Seychelles’ Creditworthiness Maintains Stable Outlook Amid Tourism Rebound

Seychelles’ Creditworthiness Maintains Stable Outlook Amid Tourism Rebound

BB Rating Maintained by Fitch Ratings

Fitch Ratings, a leading international credit ratings and research agency, has upheld Seychelles’ Long Term Foreign Currency Issuer Default Rating (IDR) at BB with a stable outlook. The rating is a reflection of the country’s high income levels, robust World Bank Governance Indicators, solid backing from multilateral creditors, and a stable policy environment. Despite its strengths, Seychelles’ heavy reliance on its tourism sector makes it vulnerable to external shocks, including those related to climate change.

Notwithstanding a slowdown in 2023, Seychelles has seen an impressive recovery in tourist arrivals in 2022. The tourism sector is gradually bouncing back, with tourism receipts surpassing pre-pandemic levels. This indicates higher revenue per tourist and a promising recovery trajectory. The authorities are projecting a return to 2019 arrival levels by 2026, with tourism earnings forecasted to grow annually by 3% in 2024 to 2025.

Future Economic Performance

After an outstanding growth in 2022, largely attributed to a rebound in global tourism, growth is anticipated to decelerate to 4.5% in 2023 and 4.2% in 2024, eventually stabilizing at around 3.9% in 2025. The information and communication technology sector is set for robust growth, potentially contributing to medium-term growth.

Seychelles has a track record of strong compliance with International Monetary Fund (IMF) programs. It has received assistance from various multilateral institutions over the years. The IMF approved a three-year USD 46 million Resilience and Sustainable Facility (RSF) and a new USD 56 million Extended Fund Facility (EFF) for Seychelles in May 2023.

Projected Budget Deterioration

Despite a strong revenue performance, the budget is expected to deteriorate in the second half of 2023 due to revised budget priorities aimed at increasing capital expenditure. Tax revenue is projected to fall short of previous estimates.

The public debt to GDP ratio in Seychelles declined to 70% in 2022. However, it is expected to reach 70.7% by the end of 2023 and average 68.4% in 2024 to 2025. The country issues long-dated domestic securities to increase the domestic component of public debt and extend maturities. A significant currency depreciation poses the greatest risk to debt dynamics, but risks are mitigated by the concessional nature of 85 percent of external debt.

Climate Change Risks

Seychelles faces significant risks from rising sea levels impacting coastal infrastructure and biodiversity. The expansion of the tourism industry is constrained due to the saturation of coastal infrastructure, posing limitations on growth. The country requires almost 5 percent of GDP per year for climate change mitigation, but currently only spends 0.9 percent of GDP per year. However, Fitch foresees a strong likelihood of Seychelles continuing to receive multilateral technical and financial support for climate change adaptation in the medium term.