1357 1477 1479 1739 1512 Of which: Ministries/departments [794] [809] [836] [952] [933] [1008] [973] Social Security contributions [143] [143] [143] [147] [170] [136] [139] Current outlays to parastatals [30] [48] [62] [124] [121] [239] [68] Charges 312 254 193 [424] [377] [433] [456] Of which: Interest payments [301] [243] [179] [406] [360] [417] [435] Contingency Fund 0 73 0 0 0 0 0

Capital outlays 200 254 237 404 239 374 310

Net lending 0 7 0 -3 0 -62 0 Of which: Parastatals [0] [-35] [0] [-3] [0] [-55] [0]

Primary Balance2 580 595 357 580 687 482 704

Overall Balance 279 352 178 174 327 65 269

Financing (net) -279 -352 -178 -174 -327 -65 -269 Foreign loans (net) -116 133 -2 878 -27 725 26 Domestic loans (net) -163 -274 -176 -522 -300 -328 -295 Cash movements 0 -211 0 -531 0 -462 0

Memorandum Items: Amortisation of loans 2034 6955 1150 1373 1108 1525 1776

Of which: Foreign loans 199 40 50 453 144 367 245 Domestic loans 1835 6915 1100 919 964 1158 1531

Figures do not necessarily add up due to rounding. 1 These series are subject to audit and might be revised accordingly. 2 The primary balance is obtained by excluding interest payments from the overall balance. Source: Ministry of Finance


- 31 -

In terms of total expenditure, R2,484 million was spent, representing an increase in spending over

2006 by R182 million or 7.9 per cent. The higher expenditure reflected to a large extent the impact of

external shocks and changes in domestic policies in the manner described above. These two elements

were very much at play in 2007 more so than in 2006.

Excess expenditure was incurred in terms of ‘ministries/departments’, ‘current outlays on parastatals’

and ‘interest payments’. However, on an encouraging note, there was a decline in the expenditure

allocation for capital expenditure which fell by R30 million or 7.4 per cent relative to the previous

year.

3.2 Revenue

Resulting from the momentum in economic growth stemming from trade liberalisation, a realigned

currency and an improved business climate, was a major expansion in the country’s tax base. In

consequence, revenue collection hit at an all-time high in 2007, an outcome led by taxation receipts

and dividends/interests. Total revenue collection for the year amounted to R2,549 million,

representing an increase of R127 million or 5.2 per cent relative to forecast. Current receipts

accounted for 99 per cent of the total with the remaining balance being flows from grants.

Current revenue was above budget estimates by 6.7 per cent with all revenue streams performing

better than anticipated with the exception of ‘administrative fees and fines’ and ‘rents and royalties’

which fell short by R14 million and R124 million respectively. For the latter, the reduced income is

explained by lower revenue from the rent of land and buildings which came in at 50 per cent lower

than forecast.

As mentioned above, revenue collection from taxes was the most influential revenue flows in 2007 as

has been the case in the recent past. For 2007, the four main tax heads, namely, ‘trades’ tax’,

‘income/business tax’, ‘other indirect tax’ and ‘transfers from Social Security Fund (SSF)’ accounted

as a group for 65 per cent of current revenue. The increased revenue respective to budget estimates

for the four named revenue heads was of the magnitude of R5.2 million, R44 million and R466,000

whilst the flow for SSF was on target.

An in depth analysis of those taxable revenue flows showed that for trades tax, higher income was

gained through increased collections from the importation of vehicles and food products.

Nevertheless, trades tax revenue could have been higher, especially from oil products due to both

volume and price effects. However, under the fixed price system that existed up to August, petroleum

revenue at the pumps was essentially the difference between the international fuel price and a fixed

price regime, implying that as the fuel import price rises, the tax element falls. With the change in the


- 32 -

pricing policy in September, which involved major price increases - and allowed for changes in fuel

prices on a quarterly basis - government was able to recover some tax revenue in the latter part of the

year. Nonetheless, it was not enough to outweigh the losses of the previous eight months.

The most significant increase in tax receipts has been in terms of ‘income/business tax’, which was in

excess of forecast by 14 per cent and by coincidence accounted for the same percentage share in

current revenue. This noteworthy achievement clearly vindicated the proposition that strong growth in

the economy prevailed in 2007, as in 2006. The growth impulses emanated from the tourism,

construction, telecommunication and financial sectors with the former two sectors being strongly

influenced by FDI flows.

Table 3.2

Government Budget Revenue

2005 2005 2006 2006 2007 2007 2008

Budget Actual1 Budget Actual1 Budget Actual1 Budget

(R million)

Total Receipts 2004 2168 1929 2476 2422 2549 2547

Current receipts 1999 2118 1924 2403 2362 2532 2532Transfers from social security fund 125 325 125 125 125 125 135Trades tax 306 281 199 225 260 265 360Income/business tax 317 277 304 297 316 361 359Other indirect taxes 628 684 673 723 883 884 1023 Of which GST on: Locally manufactured goods 232 241 219 217 222 251 270 Services 197 209 212 235 293 289 282 Imported goods 120 165 170 170 265 259 324Fees and fines 128 116 116 166 143 166 133Administration fees and Charges

119

102

97

74

103

89

34

Rent and royalties 89 127 96 144 256 132 256Income – public service 10 9 9 9 9 10 10Dividends and interest 156 137 161 347 129 271 31Reimbursements 30 34 33 40 40 45 8Miscellaneous 91 26 111 253 66 185 31

Grants 5 50 5 73 60 17 15

Figures do not necessarily add up due to rounding. 1 These series are subject to audit and might be revised accordingly. Source: Ministry of Finance


- 33 -

Chart 3.2: Major Revenue Flows in Current Receipts (1998 – 2007)

0200400600800

100012001400160018002000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

R m

illio

n

Transfers from SSF Trades Tax Income / business tax Other Indirect Taxes Fees and Fines Rents and Royalties


As regards ‘other indirect tax’, a slight increase of only 0.1 per cent was recorded relative to

expectations. Nevertheless, it must be noted that its share in current revenue rose from 30 per cent in

2006 to reach 35 per cent in the current year. This increase in share clearly demonstrates the

importance of this tax, especially the Goods and Services Tax (GST) component introduced in 2003,

which has allowed for the domestic tax base to be considerably widened.

For the non-taxable revenue, the most prominent flows came from the category head of

‘dividends/interests’. This was primarily in relation to higher than anticipated receipts from

Nouvobanq, the public sector commercial bank amounting to R61 million compared to the original

forecast of R15 million and on statutory transfers from the Central Bank which stood at R175 million

compared to the expected R40 million.

For the rest, there were increases in ‘fees and fines’ (16 per cent); ‘income from public services’ (10

per cent); ‘reimbursements’ (13 per cent) and ‘miscellaneous income’ (180 per cent) compared to their

respective budget forecasts.

3.3 Expenditure

Government was very focussed since the beginning of the year in making sure that spending remained

within the approved limits. Expenditure control was being tightly co-ordinated by the Ministry of

Finance such that maximum fiscal discipline could be achieved. Much progress was attained in the

first half of the year but moving in the second half, there were increasing pressures on the government

accounts for additional resources. These stemmed from the external and policy shocks alluded to


- 34 -

earlier, namely higher prices of fuel and commodities as well as the exchange rate movement of the

domestic currency. The international increases in the price of oil and food commodities increased the

expenditure on parastatals in the form of large subsidies to compensate for losses arising out of a

policy regime of fixed prices, primarily in respect of PUC (utility prices) and the SMB (commodity

prices).

The magnitude of subsidies extended to the parastatals proved unsustainable, forcing government to

resort to a pricing policy for energy products that reflects international price developments. Whilst this

change of policy allowed for an improvement on the revenue from trades tax on fuel, it translated into

higher expenditure in terms of the procurement of this commodity which had not been anticipated at

the time the budget was formulated in late 2006. Furthermore, the government was greatly affected by

the movement in the exchange rate, especially in the final quarter of the year.

The change in the exchange rate in October affected the spending requirements in respect of external

commitments associated with education, health and debt servicing payments. In addition to the

external price shocks and the exchange rate movement, the budget performance was also undermined

by firmer domestic interest rates which continued from the previous year in view of the tightening of

monetary policy.

Overall, total outlays amounted to R2,485 million which represented an excess over budget estimates

of R389 million or 19 per cent for the year. The overrun was in reference to current and capital

spending which were above their budget limits by 17 per cent and 57 per cent respectively. Net

lending for its part reported a net repayment compared to a budgeted nil balance.

Chart 3.3: Government Expenditure by Main Heading (1998 – 2007)

-500

0

500

1000

1500

2000

2500

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

R m

illio

n

Current outlays Capital outlays Net Lending



- 35 -

Table 3.3 Government Budget

Expenditure

2005 2005 2006 2006 2007 2007 2008

Budget Actual1 Budget Actual1 Budget Actual1 Budget

R million

Total Budget Outlays 1726 1816 1751 2302 2095 2484 2278

Total Current Outlays 1508 1555 1514 1901 1856 2172 1968Appropriation items 1214 1301 1357 1477 1479 1739 1513Ministries/departments 794 809 835 952 933 1008 973 Tourism & Transport 67 40 29 29 32 15 118 Education & Youth 151 171 181 197 185 190 196 Health 155 183 184 194 190 212 220 Defence 69 71 77 88 77 111 77 Internal Affairs 16 13 14 16 17 18 18 Pension & Gratuities 33 27 33 31 35 27 37 Subventions 85 104 133 187 198 321 194 Regulatory bodies 53 51 66 57 71 75 118 Parastatals 30 48 62 124 121 239 68 Other bodies 1 4 6 6 6 7 8Social Security Contributions 143 143 143 147 133 136 139Pension Fund Contributions 7 5 7 8 10 7 7Other appropriations 153 212 170 122 131 210 103

Charges 312 254 193 424 377 433 456 Public debt interest 300 243 179 406 360 417 435 Other charges 12 11 14 18 17 16 20

Capital Outlays 200 254 237 404 239 374 310

Development grants to parastatals 11 26 30 20 34 26 55Land acquisitions 7 5 7 11 5 6 5Capital projects 200 223 200 372 200 343 250

Net Lending 0 7 0 -3 0 -62 0

BTL advances – parastatals 0 (35) 0 0 0 (55) 0BTL advances – others 0 37 0 -3 0 (7) 0Capital subscriptions 0 5 0 0 0 0 0Equity participation 0 0 0 0 0 0 0

Figures do not necessarily add up due to rounding. 1 These series are subject to audit and might be revised accordingly. Source: Ministry of Finance

3.3.1 Current Outlays

Current expenditure amounted to R2,172 million which was above its budget limit by R316 million or

17 per cent. This excess spending was observed in almost all the categories of expenditure in the two

broad heads of ‘appropriation items’ and ‘charges’.

A detailed analysis of these broad categories of spending showed that the most prominent expenditure

overrun in the ‘appropriation items’ category was in ‘current outlays on parastatals’ and ‘centralised


- 36 -

payments’, which were above their respective budget estimates by R118 million and R68 million. The

higher expenditure in relation to ‘current outlays to parastatals’, was mainly in terms of subsidies

granted to PUC and SMB. The increasing prices of oil and other commodities on the international

market coupled with the exchange rate effect in October, placed heavy cost pressure on the said

companies, thus forcing them into loss positions which had to be covered through government

subsidies.

The revision in pricing policy of domestic fuel at the pump in September signalled government’s

preparedness to review its national position on the sensitive issue of prices in order to arrest the

deterioration in the fiscal position. Accordingly, after September, the government was reportedly re-

assessing the pricing policies of PUC and SMB to eliminate their need for budgetary support.

In terms of the extra spending on ‘centralised payments’, this represented mostly resources needed to

accommodate the extra expenditure on overseas training which rose on account of the exchange rate

movement during the year. In addition, given the government’s endeavour to pursue its reform agenda

during the year, additional costs were incurred to contract in overseas expertise in the many instances

where no local counterpart skills could be sourced.

In the case of the rest of the expenditure heads in the ‘appropriation items’ category, there were

instances of excess spending, but in all cases the margin of overruns were below single digit in

percentage terms.

With regards to ‘charges’ the second main sub-category of current outlays, these recorded a total

expenditure of R433 million which was above its budget target by R56 million. Such significant

variance reflected to a large extent excess spending in terms of ‘public debt interest’ which was above

budget by R62 million. This development clearly mirrored the changes in domestic interest rates

during the year, especially on the government debt instruments (Treasury bonds) and the exchange

rate effect on external debt interest payments. As part of the government’s strategy to enhance

savings, two new bonds were placed on the market with relatively higher interest rates compared to

the previous year. Towards the end of the year, a tightening in monetary conditions started to affect

short-term interest rates notably the 91-day treasury bill. This movement though not affecting the

budget in 2007 will translate into higher interest costs for government moving forward. This clearly

demonstrates the extent of the interest rate risk on government finances that can arise as the authorities

continue to implement its reform agenda. Such a risk needs to be understood and minimised so that

the budget strategy is not derailed, especially in the initial phase of the macroeconomic adjustment

program.


- 37 -

3.3.2 Capital Outlays

Capital expenditure for the year amounted to R374 million compared to a budget limit of R239

million. The bulk of the capital expenses represented ‘capital projects’ in the amount of R343 million.

In addition to spending on services and infrastructure development, the capital outlays were mostly in

regard to housing development which absorbed R156 million in the year. Most of the housing

development costs was incurred in respect of the Ile Perseverance housing project (Further details of

the government capital project expenditure is discussed below).

For the rest of capital outlays, there was a slight overrun of R705,000 on ‘land acquisition’. On the

other hand, expenditure towards ‘development grants to parastatals’ was well restrained and below

budget by R8.2 million.

Chart 3.4 Government Capital Expenditure (1998 – 2007)

050

100150200250

300350400450500

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

R m

illio

n

-100

-50

0

50

100

150

Perc

enta

geCapital outlays % Change


3.4 Public Sector Capital Project

Expenditure

Capital projects expenditure of the order of R343 million represented a decline of R27 million or 7.7

per cent relative to the previous year. This resulted from less spending on infrastructure and utilities

projects and services which fell by R21 million and R7.7 million respectively. As for the economic

sectors, there was a slight increase of R0.3 million in expenditure.

3.4.1 Economic Sectors

Spending on government sponsored economic projects was more or less stable compared to the

previous year. At R4.4 million, it represented a growth of only R328,000, mainly targeting the


- 38 -

‘agriculture’ and ‘fisheries’ sectors. Within the sector, spending on ‘agriculture’ mostly covered the

implementation of projects to eradicate the melon fruit fly as well as the upgrading of the poultry

parent stock and the importation of new pig bloodlines. With regards to ‘fisheries’, this was

expenditure incurred towards the construction of the Bel-Ombre fishing port which started in the

previous year.

Table 3.4Public Sector Capital Expenditure

2004 2005 2006 2007

(R thousand) Total 114,084 223,002 372,121 343,499Economic Sectors 5,450 1,869 4,054 4,382 Agriculture 3,777 921 1,449 2,882 Fisheries 0 822 2,593 1,500 Tourism 1,664 127 12 - Outer island development 0 - - - Craft & home industries 0 - - - Trade & commerce 9 - - -Infrastructure and Utilities 26,121 20,411 43,445 22,185 Transport 13,860 8,711 33,515 16,422 Water supply & sanitation 275 4,572 313 315 Communications 122 1,035 93 10 Land Reclamation 6,880 - - - Land Bank 4,984 6,093 9,523 5,439Services 82,513 200,722 324,647 316,932 Education 17,424 22,824 1,662 1,518 Health 2,245 5,418 17,728 13,043 Housing 4,088 79,552 117,185 156,484 Social development 12,921 31,842 99,273 34,624 Culture 1,613 1,607 3,777 3,524 Sports 3,765 7,812 2,996 11,388 Information & media - 30 34,623 17,866 Internal affairs 4,998 1,951 242 2,666 Public sector management 25,790 43,947 36,774 68,808 Environment 9,668 5,739 10,388 7,010


3.4.2 Infrastructure and Utilities

Compared to 2006 when there was a substantial increase in this category of project financing, an

important scale down in expenditure was seen in the year under review, amounting to a decline of 49

per cent to close at R22 million. This was mainly on account of ‘transport’ and ‘land bank’ projects

which fell by R17 million and R4.1 million, respectively. For the other two heads of expenditure,

minimal expenditure was recorded.


- 39 -

3.4.3 Services

Services continued to be the key sector where there has been important financing on capital projects.

Of the R343 million of total expenditure for capital projects, the share of the services stood at 92 per

cent. However, the amount allocated has declined compared to the previous year, corresponding to a

fall of R7.7 million or 2.4 per cent.

Whilst there was an overall decline in this category of expenditure, an analysis of the details shows

that the most prominent spending was towards the sub-categories of ‘housing’ and ‘public sector

management’; these increased by R39 million and R32 million respectively relative to the previous

year.

For ‘housing’, the expenditure reflected disbursements on on-going projects, especially the Ile

Perseverance which accounted for R63 million of total housing outlays. As regards ‘public sector

management’, this represented major renovation works on some of the government offices. Other

increases were registered in favour of projects under the heads ‘sports’ and ‘internal affairs’.

For all the other categories, namely ‘education’, ‘health’, ‘social development’, ‘culture’, ‘information

and media’ and ‘environment’, there were reductions in the total spent relative to the previous year.

Collectively the reductions amounted to R90 million.

3.5 Net Lending

The policy of net lending is to achieve a nil balance by the end of each year. The outcome for 2007

was strongly encouraging in that the government was able to record a net repayment on such

advances. These net payments came principally from parastatals in the amount of R55 million. Under

the head ‘others’, which represents mainly ‘general purpose loans’ to public servants, a net repayment

of R8.0 million was registered.

