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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 8

Section Three Monetary and Financial Sector 22

Section Four Government Finance 36

Section Five External Sector 44

Section Six Central Bank Operations 61

Annex I Financial Statements and Auditor’s Report

Annex II List of CBS Officers

Our Core Values

Integrity We value responsible behaviours

Innovation and Result-Oriented We strive to redefine the standards of excellence

Accountability and Transparency We value personal ownership and accountability

Humility We believe in listening to one another and value continuous

learning

Professionalism and Team Spirit We take pride in producing quality work and encourage

collaborations

Inclusivity We value the diversity in one another and believe in inclusive

participation by all

Mutual Respect and Trust We uphold confidentiality and our actions are consistent with

our commitment

In 2018, emphasis was placed on M u t u a l R e s p e c t a n d T r u s t . In this context, as

laid out in the Bank’s Strategic Plan, we strive to cultivate a culture of collaboration both

internally and with our stakeholders to achieve results. We endeavour to allow staff to be

empowered to assume responsibilities and bring forth ideas and concerns. We also encourage

a culture of confidentiality and ensure our actions are consistent with our undertakings. This

is paramount for our credibility.

CENTRAL BANK OF SEYCHELLES

Board of Directors

(as at December 31, 2018)

Caroline Abel - Governor and Chairperson

Christophe Edmond - First Deputy Governor - Member

Jenifer Sullivan - Second Deputy Governor - Member

Errol Dias - Director

Bertrand Rassool - Director

William Otiende Ogara - Director

Frank Ally - Director

Sherley Marie - 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 (2014 - 2018)

at constant prices 11

2.2 Gross Domestic Product by Kind of Economic Activity (2014 - 2018)

at current prices 12

2.3 Tourism Indicators (2014 - 2018) 16

2.4 Employment Statistics (2014 - 2018) 19

2.5 Inflation Rates (2014 - 2018) 21

Monetary and Financial Sector

3.1 Monetary Survey (2014 - 2018) 24

3.2 Reserve Money (Q4-2017 to Q4-2018) 26

3.3 Credit (2014 - 2018) 29

3.4 Other Depository Corporations - Loans and Advances to

Non – Governmental Sector by Economic Sectors (2014 - 2018) 29

3.5 Loans by Development Bank by Economic Sectors (2014 - 2018) 31

3.6 Interest Rates (2014 - 2018) 32

3.7 Weighted Average Deposit Auction Arrangement Rates (2018) 34

Government Finance

4.1 Government Budget Summary (2017 - 2018) 38

4.2 Treasury Bills (2014 - 2018) 42

4.3 Treasury Bonds (2014 - 2018) 43

External Sector

5.1 Seychelles Balance of Payments (2014 - 2018) 47

5.2 Imports (f.o.b.)-by HS Sections (2014 - 2018) 48

5.3 External Reserves (2014 - 2018) 51

5.4 Exchange Rates (2014 - 2018) 52

Central Bank Operations 6.1 Standing Facility Placements during 2018 74 6.2 Interest Rates as at end-2018 compared to end-2017 75 6.3 Total number and value of settled SADC RTGS transactions for 2018 compared to 2017 78 6.4 New Banknotes issued into Circulation (2018) 80 6.5 Destruction of Soiled and Mutilated Banknotes (2018) 81 6.6 Demonetised Banknotes 81

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

2.1 Changes in production indicators (2018) 14

2.2 Visitor Arrivals (2008 - 2018) 15

2.3 Price Movements (2008 - 2018) 20

Monetary and Financial Sector

3.1 Net Foreign and Domestic Assets (2008 - 2018) 24

3.2 Money Supply (2008 - 2018) 25

3.3 Reserve Money (2018) 27

3.4 Notes and coins in circulation (2008 - 2018) 27

3.5 Total Domestic Credit (2008 - 2018) 28

3.6 Loans and Advances to Non-Government Sectors (2008 - 2018) 30

3.7 Sectoral Allocation of DBS Domestic Credit (2008 - 2018) 31

3.8 Interest Rates (2008 - 2018) 33

Government Finance

4.1 Government Finance Outcome (2008 - 2018) 39

4.2 Major Revenue Flows in Current Receipts (2008 - 2018) 40

4.3 Government Capital Expenditure (2008 - 2018) 41

4.4 Stock of Domestic Debt (Jan – Dec 2018) 41

External Sector

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

BOP (2008 - 2018) 45

5.2 Trade in Goods (2008 - 2018) 46

5.3 Imports (f.o.b.) 2018 49

5.4 Exchange rate movements of the three main currencies (2008 - 2018) 52

Central Bank Operations 6.1 Summary of FSD’s Sections 63

Acronyms

50MAWS The 50 Million African Women Speak

AFD Agence Française de Développement

AfDB African Development Bank

AFI Alliance for Financial Inclusion

AIF African Investment Facility

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

AMS Aggregated Measurement of Support

ANB Anti-Narcotics Bureau

ARC Audit and Risk Committee

ATI African Training Institute

ATM Automated Teller Machines

BCBS Basel Committee on Banking Supervision

BCM Business Continuity Management

BDC Bureaux de Change

BEPS Base Erosion and Profit Shifting

BOP Balance of Payments

BSD Banking Services Division

CAB Crown Agents Bank

CBSITS Central Bank of Seychelles Immediate Transfer Service

CIS Credit Information System

CISNA Committee of Insurance, Securities and Non-Banking Authorities

CISO Chief Information Security Officer

COMESA Common Market for Eastern and Southern Africa

CSD Central Securities Depository

CSL Company Special Licence

CSP SWIFT Customer Security Programme

CU Credit Unions

CUA Credit Union Act

DAA Deposit Auction Arrangement

DBO Domestic Banking Operations

DFTA Digital Free Trade Area

DICT Department of Information, Communication and Technology

DR Disaster Recovery

EAC East African Community

ECC Electronic Cheque Clearing

ECOWAS Economic Community of West African States

EDF European Development Funds

EIB European Investment Bank

EIP European External Investment Plan

EQA External Quality Assessment

ESAAMLG Eastern and Southern Africa Anti-Money Laundering Group

EU European Union

EUR Euro

FATF Financial Action Task Force

FBO Foreign Banking Operations

FDI Foreign Direct Investment

FEA Foreign Exchange Act

FIA Financial Institutions Act

FIMCD Financial Inclusion and Market Conduct Division

FIU Financial Intelligence Unit

FLA Financial Leasing Act

FMD Financial Markets Division

FMI Financial Market Infrastructures

FOB Free on Board

FOCAC Forum on China-Africa Cooperation

FSA Financial Services Authority

FSC Financial Stability Committee

FSD Financial Surveillance Division

FSDIP Financial Sector Development Implementation Plan

FSS Financial Stability Section

GBP Pound Sterling

GDP Gross Domestic Product

GEF Global Environmental Fund

GIR Gross International Reserves

GRAF Gaming Regulators Africa Forum

HBL Habib Bank Limited

HCA Health Care Agency

HFCL Housing Finance Company Limited

HRC Human Resources Committee

HRD Human Resources Division

IAD Internal Audit Division

IAS International Accounting Standard

IC Investment Committee

ICT Information Communication and Technology

ICURN International Credit Union Regulators’ Network

IDC Island Development Company

IFRS International Financial Reporting Standard

IIA Institute of Internal Auditors

IMF International Monetary Fund

IOSCO International Organisation of Securities Commissions

IOT Indian Ocean Tuna Company

IPHS Ile Du Port Handling Services

IT Information Technology

IUU-fishing Illegal, Unreported and Unregulated fishing

JGC Jersey Gambling Commission

JICA Japan International Cooperation Agency

MC11 11th WTO Ministerial Conference

MDM Münzhandelsgesellschaft mbH & Co. KG Deutsche Münze

MER Mutual Evaluation Report

MoU Memorandum of Understanding

MPF Monetary Policy Framework

MPSS Micro Prudential Surveillance Section

MPTC Monetary Policy Technical Committee

NBS National Bureau of Statistics

NIR Net International Reserves

NPSA National Payments System Act

NPTF National Payment Task Force

NRA National Risk Assessment

OECD Organisation for Economic Co-operation and Development

OMO Open Market Operation

PCI Policy Coordination Instrument

PEACE Pakistan East Africa Cable Express

PIT Progressive Income Tax

POS Point of Sale

PRS Policy and Research Section

PSP Payment Service Providers

PUC Public Utilities Corporation

PV Photovoltaic Systems

PwC PricewaterhouseCoopers

RAMs Recently Acceded Members

RBS Risk Based Supervision

RECs Regional Economic Communities

RFP Request for Proposal

RMC Risk Management Committee

RMU Risk Management Unit

RSD Research and Statistics Division

RTGS Real Time Gross Settlement System

SAA Strategic Asset Allocation

SADC Southern African Development Community

SADC PF SADC Parliamentary Forum

SADC RTGS SADC Real Time Gross Settlement

SADCAS SADC Accreditation Services

SBM State Bank of Mauritius

SBS Seychelles Bureau of Standards

SCCI Seychelles Chamber of Commerce and Industry

SCU Seychelles Credit Union

SDDS Special Data Dissemination Standards

SDGs Sustainable Development Goals

SEFT Seychelles Electronic Funds Transfer

SIDS Small Island Development States

SIRESS SADC Integrated Regional Electronic Settlement System

SME Small and Medium-sized Enterprises

SPDF Seychelles People’s Defence Forces

SPTC Seychelles Public Transport Corporation

STB Seychelles Tourism Board

SWIFT Society for Worldwide Interbank Financial Telecommunication

TA Technical Assistance

TOR Terms of Reference

TSD Technical Services Division

UAE United Arab Emirates

UK United Kingdom

USD US Dollar

WoCCU World Council of Credit Unions

WTO World Trade Organisation

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 8 | 1

S E C TI O N O N E

O ve r v i ew

1.0 External Developments

In its World Economic Outlook (WEO) updates of January 2019, the International Monetary Fund (IMF) indicated

that the expansion in global activity “has weakened”. World output is estimated to have grown by 3.7 per cent in

2018 although third quarter results have been less than expected in some economies. Some analysts were of the

view that the downside risks to global growth seemed to have risen and consequently, the upside surprises have

receded.

