Kojo, Naoko C.2012-06-182012-06-182005-10https://hdl.handle.net/10986/8245Seychelles is at a development crossroads. With public sector debt at over 200 percent of Gross Domestic Product (GDP), manifested by years of poor macroeconomic management and rigid economic structure, the economy has been experiencing a serious downturn since the beginning of the 2000s. While real GDP contracted by cumulative nine percent for the past four years, the significantly overvalued rupee has led to a loss of export competitiveness, leading to persistent balance of payments difficulties. Following independence in 1976, Seychelles adopted a state-led development model, in which the Government plays a dominant role in every segment of the economy through extensive controls and regulations. It intervened directly in manufacturing, distribution, trade and other economic activities through its parastatals, often at the expense of private sector development. Provision of education and health services was predominantly the responsibility of the Government. Seychelles is faced with formidable challenges in the years ahead. With public sector debt at some 200 percent of GDP, manifested by decades of poor policy management, there is no painless solution to Seychelles debt predicament. For Seychelles the primary tool to reduce the debt burden, and turn the economy back to a sustained growth path is the implementation of a comprehensive macroeconomic reform program, with a strong emphasis on fiscal adjustments, privatization, exchange rate realignments and structural reforms. Without a significant change in policy direction, Seychelles medium-term prospects are bleak. Continuation of the present policies will neither mitigate the acute foreign exchange shortages nor further build-up of debt, which will be even more damaging in the future. This paper is structured as follows. Section 2 presents the basic facts about Seychelles public sector debt and analyzes its burden and sustainability. Section 3 then discusses the medium-term economic outlook, assuming that no significant economic adjustments are made. Section 4 then seeks ways to reduce Seychelles public sector debt to a more sustainable level, and discusses a comprehensive macroeconomic reform package that is needed to achieve this goal. Section 5 concludes the paper.en-USCC BY 3.0 IGOACCUMULATION OF ARREARSACCUMULATION OF DEBTALLOCATIONANNUAL RATEANNUAL REPORTSAPPROPRIATIONARREARSBALANCE OF PAYMENTBALANCE OF PAYMENTSBLACK MARKETBONDBOND ISSUEBORROWERBORROWING COSTSBROAD MONEYBUDGET CONSTRAINTBUDGET DEFICITBUDGETARY IMPLICATIONSBUSINESS TAXCAPITAL EXPENDITURECAPITAL OUTLAYSCENTRAL BANKCENTRAL GOVERNMENTCOLLATERALIZATIONCOMMERCIAL BANKCOMMERCIAL BANKSCOMMERCIAL CREDITORSCOMMERCIAL DEBTCOMMERCIAL LOANSCONTINGENT LIABILITIESCONTRACTUAL OBLIGATIONSCREDIBILITYCREDITORSCREDITORS INTERESTCURRENT