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Our Core Values

Professionalism We place emphasis on training and development of staff in the

pursuit of excellence and discharging our responsibilities in a

professional and courteous manner.

Accountability We take personal responsibility and accountability for our

actions, decisions and performance.

Respect/Trust We treat our stakeholders with respect and build trust and

confidence in all our dealings.

Innovation/Result Oriented We welcome new ideas and will focus on how best we can

achieve desired outcomes including identifying what needs to

be done and the appropriate action to be taken.

lntegrity/Transparency We are open and transparent in making decisions and conduct

our work with integrity, honesty, and fairness.

In 2017, the Bank emphasised on P r o f e s s i o n a l i s m and R e s p e c t , to ensure that

all CBS employees are mindful of the institution’s pivotal role in the economy and thus the

need to deliver to the highest standard. It is on the basis of trust and respect that the Bank

endeavours to achieve its objectives.

CONTENTS

Page Letter of Transmittal

Core Values of the Central Bank of Seychelles Board of Directors List of Charts and Tables Section One Overview 1 Section Two Real Sector: Production, Labour and Prices 7 Section Three Monetary and Financial Sector 23 Section Four Government Finance 37 Section Five External Sector 46 Section Six Central Bank Operations 59 Annex I Financial Statements and Auditor’s Report

CENTRAL BANK OF SEYCHELLES

Board of Directors

(as at December 31, 2017)

Caroline Abel - Governor and Chairperson

Christophe Edmond - First Deputy Governor - Member

Jenifer Sullivan - Second Deputy Governor - Member

Errol Dias - Director

Bertrand Rassool - Director

Wendy Pierre - Director

William Otiende Ogara - Director

Frank Ally - Director

Secretary to the Board

Maryse Tambara

List of Charts and Tables Table No. Title Page Overview

1.1 Quantitative Performance Criteria 6

Real Sector: Production, Labour and Prices

2.1 Gross Domestic Product by Kind of Economic Activity (2013 - 2017)

at constant prices 12

2.2 Gross Domestic Product by Kind of Economic Activity (2013 - 2017)

at current prices 13

2.3 Tourism Indicators (2013 - 2017) 18

2.4 Employment Statistics (2013 - 2017) 20

2.5 Inflation Rates (2013 - 2017) 22

Monetary and Financial Sector

3.1 Monetary Survey (2013 - 2017) 25

3.2 Reserve Money (Q4-2016 to Q4-2017) 27

3.3 Credit (2013 - 2017) 30

3.4 Other Depository Corporations - Loans and Advances to

Non – Governmental Sector by Economic Sectors (2013 - 2017) 30

3.5 Loans by Development Bank by Economic Sectors (2013 - 2017) 32

3.6 Interest Rates (2013 - 2017) 33

3.7 Weighted Average Deposit Auction Arrangement Rates (2017) 35

Government Finance

4.1 Government Budget Summary (2016 - 2017) 40

4.2 Treasury Bills (2013 - 2017) 44

4.3 Treasury Bonds (2013 - 2017) 45

4.4 Government Stocks (2013 - 2017) 45

External Sector

5.1 Seychelles Balance of Payments (2013 - 2017) 48

5.2 Imports (c.i.f.)-by HS Sections (2013 - 2017) 49

5.3 External Reserves (2013 - 2017) 52

5.4 Exchange Rates (2013 - 2017) 52

Central Bank Operations 6.1 Standing Facility Placements during 2017 70 6.2 Interest Rates as at end-2017 compared to end-2016 70 6.3 Treasury and Government-backed Bonds issued in 2017 71 6.4 Redemption of Treasury Bonds in 2017 71 6.5 Total Number and Value of settled SIRESS Transactions in 2017 74 6.6 New Banknotes issued into Circulation (2017) 75 6.7 Destruction of Soiled and Mutilated Banknotes by Number of Pieces and Value for the year 2017 76 6.8 Demonetised Banknotes withdrawn from Circulation 76

Chart No. Title Page Real Sector: Production, Labour and Prices

2.1 Changes in production indicators (2017) 15

2.2 Visitor Arrivals (2007 - 2017) 16

2.3 Price Movements (2007 - 2017) 21

Monetary and Financial Sector

3.1 Net Foreign and Domestic Assets (2007 - 2017) 24

3.2 Money Supply (2007 - 2017) 26

3.3 Reserve Money (2017) 28

3.4 Notes and coins in circulation (2007 - 2017) 28

3.5 Total Domestic Credit (2007 - 2017) 29

3.6 Loans and Advances to Non-Government Sectors (2007 - 2017) 31

3.7 Sectorial Allocation of DBS Domestic Credit (2007 - 2017) 32

3.8 Interest Rates (2007 - 2017) 34

Government Finance

4.1 Government Finance Outcome (2007 - 2017) 41

4.2 Major Revenue Flows in Current Receipts (2007 - 2017) 42

4.3 Government Capital Expenditure (2007 - 2017) 43

4.4 Stock of Domestic Debt (Jan – Dec 2017) 44

External Sector

5.1 Overall balance, current account and capital & financial account of the

BOP (2007 - 2017) 47

5.2 Trade in Goods (2007 - 2017) 47

5.3 Imports (f.o.b.) 2017 50

5.4 Exchange rate movements of the three main currencies (2007 - 2017) 53

Acronyms

AfDB African Development Bank

AFI Alliance for Financial Inclusion

AG Auditor General

AGCC Alderney Gambling Control Commission

AMCL Airtel Mobile Commerce (Seychelles) Ltd

AML/CFT Anti-Money Laundering and Counter Financing of Terrorism

ARC Audit and Risk Committee

ASBS Al Salam Bank Seychelles

ATI African Training Institute

BADEA Arab Bank for Economic Development in Africa

BCM Business Continuity Management

BCMS Business Continuity Management System

BDC Bureaux de Change

BEPS Base Erosion and Profit Shifting

BMIO Bank Muscat International Offshore Limited

BOP Balance Of Payments

BSD Banking Services Division

CAA Credit Auction Arrangement

CAF COMESA Adjustment Facility

CAIM Crown Agent Investment Management

CAMELS Capital, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk

CARMELS Capital, Asset quality, Risk management, Management, Earnings, Liquidity and Systems

and controls rating

CBC COMESA Business Council

CBSITS Central Bank of Seychelles Immediate Transfer Service

CCBG Committee of Central Bank Governors

CDIS Coordinated Direct Investment Survey

CEO Chief Executive Officer

CIF Cost, Insurance, Freight

CIS Credit Information System

CLISSA Competitive Local Innovation for Small‐Scale Agriculture

CMF Cash Management Facilities

COBIT5 Control Objectives for Information and Related Technology

COMESA Common Market for Eastern and Southern Africa

COSO Committee of Sponsoring Organizations of the Treadway Commission

CPI Consumer Price Index

CSD Central Securities Depository

CSF Cyber Security Framework

CSL Companies Special Licence

CSP Corporate Service Providers

CU Credit Unions

CUA Credit Union Act

CUPPS Common-Use Passenger Processing System

C&W Cable & Wireless Seychelles

DAA Deposit Auction Arrangement

DBO Domestic Banking Operations

DBS Development Bank of Seychelles

DFS Distributed File System

DICT Department of Information Communications Technology

DR Site Disaster Recovery Site

EAC East African Community

ECC Electronic Cheque Clearing

ECL Expected Credit Loss

EEZ Exclusive Economic Zone

EFF Extended Fund Facility

ELF Emergency Lending Facility

EMS Electronic Monitoring System

ERM Enterprise Risk Management

ESAAMLG Eastern and Southern Africa Anti-Money Laundering Group

EU European Union

EU MASE European Union’s Maritime Security

EUR Euro

FAO Food and Agriculture Organisation

FAPA Fund for African Private Sector Assistance

FATF Financial Action Task Force

FDI Foreign Direct Investment

FEA Foreign Exchange Auction

FHTP Forum of Harmful Tax Practices

FIA Financial Institutions Act

FIMCD Financial Inclusion and Market Conduct Division

FIP Fishery Improvement Project

FIU Financial Intelligence Unit

FL Financial Leasing

FLA Financial Leasing Act

FLI Financial Leasing Institutions

FMD Financial Markets Division

FMI Financial Market Infrastructures

FOB Free On Board

FSA Financial Services Authority

FSC Financial Stability Committee

FSD Financial Surveillance Division

FSDIP Financial Sector Development Implementation Plan

FSMC Financial Services Marketing Committee

FSS Financial Stability Section

FSSD Financial Services Supervision Division

FSU Financial Stability Unit

FTTH Fibre to the Home

GBP Pound Sterling

GDP Gross Domestic Product

GIR Gross International Reserves

HFC Housing Finance Company

HRC Human Resources Committee

HRD Human Resources Division

HS Harmonised System

IAD Internal Audit Division

IAS International Accounting Standard

IBAN International Bank Account Number

IBRD International Bank for Reconstruction and Development

IC Investment Committee

ICF Investment Climate Facility for Africa

ICURN International Credit Union Regulators’ Network

IFAAS Islamic Finance Advisory and Assurance Services

IFC International Finance Corporation

IFRS International Financial Reporting Standards

IIA Institute of Internal Auditors

IIP International Investment Position

IMF International Monetary Fund

IOT Indian Ocean Tuna Company

IOTC Indian Ocean Tuna Commission

IPTV Internet Protocol Television

IRAK Insurance Regulatory Authority of Kenya

ITG IT Governance

IUU Illegal, unreported and unregulated

LDC Least Developed Countries

MAF Ministry of Agriculture and Fisheries

MOC Monetary Operations Committee

MOU Memorandum of Understanding

MPF Monetary Policy Framework

MPSS Micro-Prudential Surveillance Section

MPTC Monetary Policy Technical Committee

MRR Minimum Reserve Requirement

MSC Marine Stewardship Council

MSITS Manual on Statistics of International Trade in Services

MSME Micro, Small and Medium Enterprise

NBA National Bio-security Agency

NBS National Bureau of Statistics

NFA Net Foreign Assets

NFES National Financial Education Strategy

NIR Net International Reserves

NPS National Payment System

NPSA National Payment System Act

NPTF National Payment Task Force

NRA National Risk Assessment

ODC Other Depository Corporation

OECD Organisation for Economic Cooperation and Development

OMO Open Market Operation

PAT 2 Portfolio Analytical Tool 2

PCI Programme Coordination Instrument

PEFA Public Expenditure and Financial Accountability

PFMIs Principles for Financial Markets Infrastructures

POS Point of Sale

PRS Policy and Research Section

PSOD Payment Systems Oversight Division

PSP Payment Service Provider

PUC Public Utilities Corporation

QIS Quantitative Impact Study

QPC Quantitative Performance Criteria

RAMP Reserve Advisory and Management Programme

RBS Risk-Based Supervision

RECs Regional Economic Communities

RMC Risk Management Committee

RMU Risk Management Unit

RSD Research and Statistics Division

RTGS Real Time Gross Settlement

SAA Seychelles Agricultural Agency

SADC Southern African Development Community

SADC PF SADC Parliamentary Forum

SADC PSMB SADC Payment Scheme Management Body

SALS School of Advanced Level Studies

SBA Seychelles Bankers’ Association

SBC Seychelles Broadcasting Corporation

SBM SBM Bank (Seychelles) Limited

SCAA Seychelles Civil Aviation Agency

SCCI Seychelles Chamber of Commerce and Industry

SCF Standing Credit Facility

SCG Seychelles Coast Guard

SCR Seychelles Rupee

SCU Seychelles Credit Union

SDDS Special Data Dissemination Standards

SDF Standing Deposit Facility

SEFT Seychelles Electronic Funds Transfer

SEPA Single Euro Payments Area

SEnPA Small Enterprise Promotion Agency

SEYPEC Seychelles Petroleum Company

SFA Seychelles Fishing Authority

SIDS Small Island Developing State

SIEM Security Information and Event Management

SIRESS SADC Integrated Regional Electronic Settlement System

SITS Statistics on International Trade in Services

SME Small and Medium Enterprise

SONA State of the Nation Address

SPA Seychelles Ports Authority

SPDF Seychelles People’s Defence Forces

SPF Seychelles Pension Fund

SPTC Seychelles Public Transport Corporation

SRC Seychelles Revenue Commission

SSE Seychelles Securities Exchange

STB Seychelles Tourism Board

STEP Society of Trust and Estate Practitioners

SWIFT Society for Worldwide Interbank Financial Telecommunications

SWIOFish3 3rd South West Indian Ocean Fisheries Governance and Shared Growth Project

TCF Technical Cooperation Programme

TDB Trade and Development Bank

TFA Trade Facilitation Agreement

TGMI The Guy Morel Institute

TOR Terms of Reference

TRIPS Trade-Related Aspects of Intellectual Property Rights

TSA Tourism Satellite Account

TSD Technical Services Division

UHB United Helvetic Bank Limited

UNWTO United Nations World Tourism Organisation

USD US Dollar

WB/CPSS World Bank’s Committee on Payment and Settlement System

WEO World Economic Outlook

WoCCU World Council of Credit Unions

WPDR Working Party on Domestic Regulation

WTO World Trade Organization

WWF World Wide Funds for Nature

Technical Note

Owing to rounding of figures, the sum of separate items may not always add up to the total shown. Abbreviations used in this Report are: R = Seychelles Rupee n.a = Figure not available .. = Negligible -/0 = Nil

C e n t r a l B a n k o f S e y c h e l l e s A n n u a l R e p o r t 2 0 1 7 | 1

S E C TI O N O N E

O ve r v i ew

1.0 External Developments

Most analysts are of the view that economic activity picked up during 2017. According to the World Economic

Outlook (WEO) published by the International Monetary Fund (IMF), the global economy has grown by 3.6 per

cent, which showed a slight pick-up in pace compared to 3.2 per cent in 2016 as the economic recovery gathered

strength. According to WEO, such outcome was primarily being supported by “accelerating growth in Europe,

Japan, China, and the United States”.

Compared to the latest crisis, financial conditions have improved significantly with “little turbulence” expected whilst

monetary policy was normalising in the United States. Such development suggests a general mood of improved

confidence. Nonetheless, the IMF warned that although “the baseline outlook is strengthening”, given that growth

remains weak in a number of countries, “the global recovery may not be sustainable”. In many countries and most

developed economies, inflation “remains below target with weak wage growth”. Moreover, outlook for the medium

term continued to be less than desirable in many countries which suggests an incomplete global economic

recovery.

Attention in the commodities market was particularly focused on oil prices which despite picking up, remained

relatively weak. Factors that were driving down oil prices were primarily the higher-than-expected US shale

production, strong recoveries in output in countries such as Libya and Nigeria whilst exports from the Organisation

of the Petroleum Exporting Countries (OPEC) remained high despite announcement in May of their intention to

cut output through the first quarter of 2018. Given such development, oil prices was expected to rise in 2018.

Whilst higher oil prices are welcomed by oil-exporting countries, it also suggests increased inflationary pressures

in others, a risk that would depend on the extent of the oil price increase. Nonetheless, by the end of 2017, there

were no major concerns over inflation in most economies and the WEO expects inflation “to rise only gradually

toward central bank targets” in advanced economies.

1.1 Domestic Economic Development

Expectedly, domestic activity continued to heavily depend on international developments. Hence, despite some

air of uncertainty across the globe, the external economic environment had no notable adverse impact on the

domestic economy and consistently the key industry dependent on external developments has managed to

achieve an upbeat performance.

Nonetheless, 2017 started on a relatively slow pace and a fair degree of uncertainty. A contributing factor relates

to the fact that for the first time, by the end of 2016, the National Assembly had not completed deliberations on

and therefore not approved the total budget for the financial year 2017. It was evident that the economy was

adapting to the new political environment in which the opposition occupies a simple majority in parliament. Many


analysts viewed this situation as positive from the perspective of promoting more transparency and accountability

in government.

In terms of economic sentiment, a number of businesses and consumers expressed dissatisfactions over how the

economy was functioning, particularly in regards to the general quality of services being delivered by the

government. Some segments of the population called on the need for established public institutions to deliver on

their mandate in a more effective manner whilst one of the key concerns raised by consumers was that the cost

of living was on the rise. From the perspective of some businesses, there were anxieties with regards to possible

changes in policy that may adversely impact businesses whilst some others expressed concerns over high

operating costs. In addition, two common challenges raised by the business community were the difficulty to

recruit productive local workers and stiff competition from imported substitutes.

Notwithstanding the above, the services sector managed to achieve another positive performance during 2017

which was able to boost activity in other segments of the economy. A new record was set for the total annual

number of visitors to Seychelles. Visitor arrivals amounted to 349,861, which was a growth of 15 per cent

compared to the previous year. The lion’s share of these tourists continued to originate from Europe – which was

showing further signs of recovery – as well as from the emerging markets such as Asia and the Middle East.

An important factor that contributed to this outcome was the increased air connectivity which included higher

carrying capacity of existing airline such as Qatar airways that was already servicing the Seychelles’ route, as well

as addition of new airlines. This was despite the challenges faced by the national airline that resulted in a reduction

in the number of their flights. The positive performance of the tourism industry also reflects the fruits of the

continuing marketing efforts by stakeholders in the industry.

As regard to earnings generated by the sector in terms of the direct contribution to the country’s foreign exchange

inflows, this is estimated at US$483 million which was a growth of 17 per cent compared to the outcome of the

previous year. Notwithstanding this outcome, a number of stakeholders continued to be of the view that tourism

yields remain below potential with the ability to be maximised.

In addition to providing a boost to auxiliary activities, the upbeat performance of the tourism sector was also a

welcoming development in the foreign exchange market. Taking into consideration of factors such as the overall

increase in disposable income, growth in outward transfers of workers remittances in addition to increased number

of residents who travelled abroad during the year, demand for foreign exchange was in 2017 higher than in 2016.

Such growth in demand was stronger than the increase in supply, leading to depreciation in the average value of

the rupee against the two main traded currencies, namely the US dollar and euro. To note however, relative to

the euro, the loss in the value of the rupee was also attributed to the appreciation of the euro internationally that

was being reflected in the domestic market. There was however an appreciation of the rupee against the British

pound (GBP) as the latter currency continued to recover from its losses experienced in the aftermath of Brexit.

In terms of price development, statistics published by the National Bureau of Statistics (NBS) show increased

inflationary pressures in 2017 compared to the previous year. According to the Consumer Price index (CPI), at


the end of the year under review, prices were generally 3.5 per cent higher than in the same period of 2016. In

addition to the second-round effects of the weakened domestic currency, the other main contributing factors

include revision in excise tax on fuel, tobacco and alcohol. The tax revisions were introduced to recover the loss

in revenue that followed a number of policy measures put in place to address income inequality and poverty level.

Such actions were viewed as critical in order to maintain fiscal discipline if government is to remain committed to

achieving debt sustainability in the medium term.

The Central Bank viewed the threats to domestic price stability as being more prominent in the first half of the

year. As such, monetary policy remained tight from January to June consistent with the Central Bank’s short-to-

medium term view on inflation. However, in June, updated assessment revealed modest inflationary pressures in

the second half of the year and that the economy was performing below its capacity. Consequently, a looser

monetary policy stance was adopted in the second half of the year in order to give a boost to economic activity.

Notwithstanding the looser stance, the Central Bank continued to pay close attention to price developments given

that the domestic currency – with strong correlation with inflation – was on a depreciating path.

Consistent with the adopted monetary policy stance, an overall decline in interest rates was observed in 2017.

The effective average lending rate fell from 12.42% in 2016 to 12.05% whilst the fall in the savings rate was from

2.92% to 2.37%. As a result, the interest rate spread1 rose from 9.50 per cent to 9.68 per cent. Notwithstanding

the increased spread, the lower interest rates on loans in the second half of the year was welcomed by the general

public who remained of the opinion that interest rates on lending need to be reduced.

The relatively lowered interest rate environment boosted the demand for loans. At the end of 2017, the aggregate

stock of outstanding credit from the commercial banks and credit union disbursed to the private sector has grown

by 18 per cent compared to the previous year. The majority of these loans were to finance consumption goods

with the share allocated to private households standing at 22 per cent of the total outstanding amount. There was

therefore an expansion in domestic assets of the banking sector and hence liquidity level in the system.

Given the economy’s heavy reliance on imports, the growth in credit translated into higher demand for foreign

goods and services. Preliminary estimates of the country’s transactions with the rest of the world show a

deterioration of US$9.1 million in the current account deficit which was equivalent to 20 per cent of GDP.

Conscious of the country’s vulnerability as a small, open island state, the accumulation of international reserves

remained important. In 2017, the Central Bank managed to further strengthen the economy’s external position in

terms of its ability to withstand external shocks. Gross international reserves rose from US$523 million in 2016 to

US$545 million in 2017 partly as result of opportunistic purchases of foreign exchange from the market although

latest assessments by the IMF indicated that “adequate” level had already been reached. Consistently, net

international reserves (NIR) ended the year at US$424 million to exceed its target by US$33 million. The end-

2017 gross reserves level was able to cover 4.2 months of the country’s import requirements.

1 The interest rate spread refers to the difference between the lending and savings rates.


In terms of the performance of the fiscal accounts, a primary surplus equivalent to 3.1 per cent of GDP was

achieved, an outcome better than the forecasted 3.0 per cent of GDP and attributed to the fact that total

expenditure was less than the planned amount. Such result was consistent with the government’s objective to

maintain fiscal discipline so as to further support its debt reduction strategy. However, the target to reduce overall

public debt to 50 per cent of GDP by 2020 was shifted to 2021 in order to provide for more fiscal space and support

investment in new infrastructures. A further reduction in total public debt was nevertheless observed in 2017,

namely by 2.6 per cent of GDP to reach 62 per cent of GDP. To note, a significant component of domestic debt

included Treasury bills issued for the mopping up of excess liquidity2 from the system under the umbrella of

monetary and fiscal policy coordination.

In the labour market, statistics published by NBS show an unemployment rate of 4.1 per cent in the third quarter

of 2017 with a labour participation rate of 70 per cent. The unemployment rate for the male population was 3.9

per cent and that for the female population was 4.3 per cent. The labour market continued to be characterised by

skill mismatched with concerns over the ability to fill vacancies with reliable local workers. Consistently, the

participation of foreign workers continued to extend across more segments of the economy. In most instances,

foreign labour is viewed as a requirement although this is also associated with leakages to the rest of the world

through outward remittances and therefore represents additional demand for foreign exchange generated by the

country.

Against the above backdrop, based on preliminary estimates, the overall performance of the economy remained

positive. Despite at a reduced pace compared to 2016, real GDP grew by 4.2% in 2017. Expectedly, and as

indicated earlier, such performance was primarily supported by another positive performance of the tourism

industry which directly and indirectly continued to contribute the lion’s share of the country’s economic activity.

On the fiscal policy front, the key decisions were guided by the 2017 budget theme, namely “Inclusive Development

– Opportunities for All” whilst fiscal consolidation through increased collection of taxes and broadening revenue

sources remained critical. There were further measures announced to address concerns over the cost of living,

primarily through the reduction of taxes on selected items. As for implementation of the final phase of the

Progressive Income Tax (PIT) system3, the structures were being put in place such that this can take effect in

2017. However, implementation of PIT was postponed for completion in July 2018.

During the year under review, the transmission of monetary policy through the interest rate channel remained a

challenge which the Central Bank continued to face. To improve the effectiveness of its policy, the Bank made

revisions to its monetary policy framework, particularly in terms of providing clearer guidance on short-term interest

rates through the operationalisation of the interest rate corridor. Hence, in addition to deciding on a reserve money

2 Government securities issued for the purpose of absorbing excess liquidity are not used for the financing of government spending but are held as deposits until maturity. Therefore, whilst such instruments increase domestic debt on a gross basis, they have no net effect on overall public debt. 3 In the first phase that became effective April 01, 2016, employees on minimum salary were exempted from income tax. In

the second phase, applicable as of July 01, 2016, employees earning a monthly salary of or below R8,555.50 were not liable to income tax, above which the rate became progressive up to 15 per cent. In the third phase, all wages at or below R8,555.50 are to be tax-free and rates of 15%, 20% and 30% would become applicable at set thresholds.


target, effective June, the Board of the Central Bank also approved the interest rates applicable on the Standing

Deposit Facility (SDF) and the Standing Credit Facility (SCF) that form the floor and ceiling of the corridor. These

were set at 1.0% and 6.0% respectively. Consistently, the Bank also enhanced its communication to the general

public in addition to ensuring consistency in its policy mix whilst paying attention not only to its primary objective

of promoting domestic price stability but also on the soundness of the financial system.

In 2017, the authorities remained committed to reform of the economy. Following completion of the 3-year

Extended Fund Facility (EFF) arrangement with the IMF and a request by Seychelles, the Executive Board of the

Fund agreed to a 3-year Policy Coordination Instrument (PCI) arrangement in its meeting of December 13. In the

first programme that started in late 2008, the main focus was to restore macroeconomic stability and reduce public

debt to a more sustainable level. Subsequent arrangements including the latest EFF had shifted focus to a number

of significant structural reforms. Although these reforms have generally been achieved with success, the economy

continued to be vulnerable to external shocks and as such further structural reforms are needed to improve the

resilience of the economy. As such, the authorities were of the view that the continuation of engagements with

the IMF will bring more benefits to the country, primarily in the form of oversight, discipline and advice.

The PCI is a new IMF instrument designed to assist countries “formulate and implement a macroeconomic policy

package with close monitoring of progress”. However, by contrast to preceding programmes, the PCI is without

financial support.

During 2017, the Central Bank managed to successfully meet all set targets as illustrated in Table 1.1. Note that

there was no formal programme arrangement with the IMF for the second and third quarters of 2017.


Looking ahead, a further recovery in the global economy, particular in regions such as Europe with strong

economic ties with Seychelles, suggests another positive performance of the tourism industry in 2018. Tourism

activity will be boosted by the increase in air access to be offered by British Airways and Air France although by

contrast, Air Seychelles is likely to face new challenges that will necessitate a change in strategy in order to remain

financially viable. If achieved, an overall increase in services sector activity would support another expansion in

overall economic output. The projected strengthening in global commodity prices suggests a rise in imported

inflationary pressures in 2018 compared to 2017. This would to a large extent reflect a pick-up in the price of oil

following OPEC’s decision to cut production in order to avoid a further fall in the revenue of its members. As for

the domestic factors that are to impact the general price level, these would primarily be associated with the second

round effects of the depreciated domestic currency and revisions in administrative prices such as that of utilities.

The key challenges of high operating cost and tough competition from imported substitutes would remain a reality

for the business community in 2018.

Against the above backdrop, the Central Bank will continue the implementation of the appropriate policy mix and

further strengthen the coordination with the Ministry responsible for finance. The coordination is a critical

component for the country to maintain macroeconomic stability. Through a further review of different aspects of

monetary policy implementation, more attention will be on improving interest rate transmission. Another area of

focus will be on enhancing the Bank’s communications to the market and the general public. Measured in terms

of the level of international reserves, the country’s external position is projected to remain relatively strong with

official reserves being able to cover at least four months of the country’s import requirements. If opportunity arises,

the Central Bank is expected to further consolidate the country’s safeguard against external shocks.

Overall, real growth in GDP is expected to be positive but projected at a reduced pace of 3.3 per cent in 2018.

Table 1.1: Quantitative Performance Criteria

2015 2016 2016 2016 2016 2017 2017 2017 2017

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Reserve Money 1 R million

Target 2,781 2,818 2,846 2,954 3,051 3,095 3,169 3,353 3,766

Actual 2,710 2,759 2,815 2,878 2,990 2,994 3,093 3,310 3,559

Net International

Reserves 2 USD million

Target 409 429 412 418 401 405 413 415 391

Actual 423 434 420 429 415 437 432 428 424

1. The stated target is a ceiling. As of the second quarter of 2014, the target is the average of daily reserve money levels over

the quarter rather than the outcome on the last day of the quarter

2. The stated target is a floor, based on programme rate


S E C T I O N T W O

R e a l S e c t o r : P r o d u c t i o n , L a b o u r a n d P r i c e s

2.0 Overview

The overall free-market environment with relatively limited involvement of the government continued to stimulate

economic activity. Nonetheless, the general sentiment on the economy by private businesses and households

can generally be characterised as mixed with a fair degree of uncertainty. There were further calls to improve the

business environment whilst consumers voiced their anxiety over the cost of living, which they viewed to be on the

rise. The main challenges expressed by businesses included high operating costs, difficulty to fill vacancies with

locals and in other cases undesirable productivity level of the local workers. There was however a fair degree of

optimism in the service sector, particularly in the tourism industry which managed to achieve another outstanding

performance in 2017.

Preliminary estimates indicated an annual growth of 4.2% in real GDP, which was 0.3 percentage points lower

than in the preceding year. This positive expansion in economic output largely attributed to the highlighted robust

performance of the services sector, underpinned by an upbeat tourism industry, which in turn supported activity in

auxiliary segments of the economy. Expectedly and similar to the previous year, the accommodation and services

sub-sector remained the largest direct contributor to overall GDP with a share of 13 per cent.

Consistent with the above-mentioned development, a new record was set in terms of annual visitor arrivals, an

outcome that was due to a combination of factors including improved air access, sustained marketing efforts by

the Seychelles Tourism Board (STB) as well as continued economic recovery in most parts of Europe and some

regions of Asia. In addition, Seychelles benefitted from an increase in the number of cruise ship that called in port

Victoria. The positive performance in tourism activity contributed to the estimated growth of 17 per cent in direct

earnings from that industry to US$483 million.

A positive expansion in output was also observed in the telecommunications sector, which continued to provide

new products and services to the local community and visitors alike. In 2017, its value-added contribution grew

by 5.0 per cent due to increased data usage and new services offered.

Other areas that experienced a growth in activity included ‘transportation and storage’, an outcome predominantly

driven by increased air connectivity as well as added flight frequencies. The year under review also saw an

increase in output in the category of ‘electricity, gas, steam and air conditioning supply’ in addition to ‘water supply;

sewerage, waste management and remediation activities’ attributed to a combination of both a growth in the

provision of water, electricity and sewerage facilities by the Public Utilities Corporation as well as higher demand.

Economic activity in the primary sector was mixed. This was especially the case in the fisheries industry. New

infrastructural development with a focus on more value-added activity was materialised in 2017 and expected to

have long-term gains for the industry. However, the reduction in yellowfin tuna catch enforced by the Indian Ocean


Tuna Commission (IOTC) under Resolution 16/01 in January proved to be a major setback for the fisheries industry

and as such had adverse trickling down effects across various segments of the industry. Nonetheless, the fisheries

sector is estimated to have grown by 1.0 per cent, which was a lower annual expansion in output compared to 1.8

per cent in 2016.

As for the agricultural sector, it is estimated to have grown by 2.0 per cent. Investment in new infrastructure as

well as the move towards adopting modern technologies in farming to boost production was the key focus

throughout the year. In addition, much effort went towards boosting demand through promoting the consumption

of local produce. Despite this, access to credit, scarcity of land for local production as well as stiff competition

from imported substitutes were the main challenges expressed by this sector.

For its part, manufacturing activity grew by 1.8 per cent, mostly driven by the ‘manufacture of beverages and

tobacco’ as well as the ‘manufacture of food’ with the latter predominantly driven by the production of canned tuna.

The availability of input for the production of construction materials was a constraint expressed by the sector and

consistently, the ‘manufacture of concrete, rock products, glass, etc.’ remained flat in 2017.

In the construction industry, activities were mainly on medium to small-scaled projects, notably government

housing projects as well as infrastructural works. Similar to the previous year, stakeholders indicated that limited

activity in this sector was largely due to the existed moratorium on the construction of large hotels, extended to

2020.

With regard to the situation in the labour market, private sector continued to employ the largest share of the working

population or 64 per cent of the total workforce. A key challenge highlighted by businesses was the difficulty faced

in recruiting and retaining reliable local workers, hence the increased reliance on expatriate labour. In the third

quarter of 2017, the national unemployment rate stood at 4.1 per cent.

As for price developments, the CPI, which is the official measure of changes in the general price level in the

economy, indicated a rise in inflationary pressures in 2017 compared to 2016. As at December, the average prices

of goods and services was 3.5% higher than in the same period of 2016 whilst the 12-month average measure of

inflation showed an increase of 2.9%.

2.1 Primary Sector

Based on preliminary estimates, the performance in the primary sector in 2017 was somewhat mixed. Whilst the

fisheries sector faced major challenges – most notably in the tuna industry – leading to lower growth rate relative

to 2016, the agricultural sector continued to post signs of improvement, supported by major projects aimed at

boosting output.

Investment in infrastructure was a key priority for the Ministry of Fisheries and Agriculture. The Ministry, in

collaboration with the Seychelles Agricultural Agency (SAA), were involved in the construction of a new requisite


store at Anse Boileau aimed to boost farming by providing affordable and accessible agricultural inputs. The move

towards adopting other advanced farming techniques as opposed to the traditional methods was also evident in

2017. The adoption of aquaponic4, aeroponic5 and hydroponic6 farming system were consequently on the increase

during the year. One of the pioneers was the Val d’Andorre farm, which introduced the use of hydroponic farming

techniques for its vegetable production with the objective to increase yield and quality.

On a separate note, with the aim of acquiring more information and therefore improve decision-making in the

agricultural sector, an agricultural survey took place from September 15-30. Data collected will be analysed and

published in 2018.

In the period April – May, representatives from the agricultural industry were involved in the third Food and

Agricultural Organisation (FAO) mission aimed to develop and finalise a business model for farmers practicing

agro-forestry7 in Seychelles.

One of the concerns often raised in the primary sector relates to the difficulty for farmers and fishers to access

credit, on account of financial institutions’ perception that financing such projects is risky. As such, the Competitive

Local Innovation for Small‐Scale Agriculture (CLISSA) project identified that there is a need to increase the

understanding of banking institutions, through capacity building on the supply side. Consequently, a workshop

was organised under the auspices of the Ministry of Agriculture and Fisheries (MAF) and the IFAD‐CLISSA project

from July 5 – 8, which targeted financial and auxiliary stakeholder institutions. The four-day workshop included

topics such as value-chain financing approach with contractual linkages between farmers and off-takers, cash flow

including crop budgeting, as well as appraisal and monitoring methodologies.

Sustainability was a key focus for the fisheries industry during 2017, with a number of projects launched to address

this challenge. This included the Marine Spatial Planning initiative, which focused on planning for and sustainable

management of the Seychelles Exclusive Economic Zone (EEZ). Other projects included the Third South West

Indian Ocean Fisheries Governance and Shared Growth Project (SWIOFish3), designed to improve management

of marine areas and fisheries in targeted zones, funded through a US$20 million package8 approved by the World

Bank.

Another development is the planned issuance by the Seychelles government – with the assistance of the World

Bank – of a Blue Bond for a total value of US$15 million that will have a tenure of 10 years. The Blue Bond forms

part of Seychelles’ blue economy initiative, which focuses on economic diversification, food security and the

protection and sustainable use of marine resources.

4 Aquaponics is the combination of aquaculture (raising fish) and hydroponics (the soil-less growing of plants) that grows fish and plants

together in one integrated system. 5 Aeroponics is growing vegetation without soil, with roots suspended and sprayed with water and/or nutrient solution. 6 Hydroponics, a subset of hydroculture, is a method of farming where the plants grow in an aquatic based environment (without soil) that has all the mineral nutrients needed as feed. 7 Agroforestry is a land use management system in which trees or shrubs are grown around or among crops or pastureland. 8 Loan contribution of US$5 million from the International Bank for Reconstruction and Development (IBRD), grant of US$5.29 million from Global Environment Facility (GEF) with the remainder from proceeds of the Blue Bond.


In addition to new projects implemented or initiated in 2017, a number of agreements were signed. These included

a new fisheries agreement with Mauritius in February aimed to address the “unfairness” that existed in the previous

accord as well as to incorporate current development in the sector. In addition, in May, Seychelles also signed a

three-year agreement with Ghana to promote and strengthen cooperation in the field of fisheries through the

exchange of technology and expertise.

Infrastructural projects in the fisheries sector that started or completed in 2017 were predominantly financed from

foreign grants. The first phase of the development of Ile du Port (Zone 14) began in 2017 and was near completion

by the end of the year. Its second phase would commence in the second quarter of 2018. The second phase of

the extension of the Providence Fishing Port also started in the year under review and is expected to be completed

in July 2018. The main facilitator behind such projects was the Seychelles Fishing Authority (SFA), which reflected

the Authority’s continuous efforts in providing and developing infrastructure for the sector. There was also the

construction of a new fish market and fishermen gear store that started on La Digue with the project expected to

be completed in 2018.

The issue of ice shortage continued to be a key concern for fishermen and therefore remained important on SFA’s

agenda in 2017. Repairs to the ice plant as well as improved maintenance programmes were measures put forth

to deal with the situation. Moreover, SFA developed a comprehensive ice plant cleaning programme for all ice

plants with the objective to be in line with international EU standards. By the second half of the year, the ice plants

located at Bel Ombre, Victoria and Praslin were all running at full capacity.

2.1.1 Fisheries

The fisheries sector is estimated to have expanded by 1.0 per cent in 2017, which was lower than the previous

year’s growth rate of 1.8 per cent. The slowdown in fisheries activity in 2017 partly reflected the reduction in

yellowfin tuna catch enforced by IOTC under Resolution 16/01 and therefore its trickling down effect across other

segments of the industry. In a bid to limit the economic impact of this Resolution, Seychelles managed to

successfully negotiate a new agreement at the 21st session of the IOTC in May9 to change the base year from

2014 to 2015.

Despite the change in reference year, the concept of sustainability became an important narrative throughout the

year with both government and the private sector showing great interest in ensuring the long-term viability of the

sector.

Statistics up to September showed growth of 4.2 per cent in total fish catch. This was primarily due to an increase

of 33 per cent in semi-industrial catch boosted by the growing level of investment in this segment of the industry.

As for artisanal catch, there was a drop of 8.5 per cent.

9 Due to this change, a new updated Resolution 17/01 superseded the previous Resolution 16/01.


2.1.2 Agriculture

In 2017, the contribution of the agricultural sector to total GDP was estimated at 1.2 per cent, unchanged from the

previous year. The sector is expected to have grown by 2.0 per cent or by 1.5 percentage points faster than in

the previous year. Growth in this sector was supported by increases of 34 per cent and 20 per cent in the

production of layer and broiler chicks, respectively. On the other hand, production of eggs declined by 9.2 per

cent. As regards to crop production, the processing of cinnamon rose by 46 per cent while the production of tea

fell by 14 per cent. Of note, export of cinnamon increased in 201710 to indicate further revival of this traditional

export.

As for livestock-related activities, notably the slaughtering of cattle and chickens, growth in output were by 2.9 per

cent and 23 per cent respectively although slaughtering of pigs fell by 10 per cent. The increase in livestock

production was given a boost from a combination of factors. These were mainly, the campaign efforts by the

Ministry of Fisheries and Agriculture as well as the SAA to encourage farmers to increase production11, a reduction

in imported meat from Brazil in favour of local produce following a meat scandal which occurred earlier during the

year, and the support to livestock activity by an increase in the number of suppliers that import animal feed.

Nonetheless, the sector still faced major constraints and these include land available for farming purposes,

competition from imports and difficulty in accessing credit for implementation of agricultural projects.