The IMF stated that factors such as new fuel emission standards in Germany and natural disaster in Japan had

adversely impacted activity in large economies. These were against a backdrop of weakening sentiment in the

financial markets and uncertainty about trade policies, all with the ability to adversely impact world economic

prospects. In the commodities market, oil prices had been volatile to reflect both demand and supply conditions

but had been on average lower than in the previous year. The influential factors included United States’ (US)

policy on Iranian oil exports while fear of weakening global demand also played its part. The IMF reported that

consumer inflation had overall been contained in advanced economies although inflationary risks had elevated in

the US as the economy continued to perform above its long-term trend. In emerging markets, inflationary

pressures had eased although the WEO reported that “this easing has been partially offset by the pass-through of

currency depreciations to domestic prices.”

1.1 Domestic Economic Development

The Seychelles economy remained heavily dependent on the rest of the world and therefore highly susceptible to

external shocks. Services, mainly the tourism industry, remained the key sector of the economy in terms of its

contribution to foreign exchange earnings, gross domestic product (GDP) and employment generation. Other

important sectors are fisheries, which is believed to have significant potential but nevertheless remained

undeveloped, and the financial services. In 2018, there were further efforts by the authorities to reap maximum

benefits from these sectors. With limited scope for diversification, the economy is expected to continue its reliance

on a few sectors, a situation that is likely to persist at least in the medium term. Nonetheless, the authorities

remained committed to intensify efforts to increase value-added activities, particularly in those sectors that are

viewed to be operating below potential.

Despite some air of uncertainty across the globe, overall, there was no notable adverse effect on the domestic

economy that originated from external developments. In fact, it can be argued that, from the perspective of tourism

activity, the external environment had an overall positive effect on the industry, and importantly, auxiliary sectors.


During the year, the economy continued to adapt to the changed political environment where populist views have

increased influence on policies that are considered by the executive or discussed in the National Assembly. It can

however be argued that such environment may not have necessarily improved business as well as consumer

confidence, with most indicators suggesting increased uncertainties.

On the flip side, the changed political landscape with the opposition party occupying a simple majority in parliament

is viewed as positive by many analysts from the perspective of promoting more transparency and accountability

in government.

Throughout 2018, the cost of living remained one of the key concerns raised by consumers. Moreover, there was

a continued call for more effective service delivery by public institutions. In addition, many businesses expressed

concerns over announced policy changes on which they had not been consulted, especially those that can have

significant impact on the financial position of businesses. Other concerns expressed by the business community

included high operating costs as well as the challenge to recruit productive local workers. Also stated was the stiff

competition from imported substitutes.

According to latest available estimates, growth in real GDP was 4.1% in 2018, slightly lower than 4.3% for 2017.

The tourism industry managed to achieve another positive performance in 2018. The total annual number of

visitors to Seychelles amounted to 361,844 at 3.4 per cent above the level achieved in 20171. As per established

trend, the majority of these tourists originated from the European continent. Hence, the economic recovery in the

Eurozone continued to positively impact the overall performance of the tourism industry, a development that was

especially important in 2018 given the reduction in arrivals from key emerging markets. A contributing factor was

the introduction of three airlines offering direct flights between Europe and Seychelles, namely British Airways, Air

France’s sister airline, ‘Joon’, and Edelweiss Air, which commenced operations in March, May and September,

respectively. Increased connectivity, particularly with key markets was a positive development considering the

change in strategy by the national carrier to focus on regional routes.

During 2018, direct earnings generated by the sector and contribution to the country’s foreign exchange inflows

are estimated at US$564 million. This was a growth of 17 per cent compared to the previous year, to a new record

level. Notwithstanding this outcome, many stakeholders were of the view that tourism yields remained below

potential and hence the country is not reaping maximum benefit from the sector2. Such growth in tourism earnings

contributed to an increase in supply of foreign exchange which was a positive development, considering that

statistics reported by authorised dealers show an expansion in demand.

1 Visitor arrivals amounted to 349,861 in 2017, which was a growth of 15 per cent compared to the previous year 2 This mainly relate to the fact that the earnings of many stakeholders are kept abroad and therefore do not benefit the domestic economy


In terms of exchange rate movement, the domestic currency depreciated against all three main currencies, namely

the US dollar (USD), euro (EUR) and British pound (GBP), with the depreciation against the latter two currencies

being more significant. However, to a large extent, the movement of the rupee against the EUR and GBP were

particularly influenced by the performance of these currencies on the international markets.

To further consolidate the country’s external position and therefore its ability to weather external shocks, the

accumulation of international reserves remained on the Central Bank’s agenda. This continued to be through

opportunistic purchases of foreign exchange from the market despite the fact that the latest assessment by the

IMF had indicated that an “adequate” level had already been reached. At the end of 2018, gross international

reserves stood at US$549 million compared to US$545 million at the end of 2017. However, due to estimated

strong growth in imports, gross international reserves at the end of 2018 could cover 3.8 months of imports which

was lower than the figure of 4.2 months at the end of 2017. As for net international reserves (NIR), it ended the

year at US$408 million, an outcome that exceeded its target of US$375 million.

Based on preliminary balance of payments (BOP) estimates, Seychelles’ external position improved in 2018. BOP

statistics – which measure the country’s transactions with the rest of the world – show a narrowing of the current

account deficit from 20 per cent of GDP in 2017 to 17 per cent of GDP in 2018. This result was attributed to a

growth in exports that was at a faster pace than the increase in import payments, an outcome supported by the

aforementioned performance of the tourism sector.

In June, Fitch Ratings released the results of its annual assessment of the country’s performance. Similar to the

previous year, the agency maintained its rating of BB- with stable outlook for 2018. This reflected the commitment

by the local authorities to ensure an environment that is conducive for economic growth.

As regard to price development, based on monthly publications by the National Bureau of Statistics (NBS), a

moderate increase in average prices of goods and services was observed during 2018. The Consumer Price

Index (CPI) showed an increase of 3.4% in December compared to the same period in 2017. Similar to last year,

the second-round effects of the weakened domestic currency played a role but other factors such as growth in

aggregate demand in addition to implemented policy measures with a direct effect on prices also contributed to

this outcome.

Against the above backdrop, monetary policy was tightened as from the second quarter of the year3. The decision

took into consideration projected inflationary threats in the short to medium term, which the Central Bank felt had

the potential to threaten domestic price stability. Externally, these were expected to originate from rising

commodity prices while domestic factors included growth in aggregate demand supported by strong increase in

credit to the private sector, in addition to the second-round effects of the depreciated domestic currency along with

other factors including upward revisions in administrative prices, key of which were utility tariffs.

3 This followed a cautious loosening effective since July 2017


With the tightened monetary stance, there was an upward shift in the interest rate corridor effective the second

quarter of the year. The Standing Deposit Facility (SDF) was raised from 1.0 per cent to 2.0 per cent while the

Standing Credit Facility rose from 6.0 per cent to 8.0 per cent.

Consistent with the prevailing monetary environment, there was a general increase in interest rates in 2018

compared to 2017. The average return on fixed-term rupee deposits rose from 3.34% in 2017 to 3.56% in 2018

following higher return paid on instruments in all maturity brackets. As for the average interest rate on savings

deposits, it rose from 2.37% to 2.87%, whilst over the same period, the effective average lending rate increased

to 12.58%, from 12.05% in the preceding year. This resulted in an expansion of 3.0 basis points in the interest

rate spread4 to 9.71 per cent compared to end-2017. With regards to the yield on Treasury bills, an increase was

observed across all three maturities.

Notwithstanding the above-stated rise in interest rates on lending, demand for credit from the private sector

remained strong during 2018 although there was slowdown in the pace of growth towards the end of the year. At

the end of December, the total stock of outstanding credit disbursed to the private sector had grown by R696

million or 12 per cent compared to December 2017. The year-on-year growth in credit to the private sector peaked

at 20 per cent, as observed in February and March, prior to the tightening of monetary policy. The majority of

these loans continued to go towards the financing of consumption. At the end of 2018, a total of 23 per cent of

credit to the private sector was to the category “individuals & households”.

In spite of the above-mentioned development, the transmission of monetary policy through the interest rate

channel remained relatively weak during 2018, prompting further revisions to the Bank’s Monetary Policy

Framework (MPF). The main revision was to move away from targeting reserve money to an interest-rate-based

framework. The change was to address the main challenges faced in the implementation of monetary policy, key

of which was related to achieving stability in short-term interest rates while simultaneously meeting a reserve

money target. Consistently, the Board of the Central Bank approved the introduction of a Monetary Policy Rate

(MPR) with effect from January 2019. The MPR will lie between the SDF and SCF. It will provide clearer

indications of the Bank’s monetary policy stance, determined by the direction of a change5 in the MPR.