4. Financing

As has been the case in the rest years, the budget surplus in 2007, amounting to R65 million, was used

to reduce domestic debt. In 2007 however, the net reduction in domestic debt was R328 million, an

amount that exceeded the budgeted figure of R300 million as well as standing R263 million above the

overall fiscal outcome. This repayment was made possible through a net draw down of R725 million

in new external loans, thus leaving R462 million to be reflected in a rise in cash balances.


- 40 -

Following the above, the government has made significant progress in reducing the domestic debt

stock as well as restructuring it from short term to longer term instruments. At the end of 2007, the

total domestic debt outstanding amounted to R4.3 billion, representing a fall of R259 million or 5.7

per cent relative to 2006. It is important to note that this year’s decline represents the five consecutive

years of reduction and since 2005, the decline has ranged between R259 million to R325 million.

Chart 3.5: Stock of Domestic Debt- 2007

4000

4100

4200

4300

4400

4500

4600

4700

4800

4900

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07

Months

R m

illio

n


SECTION FOUR

The External Sector

4. Overview

Based on provisional Balance of Payments (BOP) statistics, a review of Seychelles’ external sector

performance for the year 2007 showed a generally positive result. This is in consideration that the

overall balance ended with a surplus for the second consecutive year despite an observed decline in the

magnitude from R583 million (US$106 million) in 2006 to R190 million (US$28 million).

On the financing side, the 2007’s overall BOP surplus represented a decline in reserves at the Central

Bank but also a marked reduction in external arrears. The contraction in foreign exchange reserves

was from R653 million (US$113 million) in 2006 to R323 million (US$40 million) end December

2007. Much of the pressure on official reserves can be attributed to the need to fund payments in areas

such as education and health, whilst at the same time covering certain debt obligations. Although

banking sector statistics showed an increase in foreign exchange inflows, this gain was far outweighed

by the increased payment demand linked in a significant way with the underlying rise in aggregate

demand and external factors such as the increase in oil prices to record level as well as the rise in

prices of other commodities – such as food items – on the world market.

The remarkable reduction in the country’s stock of commercial arrears posted in 2007 was for the

most part achieved through additional external borrowings and drawdown on reserves rather than from

current banking inflows. Whilst this thus came at the cost of increased external indebtedness, such a

development significantly corrected the liquidity overhang in the monetary sector whilst strengthening

investor confidence in the country. With the monetary sector converging closer to equilibrium, the

scope and effectiveness of monetary policy tools correspondingly improved, thus strengthening the

credibility of the macroeconomic reform program and enhancing its prospects for early and successful

closure.

A detailed look at the main accounts showed a worsened current account position but a further

strengthening of the financial account. This is consistent with the observed trends in real sector

- 41 -

Annual Report 2007 The External Sector

- 42 -

activity, in particular the strong recovery in aggregate demand induced by the unprecedented rise in

FDI inflows.

Moreover, given the country’s heavy dependency on foreign goods, for consumption, investment,

production, as well as in tourism and re-export activities, a deficit position under the current account is

a virtual inevitability. In 2007, the shortfall stood at R1,820 million or equivalent to 30 per cent of

GDP. This was a significant widening in net imports compared to R738 million (14 per cent of GDP)

in 2006. Such a development was associated with a worsened trade balance and an increase in the

deficit under the income account, which in combination totally exceeded the growth in the positive net

contribution under the services account.

The provisional trade deficit increased from R2,458 million in 2006 to R3,792 million in 2007. This

56 per cent rise was attributable to a significant 41 per cent growth in merchandise imports compared

to an expansion of 11 per cent in exports. Of note is that the increase in exports denominated in

rupees was due to the policy-induced weakening in the external value of the domestic currency. In US

dollar terms, the total (f.o.b.) value of merchandise sold abroad fell to US$201 million in 2007 against

US$220 million in 2006. The decline was mainly due to a drop in exports of canned tuna as well as

other fish products. In 2007, an overall contraction in fisheries activity was experienced on account of

adverse weather conditions. Nonetheless, the country’s main export commodity continued to be

canned tuna which represented around 91 per cent of total export earnings.

Chart 4.1: The overall balance, current account and capital & financial account of the BOP from 1998 – 2007

-2,500

-2,000

-1,500

-1,000

-500

-

500

1,000

1,500

2,000

2,500

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Years

R m

illio

n

Current Account Capital & Financial Accounts Overall Balance

Sources: Central Bank of Seychelles, National Statistics Bureau


- 43 -

As for merchandise imports (f.o.b.), these are estimated at R5,139 million compared to R3,644 million

in 2006. Whilst such increase was partly on account of domestic movement in exchange rate,

important contributing factors were the strong demand for FDI-related goods required in the

construction phase of projects, the high demand for consumption goods by both private households

and the tourism industry and the increase in fuel imports, mainly attributed to the global rise in prices.

Additionally, around R461 million (or €40 million) of imports represented the acquisition of a fourth

oil tanker (MT Seychelles Prelude) by Seychelles Petroleum Company (SEPEC).

With regards to the services account, this maintained its positive net contribution to the current

account. The surplus amounted to R1,165 million, showing an increase of 35 per cent compared to

year 2006. The main contributing factor was the foreign exchange earnings from tourism which

posted growth of a significant 52 per cent and represented 59 per cent of services credit. The peak in

tourism earnings was one of the positive achievements of the sector in a year when visitor arrivals

reached a new record of 161,273 visitors, 15 per cent above 2006 level.

The deficit under the income account which was R241 million in 2006 increased to a remarkable R471

million. Such a development was mainly due to the movement under investment income, primarily

associated with an increase in interest payment in 2007 compared to 2006. The bulk of these were

payable by the government and parastatal sectors and included the amount due and paid on the

US$200 sovereign bond issue raised on the international capital market in September 2006.

For its part, the transfers account ended the year in usual but larger surplus. At R343 million, the

estimated net inward transfers from the rest of the world grew by R101 million compared to last year.

Of important significance was the increase under the non-official sector, the bulk of which represented

settlement of imports, a trend which gained prominence since the start of the trade liberalisation

process in mid-2004.

As for the capital and financial accounts, these achieved a surplus for the third consecutive year. The

balance increased from R1,312 million in 2006 to R1,999 million in 2007, largely on account of the

increase in foreign direct investment inflows from R804 million (US$146 million) to R1,663 million

(US$248 million). The bulk of these flows were tied to the financing of the construction of new

tourism establishments and resorts. Based on the current level of commitments, FDI projects which

include the participation of internationally known names such as Four Seasons, Shangri-La, Emirates

and Qatar, are expected to remain strong through at least the next five years.


- 44 -

An important financial account development recorded in 2007 was the surplus reported under portfolio

investment. This amounted to R208 million and was primarily associated with the issue on the capital

market by the government of a US$30 million bond in August. The bond has the same price and

maturity structure as the US$200 bond raised in 2006.

On the exchange rate front, the domestic currency remained pegged to the Seychelles Trade and

Tourism Weighted Basket (STTWB) with the euro, UK pound and US dollar, being the three

currencies that are featured in the STTWB. In October, the Central Bank announced a revision in its

exchange rate policy with the adoption of a nominal target of R8.0 to the US dollar with the

competitiveness of the main exporting sectors of tourism and fisheries in mind. In the government’s

10-year development plan, “Seychelles Strategy 2017”, tourism and fisheries, together with financial

services, are indentified as the key sectors which will drive economic growth.

In 2007, the average value of the domestic currency relative to the US dollar was 6.7102 as against

5.5190 in 2006. On an end of period basis, the movement was from 5.7955 to 7.9981, with the latter

rate reflecting the re-alignment implemented in October in 2007.

Given the country’s heavy dependency on imports, the revision in the external value of the domestic

currency translated into higher domestic prices, a development which was particularly apparent

towards the end of the year. Although not exclusively due to exchange rate movement, the consumer

price index (CPI) showed an average price movement of 5.3 per cent in 2007 against negative 0.4 per

cent in 2006.

At retail banking level, the foreign exchange situation remained tight in 2007. As such, many import-

related activities which heavily depend on the availability of hard currencies continued to resort to

sources other than the domestic banks to meet their import requirements. The value of imports

indicated by customs data thus remained larger than the actual payments made by commercial banks

in 2007.

As the effects of the exchange rate correction filter through the economy, this discrepancy is expected

to progressively reduce. However, an eradication of parallel market financing of imports will only

occur when supply and demand fundamentals converge to the point that hard currency becomes

available on demand at banks. In the present context, non-essential imports are being predominantly

funded through leakages from the tourism sector as well as inward private remittances to the overseas

accounts of residents or directly to overseas suppliers.


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Table 4.1Seychelles Balance of Payments1

2003 2004 2005 2006 2007Provisional

(R million)CURRENT ACCOUNT -50.6 -331.8 -957.4 -738.3 -1819.7

Goods, -481.4 -853.5 -908.7 -740.2 -1680.2 Credits (of which) 1546.9 1656.0 1930.0 2319.2 2647.1 Merchandise exports (f.o.b) 1180.3 1097.3 1165.1 1215.5 1346.9 Debits (of which) 2028.3 2509.5 3576.2 3921.4 5504.1 Merchandise imports (f.o.b) 1957.3 2374.7 3434.6 3644.3 5139.2

Services 595.0 609.2 737.5 862.0 1176.7 Credits (of which) 1784.4 1796.3 2028.2 2375.6 3215.6 Tourism Earnings 918.1 938.3 1050.5 1251.7 1901.2 Debits 1189.4 1187.1 1290.7 1513.6 2038.9

Income -233.3 -185.3 -220.4 -240.7 -482.9 Compensation of employees -25.5 -28.3 -31.8 -40.8 -71.7 Credit 0.9 0.9 1.0 1.0 1.9 Debit 26.4 29.2 32.8 41.8 73.6 Investment income -207.8 -157.0 -188.6 -199.9 -411.2 Credits 63.9 51.0 52.9 55.7 62.2 Debits 271.6 208.0 241.5 255.9 473.4

Current transfers 69.1 97.8 171.7 242.6 343.4General government 56.9 75.6 128.2 127.0 106.0 Credits 59.0 77.1 129.9 129.0 108.2 Fishing license fees 42.6 58.4 52.4 66.2 39.1 Other grants 11.6 10.2 87.3 66.7 74.4 Debits 2.1 1.5 1.7 2.0 2.2 Other sectors 13.5 23.9 43.6 115.6 237.3 Credits 26.6 38.4 65.5 169.4 306.7 Debits 13.1 14.4 22.0 53.8 69.0

CAPITAL AND FINANCIAL ACCOUNT -126.9 -162.1 876.2 1312.1 1999.3CAPITAL ACCOUNT 40.1 5.4 164.3 72.9 28.9FINANCIAL ACCOUNT -166.9 -167.6 711.9 1239.2 1970.4

Direct investment 271.5 167.3 431.4 759.4 1605.6 Abroad 44.0 41.8 41.0 44.2 57.1 In Seychelles (of which) 315.5 209.1 472.3 803.6 1662.8 Sale of Assets (Privatised enterprises) 85.0 0.0 1.9 5.0 0.0 Equity capital 181.7 176.0 410.5 705.1 1528.7 Re-invested earnings 48.8 33.1 59.9 93.5 134.1

Portfolio investment 6.1 5.9 5.6 1105.4 208.4 Assets -0.1 -0.2 -0.2 -0.3 -0.2 Liabilities 6.2 6.1 5.8 1105.7 208.6

Other investment -444.6 -340.8 274.9 -625.6 156.7 Assets 80.0 67.4 52.9 48.4 413.7 Liabilities -364.6 -273.4 327.8 -577.2 570.0

Net errors and omissions -25.2 3.7 -2.9 9.2 10.3

OVERALL BALANCE -202.7 -490.2 -84.1 583.0 189.6

Financing of overall balance 202.7 490.2 84.1 -583.0 -189.6 Reserve assets2 -16.9 181.3 -120.9 -344.6 330.7 Arrears 219.5 308.8 204.9 -238.4 -520.4

Memorandum items: Current account (percentage of GDP) -1.3 -8.6 -19.7 -13.8 -29.8Trade Balance (f.o.b).(Merchandise exports less imports) -776.9 -1277.4 -2269.5 -2428.8 -3792.3 Stock of Reserves (Gross)(R million) 369.2 187.8 308.7 653.3 322.5Stock of Reserves (Gross) (Weeks of cif imports) 8.6 3.5 4.2 8.1 3.0Exchange Rate (Rupee/US$; period average) 5.4 5.5 5.5 5.5 6.71 Data series differ from previous publications due to revisions.2 (-) sign indicates increase in reserves. Sources: Central Bank of Seychelles, National Statistics Bureau


- 46 -

The country’s external accounts in 2007 were further hit by the oil price shocks. Due to strong

demand from emerging economies and supply concerns in important markets, as well as a depreciation

of the US dollar, oil prices hovered at record highs during the year. Seychelles had to allocate more

foreign currencies to meet its domestic consumption needs, of which a large portion goes towards the

generation of electricity. The importance of this commodity implies that a further increase in energy

cost could upset the ongoing macroeconomic reform program since higher oil import payments would

not only displace other important requirements such as food imports, but leave less resources available

for the settlement of external debt commitments. In 2007, the importation of mineral fuel for domestic

consumption amounted to about US$60 million. Given a general growth in demand and a further

increase in oil prices, the projected requirement for 2008 is US$84 million.

At such a level, the country’s adjustment programme in its current form is effectively derailed and will

need to be significantly revised and re-sequenced. Under the constraint of the prevailing exchange

rate regime, additional tightening in fiscal and monetary policies would thus be necessary to further

restrain aggregate demand such that macroeconomic convergence is achieved within the set timeframe

whilst minimising adverse impact on economic growth.

During 2007, the country’s foreign exchange earning capacity increased further. This was not limited

to the expansion in the tourism sector but also in international oil bunkering and tanker operations. In

December 2007, the size of SEPEC’s tanker fleet was increased to four with a fifth one expected to be

delivered in the first quarter of 2008. Although revenue generated from this activity will only become

fully apparent once the company has cleared its loans on the vessels, international oil business has

already become a growing pillar of the Seychelles’ economy.

4.1 Current account

From a national accounts perspective, a current account deficit depicts the fact that national

expenditure (or absorption) exceeds output. The widening in the current account deficit in 2007

implies that the economy had increased its dependency on foreign savings (or resources) to finance an

excess of imports. From R738 million (14 per cent of GDP) in 2006, the deficit rose to R1,820 million

(30 per cent of GDP) in 2007.

4.1.1 Trade in goods

Following the government’s adoption of a more liberalised trade regime in mid-2004 which saw a

downward revision in the rate of applicable tax on imports, some policy-induced boost was given to

the goods account, more specifically on the debit side. Such a development continued to influence

import demand, and thus external transactions in goods during 2007, although some other factors were

also at play.


- 47 -

As to be expected, the 2007 balance under the goods account showed a deficit. At R2,857 million, this

was a significant increase of 78 per cent compared to 2006 and was primarily driven by a widened

trade deficit (the balance under general merchandise) and to a lesser extent the net outflow under

‘repairs on goods”. As regards to the former, a strong growth in imports relating to the demand across

all sectors of the economy – associated with the pick up in activity – contributed the most to the

outcome. In addition to the higher demand, the price increases in imported items such as food and fuel

on the international markets raised the value of the country’s import bill.

Chart 4.2: Trade in Goods (1998 – 2007)

-5,000

-4,000

-3,000

-2,000

-1,000

-

1,000

2,000

3,000

4,000

5,000

6,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

R m

illio

n

Merchandise Exports Merchandise Imports Merchandise, net


The balance under “repairs on goods” remained in deficit but from R43 million in 2006, this expanded

to R93 million in 2007 due to an increase on the debit side corresponding to repairs on residents’

aircraft and ships. In value terms, this continued to significantly exceed the value of repair works

(mainly small maintenance) undertaken by residents on non-residents aircrafts and ships.

As regards to “goods procured in ports”, this continued to be the only component of the goods account

which registered a surplus. From R869 million in 2006, such a net contribution increased to R1,028

million, showing a growth of 18 per cent. The bulk of transactions under this head represent re-export

of petroleum products to foreign ships and aircraft. Such activity includes tankers’ operations, the

contribution of which has grown subsequent to the increase in the fleet size to four, and will eventually

reach five by the first quarter of 2008.


- 48 -

4.1.2 Merchandise exports

In recent years, exports from Seychelles have originated mainly from the fisheries sector. This

followed a marked contraction in export of agricultural products which traditionally were an important

source of foreign earnings. In 2007, the range of commodities exported from Seychelles remained

limited in scope.

The total value of exports (f.o.b.) stood at R1,347 million, representing a growth of 11 per cent

compared to the previous year. Consistent with the current trend, the main commodity exported was

canned tuna which at R1,231 million recorded a growth of 19.4 per cent and accounted for around 91

per cent of total export earnings. As such, the Indian Ocean Tuna (IOT) cannery remains Seychelles’

largest single tuna manufacturing and exporting entity. However, the fisheries industry in general

experienced some set back in 2007. This was related to adverse weather conditions (El Niño) which

resulted in a marked reduction in industrial catch level. Compared to the previous year, a decline was

also recorded in the value of exports of ‘fresh and frozen fish’, from R14 million to R13 million and

‘frozen prawns’ from R22 million to R13 million. The latter was due to undesirable weather

conditions and disruptions caused by replacement of capital equipment resulting in a drop in

production activity. However, exports of other processed fish, which dropped to a low of R3.1 million

in 2006, picked up to reach R6.5 million.

