Economic Transformation Strategy

CHAPTER 1 / INTRODUCTION In view of such difficulties, financial regulators in the Seychelles such as the Central Bank of Seychelles (CBS) and the Financial Services Authority (FSA) have in recent years made significant progress towards keeping the jurisdiction credible and compliant with international financial reporting standards. This has necessitated a shift in the traditional offshore business model and products of the financial services sector, paving the way to more innovative diversifica- tion avenues. With an underlying economic model characterised by extensive state intervention and a generous social welfare sys- tem, Seychelles accumulated debt over the post-independence years that eventually became unsustainable and left the country extremely vulnerable to external shocks. The global economic crisis of 2008 exacerbated the impact of the domestic economic downturn. Eventually, with its foreign exchange reserves all but depleted, the country defaulted on its Eurobond obligations. The government responded to the 2008 crisis by embarking on a comprehensive programme of economic policy and institutional reforms with the support of our development partners. The reform measures re-established macroeco- nomic stability and allowed economic performance to recover, beginning in 2009. The reforms necessitated a move towards a more open market economic policy and some adjustments to the social welfare system. The extensive communication by the authorities that informed the public on the aims and expected results of the eco- nomic reforms and sacrifices that were necessary to achieve them, was an approach that assured their effectiveness and efficiency as well as the peaceful implementation of the programme. The reforms were highly successful at getting the country back on track towards shared prosperity. Macroeconomic conditions stabilised rapidly and economic growth resumed, despite the challenging, post-crisis, global economic backdrop. Beyond the expectations of all stakeholders, the partnership with the IMF and other multilateral financial institutions, on the macroeconomic reforms saw Seychelles recover from the economic crisis in a record time of three years - a much acclaimed success story. 22 222

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