10 Source: Seychelles Agricultural Agency (SAA) 11 Source: Seychelles Agricultural Agency (SAA) & Ministry of Fisheries and Agriculture


Table 2.1: Gross Domestic Product by kind of Economic Activity (2013 - 2017)

at constant prices

2013 2014(1) 2015(1) 2016(1) 2017(2)

GDP at 2006 constant market prices 7,357.0 7,688.4 8,068.0 8,431.4

8,788.7

Change 6.0% 4.5% 4.9% 4.5% 4.2%

Agriculture 105.3 106.7 103.3 103.8 105.9

Fishing 73.3 59.2 56.0 57.0 57.5

Manufacture of food 196.9 173.3 172.8 189.5 191.4

Manufacture of beverages and tobacco 162.8 153.7 171.7 168.0 173.0

Manufacture of concrete, rock products, glass etc 42.6 44.5 54.7 52.3 52.3

Manufacturing, other 105.0 103.7 111.3 109.2 111.4

Electricity, gas, steam and air conditioning supply 62.4 63.7 79.2 64.7 67.3

Water supply; sewerage, waste management and remediation activities 33.0 33.7 33.7 32.2 33.5

Construction 210.3 240.0 248.3 242.9 244.1

Wholesale and retail trade; repair of motor vehicles and motorcycles 518.6 511.6 565.2 605.0 623.1

Transportation and storage 584.5 666.2 741.5 826.3 867.6

Accommodation and food service activities 957.4 970.0 978.1 993.3 1,082.7

Information and communication 560.2 671.9 683.6 725.3 761.6

Financial and insurance activities 292.3 278.1 355.4 392.3 407.9

Real estate activities 459.3 463.8 457.4 483.7 503.0

Owner Occupied dwellings 664.7 668.9 676.3 699.3 727.2

Professional, scientific and technical activities 240.6 263.4 274.4 294.3 300.2

Administrative and support service activities 219.8 226.4 243.3 257.0 271.1

Public administration and defence; compulsory social security 476.5 510.0 534.1 545.8 556.7

Education 229.5 234.7 231.0 237.8 244.9

Human health and social work activities 162.3 172.4 177.5 180.3 185.7

Arts, entertainment and recreation 46.5 46.6 40.8 40.9 42.1

Other service activities 51.1 58.4 54.1 59.3 61.1

Allocation of FISIM12 to Nominal Sector -135.7 -122.6 -135.6 -146.7 -152.5

Value Added at basic prices 6,319.2 6,598.3 6,908.2 7,213.5 7,519.1

Taxes Less subsidies 1,037.8 1,090.2 1,159.9 1,217.9

1,269.6

Notes: 1 Provisional Estimates- National Bureau of Statistics 2 Indicative Estimates- Seychelles Macroeconomic Framework Working Group and Central Bank of Seychelles 3 Financial Intermediation Services Indirectly Measured


Table 2.2: Gross Domestic Product by Kind of Economic Activity ( 2013-2017)

at current prices

2013 2014(1) 2015(1) 2016(1) 2017(2)

GDP at current market value 16,014.5 17,119.2 18,339.8 19,014.1 20,246.9

Change 10.3% 6.9% 7.1% 3.7% 6.5%

Agriculture 215.2 222.7 223.2 227.3 237.0

Fishing 212.0 183.0 152.0 154.8 159.9

Manufacture of food 496.9 465.5 358.4 374.1 386.2

Manufacture of beverages and tobacco 372.3 355.3 398.3 388.0 408.6

Manufacture of concrete, rock products, glass etc 75.0 79.5 102.0 99.7 101.9

Manufacturing, other 211.3 212.6 238.8 231.6 241.5

Electricity, gas, steam and air conditioning supply 335.2 347.6 420.4 433.8 456.7

Water supply; sewerage, waste management and remediation activities 74.0 76.3 75.0 80.4 85.5

Construction 456.7 543.8 575.3 551.0 563.3

Wholesale and retail trade; repair of motor vehicles and motorcycles 1,102.5 1,103.1 1,268.0 1,343.4 1,414.4

Transportation and storage 1,393.7 1,604.9 2,057.3 2,120.2 2,275.7

Accommodation and Food service activities 2,219.1 2,277.0 2,291.8 2,369.5 2,640.2

Information and communication 737.4 886.7 910.6 955.5 1,025.6

Financial and insurance activities 621.4 599.7 797.4 907.5 964.7

Real estate activities 1,029.7 1,051.4 1,016.7 1,054.3 1,120.8

Owner Occupied dwellings 1,435.9 1,463.0 1,494.7 1,523.0 1,619.1

Professional, scientific and technical activities 388.7 439.8 479.8 498.9 520.2

Administrative and support service activities 413.2 439.7 497.3 521.1 564.7

Public administration and defence; compulsory social security 1,013.0 1,099.5 1,234.2 1,279.2 1,333.8

Education 360.9 369.1 392.2 405.2 426.6

Human health and social work activities 272.1 295.9 309.7 317.9 334.7

Arts, entertainment and recreation 96.7 105.1 95.2 96.8 101.9

Other service activities 82.6 97.4 94.6 100.6 105.9

Allocation of FISIM3 to Nominal Sector -223.7 -207.7 -283.1 -333.6 -354.6

Value Added at basic prices 13,391.7 14,110.9 15,199.7 15,700.3 16,734.1

Taxes Less subsidies 2,622.8 3,008.3 3,140.2 3,313.8 3,512.7

Notes: 1 Provisional Estimates- National Bureau of Statistics 2 Indicative Estimates- Seychelles Macroeconomic Framework Working Group and Central Bank of Seychelles 3 Financial Intermediation Services Indirectly Measured


2.2. Industries

In 2017, the industrial sector is estimated to have contributed 8.4 per cent to overall GDP. Growth of 3.0 per cent

and 2.0 per cent were observed in the categories ‘manufacture of beverages and tobacco’ and ‘manufacturing,

other’, respectively.

2.2.1 Construction

The year under review was a challenging one for the construction industry and consistently, minimal growth is

estimated. Most activities were concentrated on implementation of small to medium scale projects. Projects of

the government formed the largest share of activities in this industry and these included the construction of roads

such as the Victoria by-pass completed in April, as well as the Pointe Larue roundabout. Other projects of the

government included the building of houses and public schools.

Contrary to previous years, no major projects were undertaken in 2017. The main companies attested this to

reduced FDI inflows in the tourism industry associated with the moratorium on new, large tourism projects. Of

note, the moratorium, which was introduced in 2015 was extended to 2020 in February. Nevertheless, in March,

the new Minister responsible for Tourism announced a list of approved large hotel projects not covered by the

moratorium. However, no such development started in 2017. In terms of real estate developments, construction

activity was mostly geared towards continuation of ongoing projects, notably Pangia Beach project and Brilliant

Apartments. In addition, one key project that started in 2017 was the Perseverance Condominiums. The project,

which is dependent on demand, would continue through 2018. To note, 2017 also saw the completion and opening

of two major projects in Victoria, namely the Nouvobanq House and Maison Esplanade building.

Issues raised by the construction industry ranged from scarcity of raw materials such as rocks needed for the

production of construction materials (crusher dust and aggregate) and shortage of cement in the domestic market

in December. Consistently, production statistics published by NBS show a decline in output of blocks, crusher

dust and aggregate by 14 per cent, 5.3 per cent and 37 per cent respectively. Construction companies also

highlighted, amongst other issues, the difficulty to find local workers and the rising cost of construction materials

abroad.

2.2.2 Manufacturing

The manufacturing industry accounted for 5.6 per cent of GDP in 2017 and is estimated to have expanded by 1.8

per cent. The ‘manufacture of beverages and tobacco’, which grew by 3.0 per cent, accounted for the largest

contribution to growth in the industry.

This mainly reflected an increase in the production of beer by 23 per cent as well as an expansion in output of

tobacco by 19 per cent. The increase in the production of beer followed recent investment into capital equipment

by the main manufacturer. Nonetheless, one of the challenges faced by the company was its ability to ensure a

consistent availability of products given episodes of equipment breakdowns. In light of this, there are plans to

invest in the replacement of ageing equipment as well as modernising production facilities in the next five years.


As for production of stout, spirits and soft drinks, these fell by 28 per cent, 5.9 per cent and 7.6 per cent

correspondingly.

The category ‘manufacture of food’ grew by 1.0 per cent, which was notably lower than the previous year’s results.

The main component in this group, the production of canned tuna, rose by 7.8 per cent compared to the same

period in 2016. As highlighted earlier, 2017 was a challenging year for the tuna industry in view of implementation

of the IOTC’s resolution to cap the amount of yellowfin tuna caught by purse seiners with the objective to ensure

stock sustainability. The Resolution, which took effect in January, led to a reduction in the supply of fish to key

companies such as the Indian Ocean Tuna Company (IOT), the sole manufacturer of canned tuna.

Chart 2.1: Changes in production indicators (2017)

Source: National Bureau of Statistics

As regards to other manufacturing activities, notably production of ‘paint and paint products’, this grew by 4.3 per

cent, which was the key driver in the 2.0 per cent growth in value addition under ‘other manufacturing’. Local

producers of these products highlighted a revival in demand during the year despite strong competition from

imports.

2.3 Services

Consistent with the previous year, the services sector accounted for 74 per cent of GDP in 2017. Overall, total

value-addition in the sector have grown by 4.6 per cent in 2017. There were increases estimated under

‘accommodation and food service activities’ (9.0 per cent), ‘administrative and support service activities’ (5.5 per

cent), ‘information and communication’ (5.0 per cent) and ‘transportation and storage’ (5.0 per cent).

-40

-30

-20

-10

0

10

20

30

Categories

Per

cent

age

Canned tuna BeerStout SpiritsSoft drinks Paint & Paint productsTobacco (Cigarettes)


2.3.1 Tourism

The tourism industry recorded another year of strong growth with a record breaking 349,861 aggregate number of

visitors to the country in 2017. This was an annual increase of 15 per cent, primarily attributed to more travelling

options as well as economic recovery in Europe and some parts of Asia. In addition, the marketing efforts of the

Seychelles Tourism Board (STB) also played a key role at improving Seychelles’ visibility and exposure

internationally.

Europe maintained its position as the main market, with a contribution of 217,401 visitors (62 per cent of total

visitor arrivals). However, Germany outperformed France to become the leading European market in terms of

supply of visitor to Seychelles. The number of German tourists was 23 per cent of total European visitors while

the share from France was 19 per cent. In terms of growth, Germany also posted the largest increase, and this

was by 28 per cent relative to the 2016 outcome. The United Kingdom was in second place after achieving growth

rate of 16 per cent. It was followed by Russia (15 per cent) and Italy (3.8 per cent). As for the number of French

tourists, there was an annual decline of 4.5 per cent despite the availability of direct flights to Paris.

Chart 2.2: Visitor Arrivals (2007 – 2017)


Positive performance in visitor arrivals was also evident in emerging markets. Asian, for instance, contributed

79,833 visitors or 23 per cent of the total. The number of tourists from this continent also grew by 16 per cent

compared to the previous year, supported by upbeat performance from markets such as India and the United Arab

Emirates where the recorded increases were of 24 per cent and 17 per cent, respectively. To note, flights to

Seychelles by Turkish Airlines and Sri Lankan Airlines have contributed to the annual increase in the number of

visitors from Turkey and Sri Lanka, namely by 4.1 per cent and 1.3 per cent respectively. In addition, the number

-5

0

5

10

15

20

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Per

cent

age

Num

ber o

f vis

itors

Visitors Arrivals % Change


of visitors from Qatar grew by 4.1 per cent, an outcome that was partly influenced by an upgrade of service by

Qatar Airways in October with the objective to meet increased passenger demand. The strong presence of these

airlines have in essence contributed to a pick-up in visitor arrivals from Asia. By contrast, the number of Chinese

visitors fell by 17 per cent in 2017. In an attempt to revive this market, Air Seychelles offered non-stop chartered

flights between Beijing and Seychelles to capture travel demand out of China during the Golden Week holidays.

Visitor arrivals from the African continent grew by 15 per cent in 2017 with the majority of these tourists originating

from South Africa.

To improve air connectivity, Austrian Airlines started weekly direct flight to Seychelles in October, and this followed

an air transport agreement signed by the two countries in May. For its part, Air Seychelles launched direct flights

to Durban, South Africa in March as well as to the city of Dusseldorf, Germany in April. Unfortunately, services on

these new routes discontinued in September for flights to Dusseldorf and in July to Durban in view that they did

not meet the company’s expectations and were found to be unsustainable. Moreover, the national airline reduced

the frequency of its Paris operation from four to three services per week starting September. For relatively different

reason, the national airline temporary suspended its flight to Madagascar in October until January 2018 following

report of a plague outbreak in that country.

On a more positive note, in an attempt to increase its presence on the Asian continent, Air Seychelles, in

partnership with Etihad Airways, expanded its code share agreement with Japan in February. Moreover, a

Memorandum of Understanding (MoU) on tourism cooperation was signed between Seychelles and China in

September. The aim of the MoU is to provide a broad framework for cooperation in the tourism sector amongst

other things.

The national airline invested in a second Airbus A330 in May to increase its total fleet to 4 Airbus jets. For the

purposes of its domestic flight operations, the airline also invested in two new Twin Otter aircrafts delivered in that

same month. Furthermore, in an attempt to modernise and create more efficiency in passenger processing

service, the company introduced a new state of the art common-use passenger processing system (CUPPS) at

the Seychelles International Airport in July. The system helps to create a more flexible environment for

international airlines operating from the airport by allowing them to share common-use terminal equipment for

check in and boarding.

As regard to the Seychelles Civil Aviation Authority (SCAA), it continued the modernisation of airport facilities with

the upgrading of the domestic terminal. While the project was still ongoing at the end of 2017, tourists as well as

local travellers were able to have access to the new facilities in one part of the new terminal that was completed.

A number of other indicators also suggest a positive outcome for the sector, with tourism earnings estimated to

have grown by 17 per cent in 2017 to stand at US$483 million.

The ‘accommodation and food service activities’ category continued to account for the largest single share of GDP

in 2017, with a direct contribution of 13 per cent. Accommodation statistics showed occupancy rates at 57 per


cent for beds and 59 per cent for rooms. In 2016, total occupancy rates for beds was 59 per cent while that of

rooms was at 64 per cent. As for the average length of stay, this was 9.5 nights on average, which was slightly

less than the previous year.

In terms of other development in the tourism sector, a number of hotels were closed for renovation purposes. Of

note was the Beachcomber Sainte Anne Resort & Spa that started its renovation in September, expected to take

at least two years to complete. Moreover, the New Emerald Cove as well as the Coco de Mer Hotel & Black Parrot

Suites closed their doors in the fourth quarter for renovation purposes. In addition, 2017 saw the completion of

extensive renovation works on the Desroches Island Resort. The Resort is due to open in March 2018 under the

Four Seasons brand.

Table 2.3: Tourism Indicators (2013- 2017)

2013 2014 2015 2016 2017

Visitors arrivals 230,272 232,667 276,233 303,177 349,861

Average length of stay (nights) 10.2 10.2 9.9 9.9 9.5

Tourism Earnings (US$ million)(1) 430 398 393 414 483(2)

Memorandum

Total bed occupancy rate (%)

64 54 59

59 57(3)

1 Estimates by the Central Bank of Seychelles

2 Provisional estimates

3 YTD total bed occupancy rate as at September 2017

Sources: National Bureau of Statistics

2.3.2 Telecommunications

The telecommunications industry continued to play an important role in economic development through the support

that it provides. The sector’s share of GDP was 5.1 per cent in 2017 and estimated to have grown by 5.0 per cent.

The main driver of this outcome was the demand for data services which expanded by 60 per cent. This increase

followed the availability of new products and technological innovations and advancements in the industry.

Other key indicators such as mobile accounts, local calls, internet as well as Cable TV connections rose by 9.1

per cent, 20 per cent, 16 per cent and 17 per cent respectively. However, the number of international calls as well

as subscriptions to telephone exchange lines dropped by 5.1 per cent and 20 per cent correspondingly. Such

results were reflective of consumers’ preference for more modern technologies such as WhatsApp, Viber, and

Snapchat for communication as opposed to the traditional means.

The telecommunication industry therefore remained one with considerable growth potential. In 2017, the industry

was characterised with a fair degree of competition. Cable and Wireless (C&W) for instance – the largest


telecommunication company in the country – launched Seychelles’ first mobile TV service in July. The service

provides live access to fifteen TV channels. Additionally, in an attempt to provide more efficient and faster data,

the company introduced the C&W 4G/LTE advanced network, described as the next generation in mobile network

development.

Whilst pioneering improvement in data coverage, C&W also aimed to improve internet and Cable television with

the introduction of fibre optic cable as part of its ‘Fibre to the Home’ (FTTH) scheme. The project, which began in

2017, is expected to take four years in order to cover the whole of Seychelles.

Another telecommunication company that was in the spotlight in 2017 was Intelvision with the launching of the

country’s first unlimited broadband internet package. The Crimson package, formally launched in June, provides

Intelvision customers with unlimited access to internet facilities.

2.3.3 Financial Services

Output in the financial services sector is estimated to have grown by 4.0 per cent in 2017. During the year, there

were no new issue of banking licence by the Central Bank. However, the United Helvetic Bank (UHB) Limited

surrendered its banking licence in July. As such, the total number of licensed banks declined to 10. Consequently,

as at the end of December, there were 9 banks in operation. To note, at the end of 2017, SBM Bank (Seychelles)

which received its banking license in December 2016 was yet to commence operations.

2.4 Other Key Segments

As regard to the estimated changes in output as recorded by the other key components of GDP, ‘transportation

and storage’ expanded by 5.0 per cent, emanating from increased air connectivity and frequency of airlines as

well as a rise in storage by key companies, notably Seypec, Seychelles Ports Authority (SPA) and Land Marine.

Moreover, ‘administrative and support services’ grew by 5.5 per cent mainly driven by increased tourism activity

in the country. As for ‘financial insurance activities’, ‘real estate’ and ‘owner occupied dwellings’, they expanded

by 4.0 per cent.

Output in the category ‘electricity, gas, steam and air conditioning supply’ as well as ‘water supply, sewerage,

waste management and remediation activities’ are estimated to have grown by 4.0 per cent. Data on utilities’

production, which generally serve as good indicators for estimating changes in aggregate output show growth of

3.8 per cent and 2.5 per cent in electricity and water production, respectively. As for water consumption, this fell

by 1.2 per cent, an outcome expected to reflect PUC’s campaign to educate the population on water conservation

as well as continuous efforts in 2017 to reduce wastage from leaked pipes.

In November, a PUC project to raise the La Gogue Dam by six meters started. Its aim is to increase water storage

capacity of the dam in order to meet increased demand. Implementation of the project is expected to take two

years and cost R185 million. The utilities company also aimed to improve availability and distribution of electricity

through the installation of a new 33KV underground transmission line from Roche Caiman to the south of Mahe.


The expected total cost of this project is US$31.5 million, co-financed by the Saudi Fund, the Arab Bank for

Economic Development in Africa (BADEA), the government of Seychelles and PUC. The first phase of the project

completed in the last quarter of 2017.

2.5 Labour Market13

The private sector accounted for the largest proportion of formal employment in 2017 with a share of 64 per cent.

Within the private sector, the majority of individuals were employed in the accommodation and food services

activities (30 per cent), construction (17 per cent) and manufacturing (14 per cent).

One of the major challenges faced in the labour market was the difficultly in recruiting locals for certain jobs as

well as productivity level.

2.5.1 Employment

For the period January to September, the number of officially employed workers amounted to an average of

47,214, which was an increase of 0.8 per cent compared to 2016. As highlighted above, the private sector

accounted for the largest proportion of the labour force.

Table 2.4: Employment Statistics (2013 – 2017)

2013 2014 2015 2016 20171

Average Employment

45,818 47,952 48,423 46,776 46,850

Private Sector 31,769 33,370 33,344 30,654 30,841

Parastatals

5,173 5,432 5,762 7,133 7,055

Government

8,876 9,150 9,317 8,990 8,954

1 Annual Average as at third quarter, 2017.


As a share of the number of individuals employed in the government and parastatal sectors, 4.3 per cent and 11

per cent, respectively, were expatriates. In the parastatal sector, foreign workers were mainly in the administrative

and support services activities whereas in the government sector, they predominantly filled the vacancies in human

health, education and social work activities. Due to lack of information, the same analysis could not be done for

the private sector.

13 Due to the unavailability of data for the fourth quarter of 2017, comparison is made with data for the first three quarters of 2017


2.5.2 Unemployment

The national unemployment rate at the end of the third quarter was 4.1 per cent, which was 0.4 percentage points

lower than in the same period of 2016. A total of 51 per cent of the unemployed population were female which

gave an unemployment rate of 4.3 per cent. The unemployment rate for the male population stood at 3.9 per cent.

The highest unemployment rate was amongst youth aged below 25 years, and this was at 12 per cent. Within this

group of the population, the unemployment rate for the male population was slightly higher (12 per cent) compared

to unemployed female population (11 per cent).

2.5.3 Earnings

Statistics show that the average earnings across parastatal, government and private sectors for the third quarter

of 2017 were R14,169, R13,697 and R10,636 respectively. At these levels, average earnings for all of these

sectors were higher than in the same period of 2016. The rise in average earnings in the government and

parastatals were 6.4 per cent each, with that in government partly reflecting revision in certain schemes of service.

As for the private sector, the increase was by 0.5 per cent.

2.6 Prices

During 2017, prices were generally higher than in 2016. This was a complete reversal of the situation in the

previous year where inflation was on an overall declining trend.

As such, in December, the price of consumer goods and services were on average 3.5% higher than in December

2016 based on the CPI statistics published by NBS. The main price increases were observed in the index for

‘housing, water, electricity & gas’, ‘meat (fresh, chilled, frozen)’ and ‘fish (frozen, smoked, salted)’ and these were

by 14 per cent, 9.3 per cent and 9.1 per cent respectively.

Chart 2.3: Price Movements (2007 - 2017)


-10

0

10

20

30

40

50

60

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Per

cent

age

Average Inflation Rate End of Year Inflation


The 12-month average measure of inflation indicated an increase of 2.9% in December compared to a decline 1.0

per cent in the same month of 2016. Such outcome mainly reflected higher prices for ‘non-food’ items such as

‘housing, water, electricity & gas’ (by 13 per cent) and tobacco (by 6.3 per cent). In addition to the relatively weaker

domestic currency, the rise in the former category was partly attributed to higher global oil prices while, in the case

of the latter, the imposition of excise tax played a contributing role. Other notable increases were in the general

average prices for services classified in the sub-category ‘health’ and ‘restaurants & hotels’ and these were by 5.6

per cent and 6.1 per cent.

In the ‘other food’ category, noteworthy increases were in the price of ‘fish (frozen, smoked and salted)’ and ‘meat

(fresh, chilled, frozen) by 5.0 per cent and 3.4 per cent respectively. There was, however, a decline of 5.8 per

cent in the price of non-alcoholic beverages, which was partly a result of increased competition from both domestic

and imported sources.

Table 2.5: Inflation Rates (2013 - 2017)

2013 2014 2015 2016 2017

Annual Average Per cent (%)

All Items 4.3 1.4 4.0 -1.0 2.9

Fish 20.9 6.8 -12.2 0.1 -5.6

Other Food Items 5.3 -0.3 1.8 0.0

0.9

Non-Food Items 3.1 1.8 4.7 -1.2 3.3

Year-on-year

All Items 3.4 0.5 3.2 -0.2 3.5

Fish 31.2 -20.3 3.3 -13.2 1.93

Other Food Items 3.5 -0.2 1.7 0.3 2.2

Non-Food Items 1.9 2.2 2.7 -0.1 3.7



S E C TI O N T H R E E

M o n e t a r y a n d F i n a n c i a l S e c t o r

3.0 Monetary Policy Developments

During 2017, whilst some revisions were made in the manner monetary policy is implemented at the Central Bank,

monetary targeting with reserve money as the operational target remained the adopted framework as has been

the case since late 2008.

The main change introduced during the year was aimed to place further emphasis on providing clearer guidance

to the market on short-term interest rates.

As of June therefore, in addition to deciding on the monetary policy stance and hence reserve money target for

the coming quarter, the Board also approves the interest rates for the SDF and SCF, which form the floor and

ceiling of a short-term interest rate corridor. This effectively operationalised the existing corridor which had since

August 2014 not been adjusted to be consistent with other short-term market interest rates.

The revisions made to the monetary framework are expected to provide clearer guidance to the market, improve

the management of short-term liquidity at commercial banks for appropriate evolution of interest rates, hence

improving the transmission mechanism of monetary policy to the real economy. In July, the floor (SDF) was raised

to 1.0%, whilst the ceiling (SCF) was set at 6.0%.

Monetary policy was kept tight in the first two quarters of 2017 in view of the forecasted inflationary risks and

therefore threat to domestic price stability. These inflationary impulses were primarily associated with domestic

factors, namely the impact of fiscal policies introduced as counter-balancing measures following policies

implemented in 2016 to address income inequality and poverty level. The Bank also foresaw inflationary pressures

to originate from the second round effects of the depreciated domestic currency.

By the second quarter and following new assessments made, the forecast for the second half of the year showed

modest increase in the general price level. In addition, economic activity was projected to have slowed down.

Therefore, as from July until the end of the year, monetary policy was shifted to a cautious loosening stance in

support of a boost in economic growth given that inflationary pressures was expected to remain subdued.

Expectedly, monetary statistics show a reduction in interest rates in the second half of the year, coupled with an

expansion in credit to the private sector.

Consistent with the monetary targeting framework, and given the environment of overall structural excess liquidity

in the system, the implementation of monetary policy during 2017 was mainly geared towards the withdrawal of

liquidity but in a manner that achieves stability in short term interest rates. The key instrument employed was the

Deposit Auction Arrangement (DAA), supported by the overnight interest rate corridor. Moreover, the policy


coordination efforts between the Central Bank and Ministry responsible for Finance continued as was the case in

previous years, namely through the harmonised issuance of government securities for monetary policy purposes.

Increased emphasis was placed on enhancing the Bank’s communications with the objective for the general public

to better understand the policies being implemented, thereby improving the effectiveness of the latter.

Notwithstanding the challenges faced, and the prolonged uncertainty in the economy arising from the changing

political landscape, the Bank managed to successfully achieve its main targets for the year.

3.1 Net Foreign and Domestic Assets

In 2017, total net foreign assets (NFA) of the banking sector increased by 9.6 per cent (or R952 million) to stand

at R10,869 million, primarily as a result of a 16 per cent (or R520 million) growth in NFA of other depository

corporations (ODCs). The NFA of the Central Bank rose by 6.6 per cent (or R432 million), which was indicative

of the Bank’s ongoing reserves accumulation policy aimed at better safeguarding the domestic economy in the

event of potential external shocks. Net international reserves (NIR) ended the year at US$424 million which

exceeded the period’s target by US$33 million. Compared to end-2016, the NIR has increased by US$9.6 million.

Chart 3.1: Net Foreign and Domestic Assets (2007-2017)

Source: Central Bank of Seychelles

The total stock of domestic assets rose by 18 per cent (or R1,335 million) to stand at R8,914 million, driven primarily

by increases of 23 per cent (or R420 million) and 18 per cent (or R910 million) in credit to the private sector and

net claims on government, respectively. Claims on public entities rose marginally or by a mere 0.9 per cent (or

R5.9 million).

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

0

2,000

4,000

6,000

8,000

10,000

12,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Perc

enta

ge

R m

illio

n

Net Foreign Assets Domestic Assets % Change in Total Assets


Table 3.1: Monetary Survey1/3 (2013 - 2017)

2013 2014 2015 2016 2017

(R million)

Net Foreign Assets 2

8,293.4

9,739.1

9,438.6

9,916.4 10,868.9

Central Bank 4,579.9 5,906.2 6,505.5 6,550.4 6,982.4 Commercial Banks 3,713.5 3,832.9 2,933.0 3,366.1 3,886.4

Domestic Assets 6,044.1 5,999.6 6,488.2 7,578.4 8,913.8

Claims on private sector 3,428.3 4,311.7 4,645.7 5,122.7 6,032.3 Claims on public entities 303.8 272.2 531.7 630.8 636.7 Claims on government (net) 2,312.0 1,415.7 1,310.8 1,824.9 2,244.8

Money Supply, M3 10,344.5 11,825.5 12,172.5

13,647.8 15,887.8 Money Supply, M2 6,392.1 6,875.5 7,441.0 8,618.7 9,773.0

Money Supply, M1 3,189.2 3,598.6 4,069.8 4,602.4 5,099.3

Currency with public 756.6 873.6 932.0 1,026.5 1,116.4 Transferable deposits 2,432.6 2,725.0 3,137.7 3,575.9 3,982.8

(of which public entities) 280.5 394.3 428.7 524.0 699.5

Quasi Money 3,202.9 3,276.9 3,371.2 4,016.3 4,673.7

Fixed Term deposits 1,185.0 1,145.0 945.3 1,102.2 1,241.4 (of which public entities) 176.0 155.4 169.4 228.3 208.2

Savings deposits 2,017.9 2,131.9 2,425.9 2,914.1 3,432.3

Foreign Currency Deposits 3,952.4 4,949.9 4,731.6 5,029.1 6,114.8

Other items, net 3,993.1 3,913.2 3,754.2 3,847.0 3,894.9

Figures do not necessarily add up due to rounding off conventions 1 End of period 2 Excludes government balances 3 Changes in previous figures are due to revisions


3.2 Money Supply

The broadest monetary aggregate, M3, grew by 16 per cent to stand at R15,888 million as a result of expansions

in both rupee and foreign currency deposits of residents.

In terms of rupee deposits, M2 increased by 13 per cent (or R1,154 million) on account of a growth in M1 and in

the total value of quasi-money. The stock of savings and fixed-term deposits, both increased, and these were by

18 per cent and 13 per cent, respectively, which led to a growth of 16 per cent (or R657 million) in quasi-money.

The narrowest monetary aggregate, M1, rose by 11 per cent (or R497 million) as a result of 11 per cent and 8.8

per cent increases in transferable deposits and currency with the public, respectively.


Chart 3.2: Money Supply (2007 – 2017)1

1 Pipeline deposits were cleared in 2008


As for the stock of foreign currency deposits, it stood at R6,115 million, an increase of 22 per cent compared to

the previous year. In US dollar terms, the total value of residents’ foreign currency deposits was equivalent to

US$442 million, which was a year-on-year growth of 19 per cent.

3.3 Reserve Money14

Reserve money remained a nominal target under the new PCI, as was the case under previous IMF-supported

programmes. The PCI, approved in December, aims to support the country’s efforts to consolidate

macroeconomic stabilisation and foster sustained and inclusive growth.

The quarterly reserve money target, which is the upper bound (or ceiling), serves as a signal for the Bank’s

monetary policy stance. This is achieved through interventions in the money and foreign exchange markets,

whereby the Bank either chooses to absorb or inject liquidity in order to attain its set objectives. Further to the

operationalisation of the interest rate corridor, the band around the reserve money target was widened from 3%

to 6% in the fourth quarter. This was done to allow for more fluctuations in reserve money whilst ensuring that

stability in short-term interest rates is achieved.

The quarterly reserve money outcome compared to the target is illustrated in Table 3.2 and Chart 3.3 below.

14 Sometimes referred to as base or high-powered money and is comprised of currency in circulation and ODC’s deposits held at the Central Bank.

-30

-20

-10

0

10

20

30

40

50

60

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Perc

enta

ge

R m

illio

n

Transferable deposits Fixed Term deposits

Savings deposits Pipeline deposits

Foreign Currency deposits Currency with public

% Change in M3



For the first half of 2017, the monetary policy stance of the Bank remained tight as adopted since the third quarter

of 2016. This was necessary to ensure that the domestic price stability objective was maintained amid rising

inflationary pressures. The main inflationary threats originated from growing aggregate demand, which given the

context of the Seychelles economy filters through the general price level via the exchange rate channel. In

addition, some of the fiscal measures announced in the 2017 budget were foreseen to have inflationary

implications.

However, a cautious loosening of monetary policy stance was approved in the last two quarters of the year in a

bid to stimulate economic activity, as the economy was performing below its potential and inflationary threats had

moderated.

As illustrated in the chart below, the Bank managed to successfully meet all of its quarterly average reserve money

targets during the year.

Table 3.2: Reserve Money Q4 2016 to Q4 2017

Q4 Q1 Q2 Q3 Q4

2016 2017 2017 2017 2017

(R million)

Reserve Money (Target) 2,962.0 3,095.0 3,169.0 3,353.0 3,766.0

Reserve money (quarterly average) 2,990.0 2,994.0 3,093.4 3,310.4 3,558.9

Reserve Money (Actual) 1 3,023.6 2,826.2 3,194.5 3,304.5 3,434.2

Currency in Circulation 1,197.1 1,151.2 1,160.6 1,187.9 1,328.3

Other Depository Corporations' reserves 1,826.5 1,674.9 2,033.9 2,116.7 2,105.9

Standing Deposit Facility - - - 60.0 125.0

1 Figures are as at the last day of the quarter


Chart 3.3: Reserve Money (2017)


By year-end, the quarterly average stock of reserve money stood at R3,559 million, which was an increase of 19

per cent compared to the end-2016 average. This growth was primarily driven by a rise of 15 per cent and 11 per

cent in ODCs’ reserves and currency in circulation, respectively.

Chart 3.4: Notes and coins in circulation (2007 - 2017)


2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

3,800

4,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

R m

illio

n

Target Reserve Money Quarterly moving average

0

5

10

15

20

25

0

200

400

600

800

1,000

1,200

1,400

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Perc

enta

ge

R m

illio

n

Notes Coins % Change in Total Currency in Circulation


3.4 Domestic Credit

3.4.1 Central Bank and Other Depository Corporations

The total stock of outstanding domestic credit ended the year at R11,925 million, which was a growth of 8.1 per

cent relative to end-2016. This was mainly due to a 9.1 per cent expansion in the stock of outstanding credit of

ODCs.

The above-mentioned expansion in ODCs’ credit was mainly attributed to a growth of 18 per cent (or R910 million)

in claims on the private sector. There was also an increase in credit extended to public entities and this was by

0.9 per cent (or R5.9 million). As for claims on government, this contracted by 0.4 per cent (or R18 million), an

outcome that was consistent with government’s strategy to reduce total public debt to below 50 per cent of GDP

by 2021.

Chart 3.5: Total Domestic Credit (2007 - 2017)


3.4.2 Sectorial Allocation of Credit to the Private Sector15

A breakdown of the sectorial allocation of credit to the private sector showed that ‘private households & non-profit

organisations’ – which accounted for the largest share or 22 per cent of total credit to this sector– increased by 23

per cent. Loans to ‘tourism facilities’, another prominent sector, grew by 15 per cent whilst credit characterised

under the category ‘mortgages’ and ‘real estate’ – each accounting for 11 per cent of total loans to the private

sector – rose by 23 per cent and 6.7 per cent, respectively. By contrast, credit disbursed to the ‘construction’ and

‘fisheries’ sectors, declined by 7.5 per cent (or R33 million), and 6.5 per cent (or R2.9 million), respectively.

15 Effective January 2014, submissions pertaining to sectorial allocation of credit to the private sector were revised to more accurately capture the disaggregated loans portfolio.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

R m

illio

n

Claims on private sector Claims on government Claims on public sector


Table 3.3: Credit; 1/2/3 2013 – 2017

2013 2014 2015 2016 2017

(R million)

Total Credit 7,937.6 8,971.1 9,793.0 11,027.8 11,925.1

Commercial banks 6,752.6 7,786.1 8,607.9 9,842.7 10,740.1

Claims on private sector 3,428.3 4,311.7 4,645.7 5,122.7 6,032.3

Claims on public entities 303.8 272.2 531.5 630.8 636.7

Claims on government 3,020.5 3,202.2 3,424.1 4,089.2 4,071.1

of which:

Government Stocks 97.1 30.0 30.0 30.0 0.0

Treasury bonds 48.6 663.3 662.9 382.0 350.7

Treasury bills 2,113.9 1,796.9 2,066.4 3,024.8 3,072.8

Central Bank 1,185.1 1,185.1 1,185.1 1,185.1 1,185.1

Claims on government 1,185.1 1,185.1 1,185.1 1,185.1 1,185.1

of which:

Treasury bills 1,185.1 1,185.1 1,185.1 1,185.1 1,185.1

Figures do not necessarily add up due to rounding off 1 End of period 2 All figures for stocks, bonds and bills are at cost value 3 Changes in previous figures are due to revisions


In comparison to end-2016, a rise of 35 per cent was observed in loans to the private sector denominated in foreign

currency in 2017, thereby increasing its share of total credit from 23 per cent to 26 per cent.

Table 3.4: Other Depository Corporations – Loans and Advances

To Non-Governmental Sector by Economic Sectors1/2 2013 – 2017

2013 2014 2015 2016 2017

(R million)

Total Advances 3,428.3 4,311.7 4,645.7 5,122.7 6,032.3

of which:

Foreign Currency Loan 646.4 1,124.1 1,163.7 1,174.0 1,584.2

Agriculture and horticulture 17.5 31.8 49.6 61.5 94.6

Fisheries 15 37.4 52.1 44.9 42.0

Manufacturing 33.8 57 102.3 184.2 253.0

Real Estate 423.3 564.8 649.7 636.5 679.5

Construction 388.1 341.8 376.1 444.0 410.7

Transportation 179.7 165.5 177.9 172.5 265.4

Tourism Facilities 548.9 930.8 986.1 959.7 1,103.4

Wholesale & Retail trade 202.4 338.6 404.9 495.9 584.3

Financial institutions 0.0 4.7 2.0 0.9 0.6

Other business 403.4 410.9 343.6 447.6 535.3

Private households & Non-profit organisations 763.4 947.7 998.3 1,096.5 1,349.7

Mortgage loans 452.8 480.7 503.0 578.4 713.9 Figures do not necessarily add up due to rounding off

1 End of period 2 Changes in previous figures are due to revisions Source: Central Bank of Seychelles


Chart 3.6: Loans and Advances to Non-Government Sectors (2007 - 2017)


3.4.3 Development Bank’s Credit16

The Development Bank of Seychelles (DBS) has a specific mandate to assist in providing credit to productive

sectors that contribute towards important economic development. Loans extended by DBS generally come with

less stringent terms, and at rates that are relatively lower in comparison to those of the industry in several

categories.

In 2017, the DBS’ total loan portfolio grew by R147 million (or 20 per cent) to stand at R888 million. The growth

was on account of an expansion of R134 million (55 per cent) in the amount extended to the ‘building &

construction’ category. Consequently, the share of credit to this category rose to 43 per cent compared to 33 per

cent in 2016. Credit under the ‘tourism’ category, which accounted for 21 per cent of total loans disbursed by

DBS, grew by R30 million (or 19 per cent). Conversely, loans under the category ‘other services’ contracted by

R10 million (or 7.2 per cent) to account for 14 per cent of total DBS’ credit portfolio. Loans to the ‘transport’

category delined by R17 million (or 18 per cent).

16 DBS was established in 1977 under Decree No. 21 as a development financing institution with a specific mandate to assist in the economic development of Seychelles. DBS finances new modernisation and expansion projects in the fields of agriculture, fishery, industry, service and tourism as well as construction of commercial and residential complex. To be eligible for a credit facility, the applicant must be a Seychellois citizen or a company incorporated in Seychelles with at least 51 per cent Seychellois ownership.

0

2,000

4,000

6,000

8,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

R m

illio

n

Mortgage loans Private households & Non profit organisation

Other business Financial Institution

Wholesale & Retail trade Tourism Facilities

Transportation Construction

Real Estate Manufacturing

Fisheries Agriculture and horticulture


Table 3.5: Loans by Development Bank by Economic Sectors1 (2013 - 2017)

2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

(R million) (Percentage %)

Total Advances 394.5 409.7 522.9 740.7 887.5 100.0 100.0 100.0 100.0 100.0

Agriculture 24.0 25.9 27.3 33.6 32.6 6.1 6.3 5.2 4.5 3.7

Building and construction - 21.3 103.1 243.0 377.3 - 5.2 19.7 32.8 42.5

Fishing 9.2 13.1 22.8 33.1 36.7 2.3 3.2 4.4 4.5 4.1

Industry 21.7 29.6 25.0 37.6 44.9 5.5 7.2 4.8 5.1 5.1

Tourism 112.5 108.1 121.6 158.1 188.1 28.5 26.4 23.3 21.3 21.2

Trade - 2.4 3.2 3.5 3.2 - 0.6 0.6 0.5 0.4

Transport - 39.9 72.0 93.8 76.8 - 9.7 13.8 12.7 8.7

Other services 227.0 169.5 147.8 137.9 128.0 57.6 41.4 28.3 18.6 14.4 Figures do not necessarily add up due to rounding off

1 End of period Source: Development Bank of Seychelles

Chart 3.7: Sectorial Allocation of DBS Domestic Credit (2007 - 2017)

Source: Development Bank of Seychelles and Central Bank of Seychelles

3.5 Interest Rates

An overall decline in interest rates on both deposits and lending was observed in 2017. This reflected

developments in the second half of the year that was consistent with the period’s loosened monetary policy stance

adopted by the Central Bank.

The average yield on fixed-term rupee deposits fell by 20 basis points, from 3.55% at end-2016 to 3.34%. The

only increase in interest rates on rupee deposits was recorded on those in the maturity brackets of ‘more than 12

months’ and this was by 37 basis points. The main declines were registered in the return on instruments in the

maturity brackets ‘above 6 months but less than 12 months’ and ‘above 3 months up to 6 months’, by 1.0

0

50

100

150

200

250

300

350

400

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

R m

illio

n

Agriculture Building and construction Fishing

Industry Tourism Trade

Transport Other services


percentage point and 23 basis points respectively. Consistently, the average interest rate on savings deposits

decreased by 55 basis points, from 2.92% in December 2016 to 2.37%.

Throughout the year, government maintained its issuance calendar of Treasury bills, for both fiscal needs and for

monetary policy purposes, with movements in the yields influenced by changes in liquidity level and hence the

prevailing monetary policy stance. At the end of 2017, the average yield on the 91-day, 182-day and 365-day

Treasury bills stood at 3.06%, 4.79% and 5.33%, respectively. These were declines of 3.3 percentage points, 2.2

percentage points and 2.0 percentage points in the 91-day, 182-day and 365-day Treasury bills respectively.

