The month of August showed some positive signs for the economy in terms of supply and demand of US dollars, the Governor of the Central Bank, Caroline Abel, said yesterday.
The governor was speaking during a press update on the economy of the country and how we need to remodel our businesses.
She started off by updating the media on the Private Sector (MSMEs) Relief Scheme and the Private Sector (Large Enterprises) Relief Scheme.
According to the data available as at August 30, for the MSMEs, there were 435 requests (R198,760,967) out of which 279 were approved (R115,463,271.27), 18 pending (R21,073,404.46) and 86 rejected (R40,531,460.26).
For the large enterprises, 32 requests (R310,057,769) were received out of which 23 (R272,557,769) were approved and four pending (R19,000,000). These requests come mainly from trade, tourism and transportation.
Governor Abel also shared that all requests, as of September 9 coming from the Financial Institutions to the Central Bank were approved.
“In total we received 88 requests (R99,261,572.12) from the MSMEs and 16 requests (R231,156,694) from large enterprises. With the opening of the country, many businesses are recovering and are able to pay their loans faster.
Foreign exchange
Governor Abel shared that for the month of August our economy was able to retain a small amount of the country’s revenues.
“The demand for US dollars was 55.4 million and the supply was 55.7 million, thus we were able to retain more than US $200,000. This is a positive sign for the economy. But in September there is already a noticeable change and the demand for dollars is increasing. The foreign exchange has appreciated and it is cheaper to buy a dollar, a euro or a pound sterling compared to the beginning of the year. On September 9 a dollar costs R14.19 and R16.87 for a euro.”
As of September 9, our Gross International Reserves is US $622 million and our Net International Reserves is at US $454 million.
As for our Special Drawing Rights (SDR) as at August 25, there has been an increase in its allocation from the International Monetary Fund of US $31.17 million.
“On August 2 this year, the IMF board took a decision to give a SDR for all member countries amounting to US $600 billion. This is a way of supplementing member countries’ foreign exchange reserves, allowing members to reduce their reliance on more expensive domestic or external debt for building reserves and for Seychelles this is positive!”
Regarding activities from the tourism industry, Governor Abel pointed out that for the month of August, the number of arrivals has been steady that is why we have seen an increase in dollars.
“With this sector, we have received US $33.1 million. This shows the importance of this sector to our economy. Other indicators show that for the month of August, month-on-month inflation has increased by 0.15%, on a year-on-year inflation has increased by 10.51% and on a 12-month average it is at 7.51%. For the month of July 2021, the total credit growth has increased to 4.78% and the private credit growth has decreased by -6.08%. With the reduction in exchange rate, the value in rupees of loans that were in foreign exchange has decreased. At this point, there is a component that needs to be clear, when the economy is in difficulty, different sectors are being affected by the tourism sector. Even if there is economic dynamism in many parts of the world, uncertainty still prevails. In these conditions, financial institutions tend to take less risks such as giving loans as they are not sure if the business/person will be able to repay the loan.”
On the other side, noted the governor, if we want businesses to innovate, there must be access to finance. This is where the CBS is calling on the financial institutions to relook at their models to give support to the businesses.
The liquidity in the system has also increased by 16.65 % due to the action of the CBS in July to make the financial institutions reduce their reserves with the CBS. The financial sector has enough liquidity to support the businesses, the governor noted.
Recent external development
There has not been any major change since the previous press update and divergence in the speed of economic recovery across countries and regions is ongoing.
Central banks in advanced economies are discussing reversing stimulus and relief policy measures to help the economy .
“We keep following the regional political and social unrest. We have seen gradual easing of restrictions on outward travel from key tourism source markets. There are rising Covid cases in certain jurisdictions and evolution of new variants threatening global travel and economic recovery path. Another major setback is the shipping dynamics with high freight rates due to container shortage. This will definitely affect the price of commodities and we, as a nation, have to start thinking if we can start producing some of the commodities. In August, food and fuel prices have increased worldwide.”
CBS is also looking at the recent developments in the country such as National Covid-19 Immunisation Campaign; upcoming booster shots; pick-up in tourism activity; expected return of cruise ship season; labour market dynamics; Air Seychelles bondholder developments; economic reforms; plans towards a digital economy and announcement of SPTC restructuring.
“Uncertainty is still here. CBS is looking at the evolution of new variants and easing of restrictions in key tourism markets and shifts in individual and collective behaviour are critical. How do we align ourselves with the reality and what are our expectations and policy orientation for 2022? We are also looking at the debt implications, generational and social accountability; at the labour market dynamics: its impact on disposable income and concerns on skills mismatch and also working on a strategy for unwinding of relief and policy measures. When we do the adjustments, it should not create a shock within the population but create stability,” concluded Governor Abel.
Source: Seychelles Nation