Table 4.2Domestic Exports

2003 2004 2005 2006 2007

(R million)Total 1180.3 1097.3 1165.1 1215.5 1346.9 Copra 0.0 0.0 0.0 0.0 0.0 Cinnamon bark 1.0 0.5 0.5 0.8 0.5 Frozen and fresh fish 28.0 13.3 16.5 14.5 12.9 Canned tuna 1023.1 923.2 969.6 1031.4 1231.2 Other processed fish 27.1 8.3 10.2 3.1 6.5 Crustaceans 41.2 42.7 31.8 46.1 15.4 of which: Frozen prawns 41.2 42.7 31.5 21.8 12.9 Other exports 59.9 109.4 136.4 119.7 80.4

Source: National Statistics Bureau

With regards to export earnings from the traditional agricultural product, namely cinnamon bark, these

fell from R0.8 million to R0.5 million, showing a reduction in the contribution of the agricultural

sector to the country’s export earnings.


- 49 -

In foreign exchange terms, with the exception of ‘other processed fish’, the value of exports was at a

lower level in 2007 compared to 2006. In aggregate, the decline was from US$220 million to US$201

million.

Chart 4.3: Exports 2007

Crustaceans1.15%

Canned tuna91.41%

Frozen and fresh fish0.96%

Cinnamon bark0.04%

Other exports5.97%

Other Processed fish0.48%


4.1.3 Merchandise imports

The provisional trade statistics showed that for the year 2007, the total value (f.o.b.) of merchandise

imported in Seychelles was R5,139 million. This was a significant 41 per cent above the 2006 level,

and is explained by a combination of factors. Whilst exchange rate movements domestically played a

part, a growth in demand underlined by an expansion in economic activity and increases in

international prices for some commodities, especially fuel and several food products also contributed

to the increased import amount.

A detailed look at the main imported commodities showed that the growth in imports was broad-

based. The most significant increase was recorded under ‘machinery and transport equipment’; this

was of the order of 85 per cent which raised the share of this class to 26 per cent of total imports. In

addition to construction and capital goods, the increase in imports was also associated with the

purchase of a fourth oil tanker (MT Seychelles Prelude) at an estimated cost of R461 million.

Excluding the oil tanker, the increase in import value under this category is estimated at 29 per cent (to

R891 million), with the bulk representing FDI-related imports and new vehicles into the country.


- 50 -

The second most significant import category was ‘mineral fuel’ with a share of 25 per cent of the

aggregate amount. At R1,223 million, such import was 29 per cent above its 2006 level. Although

SEPEC reported growth in domestic consumption, the bulk of this increase was associated with higher

international prices. In 2007, as a result of strong demand from emerging markets, such as China and

India, amidst supply concerns in the main markets and the marked depreciation of the US dollar, oil

prices (especially in US dollar terms) reached record levels. As a petroleum importing country,

Seychelles saw itself badly affected by this development, and was forced to resort to emergency

borrowings to secure supplies and avoid disruptive load (power) shedding in the country.

Table 4.3Imports (c.i.f) – by HS1 Sections

2003 2004 2005 2006 2007

(R million)Description Total imports 2230.6 2769.3 3846.0 4216.2 5779.6

Food and live animals 669.3 740.3 808.8 1004.6 1227.1 Beverages & tobacco 32.8 35.4 45.9 60.4 76.5 Mineral fuels 358.3 718.6 872.4 1113.8 1439.0 Chemicals 207.0 198.5 238.4 191.8 253.2 Manufactured goods & Misc. manufactured articles 533.6 560.6 661.0 944.8 1166.2 Machinery & transport equipment* 394.4 440.0 1045.2 814.5 1509.1 Other commodities 36.2 38.4 174.4 86.3 108.5 1 Harmonised System

* Include the value of two oil tankers in 2005 and one in 2007.Source: National Statistics Bureau, Central Bank of Seychelles.

Imports under ‘food, live animals & vegetable oils’, which represented the third main category of the

total import value, increased by 22 per cent to reach R1,043 million. Such a development was partly

influenced by the more liberalised trade regime as well as the increase in demand in the tourism sector.

Of relatively similar nature to the preceding category, imports under ‘beverages and tobacco’, rose

from R51 million to R65 million, representing growth of 27 per cent. However, its contribution to

total imports was only 1.3 per cent.


- 51 -

Chart 4.4: Imports (f.o.b.) 2007

Chemicals4.39%

Manufactured goods & misc. manufactured articles

20.23%

Machinery and transport equipment

26.18%

Other commodities1.62%

Food, live animals & vegetable oils

21.29%

Beverages and tobacco1.33%

Mineral fuels24.96%


Import under the category ‘manufactured goods and miscellaneous manufactured articles’, the bulk of

which represented demand in the construction industry associated with the implementation of FDI and

housing projects, accounted for 20 per cent of aggregate imports. Such imports rose by 23 per cent to

a peak of R991 million.

The value of items classified under ‘chemicals’ which entered the country in 2007 is estimated at

R215 million, showing a growth of 32 per cent compared to the previous year. As for the importation

of items grouped under ‘other commodities’ and ‘other unrecorded shipment (shuttle trade)’, the

increase was of 22 per cent and 101 per cent respectively. In total, these items represented only 4.0

per cent of the aggregate value of merchandise imports for the year.

4.1.4 Goods procured in ports by carriers

In 2007, the account ‘goods procured imports by carriers’ maintained its traditional surplus. At

R1,028 million, this was a significant increase of R159 million compared to the previous year. The

rise portrayed a growth in inflows which was much stronger than the increase registered on the

payment side.

The gross increase in credit was of R196 million (18 per cent) of which around 98 per cent represented

earnings from re-exports of petroleum products, including those associated with the operations of


- 52 -

SEPEC’s oil tankers. The remaining portion was attributable to the sales of goods and beverages to

foreign ships and aircraft.

On the debit side, the bulk of the transactions were mainly payments in respect of the purchase of

petroleum products by the national carrier (Air Seychelles) and the fuel bought by the oil tankers

which were subsequently re-exported. In addition, around 5.1 per cent represented the purchase of

food and beverages in overseas ports and airports. In aggregate, the year-on-year increase on the debit

side was of 16 per cent.

Table 4.4Goods procured in Ports

2003 2004 2005 2006 2007 (R million)

Goods procured in ports, net 298.5 446.6 650.1 869.1 1028.3

Credits 362.2 554.7 760.5 1098.8 1294.6 Petrol 352.7 531.0 736.2 1070.9 1265.2 Food and beverages 7.8 8.5 9.5 11.1 12.4

Others 1.6 15.2 14.8 16.7 17.1Debits 63.7 108.1 110.5 229.7 266.4 Petrol 50.7 94.4 96.7 217.7 252.8 Food and beverages 13.0 13.7 13.8 12.0 13.6

Source: National Statistics Bureau, Central Bank of Seychelles

4.1.5 Repairs on goods

The balance under ‘repairs on goods’ remained in deficit. The net payment rose from R43 million in

2006 to R93 million in 2007. Such a development reflected a higher value of repairs on residents’

ships and aircraft’ compared to earnings to the country in respect of repairs carried out on foreign

goods by residents. This reflects the limited ability of the country to offer such services.

4.2 Services

The importance of the services sector in the Seychelles’ economy is best illustrated by its vital

contribution to GDP. The main service industry is tourism which constitutes the primary source of

foreign exchange and private sector employment in the country. In the external sector, transactions in

the services account are directly linked to the performance of the tourism sector, in particularly the

foreign exchange inflows that are generated by the sector and its associated activities. Given the status

of the country as a net exporter of services, the sub-account’s contribution to the current account is

thus always positive.


- 53 -

In 2007, the surplus stood at R1,165 million, showing growth of R303 million (35 per cent). Such a

development was attributed to a gross increase in credit of R840 million compared to an expansion of

R537 million in services payments. On the credit side, the main contributor was tourism earnings

which accounted for 59 per cent of services inflow.

In a year during which visitor arrivals peaked 161,273, some 15 per cent above 2006 level, foreign

exchange inflows from tourism and related activities similarly reached a new record estimated at

R1,901 million5. This was a significant 52 per cent higher than in 2006 and was the main factor which

explained the expansion of the surplus under the ‘travel account’ – the principal component of the

service account – from R1,059 million in 2006 to R1,638 million in 2007. The increase in gross credit

under the travel account was of R650 million (52 per cent) against a growth of R72 million (36 per

cent) in payments. On the debit side, the lion’s share represented payments of travel allowance to

residents. The latter rose from R110 million in 2006 to R150 million in 2007, mostly associated with

exchange rate movements domestically rather than to the increase of 2.6 per cent in the number of

residents who travelled abroad during the year.

For the year 2007, the balance under ‘transportation’ which showed a surplus of R182 million in 2006,

registered net inflows of only R4.7 million. Such a development reflected the performance under all

three of the account’s main subcategories, namely ‘passenger’, ‘freight’ and ‘other transportation

services’.

The balance under ‘passenger’ which nets out the value of ticket sales to non-residents who travelled

on the national carrier against payments to foreign airlines in respect of residents amounted to R388

million, showing a reduction of 5.9 per cent compared to the previous year.

This outcome therefore indicates a decline in the net export of passenger services in 2007 compared to

the previous year.

As regards to ‘freight’, this remained in deficit despite a growth of 13 per cent in gross earnings under

this head. The increase on the debit side was of R137 million (26 per cent) associated with the marked

increase in imports.

5 This refers to foreign exchange earnings from the tourism sector through the banking system, and an imputed amount not recorded by banks. The estimate shows that 24 per cent of tourism earnings in 2007 were not captured by the banking sectors.


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The third sub-account of ‘transportation’ which records transactions classified as ‘other transportation

services’ showed a surplus of R90 million against one of R128 million posted in 2006. This followed

an increase of R17 million (8.7 per cent) in credit against an expansion of R55 million (83 per cent) on

the debit side. With the exception of airport (ground) handling fees which were R7.3 million less than

in 2006, all the remaining credit items showed an increase in 2007. In percentage terms, the most

significant increase was posted under ‘agency service income’ which grew by just above 20 per cent.

On the debit side, the increase represented development under most items with a maximum increase of

around R42 million, on account of payments of ground handling fees internationally.

Net payment of insurance services in respect of residents to non-resident firms, which rose to R135

million in 2006, enlarged by a further R18 million (14 per cent) in 2007. The resulted shortfall stood

at R153 million. Much of this increase represented insurance payments in respect of goods entering

the country and was thus associated with a growth in import payments.

The balance under ‘financial and business services’ showed that on a net basis, the country remains

highly dependent on the services of non-resident labour. As such, the account showed a deficit and at

R197 million, this was a slight contraction of R14 million (7.6 per cent) compared to the previous

year. Of note is that financial services, together with tourism and fisheries, are identified in the

government’s 10 year policy document, “Seychelles Strategy 2017”, as the main sectors which will

drive growth in country’s GDP. However, despite a further expansion of the domestic financial sector,

the balance under ‘financial and business services’ is likely to remain in deficit given that the limited

pool of indigenous labour will continue to imply further dependence on expatriates.

As regards to the remaining sub-accounts under ‘services’, namely ‘royalty’ , ‘construction’ and

‘government services’, the latter was the only account which showed a surplus. This was of R153

million, representing an increase of R82 million (114 per cent) compared to the previous year. Gross

inflows in respect of government services amounted to R177 million with the bulk attributed to

licences and other related fees. As for payments in respect of services rendered to the government by

non-residents, these fell from R49 million to R24 million. Transactions under ‘construction services’

which once again depict the country’s dependency from abroad are directly linked to FDI projects.

Hence, given the growth in FDI inflows, the commensurate rise in the net import of construction

services was from R130 million in 2006 to R277 million in 2007. As regards to royalty payments,

these stood at R3.6 million, showing a slight increase compared to R3.0 million in the previous year.

4.2.1 Income

The income account remained in deficit in 2007. At R471 million, this was R230 million higher

compared to the previous year being associated with developments under both of the account’s main

components, namely ‘compensation of employees’ and ‘income account’.


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Table 4.5 Services1

2003 2004 2005 2006 2007 Provisional

(R million)

SERVICES, NET 652.6 661.5 737.5 862.0 1176.7

Transportation 222.5 133.3 140.9 182.3 4.7 Passenger 373.7 360.1 313.8 412.4 388.3

Credits 472.4 463.4 425.0 525.0 591.0Ticket sales to non-residents

by Air Seychelles 472.4 463.4 425.0 524.5 591.0 Others 0.0 0.0 0.0 0.0 0.0 Debits (tickets to foreign airlines by residents) 98.7 103.3 111.2 112.6 202.7 Freight -244.0 -305.3 -266.6 -358.2 -473.6 Credits 34.8 36.2 138.4 167.6 189.3

Debits 278.8 341.5 405.5 525.8 662.9 Other transportation services 92.8 78.5 93.8 129.7 90.1 Credits (of which) 166.5 150.6 170.7 195.8 210.9 Marine and port charges 35.6 34.6 39.3 40.7 42.4 Income from stevedoring 68.4 58.8 65.5 69.2 81.8 Agency service income 21.5 19.5 23.0 28.6 32.3 Ground handling fees 15.9 15.2 16.1 24.5 17.2 Aircraft landing fees 15.1 12.2 15.0 20.2 21.1

Others 10.0 10.4 11.8 12.7 13.9 Debits 73.7 72.1 76.9 66.1 120.8Travel 728.2 760.0 843.8 1059.0 1637.5 Credits (of which) 924.2 944.4 1056.5 1257.4 1907.8 Tourism earnings1 918.1 938.3 1050.5 1251.7 1901.2Others 6.1 6.0 6.0 5.6 6.6Debits 196.0 184.4 212.7 198.3 270.2

Foreign travel expenditure 129.2 109.0 120.9 109.7 149.7 Training of residents abroad 24.5 38.4 42.9 43.1 65.1

Health services 31.4 22.3 32.7 33.8 36.0Insurance, net -80.1 -90.2 -91.6 -135.1 -153.2Royalty debits -3.0 -3.0 -3.0 -3.0 -3.6Financial and Business Services -244.4 -181.2 -183.2 -182.8 -184.6Credits (of which) 72.4 93.8 97.8 106.5 127.8

Telecommunications 56.2 66.8 69.4 70.9 85.1Debits 316.8 274.9 281.0 289.3 312.0Construction service -34.6 -31.4 -70.6 -129.7 -276.9Government services 64.1 73.9 101.1 71.3 152.8Credits 105.7 100.1 120.1 120.1 177.0

Foreign embassies in Seychelles 3.0 2.7 2.7 2.8 2.9Licences and other fees 101.8 96.5 116.4 116.4 173.2

Debits 41.6 26.2 18.9 48.8 24.2 Expenses by Seychelles embassies 6.1 3.3 3.4 2.6 3.2Tourism promotion 15.2 12.7 11.0 6.0 7.6Government others 20.3 10.2 4.6 40.2 13.41 Tourism earnings include tourism income as per banks’ records and an estimate of earnings not captured by the banking system. Source: Central Bank of Seychelles


- 56 -

The shortfall under ‘compensation of employees’ stood at R60 million, following a growth of R19

million. This was due to an expansion on the debit side, associated with the increase in the number of

foreign labour in the economy, more specifically in the tourism and construction sectors. Given the

anticipated expansion of the tourism sector, such a trend is expected to persist in the coming years.

As regards to the deficit under ‘investment income’, this grew from R200 million in 2006 to R411

million in 2007. On the credit side, a growth of R6.5 million (12 per cent) was recorded. This

compared to a significant increase of R218 million in debits. The bulk represented interests payable

and which in 2007 included the payments in respect of the government of Seychelles international

bond, payable semi-annually.

4.2.2 Transfers

As it is traditionally the case, the transfers account showed a surplus which depicts the fact that the

country is a net recipient of current transfers from the rest of the world. For the year 2007, the surplus

amounted to R343 million, representing an increase of R101 million (42 per cent) compared to the

previous year. The outcome was on account of R106 million reported under ‘general government’ and

R237 million under ‘other sector’.

Net official inward transfers showed a decline of an estimated R21 million compared to the previous

year and represented a reduction in the gross inflows from both fishing license fees and overseas

grants. As mentioned earlier, the fisheries sector in general observed a reduction in activity during

2007 compared to 2006 due to adverse weather conditions.

The net contribution under ‘other sectors’ is estimated at R237 million. This was a remarkable

increase against R116 million for the year 2006, the balance of which exceeded the net inflows under

‘general government’ relative to the previous years. Such an outturn followed a strong growth in

receipts against a lower expansion in outward transfers. The debit entries primarily represented

workers remittances which grew by R16 million (29 per cent), consistent with the increase in the

number of expatriate employees, especially in the tourism and construction sectors. As regards to

inward transfers under ‘other sectors’, the growth was of R137 million (81 per cent). The majority of

this entry represented an estimate of the fund transfers to individuals and businesses towards the

financing of imports. From an accounting/analytical perspective, it largely explains the discrepancy

between foreign exchange allocation towards imports reported by domestic banks and the value of

imports derived from customs data.


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4.3. Capital and financial account

The balance under the capital and financial accounts (combined) which gives an indication of capital

movements between the compiling economy and the rest of the world, as well as providing key

insights in cross border financial and investment flows showed a surplus for the third consecutive year.

Therefore, despite a reduction in capital donations in 2007 compared to 2006, a further strengthening

of the financial account associated with large net foreign direct investment inflows produced an

expansion of the surplus under the combined capital and financial accounts.

