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Seychelles Fiscal Improvement Unlocks Ratings Upgrade

by Lorys Charalambous, Lowtax.net, Cyprus
13 August, 2014

The Seychelles Ministry of Finance, Trade, and Investment has announced that Fitch Ratings has upgraded Seychelles' long-term foreign currency rating from B to B+, with a stable outlook.

In a statement, the archipelago's Finance, Trade, and Investment Ministry said Seychelles' fiscal position had improved markedly under the IMF's previous Extended Fund Facility (EEF) program, which was instigated in 2008 following a default in debt payments, and completed in December 2013.

The IMF program involved the introduction of a value added tax (VAT) regime in January 2013, to replace the previous goods and services tax, and an overhaul of income and business taxation. At over 30 percent, Seychelles' revenue-to-gross domestic product ratio (GDP) is now relatively high, and a new three-year EEF agreed with the IMF concentrates on improved tax administration and compliance, to ensure finance for both development investment and the Government's target of reducing public debt below 50 percent of GDP by 2018.

Under the new EEF, the Seychelles has agreed to streamline tax exemptions, adjust specific excise taxes, improve tax audit capabilities, and strengthen tax compliance, in particular with regard to international tax matters.

In fact, the Ministry's statement noted that "public debt stood at 60 percent of GDP in 2013, down from 70 percent a year earlier. Fitch projects a decline in the public debt ratio to below 50 percent of GDP in 2018," in line with the Government's target.

"Given the Seychelles' strong performance under the previous EEF, Fitch believes the new program will serve as an important fiscal policy anchor," it said.

In its Rating Action Report, Fitch also confirmed that the Seychelles' "revenue base is larger and more stable relative to rated peers. The public debt to revenue ratio (157 percent in 2013) is lower than the 'B' median (181 percent) and marginally higher than the 'BB' median (148 percent)."

Fitch concluded that "the stable outlook reflects its assessment that upside and downside risks to the rating are currently well-balanced," and added its "current judgment is that the authorities will continue to enforce fiscal discipline in a way consistent with their debt reduction targets." It noted that one of the factors that could lead to a further upgrade would be a "continued reduction in public-sector debt" in line with the territory's targets.

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