Fitch Ratings gives confidence boost to Seychelles
The global credit ratings agency Fitch has given Seychelles a vote of confidence and praised its “impressive reform programme”.
In its new ratings published on Monday, it has assigned Seychelles long-term foreign and local currency Issuer Default Ratings (IDRs) of B minus and B with Positive Outlooks, respectively.
Fitch has also assigned the country a short-term foreign currency IDR of B.
“Seychelles’ newly-assigned ratings signal its emergence in January 2010 from a default event after the successful conclusion of a debt exchange with the holders of its US $230m Eurobond and €55m promissory note,” said Purvi Harlalka, associate director of Fitch’s Sovereigns group. “The Positive Outlook reflects the potential for creditworthiness to improve, given continued strong implementation of the authorities’ impressive reform programme.”
Fitch said following the debt exchange and earlier write-offs from the Paris Club and other bilateral creditors, the maturity profile of external public debt is significantly improved and the debt burden materially lowered to a projected 50% of gross domestic product in 2010 from 144% of GDP in 2008.
The country’s immediate financing needs have been significantly reduced to less than US $30m a year (3% of GDP) over 2010-11, it added.
With only just over 10% of foreign currency debt to the private sector still under negotiation, and owed to just one or two banks, the agency said it is satisfied that Seychelles has normalised relations with the international financial community and that the default has been cured.
Fitch said the Seychelles authorities are “aggressively implementing an ambitious and challenging reform programme including the floating of the exchange rate, elimination of subsidies, and extensive public sector downsizing”.
“Fiscal performance has been impressive, outperforming International Monetary Fund (IMF) targets despite a sharp drop in GDP, and inflation has been significantly reduced.
“The extension of an IMF programme to a three-year Extended Fund Facility is testament to the authorities' long-term commitment to reform despite ongoing challenges. As a result, Fitch expects Seychelles' credit profile to gradually improve, consistent with the Positive Outlook on the rating.”
The reforms carried out so far have helped confer a growing stability since the 2008 economic crisis, Fitch said. Inflation has moderated from 63% year-on-year at its peak in December 2008 to -2.5% year-on-year in December 2009 and is expected to average 2.3% in 2010.
The exchange rate, which fell 50% after its flotation, has also recovered by over 30% from its trough, while interest rates on benchmark 91-day treasury bills have moderated to about 4% in January 2010 from 30% in January 2009.
In addition, at 7.5%, output contracted by less than expected in 2009, partly due to buoyancy in tourism. Arrivals were virtually unchanged in 2009 relative to 2008 – “a better performance than many other tourist destinations”.
Fitch expects GDP growth to recover to a reasonable 4%-5% pace over 2010-2011.