On the fiscal front, measures to address the cost of living and hence poverty featured on the agenda. The third

and final phase of the Progressive Income Tax (PIT) was implemented as of June. Its introduction aimed to help

address income equality amongst the residents. In support of the environment, the government introduced tax

measures that target the protection of the environment as well as reduction of wastes. In collaboration with the

World Bank, the world’s first sovereign Blue bond valued at US$15 million, designed to support sustainable marine

and fisheries projects, was launched in October. Proceeds from the bond will go towards supporting the expansion

of marine protected areas, improving governance of priority fisheries as well as the development of the blue

4 The interest rate spread refers to the difference between the lending and savings rates 5 An increase in the MPR will signal a tighter monetary policy stance and a reduction a looser stance


economy. In the year under review, the government also introduced measures aimed at improving the collection

of revenue.

In terms of the performance of the fiscal accounts, this continued to portray the strong commitment to maintain

fiscal discipline that is consistent with the medium-term debt sustainability target. In 2018, a primary fiscal surplus

equivalent to 3.3 per cent of GDP was achieved, higher than the budgeted 3.0 per cent, a result that was due to

savings on the expenditure side in view that revenue collection was overall below forecast. Such result was also

consistent with the government’s objective to reduce overall public debt to below 50 per cent of GDP by 2021.

Hence, there was a further reduction in total public debt in 2018, to reach 55 per cent of GDP, from 62 per cent of

GDP in the previous year. Total domestic debt stood at 29 per cent of GDP, a significant component of which

include securities issued in support of monetary policy6 under the umbrella of monetary and fiscal policy

coordination.

As for the situation in the labour market, based on statistics published by NBS, the rate of unemployment remained

relatively low during 2018. In the quarter ending September 20187, the national unemployment rate stood at 3.5%,

a decline of 0.6 percentage points compared to the same period in 2017. However, of particular concern was the

relatively high unemployment rate among the youth. In that respect, increased emphasis was placed on the

existing policies and facilities that aim to address the issue. Skills miss-match and consequently the inability of

businesses to fill all vacancies from the existing pool of local labour remained amongst the main concerns

expressed by stakeholders. Consequently, there was further evidence of growing participation of foreign workers

across more segments of the economy.

While the increased dependency on foreign labour is arguably critical in some sectors of the economy, this also

translates into higher demand for foreign exchange in the form of outward transfers of workers’ remittances to the

rest of the world.

During 2018, the country continued its engagement with the IMF and this was through the three-year Policy

Coordination Instrument (PCI) approved by the executive Board of the IMF in December 2017. The PCI is a new

instrument designed to assist countries “formulate and implement a macroeconomic policy package with close

monitoring of progress”. The arrangement which is without financial support is expected to benefit Seychelles in

the form of oversight, discipline and advices of the IMF, in consideration that the county remains inherently

vulnerable to external shocks and a number of reforms that are structural in nature remained outstanding.

During 2018, the Central Bank managed to successfully meet all set targets as illustrated in Table 1.1, with the

exception of the reserve money target in the second quarter which was missed by a narrow margin8.

6 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 instrument increases domestic debt on a gross basis, they have no net effect on overall public debt. 7 Latest available information 8 Primarily due to above-forecasted growth in currency in circulation


To note, starting the end-December 2018 test date, reserve money was no longer a quantitative target under the

PCI. From then on, there exists a Monetary Policy Consultation Clause (MPCC), which is based on an agreed

quarterly 12-month average inflation path. The path lies within a ±2.0% outer band, whereby a breach would

trigger consultation with the IMF Board and an inner band of ±1.5% to trigger consultation with the IMF staff.

In terms of outlook, the forecasted moderation in growth in the euro area has the potential to adversely impact the

domestic tourism industry and hence overall performance of the economy. However, the fairly inelastic demand

for tourism services in Seychelles in addition to the continued efforts to diversify the source markets suggest a

relatively high probability of another positive performance in 2019. Hence the services sector is anticipated to

support another annual expansion in output. The improved sentiment in some segments of the economy,

particularly in the primary sector as observed in 2018, suggest positive contribution to economic activity.

With limited scope for a change in the structure of the economy, the country is expected to remain heavily

dependent on the rest of the world and hence vulnerable to external shocks. The projected weak global food and

energy prices suggest no major imported inflationary pressures in the short-term with domestic factors being the

more likely source of inflation.

However, there is no clear indication that the high operating costs and fierce competitions from imported

substitutes faced by some segments of the economy will reduce noticeably in the short-term. With the country

expected to remain dependent on imports, further accumulation of the country’s external reserves by the Central

Bank is expected should an opportunity to purchase from the market exists. This is notwithstanding the outcome

of assessments that indicate official reserves have already reached an adequate level.

Table 1.1: Quantitative Performance Criteria

2016 2017 2018

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Reserve Money 1 R million

Target 3,051 3,095 3,169 3,353 3,766 3,635 3,606 3,864 4,003

Actual 2,990 2,994 3,093 3,310 3,559 3,546 3,632 3,687 3,711

Net International

Reserves 2 USD million

Target 401 405 413 415 391 406 393 393 375

Actual 415 437 432 428 424 429 430 420 408

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


Against the above backdrop, the Central Bank will continue to implement the appropriate policy mix to ensure that

its primary objective of promoting domestic price stability in addition to ensuring the soundness of the financial

system are effectively achieved. As such more attention will be given to improving interest rate transmissions and

thus the effectiveness of monetary policy. Moreover, the Bank remains committed to enhancing its

communications in the market and to the general public.

Against the above backdrop, the early indications is that the economy would grow by 3.5 per cent in 2019 in real

terms, slightly slower than the estimate for 2018.


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

Analysis of the main indicators showed an overall expansion in economic output in Seychelles in 2018 despite

some challenges experienced in some sectors. This followed at least moderate growth across most segments of

the economy. Based on preliminary estimates, growth in annual output was 4.1 per cent in real terms. Whilst

remaining positive, this outcome was at a slower pace in comparison to 4.3 per cent in 2017. This predominantly

reflected a slowdown in the performance of the tourism industry, particularly in terms of visitor arrivals where, for

most parts of the year, the increase could not match that for 2017.

The tourism industry remained the key catalyst for overall performance of the economy. Despite the slowdown in

tourist arrivals, tourism earnings is estimated at 17 per cent higher than in the preceding year. The performance

of the sector was driven by strong growth from key traditional European markets, whereas the number of visitors

from the main emerging markets, such as China and South Africa declined. The former was supported by the

improved Eurozone economic recovery as well as the introduction of three airlines offering additional connections

in the form of direct flights between Europe and Seychelles. As per past trends, employment in the tourism industry

accounted for the largest share of the labour market.

Following years of weak or contractionary growth, the agricultural sector experienced relatively strong expansion

in output in 2018. This followed the action of the government together with relevant stakeholders as they renewed

their commitments to boost productivity within the industry. However, the sector remained constrained by recurring

difficulties such as strong competition from cheaper imported agricultural food products and lack of stable market

for fresh local produce, amongst others.

As for the fisheries sector, its performance in terms of output was relatively flat in comparison to 2017. In an effort

to address the marine stock depletion arising mainly from illegal activities in the Seychelles waters, the local fishing

authority introduced certain measures to protect the most endangered species. Additionally, new facilities were

made available for artisanal fishermen as well as semi-industrial and industrial fishing vessels.

Performance indicators for the manufacturing industry showed an overall improvement in output. Despite the

challenges faced by the Indian Ocean Tuna Company (IOT) as a result of the quota imposed on catch of the yellow

fin tuna, the increased diversification of canned tuna products in 2018 was the main driver that supported an

expansion in the volume of manufacture of food. Positive growth was also recorded in the manufacture of

beverages, key of which was the output of Seychelles Breweries as evidenced following the introduction of new

products during the year, in addition to the rebranding of existing ones. On the contrary, there was a contraction

in the production of tobacco and spirits relative to 2017.


Aided by continuous technological advancement and increased demand for more innovative products and

services, the telecommunications industry recorded double-digit growth in output in 2018. Data usage and internet

connections continued to be the key drivers of growth in the industry, and this was in addition to increased demand

for Cable TV connections.

In terms of price developments, moderate inflationary pressures were observed through most part of 2018.

According to the CPI published by NBS, prices increased by 3.4% on average in December compared to the same

period in 2017 whilst the 12-month average inflation rate stood at 3.7%. In July, a new measure of inflation was

introduced by NBS. Known as ‘Core Inflation’, this measure excludes the more volatile components of the CPI

such as the index for fresh fish, electricity tariffs and fuel items, as their prices are relatively more sensitive to

shocks. As at December, the core inflation index had increased by 1.9% compared to December 2017 and the

12-month average stood at 2.8%.

2.1 Primary Sector

Output in the primary sector grew considerably in 2018. Such outcome was driven mostly by developments in the

agricultural sector whilst the value of fisheries activity remained flat. The government, in collaboration with relevant

stakeholders, maintained their commitments to support activity in the primary sectors. This was facilitated through

funding from both domestic and external partners such as Competitive Local Innovations for Small-Scale

Agriculture (CLISSA) project, Food and Agriculture Organisation (FAO) as well as the Seychelles Conservation

and Climate Adaptation Trust (SeyCCAT) under the blue economy initiatives.

Amongst the main developments in the fisheries sector during 2018 was the launch of the world’s first Blue bond

by the Seychelles government in October. Additionally, the Seychelles Fishing Authority (SFA) introduced several

measures to address the over-exploitation of marine stock emanating from poaching and illegal fishing activities

in the Seychelles waters.

