The Government is achieving its targets set out in its economic reform programme and is confident that the new strategies will provide for economic prosperity without eroding the socio-economic gains of the past years.

This was said by the Minister for Finance Vice-President James Michel on Tuesday December 2,  as he presented the national Budget for 2004 to the National Assembly.

The R1.2 billion budget is a 10 percent reduction on the figure for 2003 and is in line with the requirements of the Macro-Economic Reform Programme (Merp) introduced in July this year to restructure the economy by cutting down on budgetary spending, increasing revenue, mopping up excess liquidity and intensifying efforts for loan rescheduling so as to make more foreign exchange available for development.

Privatisation and trade liberalisation are also key elements of the programme to allow the private sector to play a bigger role in wealth creation.

Vice-President Michel said that five months into the Merp "we have started to see positive results in the economic indicators as a result of these measures."

He said that the first six months of this year were not favourable as they were characterised by a shortfall on government fiscal operations which resulted in an increase in liquidity of 5.7 per cent caused principally by the rise in domestic credit to finance the Government's budgetary shortfalls.

In addition, he said, the economy was also affected by the external shocks of Sars and the Gulf War which affected the tourism trade, which is the country's main source of foreign exchange. 

Nevertheless, he continued, manufacturing, particularly the tuna canning factory and prawn exports did extremely well while the other productive sectors were being hampered by the foreign exchange shortage and were holding back their investment plans.

With the introduction of Merp and on the basis of the current trend, Vice-President Michel said a budget surplus of approximately R247 million or 7% of GDP was being predicted for the year 2003.

He said Government was expecting a total revenue of R1.8 billion compared to R1.4 billion in 2002, coming mainly as a result of receipts from the Goods and Services Tax (GST), other revised fees and fines.  Total expenditure is expected to be R1.6 billion, which is R45 million less than estimated.

Current outlays, he said, were expected to reach R1.5 billion, which is in line with the budget, an encouraging outcome given the extra-budgetary spending that the government undertook for the Fifth Indian Ocean Island Games held in Mauritius in August and the African and Afro-Asian Games in which the sportsmen performed with great success.

Capital outlays, he said, would be R83 million of which the principal element was capital project expenditure contained at R60 million reflecting a significant reduction from R289 million in 2002.

As a result of the surplus, he said, the Government would be reducing its dependence on domestic credit and this would provide for a decline in liquidity growth which had already been evident in the four months since the introduction of the Merp.

The main concern, Vice-President Michel said, remained the foreign exchange shortage, whereby economic agents could not fulfil all their transactions with the rest of the world, particularly for investment purposes. 

Looking at 2004 Vice-President Michel said the outlook was positive given that the uncertainties surrounding the US-Iraqi conflict had been reduced and economic indicators from both the US and the Euro zone suggested an improvement in these economies. This, he said,  should lead to better results in the tourism sector given that the country's main tourism market is Europe.

On the fiscal side, Vice-President Michel said the Government would continue to maintain its tight approach to spending and maximise revenue flows which would allow for the realisation of the anticipated surpluses over the coming years. This will help Government reduce its debt considerably, particularly with the Central Bank. 

There will be further emphasis on the expenditure side next year with cuts of 10 to 15 in the ministries/departments allocated budgets and a strict adherence to the capital budget of R50 million. 

The overall surplus for 2004 is projected at R593.373 million or 15% of GDP.

Gross revenue in 2004 is expected to be R2.1 billion, which is about R257.7 million more than the estimated actuals of the current year, mostly as a result of the full effect of the measures taken in 2003 vis-à-vis GST and review of various tariff rates.

Where debt rescheduling is concerned Vice-President Michel said the Government was negotiating with its foreign partners for prolongation and restructuring of a number of foreign loans. The Government, he announced, was about to restructure two foreign loans at longer repayment periods.

"It is expected that the re-scheduling of public sector external loans will release about US$20 million into the economy in the coming year," Vice-President Michel said.

Where the monetary policy is concerned, Vice-President Michel said that as the Government would depend less and less on the Central Bank for financing, the Bank would now have a greater role to play in making sure that the economy was functioning in a manner that would enhance economic growth and ensure domestic price stability. 

The Central Bank, he said, would devise its monetary policy that reflected this new economic environment and this would include a gradual liberalisation of interest rates through the re-introduction of the tender system on government securities.

The government will also review the existing Central Bank Act to enhance the transparency, accountability and functional independence of the bank.

The government will, in consultation with the commercial banks, also review the Financial Institutions Act to achieve greater compliance with the Basle Core Principles.

As a measure to further reduce domestic liquidity, with effect from February 1 next year, importers will be required to deposit the equivalent of Seychelles Rupees against their lodging of foreign exchange requests with the banks. 

This, he said, would also provide for a more orderly clearing of payments. Small businesses in the productive sectors will be exempted from this requirement.

Talking about privatisation Vice-President Michel said the Government was reviewing the role of all parastatal companies and a list of the entities that would be privatised and the privatisation process will be published during the course of the year.

He announced that SIDEC was being liquidated and that Government was currently  finalising the sale of two of its hotels – Barbarons Hotel and Fisherman’s Cove hotels – to Telecom Seychelles Ltd and Le Meridien .

The process of privatisation of the Providence Industrial Land areas should be completed in 2004. Land development for sale to individuals will also be considered for privatisation.

On trade liberalisation Vice-President Michel said that next year the Government would begin to reduce the controls on trade.  This will include a gradual reduction of monopoly, price control, import permit and the foreign exchange allocation system.

As a first step to this end, in January 2004, the Government will move on a reduction of the monopoly items of the Seychelles Marketing Board.

Where the foreign exchange is concerned Vice-President Michel gave his commitment that  in 2004, his Government would endeavour to ensure that shortages of vital requirements did not happen again.

He said he was confident that the reduction in Public Sector consumption would have a marked effect on domestic liquidity and demand for foreign exchange and hence make more available to the private sector.

Spin-offs from the current good fish catch are also expected to bring in higher foreign exchange yields as an increase in tourism numbers.

Vice-President Michel explained that during the last 12 months, a large portion of foreign exchange inflows of US$42 million was used to repay one single loan. With the possibility of restructuring over a longer period and at a smaller debt service amount will further release funds which could be used in other areas (approx. US$20 million annually).

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