Table 3.6: Interest Rates1/2 (2013 – 2017)

2013 2014 2015 2016 2017

(Per cent %)

Savings Rate 1.45 2.31 2.91 2.92 2.37

Rates on Fixed Term Deposits 2.86 3.30 4.08 3.55 3.34

<= 7 days 1.27 1.10 1.18 1.11 1.05

> 7 days <= 3 months 2.11 2.45 3.12 3.54 3.46

> 3 months <= 6 months 2.58 3.72 4.73 3.17 2.94

> 6 months < =12 months 3.56 4.65 5.80 4.82 3.82

> 12 months 4.79 4.56 5.54 5.08 5.45

Average Lending Rate 11.59 12.05 12.57 12.42 12.05

91-day treasury bill rate 0.92 5.39 5.70 6.50 3.06

182-day treasury bill rate 1.33 4.86 6.39 7.11 4.79

365-day treasury bill rate 1.80 5.60 7.15 7.33 5.33 1 All data are taken on an end of period basis and are volume-weighted 2 Changes in previous figures are due to revisions


With regard to the effective average lending rate, this declined by 38 basis points, from 12.42% in the previous

year to 12.05% in 2017. As a result, the interest rate spread – the difference between the lending and savings

rates – widened by 17 basis points relative to 2016 to stand at 9.68 per cent.

The transmission of monetary policy to the market through the interest rate channel remained a challenge in 2017.

Nonetheless, the Bank was committed to improving the interest rate transmission and effectiveness of monetary

policy as reflective in the revisions made to its policy framework introduced during the year.


Chart 3.8: Interest Rates (2007 - 2017)


3.6 Monetary Policy Instruments

During 2017, the Bank’s interventions in the money market aimed primarily at managing the level of liquidity in the

system to be consistent with its monetary policy stance. Given the structural liquidity surplus, as has been the

case over the past years, monetary policy implementations were solely through the use of liquidity-absorbing

instruments.

3.6.1 Minimum Reserve Requirement

The Minimum Reserve Requirement (MRR) applicable on average residents’ deposit liabilities remained at 13 per

cent. On the whole, institutions liable to MRR held reserves above the prescribed requirement throughout the

year.

The MRR was not remunerated by the Bank as has been the case since July 15, 2011. At the end of the year,

MRR on rupee-denominated liabilities stood at R1,208 million, whilst that on the US dollar17 and euro deposit

liabilities amounted to US$38 million and EUR19 million, correspondingly.

3.6.2 Deposit Auction Arrangement

DAA was the main monetary policy instrument used to absorb excess liquidity in the banking system during 2017.

Mindful of interest rate stability and consistent with the improved efficiency in the implementation of monetary

policy, the Bank intervened mostly through the use of standard operations, through quantify-based auctions.

Standard operations are defined as sequenced interventions around the MRR schedule using 7 and 28-day DAAs.

As at the end of 2017, the stock of outstanding DAA stood at R705 million compared to R610 million in 2016.

17 Foreign currency liabilities denoted in other currencies other than the euro are converted and classified as US dollar deposits.

0

5

10

15

20

25

30

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Perc

enta

ge

Savings Deposit Rate

Time Deposit Rate: > 6 months < =12 months

91-day treasury bill rate

Average lending rate


The table below shows the average interest rates on standard DAA offered during 2017.

Table 3.7: Weighted Average Deposit Auction Arrangement Rates1 (2017)

Q1 Q2 Q3 Q4

Maturity Period Per cent (%)

7 days 4.70 3.03 2.90 2.90

14 days 4.92 2.95 - - 1 End-of-month data Source: Central Bank of Seychelles

3.6.3 Credit Auction Arrangement (CAA)

In view that money market interventions were merely to withdraw liquidity from the system, the CAA, which is a

liquidity-injecting instrument, was not used during the year.

3.6.4 Repurchase Operations

Repurchase operations comprise of reverse repurchase and repurchase agreements. These two instruments,

which make use of government Treasury bills as underlying securities are used for liquidity management purposes.

The Bank did not conduct repurchase operations in 2017 in view that the document governing these instruments

were being reviewed.

3.6.5 Standing Facilities

Standing facilities are instruments that central banks make available to assist ODCs with their short-term liquidity

management by offering deposit and lending arrangements on an overnight basis.

3.6.5.1 Standing Deposit Facility (SDF)

The SDF allows ODCs to place their end-of-day excess funds in an overnight deposit at an interest rate set by the

Bank. The SDF serves as the floor of the interest rate corridor, with an applicable rate of 1.0% since July 2017.

A total of 208 placements were recorded in the SDF, amounting to R14,529 million.

3.6.5.2 Standing Credit Facility (SCF)

The SCF provides credit to ODCs on an overnight basis when funding is unavailable on the interbank market. The

SCF serves as the ceiling of the interest rate corridor. The applicable rate on this facility stood at 6.0% since July

2017. The Bank received two SCF requests during the year under review.

3.6.6 Emergency Lending Facility (ELF)

In its capacity as lender of last resort, the Bank also offers emergency liquidity support through the ELF18, in the

event that a bank encounters severe financial difficulties. This collateralised facility was not requested by any

institution in 2017.

18 The facility is offered for duration of 60 days extendable in 30 day increments up to a maximum of 180 days.


3.6.7 Foreign Exchange Auction (FEA)

The FEA is a policy instrument which the Bank can use for both liquidity and reserve management purposes.

Purchases from the market add liquidity and increase international reserves; a sale has the opposite effect. In the

course of 2017, the Bank opportunistically purchased US$50 million from the market with the strategic aim of

accumulating international reserves. No interventions were made to influence exchange rate on the grounds of

excess volatility.

3.6.8 Foreign Exchange Swaps

Foreign exchange swaps are intended for the fine-tuning of liquidity in the system but may also be employed to

manage external reserves. The Bank has yet to make use of this instrument since its introduction in 2010.


S E C T I O N F O U R

G o v e r n m e n t F i n a n c e 19

4.0 Overview

In line with its Medium Term Debt Strategy, government continued its consolidation policy in 2017 under the theme

“Inclusive Development – Opportunities for All”. The main objectives outlined by the budget included elimination

of poverty and a more equitable distribution of wealth.

On the policy front, key decisions were guided by the budget themes and included plans for the implementation of

the PIT system as well as other wage and pricing policies of parastatals.

With regards to pre-approved budgeted allocation, goods and services (30 per cent), wages and salaries (26 per

cent), and capital expenditure (15 per cent) accounted for the three main components of expenditure. In

comparison, the three major expenditure components of the previous year were Transfers to public sector from

central government (27 per cent), wages & salaries (17 per cent), and goods and services (15 per cent). Thus for

2017, a proposed budget equivalent to 37 per cent of GDP20 was approved. As regards to revenue, value-added

tax (VAT) (28 per cent), excise tax (17 per cent) and business tax (13 per cent) were the components with the

largest budget shares.

Overall, government had forecasted a primary surplus of 3.0 per cent of GDP. By end-2017, the actual primary

surplus stood at 3.1 per cent of GDP (R622 million), an outcome that was as a result of significant savings in

expenditure despite revenue being 13 per cent below its initial forecasts. Excluding grants, the primary surplus

stood at 2.2 per cent of GDP.

4.1 Policy Highlights

Consistent with the themes set under the budget, fiscal consolidation remained the underlying policy stance of the

2017. This was to be achieved through increased collection of taxes and by broadening and diversifying revenue

sources which would offset increased levels of expenditure both in absolute rupee terms and as a percentage of

GDP. Despite the contractionary stance of fiscal policy, proposed measures could be considered as expansionary

given the increased levels of recurrent expenditure as well as policies aimed at addressing the short run cost of

living, albeit at an aggregate level. By end of year, the overall performance was largely driven by capital

expenditure being significantly under budget.

On the revenue side, collections were budgeted to increase to a level of 41 per cent of GDP (from 40 per cent of

GDP in 2016), whereby moderations in tax and non-tax revenue were expected to be offset by increased levels of

19 Statistics and analysis are based on GFS as at February 23, 2018. 20 Figures expressed in terms of GDP are derived from nominal GDP levels used during the Budgeting process and provide an indication of fiscal performance with consideration of a time dimension.


grant receipts. Of note, grant receipts (equivalent to 3.3 per cent of GDP) were forecasted to be at its highest level

since 2012.

Key development policies were reflected by substantial reviews of taxation policies – including licence fees – in a

bid to improve service delivery. Of note, telecommunications and broadcasting licenses were transferred to

Department of Information and Communication Technology. In addition, a review of current tax incentives

agreements was expected to have medium to long run implications on policies of government. Business tax

amendments were proposed to ensure consistency with the new proposals for the progressive income tax, with

presumptive tax rates accordingly revised to reflect the aforementioned amendments.

On a related note, addressing the cost of living remained a key narrative throughout government policies, with

highlighted actions including reviews of select parastatal prices and the proposed 13th month pay to all Seychellois

employees. Regarding parastatal pricing policies, despite an increase in excise tax on fuel of 50 cents per litre,

PUC, SPTC and Air Seychelles were excluded from such an increase. Policies associated with the PIT system

as well as measures relating to the cost of financial services were also given prominence. With regards to PIT,

the budget proposal was to have the structure in place by July instead of January as originally announced, whereby

all wages at or below R8,555.50 were to be tax-free and rates of 15%, 20% and 30% would become applicable at

set thresholds. However, implementation of PIT was postponed for completion in July 2018. On the other hand,

and contrary to the short run cost of living policies, long term considerations were also provided with respect to

income taxes whereby an increase in employee contribution (by 1.0%) as from July was proposed. In the

subsequent two years, employers are expected to contribute an additional 0.5% per year.

Considerations were also given for environmental and health policies, whereby changes on the levy on PET bottles

and glass packaging are to be introduced in 2018. Moreover, excise taxes on hybrid cars were immediately raised.

Whilst this may be perceived as counterintuitive to past green policies, previous concessions only served to

increase the demand pressures on the economy and as such, the policy aimed at curbing said pressures. On the

health front, it was announced that a framework for the taxation of sugar was being developed and to be

implemented in 2018.

On the import front, the Seychelles Maritime Safety Administration (SMSA) were expected to increase its port

dues, berth dues, marine environment protection dues, marine safety dues and port clearance dues. The effects

of the policy on transaction costs in the economy remained uncertain.

Another noteworthy development was taxation policies on non-residents. As from July 01, SCAA imposed an

additional of US$10 as Passenger Service fee for non-resident leaving via the Seychelles International Airport. In

addition, a property tax was to be introduced on land owned by all foreigners. Nevertheless, its implementation

was delayed to 2018.

On the expenditure front – expressed in terms of percentage of GDP – this was budgeted to be at its highest level

since 2012, standing at 42 per cent. Nevertheless, a projected decline in current expenditure (equivalent to 0.5


per cent of GDP) was projected, albeit offset by a rise in capital expenditure, which at 7.2 per cent of GDP, was

the highest level since 2013.

Comprehensive reviews were expected to be undertaken as a means of minimising fiscal spending in the medium

term. This included reviews of expenditures relating to goods and services, current tax incentives and matters

relating to outsourcing contracts. Key highlights of the aforementioned reviews included double-digit reductions

in select components of goods and services expenditures. Of note, was the emphasis on expenditures relating to

the promotion of Small and Medium-Size Enterprises (SMEs), including policies relating to funding and improved

understanding of value-chain analysis.

With regards to current expenditures, whilst wages and salaries were expected to remain broadly unchanged

(when expressed in terms of GDP), a contraction of 0.8 per cent of GDP was forecasted for expenditures on goods

and services. Nevertheless, notable increases in wages and salaries –expressed in rupee terms – were budgeted

for the Health Care Agency (R41 million), Ministry of Education and Human Resources Development (R29 million)

and the Department of Defence (R20 million). With regards to outlays on goods and services, notable increases

were forecasted for Ministry of Education and Human Resources Development (R34 million) with the rise offset

by a decline of R48 million in expenditures relating to the Department of Defence. With regards to transfers, this

was expected to remain broadly unchanged at 6.1 per cent of GDP.

The merit for increased capital expenditure was emphasised by the setting up of the Development Committee in

January within the Ministry of Finance and would have a key role in reviewing capital project proposals before

consideration for financing within the government’s Public Sector Investment Programme (PSIP). This

development emphasised the drive – and the need for improved efficiency – for medium to long term infrastructure

improvements, which is expected to increase in the medium term and thus act as a potential stimulant to long term

growth. The stance also took into consideration the need for climate change mitigation and adaptation

investments. With regards to allocation, noteworthy increases included the SFA and the Health Care Agency.


Table 4.1: Government Budget Summary

(2016 - 2017) 2016 2017

Budget Actual Budget Actual1

SCR(‘000)

Total revenue and grants

7,277,792

7,296,293

8,362,659

7,447,688

Total revenue 6,810,747 7,056,156 7,685,770 7,275,117 Tax 5,940,423 6,188,402 6,572,842 6,600,422 Personal Income Tax 1,047,001 938,604 847,141 900,059 Trade Tax 347,493 358,809 333,490 284,939 Excise Tax 1,018,000 1,143,892 1,291,234 1,311,674 GST - 921 100 16,955 Value Added Tax 1,939,046 1,994,601 2,138,664 2,133,831 Business tax 846,177 1,038,868 1,007,483 1,363,881

Corporate Social Responsibility Tax 85,042 86,717 90,920 95,052 Tourism Marketing Tax 64,030 44,770 63,002 59,869

Other Tax 593,634 581,220 800,808 434,161

Nontax 870,325 867,754 1,112,928 674,696 Fee and Charges 386,094 427,666 468,722 349,319 Dividends Income 325,415 304,884 429,255 279,903 Other Nontax 158,815 135,203 214,951 45,474 Grants

467,045

240,138

676,889

172,571

Expenditure and net lending

7,297,806

7,368,244

8,577,620

7,456,657

Current expenditure 5,958,147 6,386,006 6,876,340 6,688,310 Primary Current Expenditure 5,172,395 5,671,909 6,051,045 6,057,672 of which:

Wages and salaries 1,253,638 1,258,029 2,222,836 2,075,178 Goods and services 1,080,249 1,156,173 2,560,863 2,561,796 Social program of Central Government 143,123 153,288 132,374 113,842 Transfers to public sector from Central Government 1,966,361 2,133,633 59,520 97,092 Benefits and approved programs of SSF 700,817 943,775 1,040,743 1,169,154 Other 28,208 27,011 34,709 40,611 Interest due 785,752 714,097 825,294 630,637 Capital expenditure

1,204,972

908,808

1,304,326

604,914

Net lending 109,687 35,294 209,547 -454 Contingency 25,000 38,136 25,000 21,467

Primary balance, Accrual basis (GFS)2 765,738 642,146 610,333 621,669 In per cent of GDP 3.92% 3.29% 3.00% 3.06% Excluding grants 298,693 402,009 -66,556 449,098 In per cent of GDP 1.53% 2.06% -0.33% 2.21% Overall balance, Accrual basis (GFS)

-20,014

-71,951

-214,961

-8,969

In per cent of GDP -0.1% -0.4% -1.06% -0.04% Figures do not necessarily add up due to rounding.

1 These series are subject to audit and might be revised accordingly. 2 The primary balance is obtained by excluding interest payments from the overall balance.

Source: Ministry responsible for Finance


4.2 Public Debt

Fiscal consolidation has been a key policy objective since the onset of the reform process in late 2008. In that

respect, the authorities are committed to reduce public debt levels to less than 50 per cent by 2021. Fiscal policy

remains focussed on ensuring medium-term fiscal sustainability and enhancing resilience to climate change.

Moreover, to address the infrastructure gap, government has committed itself to a lower primary surplus of 2.5 per

cent of GDP from 2018 onwards. Whilst this may constrain recurrent expenditure, increased capital expenditure

is seen as a determinant of long term economic capacity and indicative of long term planning of government.

As at end 2017, the aggregated stock of public debt stood at US$902 million, which was a decline of 3.6 per cent

relative to December 2016. When expressed as a share of GDP, public debt declined to 62 per cent which was a

change of 2.6 per cent of GDP relative to 2016.

4.3 Outcome for 2017

The fiscal outcome for 2017 remained positive -as denoted by the primary balance- where the achieved surplus

was marginally better than anticipated. This was underpinned by lower-than-budgeted government spending,

which offset the underperformance on the revenue side.

Chart 4.1: Government Finance Outcome (2007 – 2017)


4.4 Revenue

Total annual revenue (inclusive of grants) amounted to R7,448 million, which was 11 per cent below forecast.

Such outcome was driven by a shortfall in non-tax collection (39 per cent) due to grants being R506 million below

initial projection.

(1,200)

(1,000)

(800)

(600)

(400)

(200)

-

200

400

600

800

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

R m

illio

n

R m

illio

n

Years

Total Receipts (Primary Axis) Total Outlays (Primary Axis) Overall Balance (Secondary Axis)


Tax revenue stood at R6,600 million, outperforming the budget by 0.4 per cent following over-performances in the

tax categories of business (R356 million), income (R53 million), excise (R20 million) and goods & services (R17

million). The positive outcome in the highlighted tax components were offset by under-performances in some tax

components, key of which were ‘other tax’ (R367 million) whilst receipts from trade tax was R49 million below

forecast.

There were notable underperformances across all components of non-tax revenue with that under fees and

charges (R119 million), dividends income (R149 million) and other non-tax (R169 million) cumulatively accounting

to R438 million.

Chart 4.2: Major Revenue Flows in Current Receipts (2007 - 2017)


4.5 Expenditure and Net Lending

In 2017, total government expenditure and net lending stood at R7,457 million compared to the budgeted R8,578

million. As such, the total amount spent was 13 per cent or R1,120 million below budget.

4.5.1 Current Outlays

Savings were materialised under current expenditure, with the actual figure standing at R6,688 million or 2.7 per

cent below its allocated amount. This was due to lower-than-anticipated spending on domestic interest payments

(by R196 million). In addition, the amount spent was less than planned under other components of current outlays,

primarily wages and salaries (R148 million) and social programme of central government (R19 million) that

contributed to offset over-spending under other expenditure heads. The main budget lines where spending was

above the budgeted amount were benefits and approved programmes of the Social Security Fund (R128 million)

and expenditures on goods and services (R0.9 million). To note, subvention to state-owned enterprises amounted

to R97 million or R38 million above the planned amount, which was primarily as a result of expenditures related

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

R m

illio

n

Years

Fees and Charges Other Tax Income / Business Tax

Trades Tax Pension Fund Contribution


to Seychelles Public Transport Company being 50 per cent above budget as well as Housing Finance Company

being allocated a previously unbudgeted amount of R16 million.

4.5.2 Capital Outlays

Total capital outlays summed up to R605 million, which was R699 million or 54 per cent below the planned amount.

The largest share of the funding of capital projects was made through grant financing (50 per cent). Among the

entities with a budget allocation of above R100 million, the Department of Defence (93 per cent), the SFA (65 per

cent) and the Healthcare Agency (66 per cent) accounted for the largest percentage of provisions for capital outlays

that were not spent.

The total value of development grants amounted to R162 million, and was primarily allotted to PUC (R120 million)

and the Seychelles Public Transport Corporation (SPTC) (R30 million).

Chart 4.3: Government Capital Expenditure (2007 - 2017)


4.6 Financing

As per established trend, funds for the financing of the government’s budget were from both the domestic as well

as foreign sources. In addition to grants, the net foreign financing item of the fiscal statement includes loans

borrowed from bilateral and multilateral partners as well as from commercial sources. As for domestic financing,

the majority continued to be in the form of Treasury bills and bonds.

-60

-40

-20

0

20

40

60

80

100

120

0

200

400

600

800

1000

1200

1400

1600

1800

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Perc

enta

ge

R m

illio

n

Years

Capital outlays % Change


Chart 4.4: Stock of Domestic Debt (Jan – Dec 2017)

Source: Ministry responsible for Finance; Central Bank of Seychelles

4.6.1 Treasury Bills

Increased issuance of securities for fiscal needs was offset in its entirety by a reduction of paper issued for

monetary purposes. As such, the stock of outstanding Treasury bills ended the year at a lower level than in 2016.

This was a decline of 3.6 per cent at cost value.

By the end of the year, yields on the 91-day, 182-day and 365-day Treasury bills stood at 3.06%, 4.79% and

5.33%, respectively. This is compared to the yields of 6.50%, 7.11% and 7.33% on the same securities for end-

2016.

Table 4.2: Treasury Bills 1/2/3/4 (2013 – 2017)

2013 2014 2015 2016 2017

Stock outstanding 1/3/4 2,196.7 2,215.4 2,857.3 4,005.0 3,859.5

91-day bills (tender issue) 330.0 279.7 404.4 510.8 566.1

182-day bills (tender issue) 642.3 535.8 524.9 1,055.4 1,108.4

365-day bills (tender issue) 1,224.4 1,399.8 1,927.9 2,438.8 2,185.1

Stock outstanding 2/3/4 2,256.2 2,312.8 3,096.9 4,218.2 4,023.6

91-day bills (tender issue) 331.3 284.6 410.8 518.1 570.4

182-day bills (tender issue) 649.6 551.3 549.4 1,088.6 1,132.6

365-day bills (tender issue) 1,275.2 1,476.9 2,136.7 2,611.5 2,320.5

Held By 3/

Commercial banks 2,173.6 1,841.5 2,186.5 3,114.7 3,158.6

Other financial institutions 10.0 152.4 289.0 510.0 324.2

Others 72.5 319.0 621.4 593.5 540.8 1 At cost value 2 At face value 3 End of period data 4 Balances exclude stock of bills held by CBS and includes stock issued for monetary policy purposes


5,000

5,200

5,400

5,600

5,800

6,000

6,200

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

R m

illio

n

Months


4.6.2 Treasury Bonds

Three new bond series were issued in 2017 and these were on tenors of three years, five years and seven years

respectively. Their corresponding yield were fixed at 6.0%, 6.5% and 7.0% per annum. In addition, a bond was

issued on behalf of DBS, with a tenor of three years earning a fixed interest rate of 6.0% per annum.

4.6.3 Government Stocks

The outstanding government stocks matured during the year and with no new issuance, there was no outstanding

balance at the end of 2017. Such development was consistent with government policy on phasing out the debt

instrument upon its maturity in 2017.

Table 4.4: Government Stocks 1/ 2/ (2013 – 2017)

2013 2014 2015 2016 2017

R (million)

Stock outstanding 100.0 30.0 30.0 30.0 0.0

8%, 2014 - - - - -

8.50%, 2017 - - - - -

Held by 70.0 - - - -

Commercial banks 30.0 30.0 30.0 30.0 0.0

Others

1 End of period data 2 At cost value

Source: Ministry responsible for Finance, Central Bank of Seychelles

Table 4.3: Treasury Bonds 1 (2013 - 2017)

2013 2014 2015 2016 2017

R (million)

Stock outstanding 193.8 911.0 814.6 512.6 600.0

4.0%, 2-yr - 300.0 300.0 - -

4.5%, 3-yr - 262.6 262.6 262.6 -

5.5%, 5-yr - 250.0 250.0 250.0 250.0

6%, 3-yr 50.0

6.5%, 5-yr 150.0

7.0%, 7yr 150.0

Held by1:

Commercial banks 4.9 3.3 614.0 610.9 302.3

Other financial institutions 196.4 165.1 159.2 91.4 129.4

Others 0.0 25.4 139.1 112.2 168.5 1 End of period data



S E C TI O N F I V E

E x t e r n a l S e c t o r 21

5.0 Overview

The balance of payments (BOP) statistics allow for the analysis of Seychelles’ transactions with the rest of the

world. As a small open economy, the country remains vulnerable to external shocks hence the need to build the

appropriate safeguard. Consistently, reserve accumulation remained an important objective of the Central Bank

despite the fact that recent assessments have confirmed that official reserves had already reached a level

considered to be “adequate”. In 2017, the level of gross international reserves increased from US$523 million in

2016 to US$545 million or equivalent to 4.2 months of imports of goods and services, an outcome that was partly

due to opportunistic purchases of foreign exchange from the market. Consistently, NIR which finished the year at

US$424 million outperformed its target by US$33 million.

Based on provisional estimates, the country’s current account deficit widened by US$9.1 million in 2017. Notable

was the positive performance of the tourism industry following annual growth of 15 per cent in visitor arrivals.

Tourism earnings are estimated at US$483 million which was an increase of 17 per cent relative to 2016.

The growth in total value of imports was partly influenced by the relatively higher commodity prices compared to

2016 in addition to growth in demand.

In the foreign exchange market, on average, the rupee weakened against both of the two main traded currencies,

namely the USD and EUR. In contrast, it appreciated against the GBP which was still recovering from its loss in

value following the outcome of the UK referendum in June 2016 that was in favour of exiting the European Union

(EU).

With regards to international relations, the country upheld its commitment in maintaining the strong diplomatic ties

with its bilateral and multilateral partners. It also remained dedicated in upholding the regional integration agenda

of the two main economic blocs in the region, namely the Southern African Development Community (SADC) and

Common Market for Eastern and Southern Africa (COMESA).

5.1 Current account

The current account remained expectedly in deficit to reflect the country’s heavy reliance on imports and limited

possibility for diversification or growth in export earnings. Preliminary estimates showed a current account deficit

21 Since 2015 the Bank has started to include offshore sector data, particularly the activities of entities registered as Company Special Licence (CSLs), in the Balance of Payments (BOP). This was a prerequisite for the country’s subscription to the IMF Special Data Dissemination Standards (SDDS). The new offshore data has significantly altered the country’s BOP in particular the capital and financial account. To note that the BOP has been revised as far back as 2012 in order to include the offshore sector data.


of US$297 million in 2017 which was equivalent to 20 per cent of GDP. This was a worsening of US$9.1 million

relative to the previous year. Such outcome was mainly as a result of an increase in the value of imports of both

goods and services.

Chart 5.1: Overall balance, current account and capital & financial account of the BOP (2007 - 2017)


5.1.1 Trade in goods

In 2017, the country’s trade deficit amounted to US$590 million, worsening by 11 per cent relative to 2016. Despite

a 23 per cent increase in the total value of exported goods, it was insufficient to offset a rise of 17 per cent in the

amount paid for imported goods.

Chart 5.2: Trade in Goods (2007 - 2017)

Source: National Bureau of Statistics & Central Bank of Seychelles

-600

-400

-200

0

200

400

600

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US

$ m

illi

on

Current Account Capital and Financial Account Overall Balance

-1,000

-500

0

500

1,000

1,500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US

$ m

illio

n

Merchandise exports (f.o.b.) Merchandise imports (f.o.b.) Merchandise, Net



Table 5.1: Seychelles Balance of Payments1 (2013 - 2017)

2013 2014 2015 2016 2017 Prov.

CURRENT ACCOUNT (USD million) -155.7 -308.1 -256.2 -287.4 -296.5 Goods, -445.4 -541.9 -473.0 -531.9 -590.3 Credits (of which:) 629.2 539.0 449.4 459.2 564.8 Merchandise exports (f.o.b.) 373.9 336.9 253.1 286.5 286.4 Debits (of which:) 1,074.6 1,081.0 922.4 991.0 1,155.1 Merchandise imports (f.o.b.) 949.6 996.7 848.0 895.5 1,055.1 Services, net 354.3 330.6 322.0 386.3 446.3 Credits (of which:) 826.7 834.2 805.0 893.7 998.1 Tourism Earnings 430.2 397.6 392.0 413.7 482.7 Debits 472.4 503.6 483.6 507.4 551.8 Primary Income, net -79.4 -99.6 -105.4 -132.2 -136.7 Compensation of employees -7.7 -4.6 -15.1 -7.5 -8.9 Credits 4.0 3.6 5.0 5.1 4.7 Debits 11.6 8.2 20.1 12.5 13.6 Investment income -71.7 -95.0 -90.3 -124.8 -127.8 Credits 34.2 13.7 12.4 8.2 10.3 Debits 105.9 108.8 102.7 133.0 138.1 Secondary Income, net 14.8 2.8 -27.0 -9.7 -15.7 General government 52.5 38.2 18.6 30.7 22.4 Credits 52.5 38.2 18.6 30.7 22.4 Fishing licence fees 10.2 7.6 5.7 7.5 10.9 Other grants 42.3 30.7 12.9 23.2 11.5 Debits 0.0 0.0 0.0 0.0 0.0 Other sectors -37.6 -35.3 -45.6 -40.4 -38.0 Credits 12.0 14.1 13.5 17.1 20.1 Debits 49.5 49.5 59.1 57.5 58.1 CAPITAL AND FINANCIAL ACCOUNT 100.7 275.0 252.6 280.3 284.5 CAPITAL ACCOUNT 70.5 39.1 36.9 54.2 52.3 FINANCIAL ACCOUNT -30.2 -235.9 -215.8 -226.2 -232.1 Direct investment -125.3 -185.2 -193.0 -119.3 -208.2 Assets -68.0 -76.9 -87.1 -78.4 -79.4 Liabilities 57.3 108.4 105.9 40.9 128.8 Portfolio investment 17.8 12.9 -35.9 51.8 57.2 Assets 39.1 -8.0 -43.9 61.1 41.8 Liabilities 21.3 -20.9 -8.0 9.3 -15.4 Other investment -19.6 -106.9 -59.9 -158.8 -99.5 Assets -57.0 -128.7 -187.4 -91.1 -11.2 Liabilities -37.5 -21.8 -127.5 67.8 88.3 Net errors and omissions 55.0 33.1 3.6 7.1 12.0 OVERALL BALANCE -96.8 -43.3 -73.0 -0.1 -18.4 Financing of overall balance 96.8 43.3 73.0 0.1 18.4 Reserve assets 96.8 43.3 73.0 0.1 18.4 Arrears 0.0 0.0 0.0 0.0 0.0 Memorandum items: Current account (percentage of GDP) -11.2 -21.6 -18.6 -18.4 -20.0 Trade Balance (f.o.b.). (merchandise exports less imports) -575.6 -659.8 -594.9 -609.0 -768.7 Stock of Reserves (Gross) (US$ million) 425.1 464.3 535.5 523.3 545.2 Stock of Reserves (Gross) (Months of cif imports) 3.2 3.9 4.3 4.1 4.2 Exchange Rate (Rupee/US$; period average) 12.0577 12.7527 13.3096 13.3194 13.6481 1Data series may differ from previous publications due to revisions.


5.1.2 Merchandise exports

At US$286 million, the aggregate value of merchandise exports (fob)22 remained relatively unchanged from its

2016 levels. Of note, a decline was observed in the value of exports of canned tuna, namely from US$271 million

in the previous year to US$265 million.

5.1.3 Merchandise imports

Total expenditure on imported merchandise (fob) amounted to US$1,055 million in 2017, which was an increase

of 18 per cent in comparison to an import bill of US$896 million in 2016. In terms of its composition, the main

categories were ‘machinery & transport equipment’ and ‘food, live animals & vegetables oils’ which accounted for

29 per cent and 27 per cent of total import values, correspondingly. Other prominent import categories were

‘mineral fuels’ (19 per cent) and ‘manufactured goods & miscellaneous manufactured articles’ (16 per cent).

Notably, the most significant increase was recorded under the category ‘machinery & transport equipment’ and

this was by 38 per cent relative to 2016.

Table 5.2: Imports (c.i.f.) - by HS1 Sections (2013 - 2017)

2013 2014 2015 2016 2017

Description (US$ million)

Total Imports 1,083 1,143 987 1,042 1,231

Beverages and tobacco 19 23 22 27 29

Chemicals 46 51 59 63 61

Food, live animals & vegetable oils 295 257 224 277 324

Machinery and transport equipment 239 288 298 275 378

Manufactured goods & misc. manufactured articles 176 217 194 215 209

Mineral fuels 274 288 174 165 213

Other commodities 32 19 15 20 16

Notes: 1 Harmonised System

Source: National Bureau of Statistics & Central Bank of Seychelles

22 “Free On Board” (FOB) means what it costs to get the goods to the boat (or equivalent). The alternative is CIF which means "Cost, Insurance, Freight”, and includes additional costs to get the good to the foreign customer.


Chart 5.3: Imports (f.o.b.) 2017


5.2 Services

The country’s services account remained in surplus in 2017. Exports of services rose by US$104million (or 12

per cent) to US$998 million. This was on account of the improved performance of the tourism industry, the leading

contributor to export of services. At a sum of US$483 million, tourism earnings are estimated to have grown by

17 per cent from 2016, an outcome that was consistent with the period’s increase of 15 per cent in visitor arrivals.

The traditional European markets, namely France and Germany continued to dominate in terms of market share

although France lost its position as market leader to Germany. With a rise of 28 per cent, the latter showed the

largest annual increase in tourist arrivals. Growth was also evident in the number of visitors originating from the

continents of Asia and Africa, and this was by 16 per cent and 15 per cent respectively.

With regards to the total value of services imported from non-residents, this stood at US$552 million, an increase

of US$44 million or 8.8 per cent compared to 2016. As such, the net value of the country’s exports of services

amounted to US$446 million in 2017, which was a rise of 16 per cent over that of the previous year.

5.3 Primary Income

In 2017, the balance for the primary income account is estimated to be a deficit of US$137 million, which showed

an increase in net income payments to non-residents by US$4.5 million compared to 2016. There were higher

outflows of investment income, with interest, dividend payments, and management fees due being the main

contributors of the widening deficit under this account.

Other commodities

1.3%

Mineral fuels19.0%

Manufactured goods & misc. manufactured

articles16.2%

Machinery and transport

equipment29.2%

Food, live animals &

vegetable oils27.3%

Chemicals4.7%Beverages and

tobacco2.2%


5.4 Secondary Income

A deficit at a larger magnitude than in the previous year was also observed in the country’s net secondary account

balance. Such result was primarily attributed to the estimated increased value of outward remittances by foreign

workers in Seychelles, primarily from the tourism, construction and manufacturing industries. In addition, the

amount of inward official transfers dropped by 27 per cent, from US$31 million in 2016 to US$22 million.

5.5 Capital and financial accounts

In 2017, the capital and financial accounts remained in surplus and its value rose from US$280 million in 2016 to

US$285 million.

5.5.1 Capital account

A surplus of US$52 million was recorded in the capital account, which was US$1.8 million (or 3.4 per cent) lower

than in 2016. Official capital transfers remained the main component of this account. Inward official capital

transfers were representative of projects financed by the country’s bilateral partners, budget support, and

donations in the form of high-value capital goods.

5.5.2 Financial account

Preliminary estimates showed US$232 million financing of the current account in 2017, which was US$5.9 million

higher than in 2016. Its largest component was direct investment, under which gross inflows of FDI were estimated

at US$129 million. This was an increase of US$88 million compared to the previous year and was primarily due

to a rise in the implementation of tourism projects that were not affected by the 2015-2020 moratorium23, as well

as other reinvestments by business entities in tourism, telecommunication, manufacturing, and the fishing

industries that were already operational. To note, the FDI estimate was also influenced by the value of liabilities

of offshore companies, namely entities registered under Companies’ Special Licences (CSLs).

5.6 External reserves

The Bank continued to ensure that the country’s external position remained strong to safeguard the economy

against potential external shocks.

At the close of 2017, gross official reserves stood at US$545 million, an increase of US$22 million (or 4.1 per cent)

relative to the previous year. This level of reserves was equivalent to 4.2 months of total imports of goods and

services compared to a reserves adequacy level of 4.1 months in 2016.

At the year-end, the NIR was US$424 million which exceeded its target of US$391 million by US$33 million.

23A moratorium on the construction of large hotel projects in Seychelles became effective mid-2015 and is expected to end in 2020. However, this excluded hotels that had their plans approved prior to the introduction of the moratorium, as well as expansions of existing hotels.


Table 5.3

External Reserves1 (2013-2017)

2013 2014 2015 2016 2017

(US$ million)

Gross official reserves 425.9 465.0 536.1 523.5 545.2

Central Bank 425.1 464.3 535.5 523.3 544.7

Government 0.8 0.7 0.6 0.5 0.6

Central Bank's External liabilities 43.5 42.2 42.3 38.1 41.9

Net official Reserves (include blocked deposits) 382.3 422.8 493.8 485.4 503.3

Net official Reserves (exclude blocked deposits) 334.0 363.7 423.4 415.1 424.3

1 End of period data


5.7 Exchange rates

In 2017, both the demand for, and supply of foreign exchange was higher than in the previous year. In terms of

the external value of the rupee against the three most traded currencies, the domestic currency depreciated

against the US dollar and euro but appreciated vis-à-vis the GBP.

On average, the rupee traded at R13.6481 against the US dollar, R15.4618 relative to the euro and R17.5237 vis-

à-vis the GBP. This was a depreciation of the domestic currency vis-à-vis the USD by 33 cents and by a greater

extent of 70 cents against the EUR. In contrast, the rupee appreciated by 49 cents against the GBP.

During 2017, movements in domestic exchange rates were greatly influenced by developments in international

markets. The GBP was recovering from a relatively low level after the UK voted to exit the EU in June 2016 led

to a sharp weakening of the currency. The EUR also gained momentum in 2017 supported by the ongoing

economic recovery in the Euro area. Overall, greater variability was witnessed in the traded value of the rupee

against the aforementioned currencies in contrast to the US dollar where more stability was observed.

Table 5.4: Exchange Rates1 (2013 – 2017)

2013 2014 2015 2016 2017

(Seychelles Rupees per currency unit)

Euro 16.0064 16.9395 14.7554 14.7605 15.4618

US Dollar 12.0577 12.7527 13.3096 13.3199 13.6481

Pound Sterling 18.8724 20.8874 20.2793 18.0142 17.5237

Japanese Yen 0.1239 0.1205 0.1100 0.1230 0.1221

South African Rand 1.2558 1.1752 1.0506 0.9096 1.0270

Singapore Dollar 9.6419 10.0595 9.6840 9.6284 9.8952

1 Period Averages



Chart 5.4: Exchange rate movements of the three main currencies (2007 - 2017)


5.8 Developments in Financial Services

A new Board for the Financial Services Authority (FSA) was appointed in July for a term of three years, comprising

of representatives from both public and private sector. On December 1, Dr. Steve Fanny was appointed as the

new Chief Executive Officer (CEO) of the FSA and Ms. Zenabe Daman as the Deputy CEO.

With regards to activities undertaken in 2017, FSA entered into a number of MoUs with its counterparts in other

jurisdictions so as to facilitate the exchange of information and enhance its capacity. A MoU was signed with the

Insurance Regulatory Authority of Kenya (IRAK) for sharing and exchange of information, as well as to enhance

training prospects. Considering the growth in gambling services over the years, FSA also found it useful to sign a

MoU with the Alderney Gambling Control Commission (AGCC) to enhance cooperation under the areas of mutual

assistance, information exchange and joint investigations. The other MoU signed in 2017 was with the Central

Bank of the Russian Federation to assist both authorities in promoting investor protection and supervision of

financial products and activities in respective jurisdictions.

During the year, FSA finalised its project to introduce risk-based supervision for the insurance sector and the

Seychelles Pension Fund (SPF) within the Insurance Services Section. As part of the implementation process,

FSA organised a training for the domestic insurance companies and the SPF. In recognition of the importance of

the insurance sector in the economy, the Authority launched a programme in collaboration with the Insurance

Association of Seychelles and the Seychelles Police to address insurance fraud. New fraud-prevention

requirements to be upheld by all insurers became effective as of September.

In addition, the FSA strengthened consumer focus by hosting a training session with the University of Seychelles

for licensed insurance agents and brokers. The aim of the programme was three-fold: to expand the

intermediaries’ knowledge; improve insurance services for consumers; and to have experienced agents and

4

6

8

10

12

14

16

18

20

22

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rup

ees

Euro US Dollar Pound Sterling


brokers assist with the development of training for new intermediaries. Insurance intermediaries are expected to

continue participating in these training sessions as part of their licensing requirements.

The FSA along with other stakeholders including the Ministry responsible for Finance and the Seychelles Revenue

Commission (SRC) evaluated its taxation regimes centred on the Base Erosion and Profit Shifting (BEPS) project

headed by the Organisation for Economic Cooperation and Development (OECD). Following concerns raised

over potentially inconsistent features identified, the government of Seychelles gave its commitment to ensuring

that the country’s tax regimes are revised to be consistent with the standards of the Forum of Harmful Tax Practices

(FHTP) and the minimum standard under Action 5 of the BEPS project.

FSA in collaboration with the Central Bank also officially launched the National Financial Education Strategy

(NFES) in December. This project was funded by the African Development Bank (AfDB) and was based on the

findings of the baseline survey on financial literacy conducted across the country in 2016.

The year also saw increased activities on the Seychelles Securities Exchange (SSE) whereby fifteen new

companies were listed, which brought the total number of equity companies listed on the exchange to twenty-four.