The agricultural sector experienced a boost in its performance in 2018. The launching of an Agricultural

Development Plan 2018-2021 in the second half of the year gave further support to the sector. The plan presents

strategies to increase production of over 15 fruits and vegetables by 100 per cent over the next three years.

2.1.1 Fisheries

Preliminary GDP estimates show that output in fisheries activity had remained relatively flat in 2018. Production

statistics, however, revealed an increase of 0.5 per cent in total fish catch in relation to 2017. This was mainly as

a result of a growth of 1.4 per cent in semi-industrial catch, whilst artisanal catch remained unchanged from the

previous year.

In terms of key developments, the country launched the world’s first ever sovereign Blue bond in October with the

support of the World Bank. The bond raised US$15 million from international investors and its proceeds included


support for the extension of marine protected areas, improved governance of priority fisheries, and the

development of the blue economy.

Additionally, new facilities were made available during the year to cater for the growing needs of the industry. For

instance, the Ile Du Port Handling Services (IPHS) Port - built and equipped with modern machinery and equipment

for the benefit of semi-industrial and industrial fishing vessels – was opened in July. The total cost of this quay

facility amounted to US$18 million. Furthermore, the extension to the Providence Artisanal Fishing Port, targeting

artisanal fishermen and which have been in operation since 2010 was completed in September. The second

phase of this project was for an approximated cost of US$10 million and financed by the Japanese government

through the Japan International Cooperation Agency (JICA).

Notwithstanding these positive developments, factors such as the depletion of marine stock remained a concern

for the fishing industry. Illegal fishing in the Seychelles waters and poaching of various species, such as sea

cucumbers and lobsters were reported to have become more prominent. As a result, the local fishing authority

had to impose measures to protect these species in a bid to ensure their sustainability and long-term viability.

2.1.2 Agriculture

With renewed commitment from the Ministry responsible for agriculture to revive the sector following years of weak

performance, output is estimated to have grown by 2.0 per cent in 2018. Statistics showed that the production of

broiler chicks and eggs went up by 20 per cent and 1.6 per cent, respectively. On the contrary, the number of

slaughtered chickens fell by 4.6 per cent. With regards to livestock output, the number of cattle and pig slaughtered

fell by 13 per cent and 1.8 per cent, respectively.

As part of the effort to revive the sector, several actions were undertaken during the year. A new comprehensive

Agricultural Development Plan 2018-2021, to support the cultivation of a total of 15 fruits and vegetables in addition

to the production of pork and poultry, was launched in September. This plan is expected to boost production by

100 per cent over the next three years. Moreover, numerous agricultural fairs were organised by the Ministry in a

bid to promote and encourage consumption of fresh local agricultural produce.

Despite the improved performance and some new optimism, the sector continued to face similar difficulties as in

past years. Strong competition, particularly from imported cheaper fruits, vegetables and meat, remained a key

concern for local farmers and relevant stakeholders. Other issues raised by key stakeholders included the inability

of farmers to secure consistent and stable markets for their fresh produce and the lack of facilities or equipment

to facilitate value-added production of excess agricultural produce.


Table 2.1: Gross Domestic Product by kind of Economic Activity (2014 - 2018)

at constant prices

2014(1) 2015(1) 2016(1) 2017(1) 2018(2)

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

8,796.6

9,157.1

Change 4.5% 4.9% 4.5% 4.3% 4.1%

Agriculture 106.7 103.3 103.8 106.0 108.1

Fishing 59.2 56.0 57.0 60.2 60.2

Manufacture of food 173.3 172.8 189.5 214.2 235.7

Manufacture of beverages and tobacco 153.7 171.7 168.0 178.0 186.9

Manufacture of concrete, rock products, glass etc. 44.5 54.7 52.3 42.6 43.9

Manufacturing, other 103.7 111.3 109.2 108.6 110.8

Electricity, gas, steam and air conditioning supply 63.7 79.2 64.7 60.9 61.5

Water supply; sewerage, waste management and remediation activities 33.7 33.7 32.2 30.1 31.3

Construction 240.0 248.3 242.9 235.4 244.9

Wholesale and retail trade; repair of motor vehicles and motorcycles 511.6 565.2 605.0 600.9 619.0

Transportation and storage 666.2 741.5 826.3 810.2 826.4

Accommodation and food service activities 970.0 978.1 993.3 1,052.5 1094.6

Information and communication 671.9 683.6 725.3 851.0 936.1

Financial and insurance activities 278.1 355.4 392.3 396.5 416.3

Real estate activities 463.8 457.4 483.7 478.9 493.3

Owner Occupied dwellings 668.9 676.3 699.3 761.8 788.4

Professional, scientific and technical activities 263.4 274.4 294.3 292.5 298.4

Administrative and support service activities 226.4 243.3 257.0 276.5 284.7

Public administration and defence; compulsory social security 510.0 534.1 545.8 582.4 594.1

Education 234.7 231.0 237.8 244.8 254.6

Human health and social work activities 172.4 177.5 180.3 192.6 198.4

Arts, entertainment and recreation 46.6 40.8 40.9 42.4 43.6

Other service activities 58.4 54.1 59.3 60.1 61.9

Allocation of FISIM to Nominal Sector -122.6 -135.6 -146.7 -153.1 -158.5

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

7,525.8

7,834.2

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

1,270.8

1,322.9

Notes:

1 Provisional Estimates- National Bureau of Statistics

2 Indicative Estimates- Macroeconomic Forecasting and Analysis Division, Ministry responsible for Finance


Table 2.2: Gross Domestic Product by Kind of Economic Activity (2014 - 2018)

at current prices

2014(1) 2015(1) 2016(1) 2017(1) 2018(2)

GDP at current market value 17,119.2 18,339.8 19,014.1 20,515.4 21,931.8

Change 6.9% 7.1% 3.7% 7.9% 6.9%

Agriculture 222.7 223.2 227.3 236.9 249.2

Fishing 183.0 152.0 154.8 154.4 159.1

Manufacture of food 465.5 358.4 374.1 524.0 594.3

Manufacture of beverages and tobacco 355.3 398.3 388.0 390.9 423.2

Manufacture of concrete, rock products, glass etc. 79.5 102.0 99.7 81.1 86.1

Manufacturing, other 212.6 238.8 231.6 238.0 250.3

Electricity, gas, steam and air conditioning supply 347.6 420.4 433.8 499.0 519.7

Water supply; sewerage, waste management and remediation activities 76.3 75.0 80.4 79.6 85.3

Construction 543.8 575.3 551.0 580.9 622.9

Wholesale and retail trade; repair of motor vehicles and motorcycles 1,103.1 1,268.0 1,343.4 1,372.5 1,457.5

Transportation and storage 1,604.9 2,057.3 2,120.2 2,151.0 2,262.1

Accommodation and Food service activities 2,277.0 2,291.8 2,369.5 2,550.1 2,734.4

Information and communication 886.7 910.6 955.5 1,099.9 1,247.5

Financial and insurance activities 599.7 797.4 907.5 878.6 951.1

Real estate activities 1,051.4 1,016.7 1,054.3 1,102.8 1,171.1

Owner Occupied dwellings 1,463.0 1,494.7 1,523.0 1,749.6 1,867.0

Professional, scientific and technical activities 439.8 479.8 498.9 496.4 522.1

Administrative and support service activities 439.7 497.3 521.1 574.1 609.7

Public administration and defence; compulsory social security 1,099.5 1,234.2 1,279.2 1,422.7 1,496.2

Education 369.1 392.2 405.2 277.7 297.8

Human health and social work activities 295.9 309.7 317.9 354.0 375.9

Arts, entertainment and recreation 105.1 95.2 96.8 100.4 106.6

Other service activities 97.4 94.6 100.6 101.9 108.3

Allocation of FISIM to Nominal Sector -207.7 -283.1 -333.6 -340.3 -364.8

Value Added at basic prices 14,110.9 15,199.7 15,700.3 16,676.3 17,832.5

Taxes Less subsidies 3,008.3 3,140.2 3,313.8 3,839.1 4,099.3

Notes: 1 Provisional Estimates- National Bureau of Statistics 2 Indicative Estimates- Macroeconomic Forecasting and Analysis Division, Ministry responsible for Finance


2.2 Industries

The industrial sector is estimated to have grown by 5.5 per cent in 2018. This was as a result of positive

performance in both construction and manufacturing activities. The former mainly reflected the implementation of

projects for housing and infrastructure facilities by the government. As for output from the manufacturing industry,

it was primarily driven by the manufacture of food and beverages.

2.2.1 Construction

The construction sector is estimated to have grown by 4.0 per cent in 2018. This outcome was supported by

production statistics which indicated increases across most construction products. Main increases of 36 per cent

and 20 per cent were recorded in output of blocks and crusher dust, respectively.

In view of lower Foreign Direct Investment (FDI) and the moratorium on large tourism developments, construction

activities were mainly centred on small to medium scale projects such as residential and infrastructural works

being undertaken by both the private sector and government. Notable private sector projects included real estate

developments such as the Pangia Beach and renovation and/or extension of some hotel establishments, for

instance, the Coco de Mer, Wharf and Desroches hotels.

2.2.2 Manufacturing

The manufacturing industry accounted for 6.2 per cent of GDP in 2018 and is estimated to have expanded by 6.2

per cent compared to the previous year.

