Seychelles maintains ‘B’ credit rating, sign tourism set to rebound
Seychelles has maintained a ‘B’ credit rating with a stable outlook since Fitch’s last ratings released last week, reflecting expectations of a recovery in tourism and economic growth.
Finance Minister Naadir Hassan told reporters on Tuesday that the note was positive news for Seychelles.
“This means the government has been able to bring stability to the economy. The rating gives us a narrative on how to move forward. It also has a direct impact on investors who review the rating. to analyze whether their investments are secure, “says Hassan.
The economy of Seychelles, an archipelago in the western Indian Ocean, was hit hard when a travel slowdown due to the COVID-19 pandemic negatively impacted its tourism industry.
The island nation was demoted from a “B +” to “B” rating in December of last year.
Fitch Ratings said it saw signs of a resumption in tourist flows to Seychelles, which reopened its borders on March 25 and that visitor arrivals in April rebounded to 38% from 2019 levels, the highest since start of the COVID-19 pandemic.
The finance minister said Seychelles’ recovery “is driven by non-essential tourism markets and should be supported by the return of traditional European tourists as global travel restrictions ease.”
Fitch also predicts that real GDP will rebound to 5% growth in 2021, driven by a robust recovery in tourism activity, favorable base effects and supported by expansionary fiscal and monetary policies, and a highly successful vaccination program. .
He warned, however, that the recent increase in cases of infection and daily deaths since late April 2021 could lead to further restrictions that could weigh on the recovery, while adverse developments in the pandemic globally also pose a challenge. downside risk.
Fitch said funding needs in 2020 were largely met from domestic sources, mostly through Treasuries and SCR 1.5 billion of three, five and seven year bonds.
For 2021, it forecasts that financing needs at 11.9% of GDP will be met mainly by domestic borrowing from banks, while other program disbursements from the International Monetary Fund (IMF), the World Bank and the the African Development Bank are currently under negotiation.
In Fitch’s view, negotiating a new IMF program is unlikely to be problematic, given Seychelles’ strong record in adhering to previous programs.
Fitch’s debt estimates exclude $ 82 million, or 6.5 percent of GDP, from Air Seychelles’ debt, which the government is negotiating $ 72 million with the airline’s bondholders to reduce to $ 20 million.
Hassan said that with the current economic situation, it is clear that the government will not be able to further subsidize the national carrier for its operational losses.
In an effort to get a better grade, Hassan said Seychelles needs to limit spending compared to revenue collected.
“We also need to reduce current account deficits. It has to do with keeping a strict balance between foreign currencies entering and leaving the country so that the country’s reserve is not further affected. If we move in the direction opposite, it will lead to downgrading, ”he added.