Seychelles Maintains 'B' Credit Rating in Sign That Tourism Is Expected to Rebound

Seychelles has maintained a 'B' credit rating with a stable outlook from the latest Fitch Ratings released last week which reflects the expectation for tourism and economic growth to recover.

The Minister of Finance, Naadir Hassan, told reporters on Tuesday that the rating is positive news for Seychelles.

"It means that the government has been able to bring stability in the economy. The rating gives us a narrative on how to move forward. It also has a direct impact on investors which looks at the rating to analyze if their investments are secured," said Hassan.

The economy of Seychelles, an archipelago in the western Indian Ocean, was heavily affected when a downturn in travel due to the COVID-19 pandemic negatively impacted its tourism industry.

The island nation was downgraded from a 'B+' rating to 'B' in December last year.

Fitch Ratings said that it sees signs of a recovery in tourist flows to Seychelles, which reopened its borders on March 25 and that visitor arrivals in April rebounded to 38 percent of the 2019 level, the highest since the onset of the COVID-19 pandemic.

The finance minister said the recovery of Seychelles "is driven by non-core tourist markets and should be supported by the return of traditional European tourists as global travel restrictions ease."

Fitch also forecasts real GDP to rebound to a 5 percent growth in 2021 driven by a robust resumption of tourist activity, favourable base effects and supported by expansionary fiscal and monetary policies, and a very successful vaccination programme.

It however cautioned that the recent rise in daily infection cases and deaths since the end of April 2021 could result in further restrictions that could weigh on the recovery, while adverse developments in the pandemic globally also pose a downside risk.

Fitch said that the financing needs in 2020 were largely met through domestic sources mainly through treasury bills, and SCR1.5 billion of three-, five- and seven-year bonds.

For 2021, it forecasts financing needs at 11.9 percent of GDP to be met primarily by domestic borrowing from banks while further programme disbursements from the International Monetary Fund (IMF), World Bank and African Development Bank are currently being negotiated.

In Fitch's view, the negotiation of a new IMF programme is unlikely to be problematic, given Seychelles' strong record of adherence to previous programmes.

Fitch's debt estimates exclude $82 million which is 6.5 percent of GDP of the Air Seychelles debt, of 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 subsidise the national carrier for its operational losses.

With the aim to get a better rating, Hassan said that Seychelles needs to limit spending in relation to the revenue collected.

"We also need to narrow the current account deficits. This has to do with maintaining a strict balance between foreign currencies coming in and out of the country so that the reserve of the country is not impacted further. If we move in the opposite direction, it will lead to a downgrade," he added.

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