The positive growth was primarily attributed to output from the ‘manufacture of food’ which rose by 10 per cent,

with the main driver being an increase of 26 per cent in the production of canned tuna. The estimated growth in

production of beverages (both alcoholic and non-alcoholic) was 7.6 per cent, driven mainly by the manufacture of

Smirnoff and soft drinks where there was an increase of 32 per cent and 16 per cent, respectively. In effect, the

launch of new beverages as well as the rebranding of existing ones by Seychelles Breweries during the year,

positively contributed to higher output in the sector. There was also an expansion in the production of beer and

stout, and this was by 1.1 per cent. However, the manufacture of spirits declined by 26 per cent, following the

temporary shutdown of one of the main local producers. A contraction in the production of tobacco was also

recorded and this was by 6.2 per cent.


Chart 2.1: Changes in production indicators (2018)

Source: National Bureau of Statistics

As for the ‘other manufacturing’ category of GDP, the estimated growth was 2.0 per cent, with a general increase

estimated across all of its subcomponents, a result supported by stronger demand. The highest growth is

estimated in the production of mineral water by 7.2 per cent, followed by 3.8 per cent and 3.2 per cent in the output

of soaps and paints, respectively.

2.3 Services

In 2018, the services sector accounted for 72 per cent of GDP to represent the lion’s share. The ratio remained

relatively unchanged in comparison to the preceding year. The sector maintained a positive performance in 2018

and continued to be the prime driver of economic activity and therefore growth. In 2018, the services sector is

estimated to have grown by 4.0 per cent.

2.3.1 Tourism

Despite sluggish growth in visitor arrivals in the early months of 2018, the tourism industry ended the year on an

overall positive note, an outcome supported by strong supply from the European market although there was a

slowdown in supply from emerging markets. There was a total of 361,844 visitors to Seychelles during the year,

which was an annual growth of 3.4 per cent9.

As indicated earlier, key to this outcome was the upbeat performances from the traditional European markets, and

these were namely Germany, France and the United Kingdom (UK). On a less positive note, the number of visitors

from the main emerging markets such as United Arab Emirates (UAE), China and South Africa declined in 2018.

9 The annual growth in 2017 was 15 per cent

-30

-20

-10

0

10

20

30

Categories

Perc

enta

ge

Canned tuna Beer

Stout Spirits

Soft drinks Paint & Paint products

Tobacco (Cigarettes)


The aggregate number of visitors from Europe accounted for 66 per cent of total arrivals in 2018. The main

European market, Germany, supplied a total of 61,339 tourists. The contributions from France and UK was 43,549

and 26,671 visitors, respectively. In terms of growth rates, both the UK and German markets recorded annual

increase of 22 per cent whilst the number of visitors from France was 5.9 per cent higher than in the previous year.

In addition to the economic recovery in the Eurozone, the strong performance from the key European markets was

boosted by the increased air connectivity. Notably, the year saw the introduction of three European Airlines,

namely British Airways, Air France’s sister airline, ‘Joon’, and Edelweiss Air, which commenced operations in

March, May and September, respectively.

To note, there was a decline of 14 per cent in the number of Russian tourists, owing largely to a noteworthy

weakening of the Russian currency earlier in the year and effects of lower demand for overseas travel in view that

the country hosted the 2018 World Cup.

Chart 2.2: Visitor Arrivals (2008 – 2018)


The Asian market, contracted by 12 per cent in 2018, an outcome attributed to declines in the number of tourists

from the UAE and China. UAE supplied a total of 25,024 visitors in 2018, which was 11 per cent lower than in the

previous year. The number originating from China stood at 9,050, a decline of 25 per cent, while arrivals from Sri

Lanka dropped by 15 per cent. There was also a fall in annual visitor arrivals from the African continent and this

was by 2.1 per cent, of which the contribution from South Africa fell by 13 per cent.

The overall performance of the tourism industry was consistent with the strategies of the Seychelles Tourism Board

(STB) to improve the country’s visibility and exposure in external markets. This was particularly through

participation in various international trade fairs throughout the year, which helped to attract more tourists to the

-5

0

5

10

15

20

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018P

erc

enta

ge

Num

ber

of vis

itors

Visitors Arrivals % Change


country. For its part, in an effort to safeguard its profitability in the long term, Air Seychelles announced its business

transformation plan at the start of 2018, which involved the suspension of its Paris and Madagascar services as

of April and to focus its services on higher flight frequency on the domestic and regional networks.

Despite the slower growth in visitor arrivals compared to the preceding year, tourism earnings is estimated to have

increased by 17 per cent in 2018, to stand at US$564 million. The growth in earnings was therefore at a new peak

although a number of stakeholders remained of the view that this is an underestimate of the total foreign exchange

generated by tourism and related activities.

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

this was equivalent to 13 per cent in 2018. Accommodation statistics showed average occupancy rates at 62 per

cent for beds and 63 per cent for rooms. For 2017, occupancy rates for bed and rooms were 60 per cent and 63

per cent, respectively. With regards to the length of stay, on average, visitors stayed in the country for a total of

10.3 nights in 2018 compared to 9.5 nights in 2017, a development believed to be associated with the increase in

the number of direct flights.

Table 2.3: Tourism Indicators (2014 - 2018)

2014 2015 2016 2017 2018

Visitors arrivals 232,667 276,233 303,177 349,861 361,844

Average length of stay (nights) 10.3 9.9 9.9 9.5 10.3

Tourism Earnings (US$ million) 398 393 414 483 564

Memorandum

Total bed occupancy rate (%) 54 59 60 60 62(1)

1 YTD total bed occupancy rate as at September 2018

Sources: Tourism earnings - Central Bank of Seychelles; other indicators - National Bureau of Statistics

2.3.2 Telecommunications

The telecommunications industry recorded double-digit growth in 2018, reflecting the increased and diversified

products and services on offer, brought about by continuous innovation and technological advancement. The

sector, which accounted for 5.7 per cent of GDP, is estimated to have expanded by 10 per cent in 2018.

According to market indicators, growth of the sector was mainly fuelled by increases of 50 per cent and 43 per

cent in Internet Connection/Subscription and data traffic, respectively. Another key driver was Cable TV

subscriptions, where there was an increase of 11 per cent compared to 2017. However, international calls and

telephone line exchanges dropped by 8.5 per cent and 0.5 per cent, respectively, suggestive of changes in

customers’ preferences for means of communications.


New services and products were introduced during the year by local telecommunication companies with the overall

objective of providing better services to customers. For instance, in April, Airtel Seychelles unveiled its U900

technology which offered a boost in the performance of 4.5G voice fall-back, mobile broadband coverage and data

service. Moreover, a new post-paid plan, I-DEAL, providing lower talk, texts and data rates, was also introduced.

In August, the company launched a 4G wireless home broadband service. The home broadband package, which

requires no fixed line or technical installation, caters for the different connectivity needs of all types of homes

across the country, provides data packages from 20GB up to 100GB.

In 2018, the country embarked on a milestone project through the ratification of a Memorandum of Understanding

between the Seychelles Cable Systems Company Limited and Huawei Marine Networks, Peace Cable

International Networks, and Huawei International. The contract, which was signed in September, will allow the

country to be connected to the PEACE (Pakistan East Africa Cable Express) system, through a second submarine

fibre optic cable, thereby enhancing the security of connectivity for the country. Work on the project is expected

to begin in 2019 and be completed by 2020.

2.3.3 Financial Services

For 2018, the financial services sector is estimated to have grown by 5.0 per cent. No new banking licence was

issued by the Central Bank and as at end of December 2018, there were nine banks in operation, with the State

Bank of Mauritius (SBM) (Seychelles) Limited, licensed in December 2016, yet to commence operations.

One key development was the operative closure of Habib Bank Limited (HBL). This followed a request by HBL

and subsequent approval by the Central Bank for the former to close down its operation in Seychelles. Following

a smooth winding up, HBL formally ceased all its operations and transactions with the public on December 28 and

its licence is expected to be fully revoked by the end of March 2019.

2.4 Other Key Segments

Positive growth was recorded across the remaining segments of the services sector in 2018. This included an

increase of 3.5 per cent in ‘Owner occupied dwellings’, whilst both ‘Administrative & support service activities ‘and

‘Other service activities’ expanded by 3.0 per cent. Positive growth rate was also estimated in the category of

‘wholesale & retail trade, repair of motor vehicles & motorcycles’ and this was by 3.0 per cent.

Additionally, ‘Water supply, sewage, waste management & remediation’ is expected to have grown by 4.0 per cent

for the year, whilst output of ‘Electricity, gas, steam & air conditioning supply’ is estimated to have expanded by

1.0 per cent from 2017. However, production statistics for utilities showed a contraction of 12 per cent in water

production. On the contrary, production of electricity increased by 2.2 per cent compared to the previous year.

The decline in water production partly reflects the work done by the Public Utilities Company (PUC) to reduce

wastage and leakages as means to improve efficiency in the production and distribution of water. Water

consumption, however, increased by 3.8 per cent in 2018.


A number of major infrastructure projects were undertaken by PUC in 2018. The renovation work to increase the

capacity of the La Gogue dam, which commenced in November 2017, continued during 2018, despite some

delays, with the project expected to be fully completed in 2020. Another major PUC project was the installation of

33kV underground cable network in several locations across Mahé, aimed at enhancing the distribution of

electricity. With regards to developments in the solar energy sector, 700 households, identified as vulnerable,

across Mahé, Praslin and La Digue were expected to benefit from free installation of solar photovoltaic panels.

The project, facilitated by PUC, is financed through a US$3.4 million grant from the Indian government.

