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Fitch Ratings has affirmed Seychelles’ credit rating at BB- with positive outlook, which is supported by relatively high income levels, strong World Bank governance indicators and support from multilateral creditors. According to the Ratings released on Friday, these strengths are balanced by the economy’s small size and high concentration in the tourism sector, heightening vulnerability to external shocks.
The Ratings state that Seychelles’ tourism sector, which directly accounts for up to 25 per cent of its economy and 40 per cent of current account receipts, has stagnated this year, with visitor arrival growth flat in the first eight months year-on-year. The authorities expect arrivals to reach 95 per cent of 2019 levels by 2025, down from previous projections. This is due to weakness in some source economies, mainly in Western Europe, strong competition from other high-end tourist destinations, and inadequate growth of flight routes to Seychelles. Tourism receipts are set to decline 13 per cent year-on-year in 2024, albeit to still higher than pre-pandemic levels, reflecting stagnant arrivals and a shift away from higher-spending tourists mainly from the Gulf countries and Russia, and grow only marginally in 2025,” said Fitch Ratings. Additionally, the Information Communication and Technology (ICT) sector has posted strong growth in recent years, but meaningful diversification prospects for the economy appear limited.
On economic growth, Fitch expects Gross Domestic Product (GDP) growth of 3 percent in 2024, and 4 percent in 2025, with some positive impact from the 2025 Beach Football World Cup and pre-presidential and parliamentary election spending. Potential growth is estimated at around 3.5 percent supported by a solid pipeline of investment in hotel projects of over $700 million due to come online in 2024-25. This will boost room capacity in the country by 6.4 percent.
Seychelles continues to have strong performance against benchmarks of the IMF’s Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF) programmes, which collectively total $102 million, 4.7 percent of 2023 GDP, worth of funding over three years to 2026, of which 32 percent has already been disbursed.
Seychelles met all but one of the quantitative performance benchmarks under the EFF’s latest review and has started incorporating climate-related reform requirements in its budgetary process. Fitch views as credit positive the technical assistance that Seychelles has access to from the IMF, World Bank, and other multilateral lenders in improving budgetary management and ingraining climate risk mitigation in its budget execution.
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Seychelles is heavily exposed to risks from climate change, with impacts already being felt primarily through the rising intensity and frequency of storms and flooding that are rendering some coastal infrastructure unusable. Seychelles’ tourism industry faces constraints in expansion due to the saturation of coastal infrastructure, which effectively acts as a cap on potential growth. The IMF estimates Seychelles to have a funding requirement of about USD 670 million, 31.2 percent of 2023 GDP, for climate change mitigation by 2030, equivalent to 5 percent of GDP annually, but the country spends only 0.9 percent of GDP a year, said Fitch Ratings.