4.3.1 Capital account

For the year 2007, capital donations to the country from bilateral and multilateral donors were

estimated at R29 million. These represent a further contraction of R44 million in donations, from a

peak of R164 million reached in 2005 in the aftermath of the December 2004 tsunami.

4.3.2 Financial account

The provisional BOP statistics showed a third consecutive annual financial account surplus, which

grew from R1,239 million in 2006 to R1,903 million in 2007. Such a development was primarily

attributed to a strong increase in net foreign direct investment in Seychelles.

The balance under ‘direct investment’ amounted to R1,606 million, showing a significant growth of

R759 million (111 per cent) compared to the previous year. At R57 million, the increase in

investment outflows was of R13 million (29 per cent). As regards to inward investments, these rose

from R804 million (US$146 million) to R1,663 million (US$248 million).

The estimated outcome under ‘portfolio investment’ is a surplus of R208 million, which showed a

notable decline of R898 million (81 per cent) relative to the previous year. In 2006, the balance under

portfolio investment amounted to a remarkable R1,105 million surplus as against a small stable

surplus in earlier years. This followed a marked increase in liabilities associated with the US$200

million government of Seychelles bond issued on the international capital market in September 2006.

For the year 2007, a tap on the existing Euro bond issue of US$30 million explained the bulk of the

R208 million in new liabilities reported under ‘portfolio investment’.

As regards to the balance under ‘other investment’, this moved from a deficit of R626 million in 2006

to a surplus of R157 million in 2007. The change in the balance reflected a net repayment of external

loans in 2006 which primarily reflected repayment of public debt using the rupee proceeds of the

US$200 million bond whilst during 2007 the country increased its external liabilities with the rest of

the world.


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4.4 External reserves

After increasing to a peak of R654 million (US$113 million) at the end of 2006, a contraction in

Seychelles’ reserves position was observed at the end of 2007, finishing the year at R323 million

(US$40 million). The extent of the decline between the two periods therefore amounted to R324

million.

In terms of import cover, the gross official reserves were equivalent to 3.0 weeks of 2007 c.i.f. imports

value. This compared to 8.1 weeks in 2006. As in 2006, the Central Bank ended the year with no

external liabilities.

Table 4.6 External Reserves1

2003 2004 2005 2006 2007

(R million)

Gross official reserves 370.6 190.2 309.3 654.4 325.9 Central Bank 369.2 187.8 308.7 653.3 322.5 Government 1.4 2.4 0.6 1.1 3.4 Central Bank’s short-term Borrowings 693.3 494.0 394.4 0.0 0.0 Net official reserves -322.7 -303.8 -85.1 654.4 325.9 1 End-of period data. Source: Central Bank of Seychelles

4.5. Exchange rates

On October 5, 2007, about one year after the Central Bank rationalised the composition of the

Seychelles Trade and Tourism Weighed Basket (STTWB) from six to the three most dominant export

currencies, a further revision of the exchange rate policy was implemented.

The revision was such that the external value of the rupee is managed around a target of R8.0 per US

dollar. This amounted to an increase in the competitiveness of the Seychelles economy and was

constituted to support of the main export sectors of tourism and fisheries. In the government’s 10-year

policy document, “Seychelles Strategy 2017”, these have been designated as the main sectors,

together with financial services, to support the planned GDP growth.

With the implementation of the new policy, the Seychelles rupee weakened against all of the

currencies published by the Central Bank. From a selection of the country’s six most traded

currencies (Euro, Pound Sterling, US dollar, Singapore dollar, South African Rand and Japanese Yen),

the movement in the CBS par rate showed that the loss in value or increase in competitiveness of the

rupee varied between 16 per cent and 33 per cent during 2007. This reflected the average movement


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of the Seychelles rupee against the South African Rand and the Euro respectively. While to a large

extent the Rupee/Euro movement was influenced by the new domestic exchange rate policy indexed

on the US dollar, part of the Rupee/Euro movement was influenced by international currency

developments. In 2007, the US dollar traded at its weakest levels relative to most currencies,

especially the Euro and Pound Sterling.

Chart 4.5: Exchange rate movements of the three main currencies in the STTWB (1998 – 2007)

0

2

4

6

8

10

12

14

16

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

Seyc

helle

s R

upee

s pe

r cur

renc

y un

it

UK Sterling US Dollar Euro


The average value of the Rupee per unit of US dollar moved from 5.5190 in 2006 to 6.7102 in 2007,

representing a 22 per cent weakening of the domestic currency. As for the average loss in strength of

the rupee against the Pound Sterling, this was from 10.1692 to 13.4574 (32 per cent). The average

movement of the domestic currency relative to the Japanese Yen and Singapore dollar was from

0.0475 to 0.0572 and from 3.4751 to 4.4629, respectively.

During 2007, hard currencies continued to be actively traded outside the banking system and at a

premium above the official rate in view of the continued foreign exchange shortage experienced in the

official sector. Based on information available to the Central, the currencies most traded on the

parallel market were euro, US dollar and Pound Sterling. Encouragingly, these traded at a

significantly lower premium compared with the previous year

.


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Table 4.7Exchange Rates1

2003 2004 2005 2006 2007 (Seychelles Rupees per currency unit)

Euro 6.1156 6.8378 6.8483 6.9300 9.2363 US dollar 5.4013 5.5000 5.5000 5.5190 6.7102 Pound sterling 8.8292 10.0747 10.012 10.1692 13.4570Japanese yen 0.0467 0.0509 0.0501 0.0475 0.0572 South African rand 0.7211 0.8532 0.8661 0.8211 0.9556 Singapore dollar 3.1001 3.2539 3.3047 3.4751 4.4629 1 Period averages. Source: Central Bank of Seychelles

4.6 Offshore developments

In 2007, the offshore sector remained an important pillar of the Seychelles economy. Around 10,472 new international business companies were registered in 2007. This brought the total number of

registered international business companies (IBC) to nearly 43,634. In the international trade zone,

the total number of registered licensed companies amounted to 57 at the end of the year. The total

number of companies incorporated under the Companies (Special Licenses) Act, 2003, amounted to

113 by the close of 2007.

In terms of earnings generated from the provision of services by the offshore sector, these were

estimated at between US$20 million and US$25 million, excluding income from the international

trade zones (ITZ).

SECTION FIVE

The Real Sector: Production, Labour and Prices 5. Overview – Domestic Income and Production

The year 2007 recorded a further upswing in the level of real economic activity in the country. At

R5,730 million, the provisional estimates for GDP6 showed a 7.3 per cent growth compared to the

preceding year’s outcome.

It must be noted that during the year, the country’s national accounts underwent a substantive update

as regards to its methodology and compilation approach. This was initiated by a need to bring the

existing set of compilation methods in line with international standards, namely the UN System of

National Accounts (SNA93). With the launch of Strategy 2017 early in 2007, which incorporates

explicit economic growth targets over the plan period, the need for higher quality national accounts

data gave added significance to this exercise.

Compared with the previous statistical series, this new set of GDP data features more extensive

coverage of economic units and adopts techniques to better capture activity in the key tourism sector.

On the average, the new GDP data series now stand at about 25 per cent above the previous estimates,

an adjustment that brings national income statistics closer in line with corresponding monetary and

external data and the observed tempo of economic activity in recent years.

Growth impulses were fundamentally headed by a continued boom in investment activity and another

strong performance by the tourism sector during the year under review. The associated surge in

aggregate demand coupled with rising energy and commodity prices gave rise to a growth in the value

of merchandise imports. In 2007, these reached a new record level of US$760 million compared to

6 GDP data series have been revised upwards. This forms part of an exercise to enhance the national accounts which had been called for. The new series is seen to be more realistic of the level of income generation compared to the old series. Statistical Bulletin February 2008 issued by NSB ‘Seychelles National Accounts Estimates’.

- 61 -

Annual Report 2007 The Real Sector: Production, Labour and Prices

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US$666 million in 2006. Consistent with past trends, the deficit that structurally characterises the

country’s trade balance deteriorated even further to US$559 million.

Investment activity, currently a key growth fundamental, reached a new peak and would have been

higher still were it not for capacity bottlenecks in the domestic supply of basic building materials such

as aggregates and crusher dust. Maximising valued added from the investment surge remained a

major challenge during the year as the relative share of local to imported inputs, or retained value

added, reportedly declined yet again. For most new projects, there has been a tendency to increase the

contingent of expatriates in the workforce as the indigenous labour market tightened to frictional level,

thus losing an economic opportunity to generate significant value addition to national income. Further

with most local Class 1 contractors fully engaged in ongoing project commitments, future capacity

building in tourism will need to be carried out by foreign contractors, implying higher external

leakages in terms of mobilisation costs and transfer of profits.

Notwithstanding such positive investor confidence, the economy faced major external and fiscal

challenges in 2007, linked in a large measure, to the persistent high energy and commodity prices on

the international market. Given the demand inelasticity of such basic goods, the country’s import bill

consequently deteriorated, the extent of the deterioration being such as to totally erode the record

performance on the tourism earnings side. Further whilst the policy shift to adopt and maintain a

more competitive exchange rate has consolidated the recovery in the external sector and improved the

viability of the tourism and peripheral sectors, this has had the negative collateral impact of

destabilising government finances and domestic prices.

The consequence of this mixture of economic events, instigated largely by external factors, was to cost

Seychelles a drop in country’s outlook rating by the rating agency, Standard and Poor’s. Whilst the

country maintained a solid B rating, the outlook slipped from stable to negative, which also reflected

in some ways, a very cautious position by Standard & Poor’s in the wake of the controversy

surrounding the role of rating agencies in the collapse of the sub-prime mortgage market in the USA.

In value terms, it is estimated that the flows of FDI increased from US$146 million in 2006 to a new

peak of US$248 million in 2007. This total captures the impact of ongoing tourism investments such

as the Eden Island Project, the Four Seasons Petite Anse Development, the Shangri-La Long Island

Project and the new Ephelia Resort Development at Port Launay. With the commencement of the

proposed Emirates Resort at Cap Ternay, the Raffles (Kingdom Hotel) Development on Praslin, the Ile

Aurore Integrated Residential/Resort/Golf Development and the Qatari Diar Resort Development at

Anse La Mouche, FDI flows are expected to reach a new record in 2008.


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Mindful that the above investment roadmap can be significantly derailed by domestic supply

constraints, government has dedicated much energies in search of solutions, particularly in the critical

area of additional quarrying capacity. At the policy level, a revision in the Tourism Investment Act

(TIA) set for implementation in 2008 expects to introduce some incentives that could impart solutions

to the prevailing investment bottlenecks whilst enhancing local value added. These would include

incentives to spur the involvement of local sub-contractors, overcome the labour constraint as well as

extend concessions to peripheral activities such as guest houses, car hires, charter boat operators and

taxis.

Table 5.1 Gross Domestic Product – Production Account by Industry1

At constant market prices 2004 2005 2006 2007

(R million)

Agriculture, forestry and fishing 117.1 137.3 131.6 121.8Mining and quarrying 0.0 0.0 0.0 0.0Manufacturing 483.2 512.6 597.0 571.5Electricity, gas, steam and air conditioning supply 93.0 94.9 103.4 112.1Water supply, sewerage, waste management and remediation activities

32.2

34.3

34.4

36.3

Construction 202.9 284.1 377.4 449.6Wholesale and retail trade; repair of motor vehicles and motorcycles

255.3

263.5

273.1

283.5

Transportation and storage 616.1 693.2 730.3 807.9Accommodation and food service activities 463.6 478.9 528.8 612.8Information and communication 284.0 292.0 301.9 331.9Financial and insurance activities 313.6 334.3 359.2 359.6Real estate activities 513.6 550.5 604.2 667.5Professional, scientific and technical activities 51.8 54.0 57.8 62.3Administrative and support service activities 95.5 118.4 137.0 160.0Public administration and defence; compulsory social security

504.1

506.1

512.9

518.7

Education 206.3 203.9 206.8 209.5Human health and social work activities 145.4 143.7 144.1 146.1Arts, entertainment and recreation 38.4 40.0 38.8 40.8Other service activities 30.6 33.9 35.1 37.4

Taxes not allocated above 478.8 514.6 557.4 597.9Less subsidies -86.5 -89.7 -94.2 -98.7Allocation of FISIM to nominal sector -250.2 -269.1 -295.4 -298.8

GDP at 2006 constant market prices 4588.7 4931.6 5341.5 5729.6

% Change n.a 7.5% 8.3% 7.3%

1 Indicative Estimates Source: National Statistics Bureau


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The year 2007 has clearly vindicated the view that the Seychelles now enjoys high “visibility”

internationally, a development which can be attributed to the more extensive and focussed marketing

networks of the various new airline and resort stakeholders in the industry. This “visibility”, coupled

with the new generation of world class resorts and better air access, has made the country a highly

“desirable” long-haul destination, which has clearly underpinned the strong revival of the industry.

In the year under review, some 161, 273 arrivals were recorded, a significant growth of 15 per cent

over the preceding year, which was a record year in its own respect. Supported by a more competitive

exchange rate, tourism related earnings grew by a disproportionate 52 per cent year on year to a total

of R1.9 billion.

To sustain the momentum in the industry, the Seychelles Tourism Board (STB) adopted a new

branding strategy in 2007, one featuring modern advertising tools and that better exploits the

destination’s unique selling propositions (USPs). Accordingly, a fresh brand concept and logo ‘The

Seychelles islands…Another World’ was launched internationally and in an effort to maximise

exposure, the STB pledged to give the country greater online visibility via enhanced involvement in e-

marketing initiatives. By way of ascertaining quality standards, the tourism board also provided

technical assistance through its Seychelles Secrets program which encouraged small hotels to engage

in upgrading and renovation of some below standards tourism establishments.

Looking towards 2008, a grading system for all accommodation and hotel establishments is set for

implementation on STB’s agenda. To ensure a smooth adoption of such a complex initiative, the

cooperation and support of the trade will need to be solicited. For its part, the local carrier, Air

Seychelles, extended its support to the tourism industry by announcing increased frequency and new

flights to existing and new destinations.

In the fisheries sector, mixed outcomes were observed. While increases in artisanal catch and the

semi-industrial sector were achieved, industrial tuna fishing activity slackened due to the cyclical “El

Nino” weather phenomenon. On the policy and development front, the fisheries sector benefitted

from a number of initiatives during the year. These ranged from prospecting for new fisheries

resources (deep water shrimp fishery and bait fish import substitutable resources) and greater

cooperation with L’institut Francais pour L’exploitation de la Mer (Ifremer) for assistance in marine

sciences and technology.


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Table 5.2 Gross Domestic Product – Production Account by Industry1

At current market prices 2004 2005 2006 2007

(R million)

Agriculture, forestry and fishing 123.5 131.9 131.6 137.7Mining and quarrying 0.0 0.0 0.0 0.0Manufacturing 534.3 560.9 597.0 608.7Electricity, gas, steam and air conditioning supply 104.2 72.5 103.4 87.8Water supply, sewerage, waste management and remediation activities

27.2

34.5

34.4

38.3

Construction 249.6 334.1 377.4 424.3Wholesale and retail trade; repair of motor vehicles and motorcycles

253.2 249.7 273.1 368.2

Transportation and storage 457.1 598.2 730.3 867.1Accommodation and food service activities 424.2 459.4 528.8 811.8Information and communication 253.4 272.4 301.9 307.1Financial and insurance activities 287.8 285.1 359.2 401.7Real estate activities 494.6 541.1 604.2 688.2Professional, scientific and technical activities 60.2 53.2 57.8 62.7Administrative and support service activities 106.8 127.4 137.0 172.8Public administration and defence; compulsory social security

448.5

430.1

512.9

545.5

Education 193.9 206.1 206.8 229.8Human health and social work activities 139.8 155.9 144.1 165.1Arts, entertainment and recreation 38.7 38.7 38.8 40.0Other service activities 29.8 34.3 35.1 36.1

Taxes, not allocated above 653.5 548.7 557.4 699.9Less subsidies -18.4 -29.3 -94.2 -201.6Allocation of FISIM to nominal sector -241.0 -244.4 -295.4 -377.9

GDP at current market value 4620.9 4860.7 5341.5 6113.2

% Change n.a 5.2% 9.9% 14.4%1 Provisional for years 2004-2006, indicative Estimates 2007. Source: National Statistics Bureau

Notwithstanding the reduced catch of tuna during the year, the value of canned tuna exports was

relatively unaffected as the impact of output losses were offset by a draw down on inventories and

favourable exchange movements. The susceptibility of the industrial fishery to the vagaries of

weather patterns and concerns on stock sustainability dominated policy discussions in 2007. In

consideration of its importance, the management of the country’s fisheries was given high prominence

in the design of the Strategy 2017 framework presented during the year.

In other sectors of the economy, the general consensus is that a more challenging business

environment prevailed than in the previous year. This arose against the backdrop of some price


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shocks arising from higher energy and commodity prices and the depreciation of the domestic

currency. The inevitable consequence was higher costs of production of local goods and services

which subsequently fed into retail prices. The persistent shortage of foreign exchange in the banking

sector added to the production difficulties, resulting into sporadic supply interruptions and sub-optimal

output results.

5.1 Primary Sector

An overview of production in the primary sector shows an overall improvement in performance

compared to the previous year. This applied both to the agricultural and fisheries activity although

production was somewhat affected by unfavourable weather conditions in the latter months of 2007.

Despite the depreciation of the currency, no significant output gains are anticipated in either farm

output or fish catch as both sectors face certain supply bottlenecks. Thus even with increased demand,

limited scope presently exists in the economy for exploiting the competitiveness advantage of the

exchange rate correction in shifting consumption from imports to local substitutes. In order to address

this structural constraint, the authorities have actively sought engagement with local as well as

international partners to undertake new initiatives and co-operative ventures for primary sector

development.

