USD31m IMF Loan Will Assist Seychelles Tax Reform

by Mary Swire, Tax-New.com, Hong Kong

28 December 2009

The International Monetary Fund (IMF) has approved a three-year, USD31m extended fund facility (EFF) to the Seychelles, which will support further fiscal and monetary reforms.

A previous USD26m two-year standby arrangement between the IMF and the Seychelles, which had a year outstanding at the time the new loan was approved, has been cancelled.

The archipelago last year defaulted on a 2011 USD230m Eurobond interest payment, which highlighted the extent of the Seychelles’ debt. A number of fiscal and monetary reforms followed, aimed at liberalizing the then state-owned economy.

The three-year EFF arrangement will allow the Seychelles’ government to carry out a second wave of reforms, including an overhaul of the tax system.

Finance Minister Danny Faure, in his November budget statement, announced that business tax rates would be reduced, and that social security fund contributions would be replaced with a flat-rate income tax.

The loan will also support debt structuring and public sector reform. The Seychelles last week launched an exchange offer on the Eurobond, and on three other debt instruments.

The current economic crisis is said to have left the Seychelles economy close to collapse, with the important tourism sector hit with an expected 7.5% contraction in 2009; Faure believes the sector should rebound in 2010 by 4%, albeit subject to external economic factors.

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