Summary:KEY ISSUES Context. The 4-year EFF-supported program that expired in December 2013 attained its key goals of reducing public debt, building reserves and implementing structural reforms to raise growth potential, strengthen public finances, and enhance oversight of state-owned enterprises. Nevertheless, substantial policy challenges remain, including the need to further reduce the still-high debt level, ensure external sustainability in the face of balance of payments pressures, and entrench structural reforms to maintain growth and bolster economic resilience. To help address this remaining agenda, the authorities have requested a successor EFF arrangement. Main elements of the program. The program aims to bolster the foundations for sustained, inclusive growth, while addressing vulnerabilities: • Fiscal policy will be anchored by the authorities’ target of reducing public debt below 50 percent of GDP by 2018. • The monetary and exchange rate policy framework will be anchored by an average reserve money ceiling with a flexible exchange rate, permitting a gradual reserve accumulation to roughly maintain current coverage levels in the face of balance of payments pressures. The Central Bank of Seychelles will also move toward a more forward looking monetary policy regime. • The authorities are committed to an ambitious structural reform agenda aimed at: fostering sustained and inclusive growth; enhancing the quality and management of public finances; and strengthening the performance and oversight of state-owned enterprises. • Under the arrangement, Seychelles would be able to access up to SDR 11.445 million (about US$17.8 million, 105 percent of quota), subject to semi-annual reviews. On this basis staff supports the authorities’ request for an extended arrangement under the Extended Fund Facility. Risks. Risks to the program are considered moderate; they include exogenous shocks to the small and vulnerable economy, as well as a possible reversal of the pro-reform sentiment.