2.5 Labour Market

The private sector remained the main source of employment. The sector accounted for 65 per cent of the total

number of formally employed persons in 2018. Similar to past trends, the main employment within the private

sector were in the ‘accommodation & food service activities’, followed by the construction industry which

correspondingly represented 19 per cent and 12 per cent of total persons in employment.

2.5.1 Employment

The year 2018 recorded an average of 50,353 employed persons. This was an increase of 4.9 per cent compared

to 2017. The private sector accounted for the majority of these employment or 65 per cent of the total workforce.

Employment in the government and parastatal sectors represented 21 per cent and 15 per cent of the total,

respectively. In comparison to the previous year, the number of employed persons in the private sector and

government has grown by 6.5 per cent and 4.8 per cent correspondingly. On the contrary, a decline of 1.8 per

cent was observed in employment in the parastatal sector. The tourism and related sectors maintained the largest

share or equivalent to 22 per cent of total employment, of which 19 per cent were in the ‘Accommodation & Food

Service Activities’ category. This was followed by the construction industry, which represented 12 per cent of total

employment.


Table 2.4: Employment Statistics (2014 – 2018)

2014 2015 2016 2017 20181

Average Employment 48,810 47,944 46,646 48,190 50,353

Private Sector 33,988 32,480 30,184 30,630 32,620

Parastatals 5,519 6,136 7,367 7,562 7,362

Government 9,302 9,328 9,095 9,998 10,371

1 Figures for 2018 are as at September


With regards to foreign labour, it accounted for 5.3 per cent of total employed persons in government and 9.9 per

cent in the parastatal sector. In the parastatal sector, expatriates mainly occupied posts in the ‘administrative &

support services’ whilst in government, they were predominantly employed in ‘education, human health & social

work activities.’ In view that NBS does not publish statistics for expatriate labour in the private sector, such figure

is estimated using the number of GOP10 issued as a share of total employment. Hence, the share of foreign labour

to total employment in the private using this method is estimated at approximately 40 per cent, with the majority

employed in the construction and other services sectors.

2.5.2 Unemployment

At the end of the third quarter of 2018, the national unemployment rate was 3.5% or 0.6 percentage points lower

than in the same period in 2017. The highest share of unemployed persons were males, representing 59 per cent

of total unemployment whilst females accounted for 41 per cent. In effect, unemployment amongst the male

population stood at 4.2 per cent compared to 2.9 per cent for females. By age group, the highest unemployment

rate was amongst the youth aged below 25 years at 15 per cent. Within this age group, the higher unemployment

rate was recorded for males (15 per cent) whilst the unemployed female population was 14 per cent. In the period

under review, the labour force participation rate stood at 70 per cent.

2.5.3 Earnings

For 2018, the average earnings for the private, parastatal, and public sectors stood at R12,513, R14,647 and

R14,795 respectively. Relative to the previous year, increases were observed across all three sectors. The most

significant was 19 per cent recorded in the average earnings of the private sector. Earnings of the parastatal and

government sectors rose by 6.8 per cent and 6.0 per cent, respectively.

10 GOP data from the Ministry of Employment, Immigration & Civil Status


2.6 Prices

Moderate inflationary pressures have been observed in 2018. As at December 2018, the CPI showed a year-on-

year increase of 3.4% in the average prices of goods and services. The most notable changes relative to

December 2017 were in the category of ‘transport’, ‘housing, water, electricity & gas’ and ‘fish’, which increased

by 16 per cent, 13 per cent and 7.6 per cent, respectively.

Chart 2.3: Price Movements (2008 - 2018)


The 12-month average inflation rate stood at 3.7% in 2018 in comparison to 2.7% the previous year. This was

mainly as a result of an increase of 4.4 per cent in the price of non-food items, of which the main increases in

prices were in items classified under ‘transport’ (19 per cent) and ‘housing, water, electricity & gas’ (9.7 per cent).

The price movements in the former category were primarily influenced by the rising oil prices in international market

experienced for most parts of the year. There was also an increase in the domestic price of ‘tobacco’ and this was

by 3.8 per cent.

With regards to the other food category, no major price changes were observed compared to 2017. There was

however notable reductions in the price of ‘vegetables’ and ‘non-alcoholic beverages’ by 2.6 per cent and 0.7 per

cent, respectively. Other declines were recorded in the price of ‘fish (fresh, chilled, frozen)’ and ‘fruits’ by 0.4 per

cent and 0.1 per cent, respectively. The drop in prices of most non-food items was consistent with developments

in global commodity prices, which fell in 2018 compared to the previous year.

In July, NBS introduced a new measure of inflation known as ‘Core Inflation’. This measure excludes the more

volatile components of the CPI, particularly, fresh fish, electricity and fuel items11. As at December, the year-on-

year change in the core inflation index stood at 1.9%. This outcome was driven mostly by a 2.8 per cent increase

11 The prices of these items are subject to inflationary shocks such as adverse weather conditions as well as external developments.

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Pe

rce

nta

ge

Average Inflation Rate End of Year Inflation


in prices of non-food items whilst that for other food category declined by 3.4 per cent. The 12-month average

core inflation rate stood at 2.8%.

Table 2.5: Inflation Rates (2014 - 2018)

2014 2015 2016 2017 2018

Annual Average Per cent (%)

All Items 1.4 4.0 -1.0 2.9 3.7

Fish 9.0 -12.1 0.1 -5.6 -2.0

Other Food Items -0.3 1.8 0.0 0.9 0.1

Non-Food Items 1.8 4.7 -1.2 3.3 4.4

Year-on-year

All Items 0.5 3.2 -0.2 3.5 3.4

Fish -20.3 3.3 -13.2 1.9 7.6

Other Food Items -0.2 1.7 0.3 2.2 -3.4

Non-Food Items 2.2 2.7 -0.1 3.7 4.4



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

As customary practice since late 2008, monetary targeting with reserve money as the operational target remained

the adopted framework in 2018. Over time, revisions had been made to the framework with the objective to

improve its effectiveness, principally in the manner through which monetary policy is implemented with the

eventual aim of improving the transmission of interest rates. Prior to 2018, the main revision to the framework

was the operationalisation of the interest rate corridor, effective July 2017, to provide more guidance on short-term

interest rates. Nonetheless, during 2018, the Bank experienced further challenges in the conduct of its monetary

policy which emanated from the associated conflicts between steering short-term interest rates while

simultaneously targeting reserve money. To address these challenges, the Board of the Central Bank approved

further revisions to the MPF in December that will be effective January 2019.

The revisions will result in transition of the MPF from reserve money targeting to an interest rate-based framework.

In lieu of indirectly influencing money supply growth, short-term interest rates will effectively serve as a key

indicator with the introduction of an MPR. The latter will be complemented by the pre-existing interest rate corridor

with the SDF as the floor and the SCF as the ceiling. Changes in the MPR will subsequently affect the SDF and

the SCF. The MPR will lie at the centre of the corridor and will be the key policy rate to signal monetary policy

stance going forward.

The above-stated revision to the framework is anticipated to provide clearer guidance to the market on the Bank’s

monetary policy stance. Moreover, it is expected to assist with the operationalisation of the interbank market and

eventually improve the transmission of interest rates.

With regards to monetary policy decisions for the year under review, the cautiously loosened stance adopted since

July 2017 was maintained until the first quarter of 2018 in view that inflation was not anticipated to reach levels

that would threaten domestic price stability. Over such period, the interest rates of the corridor were unchanged,

with the SDF and SCF remaining at 1.0 per cent and 6.0 per cent, respectively.

As of the second quarter of 2018, monetary policy was tightened, a stance that was subsequently maintained until

the end of the year. Accordingly, the interest rate corridor was shifted upwards whereby the SDF and SCF were

raised to 2.0 per cent and 8.0 per cent, correspondingly. This was on account of revised forecasts indicating

higher inflationary risks stemming from both external and domestic sources. With regards to the former,

normalisation of monetary policy by the US Federal Reserve and the commitment of the European Central Bank

to maintain unchanged interest rates were collectively anticipated to add depreciating pressures via cross-rate

effects on the external value of the domestic currency. Additionally, rising oil prices internationally was expected

to filter through domestic energy prices. Such development has the potential to directly influence quarterly


electricity tariff revisions, tariff rebalancing programme of PUC as well as prices of fuel at the pump, all with direct

pass-through channel to domestic prices.

On the domestic front, increase in aggregate demand from the implementation of large capital projects by

government and parastatal companies, sustained growth in private sector credit accompanied by second-round

effects of the depreciated domestic currency were anticipated to potentially increase inflationary pressures, thus

adversely impacting domestic price stability.

Consistent with the monetary policy actions of the Central Bank, statistics showed an increase in interest rates as

of the second quarter of the year, combined with a slowdown in the rate of growth in credit disbursed to the private

sector.

Given the structural excess liquidity and congruent with the monetary targeting policy regime, the implementation

of monetary policy was primarily focused on withdrawing liquidity such that stability was observed in short term

interest rates. This was principally facilitated by the Deposit Auction Arrangement (DAA) as well as the standing

facilities. As has been the case in previous years, the Central Bank and the Ministry responsible for Finance

collaborated on policy matters pertaining to sustained support through the issuance of government securities for

monetary policy purposes.

Moreover, in order to improve the expectations channel of monetary policy, the Bank continued to refine its

communication with the general public to enhance the understanding of the policies being implemented, with the

hope to augment its effectiveness.

For the year under review, the Bank largely succeeded in meeting its main targets despite some challenges

encountered.

