WASHINGTON - The executive board of the International Monetary Fund on Saturday approved the Seychelles’ request for emergency financial assistance under the rapid financing instrument (RFI) equivalent to special drawing rights (SDR) 22.9 million (about US31.2 million, or 100 percent of quota) to meet the country’s urgent balance of payment needs stemming from the coronavirus (Covid-19) pandemic.
The near-term economic fallout of the pandemic in the country was expected to be severe. Travel restrictions and the subsequent loss of tourism receipts were sharply reducing economic activity and weakening the fiscal and external positions, creating large additional financing needs, the IMF said in a statement.
The authorities reacted swiftly by taking immediate measures of containment, including border closures, strengthening health policy responses, and supporting households and firms.
Seychelles’ hard-won economic gains since the 2008 crisis, supported by successive fund arrangements, were being eroded by the severe impact of the Covid-19 pandemic, the IMF said.
The RFI would provide timely resources to the authorities to address the urgent balance of payments needs and soften the hit on the budget. The IMF would continue to monitor Seychelles’ situation closely and remain in close dialogue with the authorities, the statement said.
“A temporary fiscal expansion as well as expeditious external support are needed to address the large output contraction," IMF deputy managing director and chair Tao Zhang said after the board meeting.
"The authorities have taken decisive measures to prevent a local outbreak and mitigate the economic fallout on affected businesses and the most vulnerable households. Once the pandemic dissipates and confidence is restored, the authorities are committed to return to a fiscal stance that stabilises debt."
The central bank’s prompt response to provide emergency assistance would help alleviate the economic fallout. The flexible exchange rate had served Seychelles well, and the resilience of the banking system would play a crucial role in restoring external and internal balances. The central bank should remain vigilant to potential market stress and emerging risks to financial markets, he said.