An IMF mission in March, undertaking a third review of the three-year extended fund facility (EFF), which started in December 2009, noted that Seychelles remained broadly on track with reforms and that macroeconomic performance was satisfactory. All quantitative benchmarks had been met as at the end-December cut-off point for the third review, although there had been some "technical" delays in government payments to a single (unnamed) parastatal, according to the mission leader, Jean Le Dem. The Fund expressed concern about the impact of rising global food and fuel prices, which could push up inflation, put pressure on the balance of payments and slow down the ongoing process of fiscal consolidation, especially if the government failed to pass on rising costs to consumers and increased subsidies. Higher prices for basic foodstuffs are currently being absorbed by the parastatal Seychelles Trading Company, but local fuel prices have risen steadily this year. The government has pledged to cap the use of a price stabilisation fund at 0.4% of GDP in 2011, which will limit the fiscal impact at the expense of higher consumer prices.

However, in a boost to public finances, the ongoing modernisation of the tax system is yielding benefits, and revenue from the new income tax has exceeded targets so far in 2011, giving the government scope to increase spending while still meeting the 2.7% of GDP fiscal surplus target in 2011. On the monetary front, the IMF endorsed Seychelles' plans for policy tightening, to deal with excess liquidity in the banking system and to forestall inflationary pressure.

The IMF projects that real GDP growth will slow to about 4% in 2011, from an estimated 6% in 2010, because of heightened global uncertainty, the euro-zone debt crisis, higher oil prices and a decline in foreign direct investment (after a surge in 2010), although growth will remain fairly robust, underpinned by tourism. The Fund also noted that external debt had fallen to US$455m as at end-2010 (about 49% of GDP), from US$763m two years earlier (94% of GDP) following restructuring of private and official loans-which has taken Seychelles to the brink of sustainability. The IMF executive board, meeting in late May, is expected to approve the third review and sanction the release of the next EFF instalment, worth US$5.5m, taking disbursements to date to US$19.8m under the US$30.9m package. China, meanwhile, restructured Seychelles' debts in April, worth US$26m, providing for a 20-year repayment period with ten-year grace and a low, 2%, rate of interest, which will help to reduce both debt levels and interest payments. In addition, Germany has agreed to allow Seychelles to pay off its EUR3.4m (US$4.8m) debt-some of which goes back to the 1980s-over 49 years at 0.2% interest and a grace period of 16 years. Discussions over a similar restructuring programme with India have also begun, which will further assist the government's aim of keeping annual borrowing to US$47m.