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Quick Facts
- Population:
- GDP (PPP):
- $2.2 billion
- 4.9% growth
- 4.1% 5-year compound annual growth
- $24,726 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Seychelles’ economic freedom score is 54.9, making its economy the 124th freest in the 2013 Index. Its score is 1.9 points higher than last year, reflecting notable improvements in regulatory efficiency, which includes business freedom, monetary freedom, and labor freedom. Seychelles is ranked 23rd among 46 countries in the Sub-Saharan Africa region.
For the second year in a row, the Seychelles economy registered one of the 15 highest score improvements in the Index. In addition to improving overall regulatory efficiency, the government has cut and simplified personal and corporate tax rates. Although privatization has been slow, efforts to enhance transparency and improve the governance of state-owned enterprises are ongoing. Continuing reform will be critical to improving competitiveness and ensuring more broadly based economic development.
Undermining the gains from an improved regulatory environment, a lack of commitment to open-market policies continues to hold back dynamic growth in trade and investment. Institutional weaknesses stemming from an inefficient legal framework and pervasive corruption severely undercut prospects for stable long-term economic development, hampering the emergence of a dynamic private sector beyond the tourism sector.
Background
The Seychelles People’s Progressive Front has been the ruling party since 1977, when France Albert René seized power in a bloodless coup. In 2004, René ceded power to Vice President James Michel. Michel was elected to a third term in May 2011. The economy of this Indian Ocean archipelago relies heavily on tourism and fishing. Services account for close to 70 percent of GDP. Though per capita incomes are among the region’s highest, the economy’s small size makes it vulnerable to external shocks. When the government defaulted on its external debt in 2008, it appealed to the International Monetary Fund for support. Since mid-2008, Seychelles has largely adhered to an economic reform program focused on reducing its debt-to-GDP ratio.
Seychelles’ judicial system is inefficient and subject to executive influence. Civil court cases take years to resolve. Recent changes in the law on property ownership offer freehold title and residency rights to foreign owners and their immediate families in a bid to attract more foreign investment. Widespread public-sector corruption undermines the government’s capacity to provide basic services.
The income tax rate is a flat 15 percent, and the top corporate tax rate is 33 percent. Other taxes include an interest tax, a vehicle tax, and a newly introduced value-added tax (VAT). The overall tax burden equals 30.4 percent of total domestic income. Government spending is equivalent to 37.9 percent of GDP. The budget is in slight surplus, but public debt has risen modestly to 83 percent of GDP.
The regulatory framework has undergone several changes. Launching a business takes 10 procedures, with no minimum capital required. The cost of completing licensing requirements has been reduced to about 25 percent of the level of average annual income. The formal labor market is not fully developed. The inefficient public sector accounts for around 40 percent of total employment. With volatile inflation, monetary stability remains weak.
The trade-weighted average tariff rate is prohibitively high at 28.3 percent, making the country’s trading environment one of the world’s most restricted. Investment is hindered by heavy bureaucracy and inadequate infrastructure. The financial sector remains rudimentary. A large part of the population lacks access to formal banking services, and limited capacity for lending to the private sector inhibits growth.