Maldives can learn from Seychelles economic recovery, says President Nasheed

The Maldives can learn from the economic and fiscal reform of the Seychelles in reforming its own stricken economy, President Mohamed Nasheed has said during his visit to the neighbouring island nation.

“Our fishing industry is worth about US$500 million a year. We want to see how we will be able to work with Seychelles on improving on its productivity,” said President Nasheed, following the meeting with his Seychelles counterpart President James Michel.

President Michel said small island states shared many similar challenges, “such as economic development, climate changes, fisheries, tourism, and piracy. We have many commonalities and we share the same ocean. We must do more to improve our regional trade and share our expertise, especially as we are both focused on fisheries and tourism, and in this way develop sustainable solutions to regional challenges,” he said.

The two countries have discussed developing a maritime company in the Maldives, and the possibility of developing a joint airline corporation.

During the delegation’s visit, President Nasheed was briefed by the Governor of the Central Bank of Seychelles, Pierre Laporte, on the economic reform strategies adopted in the Seychelles.

Not far from home

The Seychelles is an upper middle-income country that, like the Maldives, has enjoyed rapid growth led by a tourism sector that, after emerging rise in the 70s, now provides 70 percent of the country’s foreign currency earnings and 30 percent of its employment.

In 2006, the government of the Seychelles allowed its rupee to depreciate after years of allowing it to be overvalued – a similar situation to the Maldives, which earlier this year launched a managed float of the rufiya, within 20 percent of a 12.85 peg, which saw it rocket to the maximum 15.42 where it now remains.

The value of the Seychelles rupee plunged 10 percent in the first nine months of 2007, and the country was subsequently hit by the economic recession and a foreign exchange shortage – another problem familiar to the Maldives. This culminated in a debt crisis in 2008 that threatened the country’s comparatively high standard of living.

The International Monetary Fund (IMF) in its country report on the Seychelles (published in January 2011) commented that in the years following 2008, the Seychelles had “achieved a remarkable turnaround of economic policies, including foreign exchange market liberalisation and floating of the rupee” – achievements, the IMF noted, that were “all the more remarkable since the Seychelles had to confront at the same time a global crisis that lowered tourism receipts”.

The IMF’s 2011 report documents the remarkable economic recovery of a small island nation, during a recession affecting its core business. In particular, the report praised the Seychelles for renewing the confidence of private investors, “which translated into increased foreign direct investment to develop the islands’ exceptional tourism potential”, the stabilisation of the exchange rate, price stability, and the rebuilding of reserves “which offer room for more expansionary policies.”

Prior to 2008, the Seychelle’s overall deficit had reached 9.8 percent and the country was facing “an acute balance of payments” as public debt was predicted to rise a further 20 percent in two years. Ratings agency Standard & Poor – which this week lowered the credit rating of the US for the first time in history – had downgraded the Seychelles to “selective default”.

Several attempts to increase the value of the rupee against the US dollar had been unsuccessful, and did little to address the country’s foreign currency shortage – at the beginning of 2007, the rupee was officially valued at 6 to the US dollar, while the blackmarket exchange rate sat at almost double.

In late 2007 the government of the Seychelles devalued the rupee, setting the official exchange rate to 8 rupees to the US dollar. As in the Maldives following the government’s effective devaluation of the rufiyaa from 12.85 to 15.42 to the US dollar via a ‘managed’ float, the blackmarket in the Seychelles simply adjusted for the increase, settling at 13-14 rupees to the dollar.

In November 2008, the government of the Seychelles dropped its peg and floated the rupee against the US dollar. The rupee immediately leapt to almost 18, and remained substantially volatile for much of the next year. By late 2009 it had plunged to 10 rupees against the dollar, and a year later had settled around 12, where it remains.

Despite several concerns about the lack of diversification of the economy and the impact of piracy – the Seychelles coastguard rescued 27 hostages in March last year after firing 10,000 12.7mm rounds at the engine of the pirate vessel – the IMF describes the outlook for the Seychelles as favourable and predicts medium term growth of five percent as the country’s tourism industry expands and promotes itself outside traditional markets.

“The Seychelles’s stabilisation success offers perspectives for a less painful path toward fiscal sustainability, but caution is needed to maintain external stability and growth prospects,” the IMF noted.


6 thoughts on “Maldives can learn from Seychelles economic recovery, says President Nasheed”

  1. Mr. President good luck!
    We understand that in Maldives there are no credible opposition parties. The only thing the oppositions are interested is to topple your government without any proper reasons. This is a fact and most of the Maldivians know of this.
    To be honest I have lost my small business due to high rents and high cost of electricity and I am still with no work and living hand to mouth. But I still support your vision since I firmly believe in democratic governments. May be one day we may have educated matured society here in Maldives. Perhaps this will happen after fifty or hundred years.

  2. First i thought Anni had good intention but did not have the brain. Now i am not sure about the intention either. When you fail don't try to show example elsewhere.

  3. Hoping that Maldives also recover the dollar crisis. Same here, I dint support mdp at first but am seeing light and let's see if that light glows ....hoping for the best to the Maldives

  4. Mr.President, your problem is, you are not giving the confidence to the business community that you and your government understand the game of business and management.You always speak of learning everything from others which simply makes everyone worry that you still do not understand the fundamentals of business and management properly.Surely we should benchmark and learn lessons from others' experiences but that does not mean we have to copy everything they do.The sad part is you pretend to know everything and at the same time you tell us that you learnt a lesson after each trip. What you need to tell us is that you know the game well and give us the confidence that you are on top of it.Until that day comes the business confidence will never return and many businesses will runaway from this country only to be replaced by rogues and illegals to take their position instead. There were several people who told you that a crawled peg wouldnt work for this country. You didnt believe in them. Look at the Seychelles case.They did not do a managed float.They just floated their currency to see how the market adjusted to itself. And thats how people who know the game act. If you did that in April this year the issue of foreign currency would have settled beautifully for us and although it could have had some ramifications in the short term, things would have stabilised and the prices of commodities would have gone down by now and the businesses wouldnt have been crying for the weak US Dollar right now.You need to place people who know the game well near you. Not people who tell you a story and then play the game on trial and error. Mr.President, we have no time to make errors and we have no time to test things. This is a country and an economy that is four times larger than Seychelles and we have almost 7000 tax payers registered while Seychelles has only 300 businesses paying taxes.Please get back to do real serious business and please give us the confidence back that we so need now and we do not need to play politics any further.

  5. I once supported the MDP, but paying half-wits to comment about issues written about by people paid to do so against their better judgment has led me to believe that the MDP has become irrelevant, irreverent and irresponsible.

    Irrelevant to the current context where the country faces an economic dilemma and the MDP has neither solutions nor technical expertise to solve it.

    Irreverent because the MDP and their poster boy run around playing politics, poking fun at the Maldivian people while pretending to care about issues which they obviously don't give a rat's hiney about.

    Irresponsible because the MDP has squandered almost all the opportunities the Maldivian people have presented them with.


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