Seychelles’ Hyped Island Hop
The Seychelles joined Mauritius as an African small middle-income island stock exchange with listing of the state-owned Sacos insurance conglomerate in the final phases of its IMF program five years after sovereign default when the public debt-GDP ratio was 150 percent. The abandoned exchange rate peg and big civil service employment reductions subsequently departed from a socialist model and Paris Club and private lender and bond-holder 50 percent haircuts set a path for slashing obligations by two-thirds by end-decade. Mainstay tourism has diversified from traditional European visitors with arrivals up 20 percent through the start of this year. A new fiber-optic cable has aided telecoms business and resort-related construction for Asian and Middle Easter visitors boosted FDI. Medium-term GDP growth and inflation are both put around 3 percent, but additional fiscal and balance of payments drag could result from the government’s full airline takeover. Reserve coverage is below three months imports. The primary budget surplus goal remains 5 percent of output with VAT introduction and electricity tariff adjustments, but private sector credit has been flat and the absence of long-term Treasury paper inhibits monetary policy. A deregulation effort aims to elevate Doing Business rankings from the bottom half but is hindered by professional capacity limits in law and accounting. Small companies could benefit from a planned leasing framework and the African Development Bank is trying to promote housing finance. Banks have passed stress tests but still exhibit high interest and operating costs and maturity mismatches, according to the Fund’s latest Article IV release.
Mauritius was ahead 10 percent on the MSCI frontier index through August as India postponed offshore tax hits but global business corporation formation may indefinitely slide with likely retargeting. GDP growth is 3 percent on inflation double that level and fiscal balance will be upset by a large infrastructure-building campaign, according to a recent IMF analysis. Credit continues to increase at a 10 percent annual clip and the central bank regularly intervenes to smooth currency swings. National savings has dropped 10 percent over the past decade complicating the objective of 50 percent of GDP debt sustainability. Utility subsidy and pension reforms are overdue and the state social security fund should allow more foreign allocation. High youth unemployment persists despite the demand for skilled workers and the two main banks listed on the exchange are healthy by capital, liquidity and earnings measures, the overview concludes. Although the two centers are not prime participants they urge renewal of US AGOA trade preferences expiring in 2015 as the joint annual forum convened in Ethiopia to chart provisions and strategy. A Brookings Institute-UN study issued in advance marshaled empirical data that non-extension would hurt exports and jobs, but urged regional integration and training efforts to fully realize the legislation’s beauty regardless of country and product eligibility ideals.
