Fitch Affirms Seychelles at 'B'; Outlook Positive


LONDON, October 01 (Fitch) Fitch Ratings has affirmedSeychelles' Long-term foreign currency Issuer Default Rating (IDR) at 'B', Long-termlocal currency IDR at 'B+' and Short-term foreign currency IDR at 'B'. TheOutlook is Positive. Fitch has also affirmed Seychelles' Country Ceiling at 'B'. KEY RATING DRIVERS Seychelles' 'B' IDRs and Positive Outlook reflect the followingkey rating drivers:-Positive fiscal dynamics. Strong budget discipline has beenenforced since the start of the IMF-supported programme at end-2008. The primarybudget surplus has averaged 8% of GDP since 2009 due to substantial reformsincluding a marked cut in public sector employment, tighter control on expenditure andreform in public companies. Fitch expects the primary surplus to be 5.1% of GDPin 2013 and public debt to decline to 54% of GDP by 2015 (from 70.5% in2012) due to continuing surpluses. -Improved macroeconomic stability. Inflation has slowed sinceits peak in mid-2012 (8.9%) to 3.7% in August 2013, supported by anappreciation of the Seychelles rupee (+8% against the USD from end-2012). Fitchexpects on-going reforms in liquidity management, with the introduction of longermaturities instruments, combined with a gradual building of foreignreserves (FX), to benefit economic stability in the longer term. -Completion of public debt restructuring. The central governmentdebt declined to 70.5% of GDP in 2012 (from 178% in 2008) due to public debtrestructuring following a fiscal and balance-of-payment crisis in 2008. Debtis still high relative to that of 'B'-rated peers' median (40% of GDP) butexternal debt service is lower than peers' due to favourablepost-restructuring repayment conditions. The short tenor of domestic debt limits fiscalfinancing flexibility.-Sustained GDP growth. Fitch expects GDP growth to reach 3.5% in2013 and 4% by 2015 (from 2.9% in 2012), supported by a gradual recovery in theeurozone and continued expansion into new markets. Seychelles has offsetrecent weakness in traditional European tourist arrivals with an increase in newtourism markets from Asia (+29% in the first six months of 2013, +57% fromChina) and the Gulf (+22% from the UAE). Unemployment is low, at about 2%, due tojob opportunities in the tourism sector.-High level of economic and human development. GDP per capita,at USD13,000, is much higher than peers', reflecting a high value-added economyand a favourable business environment. Scores on UN human development indicatorsand World Bank governance indicators are also much higher than those of peers.RATING SENSITIVITIES The main factors that could lead to an upgrade are:-Continued reduction in public-sector debt due to fiscaldiscipline and structural reforms, including the adjustment of utility pricesto cost recovery levels. -Enhanced credibility of the macroeconomic framework byestablishing a track record of moderate inflation and greater confidence in theflexible exchange rate regime to absorb shocks without threatening price andfinancial stability.-Continued increase in external liquidity through rising foreignexchange reserves. Increasing reserves is key to improving confidence inthe currency given a large current account deficit and as a buffer to meetpublic external debt service which will start to rise from 2013. -Sustained GDP growth underpinned by continuing structuralreforms to improve the business environment and diversify the economy. Lowerdependence on Western Europe, through diversification of tourist arrivals assuccessfully initiated in 2012, would also support the ratings.The current Outlook is Positive. Consequently, Fitch'ssensitivity analysis does not currently anticipate developments with a material likelihoodof leading to a rating downgrade. However, any reversal of fiscal reforms orrelaxation of expenditure control would be rating- negative. KEY ASSUMPTIONSDespite recent diversification, Seychelles'' main tourism marketremains Europe, and especially eurozone countries (France and Italy). Fitchexpects eurozone growth to gradually recover to 1.3% in 2015 from -0.6% in 2013.Seychelles' current account payments are dependent on commodityprices, and especially oil. Fitch expects oil prices to remain in a range ofUSD100-105/barrel between now and 2015.Fitch's current judgement is that the authorities will continueto enforce fiscal discipline in a way consistent with their debt reductiontarget of 50% of GDP by 2018. Contact: Primary AnalystArnaud LouisAssociate Director+44 20 3530 1539Fitch ratings Limited30 North ColonnadeE14 5GN LondonSecondary AnalystPaul GambleDirector+44 20 3530 1623Committee ChairpersonTony StringerManaging Director+44 20 3530 1219Media Relations: Peter Fitzpatrick, London, Tel: +44 20 35301103, Email: information is available on www.fitchratings.comApplicable criteria, 'Sovereign Rating Criteria', dated 13August 2012, and 'Country Ceilings', dated 09 August 2013, are available Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS ANDDISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THISLINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION,RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLEON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS,CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'SCODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATEFIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLEFROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHERPERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES.DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN ANEU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUERON THE FITCH WEBSITE.

View Comments (0)