The government will maintain a fairly tight fiscal stance in 2011, according to the budget presented in December, by running a surplus for a third year running in order to continue repaying domestic and foreign debt. Spending in 2011 will still be higher and the (primary) budget surplus smaller than originally envisaged under the ongoing IMF programme because of Seychelles' strong fiscal performance in 2010, when brisk GDP growth (estimated by the IMF to be 6.2%) drove revenue higher than original projections. The estimated 2010 fiscal outcome sees the primary surplus (which excludes debt interest) at 9.4% of GDP and an overall surplus (including external grants) at 2.7% of GDP-both 2 percentage points higher than initial targets. Revenue is estimated to have reached 37% of GDP (2.5 percentage points above target) because of strong tax collection, despite a shortfall in expected grants. This allowed for spending rising to 34.3% of GDP, 0.5 of a percentage point above target, and a larger budget surplus. The public debt burden plummeted in 2010 owing to restructuring and rescheduling after default in 2008, and net repayment of domestic creditors. Foreign debt halved to an estimated 45% of GDP from 93% of GDP in 2009, while domestic debt shrank to 31% of GDP (from 36%), cutting total public debt to 76% of GDP (compared with an initial IMF target of 82%).

The 2011 budget envisages a sharp rise in total revenue to 40.5% of GDP, owing to a surge in project-based external grants to 4% of GDP. Domestic revenue will rise, but will be constrained by reforms such as last October's cut in income tax from 18.75% to 15%. Spending will also rise quickly in 2011, to 37.8% of GDP, driven by a sharp rise in capital outlays on infrastructure, including power, water, fuel storage and telecoms, which will boost future economic potential and security. Although not an overtly political budget, the extra spending can be expected to provide a fillip for the incumbent, James Michel, in this year's presidential election. The 2011 budget targets a much smaller primary surplus, of 5% of GDP, as Seychelles' debt burden has now shrunk. Foreign debt may edge up a little in 2010 (to 46% of GDP) as restructuring is now largely complete and new project finance is secured, but domestic debt will continue falling to 26% of GDP, cutting the total burden to 72% of GDP. While considerably more manageable than before-especially with the average life of the country's debts having increased from six months to 13 years-this is still near the limit of sustainability so will need to be watched carefully: the IMF's debt-stress tests show that Seychelles remains vulnerable to shocks, an unsurprising conclusion given the small size and openness of the economy.