The Economist Intelligence Unit expects Seychelles to continue the implementation of major reforms during 2011-12 as part of an IMF-backed programme. The first two years of reform-which began in November 2008 with the free flotation of the rupee, the removal of exchange controls and the adoption of much tighter monetary and fiscal policy-have yielded impressive results to date. The rupee has stabilised, inflation has fallen, the perennial shortage of foreign-exchange reserves has started to ease and the economy has rebounded. Seychelles' programme implementation continues to receive praise from the IMF, helped by broad-based public support for the process. Reflecting this, the IMF converted Seychelles' two-year stand-by agreement into a three-year extended fund facility (EFF), worth US$31m, in December 2009. More recently, in December 2010 the IMF said that Seychelles had continued to meet all programme conditions under the EFF (apart from delays to two small structural reforms), releasing a US$2.7m tranche of funds. The EFF envisages deeper structural reforms in 2011-12, including an overhaul of the tax system, the restructuring of parastatal enterprises (and privatisation in some cases), strengthening the financial sector and deregulation, with the broad aims of putting public finances on a sustainable footing and encouraging private-sector development.

The IMF's endorsement will continue to facilitate the engagement of other key donors such as the World Bank, which is currently preparing a two-year interim country assistance strategy-the first in Seychelles for 17 years, following the Bank's support for three loans totalling US$19.7m from the International Bank for Reconstruction and Development (IBRD) in April 2010. The strategy will focus on civil service reform, providing a safety net for the poor, statistical capacity-building and boosting the private sector. Seychelles' debt burden will remain low following the 2009 and 2010 Paris Club write-off of 45% of Seychelles' obligations while, in a key breakthrough, Seychelles' commercial creditors (which hold about 60% of the archipelago's debt) converted their debts into new discount notes in early 2010, which cut the sum owed by about 50%: repayment will take place between 2016 and 2026. As a result, Seychelles' external debt burden fell from 93% of GDP in 2009 to a more sustainable 45% of GDP in 2010, and will remain in this region in 2011-12.