3.1 Net Foreign and Domestic Assets

Total net foreign assets (NFA) of the Central Bank and other depository corporations (ODCs) expanded by 10 per

cent (or R1,129 million) to end the year at R11,998 million. Such outcome was primarily the result of an increase

of 22 per cent (or R864 million) in NFA of ODCs while there was a lower growth of 3.8 per cent (or R265 million)

in the NFA of the Central Bank. The latter was reflective of the Bank’s ongoing efforts to accumulate international

reserves with the objective to better safeguard the economy in the event of potential external shocks. At year-

end, NIR stood at US$408 million which surpassed the target by US$33 million, albeit the figure was US$16 million

lower than the end-2017 outcome.

As for the stock of domestic assets, it grew by 1.0 per cent (or R93 million) to stand at R9,007 million due to

reductions in two out of its three components. Net claims on government and claims on public entities fell by 23

per cent (or R525 million) and 12 per cent (or R78 million), correspondingly. The decline in net claims on

government was consistent with the medium-term public debt reduction target of government. With regards to

credit to the private sector, it grew by 12 per cent (or R696 million).


Chart 3.1: Net Foreign and Domestic Assets (2008 - 2018)

Source: Central Bank of Seychelles

Table 3.1: Monetary Survey1/3 (2014 - 2018)

2014 2015 2016 2017 2018 (R million) Net Foreign Assets 2 9,739.1 9,438.6 9,916.4 10,868.9 11,998.1

Central Bank 5,906.2 6,505.5 6,550.4 6,982.4 7,247.7 Commercial Banks 3,832.9 2,933.0 3,366.1 3,886.4 4,750.4

Domestic Assets 5,999.6 6,488.2 7,578.4 8,913.8 9,007.2

Claims on private sector 4,311.7 4,645.7 5,122.7 6,032.3 6,728.3 Claims on public entities 272.2 531.7 630.8 636.7 559.0 Claims on government (net) 1,415.7 1,310.8 1,824.9 2,244.8 1,719.9

Money Supply, M3 11,825.5 12,172.5 13,647.8 15,887.8 17,114.5

Money Supply, M2 6,875.5 7,441.0 8,618.7 9,773.0 10,054.9 Money Supply, M1 3,598.6 4,069.8 4,602.4 5,099.3 4,931.3

Currency with public 873.6 932.0 1,026.5 1,116.4 1,169.0 Transferable deposits 2,725.0 3,137.7 3,575.9 3,982.8 3,762.3

(of which public entities) 394.3 428.7 524.0 699.5 399.3

Quasi-Money 3,276.9 3,371.2 4,016.3 4,673.7 5,123.6 Fixed Term deposits 1,145.0 945.3 1,102.2 1,241.4 1,222.5

(of which public entities) 155.4 169.4 228.3 208.2 230.1 Savings deposits 2,131.9 2,425.9 2,914.1 3,432.3 3,901.1

Foreign Currency Deposits 4,949.9 4,731.6 5,029.1 6,114.8 7,059.6 Other items, net 3,913.2 3,754.2 3,847.0 3,894.9 3,890.7

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


-10.0

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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Net Foreign Assets Domestic Assets % Change in Total Assets


3.2 Money Supply

The broadest monetary aggregate, M3, expanded by 7.7 per cent (or R1,227 million) to end the year at R17,115

million. Such outcome was due to growth under all of its main components with the exception of the movement in

the narrowest monetary aggregate, M1. Despite an increase of 4.7 per cent in currency with public, M1 fell by 3.3

per cent (or R168 million) as a result of a decline of 5.5 per cent in transferable deposits. With regards to the stock

of savings deposits, this grew by 14 per cent whilst fixed-term deposits fell by 1.5 per cent. As such, the total

value of quasi-money rose by 9.6 per cent (or R450 million). The growth in the latter despite the decline in M1

resulted in an increase of 2.9 per cent (or R282 million) in M2.

Chart 3.2: Money Supply (2008 – 2018)


As for the stock of foreign currency deposits, this rose by 15 per cent to end the year at R7,060 million. In US

dollar terms, the total value of foreign currency deposits amounted to US$503 million, at 14 per cent above the

level recorded in 2017.

3.3 Reserve Money12

When the PCI13 engagement with the IMF was approved in December 2017, reserve money continued to be a

nominal target.

12 Often referred to as base or high-powered money and is comprised of currency in circulation and ODC’s deposits held at the Central Bank. 13 The PCI aims to reinforce the country’s efforts to strengthen macroeconomic stabilisation and promote sustained and inclusive growth.

-30

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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Transferable deposits Fixed Term deposits

Savings deposits Foreign Currency deposits

Currency with public % Change in M3


The reserve money target set for each quarter, defined as the upper bound (or ceiling), signals the Bank’s

monetary policy stance. Achieving the target requires open market operations in the money and foreign exchange

markets, by which the Bank can either withdraw or inject liquidity consistent with achieving its objectives.

As stated earlier, the cautious loosening of monetary policy decided as of July 2017 on the basis of forecasted

moderate inflationary pressures was maintained until the first quarter of 2018. However, in the second quarter of

2018, monetary policy was tightened in anticipation of rising global commodity prices, specifically that of oil as well

as higher domestic aggregate demand. Typically, the latter permeates the Seychelles economy through the

exchange rate channel thus translating into inflationary impulses. Additionally, risks to domestic price stability

were related to certain fiscal measures disclosed in the 2018 budget.

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


As illustrated in Chart 3.3, the Bank met its quarterly reserve money targets during the year, with the exception of

the second quarter. The target as at end-June 2018 was narrowly missed on account of higher than anticipated

growth in currency in circulation and lower than expected participation in the Bank’s auctions. Such outcome also

reflected the aforementioned challenges of meeting a targeted level of reserve money while simultaneously

ensuring stability in short-term interest rates. Hence, in the second quarter, relatively more emphasis was placed

on maintaining stability in shorter-term interest rates.

To note, starting the end-2018 test date, reserve money was no longer a quantitative target under the PCI. From

then on, there exists a Monetary Policy Consultation Clause (MPCC), which is based on an agreed quarterly 12-

month average inflation path. The path lies within a ±2.0% outer band, whereby a breach would trigger

consultation with the IMF Board and a breach of an inner band of ±1.5% require consultation with the IMF staff.

Table 3.2: Reserve Money (Q4 2017 to Q4 2018)

Q4 Q1 Q2 Q3 Q4

2017 2018

(R million)

Reserve Money (Target) 3,766.0 3,634.7 3,606.1 3,863.7 4,002.6

Reserve money (quarterly average) 3,559.0 3,546.2 3,631.7 3,686.6 3,711.4

Reserve Money (Actual) 1 3,559.2 3,805.9 3,353.9 3,764.5 3,719.9

Currency in Circulation 1,328.3 1,347.2 1,291.9 1,311.3 1,373.1

Other Depository Corporations' reserves 2,105.9 2,458.6 2,062.0 2,073.2 2,241.7

Standing Deposit Facility 125.0 - - 380.0 105.0

1 Figures are as at the last day of the quarter


Chart 3.3: Reserve Money (2018)


For the fourth quarter of 2018, the average stock of reserve money grew by 4.3 per cent to stand at R3,711 million.

Such outcome was consistent with a growth of 6.7 per cent and 3.4 per cent in ODCs’ reserves and currency in

circulation, correspondingly.

Chart 3.4: Notes and coins in circulation (2008 - 2018)


3.4 Domestic Credit

3.4.1 Central Bank and Other Depository Corporations (ODC)

At the end of 2018, the total stock of outstanding domestic credit amounted to R11,935 million, which was a growth

of 0.1 per cent compared to end-2017. Total credit of ODCs amounted to R10,750 million. There was an

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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Notes Coins % Change in Total Currency in Circulation

3,400

3,500

3,600

3,700

3,800

3,900

4,000

4,100

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

R m

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Target Reserve Money Quarterly moving average


expansion of 12 per cent (or R696 million) in credit extended to the private sector while claims on parastatal sector

and claims on government declined by 12 per cent (or R78 million) and 15 per cent (or R608 million),

correspondingly. As stated earlier, the contraction in claims on government was in line with the government’s plan

to reduce total public debt to below 50 per cent of GDP by 2021.

Chart 3.5: Total Domestic Credit (2008 - 2018)


3.4.2 Sectoral Allocation of Credit to the Private Sector14

An analysis of the sectoral distribution of credit to the private sector indicated that the category ‘private households

& non-profit organisations’ grew by 14 per cent in 2018. Loans to this category accounted for 23 per cent of

aggregated credit to the sector. Credit allocated to the grouping ‘mortgages’, ‘wholesale & retail trade’ and ‘building

& construction’ - which represented 14 per cent, 11 per cent and 8.3 per cent of total loans to the private sector –

rose by 32 per cent (or R230 million), 25 per cent (or R144 million) and 36 per cent (or R148 million), respectively.

Conversely, loans to the category ‘tourism’, which accounted for 16 per cent of total credit to the private sector fell

by 1.3 per cent (or R14 million).

With reference to end-2017, the total value of foreign currency denominated loans disbursed to the private sector,

declined by 5.4 per cent in 2018. As such, there was a fall in its share of total credit from 26 per cent in the

preceding year to 22 per cent in the period under review.