5.1.1 Fisheries Mixed results were observed in the fisheries sector during the year 2007 relative to the preceding year.

This was reflected in both production indicators and revenue flows.

Table 5.3 Estimates of Fish Landed

2003 2004 2005 2006 2007

(Metric tonnes)

Artisanal method 3,852 4,374 4,583 4,050 4,211 Semi - industrial (long line) 76 111 251 260 270 Industrial method - Caught 378,027 408,366 389,256 389,936 214,464 - Transhipped 359,379 300,937 338,271 371,087 212,000

Source: Seychelles Fishing Authority

In the artisanal domain, the level of catch increased by 4.0 per cent to reach 4,211 MT in 2007.

Nonetheless, this remained below the 4,583 MT landed in 2005. As such, the price of fish during the

year remained at a high level, with the fish component of the CPI showing a year on year rise of 16 per

cent. The improved catch levels permitted an increase in the production of certain fish products. In


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particular smoked fish production reached a record level of 29,413 kgs representing a 17 per cent

growth compared to 2006.

As regards to industrial tuna fishing activity, this experienced a lower performance in 2007 due to

warm seawater conditions, often forcing the tuna biomass to cooler depths beyond the operational

threshold of the fishing nets. Notwithstanding the considerable decrease in tuna catches, the Indian

Ocean Tuna (IOT) canning factory did not report much of a decline in exports revenue in foreign

exchange terms. At US$184 million, exports were a mere 1.9 per cent lower than in 2006, an outcome

associated with positive currency developments as well as value-additions from improved by-product

management mainly in the production of fish meal. While the volume of fresh and frozen fish

(excluding canned tuna), including dried sea-cucumber and shark fins declined, by some 13 per cent to

370 MT, an increase of approximately 12 per cent in value was recorded, taking total revenue to R18

million.

The authorities, through agencies such as the Seychelles Fishing Authority (SFA), initiated discussions

and engaged in various forums to discuss the sustainable use of the country’s fisheries resources in

light of scientific evidence of possible overexploitation of certain marine species. This was set against

a backdrop of increasing global awareness of the danger of exploitation of fisheries resources beyond

sustainable levels.

Of particular interest to Seychelles is the restoration and management of certain depleted stocks,

notably groupers such as snappers and other reef fishes. The same year saw the implementation of

National Plans of Actions (NPOA) covering shark fisheries and illegal, unregulated and unreported

(IUU) fishing in the country’s Exclusive Economic Zone (EEZ). As part of Strategy 2017, the

fisheries sector is to further implement an operational management plan for each of the country’s

major fisheries. First steps will be taken in 2008 with a demersal line fishing action plan as well as a

Sea Cucumber Management Plan. Also provided for in the Strategy 2017 framework is the

improvement and diversification of port services to provide better infrastructural and logistical support

to both artisanal and industrial fisheries. These include designating Zone 14 on the East Coast as a

modern fishing port and providing supporting infrastructure in Zone 6, with construction on the two

zones set for commencement in the subsequent year.

5.1.2 Aquaculture Prawn farming, which is the main aquaculture activity undertaken in the country saw a marked

decrease in production during the year compared to 2006. This was from 699 tonnes to 368 tonnes or

47 per cent. Consequently an R8.9 million fall in export revenue was observed. In foreign exchange

terms, income fell from US$2.3 million to US$1.9 million. The drop in production was attributed to


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disruptions in the production process due to the replacement of capital equipment in addition to

unfavourable weather conditions.

5.1.3 Agriculture In 2007, the agricultural sector showed a higher performance compared to the preceding year. This is

based on generally positive movements in the production indicators of the various subsectors.

Notwithstanding the improvement in output, the level of agricultural and livestock food remained well

below the requirement of national food security.

In the livestock subsector, poultry and pork remained the two main livestock production areas in 2007.

Pig slaughters showed a reversal of last year’s drop by increasing 3.3 per cent to 9,306 units. Chicken

slaughters also went up by 1.9 per cent to 833,320 units. While higher cattle consumption was

indicated by a 27 per cent increase in slaughters to 75 units, cattle remained at a relatively low level of

production. This was reportedly due to land availability and the low profitability of running such a

business. As a result, following poultry, pig was the second most imported category of meat in the

country.

Table 5.4 Production and Import of Crops and Livestock products

2003 2004 2005 2006 2007

(tonnes) Local Production Crops 4,253 3,032 2,608 5,568 10,000 Livestock product 2,047 2,170 2,228 2,241 2,135

Imports Crops 6,901 4,032 5,721 5,674 7,824 Livestock products 1,596 1,175 1,208 2,152 2,412

Source: Ministry of Environment and Natural Resources

2007 saw major developments in the livestock sector. Inclusive were the kick-off of the poultry parent

stock project construction phase and the introduction of new blood lines in pig production. In

addition, the agricultural domain as a whole benefitted from several other important technical

activities, with special focus on the human resources development of that sector. These ranged from

further staff training through the Food and Agricultural Organisation (FAO) and follow ups on the use

of the Geographical Information System (GIS) software established in 2006.

On the downside, agricultural stakeholders have in general felt administratively disadvantaged against

other socio-economic sectors (tourism, housing, education…etc) with respect to land and foreign


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exchange allocation. Supporting such a contention, was the fact that a number of agriculturally

designated areas, including the cattle farm and pig genetic centre at Grand-Anse Mahe were taken over

for the purpose of other developments in 2007. On the foreign exchange front, shortages have led to

inadequate and inconsistent supplies of essential agricultural inputs (fertilisers, pesticides, seeds,

etc…) during the course of the year. This coupled with budget cuts has also made the acquisition of

new vehicles difficult such that the frequency of on-site extension services to farmers have had to be

reduced for the lack of transportation means.

5.2 Industries

Industrial growth in 2007 was driven fundamentally by the demand-pull of the tourism boom and the

high level of FDI activity in the economy. However, growth possibilities were effectively hampered

by capacity constraint issues in terms of raw materials and labour. In addition, the availability of

foreign exchange has been an ongoing impeding factor, causing in several instances sporadic supply of

certain domestically produced commodities on the market. This has been especially the case for non-

foreign exchange generating industries, which have acutely felt the impact of domestic as well as

external developments on their imports and operational commitments.

5.2.1 Construction

A high level of construction activity was observed during the year under review corroborated by major

FDI and housing projects. In consequence, the capacity constraint experienced in the preceding year

became even more evident in 2007. Even as the production of construction materials increased,

notably blocks (7.9 per cent to 4,701,112) and aggregates (8.7 per cent to 128,014 tonnes), available

supply failed to fully satisfy the prevailing demand.

Based on approved projects, Strategy 2017 sees the tourism industry requiring an increased supply of

construction material over the period 2008–2013, with a peak occurring in 2009. By then the

estimated number of blocks required is expected to be five times over 2007 capacity while for

aggregates, a fourfold increase is forecasted. At that pace of development major tourism and housing

projects could be held back or postponed if the supply constraint remains unsolved. The year 2007

thus saw the government actively soliciting private sector investment into a third quarry which would

considerably but not totally improve the situation. As such, the existing quarry operators were

encouraged to invest into additional ways of enhancing their production capacity.

In 2007, the authorities supported the view that local sub-contractors were not taking full advantage of

business opportunities at hand with the upswing of tourism projects underway on the islands. This


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applied largely to local electrical contractors, plumbers, blasters, air conditioning and refrigeration

experts which are usually sub-contracted in by the larger contractors. To address such a concern,

some new initiatives will be introduced in 2008 within the framework of a revision in the Tourism

Investment Act (TIA). These would look towards assisting the small contractors in filling up the

available jobs which could otherwise be taken up by foreigners. Moreover concessions on materials as

well as on Gainful Employment Permits are on the agenda. At the same time, a serious shortage of

Class 1 contractors have impeded on the speed and implementation of some major projects. A last

resort option to this capacity issue may eventually be the contracting in of regional building companies

in spite of the value-reducing implications attached to such a policy.

For yet another year, the highest number of expatriate workers was recorded in the construction sector.

At 4,083, this represented 52 per cent of the total expatriates’ employment, much of the additional

ones being associated with the ongoing FDI projects. The increased dependency of the sector on

foreign workforce has emerged as a consequence of the economy operating at its natural full

employment level.

5.2.2 Manufacturing

An overall decrease in manufacturing activity was observed during the year 2007. This was

substantiated by a 4.3 per cent decline in manufacturing industry’s contribution to GDP and some

losses in production indicators. Overall output declines were observed in beverage production with

the exception of beer, stout and spirits. These were largely associated with a shortage of foreign

exchange required to import the raw materials and capital equipment. As a result, erratic supply of

these beverages, specifically soft drinks characterised the year 2007, impacting adversely on trade and

consumption. Critical components breakdown on the Seychelles Breweries Limited (SBL) factory

lines also contributed to the prolonged periods of shortages. Despite elevated prices in 2007 in

response to rising production costs, beer and stout consumption proved inelastic with higher

production of 11 per cent to 7,506 KLtrs.

Between 2006 and 2007, the Indian Ocean Tuna (IOT) Company experienced a more pronounced

contraction in the production of canned tuna. Compared to a reduction of 384 tonnes in the previous

year, 2007 saw a decrease of 8,653 tonnes to a production level of 31,569 tonnes. This was mainly

due to persisting adverse weather conditions which were not conducive to tuna harvesting during the

year. In response to this concern, the conservation and management of the country’s tuna resources

took policy priority in 2007 with the convening of a series of scientific meetings organized by the

Seychelles Fishing Authority (SFA) and the Indian Ocean Tuna Commission (IOTC) on the subject.


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On IOT’s side enhanced diversification efforts into fish meal products contributed to a 27 per cent

increase in the production of ‘other processed tuna’.

On a welcome note, the future viability of the country’s tuna exports was secured by an interim

agreement negotiated upon the year-end expiry of the EC-EPA agreement. This ensures that

Seychelles exports continue to benefit from zero duty as of the year 2008. However, local

manufacturers are in the future likely to face more foreign competition, since the agreement also

requires the signatory state to gradually open up its markets to EU products.

5.3 Services

Seychelles continues to be a net exporter of services illustrated by a positive services accounts balance

of R167.8 million on the balance of payments, an increase of R13 million over the preceding year.

Primarily led by the tourism sector, the tertiary sector has also been the main impetus behind

economic growth. Of growing significance is the telecommunications industry, which in recent years

has become increasingly important in view of its contribution to value-added and the support it

provides to the tourism and the business community.

5.3.1 Tourism

For the second consecutive year, the tourism industry posted an unprecedented growth in visitor

arrivals. At 161,273, the total number of visitors for 2007 represented a 15 per cent annual increase

compared to 9.3 per cent recorded in the preceding year. Consistent with the higher arrivals and a

depreciated rupee, tourism earnings rose to R1.9 billion in 2007, a 52 per cent growth relative to the

earnings in 2006. The ripple effects of a surging tourism industry were strongly felt in other

peripheral and downstream sectors of the economy as well as in national employment. In 2007,

employment in the industry increased by 8.6 per cent and remained in a major way, short-staffed with

numerous vacancies unfilled. Tourism related activities, which represent some 21 per cent of GDP,

have thus contributed greatly to the increase in economic activity during the year under review.

For yet another year, European visitors stayed atop of the market, making up 79 per cent of total

arrivals growing by 12 per cent over 2006. Whilst most encouraging a stronger outcome would have

prevailed had the necessary seat capacity over Europe been available during the high seasons. The

need to plan for a major expansion of airline capacity in 2008 and beyond has become most urgent

with the planned growth in the tourism bed base over the years 2008-2013.


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Table 5.5 Tourism

2003 2004 2005 2006 20071

Visitors arrivals 122,038 120,765 128,653 140,627 161,273Average length of stay ( nights) 10.15 10.04 9.69 9.82 10.20

Tourism Foreign Exchange Earnings -R million 918 938 1,051 1,251 1,901Average expenditure per diem - Rupees 741.1 773.5 842.9 906.2 1,155.8

Memorandum Hotel bed occupancy rate (%) 44 46 49 57 601 Hotel bed occupancy rate for 2007 is CBS estimate Sources: National Statistics Bureau (expect tourism foreign exchange earnings which are from Central Bank data)

On the promotional side, efforts to consolidate the country’s position in the traditionally mature

market continued in earnest in 2007. These ranged from the concerted use of tour operators and the

media as well as more active and extensive representation in major international tourism fairs.

Consequently, with the exception of Germany, the leading markets registered high growth rates during

the year 2007; France with 17 per cent growth and Italy showing an upswing of 10 per cent. With

respect to Germany, the main source for the 0.8 per cent arrivals drop has been linked with a lack of

airline capacity between the country and Seychelles.

Besides the primary markets, due heed has been paid to the increasing importance of the emerging

markets to the tourism trade in the country. Impressive growth was recorded in Japan (30 per cent),

South Africa (29 per cent), Reunion (33 per cent), Other CIS countries (37 per cent) and Israel (1,046

per cent). The spectacular growth in Israeli visitor arrivals, from only 202 in the preceding year to

2,315 in 2007, represented the product of a series of charter flights from Israel, organized by a local

travel agent during the year. Much promise also lies in the Asia-Pacific region, identified as the

fastest growing tourism region in the world, both as a generator and receiver of tourism. Overall,

growth factors include economic growth, higher disposable income and an increase in the leisure time

in the region.

Middle-Eastern carriers, Qatar Airways and Emirates have also facilitated air links between Middle

East/Asia and Seychelles making the continent an even more important prospect for the tourism

industry in Seychelles. Notwithstanding the developments in the sub-markets, Middle-Eastern arrivals

were constrained by room availability during the year. Given the market’s relative newness, they have

been somewhat disadvantaged by a tendency to accord priority, perhaps by way of loyalty, to the more

traditional European visitors. With this in perspective, STB has the intention to further develop this


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market and eventually ease the booking difficulties for the Middle-Eastern tour operators in the year

2008. However, until the new generation of beds are commissioned and additional flights introduced,

tourism growth will continue to be affected by capacity limitations.

Chart 5.1: Visitor Arrivals (1998 – 2007)

020,00040,00060,00080,000

100,000120,000140,000160,000180,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

Num

ber

of v

isito

rs

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Perc

enta

ge

Visitors Arrivals % Change


Consistent with the airline’s corporate strategy of consolidating existing markets and targeting

emerging markets, Air Seychelles acquired a refitted Boeing 767-200 in December 2007. As such,

new services included Bangkok and Milan flights, as well as additional frequencies to Paris and

Mauritius were inaugurated. In spite of quite high flight frequency by Middle Eastern carriers, the

local airline, Air Seychelles, still carries some 80 per cent of total visitor arrivals into the country.

This is, in the main, on account of clients’ preference for direct access over the inconvenience

associated with stop-over flights. While Air Seychelles’ monopoly status in that respect places it an

advantageous situation, it also highlights the vulnerabilities of the destination on the financial health of

the airline. Above all, recent experience has demonstrated the extent of disruptions that can be caused

to the industry in the event of mechanical breakdowns or damage to aircraft. Towards the end of the

year, one of Air Seychelles’ three Boeing B767 aircraft sustained damage that required lengthy

repairs. This meant that maximum use of the two other Boeings B767 had to be made, and temporary

recourse to a replacement aircraft had to be sought to minimise service disruptions.

Furthermore, the long-haul tourism industry today faces a new challenge in the form of criticism by

international organisations for its effects on global climate change. This is being taken seriously by

STB. In its defence, Seychelles will need to communicate in a strong and vociferous manner its

enviable track record on environment protection. The STB will further encourage hotels to reduce

their carbon footprints in an effort to lessen Seychelles’ contribution to worldwide carbon emissions


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and gain an early marketing edge over competitor countries before carbon standards are officially

adopted internationally.

During the year under review, the overall increase in visitors into the country for business purposes

and combining business with a holiday showed an increase of 20 per cent above the 2006 level.

Foreign Direct Investments which are mainly related to developments in the tourism sector picked up

momentum during the year 2007. This was such that the inflows, according to the projects submitted

to Seychelles Investment Bureau, grew by around 66 per cent to an estimated value of US$242

million. These included a diversified set of high-end world-class projects such as the Four Seasons

Hotel and Resort, Shangri-La Resort and the Ephelia Resort.

In 2007, the country received elevated online exposure and visibility following STB’s engagement in a

major e-marketing campaign with the well-known travel website, Expedia. To supplement that, an e-

brochure application, which allows custom-made brochures to be produced by browsers, was added to

the official destination website during the year under review. In furtherance of the country’s visibility

has been the publicity created by upcoming FDI projects as well as the international airlines.

Despite the inception of the world-class tourist institutions, some ageing hotels have posed certain

challenges to marketing initiatives, somewhat dimming the value-for-money perception of the

destination. This issue has been taken on board and certain hotels have been encouraged to upgrade or

renovate under STB’s Secret Seychelles program, initiated in 2006, so as to raise standards. Negative

reports which emerged from 61 out of 469 inspections carried out by STB on hotels in 2007, have

spurred the organisation to introduce the so-called National Harmonised Standards which is to start in

2008. The program would include, in essence, minimum requirements for all categories of

accommodation and a grading system for all hotels in the country. However if growth in the tourism

sector stays on the upside as anticipated, the issue of capacity constraint may become more pressing,

especially as in 2008 many properties are being renovated and projects underway will only reach

finalisation in the medium to long term. In connection with this, around 489 rooms may be

unavailable as a result of the expected close downs for renovations of some tourism establishments

whereas an estimated 493 new rooms are in line to be commissioned, most of which will be late in the

year.