5.9 International Relations

The country remained committed in maintaining the strong relations it currently holds with its bilateral and

multilateral partners. The support received from these diplomatic ties have continued to help government achieve

its development objectives and these were through the various projects that were implemented and grants

received.

Seychelles reinforced its cooperation with its sovereign counterparts on both bilateral and multilateral fronts and

remained dedicated in upholding its regional integration programme with SADC and COMESA. The country also

hosted several meetings during the year, many of which were being held here for the first time.

5.9.1 Multilateral Institutions

The support of multilateral institutions remained an important component in Seychelles’ diplomatic and economic

relations with its foreign partners.

5.9.1.1 International Monetary Fund

The Executive Board of the IMF completed the sixth and final review under the Extended Fund Facility (EFF)

programme, which came to an end in June. The completion of the review enabled the disbursement of US$2.3

million, bringing the total value of disbursements under the Arrangement to US$15.8 million. Following this, a new

successor programme was effectively negotiated under a three-year PCI. Contrary to past arrangements, the new

programme will be a non-financing one. It serves to primarily provide support to the authorities’ efforts to

consolidate macroeconomic stabilisation and foster sustained and inclusive growth, building on successes of the


three previous IMF-supported programmes. The new arrangement also aims to anchor fiscal policy on the

medium-term target of bringing the debt-to-GDP ratio to 50 per cent by 2021.

5.9.1.2 World Bank

In the World Bank 2018 Doing Business Report, Seychelles ranked 95 out of 190 countries in the Ease of Doing

Business Index. This was a deterioration of 2 places in comparison to the ranking of 93 in the 2017 edition. The

main factor for this was the fall in the category of Getting Credit from a rank of 118 in the previous year to 133.

In October, a US$20 million package was approved by the World Bank for the conservation of Seychelles' marine

resources and seafood value chains. The funding came as part of the Third South West Indian Ocean Fisheries

Governance and Shared Growth Project (SWIOFish3), aimed at improving the management of marine areas and

fisheries in targeted zones of Seychelles. This was the first World Bank project in Seychelles in more than 30

years.

5.9.1.3 World Trade Organisation

Seychelles became a full-fledged member of the World Trade Organisation (WTO) in April 2015. During its first

two years as a member, it has actively participated in numerous WTO meetings and negotiations, whilst pursuing

the country’s interests in issues being discussed, including on fisheries subsidies, e-commerce and domestic

regulations under the agreement on trade in services.

During 2017, Seychelles continued to maintain its active participation in the work at WTO level, focusing primarily

on areas of concern, namely on market access, trade in services and trade-related issues.

The main discussions in relation to market access were centred on agriculture and was related to special safeguard

measures for developing countries, public stockholding, agricultural export and domestic support.

In terms of trade in services, Seychelles’ main involvement in 2017 has been in Domestic Regulations and

Electronic Commerce in view that the country is a co-sponsor to a discussions paper on these subjects. The

former concentrated around seven proposals tabled in a Working Party on Domestic Regulation (WPDR) that

proposes disciplines in terms of regulations within Seychelles’ services sectors. These cover areas such as

Administration of Measures, Development of Measures, Transparency, Technical Standards and Development for

Least Developed Countries (LDCs). Nationally, the disciplines have been tabled at the National Committee on

Domestic Regulations for Trade in Services, which has indicated a significant level of compliance with the

proposals.

With regards to trade-related issues, one of the main discussions which Seychelles was actively involved in at the

WTO in 2017 was fisheries subsidies. These negotiations were based on the Sustainable Development Goals

Target 14.6 which aims to put in place disciplines that prohibit certain forms of fisheries subsidies that contribute

to overcapacity and overfishing, and eliminate subsidies that contribute to Illegal, Unreported and Unregulated

fishing (IUU-fishing).


In addition, Seychelles continued to receive capacity building assistance from the WTO through numerous trade

courses, including online courses. The WTO Secretariat also responded positively to Seychelles’ request for

technical assistance in the form of a Training on WTO Government Procurement Agreement. This exercise is

expected to take place in the first half of 2018.

5.9.1.4 African Development Bank

The AfDB has been involved in several projects over the years and has been a key supporter of the development

initiatives of the Seychelles government. It has also been a strategic partner in several projects implemented by

PUC. In February, the AfDB approved a grant of EUR900,000 to finance an integrated sanitation solution

programme of PUC. AfDB also contributed towards PUC’s project to increase the holding capacity of the La

Gogue Dam through the provision of a loan for around US$21 million. Furthermore, AfDB has extended a grant

of US$1.0 million for the study and design of a potential new dam at Grand Anse, Mahe which is expected to cover

the western region of the island.

The organisation also contributed in a capacity building exercise in March where 509 Micro, Small and Medium

Enterprise (MSME) owners graduated and received certificates of participation after attending two business

development courses organised by the Small Enterprise Promotion Agency (SEnPA). This was in collaboration

with the University of Seychelles, under the AfDB-financed Seychelles MSME Development Project. The Project

was supported by a grant of US$1.0 million from the Fund for African Private Sector Assistance (FAPA) of the

AfDB.

5.9.2 Bilateral Relations

Seychelles maintained cordial diplomatic ties with its sovereign counterparts, as evidenced by the continual

assistance received in 2017. As has been the case in preceding years, the main counterparts, namely China,

India and the EU amongst others, provided invaluable support to Seychelles’ developmental aspirations.

5.9.2.1 China

In its effort to be more energy efficient, Seychelles, through the Ministry responsible for Environment signed an

agreement with the Chinese Department of Climate Change, National Development and Reform Commission,

under which China will assist Seychelles with solar panels and solar street lights. The country is expected to

receive a grant of US$4.3 million to support its vision of becoming a low-carbon economy.

Under the agreement, Curieuse Island will benefit from 96 solar panels to help meet its energy demand. In

addition, forty-one public schools across the country are also expected to acquire 791 solar panels. A total of 800

solar street lights are also expected as donations.

In August, the Seychelles Broadcasting Corporation (SBC) and Chinese government signed an agreement for the

financing and construction of the Seychelles Broadcasting House, at an estimated cost of R240 million. China


and Seychelles also signed a new bilateral agreement in October for the provision of a grant of US$7.3 million that

will go towards the construction of a new post-secondary school for Commerce and Visual Arts at Anse Royale.

5.9.2.2 India

In October, the Seychelles People’s Defence Forces (SPDF) took delivery of ten TATA Company vehicles worth

US$183,000 from the government of India.

Moreover, a large number of local military personnel benefitted from training in various institutions of the Indian

Armed Forces as well as participated in several joint exercises undertaken during the year.

The Indian government also pledged to donate a second Dornier Maritime Surveillance aircraft to the SPDF, which

is expected to be handed over in 2018.

5.9.2.3 European Union

Technical Assistance

The EU and Seychelles marked 40 years of partnership in 2017, following the signing of their first bilateral

programme in 1977 which covered social infrastructure and rural development. Since then, Seychelles has

received EUR40 million in development aid under successive European Development Funds which were allocated

towards various sectors. The country has also benefited from assistance in several other areas of cooperation

over this period.

EU provided technical assistance in May through a week-long course in Cyber Enabled Financial Crimes under

the European Union’s Maritime Security (EU MASE) and COMESA Programme. This capacity building exercise

targeted law enforcement agencies involved in anti-money laundering and counter-terrorism financing activities

linked to maritime crimes.

The fifth EU-Seychelles Political Dialogue meeting was held in October with the attendance of the EU ambassador,

H.E Marjaana Sall, accompanied by representatives from thirteen EU member states. Discussions evolved around

areas to enhance collaborative efforts, including maritime security, capacity building, the blue economy and climate

change mitigation.

5.9.3 Regional Integration

Seychelles remained dedicated to the agenda of regional integration of the two main Regional Economic

Communities (RECs) in sub-Saharan Africa: SADC and COMESA. In 2017, the country continued to actively

participate in the various programmes and initiatives of both blocs, through the hosting and attendance of meetings

and workshops.


5.9.3.1 SADC Harmonisation Programme

Seychelles hosted a number of SADC meetings during the year, at which it also reiterated its commitment towards

SADC’s regional integration programme. The Central Bank accommodated the Legal Subcommittee meeting of

the SADC Committee of Central Bank Governors (CCBG) in July. The aim of the meeting was to discuss the

harmonisation of laws that will ultimately add value to, and facilitate trade within the SADC region.

That same month, the 41st Plenary Assembly Session of the SADC Parliamentary Forum (SADC PF) met in

Seychelles for the first time under the theme ‘Harnessing Demographic Dividend in SADC through Investment in

Youths’. Eight motions were adopted at the meeting addressing several areas such as gender equality, investment

in youth, bullying and abuse, as well as the increase in non-communicable diseases in the SADC region. The

SADC PF Women Members of Parliament conference was also held in parallel with the plenary session.

In September, the Bank hosted its first CCBG Meeting, and welcomed Central Bank governors from the fifteen

member countries for their 45th Committee Meeting. Central banks have an important role to play in attaining the

macroeconomic convergence criteria, which in itself is an essential requirement for regional integration success.

The meeting therefore highlighted the efforts and progress of member states with respect to reaching the

harmonisation criteria, and their accomplishments and challenges in achieving such. The regional integration of

financial markets, macroeconomic and financial stability and reducing vulnerabilities in the region were also factors

that remained at the forefront of the agenda of the regional bloc.

5.9.3.2 COMESA Integration Programme

The COMESA programme for integration reached a new milestone in July. This followed the adoption of three

outstanding Annexes (on rules of origin, trade remedies and dispute settlement) which finally fulfilled the

COMESA-EAC24-SADC Tripartite Free Trade Area Agreement. The fact that all annexes had not been approved

was cited as the main impediment to the progress of this Agreement in the region. Subsequent to this, South

Africa became the nineteenth country to sign the COMESA-EAC-SADC Tripartite Free Trade Area agreement and

it is expected that more countries will now ratify this agreement.

In other developments, a delegation of eleven judges of the COMESA Court of Justice was in Seychelles in July

as part of their Advocacy Tour and held the first ‘Publicity Seminar' at the Supreme Court Auditorium at Ile Du

Port. The following month, the Secretary General of COMESA, Mr Sindiso Ngwenya, paid a courtesy visit to the

President while in the country attending the 33rd Annual General Meeting of the Southern African Trade and

Development Bank (TDB).

24 East African Community


S E C TI O N S I X

C e n t r a l B a n k O p e r a t i o n s

6.1 Research and Statistics Division

Domestic price stability as the primary objective of the Bank is supported by various functions falling under the

purview of the Research and Statistics Division (RSD). The key roles of the Division encompass assigned

research, analyses of macroeconomic variables, assessment and formulation of policies as well as the collation

and dissemination of data. The responsibilities of the Division are allocated between the Policy and Research

Section (PRS) and the Statistics Section, whereby the tasks are harmonised in line with the overarching duties of

RSD. Furthermore, in collaboration with other Divisions and external stakeholders, RSD coordinates the

preparation and publication of the Bank’s Annual Report, Monthly Reviews and Statistical Bulletins.

The Division conducted quarterly confidence and expectation surveys as well as consultations with key

stakeholders to improve its understanding of the local economy. Moreover, to increase economic awareness and

understanding of the Bank’s policies, a number of sessions were run with key stakeholders.

Throughout 2017, the Division continued to enhance the Bank’s affiliation with international partners through active

presence in regional blocs and other organisations, namely SADC, COMESA, AfDB, IMF and the World Bank. As

such, staff heeded the various reporting requirements in addition to participating in several meetings and

conferences.

6.1.1 Capacity Building and Development

In line with augmenting the expertise and technical capacity of the Division, staff engaged in workshops and

training which targeted macroeconomics, finance, statistics and policy formulation amongst others. Additionally,

in-house training through technical assistance missions of the IMF continued to refine the econometrics-based

forecasting model.

6.1.2 Policy and Research Section

The primary function of PRS entails formulating the Bank’s monetary and exchange rate policies congruent with

domestic and global economic circumstances. Moreover, PRS ensures that the Bank’s Monetary Policy

Framework (MPF) is updated whenever necessary to account for changes in the economic environment.

As customary, the Monetary Policy Technical Committee (MPTC) remained a primary avenue through which

monetary policy proposals are discussed and these are in many cases initiated from agenda items forwarded by

PRS staff.

In an effort to increase external awareness of monetary policy implemented by the Bank and the implications of

various economic developments, staff from PRS delivered presentations to post-secondary students of the School

of Advanced Level Studies (SALS). Staff also continued enhancing various analytical tools namely the


macroeconomic model and the ‘Tourism Earnings Framework’ in addition to conducting research on policy

developments and their repercussions on the economy.

6.1.3 Statistics Section

The compilation and dissemination of data in accordance with the Special Data Dissemination Standards (SDDS)

guidelines remained the foremost objective of the Statistics Section. In doing so, the staff ensured reliable and

consistent data for an array of economic and financial indicators was available in a timely manner. The Section’s

own surveys in conjunction with other agencies such as NBS and the Ministry responsible for Finance also aided

in data compilation. Moreover, the Section continued to promote accurate and prompt submission of data from

various economic stakeholders.

6.1.3.1 Monetary and Financial Statistics

The compilation of monetary and financial data continued to be in line with the Monetary and Financial Statistics

Manual (2001) of the IMF, whereby the banking sector constitutes a significant component of these statistics. An

ongoing project is to improve the statistical coverage by including data from the insurance sector as well as pension

fund.

6.1.3.2 External Sector Statistics

Efforts to improve external sector statistics further remained on the agenda during 2017. Key of which was data

collection through the annual offshore sector survey that is conducted in conjunction with FSA. Despite some

challenges, information collected from the survey proved be to important input in the compilation of the BOP and

International Investment Position (IIP). These statistics are key requirements under SDDS to which Seychelles

has subscribed since May 2015.

With the aim to gather the latest and accurate statistics in addition to sensitising respondents on the importance

of having quality data, meetings with stakeholders from various sectors were conducted on Mahé and Praslin.

Such exercise, which also helped to established better relationship with key stakeholders, facilitated the collation

of data used in the compilation of external sector statistics.

In March, there was a technical assistance mission from the IMF with the objective to follow up on issues pertaining

to the statistics collected from the offshore sector. These were mainly the quality of information that is reported,

and the compilation or treatment of the received data.

In June, staff participated in a conference on ‘Measuring Sustainable Tourism’ that was organised by the United

Nations World Tourism Organisation (UNWTO). This aimed at assisting in the construction of Seychelles’ first

Tourism Satellite Account (TSA), a task which in addition to the Central Bank is under the responsibility of the

Ministry responsible for Tourism and NBS.


6.2 Financial Surveillance Division

6.2.1 The Regulatory and Supervisory Portfolio

With the aim of enhancing focus, coordination and efficiency in the oversight and supervision of financial

institutions and other payment services providers that fall under its supervisory ambit, the Bank undertook an

internal restructuring of divisions in 2017. Hence, as of May the Financial Services Supervision Division (FSSD)

and the Payment Systems Oversight Division (PSOD) were restructured into the Financial Surveillance Division

(FSD) and the Financial Inclusion and Market Conduct Division (FIMCD). FSD now undertakes both the prudential

supervision as well as the payment systems oversight. In addition to these functions, the Financial Stability Unit,

which was previously a standalone unit within the Bank, now also falls under FSD.

As such, the core objective of FSD is to promote a sound financial system through effective supervision and

oversight of supervised entities at both micro and macro level. To note, these entities include banks, bureaux de

change (BDCs), financial leasing companies25, non-deposit taking financial institutions, credit unions, payment

service providers and Financial Market Infrastructures (FMIs). More specifically, the main regulatory and

supervisory functions of FSD are:

Research and formulation of policies, laws and regulations for the prudential regulations of supervised

entities

Offsite and onsite surveillance of those entities

Licensing of institutions covered under the Financial Institutions Act (FIA), Financial Leasing Act (FLA)

and National Payments System Act (NPSA)

Stability of the financial sector at a macro-level

6.2.1.1 The Financial Sector

During the year 2017, the Bank issued 2 Class B26 BDC licences, 1 Class A27 BDC licence and Payment Service

Provider (PSP) licence. Moreover, a BDC surrendered both its Class A and PSP licence during the year whilst

the Bank revoked the license of a Class B BDC. In addition, the Bank set aside its decision to revoke the licences

of another Class A BDC following appeal made by the aggrieved BDC. During the course of the year, the Bank

also directed a BDC to cease all money remittance services in light of breaches of applicable laws. Accordingly,

this brought the total number of Class A BDCs to 14 and that of Class B BDCs to 13. As regards to the count of

PSP licence holders, as at the end of 2017 this was at 1528.

25 As at the end of 2017, no such company had been licensed by CBS. 26 A Class B bureau de change is licensed to buy and sell foreign currency in the form of notes, coins and traveller’s cheques

only. 27 A Class A bureau de change is licensed to buy and sell foreign currency in the form of notes, coins, traveller’s cheques and

also engage in money transmission. 28 The additional PSP licence refers to the provision of e-money services by Airtel Mobile Commerce (Seychelles) Limited for

its Airtel Money services that was initiated in April 2015.


As for banks, as at the end of December, nine were in operation despite a total of 10 licences being issued. This

is in view that SBM Bank (Seychelles) Limited is yet to commence operations since being licensed in December

2016 and the United Helvetic Bank (UHB) Limited surrendering its banking license in July.

6.2.2 Developments in the Supervisory Framework

6.2.2.1 Credit Union Rules

Amendments to the Credit Union Act, 2009 (CUA) which were promulgated in September 2015 provided for certain

matters, mainly relating to prudential requirements, to be prescribed by rules. During the year under review, work

was undertaken on three rules, namely fit and proper requirements for members of the Board and the Supervisory

Committee, capital adequacy and foreign currency exposure. Below is an overview of the objectives of these

forthcoming rules:

6.2.2.1.1 Fit and proper

Section 14(3A) of the CUA requires that a member of the credit union obtains the regulatory authority’s approval

before being elected to the Board or Supervisory Committee, in the manner to be prescribed by rules. The rules

will include fit and proper criteria for members of the Board and the Supervisory Committee, with the objective of

ensuring that they possess the qualities to effectively discharge their governance responsibilities and contribute

to the soundness of the institution. These qualities include good character, competence and capacity as well as

financial soundness. It is recognised that credit unions operate on the basis of co-operative principles such that

members of the Board and Supervisory Committee need to be democratically elected by the members. The rules

will subject all nominees to the regulatory authority’s approval prior to election at the Annual General Meeting.

The CUA provides for members of the Board and Supervisory Committee to hold office for 3 years unless otherwise

provided for in the bye-laws of the credit union.

6.2.2.1.2 Capital adequacy

Section 48A of the CUA provides for credit unions to comply with capital adequacy requirements, including

minimum capital and capital to risk-weighted assets to be prescribed by rules. Capital adequacy regulatory

requirements aim towards credit unions’ maintenance of adequate and good quality capital to absorb losses. In

considering appropriate requirements, the recommendations and best practices advocated by the global trade

organisation and development agency for credit unions, the World Council of Credit Unions (WoCCU) as well as

the International Credit Union Regulators’ Network (ICURN) have been taken into account as relevant.

6.2.2.1.3 Foreign currency exposure

Section 5(d) of the CUA stipulates that credit unions may provide such other business activities consistent with

the activities of a financial institution as may be prescribed by regulations. Correspondingly, Seychelles Credit

Union (SCU) has received the Bank’s approval, in-principle, to engage in foreign exchange business provided the

enabling legislation is issued. Furthermore, section 48B of the CUA provides for maximum limits to be prescribed

on open foreign currency positions by rules. Limits on open positions are prudential requirements that aim to

ensure that foreign currency positions do not lead to over-exposure and thus excessive losses.


The draft rules are expected to be circulated to the credit union for consultation in the first quarter of 2018, further

to which the process towards their promulgation will commence. The rules will contribute towards achieving

thoroughness in the credit union’s regulatory framework aimed at promoting soundness and protection of the

members’ interest.

6.2.2.2 Secured Transactions Act, 2015

The Secured Transactions Act was assented by the President of the Republic in September 2015. The year under

review saw the continuation of the work that had started in 2016. Whilst the related regulations were finalised and

sent to the Office of the Attorney General, it will only be officially gazetted once the system, which is still in the

design and testing phase, is ready.

6.2.2.3 Financial Leasing (FL)

The Bank initiated work in 2016 on the development of two additional regulations, the Financial Leasing (Liquidity

Management) Regulations and the Financial Leasing (Gearing) Regulations, which will set the requirements for

liquidity risk management and gearing (leverage) management for companies engaging in the leasing business.

The Regulations aim at enhancing the framework to reduce the frequency and severity of liquidity and financial

problems that such companies may face. In this context, besides safeguarding the ability of the business to

operate, the framework attempts to lower the potential adverse impact on the financial system and the broader

economy. Throughout 2017, work continued in the drafting and finalisation of these regulations. The draft

regulations were sent to the Office of the Attorney General in November for final drafting. It is expected that these

Regulations will be issued before the end of the first quarter of 2018.

On another note, the first financial leasing forum was conducted in April, which brought together both local and

international stakeholders. The aim was to promote financial leasing as an alternative means of finance and

increase the visibility of Seychelles in terms of its investment opportunities. The report of the market study, which

was commissioned by the International Finance Corporation (IFC) at the request of the Bank and completed in

2016, was presented at the leasing forum. The results indicate the existence in Seychelles of several opportunities

and favourable conditions that the introduction of leasing may exploit. In addition, the report provides

recommendations to address gaps identified. The market study report has been published on the Bank’s website.

6.2.2.4 Enhancing compliance with AML/CFT Requirements

In an effort to enhance the country’s compliance to Anti-Money Laundering and Counter Financing of Terrorism

(AML/CFT) requirements, a National Risk Assessment (NRA) was initiated in 2016 and a report was finalised in

late 2017 whereby numerous deficiencies were highlighted and earmarked to be actioned upon during the coming

years. Moreover, the country underwent its second Mutual Evaluation conducted by the Eastern and Southern

Africa Anti-Money Laundering Group (ESAAMLG) during November. The main objective of the exercise was to

assess the country’s compliance and implementation of the 40 Financial Action Task Force (FATF)

recommendations that aim to combat money laundering and terrorist financing as well as the financing of

proliferation of weapons of mass destruction. The draft report will be finalised before September 2018 for adoption.


6.2.2.5 Enhancing industry standards in retail payments

As part of its endeavour to uphold minimum security standards to safeguard the use of retail payment services,

the Bank issued a set of guidelines on the operation of ATMs, Point of Sale (POS) terminals and payment cards

in August. The said guidelines stipulate the minimum specifications and criteria for which existing and future

payment service providers engaged in the provision of payment services on ATMs, POS, and acquiring and issuing

payment cards must adhere to. The guidelines come into force in February 2018 after allowing for a 6-month

transitional period such that all concerned parties have sufficient time to effect the necessary changes to be at par

with the set standards.

6.2.2.6 FIA amendment

As part of ongoing efforts to both modernise and address shortcomings in the regulatory framework for financial

institutions, a complete review of the FIA was conducted in 2017 to identify areas for amendments. This built on

work initiated in 2016 to review the FIA, with the objective to improve the Act in terms of clarifying and expanding

the depth of its existing sections and to include new sections where relevant. These improvements will also

consider changes in the supervisory environment with a view to align them to international best practices. Some

key areas that warrant improvements are the licensing aspect, bank resolution framework, corporate governance

and enforcement powers of the Bank amongst others. In addition, the proposed revision explores the possibility

of expanding the prudential and regulatory oversight of new banking activities such as Private Banking, Investment

Banking and Islamic banking. The amended law is expected to be gazetted in 2019.

6.2.2.7 NPSA amendment

Since promulgation of the NPSA in 2014, several shortcomings have been identified which impeded effective

oversight and enforcement measures undertaken by the Bank. Hence, in an effort to improve the current legislative

framework in the area of payment systems and address these issues, work started in 2017 to review the law. In

addition, improvements to the law will also encompass recent changes in the supervisory environment to

accelerate payments innovation and progress as well as aligning the current licensing framework with that of the

FIA. It is expected that the amended law will be gazetted in 2019.

6.2.2.8 SWIFT Customer Security Programme

In an effort to fight against cyber fraud and assist in ensuring that all of its users protect their environments to

foster a more secure financial ecosystem, the Society for Worldwide Interbank Financial Telecommunications

(SWIFT) launched its Customer Security Programme in 2016. Hence, a set of mandatory and advisory security

controls were prescribed for all users to adopt, of which all banks/users were required to self-attest their

compliance against by the end of 2017 and by this deadline, seven banks affirmed to have completed the self-

attestation.

6.2.3 Upcoming developments within the supervisory framework

6.2.3.1 Islamic Finance

Following the acceptance of the strategy paper prepared by the Islamic Finance Advisory and Assurance Services

(IFAAS) by the Bank and the FSA in 2016, work continued in 2017 as per the approved implementation plan of


Islamic finance in Seychelles. Accordingly, the Bank’s Board of Directors approved for the proposed policy and

strategy paper to be presented to the Cabinet of Ministers in early 2018, to be followed by a complete review of

the legislative framework, which needs to be in place to facilitate the inception of this alternative form of financing.

6.2.3.2 Basel II & III and Risk Based Supervision (RBS)

During the year under review, the Bank continued its interaction with the banking sector in relation to the

consultation paper and quantitative impact study (QIS) on Pillar I of Basel II, which was issued in November 2016.

The proposed capital framework considers Basel II’s standardised approach to credit risk and includes a capital

charge for foreign currency risk. Capital charge for operational risk is already included in the existing capital

framework, which is largely oriented towards Basel I capital standards. The aim of the QIS is to gauge the impact

of Basel II requirements on the banking sector and identify areas presenting challenges and where further policy

considerations are warranted. By the end of 2017, an analysis of the QIS had been conducted which will contribute

to informing the regulatory reforms in relation to Pillar I capital envisaged for 2018. The next step of the project is

to implement parallel run reporting of the capital adequacy returns until the new reporting requirements are

included in the regulations in 2018.

Moreover, the Bank intends to issue a paper on the Basel III definition of capital during 2018 whereby banks would

be required to identify Basel III capital components that are of relevance to them. Further to this exercise, the

Bank will take a position as regards to the implementation of Basel III capital definition, which is anticipated for

2019. Of note, Basel III definition of capital includes specific classification criteria and the clarification of the roles

of Tier 1 and Tier 2 capital. Basel III places emphasis on the quality of capital, namely Core Equity Tier 1 capital

that can fully, unconditionally and immediately absorb losses.

The Bank also seeks to promote enhanced risk management at supervised institutions and its linkage to

supervised institutions’ capital planning. The associated need for enhanced oversight and further development of

the Bank’s supervisory framework towards this end is recognised. Correspondingly, in November, a request for

proposal for consultancy on implementation of RBS was issued by the Bank. The principal aim of the consultancy

is to further develop the RBS framework at the Bank including the capacity of the Bank’s staff in implementing

RBS. It is expected that the exercise will build on and enhance existing practices such that Pillar II of Basel II will

be integrated within the RBS framework. Pillar II focuses on the risk management process around the capital

framework, encouraging institutions to link their capital planning with risks and is an important input into an effective

and robust RBS system.

6.2.3.3 International Financial Reporting Standard (IFRS) 9 – Financial instrument

As per Section 35(1) of the FIA, financial institutions shall prepare in respect to that year, financial documents in

accordance with an internationally recognised financial reporting framework. As such, the IFRS 9 Financial

Instruments was issued on July 24, 2014 and is a replacement of International Accounting Standard (IAS) 39

Financial Instruments: recognition and measurement. The standard includes requirements for recognition and

measurement, impairment, de-recognition and general hedge accounting. IFRS 9 is mandatorily effective for


periods beginning on or after January 1, 2018. All banks in Seychelles are currently adopting the IFRS/IAS and a

precedence is set for continual application of IFRS 9.

The main impact this change will bring for banks is the measurement of impairment loss allowances, which will be

based on an expected credit loss (ECL) accounting model rather than on an incurred loss accounting model. IFRS

9 is expected to address some prudential concerns and contribute to financial stability. Moreover, points of

concerns for regulators, banks and auditors alike, is the expected increase in provisioning resulting from

implementation of IFRS 9. In the local context, the Bank initiated an impact study in October to analyse the

implementation process of the standard by institutions. Feedback received from this study will guide in policy

direction in terms of formulation and amendment of existing legislations, as well as the issuance of relevant

directives by the Bank for this standard.

6.2.3.4 E-money Regulation

In line with the Maya commitment, the Bank intends to issue its electronic-money29 (e-money) regulations. This

will cover the broad principles and minimum standards to be observed by e-money issuers in relation to payment

services. This will also provide guidance to issuers of e-money on the general conditions for using agents to

provide e-money or other payment-related services. Furthermore, the regulation should address measures of

mitigating and managing risks related to the provision of e-money as well as the various types of e-money accounts

e.g. individual, business and agent accounts.

During the year, research work was undertaken whereby the guidelines issued by SADC as per the Model Law

along with other relevant regulations enforced in other jurisdictions were considered.

6.2.4 Micro Prudential Surveillance Section

Prior to the restructuring in May, FSSD had separate units for offsite and onsite supervision. These units were

later merged and renamed as the Micro Prudential Surveillance Section (MPSS). This section is responsible for

the prudential offsite and onsite surveillance of licensed entities under the Bank’s supervisory ambit. The team

consists of relationship managers for each licensed entities, who conduct the offsite monitoring of institutions under

their portfolio, and are the lead examiners when conducting onsite examination of these entities. In addition, the

merging of the two functions allows for more RBS to be undertaken.

As regards to reporting, supervised entities are required to submit periodic prudential returns relating to bank

supervision matters as well as payment services oversight to the MPSS. This allows for ongoing offsite monitoring

of their financial position and performance. Essentially, offsite review allows for the detection of areas of concerns

and ensuring that corrective measures are taken in a timely manner. Monitoring of supervised entities are carried

out through desk reviews to ensure compliance with prudential requirements. In addition, the supervisors monitor

major or adverse trends, which they clarify with supervised entities. These trends also act as a signal for emerging

29 As per definition in the NPSA, “electronic money” means electronically, including magnetically, stored monetary value as

represented by a claim on the issuer, which is issued on receipt of funds for the purpose of making payment transactions and which is accepted as a means of payment by persons other than the issuer.


risks. Accordingly, this may result in an onsite examination for further scrutiny or other remedial action, in

accordance with legislations issued by the Bank.

In 2017, the team worked on enhancing the returns submitted by banks to make it more granular and the

information collected fits in a revised rating system, the CARMELS rating system. The components of the said

system represent Capital adequacy, Asset quality, Risk management, Management, Earnings, Liquidity, and

Systems and controls. This rating system is more risk-sensitive than the CAMELS30 rating system (the latter is

used as a guide for onsite examination of financial institutions) as CARMELS captures more qualitative and

quantitative parameters. Moreover, the CARMELS rating system also covers AML/CFT aspects, which were

previously not captured.

As regards to onsite supervision, this involves examination of licensed entities’ premises and it allows for

assessment of, at a minimum, their internal control, corporate governance, policies, procedures and verification of

returns as well as other documents. Examinations conducted can be targeted or on a full scope basis. The former

is carried out as a result of an event which warrants further examination, hence is focused on one specific area of

the entity. On the other hand, full scope examinations are more in depth and focus on the functions and risks

associated with the supervised entity. The examiners are mandated to conduct examination of licensed entities

in accordance with section 33(1) of the Central Bank of Seychelles Act 2004, as amended; section 42 of the

Financial Institutions Act 2004, as amended; section 18(1) of the National Payment System Act 2014; and section

54 of the Credit Union Act 2009, as amended. In 2017, the team conducted 3 full scope examinations and also

assisted RSD with fact-finding exercises to assess the feasibility that commercial banks are able to implement the

required changes to the pricing of their products in line with the interest rate corridor and therefore the Bank’s

monetary policy stance.

Other tasks performed by the team during the year included:

ad-hoc and recurrent analyses of major vulnerability observed

business plan analyses

monthly review for banking industry with key indicators and highlighting the performance of the banking

industry

review of audited statements against returns to ensure that figures reported to the division are not

materially different from the audited statements

sensitivity analyses to test the impact of adverse effects on financial institutions’ capital adequacy and

profitability amongst other indicators

coordinate or assist with projects relating to bank supervision or payment systems oversight

6.2.5 Financial Stability Section

Financial stability is a condition whereby the financial system – banks, insurance companies and other financial

intermediaries – can withstand shocks without major disruption. The importance of such is recognised globally

30 Capital, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk.


(especially after the 2008 global financial crisis) but has come to the fore in Seychelles as the financial sector is

deepening and a wider range of firms join the industry. With the higher number of market participants, as well as

the broader range of financial services and products on offer, it is important that the financial system can withstand

adverse domestic and external shocks.

Given the extended nature of the financial sector, the Financial Stability Committee (FSC) – set up in March 2016

– remains the national body with the mandate of creating the necessary conditions to foster and maintain financial

stability within the domestic economy. This Committee comprises:

Governor of CBS as the Chair;

Principal Secretary for Finance;

Chief Executive Officer of FSA; and

Director of FIU.

FSC has an advisory role and provides a forum where members are informed of pertinent risk factors, following

which the optimal combined response to mitigate the build-up of excessive risk is determined. The attainment of

this objective is implemented through close co-ordination and co-operation amongst the members of the

Committee.

The FSC’s supportive arm is the Financial Stability Section (FSS). Prior to May, the functions of the FSS were

conducted by a standalone unit within the Bank. However, as part of the internal restructuring, the function was

integrated as a section under FSD.

The Committee met four times during the course of 2017, during which concerns over potential risk areas were

brought up for discussion as well as close monitoring thereof in order to be able to take swift recovery measures

should the need arise. Throughout 2017, one of the primary areas of concern pivoted around the global issue of

de-risking31 and the impact it is having upon banks in Seychelles in regards to correspondent banking pressures.

Concerns in this regard prevailed from the previous year. CBS, along with FSA undertook research into this matter

and went on a roadshow to understand the subject from the perspective of foreign regulatory authorities and big

international banks that provide correspondent banking facilities to banks in Seychelles. Given the significance of

this risk, the matter was also brought to the attention of the Cabinet of Ministers, along with a set of

recommendations to address weaknesses to ensure that Seychelles is not perceived as a high risk country.

Several initiatives are being considered following the research, followed by their deployment at a national level in

2018, with the intention of ensuring that financial entities in Seychelles operate at or above international standards.

These are more long-term measures to ensure the sustainable development of the country’s financial sector,

31 Correspondent banks, through which domestic banks route their international transactions, have increasingly been closing

off their relationships with several banks across the globe, thus rendering the latter unable to effect their international transactions. This trend stems from the increasing cost being incurred by these correspondent banks in undertaking the required investigations (commonly referred to as due diligence) prior to processing transactions. Failure on the part of correspondent banks to undertake the appropriate due diligence has resulted in the imposition of numerous fines from various regulators across the globe. The issue of de-risking is compounded for smaller banks, from which correspondent banks derive a very small portion of their revenue in relation to the extent of due diligence required.


including but not limited to measures to ensure that a robust framework is in place to combat money laundering

and the financing of terrorism, and that these are being effectively monitored and necessary action is taken in a

timely manner to deter such malpractices within the Seychelles.

Going forward, FSS will be working in close collaboration with various stakeholders for the establishment of a

dedicated legal framework to encapsulate the Committee’s mandate and objectives as well as to clarify and

empower all relevant stakeholders in the attainment of such financial stability objectives. Accordingly, preliminary

research is currently being undertaken to pave the way for the establishment of a Financial Stability Act, which is

expected to come into force in 2019.

6.3 Financial Markets Division

The Financial Markets Division (FMD) is responsible for two of the Bank’s key operational roles, namely to

implement monetary policy and to manage the country’s foreign exchange reserves. FMD is segregated into three

offices in line with good governance practice, namely the front, middle and back offices.

The front office comprises domestic and foreign exchange sections named Market Operations and Reserves

Management, respectively. The former ensures the achievement of the Bank’s operational implementation of

monetary policy actions through the conduct of OMOs and primary issuance of government securities. As for the

Reserves Management section, it is responsible for the day-to-day administration of the country’s foreign reserves

guided by the Bank’s investment policy and guidelines. The middle office is referred to as the Financial and Risk

Analysis Section and covers both the domestic and foreign exchange operations. It is responsible for the

development of policies and guidelines to ensure that risks and developments surrounding investment and

operations of the Division are properly mitigated. The Section also provides analytical support to the front office.

Furthermore, in 2017, the back office operations for foreign reserves management moved to FMD in order to

improve efficiency in the implementation of reserves management projects and strategies. The operations

undertaken by this office are to conclude all reserve management transactions, including the settlements and

recording of these transactions.

6.3.1 Open Market Operations

OMOs are transactions conducted in the domestic money market to manage the level of available liquidity in the

economy in line with the set Reserve Money target. This is done through the use of the Bank’s monetary policy

instruments. For the year under review, similar to 2016, the only instrument used for conducting OMOs was the

DAA. By the end of 2017, the stock of DAA stood at R705 million compared to R610 million by end-2016. The

cost of such interventions declined by R0.3 million compared to the previous year, to stand at almost R25 million.

This was mainly attributed to the fall in interest rates as a result of the loosening of monetary policy which began

in the second half of the year.


6.3.2 Standing Facilities

During 2017, 208 placements were recorded in the SDF, amounting to R14,529 million. The bulk of these

transactions were in the fourth quarter of the year, as per Table 6.1. With regards to SCF, a total of only R215

million were issued and this was in the second quarter of the year. Despite an increase from R50 million in standing

credit disbursed in 2016, the level for 2017 remained comparatively low relative to SDF, given the long liquidity

position of the overall banking system.

Table 6.1: Standing Facility Placements during 2017

Standing Deposit Facility (SDF) Standing Credit Facility (SCF)

(R million)

Amount Interest paid Amount Interest earned

Q1 230 0.002 0 0

Q2 530 0.004 215 0.010

Q3 4,028 0.103 0 0

Q4 9,741 0.267 0 0

Total 14,529 0.375 215 0.010


6.3.3 Management of Government Securities

As per one of its objectives, the Bank through FMD administered the issuances of government and government-

backed securities during the year. Government continued to support the Bank with the withdrawal of excess

liquidity from the banking system, through issuance of securities for monetary policy purposes as per the MoU

between the Bank and the Ministry responsible for Finance, dated July 30, 2010.

6.3.3.1 Treasury Bills

Treasury bill auctions were mostly held twice a week. They were for both monetary and fiscal uses, with maturities

of 91, 182 and 365 days offered. By the end of the year, the outstanding stock of Treasury bills for monetary policy

purposes stood at R1,677 million, a reduction of R754 million or 31 per cent compared to the previous year.

Consistent with the reduction in Treasury bills issued, by the end of the year, the interest rates for all three tenors

declined compared to end-2016, as per Table 6.2. The largest decline was in the 91-day tenor, and this was by

3.3 percentage points.

Table 6.2: Interest rates as at end-2017 compared to end-2016

2016 2017

91 days 6.50% 3.16%

182 days 7.11% 4.92%

365 days 7.33% 5.34%



6.3.3.2 Treasury and Government-Backed Bonds

In August, government issued three bonds, of which two were in support of monetary policy and the other named

Aldabra for fiscal purposes. The latter was specifically issued to individuals, as a means to encourage private

savings. Furthermore, in the same month, government provided guarantee for a fourth bond issued by DBS. The

total issuance of these bonds amounted to R500 million as per Table 6.3, of which R300 million was committed to

assist with the implementation of monetary policy. In terms of bonds coming to term, a total of R263 million

matured during the year and these were issued for monetary policy purposes in 2014.

Table 6.3: Treasury and Government-backed Bonds issued in 2017

Tenor Interest Rate Face Value (R)

Aldabra (Individuals only) 3 Years 6.0% 50,000,000

DBS (Government-backed) 3 Years 6.0% 150,000,000

Monetary policy purpose 5 Years 6.5% 150,000,000

Monetary policy purpose 7 Years 7.0% 150,000,000

Total 500,000,000


Table 6.4: Redemption of Treasury Bonds in 2017

Tenor Interest Rate Principal Amount

3 Years 4.5% 262,575,000


6.3.3.3 Central Bank’s Holdings of Treasury Bills

Throughout the year, the Bank held a total of R1,185 million mostly in the 365-day Treasury bills. Upon maturity

these Treasury bills were rolled over as agreed in the MoU with the Ministry responsible for finance.

6.3.4 Management of External Reserves

By way of the Central Bank of Seychelles Act, 2004, as amended, the Bank has the mandate to manage and

invest foreign exchange reserves of the country.

