Standard and Poor’s has not yet issued a new rating on Seychelles although it is now one year since the last rating was published. Earlier this year Standard and Poor’s issued its Sovereign Risk Indicators for 113 countries for which it had issued credit ratings. These statistics include economic measures, fiscal indicators, balance-of-payments information, and external balance-sheet figures. As a small economy, we stood 110 out of 113 for the size of our nominal GDP (that is calculated at current market prices) but 6th out of 113 on the ratio of fiscal (budget) surplus to GDP and number one for Net Foreign Direct Investment to GDP. This was to be expected since our currency is not convertible and, therefore, there is no opportunity for Seychellois to make investments overseas through the banking system. On the other hand, we are second from the bottom for Net General Government Debt to GDP at 134%. Only
In its report accompanying the rating last year Standard and Poor’s made the following remark, “The ratings could come under downward pressure, however, if exchange rate liberalization is substantially delayed or causes economic disruption, or if it is insufficient to address underlying distortions. Downward pressure on the ratings would also result if fiscal consolidation withers due to a weakening of resolve in the face of potential political or economic exigencies.”
Since November 2006, the Central Bank has been depreciating the rupee virtually on a daily basis against the major currencies such as the US dollar, the Euro and Sterling. So far, the depreciation has reached 20% with very little improvement in the availability of foreign exchange in the banking system to satisfy demand. The measure, however, is causing considerable distortion in the economy with parallel market shadowing the official one. Today, the same official restrictions on foreign currency transactions remain in place with the government sequestering 15% of all the foreign currencies entering the banking system. Liberalisation of the exchange rate continues to remain only an intention.
According to Finance Minister Danny Faure during his budget presentation to the National Assembly last year, the government is expected to pay out US$ 22.6 million as interest on external debts in 2007. The interest due on the US$ 200 million alone will be US$ 18.25 million. The new bond issue will add another US$ 3 million annually to the service cost on international debts alone. In rupee terms, the cost of the external debts has risen in rupee terms as the depreciation of the currency continues, putting the budget surplus in jeopardy.
So far, the Government has not made public why it is trying to sell more debts to the international capital market, or what the money raised is to be used for. Although Chang Leng had reassured international investors last year that the proceeds of the junk bonds would be used to retire old debts, a substantial portion was used to shore up the 2006 government expenditure, which had run seriously into the red, in order to justify the government’s claim that the budget would be in surplus. This is tantamount to cooking the books.
Seychelles is facing a great difficulty to generate sufficient foreign exchange in order to pay for its annual fuel import bill. The problem is not that the money generated by the sale of fuel in the domestic economy is not sufficient to pay the suppliers overseas; it is only that our currency has “no external value”. Yet, one of the objectives of the Central Bank Act 2004 is “to promote price stability and the maintenance of both domestic and the external value of the currency.” Today, neither is there price stability, nor is our currency’s domestic and external value constant.
There is a definite economic purpose why the Central Bank Act requires price stability as well as a stable exchange rate in the economy. That purpose must be understood and appreciated by everyone, especially President Michel who has been mandated by the people in a free election to lead the country. It is clear that of the current Governor of the Central Bank, Francis Chang Leng and the Board of the Central Bank have failed dismally in their duty to achieve price stability and a stable exchange rate.