The provisions of Strategy 2017 recognise capacity building as essential to cater for the anticipated

rise in tourism arrivals in the islands. National bed capacity, which stood at 5,300 in 2007, is

expected to increase by around 9,000 by 2013. This would address, to an extent accommodation

enhancement issues in the medium term, but in light of a targeted 360,000 arrivals in 2017, a further

increase in the number of beds may be required. Also pertinent to tourism growth are the availability


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of construction materials for the new hotels, quantity and quality of staff, airline seat requirements and

domestic land and sea transport capacity. On a note with regard to staff quality, an important step

taken during the year was the handing over of the Seychelles Hospitality and Tourism College

(SHTTC) by the Ministry of Education to STB. Seychelles Tourism Academy (STA), as it is now

called, is a revamped effort being run jointly with the tourism industry which provides trained

personnel to the academy to lecture students. The academy is looking at partnership with other

overseas hotel schools such that better programs of study can be implemented.

At the end of 2007, the tourism sector remained in an upbeat mood as it looks forward to the next year.

Notwithstanding the capacity concerns, it is expected that 170,000 visitors will be achieved in 2008,

representing a growth rate of 5.4 per cent in arrivals over 2007.

5.3.2 Telecommunications

The year 2007 saw further growth and development of the country’s telecommunications industry.

With mobile phone upgrade to 2.5G and third generation (3G) evolution, the industry has responded to

public demand for improved service quality and enhanced network capacity. In addition to basic

usage, widespread traffic of additional services such as Internet browsing, video conferencing,

Multimedia messaging (MMS), has been reported with the upgrade in network technology.

With the entry of an additional telecom services provider during the year 2006, consumers have

benefitted from increased competition through enhanced service delivery as well as reduced rates.

Fixed telephone users gained from several pricing schemes during the year which included the

reintroduction of a fixed-line pre-paid calling card. The more competitive mobile sector, through

various promotional packages, saw in several instances reductions of as much as 50 per cent in the

cost of calls. Consequently there was an increase in both international and local calls traffic by 17 per

cent and 2.5 per cent respectively.

Despite a reduction in prices and the fiscal burden of amortising new investments, the overall revenue

for the telecommunications sector has been on the upside for 2007.

5.4 Labour Market

As a result of higher economic activity, labour market conditions experienced further tightening

during the year 2007. With fourfold demand for labour over the unemployed, competition for required

skills that match vacancies became even more apparent during the year. In 2007, against a 4.2 per

cent growth in the labour force to 48,802 employees, actual employment rose by 6.0 per cent

compared to 2006, thus pushing the economy closer to a state of full-employment.


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5.4.1 Employment

During the year 2007, an increase in employment from 39,560 in 2006 to 41,948 in the formal sector7

was observed. This was generally across the board, with more evident growth in the health and social

workforce, other community, social and personal services, construction and tourism sectors. As

regards to Public Administration, in which the bulk of the population is employed, there was a 9.2 per

cent fall to 6,094 employees during the year under review. This is indicative of a restructuring

exercise undertaken by the government during the year, aimed at a leaner and more efficient public

administration.

Table 5.6 Employment and Unemployment Rate

2003 2004 2005 2006 20071

(end - of - year)

Total Employment 33,111 32,780 34,542 39,560 41,948

Private Sector 17,408 16,944 18,595 20,778 22,358Parastatals 5,459 5,545 5,931 6,010 6,136Government 10,244 10,293 10,015 12,773 13,455

Unemployment Rate (%) 3.1 3.5 3.6 2.6 1.9

1 Provisional estimate.

Sources: Employment Division - Ministry of Employment and Human Resources Development and the National Statistics Bureau

As is to be expected, employment in hotels and restaurants increased by 9.4 per cent to 5,222 in 2007.

In a fast-growing tourism industry, however, the employment growth rate has not satisfied the demand

that prevailed for workers in that industry. As at the end of the year, hotels and restaurants represented

the greatest portion of published vacancies, accounting for 54 per cent of the total (3,705). That said,

total expatriates employed in hotels and restaurants amounted to 1,485, ranking second only to the

number of foreigners employed in the construction sector which was 4,082.

The total level of expatriate employment in the country rose from 4,157 in 2006 to 7,879 in 2007.

This represented 19 per cent of the total formal employment compared to 11 per cent in the preceding

year. The challenge hence is to train a qualified pool of local labour that could take upon at least some

of these expatriates-filled positions, and thus reduce pressure on the country’s foreign exchange

resources. Nevertheless at present, employment statistics show a certain capacity constraint in the

labour market, making the large foreign workforce essential if not a ‘default’ solution. Given the large

7 As from the year 2003 a new International Standard Classification of Economic Activities has been used by the NSB.


- 77 -

number of investment projects in the pipeline, the tightness in the labour market is set to significantly

worsen.

With respect to employment by sector, this remained in line with last year’s proportions. The private

sector continued to be the largest employee with 53 per cent of the total registered workers. The

public sector and parastatal organisations employed 32 per cent and 15 per cent of the total formal

employment respectively.

5.4.2 Unemployment

The unemployment rate continued on its downward trend of the past two years, decreasing from an

average of 3.4 per cent in 2006 to 2.7 per cent in 2007. At the end of the year, the number of people

unemployed was 909 relative to 1,175 in the preceding year representing a year end rate of 1.9 per

cent compared to 2.6 per cent in December 2006.

Statistical trend does not pin-point gender to be a determinant characteristic of unemployment in the

country. As such no significant disparity between the number of unemployed males (466) and females

(443) in 2007 or preceding years can be made out. However, a relationship between skills and

unemployment over the years can certainly be identified. Of the total registered jobseekers for the

year, 708 fell under the unskilled classification. The majority was under the age of 29 and 71 per cent

had experienced up to secondary level of education. These jobseekers therefore are equipped with

little marketable skills making it difficult for them to be absorbed into employment. Most of them

have been registered in the services and production occupational groups, in particular manufacturing,

construction and hospitality, where there is higher availability of employment opportunities.

5.4.3 Earnings

Given tighter labour market conditions, average monthly earnings for 2007 amounted to R3,871

showing an increase of 1.4 per cent over 2006. A 2.5 per cent growth in earnings of the private sector

against a 3.5 per cent contraction in that of the public sector resulted in a narrowing of the gap

separating the earnings of the two sectors. Thus the competitive edge that the public sector holds on

the private sector thinned somewhat during the year in review. Nevertheless parastatal organisations

still reaped the highest average earnings of R4,920 as well as the greatest year on year income growth

of 29 per cent.

In tandem with the previous year, employees in the education industry within the private sector

showed the highest average earnings of R6,221. This highlights the increasing appeal for private

school education which requires the services of qualified and experienced teachers. On the other

extreme, lowest earnings were to Other Community, Social and Personal Services industry which


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received an average of R2,310 per month. This category includes for example home carers, who are

being paid by the Social Security Fund as well as the earnings of those absorbed in the URS program.

Table 5.7 Average Monthly Earnings

2003 2004 2005 2006 2007

(Rupee - current prices)

All Sectors 3,603 3,708 3,750 3,817 3,871 Private Sector 3,297 3,441 3,469 3,566 3,654 Parastatals 3,984 4,038 4,072 4,528 4,920 Government 3,918 3,971 4,081 3,891 3,753


A higher level of average monthly earnings is expected in 2008 as wages are adjusted upwards to

compensate for the rise in prices. The Budget 2008 made provision for the introduction of a minimum

wage in the economy amounting to R14.5 per hour for a full time worker and R18.0 per hour for a

casual labour. In addition, a general wage revision for the public sector was announced. The award

was deliberately skewed in favour of employees in the lower salary brackets in the interest of social

equity.

The Seychelles Chamber of Commerce and Industry (SCCI) expressed concerns that the salary

increase could counter any benefits that could be obtained from the current economic adjustments,

particularly the realignment of the Seychelles rupee. In SCCI’s view, this could adversely affect

business profitability and cash flow and thus be detrimental to the competitiveness of investments.

Nevertheless in consideration of increasing competitiveness in the labour market between the three

broad sectors, namely the private, parastatal and government, in an environment of increased demand

for labour, an upward movement in employee remuneration was clearly inevitable in 2008.

6. Prices

During the year 2007, the National Statistics Bureau undertook a methodological change in the

computation of the rate of inflation in the economy. This was as per a revised basket incorporating

weights of goods and services derived from the Household Budget Survey of May 2006-July 2007.

Under the new statistical framework, an attempt has been made to capture the recent shifts in

household’s expenditure pattern.


- 79 -

Chart 5.2: Price Movements (1998 – 2007)

-20.0-16.0-12.0

-8.0-4.00.04.08.0

12.016.020.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Years

Perc

ent

Average Inflation Rate End of Year Inflation


Current statistics show an increase in inflationary pressure during the year under review. The annual

average rate of increase in prices stood at 5.3 per cent. Compared to December 2006, a year on year

increase of 17 per cent in overall prices was observed. The real impact of increase in prices, notably

food prices, occurred during the last quarter of 2007, coinciding with the realignment of the exchange

rate and the upward revision in fuel tariffs. In the absence of further policy and/or external shocks,

the price effects of the underlying economic trends are expected to peak in the latter half of 2008

before stabilising in early 2009.

Table 5.8 Annual Average Inflation Rates

2003 2004 2005 2006 2007

Weights

2001 (percentage change)

All Items 100 3.3 3.9 0.9 -0.4 5.3

Fish 3.2 9.0 -7.1 5.4 11.5 5.9

Other Food Items 23.4 1.8 1.9 0.6 2.8 8.7

Non-Food Items 73.4 3.6 5.0 0.8 -1.8 4.1


SECTION SIX

Operations and Administration of the Central Bank8

6. Overview

2007 was a very successful year for the Central Bank in the sense that the institution was an active

participant in the economic decision making process as well as being upfront as a policy agent both in

the implementation of key policy measures and in guiding expectation formation in a changing

economic environment.

At the very beginning of the year, the Bank reviewed its performance in the previous year as well as

putting into context its role as a policy-maker. Following the assessment, a proposal was put to the

Board for a re-organisation of the institution’s internal structures to enhance its capacity and

efficiency. In that restructuring, a new Strategy and Policy Unit was created and the Bank Supervision

Division was renamed as Financial Services Supervision Division. For the latter, the change of name

was seen to be more reflective of the range of financial institutions that fall under the responsibility of

the Division.

There was also an increased emphasis on the pursuit of developing the financial and offshore services

sector. This objective was in line with the economic vision of Strategy 2017. As a first step, the Bank

reviewed the current regulatory and supervisory framework of the industry, especially focussing on the

agencies involved in the industry and the future human resources requirement. At the time of the

review, there were three institutions that oversaw the financial and offshore sector, namely the Central

Bank, the Seychelles International Business Authority and the Non-Bank Financial Services Authority

(NBFSA).

After a critical assessment and also extensive consultations between the Central Bank, the government

and local and international institutions, it was recommended that a new Division be created in the

Bank to oversee the non-bank services. The new division will function under the title Securities and

Financial Markets Division. The creation of the new division was essentially an exercise in

streamlining and consolidation in order to eliminate overlapping of responsibilities, reduce costs and 8 All the data presented in this section is actual.

- 80 -

Annual Report 2007 Operations and Administration of the Central Bank

- 81 -

hence promote greater efficiency in service delivery. Given the size of the country’s labour force and

skills shortage, it was argued that the Bank was best placed to discharge this function given its

expertise in terms of regulation and supervision of financial services through the Financial Services

Supervision Division. The new Division should also provide for better synergies to be gained within

the Bank in the supervision and regulation of bank and non-bank financial services. The core

responsibilities of the new division are to oversee the stock market, mutual and hedge funds as well as

the insurance services.

A critical element for the successful development of the financial and offshore services sector is to

ensure the availability of a pool of essential technical skills. Mindful of this, the Central Bank

initiated the launch of an initiative to set up a Banking Institute. This would be the platform for

training staff of the financial community, with particular emphasis in its initial stage in providing

training in customer care, leadership skills and performance management. Some courses were

conducted in the second half of the year within the framework of a pilot scheme. The plan is to have a

full-fledge Banking School by the end of 2008.

Apart from the above training initiative, the Bank intensified its own development program designed

to provide the staff with avenues for professional advancement and opportunities to keep abreast with

central banking issues internationally. In this way, the Bank is able to strengthen capacity whilst

encouraging initiative and creating the drive for forward thinking.

On the policy front, the Bank was very active during the year. It closely monitored the impact and

outcomes of the monetary/exchange rate policies and foreign exchange liberalisation that were

initiated in the second half of 2006. Through regular meetings of the Board of Directors, which is the

body that approves the policies, continuous assessment of the progress in the economic stabilisation

programme was carried out and timely decisions taken whenever economic developments called for

new policy actions or corrective responses. Based on these regular reviews, the Board agreed to the

recommendation to take immediate steps to enhance the competitiveness of the domestic currency in

order to consolidate gains in the monetary sector and the real economy and thus hasten

macroeconomic convergence. In its September meeting, the decision was thus taken to adopt a new

exchange rate regime which explicitly targets the exchange rate of the domestic currency to the US

dollar at R8. The new regime became effective as of October 5. In addition, in its last meeting for the

year, the Board decided that its policy review meetings should be conducted on a quarterly basis and

that any decisions taken be then conveyed in a more transparent manner to the public so as to build

confidence and eliminate negative bias in the formation of economic expectations.


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At the national level, the Central Bank participated in policy debates, often co-opting the assistance of

external partners in areas where the institution lacked the expertise in order to provide fresh insight

and assist in policy formulation. Acting under the auspices of the National Economic Planning

Council (NEPC), the Bank played a pivotal role in the drafting of the ‘Seychelles Strategy 2017’, a

document which outlines the government’s development strategy for the next ten years.

From an operational perspective, many developments emerged in 2007 in all the divisions and the

highlights of these are outlined below.

6.1 Administration and Human Resources Division

The Administration and Human Resources Division continues to provide administrative support to all

the divisions on a variety of issues related to human resources management and development.

Through the various recruitment and outreach efforts, the Bank seeks to recruit dynamic and motivated

personnel. A total of fifteen new staff has joined the Bank during the year. As part on its ongoing

efforts for development of human resources to achieve highest standards, a number of staff had the

opportunity to attend training programmes organised both locally as well as internationally.

From the second half of 2007, the Bank started renovation works on its building and work is expected

to be completed by July 2008.

6.2 Banking Services Division

The core business of the Banking Services Division is being the banker to the government, the banking

community and other specialized agencies. During the year, this function was discharged with utmost

efficiency through a computerised platform which allows for greater operational effectiveness. The

latter has seen the successfully completion of the infrastructure upgrade and migration of the SWIFT

system in November 2007 and the implementation of a simple computerized cheque printing facility.

The Division also looked at other upgrades of the accounting system with the help of the Department

of Information Technology and Communication (DITC) and the Information Technology (IT) Unit of

the Bank. These upgrades would include new functionalities, including a voucher printing system and

an electronic clearing house module.

6.2.1 Currency Issues

There was a further increase in currency in circulation in 2007, representing a rise of R33 million or

8.0 per cent relative to 2006. This rise was nevertheless at a slower pace than in previous years and

the share of notes and coins remained stable compared to the previous year. Whilst transactions in the

Seychelles economy are still through the medium of cash, the increase during 2007 reflected the

higher economic growth which warranted a rise in the amount of cash needed to support transactions.


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Furthermore, the inflation tendencies which had emerged in the second half of the year called for a

higher holding of cash by economic agents.

Chart 6.1 Notes and coins in circulation (1998 - 2007)

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

R m

illio

n

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Perc

enta

ge

Notes Coins % Change in Total Currency in Circulation


Table 6.1Circulation of Notes and Coins1

2003 2004 2005 2006 2007

(R million) Total 326.1 314.6 344.8 417.2 450.6 Notes 305.7 293.5 322.3 393.8 425.4 Coins 20.4 21.1 22.5 23.4 25.2

(per cent) Share Notes 93.7 93.3 93.5 94.4 94.4 Coins 6.3 6.7 6.5 5.6 5.6 1 End-of-period data Source: Central Bank of Seychelles

In relation to other currency matters, namely the sale of numismatic coins, an amount worth R97,281

was registered, representing a decline of 20 per cent relative to the previous year. These coins are


- 84 -

excluded from currency in circulation since it is unlikely that such coins will be presented at any time

for redemption. In addition to numismatic coins, a total of 730 Seychelles Currency Coin Packs,

worth R36,500 was also sold.

6.2.2 Annual balances

For 2007, the Central Bank recorded a net operating profit of R142 million, an increase of R79 million

or 127 per cent relative to the previous year and also represented the highest profit in any given year.

This important growth was underlined by the rise in income most notably the non-interest component,

which rose by R88 million or 454 per cent and a slight improvement of R1.0 million in net interest

income. The surge in non-interest income was to a large extent directly related to the movement in the

exchange rate. With the rupee trading at a much weaker value that in 2006, this influenced the foreign

exchange transactions that were conducted by the Bank as well as on the revaluation of external assets.

The gains of exchange were thus a prime component of non-interest income.

6.2.3 External Reserves

At the end of the year 2007, the gross external reserves amounted to R323 million which represented a

decline of R331 million or 51 per cent relative to 2006. The movement in the external assets was

namely linked to the foreign exchange liberalisation process which started in October 2006 as well as

the discharge of some external commitments. As part of the foreign exchange liberalisation process,

some proceeds from the sovereign bond issue raised in September 2006 were deployed to clear part of

the outstanding balances on the pipeline scheme. In terms of the external commitments, these related

more specifically to debt repayments and payments towards health, education and energy imports in

view of the unanticipated increase in the price of this commodity on the international market.

