Seychelles' economy rests on tourism and fishing. Employment, foreign earnings, construction, banking, and commerce are all largely dependent on these two industries.
The services sector--including transport, communications, commerce, and tourism--has accounted for close to 70% of GDP in recent years. The share of manufacturing has been between 15%-20% of GDP, although it fluctuates from year to year owing to changes in output from the Indian Ocean Tuna cannery. Public investment in infrastructure and strong foreign direct investment inflows in the tourism sector have kept construction buoyant, with its share of GDP at around 10%. Given the shortage of arable land, agriculture, forestry, and fishing (excluding tuna) make a small contribution to national output.
GDP in 2008 was at $779 million (official exchange rate) and income per capita was at $17,000 (purchasing power parity). This puts the island in the World Bank's "upper middle-income" bracket with the result that Seychelles is low on the agenda of international donors and aid flows are limited. However, given the small size of the economy and its heavy dependence on tourism, the island remains vulnerable to external shocks.
Although the per capita income is $17,000 (PPP), residents often have difficulty obtaining even basic foodstuffs, such as rice and sugar. Government mismanagement and excessive economic regulations, including a manipulated exchange rate, have resulted in foreign exchange shortages and a parallel market currency exchange rate double the official rate.
In 2005 and 2006, the government implemented several measures toward the liberalization of the trade regime, the privatization of state-owned entities, and the gradual liberalization of foreign exchange restrictions. These limited measures, however, have been insufficient to address longstanding macroeconomic imbalances and vulnerabilities.
In October 2008, facing the near-depletion of official foreign exchange reserves, Seychelles defaulted on interest payments due on a $200 million sovereign bond. The government subsequently turned to the International Monetary Fund (IMF) for support, and in an attempt to meet the conditions for a stand-by loan, started to implement a program of radical reforms. The reforms included a fundamental liberalization of the exchange regime, involving the elimination of all foreign exchange controls and a float of the rupee. Following these reforms, the IMF approved a two-year $26 million stand-by loan in mid-November 2008, which represents the Fund’s first ever formal program in Seychelles. It is expected that the IMF’s seal of approval will allow Seychelles to begin formal talks with donors and commercial lenders in its efforts to reschedule its debts.
Although Seychelles is eligible for the African Growth and Opportunity Act (AGOA), it has failed to take advantage of AGOA thus far. Seychelles is not qualified for apparel benefits under AGOA and, in any case, its apparel manufacturing capacity is negligible.
Information by U.S. Department of State