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Investing.com -- Fitch Ratings has reaffirmed Seychelles’ Long-Term Foreign-Currency Issuer Default Rating (IDR) at ’BB-’ and maintained a positive outlook on Friday, March 7, 2025. The rating is supported by relatively high income levels, strong World Bank Governance Indicators, and backing from multilateral creditors. However, the small size of the economy and its high concentration in the tourism sector pose vulnerabilities to external shocks.
The tourism sector’s performance remained relatively flat in 2024, with a slight increase in tourist arrivals by 0.5% and a 0.8% decrease in revenues. Despite this, Fitch anticipates a 2% increase in tourist arrivals in 2025 due to new airline routes and international sporting events. However, flight connections remain a critical factor for sectoral growth.
Non-tourism activity outpaced growth in the tourism sector in 2024, resulting in a preliminary official estimate of real GDP growth at 3%. This was partly due to a 6% growth in construction related to major hotel projects and a 10% growth in information and communication technology.
Fitch projects real GDP growth to rise to 4% in 2025 due to higher tourist arrivals, a rebound in manufacturing of fisheries products, and continued tourism-related construction spending ahead of the September 2025 elections. Growth is expected to settle to around 3.5% in 2026.
Preliminary official data shows a 2024 budget surplus of 0.1% of GDP, against a budgeted target of a 1.3% deficit. This performance largely resulted from significant underperformance of budgeted capex, offset by lower than expected receipt of grants. Tax revenues climbed by 9.8%, reflecting an increase in business tax and improved revenue collection.
Fitch projects a deficit of 1.3% of GDP for 2025 due to construction needs for sporting events and election-related spending pressures. The deficit is expected to narrow in 2026 as one-off capex costs decrease and policy tightens slightly post-elections. This fiscal path is consistent with a further fall in government debt/GDP, which Fitch projects to reach 54.3% by end-2026.
The current account deficit (CAD) was broadly unchanged in 2024, with Fitch estimating a 7.3% of GDP deficit. Net FDI inflows more than fully covered the current account deficit. Fitch forecasts a widening of the deficit in 2025 to 8.4% of GDP due to the import-intensive nature of the projected increase in capex. The deficit is expected to narrow to 8% in 2026.
Inflation averaged 0.3% in 2024, underpinned by low food and fuel prices, but rose to 1.7% in December due to a weaker exchange rate, utility tariff adjustments, and seasonal rise in demand for imported food. Fitch projects inflation to average around 2% over 2025 and 2026.
The banking sector remained healthy in 2024, with a high net interest margin keeping profitability indicators robust. Private sector credit grew by 12% in 2024, and solid domestic activity should drive low double-digit credit growth over 2025.
Seychelles’ rating could be negatively impacted by wider fiscal deficits, currency depreciation, or slower growth, insufficient confidence in the economic policy framework, or a sharp and sustained drop in tourism receipts. On the other hand, continued primary fiscal surpluses, strengthening of the economic policy framework, and a significant build-up of international reserves could lead to a positive rating action.
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