6.2.4 Accounts of commercial banks

Movements in commercial banks deposits with the Central Bank has since 2006 been influenced by

major policy impulses compared to past years. On an end-of-period basis, there was a decline of R66

million or 9.9 per cent of such deposits relative to the previous year. Whilst the banks as a group had

been keeping reserves in excess of the required level of 5.0 per cent, in the second half of the year, the

banks were faced with a major challenge to entertain a significant withdrawal of funds by the private

sector associated with the clearance of external arrears in the financial system. In the face of this, the

banks had to draw down on reserves at the Central Bank to effect such payments to their clients. By

the end of the year, banks had not recovered the level of cash that they had in the first half of the year

which was around 23 per cent of total deposits. However, they continued to fully comply with the

statutory requirement even to the extent of having some significant excess balances. As a group, the

banks were holding on average 15 per cent cash reserves at the end of the year.


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The Clearing House remained active during the year. There was a further increase in the number of

items cleared and in value which rose by 5.5 per cent and 1.8 per cent respectively. Whilst the

movement shows that there is evidence of increasing growth in the economy, the acceptance of cheque

as a means of payment remained limited in scope.

Table 6.2 Bankers’ Clearing House Activities

2003 2004 2005 2006 2007

(Total) Number of items cleared 598,907 586,068 587,552 596,638 629,724 Amount (R’000) 2,007,938 2,386,481 2,192,623 2,339,69 2,382,069

(Daily average) Number of items cleared 2,405 2,326 2,341 2,416 2,519 Amount (R’000) 8,064 9,470 8,736 9,472 9,528


6.3 Financial Intelligence Unit

The Financial Intelligence Unit (FIU) was established on June 1, 2006 as an independent unit within

the Central Bank. The FIU started with a complement staff of three, one of whom is the Director. By

the end of 2007, the Unit employed two more staff members making a total of five.

One of the core functions of the FIU is to receive, analyse and disseminate reports of transactions or

attempted transactions relating to the offence of money laundering or the financing of terrorism to the

appropriate law enforcement or supervising agencies. During 2007, the Unit received several

Suspicious Transaction Reports from reporting entities which after analysis, were disseminated to the

appropriate law enforcement and supervisory agencies.

Another important function is the exchange of information with foreign FIUs in accordance with the

requirements of the Egmont Group. During 2007, such practice was undertaken by exchanging

information with three foreign counterparts and requesting information from one.

The FIU is also authorised to conduct examinations of Reporting Entities so as to ensure compliance

with the provisions of the Anti-Money Laundering Act 2006 and the Prevention of Terrorism Act

2004. During the year, it completed the examination of four banks, one Bureau de Change and eight

Corporate Service Providers.


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Other functions include producing and issuing guidelines on Anti-Money Laundering (AML) and

Combating the Financing of Terrorism (CFT) to the Reporting Entities. The Guidance Notes on AML

for financial institutions prepared by CBS in 1998 were amended during 2007 to incorporate the

requirements of the AML Act of 2006 and have since been distributed to Reporting Entities.

The provision of training on AML/CFT to the Reporting Entities is also another function. In March

2007, the Central Bank in collaboration with the US Department of Treasury’s Office –Office for

Technical Assistance (OTA), organised a workshop on Investigative Techniques for Law Enforcement

Officers at the ICCS in which the FIU Director made a presentation. Officers from various local Law

Enforcement agencies participated in the workshop.

The OTA has an agreement with the Central Bank of Seychelles to provide technical assistance to its

FIU. During 2007, an expert from the OTA visited the country on three occasions to provide on-going

training to the staff of the Unit.

In February, the Deputy Governor accompanied by the FIU Director visited the Mauritius FIU on a

familiarization visit during which talks on technical assistance, mutual co-operation and assistance in

helping the Seychelles FIU gain admittance to the Egmont Group were discussed. Following this

visit, two members of staff went on a one-week attachment to the Mauritius FIU. Other members of

staff also proceeded overseas on training covering AML/CFT.

6.4 Financial Services Supervision Division

The division assists the Central Bank in promoting a sound financial structure through its rigorous

licencing process as well as ongoing on-site and off-site examinations of supervised institutions. To

this end, its portfolio in 2007 remained unchanged with six banks conducting domestic banking

business, one offshore bank, two bureau de change and a microfinance institution.

The noteworthy event that occurred in the early part of the year was the revision in the division’s

name as well as the post title of the officers who work within the division. The former changed from

‘bank supervision’ to ‘financial services supervision’ in an attempt to give a more comprehensive

indication of the division’s area of expertise. Similarly, it is perceived that ‘analyst’ rather than

‘officer’ better reflect the type of work that each such staff undertakes.

As planned, the year saw the completion of four full scope onsite examinations. These related to

Saymore, Mauritius Commercial Bank (Seychelles), Seychelles Savings Bank and Travel Change

(Seychelles). In line with the division’s goal of striving for excellence, the examination teams

improved on past examination reports in all aspects. On this line, the manner that commercial banks


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manage their information and communication technology was evaluated by an expert in the field of

information technology, who also formed part of the onsite team.

As regards offsite surveillance, this was performed on a continuous basis although a more thorough

analysis was prepared to coincide with each of the supervised institutions’ deadline for the payment

of their annual fees.

When these two are combined, it can be concluded that all the supervised institutions are indeed

financially safe and sound.

With regard to legal issues, the division also had the opportunity to comment on the proposed

Seychelles Credit Union bill that was put forward by the institution itself. By and large, this was done

in line with the Model Law for Credit Unions which has been developed and recommended by the

World Council of Credit Unions. To this end, although there are issues that the various stakeholders

are yet to reach an agreement on, the exercise is now in its final stages. During the last quarter of the

year, a paper was prepared by the division for the Board’s comment on the manner that ‘international

repute and good standing’ ought to be interpreted for the purpose of granting offshore banking

licence. Consequently, it was agreed that this meant that the applicants should essentially be able to

show a good track record of growth and profitability. Concerning licensing, the application form, as

well as accompanying notes, were brought up to date. Essentially, this exercise culminated in the

production of one single application form in place of three, catering for both banking (domestic and

offshore) as well as bureau de change businesses.

Concerning capacity building, in addition to on the job training, the division continued to subscribe to

the FSI Connect, which is an on-line learning tool developed by the Financial Stability Institute for

banking supervisors around the world. Moreover, staff from the division had the opportunity to attend

specialized training overseas in relation to central banking, Basel II implementation, the revised core

banking principles for effective supervision and integrating on-site and off-site banking supervision.

In relation to reinforcing banking supervision, a technical assistance team from the IMF reviewed the

division’s current practices in this area in an attempt to assist it further in maintaining financial sector

stability. Further assistance will be provided by the Fund over an 18 month time frame, which will

end in June 2009.

6.4.1 Minimum required capital and investment of capital funds

The minimum required capital is applicable to all financial institutions whilst that relating to the

investment of capital funds is specific to banks. These requirements remained unchanged in 2007 and

were adhered to by all the relevant institutions.


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6.4.2 Minimum reserve requirement and local asset ratio

There were no changes to these two key monetary policy instruments during the year but

nevertheless, the Bank monitored the outcomes very closely as they are key in the modulation of

liquidity growth in the short-term. All banks were able to comply with the requirements, with the

exception of one bank which was unable to recover on the local asset ratio after it encountered a

major squeeze on both its asset and deposit liabilities.

Chart 6.2: Minimum Reserve Requirements (1998 - 2007)

0.0

5.0

10.0

15.0

20.0

25.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

Perc

enta

ge

Outcome Statutory limit


Chart 6.3: Minimum Local Asset Ratio (1998 - 2007)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

Perc

enta

ge

Outcome Statutory limit



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Table 6.3Minimum Reserves and Local Assets Ratio1

2003 2004 2005 2006 2007 (per cent)

Minimum reserve requirement Statutory limit 2.50 2.50 2.50 3.16 5.00 Outcome 5.50 5.58 5.47 7.95 17.62

Minimum local assets Statutory limit 50.00 50.00 50.00 53.96 65.00 Outcome 79.46 70.12 70.12 74.85 73.61 1 Yearly averages of weekly data.Note: An increase in the local asset ratio from 50 per cent to 65 per cent and the minimum reserve requirement from 2.5 per cent to 5.0 per cent effective August 01, 2006. Source: Central Bank of Seychelles

6.5 Foreign Earnings Regulation Division

As previously announced by the Minister for Finance, the process for removing foreign exchange

controls began in the latter part of 2006. Allocation of foreign exchange continued to be on a

discretionary basis by the banks, with the surrender requirement being maintained at 15 per cent. A

total of R37.57 million was paid from the frozen pipeline, representing requests where goods and

services had previously entered the country.

Moreover, in an attempt to create a climate of confidence both at a national and international level in

the economy, banks were encouraged to open and operate foreign exchange accounts for individuals,

subject to the normal customer due diligence process. On a somewhat related issue, the Minister for

Finance announced in the 2008 Budget presented in December 2007, that the Exchange Control Act

would be amended to decriminalize the possession of foreign exchange. The relevant amendments

were subsequently repealed on January 7, 2008.

6.6 Public Debt Division

The Division continued to function as government’s agent for domestic debt management as well as

registrar for government securities. It also acts as advisor to the Ministry of Finance on the

restructuring of its domestic debt portfolio.

At the operational level, the secondary market window for treasury bills was again not very active

during the year given the restricted dynamics that characterise this market. Other government

instruments on offer were treasury bonds where two new securities were put on tap mostly targeting

the household sector in a bid to promote a savings culture amongst the population. The other


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instrument that was issued was a government stock, which was issued purely from a regulatory

standpoint for the financial institutions.

6.6.1 Treasury Bills

The treasury bill market remained practically the same in 2007 compared to the previous year in terms

of the cycle of auctions with eight tenders for the 91-day maturity and one for 365-day. As has been

the case in the past, commercial banks continued to be the main participants in the primary auctions.

This is the case as they participate in this market in order to obtain sufficient government instruments

so as to satisfy the requirement of the local asset ratio.

The use of the secondary market was limited given the number of subscribers in the market. The only

time where there were transactions in the secondary market was in the second half of the year at the

time of a significant withdrawal of deposits in the banking sector for the clearance of commercial

arrears by the private sector.

In terms of the observed yield during the auctions, there was a generally downward trend on the 91-

day maturity, the instrument which serves as the market reference rate. Nevertheless, towards the end

of the year as a response to a tighter liquidity position in the banking system as well as a reaction to

the increase in the minimum deposit rate stipulated by the Central Bank, there was an increase in the

yield of the instrument. Given the policy of the Bank to maintain a liquidity squeeze in the banking

sector, the expectations are that a further rise in the interest rate on this government instrument is

expected.

Chart 6.4: Average tender rate of 91-day bill rate (2007)

3.13.23.33.43.53.63.73.83.94.04.1

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07

Months

Perc

enta

ge



- 91 -

Given that the average yield has been relatively stable compared to the previous year, the cost to

government on this instrument also remained steady at R44 million. With the restructuring of public

debt, involving a transitory increase in external borrowings, the government was able to reduce the

limit of issue for the auction in the second half of the year. This has resulted in a decline in the

amount outstanding at the end of the year to stand at R1,131 million at cost value, a reduction of R55

million. The largest share of this amount represented the 91-day maturity.

Table 6.4Treasury Bills1/2/3

2003 2004 2005 2006 2007(R million)

Stock outstanding 1/3 1023.9 1564.7 1336.7 1185.8 1130.591-day bills (tap issue) 796.0 - - - -91-day bills (tender issue)7 - 1369.1 1144.88 1089.7 1035.2182-day bills (tap issue) 81.7 - - - -365-day bills (tap issue) 146.2 - - - -365-day bills (tender issue) - 192.6 191.9 96.1 95.3Stock outstanding 2/3 1038.1 1577.9 1353.2 1200.0 1145.091-day bills (tap issue) 800.0 - - - -91-day bills (tender issue) - 1377.9 1153.2 1100.0 1045.0182-day bills (tap issue) 83.8 - - - -365-day bills (tap issue) 154.3 - - - -365-day bills (tender issue) - 200.0 200.0 100.0 100.0

Central Bank 0.8 0.0 0.0 0.0 0.0 Commercial banks 1018.2 1523.3 1315.7 1143.0 1102.7 Other financial institutions 2.0 0.0 0.0 0.0 0.0 Others 17.1 54.6 37.5 57.0 42.3 Non-residents - - - - - 1 At cost value. 2 At face value. 3 End-of-period data. Source: Central Bank of Seychelles


- 92 -

Chart 6.5: Total Stock of Outstanding T-Bills (1998 - 2007)

0.0

500.0

1000.0

1500.0

2000.0

2500.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

R m

illio

n

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

Perc

enta

ge

Total T-Bills % Change in Total Stock of Outstanding T-Bills


6.6.2 Treasury bonds

During the year, the government continued with the ongoing policy within its debt management

framework to progressively lengthen the maturity profile of its domestic debt instruments in support of

monetary stability as well as providing the platform to encourage private savings.

To this effect, two new bonds were put on offer. There were the 6.0 per cent 3-year which targeted the

corporate sector which was issued in November; and a 10 per cent, 5-year bonds issued earlier in May,

purely for individuals. The latter bond which was for a limit of R100 million was fully subscribed

whilst in the case of the former only R23 million had been sold out of a limit of R250 million.

At the same time, there was the continuation of the redemption of the 4.0 per cent, 3-year bond that

was issued in 2003. With maturities completely outweighing sales, the total stock of bonds declined

by R252 million or 12 per cent to reach R1,826 million at the end of the year. Given the level of

redemption and new instruments in the bond portfolio, there was an increase the payment of interest

by R16 million.


- 93 -

Table 6.5

Treasury Bonds1

2003 2004 2005 2006 2007 (R million)

Stock outstanding 1696.5 1674.11 1765.6 2077.9 1826.22.25%, 1-yr 200.0 - - - -4.0%, 3-yr 405.0 780.0 776.7 410.4 35.45.0%, 5-yr 301.2 500.0 490.9 490.9 490.97.5%, 7-yr 200.0 200.0 183.0 183.0 183.08.0%, 10-yr 100.0 194.1 291.5 293.6 293.68.25%, Esmeralda II - - 23.5 150.0 150.06.0%, 3-yr - - - 500.0 500.010.0%, 3-yr - - - 50.0 50.010.0%, 5-yr - - - - 100.06.0%, 3-yr - - - - 23.37.5%, 3-yr 450.0 - - - -8.0%, 5-yr 40.3 - - - -

Central Bank - - - - - Commercial banks 1166.8 1079.4 1094.5 1341.8 1052.4 Other financial institutions 3.5 8.6 94.7 402.8 405.2 Others 526.2 586.1 576.4 333.3 368.61 End-of-period data. Source: Central Bank of Seychelles

Chart 6.7: Total Stock of Outstanding Treasury Bonds; 1998 - 2007

0

500

1000

1500

2000

2500

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Years

R m

illio

n

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

Perc

enta

ge

Total Stock Outstanding % Change Total Stock Outstanding



- 94 -

6.6.3 Government Stocks

At the beginning of the year, the 8.5 per cent stock came due and this instrument was replaced by a

similar one yielding an interest of 8.0 per cent. This roll-over was of the same amount of R30 million

which was mainly subscribed by commercial banks in view of a regulatory requirement.

With these developments, there was no major change in the profile of this government security with

the amount due to subscribers standing at R150 million, whilst government effected interest payments

of R12 million.

Table 6.6Government Stocks; 1 2003-2007

2003 2004 2005 2006 2007

(R million)Stock outstanding 140.0 150.0 150.0 150.0 150.08.00%, 2009 50.0 50.0 50.0 50.0 50.08.50%, 2005/07 30.0 30.0 30.0 30.0 -8.00%, 2004 60.0 - - - -8.00%, 2014 - 70.0 70.0 70.0 70.08.50%, 2017 - - - - 30.0

Central Bank - - - - - Commercial banks 140.0 147.1 147.1 147.1 147.1 Other financial institutions - - - - - Others - 2.9 2.9 2.9 2.9 1 End of period data. Source: Central Bank of Seychelles

6.7 Research and Information Management Division

Apart from the work that has to be conducted for the publication of the Quarterly Reviews and Annual

Report, the Division started with a program of education, whereby economic articles were prepared

and published in the national newspaper the Seychelles Nation. This program has been initiated to

provide a platform of awareness of economic issues, especially now that the economy is going through

a transition phase. Economic knowledge is very important at a time of transition as it helps to mould

and guide expectations of economic agents.

In support of the above and to provide more information for the policy reviews, especially now that

the latter will be conducted on a quarterly basis, the Division reinforced its data management capacity.

This was done by increasing the scope of data coverage and in some instances working more closely

with the National Statistics Bureau (NSB). The Division was very instrumental in the work that was

being undertaken by the NSB on the new national accounts data which are due for release in the first


- 95 -

quarter of 2008. The Division also prepared and co-ordinated the preparation of documents for policy

reviews.

To further enhance its capacity, especially in monetary operations and research, which will underpin

future policy decisions of the Bank, a technical mission of the IMF was conducted in the last quarter of

the year. This mission assessed the current status and provided an Action Plan for a period of 18

months, starting February 2008.

