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Fitch Ratings has confirmed the Seychelles' long-term and short-term foreign currency ratings at 'B' grade with a positive outlook.
Fitch attributed the positive outlook to the "strong budget discipline enforced since the start of the International Monetary Fund-supported program at end-2008," which has led to a tighter control of expenditure, and has increased tax revenues.
There is expected to be a primary fiscal surplus (before interest payments) of 4 percent of gross domestic product (GDP) in 2014 and 2015, and, as a result, Fitch expects public debt to decline to 54 percent of GDP by 2015, from 70.5 percent in 2012.
Fitch pointed out that "revenue growth under-performed budget plans in 2013, mainly due to shortfalls in value added tax (VAT) receipts and excise revenues. The underperformance of VAT was partly due to lower than projected collection from the tourism sector, some teething problems in the first year of implementation of the new VAT regime, and appreciation of the Seychelles rupee. The fall in excise revenues reflected a decline in imports of motor vehicles and reductions in some excise tax rates."
However, the agency acknowledged that the revenue shortfall was more than offset by a reduction in expenditure worth two percent of GDP. In Fitch's view, "this shows the authorities' commitment to fiscal discipline. Our current judgment is that the authorities will continue to enforce fiscal discipline in a way consistent with their debt reduction target of 50 percent of GDP by 2018."
"[Our] sensitivity analysis does not currently anticipate developments with a material likelihood of leading to a downgrade. Any reversal of fiscal reforms or relaxation of expenditure control would likely result in negative rating action," the agency concluded.
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