There is a variety of macro level rationales which prompts a country to hold foreign exchange reserves. These

consist of providing support for the domestic monetary and foreign exchange policies, safeguard in cases of

international shocks or local disasters, as well as for payment of foreign currency obligations. The primary

investment objective as set out by the Board through the investment policy is to ensure safety of the funds by

adopting strategies that preserve the capital position of the overall portfolio. Secondly, the approach employed

must guarantee that complete liquidity is available at any point in order to meet any of the rationales for holding

reserves. The third objective allows for the investment of foreign reserves for return generation purposes, provided

that the strategy satisfies the previous two criteria.


During the year under review, the reserves management strategy yielded an annual growth of 4.2 per cent in

foreign exchange capital, whereby the gross international reserves (GIR) increased from US$523 million in 2016

to US$545 million. The strategy also helped to maintain the reserves level in line with the quantitative performance

criteria for the year, which is measured using the net international reserves (NIR). At the end of 2017 the NIR

target was US$391 million and the actual figures exceeded this level by US$33 million to close the year at US$424

million.

This strong position was largely supported by opportunistic purchases of foreign exchange from the domestic

market. The accumulation of reserves done by means of FEA with commercial banks increased from US$21

million to US$50 million year-to-year. The level of reserves accumulation cushioned a notable decline of US$40

million in overall foreign exchange receipts for the year. On the other hand, the overall foreign exchange

expenditure of the country through the Central Bank was US$36 million less than the preceding year. The Bank

continued to mitigate foreign currency risks, which could have negatively impacted the GIR position, by maintaining

the majority of the portfolio in US dollar. To note, the US dollar is the reporting currency for Seychelles’ foreign

exchange reserves.

In regards to return generation, once again interest income improved considerably in 2017 compared to previous

years. The result was mainly driven by the much anticipated monetary policy normalisation in the US. Similar to

the preceding year and as mentioned above, the Bank maintained the largest exposure to the US dollar, which

remained at comparative return advantages vis-à-vis counterparts such as the UK pound sterling and euro. Total

interest income in 2017 amounted to US$5.2 million, an increase of 96 per cent compared to US$2.7 million in

2016.

6.4 Banking Services Division

The Banking Services Division (BSD) is responsible for domestic and foreign banking, currency and numismatics,

as well as the financial reporting functions of the Bank. BSD is organised into two sections, the Banking and

Financial Reporting Section and the Currency and Numismatics Section.

6.4.1 Banking and Financial Reporting Section

The Banking and Financial Reporting Section is divided into three units with the Foreign and Domestic Banking

Operations mainly functioning in operational capacities as banker to and manager of customers’ accounts held

with the Bank in addition to managing the Bank's internal accounts and accounting processes. The Domestic

Banking Operations (DBO) unit is also entrusted with the following responsibilities:

- providing back office support for OMO activities,

- supporting the systemically important local payment systems’ infrastructure as an operator

- acting as a participant and primary settlement agent in the national financial system


The preparation of the Bank’s annual budget and financial also falls under the responsibility of the Financial

Reporting unit.

6.4.1.1 Foreign Banking Operations

The unit is responsible for the management of foreign currency denominated accounts held by the Bank on behalf

of the Government, the commercial banks and other financial institutions. It is also responsible for the accounting

of all foreign currency related transactions affecting customers’ accounts and the Bank’s administrative and

operational activities, with the exception of reserves management transactions. Moreover, the unit also

administers the IMF accounts movements in respect of disbursements and repurchases related to the country’s

recent programme with the Fund.

6.4.1.1.1 SWIFT MT950 Statement

In September, the Bank began providing its financial institutions customers with daily SWIFT Message Type 950

statements of accounts for accounts held with the Bank. This new development allowed financial institutions to

perform reconciliation of their accounts more efficiently and in a timely manner as per international best practice.

6.4.1.1.2 SWIFT Sanctions Screening

In an effort to improve and enable effective compliance controls, towards the end of 2017, the unit undertook the

implementation of SWIFT Sanctions Screening solution to screen all incoming and outgoing SWIFT messages

against published international sanctions lists. This was in order to raise the level of assurance in sanctions

compliance for its day-to-day transactions, strengthen correspondent banking relationships as well as to help

mitigate other potential risks related to non-compliance with international regulations. This solution is scheduled

to be fully operational at the beginning of March 2018.

6.5.1.1.3 SADC Integrated Regional Electronic Settlement System (SIRESS)

For the year 2017, the SIRESS platform has proven to be a successful payment system for the Bank in the

processing of ZAR denominated payment instructions across the regional borders. As a result, the Bank’s reliance

on the local commercial banks, was significantly reduced in this area and the use of the system has also proven

to be more cost effective.

The table below provides a summary of the total number, as well as the value of settled SIRESS transactions by

CBS for the year 2017.


Table 6.5: Total number and value of settled SIRESS transactions in 2017

Month Total number of settled transactions Total value of settled transactions (ZAR)

January 26 75,849

February 35 820,555

March 61 2,051,124

April 62 1,215,250

May 60 5,157,490

June 54 1,106,619

July 89 1,511,116

August 61 2,307,720

September 50 701,513

October 91 4,250,471

November 42 655,930

December 50 2,988,269


6.4.1.2 Domestic Banking Operations

In 2017 the DBO unit continued to process and manage all local currency denominated payments and receipts for

the Bank and also on behalf of the Bank’s customers which include the Treasury Department, Seychelles Pension

Fund and other government entities. It also maintained the responsibility for providing back office settlement and

accounting services to FMD for financial transactions relating to OMO and issuance of government securities

administered by the Bank.

Furthermore, all daily operations relating to Electronic Cheque Clearing (ECC), SWIFT based Central Bank of

Seychelles Immediate Transfer Service (CBSITS) and Seychelles Electronic Funds Transfer (SEFT) systems

remained under the responsibility of the DBO unit. The unit also maintained its roles as a participant, the operator

and primary settlement agent of these systems. In addition, the unit acted as the project owner in the

implementation of all projects linked to the development of these systems and other similar local payments and

settlement systems.

6.4.1.2.1 SEFT System

During 2017, the SEFT system as a platform for rupee transfers continued to be used extensively for the majority

of local currency transactions. In view that in previous years there was a lot of focus in getting commercial banks

to be fully integrated to the system, this successfully provided a more seamless payment flow for customers.

In the second half of 2017, the SEFT platform was upgraded to provide for a more user friendly and customer

focused user interface and system through the SEFT Phase II project. This allowed for additional functionalities

to be incorporated to the system such as providing for online access to customers. The project also included the

development of the SEFT mobile application, which allows customers to view the history of their payment

transactions.


In September, the Bank in collaboration with all participants initiated a soft launch of the SEFT Phase II. The

participants have since been registering a selective number of customers with a view to thoroughly test and to

ensure full stabilisation of the system prior to launching the application with the general public.

6.4.1.3 Financial Reporting Unit

This unit is responsible for the preparation of management accounts, the annual budget and the financial

statements, which include the monthly and annual statement of financial position published in the Official Gazette.

Moreover, daily, monthly and quarterly income and expenditure reports are presented to Senior Management as

well as periodic reports on the budget and financial performance are presented to the Board. The unit also

monitors the Bank’s recurrent and capital budget performance as well as prepares and analyses other financial

reports. The financial statements are prepared annually in accordance with IFRS and in line with the Central Bank

of Seychelles Act, 2004, as amended, and are audited by the Auditor General (AG) with the assistance of an

independent external auditor. For the year 2017, the external auditor remained unchanged, with KPMG Mauritius

taking up the audit work for the fifth and last year. The procurement process for the appointment of a new external

auditor in line with the Bank’s policy for the rotation of auditors has been completed. Delo itte Touche Tohmatsu

Limited from South Africa has been appointed to conduct the audit for the next five years starting with the financial

year 2018.

6.4.2 Currency and Numismatics Section

The Currency and Numismatics Section of BSD is responsible for the issue and management of local currency. It

also manages the issue and sale of numismatics items such as commemorative gold and silver coins produced

by the Bank.

6.4.2.1 Management of Local Currency

As part of its mandate under the Central Bank of Seychelles Act, 2004, as amended, the Bank through its Currency

and Numismatics Section, continued to supply local currency to the banking system in the form of banknotes and

coins and to withdraw those that are soiled or unusable so as to maintain good quality of currency in circulation.

6.4.2.2 Issuance of Banknotes

The Bank issued 4.05 million pieces of fresh banknotes in circulation in 2017. The table below provides the

breakdown in terms of denomination and total value of issuance.

Table 6.6: New banknotes issued into circulation in 2017

Denomination Value in R million

R500 756.5

R100 169.1

R50 21.3

R25 10.5

Total 957.4



6.4.2.3 Destruction of Soiled and Mutilated Banknotes

In the Bank’s ongoing endeavour to maintain high quality currency in circulation, soiled and mutilated banknotes

are continuously being removed from circulation and set aside for destruction. The year 2017 saw a total of 4.7

million pieces of banknotes destroyed in R500, R100, R50, R25 and R10 denominations. These destruction

exercises mostly took place during the fourth quarter under the strict compliance to the Bank’s Banknote

Destruction Policy and Procedures.

The table below provides a detailed breakdown of banknotes destroyed by the Bank per denomination.

Table 6.7: Destruction of soiled and mutilated banknotes by number of pieces and value for the year 2017

Denomination Number of Pieces (million) Value in R million

R500 0.68 340.0

R100 2.08 208.0

R50 0.42 21.0

R25 0.47 11.8

R10 1.07 10.7

Total 4.72 591.5


6.4.2.4 Demonetisation

Following the introduction of the new currency series in December 2016, the Bank demonetised the R500 and

R100 banknotes on June 30. Demonetisation is the act of withdrawing the legal tender status of a currency by the

issuing authority. Once demonetised the currency is no longer accepted as a means of payment or settlement for

goods and services. The remaining banknotes, i.e. the R50, R25 and R10, of the previous currency series remain

in circulation until such time they are officially demonetised by the Bank. All coins previously issued continued to

be legal tender and as such, co-circulate alongside the new series.

Below are tabulations of the two denominations withdrawn from circulation as at end-2017. This is based on the

value of the two denominations that were left in circulation on December 5, 2016, the date on which the new family

of banknotes and coins was first issued.

Table 6.8: Demonetised banknotes withdrawn from circulation

Denomination Balance of previous

banknotes in circulation as

at December 31, 2017

Value in R million

Previous series banknotes

withdrawn from circulation

from December 5, 2016 to

December 31, 2017

Value in R million

% withdrawn from

circulation as at

December 31, 2017

R 500 784.8 741.5 94.5%

R 100 204.5 156.5 76.5%

Total 989.3 898.0



6.4.2.5 Numismatic Items

During the year under review, the Bank did not enter into any new agreements with suppliers to issue new

commemorative items. The Bank also suspended the sale of numismatic items to collectors, as it was in the

process of revising its policies and procedures relating to this activity while putting more emphasis on managing

the issuance of the new family of banknotes and coins.

6.5 Financial Inclusion and Market Conduct Division

As a result of a restructuring within the Bank, the Financial Inclusion and Market Conduct Division (FIMCD) was

formed in May. The primary role of the Division is to develop and implement strategies for enhancing financial

inclusion, market conduct and competition in Seychelles. The Division comprises of the Financial Inclusion Section

and the Market Conduct Section.

The Financial Inclusion Section has the primary aim of supporting the advancement of financial inclusion which is

to ensure access to financial services regardless of income level. Moreover, it promotes effective and appropriate

use of financial services to improve growth and personal well-being.

The primary objective of Market Conduct Section is to establish a strong financial consumer protection framework

to prevent possible violations of market conduct rules and help consumers benefit from well-informed decisions

about how best to manage and use financial services. The Section aims to instil trust in consumer products and

services of the financial sector as it is an important element in furthering financial inclusion targets.

6.5.1 Financial Inclusion Section

6.5.1.1 National Payment System Vision and Strategy

As per its mandate within the ambit of the NPSA, a National Payment System Vision and Strategy for 2016 – 2020

for the country was formulated and ratified on October 28, 2016. The document focuses on strategies from the

previous Vision and Strategy document which remained unfulfilled but still relevant, as well as provides strategic

direction for payment systems development in Seychelles for the period of 2016 to 2020.

Whilst Seychelles has made significant progress since 2008 in its National Payment System through reform in the

legal framework and automation of systems, there are milestones that are yet to be accomplished or needs

enhancement such as:

Cash as the dominant payment instrument

Manual operational processes in the payment system

Payment regulatory framework

Introduction of Standards

Nonetheless, several initiatives identified as part of the Vision and Strategy that are currently underway are listed

below:


The implementation of a National Payment Switch

Promoting National Payment System Awareness

Increase the use of Modern Payment Methods by the government

Establishment of a Real Time Gross Settlement System (RTGS)

Establishment of a Central Securities Depository (CSD)

Further details on the progress made on the projects in 2017 are provided below.

6.5.1.2 National Payment Switch

The Central Bank in collaboration with the Seychelles Bankers’ Association (SBA) were looking into the possibility

of implementing a national payment switch to modernise Seychelles’ National Payment System by broadening the

scope of innovative payments schemes in the country and reducing paper instruments as a means for payment.

This infrastructure is envisaged to locally route rupee-denominated financial transactions undertaken by

instruments such as debit cards to a central point (the switch), for settlement locally instead of being routed through

international networks such as VISA. It is to be noted that this initiative is also part of the deliverables of the

Financial Sector Development Implementation Plan (FSDIP).

It is within this context that in November, the Bank commissioned a diagnostic study for the establishment of a

payment switch in Seychelles. At the end of 2017, the study was ongoing and is expected to be completed in

January 2018.

6.5.1.3 Feasibility Study for the establishment of a Real Time Gross Settlement System in Seychelles

and Central Securities Depository

The Bank and FSA, with funding from AfDB, commissioned a feasibility study for the establishment of a RTGS

and a CSD. The RTGS is a platform where the transfer of money and securities takes place between banks on a

real time and gross basis whereas the CSD is a system that provides a facility to hold securities in electronic

accounts and eliminates the risks currently faced in transferring physical paper certificates. Both studies were

conducted in 2016 and the report identified that a RTGS and a CSD would be favoured and highly desirable.

With the operationalisation of the Interest Rate Corridor on July 19 various discussions were held on how such

system can provide easier liquidity management to ease monetary policy implementation. It is anticipated that

further preparation for the implementation of the RTGS and CSD will be done in 2018 with actual implementation

of the system starting in 2019.

6.5.1.4 National Financial Education Strategy

Financial literacy strategy was one of the priorities identified in the FSDIP. With funding from the AfDB, the Central

Bank and FSA commissioned a Financial Literacy Baseline survey in 2016 and the development of the Financial

Education Strategy. The National Financial Education Strategy was launched on December 13 with a 3-year

implementation plan after which another baseline survey will be undertaken to measure the impact of same. The

strategy will be targeting 4 segments namely, adults in the formal work place, micro, small and medium enterprises


(SMEs), youth and the socially and financially vulnerable. The strategy is a living document and will be updated

when required.

6.5.1.5 Credit Information System

Credit Information System (CIS), is a system designed for collecting accurate and up-to-date credit information of

debtors. The information is uploaded to the system via a web-portal access by authorised personnel from credit

granting institutions being regulated by the Bank. This system was introduced in Seychelles in 2012 and operated

under the Central Bank of Seychelles (Credit Information System) Regulation 2012, which was amended in 2014.

Among the findings of the FSDIP report issued in 2014, were recommendations to improve the current system to

make it more efficient, safe, and reliable and broaden the information captured as well as improvements in the

legal framework to make provisions for same.

Consequently, since 2014, the Department of Information Communications Technology (DICT) and the Bank

embarked on a project to design the new CIS system. The system will be equipped with a Quality Assurance

module to enhance the accuracy of information and reduce human intervention. In 2017, DICT completed a

preliminary template for the design of the system and presented a demonstration to the Bank. Discussions

between DICT and the Bank have since been ongoing to finalise the design.

As for broadening the information captured, there is a need to adopt a new legal and regulatory framework that

would enable the collection of credit information from a wider set of data providers, including credit granting

institutions not being regulated by the Bank. During 2017, the World Bank through a Reimbursable Advisory

Service Agreement provided proposals that entailed a legal review of existing laws with an impact on credit

information related aspects. The document provided suggestions regarding laws on credit information and set the

tone for continued discussions on an adequate legal framework for credit information. Intensive discussion is

ongoing between the Central Bank and World Bank for finalisation of the Advisory Document and the Central

Bank’s policy decisions for improvements in the legal framework which is expected to be introduced alongside the

new system.

6.5.1.6 Commitments under the Alliance for Financial Inclusion (AFI) Maya Declaration

Financial inclusion means that individuals and businesses have access to useful and affordable financial products

and services that meet their needs and are delivered in a responsible and sustainable way. Although it is shown

that Seychelles is not financially “underserved” and that financial services are relatively accessible, it is to be noted

that much effort is required to ensure the population understands their rights and responsibilities when making use

of financial services.

Since the Bank joined the AFI in 2014, it has attempted to take a more proactive role in regards to enhancing

financial inclusion in Seychelles especially with respect to issues surrounding financial education and consumer

protection. The Bank therefore deemed it fit to make some commitments under the Maya Declaration, which is a

statement of common principles regarding the development of financial inclusion made by members of AFI. The

Maya Declaration focuses on implementing the appropriate framework for financial inclusion.


In the context of Seychelles, the Bank and FSA are progressively working towards creating frameworks to allow

for greater consumer protection and financial education. Moreover, in recent times there has been demand for

increased use of electronic means to effect payments amidst a global environment where there is rapid

technological innovation. Subsequently, financial service providers are compelled to expand their services to offer

digital financial services. However, innovation comes with regulatory issues, for instance, cyber security, data

privacy and consumer protection amongst others.

Given the Bank’s endeavour to create an enabling environment to develop and modernise the financial sector as

well as ensuring consumer protection, the following commitments were set up within the AFI network in 2017:

1. Formulate a national strategy on financial education by December. The National Financial Education Strategy

was launched on December 13 as previously mentioned.

2. Enact a consumer protection law for financial services and supporting regulations by December. In light of

the interest from stakeholders with regards to this law, quite a number of consultative sessions were held in

2017 to finalise the policy decision behind the proposed law. Enactment of the proposed law is expected to

be achieved in the third quarter of 2018.

3. Issue regulations relating to mobile financial services and promote cross-border remittances through mobile

payments by December 2018. The Bank is on track and same has been scheduled for the third quarter of

2018.

The above commitments reflect initiatives that are ongoing and are deemed relevant and important for the Bank

to commit within the ambit of the Maya Declaration.

6.5.1.7 Diagnostic Study on Government Payments

With the FSDIP recognising a number of weaknesses in government payments and social security benefit

payments, the Bank sought consultancy services to conduct a diagnostic study based on the World Bank’s general

guidelines for the development of government payment programmes. The purpose of the study was to assess the

infrastructure of government payments and payments from public financial resources in Seychelles to ensure that

these are managed and effected in a sound, efficient, reliable and transparent manner.

The study resulted in a strategy and roadmap so as to give guidance on how to tackle the most predominant issues

as regards to the payments environment. Whilst certain recommendations have already been partially addressed,

the Bank is currently in the process of exploring the most suitable means to implementing those recommendations

taking into consideration the local context.

6.5.1.8 Strategy for Increasing E-Payments

As highlighted in the National Payment System Vision and Strategy 2020, cash remains the predominant payment

instrument in Seychelles. Additionally, the increased use of electronic payments has been identified as a strategic

focus area with emphasis on improving the ability of payment system users to make and receive payments in a


safe, convenient, timely and affordable manner. Consequently, work is underway to draft a strategy for increasing

the use of e-payments to provide guidance on effective means of creating disincentives for cash and cheque use,

whilst also incentivising e-payment modes. This strategy will be drafted in consultation with the National Payment

Task Force (NPTF) working group, set up to specifically address the limited usage of e-payment facilities.

Discussion and the participation of various stakeholders is anticipated to bolster the contents of the strategy and

ensure early buy-in from key stakeholders.

6.5.2 Market Conduct Section

6.5.2.1 Financial Consumer Protection Law

The Bank jointly with FSA in 2017, initiated work to establish a primary legislation for the protection of financial

consumers. The whole of 2017 was dedicated to documenting the policy decision behind the law. This was done

with the assistance of the World Bank and through consultative sessions with relevant stakeholders domestically

held over a period of 3 months.

The policy decisions behind the law draws on the recommendations of the G20/OECD High Level Principles on

financial consumer protection, the Model Law for Financial Consumer Protection and the World Bank’s Good

Practices on financial consumer protection. Accordingly, the proposed law will promote equitable and fair

treatment of consumers, increased transparency, responsible lending, prevention of over-indebtedness,

responsible pricing, appropriate products, data privacy and complaint resolution.

With the approval of the policy paper for the financial consumer protection legal framework by the Cabinet of

Ministers on November 29, work was underway for the drafting of the bill. Subject to the necessary discussions at

the white paper stage and the approval of the law by the National Assembly, its enactment is slated for 2018.

Further work envisioned for 2018 includes implementing supporting regulations, guidelines and Memorandum of

Understandings with relevant authorities such as the Fair Trading Commission.

6.5.2.2 Review of the Financial Institutions (Bank Charges and Fees) Regulations 2013

In 2017, the Bank embarked on a review of the Financial Institutions (Bank Charges and Fees) Regulations, 2013

which was gazetted on February 18, 2013. This initiative emanated from a number of on-site examinations to

verify compliance to the said Regulations and identify areas for improvement within the Regulations. The review

was done in consultation with banks and other stakeholders and serves to reinforce consumer protection through

easy access to financial services information. The amendments were being effected by the Office of the Attorney

General and the amended Regulations are expected to be gazetted before end of the first quarter of 2018.

Taking into account advancement in technologies, there were changes related to the publication of schedule of

charges and fees of banks, fees applied on loan prepayment on foreign currency denominated loans as well as

ATM withdrawals from non-Seychelles issued debit cards. Additionally, limits have been placed on loan

processing fee for first home acquirers and penalty interest rates on default loans.


6.6 Technical Services Division

The Technical Services Division (TSD) is responsible for the provision of information technology infrastructure and

support functions of any IT-related service that enable staff, clients and other stakeholders to effectively

communicate and collaborate with each other.

It is structured into the following functions:

- Network Support: Responsible for the effective management of server and network systems hardware

and software.

- Desktop Support: Responsible for the effective management of desktop and laptop PCs, and mobile

devices, their hardware, associated peripherals, operating systems and all generic software installed on

them, collectively referred to as desktop systems.

- Business Applications Support: Responsible for the management of the Bank’s core business

applications including payment systems applications, key spreadsheets and databases, collectively

referred to as banking systems.

- IT Governance: Responsible for supporting effective governance of enterprise IT and coordinating best

practices adoption across the IT function of the Bank.

During 2017, the Division worked on a number of projects during the year. One such project was Phase 2 of

SEFT. It is an electronic domestic funds transfer system set up between all banks in Seychelles whereby the

system facilitates domestic rupee money transfers through a secure online communication channel in a safe and

efficient manner, minimising the need for physical exchange of cash and manual processing. SEFT Phase 2 will

also provide bank customers with the means to initiate payment transactions through online web-access from the

convenience of their homes and businesses. In addition to interbank domestic funds transfers, SEFT also supports

payments from a banking institution to Payment Service Providers. SEFT can be accessed via the SEFT mobile

application, available on the App Store and Google Play, which allows customers to view the status of payments

initiated and payments received online on their mobile phones. It is expected to be fully implemented in 2018.

Portfolio Analytics Tool 2 (PAT2) is a propriety software solution provided by the International Bank for

Reconstruction and Development (IBRD) to several of its clients who participate in its Reserves Advisory and

Management Program (RAMP). The objective of providing this tool is to support the capacity building initiatives of

RAMP whereby PAT2 was designed to enable RAMP members to maintain and manage their foreign currency

reserves portfolio. The Division is tasked with managing and supporting the application.

The Division succeeded in achieving many other projects throughout 2017, such as the upgrade of domain

infrastructure from windows server 2012 to windows server 2016 to improve efficiency, flexibility and adding new

layers of security. In addition, the Bank upgraded its email services from exchange 2010 to 2016 within the main

premises and DR site, to enhance availability, prevent data loss and improve collaboration. The Division also

upgraded the Guy Morel training room equipment and digital signatures solutions and improvements in its security

posture by implementing Network Access Control port security to restrict access by unauthorised users.

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6.7 Administration Division

The Administration Division provides administrative and logistical support to the Bank. The main activities

undertaken by the Division includes:

carrying out a sound preventive maintenance programme for the Bank’s premises

planning and managing projects

managing contracts for maintenance and upkeep of premises, lease agreements and insurance covers

maintaining registers for the Bank’s fixed assets32 and managing purchase, allocation, movement,

maintenance and disposal of assets

facilitating communication through the management of telephones and faxes

managing procurement of office supplies and other goods

assisting with local transportation, managing the Bank’s vehicles and undertaking dispatch activities

undertaking logistical arrangements for official visitors

ensuring that suitable security arrangements are in place for the protection of staff, tenants, visitors and

the Bank’s assets

In 2017, designing of the concept plan for a facility at Bel Eau which will provide for a modern DR Site, additional

office space and other essential infrastructures were initiated. A key component of the project is the development

of cash management facilities (CMF) and to this regard, the Bank sought specialised consultancy services to

support the appointed architectural firm to incorporate specific requirements of CMF. The concept plan was

submitted to the Planning Authority in the third quarter of the year and it is expected that the final detailed plan will

be completed by mid-2018 while the completion of the DR Site has been rescheduled to December 2020.

The plan for building a 4-storey Annex building at the premises of the Bank was finalised and approved in 2017.

This development will provide additional office space at the main premises of the Bank. Although the construction

was originally planned to start in the first quarter of 2018, the schedule was revised to the second quarter of 2018

in view of the impact from another project being undertaken in close proximity to the premises of the Bank.

With regards to activities related to Project Management, no new projects were initiated in 2017, however the

relevant Project Teams were involved in the following projects:

CIS Phase II – the project was still on-going and its outcome will result in enhancing the security of the

CIS system and improve functionalities.

SEFT Phase II - which when fully implemented will provide for additional functionalities and online access

to customers. It is expected that the participants’ trial phase for the customer online access, final updates

32 Excluding fixed assets which are related to the information technology infrastructure of the Bank, which are managed by

TSD.


and the implementation of the archiving facility by the vendor ProgressSoft Corporation will be completed

in the first half of 2018.

Sharepoint – full roll out was completed in 2017. The implementation of Sharepoint provided a tool to all

Divisions/Units of the Bank to save files, increase efficiency, search and retrieve documents and provide

remote access to documents.

6.8 Human Resources Division

The principal role of the Human Resources Division (HRD) is to ensure that the professional development of

employees is met and maintained through recruitment, training and development as well as ensuring that staff

benefits and welfare are implemented and embedded effectively. In 2017, the Division strived to deliver its

functions to a high standard with the aim of meeting its strategic objectives.

In 2017, the Bank welcomed a total of 13 new employees across various divisions which as at December, the total

headcount was 185 employees. FSSD and PSOD were impacted by restructuring and as a result the Divisions

were renamed to FSD and FIMCD, respectively. This resulted in staff movements and reclassification of posts.

It was also important in 2017 for HRD to re-align its focus to a more strategic and transformational approach to

meeting its strategic objectives and as such there were a number of key HR frameworks that were introduced.

The Division implemented an Attraction and Retention Framework which captured the top priorities and expected

outcomes that the Bank will endeavour to focus on where:

The Bank’s branding image will be revamped to become an employer of choice

The recruitment and selection process is geared towards focusing on recruiting talented professionals in

the right job at the right time

The Bank strives to be at the centre of excellence for training and development of its employees

The retention factors in place will allow the Bank to remain competitive and retain an engaged and

dedicated workforce.

Furthermore, in line with the Bank’s initiative to promote the development of its employees for career progression

and succession planning, the Division launched the Talent Management Framework. The aim of talent

management is to develop, engage and retain talented individuals with skill sets that are considered particularly

valuable to the success of the institution alongside strategic workforce planning. In addition, the Career

Management project facilitates career management and progression of staff.

In its effort to ensure that employees understand their rights and obligations in carrying out their duties in an ethical

manner whilst upholding the CBS values, a thorough revision was conducted on the CBS Employee Code of


Conduct and Ethics. The code was made clearer and clears doubts on specific processes that were not captured

in the code before.

Moreover, the Division continued its effort to remain engaged with the employees as part of the employee

engagement agenda and retention strategy. Stay interview sessions were conducted to allow the Bank to

understand the challenges and setbacks employees face and what could be done to address and retain them.

The sessions were conducted regularly with different level of employees including management and the feedback

received were shared with Senior Management with the view to address the concerns raised.

As part of the management’s commitment to increase employee engagement, Senior Management (Governor and

Deputies) also engaged with staff at divisional level during the course of the year. This allowed Senior

Management to have discussions with employees in their specific functions on the opportunities and challenges

they face in achieving the Bank’s objectives. Given that the staff welcomed the initiative, Senior Management

agreed to conduct two such sessions per year in addition to the quarterly collective staff meeting.

In line with the Bank’s initiative to improve employee morale and satisfaction, the annual employee engagement

survey was conducted in August and it was launched through an independent online survey platform. The results

gathered were collated and shared with management and employees with the aim of addressing the points of

concerns and follow up through an agreed action plan. Additionally, in an effort to foster team-working spirit, a

staff retreat was organised in early 2017.

In the spirit of promoting continuous learning and development of its employees, the Bank offered opportunities

for employees to attend short courses locally and internationally with the purpose of building both technical and

functional capabilities. There were various overseas technical courses offered to employees mainly from

institutions such as the African Training Institute (ATI), AFRITAC South, IMF, SADC, Federal Reserve Bank and

RAMP to name but a few. Additionally, employees were also provided with the opportunity to attend in-house

training conducted throughout the year to enhance specific skills required for the delivery of their duties.

On a final note, the Bank’s scholarship programme was revised whereby two undergraduate and three

postgraduate scholarships were awarded in 2017. Furthermore, one employee was awarded the Chevening

scholarship. In 2017, the Bank welcomed back five employees following successful completion of their

postgraduate studies.

6.9 Internal Audit Division

The Internal Audit Division (IAD) remains committed to proactively provide independent, objective assurance and

consulting activities that add value and provide high quality services in a manner that is accountable, efficient,

effective and ethical. The Division is guided by the Multi-Year Audit Plan 2017-2019, which is essentially a rolling

plan and informed by the commitment of the Bank to deliver on its mandate.


Throughout the year, IAD continued to provide assurance on the Bank’s operations to the Board and Management.

The Division performed its audit function and followed up on recommendations made by the Bank’s External

Auditors. Moreover, it adopted new approaches based on feedback received from consultants, which are

harmonised with the Institute of Internal Auditors (IIA) Standards.

In order to meet the responsibilities and objectives as set forth in its Charter, IAD continued to perform audits of

varying types and with scope of work that takes into account the circumstances as well as input from Management

for each audit engagement. The Division carried out 8 audits and presented 49 recommendations in 2017. The

Division continued to monitor implementation of all the recommendations which will add value to the Bank’s

operations by strengthening internal controls and the governance process. This is being done with the oversight

role of the ARC.

During the year, IAD continued to meet with the Board’s ARC more than on a quarterly basis and received support

and guidance from the Committee. As a result, this improved the governance of the Bank and increased the

productivity of IAD.

6.9.1 Progress made during the year

a) The tabling and review of the previous ARC Charter to make it more relevant to the present day context.

b) The ongoing targeted coaching and on-the-field support from seasoned practitioners to master and

correctly apply the internal audit framework and its underlying principles. The benefits of the ongoing

coaching support was evident in the staff from IAD whereby they were increasingly gaining confidence in

their work even as they develop competencies in fields relevant to their work.

c) In keeping with good human resource practice, IAD encouraged a talent mobility programme through

ongoing exposure of staff to other divisions/units within the Bank. This is an intentional process of HR

development ensuring they fully develop a comprehensive understanding of central banking operations.

d) The growing recognition of the need to strengthen IT audit and the actions by Management to engage in

recruitment process for relevant staff in this area.

6.9.2 Plans for the Future

a) Given the growing demands and expectations on IAD, it has become necessary that the staff from the

Division engage in relevant capacity development and ongoing learning to sharpen their skills and

competencies.

b) Widening the scope of audit work to include more of the mission critical areas of the Bank. This is to be

done and guided by ongoing organisation-wide risk analysis.

c) Following the consultancy services received in improving the way it works, it was decided to reschedule

the external quality review of IAD to September 2018. This review is to assess whether the Division

conforms to IIA’s International Standards for the Professional Practice of Internal Auditing. In addition, it


aims to evaluate IAD’s effectiveness in carrying out its mission, as set forth in its charter and expressed in

the expectations of the Bank’s Management. Moreover, the assessment will identify opportunities and offer

ideas to the Division for improving effectiveness of the internal audit function, thereby raising the value

added to Management and the ARC.

6.10 Governance

Mindful of the pivotal role it plays in the domestic economy, the Bank has over the years strengthened its

governance structure.

6.10.1 Governor’s Office

6.10.1.1 Legal Unit

The Legal Unit provided support to the Divisions/Units of the Bank in their day to day operations by undertaking

analysis of the matters brought forth to ensure compliance with the legal framework. The Unit also worked with

the Divisions on different projects, one such project being the review of legal frameworks to strengthen and bring

the frameworks in line with international best practices. The Unit has also started working with other authorities in

the review of the legal framework for AML/CFT and this work will continue in 2018. In undertaking its duties, the

Unit sought the guidance of the Office of the Attorney General on a number of matters.

6.10.1.2 Risk Management Unit

The Risk Management Unit (RMU) is responsible for the overall monitoring of bank-wide risks.

During the year, the main focus of the Unit was to complete the Framework for Enterprise Risk Management

(ERM). The International Standard of ISO 31000 has been adopted which provides a structured approach for

implementing ERM. Moreover, the Risk Management Policy, the Risk Appetite statement and the Operational

guidelines were reviewed by the Risk Management Committee (RMC) in June and approved by the Board in

October.

RMU continued to conduct the risk assessment process on an annual basis whereby all divisions and units

identified risks attached to their processes and adopted appropriate internal controls to negate or mitigate these

risks. RMU has also in terms of operational risk, gathered risk issues/events on a regular basis across the Bank

of which the respective division/unit takes ownership and comes up with appropriate treatment options. Every two

months, Risk Champions from each division/unit meet to discuss new and existing risks. These risks are brought

to the RMC meeting as well as the Audit and Risk Committee (ARC) meeting held every quarter for discussion

and resolutions.

Aside from the above, the Unit also worked with divisions and units to compile process flow charts, especially for

those newly re-formed, to assist with identification of risks attached to processes. The Unit also contributed to the


Financial Risk Management section of the yearly financial statement, and worked closely with Internal Audit on

risk-based matters.

6.10.1.2.1 Business Continuity Management

Business Continuity Management (BCM) is the strategic and tactical capability of an organisation to plan for and

respond to incidents and business disruptions in order to continue business critical operations at an acceptable

predefined level at a Disaster Recovery (DR) Facility.

Since 2010, the Bank has engaged in the planning for business continuity of its core operations in the event of

incidents or disruptions that may infringe such operations. The Bank’s BCM programme ensures that a proactive

plan is in place to avoid and mitigate risks associated with disruptions to its core operations. The plan details the

steps to be taken before, during and after an event, hence enabling the Bank to maintain its obligations. During

the year, the DR Plan for each division was reviewed and updated with relevant parties. Furthermore, the Bank

was in the process of building a DR Facility to ensure it can respond effectively during a crisis. In March, Zoran

CSM (a company based in South Africa) was awarded a contract for the architectural design of the DR Facility for

the Bank and to provide project management support.

6.10.1.2.2 Risk Management Committee

The RMC was established by the Board of Directors of the Central Bank of Seychelles to assist the Board in

overseeing the implementation of the Risk Management Framework for the risks faced by the Bank. RMC ensures

that risks are being effectively managed and provide updates to the ARC through RMU. Furthermore, RMC serves

as oversight with respect to the Business Continuity Programme. The Committee is also primarily responsible for

reviewing strategies, guidelines and policies for Business Continuity Management System (BCMS) prior to

proposal for Board approval.

6.10.1.3 Information Security

The office of the Chief Information Security Officer (CISO) is responsible for the Bank’s information security policy,

coordination of information security efforts and bank-wide information security strategy. CISO also advises and

collaborates with the Divisions with respect to business continuity and disaster recovery plans, (BCMS) information

security audit and compliance practices.

In line with the above, the Bank serves as a role model within the financial system in protecting its ICT Infrastructure

through a secure and resilient cyber ecosystem which is essential for its overall success. During 2017, as part of

the process to enhance CBS’ cybersecurity posture, the Bank invited consultants through a Request for Proposal

to develop a Cyber Security Framework (CSF) including a set of Cyber Security Guidelines with the objective to

safeguard the confidentiality, integrity, and availability of the critical assets using a risk-based approach. The CSF

will enable the Bank to develop and leverage a diverse set of cyber capabilities to enhance the effectiveness of

the Bank’s operations, management, prevention, and response to malicious activity targeting its ICT infrastructure.

Additionally, the Cyber Security Guidelines will provide guidance to commercial banks, bureau de change and


other financial institutions as supervised by the Bank to set clear direction for establishing, maintaining and

monitoring an information security governance framework.

6.10.2 Internal Committees

6.10.2.1 Investment Committee

The Investment Committee (IC) was established by the CBS Board in 2009, to oversee the management of the

country’s foreign exchange reserves. The delivery of this objective is guided by the Investment Policy and the

Investment Guidelines, whereby the latter is approved by IC, as delegated by the Board. In March, as part of the

revision to its Terms of Reference (TOR), the Second Deputy Governor (SDG) became the Chairperson of the

committee. This change was to ensure more independence at IC level, given that it reports to the Board which is

chaired by the Governor; who previously was the chairperson of IC. In addition, the composition of IC membership

was reviewed with the intention that only the divisions most involved with reserves management issues would be

represented. In addition to its Chair, IC is consequently comprised of the First Deputy Governor (FDG) and the

Heads of four divisions, namely, Banking Services, Financial Markets, Financial Surveillance and Research and

Statistics. Other staff with relevant background/expertise from any of the aforementioned divisions, who would

add value to the committee, may also be appointed as members of IC. As per its TOR, in 2017, IC met once every

month to review past performances of reserves management and discuss investment strategies moving forward.

In addition to the periodic meetings, IC held three ad-hoc meetings to address other pertinent issues that arose

during the year.

6.10.2.2 Monetary Policy Technical Committee

The MPTC is established by the Board with the responsibility to consider, advise and decide on issues primarily

relating to the formulation and implementation of monetary policy as guided by the general guidelines determined

by the Board.

Prior to January, the Chairperson of the committee, formerly established as the Monetary Operations Committee

(MOC), was the Governor. As of January, with the approval of the new Terms of Reference by the Board, the

committee was renamed and the Governor abdicated her position as Chairperson of the newly-formed MPTC.

The committee is composed of the FDG as the Chairperson, the SDG and Heads of five divisions, namely, the

Banking Services, Financial Markets, Financial Inclusion and Market Conduct, Financial Surveillance and

Research and Statistics. The MPTC meetings were set at the beginning of every Minimum Reserves Requirement

maintenance period, i.e. every 4 weeks. Besides reviewing latest developments in the money market, members

also discussed intervention strategies for the conduct of open market operations during the meetings and any

factor that may be impeding the monetary policy transmission mechanism. Several other ad-hoc meetings were

set as and when it was deemed necessary, to ensure an effective implementation of monetary policy.


6.10.3 Board of Directors

On January 1, there were two appointments at the Board level, one of which was the re-appointment of Mr Errol

Dias for a new term of six years. Mr Wilfred Jackson’s term came to an end on December 31, 2016 and he advised

of his retirement for which Prof William Otiende Ogara, a Kenyan national, was appointed as a new member.

The Board of Directors met for 19 ordinary and 5 extraordinary meetings in 2017. Discussions were held on policy,

operational and administrative matters. At the beginning of the year, one of the main topics of debate centred on

the issuance of currency including the first phase of demonetisation of the older banknotes. The Board also

discussed de-risking and the proposed actions that the Bank will take as well as the stakeholder engagement on

the subject matter. The Board considered a number of nominations for appointment of administrators for financial

institutions under its ambit. The other major topics of discussion focused on the proposal for a National Financial

Education Strategy and the promulgation of a Financial Consumer Protection Law.

During the course of the year, the Board also met on a quarterly basis for monetary policy discussions with the

major decision to modify the Bank’s Monetary Policy Framework with the move to operationalise an Interest Rate

Corridor in the third quarter. Every three months, the Board also deliberated on Financial Stability issues.

Apart from the main Board meeting, two sub-committees, namely the ARC and Human Resources Committee

(HRC) met on several occasions during the year.

