Finance

Seychelles economy, Seychelles GDP per capita, Seychelles GDP per capita PPP
Henning Leweke
The famous clock tower in the centre of
Victoria, capital of Seychelles.

Seychelles Joins List of Broke Countries Seeking IMF Help

October 31, 2008 10:40 AM
by Anne Szustek
The island nation is urging 2,000 government employees to resign as it verges on bankruptcy and its sovereign bonds get junk status.

Seychelles to Get Aid from IMF

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Island nation Seychelles is drowning in $800 million in sovereign debt, nearly equal to 175 percent of the country’s annual gross domestic product, prompting the country to go into talks with the International Monetary Fund to secure emergency funding.

The nation’s foreign exchange reserves are “nearly depleted,” a source told Reuters.

Seychelles, located in the Indian Ocean, earns some 70 percent of its foreign currency from tourism, which has taken a heavy hit this year from high oil prices and economic downturns in the United States and Europe. Commercial tuna fishing is also a major source of foreign exchange for the country.

“Right now there is barely enough [in reserves] to cover a day’s worth of imports. The situation is severe,” the Reuters source said.

Making matters worse, Seychelles’ sovereign bond rating from Standard & Poor’s is “selective default” in light of a missed interest payment on $230 million worth of senior unsecured Eurobonds set to mature in 2011. The low bond rating may dissuade other nations from investing in the Seychelles government.

International Monetary Fund (IMF) loans are generally contingent upon the recipient country instituting a series of economic reforms. Expected to be in Seychelles’ prescription are tax reforms and cutting jobs from the country’s large public sector, a step that the government is already undertaking.

“We are asking 12 percent of our civil service to voluntarily resign in order to streamline the workforce and improve efficiency, Seychellois finance official Ahmed Afif told Reuters.

According to Reuters, there are also plans in the works to float the Seychelles rupee, which some analysts say has been overvalued.

Amid the planned IMF intervention came the resignation of Seychelles Central Bank Governor Francis Chang-Leng. Chang-Leng said in Seychellois state-run newspaper Nation that he was stepping down because of health concerns.

Related Topics: Other nations near bankruptcy

Pakistan, Iceland, Hungary and Ukraine are all in line for IMF funding, having had major cash crunch problems as of late.

The Washington-based international economic oversight body agreed this past weekend on a $16.5 billion loan over 24 months to Ukraine, contingent on the country making financial sector reforms and balancing its budget. The terms of Hungary’s rescue package are still being negotiated.

The hyrvnia, Ukraine’s national currency, dropped 14.2 percent against the U.S. dollar last week, hitting a record 6.0812 against the dollar on Oct. 24.

On top of its flagging currency, translating into more expensive imports at home, global prices have fallen for Ukraine’s key exports, such as steel. Annual inflation rates hit an all-time high of 31.1 percent in May, falling to a still lofty 24.6 percent in September. Ukrainian Central Bank Gov. Volodymyr Stelmakh said earlier this month that the country’s current-account deficit could grow to some $15 billion this year.

On Tuesday Hungary was granted a $25 billion aid package: $16 billion of it coming from the IMF, $8 billion from the European Union and the remaining $1 billion from the World Bank.

Hungary’s economy has also taken a tumble amid the global credit crunch. Last week the dollar also gained 9.4 percent against the Hungarian forint in spite of the country’s central bank’s 3 percent interest rate increase to 11.5 percent. The country’s stocks and bond markets have also taken a wallop.

The IMF also pledged $2.1 billion in loans last week to Iceland, which has been teetering on the brink of bankruptcy. The Scandinavian country, whose economy is lopsidedly based on the financial sector, is also asking for an additional $4 billion from its fellow Nordic states. Like Ukraine, it has stepped in to take over struggling financial institutions, putting its three major banks under government control.

The IMF is expected to vote on confirming the Hungary and Iceland loans next week.

Between July 2007 and October 2008, the Icelandic krona dropped more than 46 percent against the euro, prompting the country to peg its currency to the euro and seek a €4 billion (about $5.7 billion) loan from Russia to shore up its reserves and help bolster its currency. But Russia is also facing a cash crunch in light of steeply dropping oil and gas prices, casting doubt over the likelihood that the loan will come to fruition.

Pakistan, which edged back into the black after loan pledges from other countries and the Asian Development Bank, is also in negotiations for IMF funding, as is Belarus. Standard & Poor’s sovereign bond rating on Pakistan’s foreign reserves is CCC+, putting it in the junk category.

Reference: Seychelles

Seychelles is an archipelago in the Indian Ocean off the coast of Africa, located to the northeast of Madagascar. France and Great Britain fought for control of the islands, with France prevailing in 1814. The nation's official language is English, although a majority of the islands' 82,000-odd inhabitants speak a form of French Creole.

The Seychelles economy
, buoyed largely by tuna fishing and high-end tourism, is among the strongest in Africa. The BBC puts the Seychellois GDP per capita at $8,290; however the CIA World Factbook puts Seychelles’ GDP per capita in terms of purchasing power parity at $16,600.
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