Question

(Seychelles News Agency) - The Seychelles' economic development programme is on track and authorities remain committed to safeguarding the hard-won economic stability, the International Monetary Fund (IMF) said Monday.

The statement was made after the completion of the IMF's second review under the Policy Coordination Instrument (PCI) for Seychelles, an archipelago in the western Indian Ocean, on December 7, 2018.

The review was conducted earlier this year and was led by an IMF delegation led by deputy chief Amadou Sy.

The IMF executive board welcomes Seychelles’ assurance that the large infrastructure and climate change related projects planned in the coming years would be implemented within the fiscal targets set in the PCI.

“Seychelles’ macroeconomic performance continued to be robust in 2018. Real GDP (Gross Domestic Product) growth is estimated to reach around 3½ percent, reflecting strong output in the fishery industry and the information and communications sector,” said Tao Zhang, deputy managing director following the board’s discussion.

Zhang said that the Seychelles’ authorities are committed to the programme’s fiscal anchor of reducing public debt below 50 percent of GDP by the end of 2021.

“The authorities’ 2019 budget submitted to the National Assembly is in line with the program objectives. The authorities intend to implement large infrastructure projects in coming years within the envelope of the program’s primary surplus target of 2½ percent of GDP,” he added.

A proposed national budget of nearly SCR8.5 billion ($625 million) for 2019 was presented last month to the National Assembly by Maurice Loustau-Lalanne, the Minister of Finance, Trade, Investment and Economic Planning. It represents an increase of 6.6 percent compared to the 2018 budget.

IMF welcomed the prudent monetary policy of the Central Bank which has helped contain inflationary pressures but said the bank should stay vigilant and maintain the flexible exchange rate policy.

Following a meeting with the IMF delegation in October, the governor of the Central Bank of Seychelles, Caroline Abel, said that inflation is occurring because "since the last two years although revenue is going up, we are seeing that the expenses of the country are rising. This is why the pressure in prices is not going down. Our exchange rate is still depreciating because we are still demanding for foreign exchange.”

The Central Bank had announced in September that it is maintaining the tight monetary policy stance.

IMF also commented on the steps Seychelles has taken to strengthen the anti-money laundering and countering of financing terrorism framework.

The local Financial Investigation Unit announced in October that a proposed law to counter money laundering in Seychelles will be presented to the National Assembly early next year. The bill has already been approved by the Cabinet of Ministers. The new law will make it mandatory for all transactions valued above $14,000 (SCR20, 000) to go through the banking system

IMF said that strong tourism earnings have helped narrowed the island nation’s external current account and that targets on the primary fiscal surplus and net international reserves up to end-June 2018 were met by a comfortable margin.

“While rising international fuel prices could adversely affect inflation and external balance, the economic outlook continues to be favourable. Downside risks to the outlook are largely stemming from external shocks, including from possible weaknesses in the key tourism markets and global banks’ withdrawal of correspondent banking relationships,” said IMF.

Seychelles is the first IMF member country to request a PCI which was approved by the executive board last December to support efforts to reinforce macroeconomic stability and foster growth

You need to relate the article to some of following the concepts GDP, inflation rates, unemployment, government monetary policies (money supply, exchange rates) or fiscal policies (taxes, government spending), international trade (trade balance, exchange rates), production, economic growth, etc.

Answer 1

GDP - GDP or Gross Domestic Product is the market value of all final goods and services produced within the geographical boundary of a country in a particular period of time. When we adjusts inflation from the actual GDP, we get the Real GDP. In the article above, Real GDP (Gross Domestic Product) growth is estimated to reach around 3½ percent, reflecting strong output in the fishery industry and the information and communications sector according to deputy managing director, Tao Zhang.

Inflation Rates - When there is a continuous increase in the prices of the goods and services in an economy over a period of time, it is called Inflation. The Inflation Rate measures the amount of inflation that has occurred over a period of time. In the article, inflation rate is rising because the expenditure of Seychelles is rising more than the revenue in the last two years, so prices are increasing.

Unemployment - Unemployment is a situation of people looking for jobs but not being employed. The article has no mention of unemployment, but since the real GDP of the country is rising, the unemployment could possibly go down than before i.e. the employment rate could be rising.

Government Monetary Policies (Money Supply, Exchange Rates) - Monetary policy is a macroeconomic policy which is taken by the central bank of a particular country. In the article, the Central Bank is concerned with rising inflation rates and hence the Central Bank is planning to maintain a tight monetary policy i.e. it is planning to reduce the money supply of the country. The IMF also recommended that the Central Bank should maintain a flexible exchange rate policy i.e. the exchange rate of Seychelles should be determined by the global demand and supply and it should not be fixed by Seychelles's central bank.

Government Fiscal Policies (Taxes, Government Spending) - Fiscal policies are macroeconomic policies which are taken by the government of a nation.Seychelles’ government are planning to reduce public debt below 50 percent of GDP which means that they are planning to reduce government spending. There has been no mention on taxes on the article, but since the government is trying to reduce inflation, the government could possibly plan to increase taxes as well.

International Trade (Trade Balance, Exchange Rates) - International trade is the exchange of capital, goods and services with other nations. The IMF also recommended that the Central Bank should maintain a flexible exchange rate policy i.e. the exchange rate of Seychelles should be determined by the global demand and supply and it should not be fixed by Seychelles's central bank. The exchange rate is depreciating in Seychelles because we the demand for foreign exchange is higher than the demand of domestic exchange. The government is trying to achieve a primary surplus target of 2½ percent of GDP while spending to large infrastructure projects. Tourism earnings have also helped in economic growth as it narrowed the external current account targets on the primary fiscal surplus and net international reserves were met by a decent margin.

Production - Production is creating new goods and services in the economy.The government is trying to increase production of goods and services as it is said on the article that the government wants to increase the real GDP and reduce inflation.

Economic Growth - Economic Growth is the increase in the capacity of the economy to produce goods and services from one time frame to another. The government wants to increase economic growth and reinforce macroeconomic stability and foster growth. Tourism earnings have helped in economic growth as it narrowed the island nation’s external current account targets on the primary fiscal surplus and net international reserves were met by a decent margin. The Central Bank's and the government's initiative to reduce inflationary pressures have also helped in economic growth.