6.10.3.1 Audit and Risk Committee (ARC)

The purpose of ARC is to assist the CBS Board of Directors in fulfilling its oversight responsibilities of the financial

reporting process, the systems of risk management and internal control as well as the audit process (both internal

and external). ARC reports to the Board on how it discharges its responsibilities and makes recommendations to

the Board. Currently the ARC membership comprises three non-executive Board members, appointed by the

Board.

The ARC membership comprises Chairman Prof William Otiende Ogara who brings with him solid experience in

audit and accountancy, corporate governance and organisation development practice. Director Bertrand Rassool

brings with him many years of experience from central banking and international exposure on economic policy

matters. Director Errol Dias brings with him solid public administration experience having served in a number of

positions in government. In summary, the Committee met for eight meetings with one of them being a joint ARC

and HRC Meeting. In addition, the Committee met with the IMF Safeguards Assessment Delegation. The other

meetings were with the External Auditors. The main focus of the meetings was on ARC’s oversight role of

providing strategic leadership and policy review and approval.

Key accomplishments of ARC during the year under review were:

a) Scrutiny and approval of IAD Multi-Year Work Plan 2017-2019 and the RMU Annual Work Plan. These

plans ensured that IAD remained focused on risk based audits and that RMU, on the other hand focused

on operational risks, whilst also taking the opportunity to highlight bank-wide financial risks to be escalated

to the CBS Board. As a result of this, the Board has continued to pursue the completion and subsequent


implementation of the special assignment undertaken on National Risk Assessment. The Board has also

been following closely the ongoing ESAAMLG Mutual Evaluation.

b) The tabling and review of the previous ARC Charter to make it more relevant to the present day context.

In principle, the revised ARC charter was approved by the Board with recommendation that certain

adjustments be made therein before signing by the members. Several parts of the Charter were revisited

to enable the Committee to give due prominence to current affairs of the country including e.g., the impact

of offshore financial services, anti-money laundering issues, the image of the CBS, the Board and staff.

c) Review of the work done by IAD and RMU on specific assignments. These included the Organisation Wide

Risk Management Framework, the Anti-Fraud Policy, Follow through of the Management Letter issues

raised by the External Auditors, Review of Backup Audit, Legal Audit and IT Procurement Audit, among

others.

d) Providing guidance to the IAD on External Quality Review. This was done in consultation with Independent

Consultants; IAD Team was advised that the review process be delayed to allow IAD to implement some

of the recommendations from the just concluded independent review. The External Quality Review is

planned for September/October 2018.

e) Providing strategic leadership in the transition from the current External Auditors to the newly appointed

Auditors. As was the practice before, ARC took the responsibility to ensure that the due diligence process

in procurement was followed by Management and in keeping with the needs of the Office of the Auditor

General.

With respect to progress made, those were:

a) Significant lessons were learnt from confidence-building sessions held with the IAD first and then with the

RMU. From the sessions, it was recognised that there would be on going need for IAD and RMU to make

audit as well as risk more visible.

b) Capacity development of both RMU and IAD Staff: These included on going capacity development in

relevant courses as approved from time to time, high level exposure of staff to current issues like de-risking

realities within Seychelles, reputation risk and the effect that this may have on the Bank.

c) ARC has spearheaded a major learning review (evaluation) of governance by the CBS Board. Key findings

from that process are being used to inform improvements on how the Board conducts its business in

keeping with good corporate governance practice, whilst paying due attention to the uniqueness of central

banking business. In addition, the Board of Directors and Management attended a presentation on

Corporate Governance and Board Development in-house facilitated by Prof William Otiende Ogara.


6.10.3.2 Human Resources Committee (HRC)

The HRC met 7 times in 2017 with its focus for the year anchored on policy enhancement for human capacity

upscaling, having a work culture of good ethics, reviewed the organisation structure of the Bank and the various

positions that it needs to fulfil its activities. Other key discussions centred on the revision to the Employee Code

of Conduct and Ethics, the Talent Management Framework which was the addition to the Career Management

Framework introduced at the beginning of the year and also the Attraction and Retention Framework. The HRC

was also appraised on the results of the Employee Satisfaction Survey and the action plan to address the feedback

from the staff.

6.11 Appreciation

The Board and Management of the Central Bank wish to express their appreciation to all staff members of the

Bank for their valuable contributions and absolute commitment to the operation of the institution. The Bank’s staff

members have continued to discharge their responsibilities in a professional, ethical and exemplary manner as

befitting a central monetary institution and in doing so further assisted the Bank to attain its statutory objectives,

amongst other things. On this note, the Board and Management look forward to another successful year ahead.

Annex I

CENTRAL BANK OF SEYCHELLES FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017

Management’s commentary on the audited financial statements

for the year ended December 31, 2017 The audited financial statements of the Central Bank of Seychelles for the year ended December 31,

2017 were approved and signed by the Board and the external auditors KPMG (Mauritius) on March

12, 2018. The Auditor General certified and signed the financial statements on March 13, 2018. These

financial statements have been prepared in accordance with the CBS Act, 2004 as amended and are

in line with the International Financial Reporting Standards (IFRS). The financial statements comprise

of the following primary statements; the statement of financial position, the statement of profit or loss

and other comprehensive income, the statement of changes in equity, the statement of cash flows, as

well as the statement of distribution in accordance with the CBS Act, 2004 as amended and the notes

to the financial statements.

The financial statements of 2017 have been audited by the Bank’s external auditors, KPMG (Mauritius),

on behalf of the Auditor General as per Section 47(3) of the CBS Act, 2004 as amended. In the auditors’

opinion the financial statements give a true and fair view of the financial position, the financial

performance and the cash flows of the Bank which are in line with IFRS and in accordance with the

CBS Act, 2004 as amended. The Bank’s external auditors are in their fifth and final year of appointment.

The presentation of the figures in the statement of financial position is consistent with the prior year and

shows all foreign and local currency comparative figures for the year 2016 and 2017. For the year

2017, total assets stood at R8,986 million, total liabilities were R8,236 million and total equity stood at

R750 million. Total value of foreign currency assets increased from R7,092 million as at the end of

2016 to R7,568 million as at the end of 2017, which is an increase of approximately 6.7 per cent. This

increase was partly based on the efforts of the Bank in its strategic objective to continue its prudent

foreign reserves accumulation, coupled with the impact of depreciation of the domestic currency against

other major currencies, namely the Euro and US Dollar. The total foreign assets as at December 31,

2017 comprised of R2,465 million as cash and cash equivalents with short-term maturities, R3,562

million as other balances and placements with maturities of more than three months and R1,541 million

as financial assets with the Bank’s external fund manager, investments in shares, securities and money

market funds being managed in-house by the Bank aggregately presented as financial assets at fair

value through profit or loss.

The statement of profit or loss and other comprehensive income shows a total comprehensive income

of R89 million for the year 2017 which is made up of R1.2 million as actual operating profit and

distributable earnings as well as other non-distributable earnings in the form of; unrealised revaluation

gains arising from foreign currency monetary assets and liabilities amounting to R73 million, unrealised

gains on fair valuation of financial assets at fair value through profit or loss amounting to R17 million

and actuarial losses amounting to R1.0 million. The revaluation gains recorded are a direct result of

the overall depreciation of the Rupee vis-à-vis the US Dollar and are treated as unrealised losses under

IFRS, and do not form part of the computation of distributable earnings to the government. In addition,

the effects of the actuarial losses on the employee benefit obligations are treated as other

comprehensive income and these also do not form part of distributable earnings but are accumulated

under actuarial reserve. Prior years’ unrealised gains and losses on financial assets at fair value

through profit or loss are only considered for distribution upon disposal of these assets in the following

year. For the year 2017, these net realised losses amounted to R0.5 million and were offset against

the distributable earnings for the year 2017 prior to distribution.

The Bank’s actual operating profit and distributable earnings for the year 2017 were made up primarily

of interest income, interest expense, fees and commission, staff costs, policy costs as well as other

income and expenses. The primary contributor to total revenue of R273 million was interest income

with a total of R171 million, representing 63 per cent of the total revenue of the Bank. Interest income

earned from the Bank’s holdings of government treasury bills remained the main source of the income,

with the Bank earning a consistent level of interest, mainly on the 365-day treasury bills. By contrast,

interest expense has declined from R29.5 million in 2016 to R25 million in 2017 mainly due to decrease

in the use of the Deposit Action Arrangement (DAA) monetary policy instrument. The main reasons

were a reduction in volume of liquidity mopped up, a decline in interest rates as well as continued

issuance of treasury bills and bonds for monetary purposes in 2017.

In terms of non-interest income, the decrease of 7.7 per cent observed in fees and commission income,

from R28 million in 2016 to R26 million in 2017 was primarily caused by a reduction in the level of

foreign denominated payments effected on behalf of government compared to prior year. Additionally,

less foreign exchange denominated government payments were conducted through the Bank as this

process was also being done directly through commercial banks.

On the expenditure side, staff related costs increased from R81 million in 2016 to R96 million in 2017

in view that the Bank implemented its career management framework to ensure clear career

progression whereby employees are remunerated accordingly as part of the talent management and

retention strategy. This strategy has been adopted in view of the rapid changing economic environment

that the financial sector is currently facing, with the industry undergoing significant changes which raises

a number of challenges directly related to attracting and retaining high calibre employees with scarce

skills set. Policy costs which is directly linked to the Bank’s objective of prudently accumulating foreign

reserves increased from R4.8 million in 2016 to R11 million in 2017, highlighting the Bank’s foreign

exchange reserve accumulation efforts during the year. An increase in gross international reserves

from US$523 million, equivalent to 4.1 months of imports, to US$545 million, equivalent to 4.2 months

of imports, was observed, influenced partly by the increase in reserves accumulation efforts in

comparison to the preceding year.

On the equity side, the aggregate balance under authorised capital and General reserve of the Bank

fell short of the minimum 10 per cent of total monetary liabilities required at the end of every year, which

stood at 7.2 per cent. The total monetary liabilities increased from R3,600 million in 2016 to R4,440

million in 2017. The entire 50 per cent of total distributable earnings which amounted to R0.6 million

was utilised to build up authorised capital to reach to 2.93 per cent of total monetary liabilities and no

transfer was made to build up General reserve. The remaining 50 per cent of total distributable

earnings, amounting to R0.6 million has been paid to the Government Consolidated Fund as dividends

for the year.

The full set of the Bank’s audited financial statements and detailed explanatory notes prepared for the

year ended December 31, 2017 are shown overleaf.

CENTRAL BANK OF SEYCHELLES FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

Page 1

CENTRAL BANK OF SEYCHELLES FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 CONTENTS PAGES OPINION OF THE AUDITOR GENERAL 2 – 4 INDEPENDENT AUDITORS’ REPORT TO THE AUDITOR GENERAL 5 – 8 STATEMENT OF FINANCIAL POSITION 9 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 10 STATEMENT OF DISTRIBUTION 11 STATEMENT OF CHANGES IN EQUITY 12 STATEMENT OF CASH FLOWS 13 NOTES TO THE FINANCIAL STATEMENTS 14 – 78

Page 10

CENTRAL BANK OF SEYCHELLES STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017

Note 2017 2016

SCR’ 000 SCR’ 000

Interest income 27 170,836 166,783

Interest expense 28 (25,420) (29,548)

-------------- --------------

Net interest income 145,416 137,235

Fees and commission income 29 26,415 28,493

Other income 5,644 9,806

Gains arising from dealings in foreign currency transactions 30 5,452 4,864

Gains arising from fair valuation of financial assets at fair

value through profit or loss 30 17,357 25,037

Gains arising from revaluation of foreign currency

monetary assets and liabilities 30 73,387 37,814

-------------- --------------

Revenue 273,671 243,249

Staff costs 31 (96,445) (80,696)

Currency expenses 32 (11,181) (7,154)

Depreciation 14 (5,960) (5,033)

Amortisation charge 15 (1,012) (1,322)

Professional charges 33 (5,399) (7,050)

International Monetary Fund (“IMF”) charges (10,119) (6,235)

Policy costs (11,064) (4,755)

Administrative expenses (16,079) (16,355)

Other operating expenses (26,392) (26,847)

-------------- --------------

Profit for the year 90,020 87,802

Other comprehensive income

Items that will never be reclassified to profit or loss

Actuarial losses 22(a) (1,019) (256)

-------------- --------------

(1,019) (256)

-------------- --------------

Items that are or may be reclassified to profit or loss - -

-------------- --------------

Other comprehensive income (1,019) (256)

-------------- --------------

Total comprehensive income for the year 89,001 87,546

======== ======== The notes on pages 14 to 78 form an integral part of these financial statements.

Page 11

CENTRAL BANK OF SEYCHELLES STATEMENT OF DISTRIBUTION FOR THE YEAR ENDED 31 DECEMBER 2017 2017 2016

SCR’ 000 SCR’ 000

Total comprehensive income for the year 89,001 87,546

Adjusted as follows:

Realised losses transferred from revaluation reserve (467) (1,632)

Unrealised gains transferred to revaluation reserve (88,349) (62,886) Actuarial losses as per IAS 19 1,019 256

------------ ------------

Distributable earnings 1,204 23,284

======= =======

Amount distributed

Distributed as specified by the Central Bank of Seychelles Act, 2004 as amended

Transfer to authorised capital 602 -

Transfer to General reserve - 11,642

Transfer to Government Consolidated Fund (Note 6) 602 11,642 ------------ ------------

1,204 23,284

======= ======= The above information has been compiled from information contained in the statement of changes in equity

as set out on page 12 and does not form part of the primary statements.

The notes on pages 14 to 78 form an integral part of these financial statements.

Page 12

CENTRAL BANK OF SEYCHELLES STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017

Authorisedcapital

General reserve

Revaluationreserve

Actuarialreserve

Retainedearnings

Totalequity

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 At 1 January 2016 129,625 180,439 277,675 (1,686) - 586,053

Profit for the year - - - - 87,802 87,802

Other comprehensive income:

Actuarial losses - - - (256) - (256)

------------ ------------ ------------ ------------ ------------ ------------

129,625 180,439 277,675 (1,942) 87,802 673,599

Transfer from revaluation reserve (realised) - - 1,632 - (1,632) - Transfer to revaluation reserve (unrealised) - - 62,886 - (62,886) - Transfer to General reserve - 11,642 - - (11,642) -

Transfer to Government Consolidated Fund - - - - (11,642) (11,642)

------------ ------------ ------------ ------------ ------------ ------------

At 31 December 2016 129,625 192,081 342,193 (1,942) - 661,957

Profit for the year - - - - 90,020 90,020

Other comprehensive income:

Actuarial losses - - - (1,019) - (1,019) ------------ ------------ ------------ ------------ ------------ ------------

129,625 192,081 342,193 (2,961) 90,020 750,958

Transfer from revaluation reserve (realised) - - 467 - (467) - Transfer to revaluation reserve (unrealised) - - 88,349 - (88,349) - Transfer to authorised capital 602 - - - (602) - Transfer to Government Consolidated Fund - - - - (602) (602)

------------ ------------ ------------ ------------ ------------ ------------At 31 December 2017 130,227 192,081 431,009 (2,961) - 750,356 ======= ======= ======= ======= ======= ======= The notes on pages 14 to 78 form an integral part of these financial statements.

Page 13

CENTRAL BANK OF SEYCHELLES STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2017 Note 2017 2016

SCR’ 000 SCR’ 000

Net cash inflow/(outflow) from operating activities 34 115,738 (182,994)

-------------- --------------

Cash flows from investing activities

Investments in other balances and placements (33,827) (1,820,233)

Payments for acquisition of financial assets at fair value

through profit or loss (1,699,199) (247,954)

Proceeds from sale of financial assets at fair value through

profit or loss 673,756 246,433

Payments for currency replacement 13 (16,352) (21,404)

Payments for acquisition of property and equipment 14 (12,469) (10,311)

Payments for acquisition of intangible assets 15 (3,450) -

Proceeds from disposal of property and equipment 162 134

Interest received 171,099 160,118

-------------- --------------

Net cash used in investing activities (920,280) (1,693,217)

-------------- --------------

Cash flows from financing activities

Paid to Government Consolidated Fund 6 (11,642) (10,258)

-------------- --------------

Net cash used in financing activities (11,642) (10,258)

-------------- --------------

Net decrease in cash and cash equivalents (816,184) (1,886,469)

Cash and cash equivalents at 1 January 3,190,345 5,010,315

Effects of exchange rate changes on cash and cash equivalents 90,962 66,499

-------------- --------------

Cash and cash equivalents at 31 December 7 2,465,123 3,190,345

======== ======== The notes on pages 14 to 78 form an integral part of these financial statements.

Page 14

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 1. GENERAL INFORMATION

The Central Bank of Seychelles (the “Bank”) is established and domiciled in the Republic of

Seychelles. The address of its registered office is Independence Avenue, Victoria, Mahé,

Seychelles. The Bank is established by statute under Section 3 of the CBS Act, 2004 as

amended, hereafter referred to as the CBS Act. Section 3 of the CBS Act states; “there is

hereby established the Central Bank of Seychelles which shall be a body corporate with

perpetual succession and a common seal.”

The financial statements for the year ended 31 December 2017 have been approved for issue

by the Board of Directors on 12 March 2018. Neither the Bank nor the Government has the

power to amend the financial statements after issue.

The primary objective of the Bank is to promote domestic price stability.

The other objectives of the Bank are:

to advise the Government on banking, monetary and financial matters, including the

monetary implications of proposed fiscal policies, credit policies and operations of the

Government; and

to promote a sound financial system.

2. CHANGES IN ACCOUNTING POLICIES

Except for the changes below, the Bank has consistently applied the accounting policies set

out in Note 3 to all periods presented in these financial statements.

The Bank has adopted the following amendments to standards and new interpretations with a

date of initial application of 1 January 2017.

Effective for accounting periods ending on or after

Amendments to IAS 7: Disclosure Initiative 1 January 2017

The above amendment did not have a significant impact on the financial statements of the

Bank.

3. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are

set out below. These policies have been consistently applied to all the years presented unless

otherwise stated.

3.1 Basis of preparation

In accordance with Section 45(2) of the CBS Act, the financial statements of the Bank shall be

maintained at all times in conformity with the applicable law, if any, and an internationally

recognised financial reporting framework. .

Page 15

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.1 Basis of preparation (continued)

The financial statements have been prepared in accordance with International Financial

Reporting Standards (“IFRS”) and the Central Bank of Seychelles Act, 2004 as amended.

The disclosures on risks from financial instruments are presented in the financial risk

management disclosures contained in Note 37.

The financial statements comprise the statement of financial position, the statement of profit or

loss and other comprehensive income, the statement of changes in equity, the statement of

cash flows and the notes, as well as the statement of distribution in accordance with the CBS

Act.

The preparation of financial statements in conformity with IFRS requires the use of certain

critical accounting estimates which are reviewed and updated as and when required. It also

requires management to exercise its judgement in the process of applying the Bank’s

accounting policies. Changes in assumptions may have a significant impact on the financial

statements in the period the assumptions changed. Management believes that the underlying

assumptions for the year are appropriate and that the Bank’s financial statements therefore

present the financial position and results fairly. The areas involving a higher degree of

judgement and complexity or areas where assumptions and estimates are significant to the

financial statements are disclosed in Note 5.

3.2 Foreign currency translation

(a) Functional and presentation currency

Items included in the Bank’s financial statements are measured using the currency of the

primary economic environment in which the Bank operates (the “functional currency”). The

financial statements are presented in Seychelles Rupees (“SCR”) rounded to the nearest

thousand, which is the Bank’s functional and presentation currency.

(b) Transactions and balances

Transactions denominated in foreign currencies are translated into SCR and recorded at the

rates of exchange prevailing at the dates of the transactions. Monetary items denominated in

foreign currencies are translated into SCR at the closing exchange rates ruling on the reporting

date.

Foreign exchange differences resulting from the settlement of foreign currency transactions

and from the translation at year end closing exchange rates of monetary assets and liabilities

denominated in foreign currencies are recognised in profit or loss. All foreign exchange gains

and losses recognised in profit or loss are presented net.

Page 16

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.2 Foreign currency translation (continued)

(b) Transactions and balances (continued)

Unrealised foreign exchange gains and losses are transferred from retained earnings to

revaluation reserve, in accordance with the CBS Act as these are not allowed for distribution.

The exchange rate of the SCR is determined by the market and the rates applied on all foreign

currency transactions are the weighted average trading exchange rates of authorised dealers

which includes banks and bureau de change, except for the IMF Special Drawing Rights

(“XDR”) rate which applies the international market rate. The XDR is defined in terms of a

basket of currencies. Its value is determined as the weighted sum of exchange rates of the

five major currencies (Euro, Japanese Yen, British Pound Sterling, United States Dollar and

Chinese Yuan Renminbi). For accounting purposes, XDR is treated as a foreign currency.

The following rates of exchange were applied:

31 December 2017 31 December 2016 IMF Special Drawing Rights XDR 1 = SCR 19.7034 XDR 1 = SCR 18.1557United States Dollar USD 1 = SCR 13.8357 USD 1 = SCR 13.5057 British Pound Sterling GBP 1 = SCR 18.4591 GBP 1 = SCR 16.4738 Euro EUR 1 = SCR 16.5296 EUR 1 = SCR 14.0465 Australian Dollar AUD 1 = SCR 10.8084 AUD 1 = SCR 9.7471Canadian Dollar CAD 1 = SCR 11.0450 CAD 1 = SCR 10.0428 South African Rand ZAR 1 = SCR 1.1016 ZAR 1 = SCR 0.9776Chinese Yuan Renminbi CNY 1 = SCR 2.1265 -

The Chinese Yuan Renminbi (“CNY”) is added to the list of currencies in view that the Bank

started to invest in CNY with the Bank for International Settlements (“BIS”), thus increasing the

diversity of the Bank’s portfolio of investments.

3.3 Financial instruments

A financial instrument is defined as any contract that gives rise to both a financial asset of one

entity and a financial liability or equity instrument of another entity. The Bank recognises all

financial instruments on its statement of financial position when it becomes a party to the

contractual provisions of the instrument.

The Bank classifies all its financial assets into one of the following categories:

as loans and receivables and;

at fair value through profit or loss, and within this category as:

– held for trading; or

– designated at fair value through profit or loss.

All the financial liabilities are measured at amortised cost.

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3.3 Financial instruments (continued)

The main classes of financial assets are: cash and cash equivalents, other balances and

placements, financial assets at fair value through profit or loss (“FVTPL”), investment

securities, loans and advances and other assets. The main classes of financial liabilities are:

currency in circulation, deposits from Government, deposits from banks, deposits from other

financial institutions, other deposits, Open Market Operations, other liabilities and International

Monetary Fund obligations. Their sub-classes are disclosed within the notes to each of these

classes of financial assets and liabilities.

(a) Financial assets – as loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments

that are not quoted in an active market. Loans and receivables are initially recognised at fair

value plus any directly attributable transaction costs and measured subsequently at amortised

cost using the effective interest method. Interest on financial assets is included in profit or loss

and is reported as “Interest income”.

The Bank uses settlement date accounting for regular way contracts when recording financial

asset transactions. Financial assets, consisting of investment securities, that are transferred

to a third party but do not qualify for derecognition remain within investment securities but

disclosed as “pledged as collateral”, if the transferee has the right to sell or re-pledge them.

(b) Financial assets – at fair value through profit or loss

Fair value through profit or loss category comprises of financial assets designated at fair value

through profit or loss. These are initially recognised at fair value, with transaction costs

recognised in profit or loss and subsequently measured at fair value. Interest on financial

assets is included in profit or loss and is reported as “Interest income”. Dividend income is

recognised in profit or loss on the date on which the right to receive payment is established.

(c) Financial liabilities – at amortised cost

The Bank recognises all its financial liabilities initially at the value of the consideration received

for those liabilities, excluding transaction costs and subsequently measures them at amortised

cost.

(d) Derecognition

Financial assets are derecognised when the contractual rights to receive cash flows from these

assets have ceased to exist or the assets have been transferred and substantially all the risks

and rewards of ownership of the assets are also transferred (that is, if substantially all the risks

and rewards of ownership have not been transferred, the Bank tests control to ensure that

continuing involvement on the basis of any retained powers of control does not prevent

derecognition).

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CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.3 Financial instruments (continued)

(d) Derecognition (continued)

Financial liabilities are derecognised only when the obligation is discharged, cancelled or

expired.

(e) Fair value measurement

‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date in the principal or, in

its absence, the most advantageous market to which the Bank has access at that date. The

fair value of liability reflects its non-performance risk.

When available, the Bank measures the fair value of an instrument using the quoted price in

an active market for that instrument. A market is regarded as active if transactions for the asset

or liability take place with sufficient frequency and volume to provide pricing information on an

ongoing basis.

If there is no quoted price in an active market, then the Bank uses valuation techniques that

maximise the use of relevant observable inputs and minimise the use of unobservable inputs.

The chosen valuation technique incorporates all of the factors that market participants would

take into account in pricing a transaction.

The best evidence of the fair value of a financial instrument at initial recognition is normally the

transaction price – i.e. the fair value of the consideration given or received. If the Bank

determines that the fair value at initial recognition differs from the transaction price and the fair

value is evidenced neither by a quoted price in an active market for an identical asset or liability

nor based on a valuation technique that uses only data from observable markets, then the

financial instrument is initially measured at fair value, adjusted to defer the difference between

the fair value at initial recognition and the transaction price. Subsequently, that difference is

recognised in profit or loss on an appropriate basis over the life of the instrument but no later

than when the valuation wholly supported by observable market data or the transaction is

closed out.

The fair value of a demand deposit is not less than the amount payable on demand, discounted

from the first date on which the amount could be required to be paid.

The Bank recognises transfers between levels of the fair value hierarchy as of the end of the

reporting period during which the change has occurred.

Page 19


3.4 Repurchase agreements

In the course of its financial market operations, the Bank may engage in repurchase

agreements involving investment securities.

Securities sold and contracted for repurchase under reverse repurchase agreements (“reverse

repos”) remain classified as investment securities and are disclosed as pledged assets, when

the transferee has the right by contract or custom to sell or re-pledge the collateral; the

counterpart obligation to repurchase the securities is reported in the statement of financial

position as part of the Open Market Operations and carried at amortised cost. Securities

purchased under agreements to resell (“repos”) are recorded as loans and advances. The

difference between the sale and repurchase price is treated as interest and accrued over the

term of the agreements using the effective interest method.

3.5 Balances with International Monetary Fund (“IMF”)

(a) Receivables

Deposits with the IMF are included in cash and cash equivalents and represent the membership

quota of the Seychelles with the IMF. Holdings of Special Drawing Rights relates to the amounts

with the IMF that are available for day-to-day operations of the Bank.

Reserve tranche position is the extent to which the IMF's holdings of a member's currency are

less than the member's quota. This excludes holdings obtained by members through the use

of IMF credit. Also excluded are holdings in the IMF number two account that are less than

one tenth of one percent quota. The reserve tranche position is part of the member country's

external reserves.

(b) Liabilities

Borrowings from the IMF are financial liabilities held by the Bank on behalf of the Government

of Seychelles, denominated in XDR and are included under the International Monetary Fund

obligations in the statement of financial position. Borrowings from the general resources of the

IMF bear interest at rates set by the IMF twice weekly and are repayable according to the

agreed repayment schedules. The interest rate amounted to 0.74 percent per annum as at 31

December 2017 (2016 – 0.24 percent per annum).

All borrowings from the IMF are guaranteed by promissory notes which are issued by the

Government and are payable on demand.

3.6 Impairment of financial assets

The Bank assesses at each reporting date whether there is objective evidence that a financial

asset or group of financial assets is impaired.

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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.6 Impairment of financial assets (continued)

A financial asset or a group of financial assets is impaired and impairment losses are

recognised only if there is objective evidence of impairment as a result of one or more events

that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event(s) has

an impact on the estimated future cash flows of the financial asset or group of financial assets

that can be reliably estimated.

The criteria that the Bank uses to determine that there is objective evidence of an impairment

loss include:

a) significant financial difficulty of the issuer or obligor;

b) a breach of contract, such as a default or delinquency in interest or principal payments;

c) the lender, for economic or legal reasons relating to the borrower’s financial difficulty,

granting to the borrower a concession that the lender would not otherwise consider;

d) it becomes probable that the borrower will enter bankruptcy or other financial

reorganisation;

e) the disappearance of an active market for that financial asset because of financial

difficulties; or

f) observable data indicating that there is a measurable decrease in the estimated future cash

flows from a portfolio of financial assets since the initial recognition of those assets,

although the decrease cannot yet be identified with the individual financial assets in the

portfolio, including:

adverse changes in the payment status of borrowers in the portfolio; and

national or local economic conditions that correlate with defaults on the assets in the

portfolio.

If the Bank determines that no objective evidence of impairment exists for an individually

assessed financial asset, whether significant or not, it includes the asset in a group of financial

assets with similar credit risk characteristics and collectively assesses them for impairment.

Assets that are individually assessed for impairment and for which an impairment loss is or

continues to be recognised are not included in a collective assessment of impairment.

The amount of the loss is measured as the difference between the asset’s carrying amount and

the present value of estimated future cash flows (excluding future credit losses that have not

been incurred) discounted at the financial asset’s original effective interest rate. The carrying

amount of the asset is reduced through the use of an allowance account and the amount of the

loss is recognised in profit or loss.

Page 21


3.6 Impairment of financial assets (continued)

If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the

current effective interest rate determined under the contract. As a practical expedient, the Bank

may measure impairment on the basis of an instrument’s fair value using an observable market

price.

Impairment charges relating to loans and advances are classified in “impairment charges” in

profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the

decrease can be related objectively to an event occurring after the impairment was recognised,

the previously recognised impairment loss is reversed by adjusting the allowance account. The

amount of the reversal is recognised in profit or loss.

3.7 Impairment of non-financial assets

At each reporting date, the Bank reviews the carrying amounts of its non-financial assets to

determine whether there is any indication of impairment. If any such indication exists, then the

assets’ recoverable amount is estimated.

For impairment testing, assets are grouped together into the smallest group of assets that

generates cash inflows from continuing use that is largely independent of the cash inflows of

other groups of assets.

The ‘recoverable amount’ of a group of assets is the greater of its value in use and its fair value

less costs to sell. ‘Value in use’ is based on the estimated future cash flows, discounted to

their present value using a pre-tax discount rate that reflects current market assessments of

the time value of money and the risks specific to the group of assets.

An impairment loss is recognised if the carrying amount of a group of assets exceeds its

recoverable amount.

Impairment losses are recognised in profit or loss. They are allocated first to reduce the

carrying amount of the assets allocated within the group of assets on a pro rata basis.

An impairment loss in respect of non-financial assets is reversed only to the extent that the

asset’s carrying amount does not exceed the carrying amount that would have been

determined, net of depreciation or amortisation, if no impairment loss had been recognised.

3.8 Offsetting of financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount presented in the

statement of financial position when, and only when, the Bank has a legal right to set off the

amounts and it intends either to settle them on a net basis or to realise the asset and settle the

liability simultaneously.

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3.8 Offsetting of financial assets and financial liabilities (continued)

Income and expenses are presented on a net basis only when permitted under IFRS, or for

gains and losses arising from a group of similar transactions such as in the Bank's operations.

3.9 Cash and cash equivalents

Cash and cash equivalents comprise balances with less than three months’ maturity from the

date of acquisition, including foreign currency notes, balances held with banks abroad, holdings

of IMF Special Drawing Rights and Reserve tranche with IMF. Cash and cash equivalents are

carried at amortised cost in the statement of financial position.

3.10 Other balances and placements

Other balances and placements comprise balances with more than three months’ maturity from

the date of acquisition, including deposits held with banks abroad. These are medium to long-

term deposits that are classified as loans and receivables and are carried at amortised cost.

These are initially measured at fair value plus incremental direct transaction costs, and

subsequently accounted for as loans and receivables at amortised cost.

3.11 Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss represent investments in money market

funds, securities, equity shares and funds outsourced to a Fund Manager and comprise of

medium to long-term deposits, securities and bonds, held for investment purposes. These

have been designated at fair value through profit or loss with the changes in fair value

recognised immediately in profit or loss.

3.12 Other assets

Other assets are made up of cheques held for clearing and settlement after the reporting date,

items received but not yet cleared and other prepayments made by the Bank. These are

measured at their carrying amounts and are subject to impairment (see Note 12).

3.13 Currency replacement cost

Currency banknote printing and coin minting costs incurred are deferred and are charged to

profit or loss. Useful lives are currently estimated to be 5 years but this is reviewed at least

annually. The unamortised cost of purchased banknotes and coins in issue is included in

Currency replacement costs in the statement of financial position. Fully amortised cost of past

replacements are treated as disposals and derecognised.

Page 23

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 3.14 Property and equipment

(a) Recognition and measurement

Items of property and equipment are measured at cost less accumulated depreciation and

accumulated impairment losses. Costs include expenditure that is directly attributable to the

acquisition of the items. If significant parts of an item of property and equipment have different

useful lives, then they are accounted for as separate items (major components) of property and

equipment.

Gains and losses on disposals are determined by comparing proceeds with carrying amount

and are included in profit or loss.

(b) Subsequent costs

Subsequent costs are included in the asset’s carrying amount or are recognised as a separate

asset, as appropriate, only when it is probable that future economic benefits associated with

the item will flow to the Bank and the cost of the item can be measured reliably. All other

repairs and maintenance are charged to profit or loss during the financial year in which they

are incurred.

(c) Depreciation

Land is not depreciated. Depreciation on other assets is calculated using the straight-line

method to allocate their cost to their residual values over their estimated useful lives, as follows:

Buildings - 25 – 50 years;

Office furniture and fittings - 2 – 10 years;

Office machine and equipment - 4 years;

Motor vehicles - 5 years.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each

reporting date. Assets are reviewed for impairment whenever events or changes in

circumstances indicate that the carrying amount may not be recoverable.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s

carrying amount is greater than its estimated recoverable amount. The recoverable amount is

the higher of the asset’s fair value less costs to sell and value in use. No property and

equipment were impaired as at 31 December 2017 (2016 – Nil).

3.15 Leases

(a) Determining whether an arrangement contains a lease

At inception of an arrangement, the Bank determines whether the arrangement is or contains

a lease.

Page 24


3.15 Leases (continued)

(a) Determining whether an arrangement contains a lease (continued)

At inception or on reassessment of an arrangement that contains a lease, the Bank separates

payments and other consideration required by the arrangement into those for the lease and

those for other elements on the basis of their relative fair values. If the Bank concludes for a

finance lease that it is impracticable to separate the payments reliably, then an asset and a

liability are recognised at an amount equal to the fair value of the underlying asset;

subsequently, the liability is reduced as payments are made and an imputed finance cost on

the liability is recognised using an appropriate discount rate equivalent to the lending rate.

(b) Leased assets

Assets held by the Bank under leases that transfer to the Bank substantially all of the risks and

rewards of ownership are classified as finance leases. The leased assets are measured initially

at an amount equal to the lower of their fair value and the present value of the minimum lease

payments. Subsequent to initial recognition, the assets are accounted for in accordance with

the accounting policy applicable to that asset.

Assets held under other leases are classified as operating leases and are not recognised in the

Bank’s statement of financial position.

(c) Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis

over the term of the lease. Lease incentives received are recognised as an integral part of the

total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance

expense and the reduction of the outstanding liability. The finance expense is allocated to each

period during the lease term so as to produce a constant periodic rate of interest on the

remaining balance of the liability.

3.16 Intangible assets

Intangible assets comprise computer software licences which are recognised at cost less

accumulated amortisation and any accumulated impairment losses. The computer software

has a definite useful life and is amortised using the straight line method over its useful economic

life.

At the end of each reporting period, intangible assets are reviewed for indicators of impairment

or changes in estimated future economic benefits. If such indications exist, the intangible

assets are analysed to assess whether their carrying amount is fully recoverable. An

impairment loss is recognised if the carrying amount exceeds the recoverable amount.

Page 25


3.16 Intangible assets (continued)

The Bank chooses to use the cost model for the measurement after recognition.

Costs associated with maintaining computer software programmes are recognised as an

expense as incurred. Development costs that are directly attributable to the design and testing

of identifiable and unique software products controlled by the Bank are recognised as intangible

assets when the following criteria are met:

- it is technically feasible to complete the software product so that it will be available for use;

- management intends to complete the software product and use or sell it;

- there is an ability to use or sell the software product;

- it can be demonstrated how the software product will generate probable future economic

benefits;

- adequate technical, financial and other resources to complete the development and to use

or sell the software product are available; and

- the expenditure attributable to the software product during its development can be reliably

measured.

Directly attributable costs that are capitalised as part of the software product include the

software development employee costs and an appropriate portion of relevant overheads.

Other development expenditures that do not meet these criteria are recognised as an expense

as incurred. Development costs previously recognised as an expense are not recognised as

an asset in a subsequent period.

Computer software development costs recognised as assets are amortised over their

estimated useful lives, which do not exceed five years.

Amortisation methods, useful lives and residual values are reviewed at each reporting date and

adjusted if appropriate.

3.17 Currency in circulation

Currency in circulation represents money released to the public for circulation in the form of

banknotes and coins. This represents an unserviced liability of the Bank and is recorded in the

statement of financial position at its face value.

When banknotes and coins are returned to the Bank by the commercial banks, SCU,

Government entities and the general public they are removed from currency in circulation.

Depending on their condition or legal tender status, they are either sent for destruction or held

for re-issue.

Page 26


3.18 Deposits

(a) Deposits from Government and banks

Deposits held by the Bank, whether SCR or foreign currency deposits are initially measured at

fair value and subsequently carried at amortised cost in the statement of financial position.

As at the reporting date Government deposits and commercial banks’ demand deposits were

earning no interest (see Notes 17 and 18). Both deposits that are denominated in SCR are not

normally allowed to be overdrawn. In the event of an overdraft on the Government general

account and commercial bank’s demand deposit accounts denominated in SCR, the Bank in

accordance with Section 40(1) of the CBS Act may grant temporary short-term advances as

per the limit approved by the Board of Directors annually in line with Section 40(2) of the CBS

Act. The approved daily limit was SCR 100.0 million in 2017 (2016 – SCR 100.0 million) and

these advances are charged at the applicable interest rates which is the latest average 91-day

Government treasury bill rate plus a margin of 50 basis points (0.50 percent per annum).

In the event of an overdraft in the banks’ demand deposits, the banks are expected to make

use of the inter-bank market in the first instance and in the event that they fail to obtain the

required funds to meet their payment and settlement obligations, they will then be able to

request short-term advances from the Bank through the form of the standing credit facility

(“SCF”) which is an overnight collateralised lending facility at the applicable interest rates of

6.0 percent per annum for the year 2017 (2016 – 1.75 percent per annum).

Foreign currency deposit accounts are not allowed to be overdrawn and are revalued to reflect

the market exchange rate at the reporting date.

(b) Deposits from other financial institutions

Deposits held from other financial institutions are SCR demand deposits and are initially

measured at fair value and subsequently carried at amortised cost in the statement of financial

position. As at the reporting date, these non-commercial banks’ demand deposits from the

Seychelles Credit Union (“SCU”), the Seychelles Pension Fund (“SPF”) and the Development

Bank of Seychelles were earning no interest (see Note 19). These deposits are not normally

allowed to be overdrawn, however in the event of an overdraft on the demand deposit account

of SCU only, the Bank will grant temporary short-term advances in the form of the SCF outlined

in (a) above.

(c) Other deposits

Demand deposits held by the Bank under other deposits whether in SCR or foreign currency

are initially measured at fair value and subsequently carried at amortised cost in the statement

of financial position. At the reporting date foreign currency deposit accounts are revalued to

reflect the market exchange rate.

Page 27


3.18 Deposits (continued)

(c) Other deposits (continued)

These other deposits comprise mainly of local and foreign currency denominated abandoned

properties and special (project funds) deposits. Apart from the special (project funds) deposits

which earn a fixed interest of 2.0 percent per annum every six months on the daily balance, all

other deposits are non-interest bearing (see Note 20). These deposits are not allowed to be

overdrawn and are payable on demand.

3.19 Other liabilities

Other liabilities is made up primarily of provisions for employee benefits, other payables and

payables to the Government Consolidated Fund transferred from retained earnings (see Note

22).

3.20 Employee benefits

(a) Short-term employee benefits

Short-term employee benefits are expensed as the related service is provided. A liability is

recognised for the amount expected to be paid if the Bank has a present legal or constructive

obligation to pay this amount as a result of past services provided by the employee and the

obligation can be estimated reliably.

(b) Defined benefit plan – Compensation

A defined benefit plan defines an amount of pension benefit that an employee will receive on

retirement, usually dependent on one or more factors such as age, years of service and

compensation.

