Real GDP growth was estimated at 3.5% in 2019, down slightly from 4.1% in 2018, driven by tourism, fisheries, and financial services. The decline was due to emerging uncertainty over economic performance in the eurozone, where most tourists originate. Inflation remained low at 2.6% in 2019, with lower import prices than anticipated and a tight monetary policy.
The service sector (mainly tourism) contributes more than 80% of GDP and employment, while industry contributes a meager 16% (5% from manufacturing). The exchange rate remained stable over the past three years, averaging 13.3 Seychelles rupees per dollar in 2017 and 13.5 in 2018–19, due mainly to a robust tourist presence and prudent macroeconomic management.
The fiscal balance declined to a slight deficit in 2019 (0.1%) due to increased capital outlays. The current account remained in deficit, hovering around 17% of GDP, substantially financed by foreign direct investment (FDI). Current debt is 58% of GDP, down from 130% during the 2008 financial crisis.
GDP per capita growth, 3.4% in 2018, declined to an estimated 2.8% in 2019, due to lower GDP growth. Inequality is high. Although the unemployment rate was low in 2018 (3.5%), youth unemployment was four times as high (14.5%).
TAILWINDS AND HEADWINDS according to MONACORESOURCES
GDP growth is projected at 3.3% in 2020 before rebounding to 4.2% in 2021. Tourism and fisheries will continue to drive growth, along with robust private investment in hospitality. The government’s announcement of plans to address key electricity bottlenecks and to expand Seychelles’ role in the marine economy value chain are also potential economic boosts. A continuing prudent monetary stance will keep inflation to around 3% in 2020 and 2021. The government targets reducing its debt to 50% of GDP by 2021 through fiscal discipline and debt management. As GDP rebounds, per capita GDP growth is projected to rise to 3.6% in 2021.
Private sector development, infrastructure development (particularly water and sanitation) should improve living standards, and technical assistance to micro, small, and medium enterprises in entrepreneurship, human development, and financial market development should enhance industrial competitiveness.
Key opportunities include high-value tourism; greater value addition in fisheries through nontraditional shrimp production, seaweed cultivation, and processing for regional and global markets, all supporting a sustainable blue economy; and efficient financial services and information and communication technology. Strong FDI inflows, especially in hospitality, also boost the economy.
Seychelles has a small domestic market, insufficient economic diversification, and vulnerability to external shocks. Medium-term risks largely arise from uncertainty and potential recession in the eurozone due to Brexit and US–China trade tensions. The government’s persistent efforts at fiscal consolidation could compete with its ambitious plans for opening infrastructure bottlenecks and expanding the marine economy value chain, creating a budgetary challenge.
Insufficient economic diversification remains problematic. Since 2015, economic activity has concentrated even further in the dominant service sector. Such concentration lowers the country’s resilience, as in the 2008 global financial crisis when Seychelles defaulted on its debt payments. The public sector, including state-owned enterprises, predominates in production and employment. To bridge income inequality and eliminate pockets of poverty, removing constraints on private sector will create jobs, notably for youth. The youth NEET (not in employment, education, or training) rate is 22.5% (25.4% for men and 19.3% for women).