6.8 Strategy and Policy Unit

As part of the restructuring of the Central Bank which was approved at the beginning of the year, the

Strategy and Policy Unit was created. The rationale behind the setting up of this Unit was to have a

channel through which the Bank would participate more fully at the national level in policy debates,

especially now that the economic landscape is undergoing significant transformation. The Unit has as

its mandate the responsibility for the evaluation and advisory role to the Governor and the Board of

Directors on key economic issues. It also participates in forums and meetings both nationally and

internationally as well as studying and preparing strategic papers for consideration of the Central Bank

Board and the government.

6.9 Board of Directors

The Board of Directors met on 12 occasions during the year 2007.

6.9.1 Appreciation

The Board and Management of the Central Bank wish to record their appreciation to all staff members

of the Central Bank for their valuable contributions to the operations of the institution in 2007.

Despite serious economic challenges, the staff have continued to discharge their responsibilities in a

professional, ethical and exemplary manner as befitting a central monetary institution. Above all, they

have done so with loyalty, sincerity and quiet efficiency. On this note, the Board and Management

look forward to another successful year ahead.

- 96 -

- 97 -

- 98 -

- 99 -

- 100 -


Income Statement

For the Year ended December 31, 2007 Notes 2007 2006 R R Interest income 13 84,058,530 87,702,989

Interest expense 14 (21,209,215) (25,851,724)

Net interest income 62,849,315 61,851,265

Other income 15 106,838,591 19,270,751 Operating expenses 16 (27,608,545) (18,489,410) Profit Before Taxation 142,079,361 62,632,606 Taxation 17 - - Net Profit for the Year R 142,079,361 62,632,606 The notes on pages 104 to112 form an integral part of these financial statements. Auditors’ report on pages 98 and 99.

- 101 -

- 102 -


Statement of Changes In Equity Year ended December 31, 2007

Notes Capital General

Reserve Revaluation

Reserve Net Profit Total

R R R R R

At January 1, 2007 1,000,000 20,000,000 68,043,028 - 89,043,028

Exchange differences on translation of assets and liabilities

-

-

96,508,275

- 96,508,275

Net Profit for the Year - - - 142,079,361 142,079,361 Transfer to Government Consolidated Fund

8

-

-

(32,910,261)

(142,079,361) (174,989,622)

At December 31, 2007 1,000,000 20,000,000 131,641,042 - 152,641,042 At January 1, 2006 1,000,000 20,000,000 62,568,031 - 83,568,031

Exchange differences on translation of assets and liabilities

-

-

22,485,754

- 22,485,754 Net Profit for the Year - - - 62,632,606 62,632,606 Transfer to Government Consolidated Fund

8

-

-

(17,010,757)

(62,632,606) (79,643,363)

At December 31, 2006 1,000,000 20,000,000 68,043,028 - 89,043,028 The notes on pages 104 to112 form an integral part of these financial statements. Auditors’ report on pages 98 and 99.

- 103 -


Cash Flow Statement Year Ended December 31, 2007

Notes 2007 2006 R R Operating activities Cash generated from operations 18 (297,709,872) 551,701,840 Investing activities Acquisition of property, plant and equipment 12 (11,859,910) (1,493,028)Proceeds from disposal of property, plant and equipment

6,500

202,000

Proceeds from redemption of Seychelles Government securities

58,476,843

229,739,984

Net cash generated from/ (used) in investing activities

46,623,433

228,448,956

Financing activities Repayment of borrowings from banks - (394,378,162) Paid to Government Consolidated Fund (79,643,363) (41,168,687) Net cash used in financing activities 79,643,363 (435,546,849) (Decrease)/Increase in cash and cash equivalents

(330,729,802) 344,603,947

Opening cash and cash equivalents 653,312,279 308,708,332 Closing cash and cash equivalents 9 R 322,582,477 653,312,279

The notes on pages 104 to112 form an integral part of these financial statements. Auditors’ report on pages 98 and 99.

- 104 -


Notes to the Financial Statements – Year Ended December 31, 2007 1. ACCOUNTING POLICIES

The principal accounting policies adopted by the Central Bank are as follows: (a) Form of presentation

The financial statements have been prepared in accordance with the legislation governing the Bank’s operations - the Central Bank of Seychelles Act, 2004. All section references quoted refer to the latter Act.

(b) Basis of preparation

The financial statements have been prepared in accordance with Generally Accepted Accounting Practices. The financial statements have been prepared under the historical cost convention modified where appropriate to include the valuation of certain assets. Where necessary, comparative figures have been amended to conform with change in presentation in the current year.

(c) Foreign securities

Foreign securities other than treasury bills are stated at market value.

(d) Seychelles Government securities

Seychelles Government securities other than treasury bills are stated on the following bases:

- Treasury Bonds – at nominal value - Other securities – at cost

(e) Treasury bills

Treasury bills, both foreign and local, are stated at cost plus accrued discount.

(f) Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is calculated to write off the cost of property, plant and equipment on a straight line basis over the estimated useful lives of the assets concerned. On this basis the rates of depreciation used are: Building - 1½% p.a. Office Furniture and Fittings - 10% p.a. Computer and Office Equipment - 25% p.a. Motor Vehicles - 20% p.a.

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Notes to the Financial Statements – Year Ended December 31, 2007 1. ACCOUNTING POLICIES (CONT’D)

(g) Income recognition

Interest income and similar income are recognised on an accruals basis. Commission on foreign exchange dealings are recognised based on the dates of transactions.

(h) Foreign currencies Transactions denominated in foreign currencies are translated into rupees and recorded at the rates of exchange ruling at the date of the transaction. Balances in foreign currencies are translated into rupees at the exchange rates ruling on the balance sheet date. Net exchange differences arising on translation at the balance sheet date are dealt within the Revaluation Reserve Account as per section 28 of the Central Bank of Seychelles Act 2004. The exchange rate of the Seychelles rupee during the year and at year end is determined, in accordance with Section 26(1), by the Board of Directors of the Central Bank, and having due regards to the obligations that Seychelles has assumed in accordance with the provisions of any international monetary agreement to which it is a party or to which it has adhered. The following rates of exchange were applied at December 31, 2007. S.D.R. 1 = R 12.6608 US$ 1 = R 8.0005 £ 1 = R 15.8753 J.P Yen 1 = R 0.0716 CHF 1 = R 7.0619 EURO 1 = R 11.6831 ZAR 1 = R 1.1663

(i) Gratuity and statutory compensation The net present value of gratuity and statutory compensation payable is calculated and provided for. The obligations arising under this item is not funded. 2. FINANCIAL RISK MANAGEMENT The Bank’s activities expose it to a variety of financial risks: market risk, credit risk, liquidity risk and operational risk. A description of the significant risk factors is given below together with the risk management policies applicable. (a) Market risk Market risk arises from open positions in the interest rate and foreign currency products, all of which are exposed to general and specific market movements. The Bank’s exposure to market

- 106 -


Notes to the Financial Statements – Year Ended December 31, 2007 risk is the result of both trading and asset/liability management activities. The market risk management policies of the Bank are determined by the Board of directors. Currency risk The Bank operates internationally and takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows primarily with respect to the United States dollar, Euro and Great Britain Pound. The Bank does not hedge against risk of fluctuations in exchange rates. Exchange gains and losses arising from the revaluation of assets and liabilities denominated in foreign currencies are accounted in a revaluation reserve account in accordance with Section 28 of the Central Bank of Seychelles Act 2004. (b) Credit risk The Bank is not exposed to significant credit risk which is the risk that its counterparties will be unable to fulfil their contractual obligations. The Bank is, however, exposed to a geographical concentration of interest bearing assets denominated in foreign currency in the United States and Europe. (c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Bank aims at maintaining flexibility in funding by keeping committed credit lines available.

(d) Operational risk management

Operational risk is the risk of financial loss and business instability arising from failures in internal controls, operational processes or other supporting systems. It is understood that such risks cannot be entirely eliminated and the cost of controls in minimising these risks may outweigh the potential benefits. As part of the implementation of the Bank’s risk strategy, independent checks on risk issues are undertaken by the internal audit unit.

3. TRANSTER TO GOVERNMENT CONSOLIDATED FUND

Transfer to the Consolidated Fund has been carried out in accordance with section 16(3), and section 28(4) of the CBS Act 2004.

4. CAPITAL 2007 2006 R R Authorised R 10,000,000 10,000,000 Paid up R 1,000,000 1,000,000

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Notes to the Financial Statements – Year Ended December 31, 2007

5. RESERVES 2007 2006 R R

General reserve (Note (a)) 20,000,000 20,000,000 Revaluation reserve (Note (b)) 131,641,042 68,043,028

R 151,641,042 88,043,028 (a) General Reserve

The general reserve has been established and maintained in accordance with section 16(1) of the CBS Act 2004.

(b) Revaluation Reserve Account

The revaluation reserve account has been maintained during the year in accordance with section 28 of the CBS Act 2004. Gains and losses arising from changes in the valuation of the Bank’s assets and liabilities denominated in foreign currencies and other units of accounts as a result of alterations of parity of the Seychelles rupee have been credited or charged to this account in accordance with section 28 of the CBS Act 2004.

6. CURRENCY IN CIRCULATION

Coins sold for numismatic purposes, with a face value of approximately R16,151,157 at December 31, 2007 (2006 – R16,146,478), have been excluded from currency in circulation since it is unlikely that such coins will be presented at any time for redemption. 2007 2006 R R Currency in circulation 450,684,145 417,212,726

7. DEPOSITS

2007 2006 R R Government and Government related bodies 21,916,356 203,765,310Banks 570,450,251 647,039,773Pipeline Deposit Accounts (repayable on demand) 91,993,498 383,924,499Special 190,553 174,939Staff Welfare Fund 1,805,236 808,357Mortgage Housing Protection Loan 325,000 325,000Employee Incentive Scheme 1,861,335 632,653Gratuity and Statutory Compensation 2,508,329 1,639,052Others 36,164,331 18,007,197

R 727,214,889 1, 256,316,780

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2007 2006 R R 8. PAYABLE TO CONSOLIDATED

GOVERNMENT FUND

Transfer from Income Statement 142,079,361 62,632,606 Transfer from Revaluation Reserve Account 32,910,261 17,010,757 R 174,989,622 79,643,363 9. CASH AND CASH EQUIVALENT 2007 2006 R R

Balances held abroad 322,381,270 653,244,081 Holdings of Special Drawing Rights 126,633 14,624 Notes and Coins in Hand 74,574 53,574 R 322,582,477 653,312,279

10. SEYCHELLES GOVERNMENT SECURITIES 2007 2006 R R

20-Year Restructuring Bond R 1,052,583,173 1,111,060,016 11. ADVANCES AND OTHER ACCOUNTS 2007 2006 R R

Advances to Government 86,400,000 - Other accounts 18,890,182 61,601,544 R 105,290,182 61,601,544

- 109 -


Notes to the Financial Statements – Year Ended December 31, 2007 12. PROPERTY, PLANT AND EQUIPMENT

Building

Office Furniture & Fittings

Computer & Office

Equipment

Motor Vehicles

Total

R R R R R COST At January 1, 2007 25,514,274 2,645,715 4,907,290 476,670 33,543,949Additions 10,296,734 383,714 617,766 561,696 11,859,910Disposals - (59,487) (769,195) - (828,682)At December 31, 2007 35,811,008 2,969,942 4,755,861 1,038,366 44,575,177 DEPRECIATION At January 1, 2007 7,273,630 2,128,310 4,210,839 119,645 13,732,424Charge for the year 537,165 214,645 482,849 171,041 1,405,700Disposal adjustments - (54,828) (769,195) - (824,023)At December 31, 2007 7,810,795 2,288,127 3,924,493 290,686 14,314,101 NET BOOK VALUES At December 31, 2007 R 28,000,213 681,815 831,368 747,680 30,261,076

Building

Office Furniture & Fittings

Computer & Office

Equipment

Motor Vehicles

Total

R R R R R COST At January 1, 2006 24,969,679 2,522,650 4,234,583 577,320 32,304,232Additions 544,595 123,065 685,213 140,155 1,493,028Disposals - - (12,506) (240,805) (253,311)At December 31, 2006 25,514,274 2,645,715 4,907,290 476,670 33,543,949 DEPRECIATION At January 1, 2006 6,890,916 1,958,427 3,763,492 145,537 12,758,372Charge for the year 382,714 169,883 459,853 84,647 1,097,097Disposal adjustments - - (12,506) (110,539) (123,045)At December 31, 2006 7,273,630 2,128,310 4,210,839 119,645 13,732,424 NET BOOK VALUES

At December 31, 2006 R 18,240,644 517,405 696,451 357,025 19,811,525

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2007 2006 13. INTEREST INCOME R R Interest on foreign deposits with other banks 26,822,792 19,145,551 Interest on loans and advances to Government 2,569,603 20,873 Interest on local securities 54,456,560 62,515,991 Others 209,575 6,020,574 R 84,058,530 87,702,989 14. INTEREST EXPENSE 2007 2006 R R Interest on deposits 20,998,764 9,014,096 Interest on loans 210,451 16,837,628 R 21,209,215 25,851,724 15. OTHER INCOME 2007 2006 R R Profit arising from dealing in foreign currencies 16,117,168 11,513,146 Gain/(Loss) on exchange 85,797,338 5,989,986 Other miscellaneous income 4,924,085 1,767,619 R 106,838,591 19,270,751 16. OPERATING EXPENSES 2007 2006 R R Depreciation charges 1,405,700 1,097,097 Other operating expenses 26,202,845 17,392,313 R 27,608,545 18,489,410 17. TAXATION The Central Bank of Seychelles is exempted from taxation under Section 49 of the CBS Act 2004.

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2007 2006 18. NOTES TO THE CASH FLOW STATEMENTS R R Cash generated from operations Net profit for the year 142,079,361 62,632,606 Adjustments for: Depreciation on property, plant and equipment 1,405,700 1,097,097 Gratuity and Statutory Compensation 869,277 (657,774) Profit on disposal of property, plant and equipment (1,841) (71,735) Operating profit before working capital changes 144,352,497 63,000,194 Increase in currency in circulation 33,471,419 72,309,000 (Decrease)/Increase in deposits (Exclude Gratuity &

Statutory Compensation) (529,971,168)

426,414,166 Increase in deposit for allocation of Special

Drawing Rights 1,617,743

349,239 Increase in advances and other accounts (43,688,638) (32,856,513) Exchange differences on revaluation of assets and liabilities 96,508,275 22,485,754 Net cash generated from operating activities R (297,709,872) 551,701,840 19. CAPITAL COMMITMENTS Capital expenditure approved by the Board and contracted for at year end but not yet incurred is as

follows: 2007 2006 R R Property, plant and equipment 17,255,000 11,101,800 20. FOREIGN CURRENCY SITUATION As at December 31, 2007, the Central Bank had a net assets amounting to R322,507,903.

(Net asset in 2006: R653,258,705 and Net liability in 2005: R85,730,726) made up as follows:

2007 2006 2005 R R R

External assets 322,507,903 653,258,705 308,647,437 External liabilities - __________- (394,378,162) R 322,507,903 653,258,705 ( 85,730,725)

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Notes to the Financial Statements – Year Ended December 31, 2007 21. REGISTERED ADDRESS

The registered address is Independence Avenue, Victoria, Mahé, Seychelles.

ANNEX II

OFFICERS OF THE CENTRAL BANK OF SEYCHELLES

(as at December 31, 2007)

Mr. Francis Chang Leng - Governor

Ms. Jennifer Morel - Deputy Governor

Governor’s Office

Financial Intelligence Unit

Mr. Phillip Moustache - Director

Miss Audrey Annette - Financial Intelligence Officer

Strategy & Policy Unit

Miss Moyra Alexis - Economist

Miss Francoise Barra - Economist

Mrs Noemie Gobine - Economist

Miss Shannon Jolicoeur - Legal Officer

IT Unit

Mrs Philippa Samson - System Support Officer

Securities & Financial Markets Division

Mr. Conrad Benoiton - Director General

Mr. Nicolas Woodcock - Director - Insurance

Mrs Monica Charles - International Corporate Services Officer

Deputy Governor’s Office

Miss Martine Faure - Legal Officer

Administration and Human Resources Division

Mrs Juliana AhThew-Rose - Head of Division

Mrs Levina Françoise - Senior Administration Officer

Mr. Terry Adrienne - Administration Officer

Mr. Jean-Claude d’Offay - Consultant

Banking Services Division

Mr. Patrick Stravens - Head of Division

Mr. Christophe Edmond - Director Banking and Currency Operations

Mr. Mike Tirant - Assistant Accountant

Mrs Jeannette Payet - Accounts Manager

OFFICERS OF THE CENTRAL BANK OF SEYCHELLES (Cont’d) (as at December 31, 2007)

Financial Services Supervision Division

Vacant - Head of Division

Ms. Jenifer Sullivan - Senior Financial Services Analyst

Miss Emmalie Carosin - Financial Services Analyst

Mr. Francis Payet - Financial Services Analyst

Mr. Naadir Hassan - Financial Services Analyst

Mr. Jean-Paul Barbier - Assistant Financial Services Analyst

Miss Nathalie Houarau - Assistant Financial Services Analyst

Foreign Earnings Regulations Division

Vacant - Senior Auditor

Miss Danielle Robert - Auditor

Public Debt Division

Vacant - Head of Division

Mr. Francis Lebon - Public Debt Officer

Research & Information Management Division

Miss Caroline Abel - Head of Division

Mr. Brian Commettant - Senior Economist

Miss Joan Lespoir - Economist

Miss Gina Ally - Statistician

Miss Dorotha Michel - Statistician

central bank of seychelles report 2007.pdfsection one highlights of the seychelles economy 1 ......

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