(c) Other long-term employee benefits – Gratuities

Up to end 2016, the Bank provided for a payment of gratuity for continuous service to

permanent employees. Gratuities were paid every five years (except in the case of early

retirement) as from January 2007. The amount provisioned every year was based on the

number of years the employee has worked after the last payment date. This benefit has been

discontinued as from 2017 and all permanent employees are now paid an annual gratuity.

The Bank also provides for a payment of gratuity to the certain key management personnel,

namely the Governor, First Deputy Governor and Second Deputy Governor, at the end of their

contracts, in addition to the annual gratuity. The amount provisioned every year is based on

the discounted present value of future obligations attributable to the completed years of service.

Both types of employee benefits, defined benefit plan and gratuities have characteristics of a

defined benefit plan. The liability recognised in the statement of financial position in respect of

the defined benefit plan is the present value of the defined benefit obligation at the reporting

date less fair value of plan assets.

Page 28


3.20 Employee benefits (continued)

(c) Other long-term employee benefits – Gratuities (continued)

The defined benefit obligation is calculated annually by independent actuaries using the

projected unit credit method. The present value of the defined benefit obligation is determined

by discounting the estimated future cash outflows using interest rates of Government bonds

that are denominated in the currency in which the benefits will be paid and that have terms to

maturity approximating the terms of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial

assumptions are charged or credited immediately to other comprehensive income in actuarial

reserve in the case of the defined benefit plan and are charged or credited to profit or loss in

the case of other long-term employee benefits. Past service costs are recognised immediately

in profit or loss.

(d) Other long-term employee benefits – New gratuity (Retirement benefits)

As from 2017, the Bank provides for the payment of retirement benefit to long serving

employees. Permanent employees of the Bank on continuous contract who have accumulated

a minimum of 25 years of continuous service are entitled to a retirement benefit upon retirement

or resignation. The amount provided for every year is based on the discounted present value

of the future obligations attributable to the all employees of the Bank except for key

management personnel who are not entitled to this benefit.

(e) Termination benefits

Termination benefits are payable when employment is terminated by the Bank before the

normal retirement age, or whenever an employee accepts voluntary redundancy in exchange

to these benefits.

(f) Defined contribution plan

A defined contribution plan is a pension plan under which the Bank pays fixed contributions

into a separate entity. The Bank has no legal or constructive obligations to pay further

contributions if the fund does not hold sufficient amount to pay all employees the benefits

relating to employee service in the current and prior period. The Bank contributes to two

defined contribution plans. Firstly, the Bank contributes to the SPF in accordance with the SPF

Act. Secondly, the Bank contributes to the Swiss Life Pension. Payments to both SPF and

Swiss Life Pension are charged as an expense as they fall due. Prepaid contributions are

recognised as an asset to the extent that a cash refund or reduction in the future payments is

available.

Page 29


3.21 Provisions

Provisions for restructuring costs and legal claims are recognised when: the Bank has a present

legal or constructive obligation as a result of past events; it is probable that an outflow of

resources will be required to settle the obligation; and the amount has been reliably estimated.

Provisions are not recognised for future operating losses. Provisions are measured at the

present value of the expenditures expected to be required to settle the obligation based on the

current market assessment of the time value of money and risks specific to the obligation.

3.22 Authorised capital and General reserve

The statutory capital (which comprises the authorised capital and General reserve) of the Bank

was established by the CBS Act. The Bank maintains the General reserve to provide for events

which are contingent and non-foreseeable, including covering losses from exceptionally large

falls in the market value of its holdings of domestic and foreign securities that cannot be

absorbed by its other resources. The initial authorised capital of the Bank was SCR 1.0 million

and thereafter it shall be built to 3.33 percent of monetary liabilities by transferring from retained

earnings. All capital stock of the Bank as and when issued shall be for the sole account of the

Government and shall not be transferable or subject to encumbrances. As per CBS Act, all

authorised capital shall be deemed to be fully paid up.

3.23 Revaluation reserve

The Bank also holds Revaluation Reserve Accounts. These comprise of unrealised gains and

losses arising from changes in the revaluation of the Bank's assets and liabilities including

financial assets held at fair value through profit or loss denominated in foreign currencies and

other units of account. This is as a result of alterations of parity of the SCR which are credited

or charged to profit or loss and are subsequently transferred to the Revaluation Reserve

Account, in accordance with Sections 45(5) and 45(6) of the CBS Act.

3.24 Actuarial reserve

The Bank holds an actuarial reserve in which cumulative actuarial gains and losses arising

from experience adjustments and changes in actuarial assumptions are transferred.

3.25 Interest income and expense

Interest income and interest expense are recognised in profit or loss for all financial instruments

measured at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial asset

or financial liability and allocating the interest income or interest expense over the relevant

period. The effective interest rate is the rate that exactly discounts estimated future cash

payments or receipts through the expected life of the financial instruments to the net carrying

amount of these instruments.

Page 30


3.25 Interest income and expense (continued)

When calculating the effective interest rate, the Bank estimates cash flows considering all

contractual terms of the financial instrument but does not consider future credit losses. The

calculation includes all fees paid or received between parties to the contract that are an integral

part of the effective interest rate, transaction costs and all other premiums or discounts.

Once a financial asset or group of similar financial assets have been written down as a result

of an impairment loss, interest income is recognised using the rate of interest used to discount

the future cash flows for the purpose of measuring the impairment loss.

3.26 Fees and commission income

Commission on foreign exchange dealings are recognised on the dates of transactions. Fees

and commissions are generally recognised in profit or loss on an accrual basis when the service

has been provided.

3.27 International Monetary Fund (“IMF”) charges

Charges incurred for IMF membership and on the facilities from the IMF are recognised in profit

or loss on an accrual basis for the period in which the charges relate.

3.28 Policy costs

Policy expenses are incurred on foreign currency dealings relating to policy decisions vis-à-vis

purchases and sales as part of the foreign reserves management activities. These costs are

recognised in profit or loss on the dates of the transactions.

3.29 Administrative expenses

The costs of maintaining the premises and providing support services to the Bank are

recognised in profit or loss on an accrual basis for the period in which the expenses relate.

3.30 Gains and losses from financial assets at fair value through profit or loss

Net gain or loss from financial assets at fair value through profit or loss includes all realised

and unrealised fair value changes on securities sold short and foreign exchange differences,

but excludes interest and dividend income.

Net realised gain or loss from financial assets at fair value through profit or loss is calculated

using the average cost method.

3.31 Distributable earnings

Under Section 16(2) of the CBS Act, the Bank is required to transfer a percentage or all of its

distributable earnings to the Government Consolidated Fund on the basis described in Note 6

of the financial statements.

Page 31


3.32 Comparatives

Certain information has been reclassified and restated to conform to the current year’s

presentation.

4. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

A number of new standards, amendments to standards and interpretations are effective for

annual periods beginning on or after 1 January 2018, and have not been applied in preparing

these financial statements. Those which may be relevant to the Bank are set out below. The

Bank does not plan to early adopt these standards. These will be adopted in the period that

they become mandatory unless otherwise indicated.

At the date of authorisation of the financial statements for the year ended 31 December 2017,

the following standards and interpretations were in issue but not yet effective:

Standard/Interpretation

Effective date Periods beginning

on or after

IFRS 15 Revenue from Contracts with Customers 1 January 2018

IFRS 9 Financial Instruments 1 January 2018

IFRIC 22 Foreign Currency Transactions and Advance Considerations

1 January 2018

IFRS 16 Leases 1 January 2019

4.1 Revenue from Contracts with Customers (IFRS 15)

This standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer

Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18

Transfer of Assets from Customers and SIC-31 Revenue – Barter of Transactions Involving

Advertising Services.

The standard contains a single model that applies to contracts with customers and two

approaches to recognising revenue: at a point in time or over time. The model features a

contract-based five-step analysis of transactions to determine whether, how much and when

revenue is recognised.

The standard is effective for annual periods beginning on or after 1 January 2018, with early

adoption permitted.

The adoption of this standard is not expected to have a significant impact on the financial

statements.

Page 32

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 4. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED (CONTINUED)

4.2 Financial Instruments (IFRS 9)

IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments:

Recognition and Measurement. IFRS 9 includes revised guidance on the classification and

measurement of financial instruments, including a new expected credit loss model for

calculating impairment on financial assets and the new general hedge accounting

requirements. It also carries forward the guidance on recognition and derecognition of financial

instruments from IAS 39.

(a) Classification – Financial assets

Based on its initial assessment, the Bank anticipates that there would be changes in the

classification of financial assets on the statement of financial position. The anticipated changes

are as follows:

Financial assets Original classification IAS 39

New classification under IFRS 9

Cash and cash equivalents Loans and receivables Amortised cost

Other balances and placements Held to maturity Amortised cost

Investment securities Held to maturity Amortised cost

Loans and advances Loans and receivables Amortised cost

(b) Impairment – Financial assets

IFRS 9 replaces the existing ‘incurred loss’ model of IAS 39 with a forward looking ‘Expected

Credit Loss’ (“ECL”) model. The new impairment model will apply to financial assets measured

at amortised cost and will require considerable judgement about how the economic factors

affect ECLs. It is expected that a probability weighted basis will be used to make the required

judgements.

Under IFRS 9, loss allowances will be measured on either of the following bases:

- 12-month ECLs – these are ECLs that result from possible default events within the period

of 12 months after the reporting date, or;

- Lifetime ECLs – these are ECLs that result from all possible default events over the

expected life of a financial asset.

The Bank has assessed the potential impact on its financial statements resulting from the

adoption of IFRS 9 and anticipates that the models need to be developed so that it can be

applied to all of the Bank’s financial assets that are measured at amortised cost. The Bank is in

the process of engaging with an external consultant to assist with the development and

implementation of the ECL models and other requirements of the standard.

Page 33


4.2 Financial Instruments (IFRS 9) (continued)

(c) Classification – Financial liabilities

IFRS 9 largely retains the existing requirements of IAS 39 for the classification of financial

liabilities. However, under IAS 39 all fair value changes of liabilities designated at FVTPL are

recognised in profit or loss, whereas under IFRS 9 these fair value changes are generally

presented as follows:

- The amount of change in the fair value that is attributable to changes in the credit risk of

the liability is presented in OCI, and;

- The remaining amount of change in the fair value is presented in profit or loss.

The Bank has not designated any financial liabilities at FVTPL and has no current intention to

do so. The Bank’s assessment did not indicate any material impact with regards to the

classification of financial liabilities as at 1 January 2018.

IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early

adoption permitted.

4.3 Foreign Currency Transactions and Advance Considerations (IFRIC 22)

IFRIC 22, published in December 2016, provides clarity with regards to IAS 21 The Effects of

Changes in Foreign Exchange Rates whereby there was ambiguity on how to determine the

transaction date for translating items when foreign currency consideration is paid or received

in advance of the item it relates to – which may be an asset, an expense or income.

The new standard states that the transaction date should be the initial date on which the

prepayment or deferred income arising from the advance consideration is processed. A

separate transaction date exists for each payment or receipt, in the case of multiple payments

or receipts. Prior to IFRIC 22, there was a diversity in the practice regarding the exchange

rates used to translate related items.

IFRIC 22 is effective for annual reporting periods beginning on or after 1 January 2018, with

early adoption permitted.


statements.

4.4 Leases (IFRS 16)

IFRS 16 was published in January 2016. It sets out the principles for the recognition,

measurement, presentation and disclosure of leases for both parties to a contract, i.e. the

customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 replaces the previous leases standard,

IAS 17 Leases, and related Interpretations.

Page 34


4.4 Leases (IFRS 16) (continued)

IFRS 16 has one model for lessees which will result in almost all leases being included on the

statement of financial position. No significant changes have been included for lessors.

The standard is effective for annual periods beginning on or after 1 January 2019, with early

adoption permitted only if the entity also adopts IFRS 15. The transitional requirements are

different for lessees and lessors.


statements.

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Bank’s financial statements and its financial results are influenced by accounting policies,

assumptions, estimates and management’s judgement, which necessarily have to be made in

the course of preparing the financial statements.

The Bank makes estimates and assumptions that affect the reported amounts of assets and

liabilities within the next financial year. All estimates and assumptions required in conformity

with IFRS are best estimates undertaken in accordance with the applicable standards.

Estimates and judgements are evaluated on a continuous basis, and are based on past

experience and other factors, including expectation of future events that are believed to be

reasonable under the circumstances.

The following estimates were made by management:

5.1 Identification and measurement of impairment

Assumptions and estimation uncertainties that have or may have a significant risk of resulting

in a material adjustment in the financial statements in relation to impairment are set out as per

the following notes;

Note 3.6 – impairment of financial assets;

Note 3.7 – impairment of non-financial assets.

5.2 Employee benefits

The present value of the employee benefits, consisting of gratuity, compensation and

retirement benefits, depends on a number of factors that are determined on an actuarial basis

using a number of assumptions. Any changes in these assumptions will impact the carrying

amount of the employee benefit obligations.

Page 35


5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

5.2 Employee benefits (continued)

The main assumption used in determining the net cost or income for employee benefits is the

discount rate. The Bank determines the appropriate discount rate at the end of each year.

This is the interest rate that should be used to determine the present value of estimated future

cash outflows expected to be required to settle the employee benefit obligations.

In determining the appropriate discount rate, the Bank considers the interest rates of

Government bonds or its equivalent that are denominated in the currency in which the benefits

will be paid and that have terms to maturity approximating the terms of the related liability.

5.3 Termination and post-employment benefits

The present value of both termination and post-employment benefits depends on assumption

of an appropriate discount rate. The Bank determines the appropriate discount rate at the date

of making the provision. This is the interest rate that should be used to determine the present

value of estimated future cash outflows expected to be required to settle the termination benefit

obligations. In determining the appropriate discount rate, the Bank considers the interest rates

of Government bonds or its equivalent that are denominated in the currency in which the

benefits will be paid and that have terms to maturity approximating the terms of the related

liability. The Bank also takes into account expected rate of increase in remuneration and this

is estimated from the expected rate of inflation.

Other key assumptions for the employee benefits obligations are based on current market

conditions.

The carrying amount of the defined benefit obligations at 31 December 2017 is SCR 16.2

million (2016 – SCR 10.0 million). Details of the defined benefit obligation is disclosed in Note

22(a).

The financial assumptions used for purposes of these calculations are as follows:

Discount rate: 7.0 percent per annum (2016 – 7.5 percent per annum)

Salary increase rate: 5.0 percent per annum (2016 – 5.5 percent per annum)

It has been assumed that all employees will opt for retirement on reaching the age of 63.

No allowance has been made for withdrawal from service or pre-retirement mortality as the

benefits payable in such circumstances are not materially significant and the turnover ratio for

cases other than death, retirement or dismissal is low.

5.4 Determination of fair value

Information about assumptions and estimation uncertainties relating to the determination of fair

value of financial instruments is included in Note 38.

Page 36

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 6. TRANSFER TO GOVERNMENT CONSOLIDATED FUND

Transfer to the Government Consolidated Fund has been carried out in accordance with

Section 16(2) of the CBS Act.

Movements during the year are as follows:

2017 2016 SCR’ 000 SCR’ 000

At 1 January 11,642 10,258Paid to Government Consolidated Fund (11,642) (10,258)Transfer from retained earnings 602 11,642 -------------- --------------At 31 December (Note 22) 602 11,642 ======== ========

Central Bank of Seychelles Act, 2004 as amended.

Section 16 of the CBS Act requires that the distributable earnings of the Bank be calculated as

follows:

a) net profit, less an amount equal to the total amount of unrealised gains, included in the net

profit; and

b) by adding to the amount remaining after applying paragraph (a), the total amount of

unrealised gains, if those unrealised gains, included in the net profit of a previous year, are

realised; and

c) by the retention of the unrealised revaluation losses to the extent that they exceed any

balance in the relevant Revaluation Reserve Account.

Where the Bank has distributable earnings for any financial year, 50 percent of those earnings

shall be distributed in the following priority to the statutory capital until;

a) authorised capital reaches 3.33 percent of monetary liabilities; and

b) the General reserve reaches 6.67 percent of monetary liabilities.

Provided that any residual distributable earnings remaining after a distribution in paragraphs

(a) and (b) shall be transferred to the Consolidated Fund.

Where the distributable earnings of the Bank is less than zero, they shall be offset against the

General reserve.

Page 37


7. CASH AND CASH EQUIVALENTS

2017 2016 SCR’ 000 SCR’ 000 Balances held abroad and foreign currency notes 2,303,073 3,032,748Holdings of Special Drawing Rights 92,531 93,538Reserve tranche with IMF (see Note 17) 69,519 64,059 -------------- -------------- 2,465,123 3,190,345 ======== ========

Current 2,465,123 3,190,345 ======== ========

Included in cash and cash equivalents are pledged and encumbered balances held abroad

equivalent to SCR 1,032.0 million and SCR 53.5 million respectively (2016 – SCR 898.0

million and SCR 50.2 million). These represent funds held by the Bank on behalf of

Government and earmarked for the purpose of developing projects by the Government and

Government related entities and funds earmarked as foreign currency minimum reserve

requirements of local banks or other pledges and contingent liabilities.

The Reserve tranche with IMF is held on behalf of the Government and is not available for use

by the Bank (see Note 17).

8. OTHER BALANCES AND PLACEMENTS

2017 2016 SCR’ 000 SCR’ 000 Other balances and placements held abroad 3,562,343 3,549,314 ======== ========

Current 3,562,343 3,549,314 ======== ========

Page 38

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 9. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

2017 2016 SCR’ 000 SCR’ 000 Financial assets at fair value through profit or loss – fund manager’s investments 337,058 326,600Financial assets at fair value through profit or loss – investments in shares 28,775 26,512Financial assets at fair value through profit or loss – investments in money market funds 138,637 -Financial assets at fair value through profit or loss – others 1,035,980 - -------------- -------------- 1,540,450 353,112

======== ======== Current 270,103 -Non-current 1,270,347 353,112 -------------- -------------- 1,540,450 353,112 ======== ========

The financial assets at fair value through profit or loss comprise of underlying investments in

treasury bills, notes and bonds from funds outsourced to fund manager, investment in shares

with the African Export-Import Bank (“Afreximbank”), investments in money market funds as

well as funds being managed by the Bank.

10. INVESTMENT SECURITIES

2017 2016 SCR’ 000 SCR’ 000

Investment in Government treasury bills 1,192,405 1,198,787 ======== ========

Current 1,192,405 1,198,787 ======== ========

For the year 2017, the Bank’s holding of Government treasury bills as at the reporting date

carried interest rates as follows: 5.71 percent per annum for the 365-day treasury bills and

4.01 percent to 5.25 percent per annum for 182-day treasury bills (2016 – 6.96 percent to

8.50 percent per annum for the 365-day treasury bills).

Securities pledged as collateral

As at the reporting date, the balance under repurchase agreements was Nil (2016 – Nil) and

as such the amount of Government treasury bills pledged as collateral was Nil (2016 – Nil).

Page 39


11. LOANS AND ADVANCES

2017 2016 SCR’ 000 SCR’ 000

Staff loans 35,244 30,890 ======== ========

Current 3,336 3,115

Non-current 31,908 27,775

-------------- --------------

35,244 30,890 ======== ========

The Bank grants loans to its employees at preferential rates. The loans are initially recognised

at fair value, based on the market interest rates and the difference between the fair value on

initial recognition and the loans proceeds is accounted for as prepaid employee benefits and is

amortised over the lower of the life of the loan or the remaining working lives of employees.

The loans are subsequently measured at amortised cost, using the effective interest method,

with the effective interest being the market rate of interest of the type of loan at the initial

recognition date.

12. OTHER ASSETS 2017 2016 SCR’ 000 SCR’ 000

Cheques held for clearing 10 1,207 Items due and not received 27,660 18,858 Others 43,140 52,442 -------------- -------------- 70,810 72,507 ======== ======== Current 70,810 72,507 ======== ========

Page 40


13. CURRENCY REPLACEMENT COSTS

SCR’ 000

Cost Balance as at 1 January 2016 35,618 Additions 21,404 Disposals (22,305)

-------------- Balance as at 31 December 2016 34,717 Additions 16,352

-------------- Balance as at 31 December 2017 51,069

======== Accumulated amortisation Balance as at 1 January 2016 25,704

Amortisation charge 4,804 Disposals (22,305)

-------------- Balance as at 31 December 2016 8,203

Amortisation charge 10,018--------------

Balance as at 31 December 2017 18,221 ======== Carrying amounts

31 December 2016 26,514 ======== 31 December 2017 32,848 ======== Disposals relate to fully amortised costs derecognised.

Page 41

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 14. PROPERTY AND EQUIPMENT

Land Buildings

Office furniture

and fittings

Officemachine and

equipment Motor

vehicles Total SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 Cost Balance as at 1 January 2016 5,617 76,704 11,784 15,372 2,108 111,585 Additions - 5,336 1,156 3,380 439 10,311 Disposals - - (72) - (143) (215) -------------- -------------- -------------- -------------- -------------- -------------- Balance as at 31 December 2016 5,617 82,040 12,868 18,752 2,404 121,681 Additions - 4,021 4,661 3,424 363 12,469Disposals - - (119) (503) (278) (900) -------------- -------------- -------------- -------------- -------------- -------------- Balance as at 31 December 2017 5,617 86,061 17,410 21,673 2,489 133,250 ======== ======== ======== ======== ======== ======== Accumulated depreciation Balance as at 1 January 2016 - 17,418 8,249 12,445 1,113 39,225 Depreciation charge - 1,777 1,160 1,891 205 5,033 Disposals - - (64) - (143) (207) -------------- -------------- -------------- -------------- -------------- -------------- Balance as at 31 December 2016 - 19,195 9,345 14,336 1,175 44,051Depreciation charge - 1,865 1,623 2,225 247 5,960Disposals - - (107) (483) (194) (784) -------------- -------------- -------------- -------------- -------------- -------------- Balance as at 31 December 2017 - 21,060 10,861 16,078 1,228 49,227 ======== ======== ======== ======== ======== ======== Carrying amounts 31 December 2016 5,617 62,845 3,523 4,416 1,229 77,630 ======== ======== ======== ======== ======== ======== 31 December 2017 5,617 65,001 6,549 5,595 1,261 84,023 ======== ======== ======== ======== ======== ========

Page 42

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 15. INTANGIBLE ASSETS

Computer

software SCR’ 000

Cost Balance as at 1 January 2016 22,228 -------------- Balance as at 31 December 2016 22,228

Additions 3,450Disposals (120) -------------- Balance as at 31 December 2017 25,558 ========

Accumulated amortisation Balance as at 1 January 2016 20,661

Amortisation charge 1,322 --------------Balance as at 31 December 2016 21,983

Amortisation charge 1,012

Disposals (120) -------------- Balance as at 31 December 2017 22,875 ========

Carrying amounts 31 December 2016 245

======== 31 December 2017 2,683 ========

16. CURRENCY IN CIRCULATION

2017 2016

SCR’ 000 SCR’ 000

Banknotes issued 1,264,705 1,167,944 Coins issued 63,550 51,983 -------------- -------------- 1,328,255 1,219,927 ======== ======== Current 1,328,255 1,219,927

======== ======== Banknotes and coins in circulation are shown at face value.

Page 43


17. DEPOSITS FROM GOVERNMENT

Government foreign exchange deposits (project accounts) represent amounts deposited by the

Government at the Bank and have been earmarked for specific local projects to be undertaken

by the Government. These deposits are denominated in foreign currencies and are non-

interest bearing.

18. DEPOSITS FROM BANKS

2017 2016

SCR’ 000 SCR’ 000

Demand deposits 1,182,551 957,265 Foreign currency minimum reserve requirement 872,655 716,340 Standing deposit facility 125,003 - -------------- --------------

2,180,209 1,673,605

======== ======== Current 2,180,209 1,673,605 ======== ========

18.1 Demand deposits

Commercial banks hold demand deposit accounts with the Bank to facilitate settlement of inter-

bank transactions. Furthermore, as per regulations issued under the CBS Act, they are

required to maintain a minimum statutory reserve amount which is adjusted on the basis of the

monetary policy stance as approved by the Board of Directors. In 2017, the minimum statutory

reserves requirement was maintained at 13.0 percent (2016 – 13.0 percent) on each

commercial bank’s customers’ Rupee deposits (held as demand, savings and time deposits

held by residents, excluding inter-bank deposits). The remuneration on the total minimum

statutory reserves was maintained at zero percent as was the case since July 2011.

18.2 Foreign currency Minimum Reserve Requirement

All commercial banks are required to maintain a minimum level of statutory reserves of their

foreign currency by way of minimum deposits with the Bank.

2017 2016 SCR’ 000 SCR’ 000

Government Rupee deposits 2,713,749 3,201,512 Government foreign exchange deposits (project accounts) 209,923 231,071 Government deposits with IMF (see Note 7) 69,519 64,059 Central Bank of Seychelles blocked foreign exchange deposits 2,859 860 -------------- -------------- 2,996,050 3,497,502 ======== ======== Current 2,996,050 3,497,502 ======== ========

Page 44


18. DEPOSITS FROM BANKS (CONTINUED)

18.2 Foreign currency Minimum Reserve Requirement (continued)

In 2017 the minimum deposit was maintained at 13.0 percent (2016 – 13.0 percent) on each

commercial bank’s customers’ foreign currency deposits (held as demand, savings and time

deposits held by residents excluding foreign currency deposits held by non-residents). Since

its introduction in April 2009, the Bank has not paid any interest on foreign currency minimum

statutory reserves requirement. This arrangement continued in 2017.

18.3 Standing deposit facility

All commercial banks and SCU can place their excess funds into overnight deposits with the

Bank for remuneration, upon request, at a predetermined rate which is set by the Bank. This

facility has been offered by the Bank since August 2014. As of June 2017, the interest rate

corridor mechanism was adopted, whereby the Board of Directors also approves the interest

rates applicable on the Standing deposit facility that is consistent with the Bank’s monetary

policy stance as well as the prevailing market conditions. The rates are subject to change

following the periodic monetary policy discussions and review by the Board of Directors.

19. DEPOSITS FROM OTHER FINANCIAL INSTITUTIONS

2017 2016 SCR’ 000 SCR’ 000

Demand deposit 195,842 66,083 ======== ======== Current 195,842 66,083

======== ========

Other financial institutions hold demand deposit accounts with the Bank to facilitate external

transactions. These deposits are non-interest bearing and repayable on demand.

20. OTHER DEPOSITS

2017 2016 SCR’ 000 SCR’ 000

Special deposits 1,865 1,828 Abandoned properties

– Local currency 27,247 21,551

– Foreign currency 3,352 8,014 Others 1,838 1,766 -------------- -------------- 34,302 33,159 ======== ========

Current 34,302 33,159 ======== ========

Page 45

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 20. OTHER DEPOSITS (CONTINUED)

As per the Financial Institutions Act 2004, as amended, commercial banks are required to

publish and report to the Bank abandoned accounts or other properties, namely contents of

safe deposit boxes, for which no transaction has been made for at least 10 years. In the 11th

year, unclaimed properties are transferred to the Bank. Funds transferred to the Bank are

maintained in non-interest bearing accounts whilst content of safe deposit boxes are kept in

the Bank’s vault. These abandoned properties are refundable to the clients on demand.

21. OPEN MARKET OPERATIONS

2017 2016 SCR’ 000 SCR’ 000

Deposit Auction Arrangement 705,232 610,569 ======== ========

Current 705,232 610,569 ======== ========

The Deposit Auction Arrangement (“DAA”) which is an Open Market Operation, is a liquidity

management tool made available by the Bank to the commercial banks and SCU for better

liquidity management by both parties. The Bank uses the instrument to mop up excess liquidity

in the system whilst the commercial banks and SCU use it as a convenient means for them to

invest their excess reserves and earn a return. The maturities offered ranges from two (2) days

to three hundred and sixty five (365) days.

Under this scheme, commercial banks and SCU are called to state the amount of funds they

would like to bid in any of the maturities on offer. The interest rate for each maturity is fixed by

the Bank and the Bank decides whether to accept or reject any bid as guided by the liquidity

position in the financial system and depending on the sterilisation needs.

At the reporting date, an amount of SCR 705.2 million was held by the Bank with maturity

periods of 7 days. In 2016, the corresponding figure stood at SCR 610.6 million with maturity

periods of 2, 7, 14, 21, 28 and 42 days.

Page 46


22. OTHER LIABILITIES

2017 2016 SCR’ 000 SCR’ 000

Payable to Government Consolidated Fund (Note 6) – Transfer from retained earnings 602 11,642 Provision for staff gratuities – contractual 8,693 4,629 Provision for staff gratuities – continuous (Note 22(a)) - 419 Provision for staff compensation – continuous (Note 22(a)) 12,404 10,579 Provision for termination benefits 3,303 3,805 Provision for post-employment benefits 11,504 5,945 Items due and not yet paid 6,239 29,971 Others 10,963 9,908 -------------- -------------- 53,708 76,898 ======== ========

Current 34,181 56,569 Non-current 19,527 20,329 -------------- --------------

53,708 76,898 ======== ========

As of 2017, all permanent employees are on contracts which are considered continuous in

nature whilst key management personnel are on fixed term contracts. Continuous employment

refers to a permanent employment with no pre-determined end date.

Page 47


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

22. OTHER LIABILITIES (CONTINUED)

(a) Employee Benefit Obligations Total Compensation Gratuity (continuous) New gratuity 2017 2016 2017 2016 2017 2016 2017 2016 SCR’000 SCR’ 000 SCR’000 SCR’000 SCR’000 SCR’ 000 SCR’ 000 SCR’ 000

Present value of obligation: At 1 January 10,998 5,020 10,579 4,567 419 453 - -

====== ======= ======= ======= ======= ======== ======= ========Included in profit or loss Current service cost 1,600 688 1,246 526 - 162 354 -Interest cost 985 263 750 244 - 19 235 -Past service cost 3,352 5,249 - 5,249 - - 3,352 -Liability loss/(gain) arising from: - Experience adjustment - 9 - - - 9 - -

----------- ------------ ------------ ------------ ------------ -------------- ------------ -------------- 5,937 6,209 1,996 6,019 - 190 3,941 - ====== ======= ======= ======= ======= ======== ======= ========Included in OCI Actuarial losses/(gains) arising from: - Financial assumptions 7 28 7 28 - - - -- Experience adjustment 1,012 228 1,012 228 - - - -

----------- ------------ ------------ ------------ ------------ -------------- ------------ -------------- 1,019 256 1,019 256 - - - - ====== ======= ======= ======= ======= ======== ======= ========Others Employer contributions paid (1,730) (487) (1,190) (263) (419) (224) (121) -

====== ======= ======= ======= ======= ======== ======= ========Balance at 31 December 16,224 10,998 12,404 10,579 - 419 3,820 -

====== ======= ======= ======= ======= ======== ======= ========Represented by: Net defined benefit liability – Compensation

12,404

10,579

12,404

10,579

-

-

- -

Net defined benefit liability – Gratuity (continuous) -

419 -

- -

419 - -

Net defined benefit liability – New gratuity 3,820

- -

- -

- 3,820 -

Expected employer contribution (121) 419 - - - 419 (121) -Discount rate - - 7.0% 7.50% 7.0% 7.50% 7.0% -Future salary increases - - 5.0% 5.50% 5.0% 5.50% 5.0% - The Bank does not have any plan assets as the employee benefit relates to unfunded obligation in relation to compensation and gratuities.

Page 48

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 22. OTHER LIABILITIES (CONTINUED) (a) Employee Benefit Obligations (continued)

Compensation plan

All employees of the Bank, except for key management personnel, are entitled to compensation

for their years of continuous service at retirement or upon leaving the services of the Bank.

Provisions for this compensation cost is made on an annual basis for every year completed by

the employee and payments are made immediately after the last day of service. The Bank has

recognised a net liability of SCR 12.4 million for this compensation plan as at 31 December

2017 (2016 – SCR 10.6 million).

Gratuity plan

The Bank provides for a payment of gratuity to permanent employees reaching minimum period

of 5 years of continuous service and typically every 5 years thereafter. The Bank has

recognised a net liability of nil for this gratuity plan as at 31 December 2017 (2016 – SCR 0.42

million). This plan has been discontinued by the Bank in 2017.

New gratuity plan (Retirement benefit)

The Bank provides for a payment of ex-gratia retirement benefit to permanent employees

reaching a minimum period of 25 years of continuous service upon retirement or resignation.

The Bank has recognised a net liability of SCR 3.8 million for this new gratuity plan (retirement

benefit) as at 31 December 2017 (2016 – Not applicable).

Funding

The Bank provides for the compensation, gratuity and retirement benefit costs for its permanent

employee on an accrual basis and expenses the accrued amount in the financial year in which

the service is rendered.

Duration

At 31 December 2017, the weighted-average duration of the defined benefit obligation is 19

years for the compensation plan, not applicable for the gratuity plan and 20 years for the

retirement benefit plan (2016 – 19 years for the compensation plan, 2 years for the gratuity

plan and not applicable for the retirement benefit).

(b) Sensitivity analysis

Possible reasonable changes at the reporting date to one of the relevant actuarial assumptions,

holding other assumptions constant, would have affected the defined benefit obligation by the

amounts shown overleaf.

Page 49

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 22. OTHER LIABILITIES (CONTINUED)

(b) Sensitivity analysis (continued)

Compensation plan Gratuity plan New gratuity planIncrease

SCR’ 000DecreaseSCR’ 000

IncreaseSCR’ 000

DecreaseSCR’ 000

Increase SCR’ 000

DecreaseSCR’ 000

2017

Discount rate (1% increase) - 2,116 - -

- 662

Discount rate (1% decrease) 2,700 - - -

847 -

2016 Discount rate (1% increase) - 1,773 - 7

- -

Discount rate (1% decrease) 2,251 - 7 -

- -

Although the analysis does not take account of the full distribution of cash flows expected under

the plans, it does provide an approximation of the sensitivity of the assumptions shown.

The above sensitivity analysis has been carried out by recalculating the present value of

obligations at end of each period after increasing or decreasing the discount rate while leaving

all other assumptions unchanged. Any similar variation in the other assumptions would have

shown smaller variations in the defined benefit obligation.

23. INTERNATIONAL MONETARY FUND OBLIGATIONS

2017 2016 SCR’ 000 SCR’ 000

Purchases outstanding - Extended Fund Facility

577,704

508,178

Allocation of Special Drawing Rights 163,193 150,374

IMF no. 1 account 1,062 1,076

IMF no. 2 account 16 16

-------------- --------------

741,975 659,644 ======== ======== Current 86,846 62,670 Non-current 655,129 596,974 -------------- -------------- 741,975 659,644 ======== ========

Page 50


23. INTERNATIONAL MONETARY FUND OBLIGATIONS (CONTINUED)

Seychelles became a member of the IMF on 30 June 1977 and was initially assigned a quota

of XDR 1.0 million. The quota allocation determines the financial and organisational relation

with the IMF. Subsequent increases in quota subscription were effected over the years which

have brought the quota subscription to XDR 22.9 million (2016 – XDR 22.9 million). The

portion payable in SCR is paid by way of non-negotiable, non-interest bearing promissory notes

issued by the Government in favour of the IMF, which are payable on demand. These

promissory notes are lodged with the Bank acting as custodian for the IMF.

Seychelles continues to maintain the following balance sheet accounts with the IMF under

heading IMF Obligations: IMF Purchases Outstanding account, SDR Allocation account, IMF

no.1 account and IMF no. 2 account. Other balance sheet accounts classified under cash and

cash equivalents include: SDR Holdings account and Reserve Tranche account, both

denominated in XDR. Seychelles also holds an off balance sheet balance called the IMF

Securities account backed by Government issued promissory notes amounting to SCR 902.5

million as at the reporting date (2016 – SCR 889.2 million). SDR Allocations are subject to

charges while SDR holdings earn interest on a quarterly basis.

In June 2017, the Government successfully completed a three-year Extended Fund Facility

(“EFF”) which was the second EFF program that the Seychelles had with the IMF under its

reform initiatives. A disbursement of XDR 4.91 million was made for the year 2017 (2016 –

Nil). Total repayments made throughout the year 2017 under the EFF amounted to XDR 3.58

million (2016 – XDR 2.60 million). As at 31 December 2017, the outstanding repurchase

amount relating to the EFF stood at XDR 29.32 million (2016 – XDR 27.99 million). These

repayments will continue for the next eight years until December 2025.

In December 2017, the Government’s request for a new macroeconomic and structural reform

program which would be supported by a Policy Coordination Instrument (PCI) was approved.

This non-financing program, which demonstrates the commitment on the part of the

Government, is a continuation of the implementation of its structural reform agenda. This three-

year program is expected to safeguard macroeconomic stability and debt sustainability whilst

promoting sustainable and inclusive growth.

The Bank revalues the IMF accounts in its statement of financial position in accordance with

the practices of the IMF’s Treasury Department. In general, the revaluation is effected annually

on 30 April and whenever the Fund makes use of SCR in accordance with the IMF designated

plan. For accounting purposes, the IMF accounts have been revalued using exchange rates

as at the reporting date.

Page 51

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 23. INTERNATIONAL MONETARY FUND OBLIGATIONS (CONTINUED)

The repayment terms for the purchases outstanding are as follows: 2017 2017 2016 2016 XDR’ 000 SCR’ 000 XDR’ 000 SCR’ 000 1 – 3 years 14,594 287,552 13,009 236,190Over 3 years 14,726 290,152 14,981 271,988 -------------- -------------- -------------- --------------Total 29,320 577,704 27,990 508,178 ======== ======== ======== ========

24. STATUTORY CAPITAL 2017 2016 SCR’ 000 SCR’ 000

Authorised capital 130,227 129,625General reserve 192,081 192,081

-------------- -------------- 322,308 321,706 ======== ========

As per Section 14 of the CBS Act, the initial authorised capital of the Bank shall be SCR 1.0

million and accumulate as per the distributable earnings under Section 16 of the CBS Act (see

Note 6). The statutory capital of the Bank shall accumulate until it reaches 10.0 percent of

monetary liabilities of which 3.33 percent shall relate to authorised capital and the remaining

6.67 percent shall relate to General reserve.

As at the reporting date the statutory capital of the Bank stood at 7.26 percent of total monetary

liabilities (2016 – 8.94 percent). As at the reporting date the authorised capital was fully paid

up.

As indicated in Note 6, 50 percent of the distributable earnings shall be distributed to authorised

capital and General reserve subject to the limits stated therein. This has resulted in an amount

of SCR 0.6 million (2016 – Nil) to be transferred to authorised capital and Nil (2016 – SCR

11.6 million) to be transferred to General reserve for the year.

Following the above, the authorised capital and General reserve stand at 2.93 percent (2016

– 3.60 percent) and 4.33 percent (2016 – 5.34 percent) of monetary liabilities, respectively.

Where the distributable earnings of the Bank is less than zero, they shall be offset against the

General reserve. Where the General reserve accumulates a balance of less than zero, the

Government shall within 30 days of publication of the annual accounts, recapitalise the Bank

by transferring marketable securities to the ownership of the Bank to restore the General

reserve to zero.

Page 52

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 25. REVALUATION RESERVE

Unrealised gains and losses arising from changes in the valuation of the Bank's assets and

liabilities and fair valuation of financial assets at fair value through profit or loss denominated

in foreign currencies and other units of account as a result of alterations of parity of the

Seychelles Rupee have been credited or charged to profit or loss and subsequently transferred

to the Revaluation Reserve Account in accordance with Section 45(5) and 45(6) of the CBS

Act. Revaluation gains and losses do not form part of distributable earnings and are offset

against Revaluation Reserve Account. The total revaluation reserve for the year 2017

amounted to SCR 431.0 million (2016 – SCR 342.2 million).

26. ACTUARIAL RESERVE

As a result of the adoption of IAS 19 (Revised), the actuarial gains and losses arising from

experience adjustments and changes in actuarial assumptions are charged or credited

immediately to other comprehensive income and the accumulated gains and losses form part

of the actuarial reserve. Actuarial gains and losses do not form part of distributable earnings

and are accumulated in Actuarial reserve. The total Actuarial reserve for the year 2017

amounts to a shortage of SCR 2.96 million (2016 – shortage of SCR 1.94 million).

