10.08.06

Standard & Poors’ credit ratings for Seychelles

Posted in International Organisations, Seychelles offshore jurisdiction at 5:01 pm by Robert Klien

Standard & Poor’s Ratings Services has recently assigned its ‘B’ long-term and ‘B’ short-term foreign currency sovereign ratings, and its ‘B+’ long-term and ‘B’ short-term local currency sovereign ratings on Seychelles. Seychelles’ outlook is stable. This reflects a great boost which the economy and investments in Seychelles have experienced.

As Seychelles has over a long period of time been ahead of other countries in the region  concerning its economic, social and infrastructure development and has had very good indicators, in July its government decided to have an international credit rating agency assign it a rating.

Standard & Poor’s is  one of the top three players in this business, along with Moody’s and Fitch Ratings. It is a reputed international provider of credit ratings that for the past 6 weeks has been carrying out a sovereign rating for Seychelles. For the last 10 years, Seychelles’ economic and social performances have been observed by the credit rating agency.

These ratings are supported by many factors. One of the most important of them is the country’s recent strong fiscal performance – the country’s fiscal management has had firm surpluses connected with a strong administration’s commitment to maintain it in the future.

Also, the ratings are supported by high levels of human development – high per capita income, health, literacy and education and standards. Seychelles is the only country in Africa that the United Nations Development Programme (UNDP) ranks in high human development.

Social and political stability are other aspects that strengthen Seychelles’ position. Seychelles social indicators are advanced and political position is stable and strong.

As to the main constraining factors for the ratings, this is Seychelles’ level of high public sector debt and, accordingly, impairment of fiscal and external flexibility. Deficit financed growth, high levels of social spending as well as balance of payments gaps led to an accumulated public sector debt of 174 per cent of GDP on a net basis in the end of 2005. The macroeconomic policy mix resulted in the country’s high debt levels.

Also, the ratings are constrained by fixed administratively set exchange rate, which is at least 50 per cent above its market rate. As a result, the shortage of foreign currency has directly contributed to the arrears on public sector foreign debt to bilateral and multilateral lender and has been preventing the import of necessary inputs.

The vulnerability of the Seychelles’ economic growth and external position is another factor that  constrains the country’s ratings. This vulnerability is caused by relying on tourism and fisheries for output growth and foreign exchange earnings.

Seychelles is the 113th sovereign rated by Standard & Poor’s Ratings Services.

The ratings given by Standard & Poor’s are a remarkable achievement of the Seychelles government that could even improve in the future with solving the problems related to the exchange rate liberalization, the resolution of arrears as well as other issues.

It is also worth mentioning that John Esther, the Corporate Manager of the Barclays Bank, has congratulated the Seychelles government indicating that, with good ratings, Seychelles and its private businesses can get more access to loans from international financial institutions with good interest rates.

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