ACCOUNT DEFICITDEBT BURDENDEBT DATADEBT DYNAMICSDEBT EXCHANGEDEBT INSTRUMENTSDEBT INTERESTDEBT LEVELDEBT PAYMENTSDEBT REDUCTIONDEBT RESTRUCTURINGDEBT RESTRUCTURING OPERATIONDEBT SERVICEDEBT SERVICE BURDENDEBT SERVICE PAYMENTSDEBT SOURCESDEBT STOCKDEBT SUSTAINABILITYDEBTORDEBTOR COUNTRYDEVALUATIONDEVELOPMENT BANKDOMESTIC BORROWINGDOMESTIC DEBTDOMESTIC DEBTSDOMESTIC DEMANDDOMESTIC FINANCIAL SYSTEMECONOMIC CONDITIONSECONOMIC GROWTHECONOMIC PROBLEMSECONOMIC RECOVERYECONOMIC REFORMEXCHANGE CONTROLSEXCHANGE RATEEXCHANGE RATE ADJUSTMENTSEXCHANGE RATESEXOGENOUS SHOCKSEXPENDITUREEXPORT COMPETITIVENESSEXTERNAL ARREARSEXTERNAL BALANCEEXTERNAL BORROWINGEXTERNAL COMMERCIAL BORROWINGEXTERNAL DEBTEXTERNAL DEBTSEXTERNAL LOANSFINANCIAL CRISISFINANCIAL INSTITUTIONSFINANCIAL SUPPORTFINANCIAL SYSTEMFISCAL ADJUSTMENTFISCAL ADJUSTMENTSFISCAL AUSTERITYFISCAL BALANCEFISCAL BURDENFISCAL CONSOLIDATIONFISCAL DEFICITFISCAL DEFICITSFISCAL DISCIPLINEFISCAL MANAGEMENTFISCAL MISMANAGEMENTFISCAL OUTTURNFISCAL PERFORMANCEFISCAL POLICYFISCAL POSITIONFISCAL RESULTSFISCAL SCENARIOSFISCAL STANCEFISCAL SUSTAINABILITYFOREIGN CURRENCIESFOREIGN EXCHANGEFOREIGN EXCHANGESFOREIGN INTERESTFOREIGN INVESTMENTFOREIGN INVESTORSFOREIGN RESERVESGLOBAL DEVELOPMENT FINANCEGOVERNMENT ASSETSGOVERNMENT BORROWINGGOVERNMENT BUDGETGOVERNMENT DEBTGOVERNMENT DEBTSGOVERNMENT EXPENDITUREGOVERNMENT FINANCINGGOVERNMENT SPENDINGGROWTH RATEHEALTH SERVICESHIGHER INFLATIONHOLDINGHUMAN DEVELOPMENTIMPLICIT INTERESTINDEBTEDNESSINDIVIDUAL INVESTORSINFLATIONINFRASTRUCTURE PROJECTSINSTRUMENTINTEREST ARREARSINTEREST BURDENINTEREST PAYMENTSINTEREST RATEINTEREST RATESINVESTMENT CLIMATEINVESTOR CONFIDENCELABOR MARKETLENDERSLEVEL OF DEBTLEVEL PLAYING FIELDLOANLOAN AGREEMENTSLOAN CONTRACTSLOAN DEFAULTSLONG-TERM DEBTLONG-TERM EXTERNAL DEBTLONG-TERM INSTRUMENTSMACROECONOMIC MANAGEMENTMARKET FORCESMARKET REFORMMARKET VALUEMATURITYMEDIUM-TERM PROJECTIONNATIONAL INCOMENEGATIVE PLEDGE CLAUSENET EXTERNAL BORROWINGNET LENDINGOIL PRICESPENSIONPENSION SCHEMEPOVERTY REDUCTIONPREPAYMENTPRICE INDEXPRIVATE PLACEMENTPRIVATE SECTORPRIVATIZATIONPROFIT MARGINSPROGRAMSPUBLIC DEBTPUBLIC EXPENDITUREPUBLIC EXPENDITURE REVIEWPUBLIC FINANCESPUBLIC INVESTMENTPUBLIC SECTORPUBLIC SECTOR DEBTPUBLIC SECTOR EMPLOYEESPUBLIC UTILITIESRATES OF INTERESTREAL GROWTHREAL GROWTH RATEREFORM PLANREFORM PROGRAMREGULATORY STRUCTURERESERVESRETURNSALES TAXSHORT-TERM DEBTSHORT-TERM INSTRUMENTSSOCIAL GAINSSOCIAL INDICATORSSOCIAL SECURITYSOCIAL SECURITY FUNDSSOCIAL SERVICESSOVEREIGN DEBTSTATE ENTERPRISESSTOCKSSTRUCTURAL ADJUSTMENTSTRUCTURAL REFORMSTRUCTURAL REFORMSSUSTAINABLE DEBT LEVELTAXTAX COLLECTIONTAX EXEMPTIONSTAX RATESTAX REVENUETOTAL DEBTTOTAL EXPENDITURETOTAL PUBLIC EXPENDITURETOTAL PUBLIC SECTORTRADE LIBERALIZATIONTRANSACTIONTREASURYTREASURY BILLTREASURY BILLSTREASURY BONDTREASURY BONDSWELFARE LOSSWorld Bank10.1596/8245