27. INTEREST INCOME

2017 2016 SCR’ 000 SCR’ 000

Interest on investment securities 85,563 123,731 Interest on deposits with banks 73,292 36,016 Interest on advances to staff and local banks 3,573 3,297 Interest on financial assets at fair value through profit or loss 8,408 3,739

-------------- -------------- 170,836 166,783

======== ========

28. INTEREST EXPENSE

2017 2016 SCR’ 000 SCR’ 000

Interest on Deposit Auction Arrangement 24,790 29,285 Other interests 630 263

-------------- -------------- 25,420 29,548

======== ========

Page 53

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 29. FEES AND COMMISSION INCOME

2017 2016 SCR’ 000 SCR’ 000

Commission income 18,929 22,188 Licence fees – Financial institutions 5,812 5,434 Licence fees – Payment service providers 85 78 Others 1,589 793

-------------- -------------- 26,415 28,493 ======== ========

30. DEALINGS IN FOREIGN CURRENCIES

2017 2016 SCR’ 000 SCR’ 000

Gains arising from dealings in foreign currency transactions – realised 5,452 4,667 Gains arising from dealings in foreign currency transactions – unrealised - 197 Gains arising from fair value of financial assets at fair value through profit or loss – realised 2,395 163 Gains arising from fair value of financial assets at fair value through profit or loss – unrealised 14,962 24,874 Gains arising from revaluation of foreign currency monetary assets and liabilities – unrealised 73,387 37,814

-------------- -------------- 96,196 67,715

======== ========

31. STAFF COSTS

2017 2016 SCR’ 000 SCR’ 000

Salaries and allowances 61,586 45,020 Staff training 13,802 12,669 Gratuity costs – continuous - 172 Gratuity costs – others 8,835 4,153 Compensation costs 1,996 7,940 Termination benefits - 197 Post-employment benefits 5,680 5,073 Other staff costs 4,546 5,472 -------------- -------------- 96,445 80,696 ======== ========

32. CURRENCY EXPENSES

2017 2016 SCR’ 000 SCR’ 000

Banknotes and coins expense 1,163 2,351 Amortisation of currency replacement cost (Note 13) 10,018 4,803 -------------- --------------

11,181 7,154 ======== ========

Page 54

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 33. PROFESSIONAL CHARGES

2017 2016 SCR’ 000 SCR’ 000

Fees payable to auditor: – Statutory audit (including disbursements) 1,313 1,114 Consultancy fees 3,242 4,550 Legal fees 84 72 Directors fees and allowances 622 585 Others 138 729

-------------- -------------- 5,399 7,050 ======== ========

34. NET CASH FLOWS FROM OPERATING ACTIVITIES

2017 2016 SCR’ 000 SCR’ 000 Profit for the year 90,020 87,802

Adjustments for: - Interest income (170,836) (166,783)- Interest expense 25,420 29,548 - Depreciation and amortisation charges 6,972 6,355 - Amortisation of currency replacement costs 10,018 4,804 - Prepaid employee benefits 2,035 1,963 - Profit on disposal of property and equipment (46) (126)- Unrealised exchange gains (226,603) (93,167)- Realised exchange gains (2,395) (163) -------------- -------------- (265,415) (129,767) Changes in: - Financial assets at fair value through profit or loss - (11,095)- Loans and advances (4,354) (4,334)- Other assets 1,697 26,784 - Currency in circulation 108,328 123,014 - Deposits 136,054 437,357 - Open Market Operations 95,000 (570,000)- Other liabilities (22,677) 26,619 - Provisions for employee benefits 10,527 (3,480)- International Monetary Fund obligations 82,331 (47,971) -------------- -------------- Cash from/(used in) operating activities 141,491 (152,873) Interest paid (25,753) (30,121) -------------- -------------- Net cash inflow/(outflow) from operating activities 115,738 (182,994) ======== ========

Page 55

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 35. RELATED PARTY TRANSACTIONS

In the normal course of its operations, the Bank enters into transactions with related parties.

Related parties include Government and key management personnel, consisting of members

of the Board of Directors. Unless stated, all transactions with related parties take place at arm’s

length.

As banker to the Government, the following are transactions entered into:

Banking services;

Foreign exchange transactions;

Payment and settlement facility;

Investment in Government Securities; and

Agent to the Government in raising domestic debt.

Material transactions with the Government are as follows:

35.1 Foreign Exchange Transactions

The Bank, in its capacity as fiscal agent to the Government in raising domestic debt, executes

auctions, carries out back office operations, promotes the development of financial markets

and works towards improving trading and settlement infrastructure.

35.2 Investment in Government Securities

2017 2016 SCR’ 000 SCR’ 000

182-day treasury bills 935,053 - 365-day treasury bills 250,000 1,185,053 -------------- -------------- Total face value 1,185,053 1,185,053

Accrued interest 7,352 13,734 -------------- -------------- Total Investment in Government Securities 1,192,405 1,198,787 ======== ========

Other transactions with the Government consist of receipts and payments in SCR made on

behalf of the Government.

2017 2016 SCR’ 000 SCR’ 000

Purchase of foreign currency 815,020 986,012 ======== ========

Sale of foreign currency 1,409,302 1,237,782 ======== ========

Page 56


35. RELATED PARTY TRANSACTIONS (CONTINUED)

35.2 Investment in Government Securities (continued)

Outstanding balances from the Government consist of investment securities whilst outstanding

balances to the Government consist of deposits from Government and payables to the

Government Consolidated Fund under other liabilities, as disclosed in the financial statements

and corresponding notes.

35.3 Deposits from Government

The deposits with Government as at 31 December 2017 are disclosed in Note 17.

35.4 Key Management Personnel

Key Management Personnel comprises the Governor, First Deputy Governor, Second Deputy

Governor and the Non-Executive Board members. The latter are considered to be part of the

Key Management Personnel as they have the authority and responsibility for planning, directing

and controlling the activities of the Bank.

The aggregate remuneration provided for and paid to Key Management Personnel comprised:

2017 2016 SCR’ 000 SCR’ 000 Salary and allowances 3,457 3,290 Gratuity costs 661 605 Car benefits 163 266 Post-employment benefits 1,739 1,606 Others 250 340 -------------- -------------- Total 6,270 6,107 ======== ========

Movements in loans to key management personnel are as follows:

2017 2016 SCR’ 000 SCR’ 000

Balance as at 1 January 1,906 3,133 Total loans granted - 350 Total repayments (444) (1,577)Transfer (534) - -------------- -------------- Balance as at 31 December 928 1,906 ======== ========

In 2017, there was a transfer of SCR 0.53 million under loans to key management personnel.

This represents the transfer of a loan which was disbursed to a Non-Executive Board member

prior to the amendment of the CBS Act in 2011. This Non-Executive Board member ceased to

be a key management personnel in March 2017 and all outstanding amounts have been fully

settled after the year end.

Page 57


35. RELATED PARTY TRANSACTIONS (CONTINUED)

35.4 Key Management Personnel (continued)

Subsequent to amendment in 2011, no new loans were disbursed to Non-Executive Board

members in accordance with Section 44(1) of the CBS Act. Loans to key management

personnel are approved and disbursed as per the Bank’s loan policy.

36. COMMITMENTS

Commitment not otherwise provided for in the financial statements and which existed at 31

December 2017 is as follows:

Capital Subscription in Afreximbank

The Bank has a commitment to pay on call USD 0.74 million (2016 – USD 0.71 million) of

nominal share value for capital subscription in Afreximbank. This amount has not been

accounted for as a liability in the financial statements due to the unknown factor of the time and

expected value of the shares to be called up. Furthermore, during the year the Bank has applied

part of its accumulated dividend earnings towards the acquisition of additional shares in

Afreximbank.

37. FINANCIAL RISK MANAGEMENT

The Bank’s risks are principally attributed to its functional obligations. The Bank is exposed to

a variety of financial risks: market risk, credit risk and liquidity risk.

37.1 Market risk

Market risk is defined as the risk that the fair value or future cash flows of a financial instrument

will fluctuate because of changes in market prices. Market risk comprises three types of risk:

interest rate risk, currency risk and other price risk.

The Bank’s exposure to market risk comes in the form of general and specific market

fluctuations which affects the investments in interest bearing and foreign currency denominated

financial instruments. Further to that, the exposure to market risk is generated from both

trading and asset/liability management activities. The measures taken by the Bank to manage

such risk are disclosed below:

(a) Interest rate risk

Interest rate risk is defined as the risk that the fair value or future cash flows of a financial

instrument will fluctuate because of changes in market interest rates.

Page 58

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 37. FINANCIAL RISK MANAGEMENT (CONTINUED)

37.1 Market risk (continued)

(a) Interest rate risk (continued)

Interest rate risk is managed as follows:

Foreign reserve interest rate risk management

Interest rate risk increases or reduces the total return on the portfolio which consists mainly

of demand and short-term deposits and is measured by daily calculation of the weighted

average portfolio duration of the foreign exchange reserves as prescribed in the Bank’s

Investment Policy and Guidelines. Limits are set on interest rate risk with the aim of

avoiding reporting losses as a result of market valuation changes over a one year reporting

period.

Domestic market operations interest rate risk

The Bank’s exposure to domestic market interest rate risk arises from its domestic market

operations which are short-term in nature. These may include standing deposit and credit

facilities, deposit and credit auctions, short-term repurchase and reverse repurchase

agreements with banks and investment in Government treasury bills. The Bank cannot

eliminate domestic market interest rate risk as it is a function of its monetary policy.

Page 59


37. FINANCIAL RISK MANAGEMENT (CONTINUED)



The table below summarises concentration of the interest rate re-pricing risk categorised by the earlier of contractual re-pricing or maturity dates:

Demand andup to 1 month

1 to 3months

3 to 12 months

1 to 5years

Over 5years

Non-interest bearing Total

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000As at 31 December 2017

Financial assets

Cash and cash equivalents 2,133,475 322,238 - - - 9,410 2,465,123

Other balances and placements 1,412,556 1,682,864 466,923 - - - 3,562,343Financial assets at fair value through profit or loss - - 270,103 1,068,874 172,699 28,774 1,540,450Investment securities - - 1,192,405 - - - 1,192,405

Loans and advances 257 517 2,300 11,390 20,254 526 35,244 -------------- -------------- -------------- -------------- -------------- -------------- --------------Total financial assets 3,546,288 2,005,619 1,931,731 1,080,264 192,953 38,710 8,795,565 -------------- -------------- -------------- -------------- -------------- -------------- --------------Financial liabilities

Currency in circulation - - - - - 1,328,255 1,328,255

Deposits from Government - - - - - 2,996,050 2,996,050

Deposits from banks - - - - - 2,180,209 2,180,209

Deposits from other financial

institutions - - - - - 195,842 195,842

Other deposits - - - - - 34,302 34,302Open Market Operations 705,232 - - - - - 705,232International Monetary Fund obligations 6,136 3,612 77,098 408,714 246,415 - 741,975 -------------- -------------- -------------- -------------- -------------- -------------- --------------Total financial liabilities 711,368 3,612 77,098 408,714 246,415 6,734,658 8,181,865 -------------- -------------- -------------- -------------- -------------- -------------- --------------Net financial position 2,834,920 2,002,007 1,854,633 671,550 (53,462) (6,695,948) 613,700

======== ======== ======== ======== ======== ======== ========

Page 60





The table below summarises concentration of the interest rate re-pricing risk categorised by the earlier of contractual re-pricing or maturity dates:

Demand andup to 1 month

1 to 3months

3 to 12 months

1 to 5years

Over 5years

Non-interest bearing Total

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000As at 31 December 2016

Financial assets Cash and cash equivalents 2,905,855 270,762 - - - 13,728 3,190,345

Other balances and placements 812,936 1,012,928 1,723,450 - - - 3,549,314Financial assets at fair value through profit or loss - - - 326,600 - 26,512 353,112Investment securities - - 1,198,787 - - - 1,198,787Loans and advances 264 406 1,793 10,930 16,762 735 30,890 -------------- -------------- -------------- -------------- -------------- -------------- --------------Total financial assets 3,719,055 1,284,096 2,924,030 337,530 16,762 40,975 8,322,448

-------------- -------------- -------------- -------------- -------------- -------------- --------------Financial liabilities

Currency in circulation - - - - - 1,219,927 1,219,927

Deposits from Government - - - - - 3,497,502 3,497,502

Deposits from banks - - - - - 1,673,605 1,673,605

Deposits from other financial

institutions - - - - - 66,083 66,083

Other deposits - - - - - 33,159 33,159Open Market Operations 497,410 113,159 - - - - 610,569International Monetary Fund obligations 5,752 3,328 53,590 387,095 209,879 - 659,644 -------------- -------------- -------------- -------------- -------------- -------------- --------------Total financial liabilities 503,162 116,487 53,590 387,095 209,879 6,490,276 7,760,489 -------------- -------------- -------------- -------------- -------------- -------------- --------------Net financial position 3,215,893 1,167,609 2,870,440 (49,565) (193,117) (6,449,301) 561,959

======== ======== ======== ======== ======== ======== ========

Page 61

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 37. FINANCIAL RISK MANAGEMENT (CONTINUED) 37.1 Market risk (continued)


Sensitivity to interest rate risk

A sensitivity analysis is performed for each type of market risk to which the Bank is exposed at

the end of the reporting period, showing how profit or loss and equity would have been affected

by changes in the relevant risk variable that were reasonably possible at that date.

The table below presents the sensitivity analysis of the Bank’s financial assets and liabilities in

relation to changes in interest rates.

Total

gain/(loss) impacting

equity

Total gain/(loss) impacting

equity


profit or loss


profit or loss 2017 2016 2017 2016

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 Impact of: An increase of 100 basis points in the domestic market interest rates 177

456

354

912 A decrease of 100 basis points in the domestic market interest rates (177)

(456)

(354)

(912) An increase of 100 basis points in the market interest rates for foreign currencies 145

71

290

142 A decrease of 100 basis points in the market interest rates for foreign currencies (145)

(71)

(290)

(142)

The Bank’s exposure to interest rate risk might remain unchanged on both its local and foreign

financial assets, despite the Guidelines for the latter allowing for a more active approach and

the former being solely inclusive of Government treasury bills in the Bank’s portfolio of

securities.

(b) Currency risk

Currency risk refers to the risk that the fair value or future cash flows of a financial instrument

will fluctuate because of changes in foreign exchange rates.

Page 62

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 37. FINANCIAL RISK MANAGEMENT (CONTINUED) 37.1 Market risk (continued)

(b) Currency risk (continued)

The Bank’s foreign reserve management function requires it to operate internationally and

assume exposures to changes in prices of one currency against another, notably on its financial

position and cash flows primarily with respect to the United States Dollar, the Euro, British

Pound Sterling, Canadian Dollar, Australian Dollar, South African Rand, Chinese Yuan

Renminbi and IMF Special Drawing Rights. Nonetheless, the Bank attempts to manage

currency risk to some extent through its determination of the benchmark currency composition

whereby in certain circumstances the Bank might limit its holding of a particular currency which

is seen to be extremely volatile or risky. This approach has been adopted on the basis that

hedging against currency risk is not being done at present. Exchange gains and losses arising

from the revaluation of assets and liabilities denominated in foreign currencies are accounted

in profit or loss and are transferred to the Revaluation Reserve Account in accordance with

Section 16 of the CBS Act.

Page 63





The table below discloses the financial assets and financial liabilities by concentration of currency risk. EUR USD GBP XDR SCR CAD AUD ZAR CNY Total As at 31 December 2017 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 Financial assets Cash and cash equivalents 50,633 1,678,810 76,193 162,051 - 27 282,755 4,236 210,418 2,465,123 Other balances and placements - 3,562,343 - - - - - - - 3,562,343 Financial assets at fair value through profit or loss - 1,540,450 - - - - - - - 1,540,450 Investment securities - - - - 1,192,405 - - - - 1,192,405 Loans and advances - - - - 35,244 - - - - 35,244 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total financial assets 50,633 6,781,603 76,193 162,051 1,227,649 27 282,755 4,236 210,418 8,795,565 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Financial liabilities Currency in circulation - - - - 1,328,255 - - - - 1,328,255 Deposits from Government 79,391 133,288 103 69,519 2,713,749 - - - - 2,996,050 Deposits from banks 330,473 542,182 - - 1,307,554 - - - - 2,180,209 Deposits from other financial institutions - - - - 195,842 - - - - 195,842 Other deposits 438 2,829 143 - 30,892 - - - - 34,302 Open Market Operations - - - - 705,232 - - - - 705,232 International Monetary Fund obligations - - - 740,897 1,078 - - - - 741,975

-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total financial liabilities 410,302 678,299 246 810,416 6,282,602 - - - - 8,181,865 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Net financial position (359,669) 6,103,304 75,947 (648,365) (5,054,953) 27 282,755 4,236 210,418 613,700 ======== ======== ======== ======== ======== ======== ======== ======== ======== ========

Page 64


37. FINANCIAL RISK MANAGEMENT (CONTINUED) 37.1 Market risk (continued)


The table below discloses the financial assets and financial liabilities by concentration of currency risk.

EUR USD GBP XDR SCR CAD AUD ZAR Total As at 31 December 2016 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 Financial assets Cash and cash equivalents 37,221 2,529,791 460,873 157,597 - 25 83 4,755 3,190,345 Other balances and placements - 3,549,314 - - - - - - 3,549,314 Financial assets at fair value through profit or loss - 353,112 - - - - - - 353,112 Investment securities - - - - 1,198,787 - - - 1,198,787 Loans and advances - - - - 30,890 - - - 30,890 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total financial assets 37,221 6,432,217 460,873 157,597 1,229,677 25 83 4,755 8,322,448 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Financial liabilities Currency in circulation - - - - 1,219,927 - - - 1,219,927 Deposits from Government 87,986 143,837 108 64,059 3,201,512 - - - 3,497,502 Deposits from banks 235,056 481,284 - - 957,265 - - - 1,673,605 Deposits from other financial institutions - - - - 66,083 - - - 66,083 Other deposits 361 7,530 123 - 25,145 - - - 33,159 Open Market Operations - - - - 610,569 - - - 610,569 International Monetary Fund obligations - - - 658,552 1,092 - - - 659,644 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total financial liabilities 323,403 632,651 231 722,611 6,081,593 - - - 7,760,489 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Net financial position (286,182) 5,799,566 460,642 (565,014) (4,851,916) 25 83 4,755 561,959 ======== ======== ======== ======== ======== ======== ======== ======== ========

Page 65

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 37. FINANCIAL RISK MANAGEMENT (CONTINUED) 37.1 Market risk (continued) (b) Currency risk (continued)

Sensitivity to currency risk

A sensitivity analysis is performed for each type of market risk to which the Bank is exposed at

the end of the reporting period, showing how profit or loss and equity would have been affected

by changes in the relevant risk variable that were reasonably possible at that date.


relation to changes in exchange rates.

Impact on equity Impact on profit or loss

2017 2016 2017 2016 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000

Impact of: An appreciation of 5% in the value of the Seychelles Rupee against all other currencies 272,700 270,456 272,700 270,456 A depreciation of 5% in the value of the Seychelles Rupee against all other currencies (272,700) (270,456) (272,700) (270,456)

Adherence to its Investment Policy and Guidelines implies that the Bank will continue to be

exposed to foreign currency risk. Nonetheless, the Bank’s foreign currency risk is limited by

its investment in cash and cash equivalents, short-term investment and financial assets at fair

value through profit or loss.

(c) Other price risk

Other price risk refers to the risk that the fair value or future cash flows of a financial instrument

will fluctuate because of changes in market prices (other than those arising from interest rate

risk or currency risk), whether those changes are caused by factors specific to the individual

financial instrument or its issuer, or factors affecting all similar financial instruments traded in

the market. Management is assisted by an external fund manager in its strategy to maximise

investment returns. All assets managed by the fund manager and all buy and sell decisions

are approved by same in compliance with the agreement which reflects compliance to the

Investment Policy and Guidelines.

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CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 37. FINANCIAL RISK MANAGEMENT (CONTINUED) 37.1 Market risk (continued) (c) Other price risk (continued)

Other price risks stemming from the money market fund and foreign treasury securities portfolio

are generally managed according to parameters stipulated within the Investment Policy and

Guidelines. However, since the money market fund is not a standalone eligible asset class as

stipulated in the Investment Policy and Guidelines, it was expressly authorised by the Board of

Directors. Therefore, the management of associated risks is conducted with reference made

to the underlying assets making up the fund. In addition, the nature of the fund requires that

consideration is also given to tolerable risk thresholds related to external asset management.

Sensitivity to price risk


relation to changes in market price.

Impact on equity Impact on profit or loss

2017 2016 2017 2016 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000

Impact of: An increase of 5% in the market price of foreign investments 77,023 17,656 77,023 17,656 A decrease of 5% in the market price of foreign investments (77,023) (17,656) (77,023) (17,656) The Bank’s foreign price risk is limited by its investment in financial assets classified as financial

assets at fair value through profit or loss.

37.2 Credit risk

Credit risk refers to the risk that one party to a financial instrument will cause a financial loss

for the other party by failing to discharge an obligation.

(a) Credit risk measurement

The Bank’s maximum exposure is reflected in the carrying amount of financial assets in the

statement of financial position.

The Bank’s investments in short-term deposit instruments coupled with institutions of

acceptable credit worthiness allows it to manage its credit risk effectively. As such, the Bank

is not exposed to significant credit risk, which is the risk that its counterparts will be unable to

fulfil their contractual obligations.

Page 67

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 37. FINANCIAL RISK MANAGEMENT (CONTINUED) 37.2 Credit risk (continued) (a) Credit risk measurement (continued)

Credit risk related to the placement of deposits with international commercial banks, including

correspondent banks, is guided by credit ratings obtained from Standard and Poor’s, Moody’s

Investors Services, or Fitch Ratings. To be eligible for deposits, including holdings on

correspondent account, the international bank must be rated investment grade and above.

To limit credit risk, no more than 35 percent of reserves are invested in claims on international

commercial banks with a minimum credit rating of A-. Reflecting uncertainties regarding banks,

the maturity of international commercial banks deposits should not exceed 6 months.

The exposure to credit risk in the local markets is limited due to the largest amount of domestic

financial assets in the Bank’s portfolio being Government securities which carries sovereign

risk. Furthermore, given that the Bank is the regulatory authority for banks, any investment

and transactions with them such as reverse repurchase agreement and foreign exchange swap

will be treated as low risk as such transactions are secured.

The following table presents the Bank’s financial assets based on Standard and Poor’s, Fitch

and Moody’s credit rating of the issuer. AAA is the rating used for identification of highly reliable

international financial institutions. This rating indicates that the entity has an extremely strong

capacity to pay interest and principal. AA is a high-grade rating and A is an upper-medium

grade rating, indicating a very strong capacity and a strong capacity to pay interest and

principal, respectively. BBB is the lowest investment grade rating, indicating an adequate

capacity to pay interest and principal. Ratings lower than AAA can be modified by + or – signs

to indicate relative standing within the major categories. N/R indicates the entity has not been

rated by any of the above mentioned rating agencies.

Page 68

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 37. FINANCIAL RISK MANAGEMENT (CONTINUED) 37.2 Credit risk (continued) (a) Credit risk measurement (continued)

Credit 2017 2016 Rating

% of % of

Amount Financial Amount FinancialSCR’ 000 Assets SCR’ 000 Assets

Financial assets Cash and cash equivalents – Demand deposits AA 826,961 9.40% 627,088 7.54% A 343,140 3.90% 307,426 3.69%

BBB 4,236 0.05% 4,755 0.06% N/R 1,118,074 12.71% 2,078,139 24.97%

– SDR holdings N/R 162,050 1.84% 157,597 1.89% – Foreign currency cash AA 1,251 0.01% 1,612 0.02% No risk 9,411 0.11% 13,728 0.16% Other balances and placements AA 281,543 3.20% 352,710 4.24% A 1,112,882 12.65% 963,955 11.58% N/R 2,167,918 24.65% 2,232,649 26.83% Financial assets at fair value through profit or loss AAA 159,859 1.82% 107,751 1.30% AA 1,241,955 14.12% 218,849 2.63% BBB- 138,636 1.58% 26,512 0.32% Investment in Government securities B+ 1,192,405 13.56% 1,198,787 14.40% Loans and advances N/R 35,244 0.40% 30,890 0.37% -------------- -------------- -------------- --------------

8,795,565 100.00% 8,322,448 100.00% ======== ======== ======== ========

Page 69

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 37. FINANCIAL RISK MANAGEMENT (CONTINUED) 37.2 Credit risk (continued) (b) Concentration of risk – Geographical sectors

The table below breaks down the Bank’s main credit exposure at the carrying amounts, as categorised by geographical region as of 31 December

2017. Exposures have been allocated by region of the country of domicile of the relevant counterparties.

Europe US Seychelles Asia Middle East Africa Total SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000At 31 December 2017

Financial assets

Cash and cash equivalents 1,132,799 527,160 9,410 609,222 182,296 4,236 2,465,123Other balances and placements 2,167,917 - - 852,467 541,959 - 3,562,343Financial assets at fair value through profit or loss 296,020 1,215,655 - - - 28,775 1,540,450Investment securities - - 1,192,405 - - - 1,192,405Loans and advances - - 35,244 - - - 35,244 -------------- -------------- -------------- -------------- -------------- -------------- --------------Total financial assets 3,596,736 1,742,815 1,237,059 1,461,689 724,255 33,011 8,795,565 ======== ======== ======== ======== ======== ======== ========

At 31 December 2016

Financial assets

Cash and cash equivalents 2,094,031 479,288 13,728 548,295 50,248 4,755 3,190,345Other balances and placements 2,232,649 - - 779,734 536,931 - 3,549,314Financial assets at fair value through profit or loss 191,888 107,680 - - - 53,544 353,112Investment securities - - 1,198,787 - - - 1,198,787Loans and advances - - 30,890 - - - 30,890 -------------- -------------- -------------- -------------- -------------- -------------- --------------Total financial assets 4,518,568 586,968 1,243,405 1,328,029 587,179 58,299 8,322,448 ======== ======== ======== ======== ======== ======== ========

As at the reporting date, the Bank did not have any assets that was past due or impaired and has not experienced such situation in the past.

Page 70

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 37. FINANCIAL RISK MANAGEMENT (CONTINUED) 37.3 Liquidity risk

Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations associated

with its financial liabilities. It refers to the possible difficulties in selling (liquidating) large

amounts of assets quickly, possibly in a situation where market conditions are also

unfavourable, resulting in adverse price movement. As the Bank is the sole issuer of the

national currency this channels its liquidity risk towards its foreign currency positions. On that

basis, the liquidity of each financial instrument eligible for investment is duly considered by the

Bank before an investment is made.

To reduce liquidity risk, the Bank can only invest in instruments under the liquidity tranche that

can be liquefied within five business days and preferably same day for the working capital

tranche.

(a) Contractual maturity of financial assets and liabilities

The table overleaf analyses the Bank’s financial assets and liabilities into relevant maturity

groupings based on the remaining period at the reporting date to the contractual maturity date.

The amounts disclosed in the maturity table are the undiscounted cash flows. Such

undiscounted cash flows differ from the amount included in the statement of financial position

which is based on discounted cash flows. Balances due within one month equal their carrying

balances, as the impact of discounting is not significant.

Page 71


37.3 Liquidity risk (continued)

(a) Contractual maturity of financial assets and liabilities (continued)

Demand and up to 1 month

1 to 3

months

3 to 12

months

1 to 5 years

Over 5 years

Gross

nominal inflow/

(outflow)

Carrying amount

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 At 31 December 2017 Financial liabilities Currency in circulation 1,328,255 - - - - (1,328,255) 1,328,255 Deposits from Government 2,996,050 - - - - (2,996,050) 2,996,050Deposits from banks 2,180,209 - - - - (2,180,209) 2,180,209 Deposits from other financial institutions 195,842 - - - - (195,842) 195,842 Other deposits 34,302 - - - - (34,302) 34,302 Open Market Operations 705,392 - - - - (705,392) 705,232International Monetary Fund obligations 6,136 6,299 84,653 436,212 253,665 (786,965) 741,975 -------------- -------------- -------------- ------------ -------------- -------------- -------------- Total financial liabilities 7,446,186 6,299 84,653 436,212 253,665 (8,227,015) 8,181,865 -------------- -------------- -------------- ------------ -------------- -------------- -------------- Financial assets Cash and cash equivalents 2,145,427 323,400 - - - 2,468,827 2,465,123 Other balances and placements 1,421,829 1,691,836 469,748 - - 3,583,413 3,562,343 Financial assets at fair value through profit or loss - - 270,570 1,072,491 201,575 1,544,636 1,540,450Investment securities - - 1,219,746 - - 1,219,746 1,192,405 Loans and advances 592 1,180 5,148 25,193 37,686 69,799 35,244 -------------- -------------- -------------- ------------ -------------- -------------- -------------- Total financial assets 3,567,848 2,016,416 1,965,212 1,097,684 239,261 8,886,421 8,795,565 -------------- -------------- -------------- ------------ -------------- -------------- --------------

Net liquidity gap 3,878,338 (2,010,117) (1,880,559) (661,472) 14,404 659,406 613,700 ======== ======== ======== ======== ======== ======== ========

Page 72

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 37. FINANCIAL RISK MANAGEMENT (CONTINUED) 37.3 Liquidity risk (continued)

(a) Contractual maturity of financial assets and liabilities (continued)

Demand and up to 1 month

1 to 3

months

3 to 12 months

1 to 5 years

Over 5 years

Gross

Nominal inflow/

(outflow)

Carrying amount

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 At 31 December 2016 Financial liabilities Currency in circulation 1,219,927 - - - - (1,219,927) 1,219,927 Deposits from Government 3,497,502 - - - - (3,497,502) 3,497,502 Deposits from banks 1,673,605 - - - - (1,673,605) 1,673,605 Deposits from other financial institutions 66,083 - - - - (66,083) 66,083 Other deposits 33,159 - - - - (33,159) 33,159 Open Market Operations 497,970 113,684 - - - (611,654) 610,569 International Monetary Fund obligations 5,752 4,948 58,222 403,735 212,367 (685,024) 659,644 -------------- -------------- -------------- ------------ -------------- -------------- -------------- Total financial liabilities 6,993,998 118,632 58,222 403,735 212,367 (7,786,954) 7,760,489 -------------- -------------- -------------- ------------ -------------- -------------- -------------- Financial assets Cash and cash equivalents 2,921,274 271,147 - - - 3,192,421 3,190,345 Other balances and placements 814,765 1,014,897 1,731,048 - - 3,560,710 3,549,314 Financial assets at fair value through profit or loss - - - 326,600 26,512 353,112 353,112 Investment securities - - 1,276,997 - - 1,276,997 1,198,787 Loans and advances 557 986 4,735 22,715 29,778 58,771 30,890 -------------- -------------- -------------- ------------ -------------- -------------- -------------- Total financial assets 3,736,596 1,287,030 3,012,780 349,315 56,290 8,442,011 8,322,448 -------------- -------------- -------------- ------------ -------------- -------------- -------------- Net liquidity gap 3,257,402 (1,168,398) (2,954,558) 54,420 156,077 655,057 561,959 ======== ======== ======== ======== ======== ======== ========

Page 73

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 37. FINANCIAL RISK MANAGEMENT (CONTINUED) 37.4 Capital management

The statutory capital of the Bank which comprises the authorised capital and General reserve

shall be built up to 10.0 percent of monetary liabilities and can be more in one year should the

monetary liabilities decrease. Section 16(2) of the CBS Act states that where the Bank has

distributable earnings for any financial year, 50 percent of those earnings shall be distributed

in the following priority, to the statutory capital until:

a) authorised capital reaches 3.33 percent of monetary liabilities; and

b) the General reserve reaches 6.67 percent of monetary liabilities.

As at 31 December 2017 statutory capital stood at 7.26 percent of monetary liabilities (2016 –

8.94 percent). In the event of the General reserve falling below zero the Government shall

recapitalize the Bank with the transfer of marketable securities to restore the General reserve

to zero.

37.5 Non-financial risk management

(a) Operational risk management

Operational risk is the risk of direct or indirect loss as a result of inadequate control or failures

in internal processes and systems. This also covers activities of employees and external

events. The Bank’s typical general risk areas include reputational, strategic, financial,

compliance and operational risks. Whilst it is understood that such risks cannot be entirely

eliminated and the cost for mitigating these risks may outweigh the potential benefits to the

Bank, the Risk Management Committee (“RMC”) is dedicated to try and manage these risks.

As part of the implementation of the Bank’s risk management framework, autonomous checks

on the risk issues are carried out by the Risk Management Unit (“RMU”). During the year RMC

met on a quarterly basis to discuss the risks identified within the Bank and to put in place

controls to mitigate them.

(b) Policies approved by the Board of Directors

In October 2017, the Board of Directors approved the Enterprise Risk Management Framework

which is a set of components that provide the foundation and organisational arrangements for

designing, implementing, monitoring, reviewing and continually improving risk management

throughout the organisation. The framework follows ISO 31000 risk management architecture

which encompasses the following:

1. Risk Management Policy that covers the Risk Management Principles to which Management

and Board are committed to adhere to, to ensure that risk management within the Bank is

dynamic, iterative and responsive to change and tailored to the organisation’s external and

internal context and risk profile.

Page 74


37.5 Non-financial risk management (continued)

(b) Policies approved by the Board of Directors (continued)

2. Risk Appetite Statement sets the parameters within which CBS is to operate effectively and

efficiently. The Risk Appetite of the CBS is reviewed on an annual basis or whenever there

is a significant change to the Bank’s operating environment.

3. Risk Management Operational Guidelines details the processes and procedures for efficient

bank-wide risk management. The risk management process is to identify, analyse, evaluate,

treat, monitor and review risks.

38. FAIR VALUES OF FINANCIAL INSTRUMENTS

The fair values of financial assets and financial liabilities that are traded in active markets are

based on quoted market prices or dealer price quotations. For all other financial instruments,

the Bank determines fair values using other valuation techniques.

For financial instruments that trade infrequently and have little price transparency, fair value is

less objective and requires varying degrees of judgement depending on liquidity, concentration,

uncertainty of market factors, pricing assumptions and other risks affecting the specific

instrument.

38.1 Fair value of financial assets and liabilities

The table below summarises the carrying amounts and fair values of investment securities

which are not presented on the Bank’s statement of financial position at fair value:

2017 2016

Carrying value Fair value Carrying value Fair value

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 Financial assets Investment securities 1,192,405 1,175,767 1,198,787 1,199,048 ======== ======== ======== ========

The fair value of investment securities classified as loans and receivables is based on market

prices of Government treasury bills as at the reporting date. The fair value of Government

treasury bills has been computed using the compounded interest method at interest rates of

5.34 percent per annum for the 365-day treasury bills (2016 – 7.33 percent per annum for the

365-day treasury bills) and 4.92 percent per annum for the 182-day treasury bills (2016 – 6.97

percent per annum for the 182-day treasury bills) or all other financial assets and liabilities,

their carrying amounts are a reasonable approximation of fair value.

Page 75

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 38. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

38.2 Valuation models

The Bank measures fair values using the following fair value hierarchy, which reflects the

significance of the inputs used in making the measurements.

Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical

instruments.

Level 2: inputs other than quoted prices included within level 1 that are observables either

directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes

instruments valued using: quoted market prices in active markets for similar instruments;

quoted prices for identical or similar instruments in markets that are considered less than

active; or other valuation techniques in which all significant inputs are directly or indirectly

observable from market data.

Level 3: inputs that are unobservable. This category includes all instruments for which the

valuation technique includes inputs not based on observable data and the unobservable

inputs have a significant effect on the instrument’s valuation. This category includes

instruments that are valued based on quoted prices for similar instruments for which

significant unobservable adjustments or assumptions are required to reflect differences

between the instruments.

Valuation techniques include net present value and discounted cash flow models, comparison

with similar instruments for which market observable prices exist, Black-Scholes and

polynomial option pricing models and other valuation models. Assumptions and inputs used in

valuation techniques include risk-free and benchmark interest rates, credit spreads and other

premia used in estimating discount rates, bond and equity prices, foreign currency exchange

rates, equity and equity index prices and expected price volatilities and correlations.

The objective of valuation techniques is to arrive at a fair value measurement that reflects the

price that would be received to sell the asset or paid to transfer the liability in an orderly

transaction between market participants at the measurement date.

38.3 Accounting classifications and fair values

The following tables overleaf sets out the fair values of financial instruments not measured at

fair value and analyses them by the level in the fair value hierarchy into which each fair value

measurement is categorized. It does not include fair value information for financial instruments

not measured at fair value if the carrying amount is a reasonable approximation of fair value.

Page 76



38. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 38.3 Accounting classifications and fair values (continued)

Carrying amount Fair value

At fair value through profit or

loss SCR' 000

Loans and receivables

SCR' 000

Other financial liabilities SCR' 000

Total SCR' 000

Level 1 SCR' 000

Level 2 SCR' 000

Level 3 SCR' 000

Total SCR' 000

At 31 December 2017 Financial assets measured at fair value

Financial assets at fair value through profit or loss 1,540,450 - - 1,540,450 - 1,373,038 167,412 1,540,450 ======== ======== ======== ======== ======== ======== ======== ======== Financial assets not measured at fair value Cash and cash equivalents - 2,465,123 - 2,465,123 - 2,465,123 - 2,465,123 Other balances and placements - 3,562,343 - 3,562,343 - 3,562,343 - 3,562,343 Investment securities - 1,192,405 - 1,192,405 - 1,175,767 - 1,175,767 Loans and advances - 35,244 - 35,244 - - - - -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total assets not measured at fair value - 7,255,115 - 7,255,115 - 7,203,233 - 7,203,233 ======== ======== ======== ======== ======== ======== ======== ======== Financial liabilities not measured at fair value

Currency in circulation - - 1,328,255 1,328,255 - - - - Deposit from Government - - 2,996,050 2,996,050 - - - - Deposit from banks - - 2,180,209 2,180,209 - - - - Deposit from other financial institutions - - 195,842 195,842 - - - - Other deposits - - 34,302 34,302 - - - - Open Markets Operations - - 705,232 705,232 - 705,232 - 705,232 International Monetary Fund obligations - - 741,975 741,975 - 741,975 - 741,975 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total liabilities not measured at fair value - - 8,181,865 8,181,865 - 1,447,207 - 1,447,207

======== ======== ======== ======== ======== ======== ======== ========

Page 77



38. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 38.3 Accounting classifications and fair values (continued)

Carrying amount Fair value

At fair value through

profit or loss SCR' 000

Loans and receivables

SCR' 000

Other financial liabilities

SCR' 000 Total

SCR' 000 Level 1

SCR' 000 Level 2

SCR' 000 Level 3

SCR' 000 Total

SCR' 000 At 31 December 2016 Financial assets measured at fair value

Financial assets at fair value through profit or loss 353,112 - - 353,112 - 326,600 26,512 353,112

======== ======== ======== ======== ======== ======== ======== ======== Financial assets not measured at fair value Cash and cash equivalents - 3,190,345 - 3,190,345 - 3,190,345 - 3,190,345 Other balances and placements - 3,549,314 - 3,549,314 - 3,549,314 - 3,549,314 Investment securities - 1,198,787 - 1,198,787 - 1,199,048 - 1,199,048 Loans and advances - 30,890 - 30,890 - - - - -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total assets not measured at fair value - 7,969,336 - 7,969,336 - 7,938,707 - 7,938,707 ======== ======== ======== ======== ======== ======== ======== ======== Financial liabilities not measured at fair value

Currency in circulation - - 1,219,927 1,219,927 - - - - Deposit from Government - - 3,497,502 3,497,502 - - - - Deposit from banks - - 1,673,605 1,673,605 - - - - Deposit from other financial institutions - - 66,083 66,083 - - - -Other deposits - - 33,159 33,159 - - - - Open Markets Operations - - 610,569 610,569 - 610,569 - 610,569 International Monetary Fund obligations - - 659,644 659,644 - 659,644 - 659,644 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total liabilities not measured at fair value - - 7,760,489 7,760,489 - 1,270,213 - 1,270,213 ======== ======== ======== ======== ======== ======== ======== ========

Page 78

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 38. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

38.3 Accounting classifications and fair values (continued)

There have been no transfers during the year between levels 1 and 2. A reconciliation of fair value

measurements in level 3 is set out below:

Equity Securities 2017 2016 SCR’ 000 SCR’ 000

Balance as at 1 January 26,512 -

Additions 137,621 11,095 Change in fair value 3,279 15,417 -------------- -------------- Balance as at 31 December 167,412 26,512

======== ======== Reasonable possible changes to one of the significant unobservable inputs at reporting date would

have no material effect on the fair value of the equity securities.

38.4 Valuation techniques used

The fair values of financial assets and financial liabilities that are traded in active markets are

based on quoted market prices or dealer price quotations. For the other financial instruments, the

Bank determines fair values using the valuation technique as per table below:

39. TAXATION

The Bank is exempted from taxation under Section 49 of the CBS Act.

40. CURRENCY

The financial statements are presented in Seychelles Rupees and figures are stated in thousands

of Seychelles Rupees.

41. EVENTS AFTER THE REPORTING DATE

There were no material subsequent events after the reporting date.

Description Valuation technique Sensitivity analysis

Investments in shares with Afreximbank

Net asset value of the investee company

The estimated fair value would increase/decrease if the net asset value of the investee company increases/decreases

Investments in money market funds

Net asset value of the funds

The estimated fair value would increase/decrease if the net asset value of the funds increase/decrease

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