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

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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Claims on private sector Claims on government Claims on public sector


Table 3.3: Credit; 1/2/3 2014 – 2018

2014 2015 2016 2017 2018

(R million)

Total Credit 8,971.1 9,793.0 11,027.8 11,925.1 11,935.1

Commercial banks 7,786.1 8,607.9 9,842.7 10,740.1 10,750.1

Claims on private sector 4,311.7 4,645.7 5,122.7 6,032.3 6,728.3

Claims on public entities 272.2 531.7 630.8 636.7 559.0

Claims on government 3,202.2 3,430.5 4,089.2 4,071.1 3,462.8

of which:

Dev. fund stocks 659.3 658.9 378.0 350.7 358.6

Treasury bonds -1,778.2 -2,045.6 -2,985.7 -3,072.8 2,507.2

Treasury bills -1,401.3 -1,360.1 -1,028.0 -938.6 -927.6

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


Table 3.4: Other Depository Corporations – Loans and Advances

To Non-Governmental Sector by Economic Sectors1/2 2014 – 2018

2014 2015 2016 2017 2018

(R million)

Total Advances 4,311.7 4,645.7 5,122.7 6,032.3 6,728.3

of which:

Foreign Currency Loan 1,124.2 1,163.7 1,174.0 1,584.2 1,498.2

Agriculture and horticulture 31.8 49.6 61.5 94.6 109.4

Fisheries 37.4 52.1 44.9 42.0 67.2

Manufacturing 57.0 102.3 184.2 253.0 175.5

Real Estate 564.8 649.7 636.5 679.5 679.8

Building & Construction 341.8 376.1 444.0 410.7 558.7

Transportation 165.5 177.9 172.5 265.4 355.8

Tourism Facilities 930.8 986.1 959.7 1,103.4 1,089.1

Wholesale & Retail trade 338.6 404.9 495.9 584.3 728.4

Financial institutions 4.7 2.0 0.9 0.6 1.1

Other business 410.9 343.6 447.6 535.3 487.1 Private households & Non-profit organisations 947.7 998.3 1,096.5 1,349.7 1,532.0

Mortgage loans 480.7 503.0 578.4 713.9 944.2 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 (2008 - 2018)


3.4.3 Development Bank’s Credit15

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

sectors that contribute to economic development. Loans extended by DBS generally come with less stringent

terms, and at concessional rates in comparison to industry’s standards in several categories.

At the end of 2018, DBS’ total advances that were outstanding has contracted by R14 million (or 1.6 per cent) from

the previous year to end at R873 million. The decline was as a result of reductions of R21 million (28 per cent),

R21 million (16 per cent) and R9.2 million (4.9 per cent) in credit extended to the categories ‘transport’, ‘other

services’ and ‘tourism’. The aforementioned groupings accounted for 6.3 per cent, 12 per cent and 20 per cent,

correspondingly, of the bank’s total loan portfolio. Moreover, ‘building & construction’, which represented the

largest component of loans disbursed by DBS with a 48 per cent share, grew by R39 million (10 per cent). Loans

to the ‘agriculture & horticulture’ which constituted 3.5 per cent of total loans, fell by R2.0 million (6.2 per cent).

15 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.

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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Mortgage loansPrivate households & Non profit organisationOther businessFinancial InstitutionWholesale & Retail tradeTourism FacilitiesTransportation


Table 3.5: Loans by Development Bank by Economic Sectors1 (2014 - 2018)

2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

(R million) (Percentage %)

Total Advances 409.8 522.9 740.7 887.5 873.0 100.0 100.0 100.0 100.0 100.0

Agriculture 25.9 27.3 33.6 32.6 30.6 6.3 5.2 4.5 3.7 3.5

Building and Construction 21.3 103.1 243.0 377.3 416.4 5.2 19.7 32.8 42.5 47.7

Fishing 13.1 22.8 33.1 36.7 36.6 3.2 4.4 4.5 4.1 4.2

Industry 29.6 25.0 37.6 44.9 45.3 7.2 4.8 5.1 5.1 5.2

Tourism 108.1 121.6 158.1 188.1 178.9 26.4 23.3 21.3 21.2 20.5

Trade 2.4 3.2 3.5 3.2 2.6 0.6 0.6 0.5 0.4 0.3

Transport 39.9 72.0 93.8 76.8 55.5 9.7 13.8 12.7 8.7 6.3

Other services 169.5 147.8 137.9 128.0 107.3 41.4 28.3 18.6 14.4 12.4

Figures do not necessarily add up due to rounding off 1 End of period

Source: Development Bank of Seychelles

Chart 3.7: Sectoral Allocation of DBS Domestic Credit (2008 - 2018)

Source: Development Bank of Seychelles and Central Bank of Seychelles

3.5 Interest Rates

In the year under review, there was an increase in interest rates on both deposits and loans. Such outcome was

consistent with the tight monetary policy stance adopted by the Bank since the second quarter of 2018. On the

deposits front, the average return on fixed-term rupee deposits rose by 22 basis points to 3.56%, from 3.34% at

end-2017. Interest rates on fixed-term rupee deposits were higher across the board, with the exception on those

in the maturity bracket of ‘more than 12 months’, which fell by 10 basis points. The main expansions were in the

return on instruments in the maturity brackets of ‘above 6 months up to 12 months’ and ‘above 3 months up to 6

months’ by 43 basis points and 35 basis points, respectively. There was also an increase in the average return

on savings deposits and this was by 51 basis points to 2.87%, from 2.37% in December 2017.

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450

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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Agriculture Building and construction Fishing

Industry Tourism Trade

Transport Other services


In 2018, government continued to issue Treasury bills to accommodate fiscal needs as well as in support of

monetary policy. As at end-2018, the average return on the 91-day, 182-day and 365-day Treasury bills stood at

5.20%, 5.44% and 5.81%, correspondingly. These were increases of 2.1 percentage points on the 91-day

maturity, 65 basis points on the 182-day maturity and 48 basis points on the 365-day maturity.

Table 3.6: Interest Rates1/2 (2014 – 2018)

The effective average lending rate increased by 54 basis points to end 2018 at 12.58% compared to 12.05% in

the preceding year. Following these developments, the interest rate spread – the difference between the lending

and savings rates – expanded by 3.0 basis points with reference to 2017 to stand at 9.71 per cent.

One of the challenges that persisted in 2018 was the transmission of monetary policy to the market via the interest

rate channel. This remained weak and continued to hamper the overall effectiveness of monetary policy actions.

Nevertheless, the Bank maintained its commitment to improve interest rate transmission and the effectiveness of

its policy as evidence by its continuous efforts to further modernise its monetary policy framework.

2014 2015 2016 2017 2018

Volume-weighted Average Deposits (Percentage)

Savings Rate 2.31 2.91 2.92 2.37 2.87

Fixed Term Deposits Rate 3.30 4.08 3.55 3.34 3.56

<= 7 days 1.11 1.18 1.11 1.05 1.38

> 7 days <= 3 months 2.45 3.12 3.54 3.46 3.53

> 3 months <= 6 months 3.72 4.73 3.17 2.94 3.30

> 6 months < =12 months 4.65 5.80 4.82 3.82 4.25

> 12 months 4.56 5.54 5.08 5.45 5.35

Volume-weighted

Average lending rate 12.05 12.57 12.42 12.05 12.58

91-day treasury bill rate 5.39 5.70 6.36 3.06 5.20



1 All data are taken on an end-of-period basis 2 Changes in previous figures are due to revisions Source: Central Bank of Seychelles


Chart 3.8: Interest Rates (2008 - 2018)


3.6 Monetary Policy Instruments

During the year under review, the Bank’s interventions in the money market were mainly focused on managing

the level of liquidity in the system to be in line with its monetary policy stance. Given the environment of excess

liquidity, monetary policy implementation was through the use of liquidity-absorbing instruments.

3.6.1 Minimum Reserve Requirement (MRR)

The ratio of applicable average residents’ deposit liabilities that ODCs were required to hold as MRR was

maintained at 13 per cent in 2018. Given the longstanding overall liquid conditions, institutions liable to MRR

generally held reserves in excess of the prescribed requirement throughout the year. MRR remained

unremunerated, as has been the case since July 15, 2011. At the year-end, the balance of MRR applicable on

rupee-denominated liabilities amounted to R1,266 million, whilst that on the US dollar16 and euro deposit liabilities

stood at US$44 million and EUR22 million, respectively.

3.6.2 Deposit Auction Arrangement

During 2018, DAA was the monetary policy instrument used to withdraw excess liquidity from the banking system.

Mindful of interest rate stability and in line with the improved efficiency in monetary policy implementation, standard

operations17 using quantity-based auctions were employed by the Bank.

16 Foreign currency liabilities denoted in other currencies other than the euro are converted and classified as US dollar deposits. 17 Standard operations are defined as sequenced interventions around the MRR schedule using 7-day and 28-day DAAs.

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Savings Deposit Rate

Time Deposit Rate: > 6 months < =12 months

91-day treasury bill rate

Average lending rate


As of the third quarter of 2018, non-standard operations were no longer offered as the Bank aimed to reduce its

presence in the market with the objective to stimulate interbank transactions. As at end-2018, the stock of

outstanding DAA stood at R845 million, which was more than the R705 million observed in 2017.

The table below shows the average interest rates on 7-day DAA, the main maturity offered during 2018.

Table 3.7: Weighted Average Deposit Auction Arrangement Rates1 (2018)

Q1 Q2 Q3 Q4

Maturity Period Per cent (%)

7 days 4.15 5.45 5.00 5.75 1 End-of-period data Source: Central Bank of Seychelles

3.6.3 Credit Auction Arrangement (CAA)

As money market interventions were only geared to withdraw liquidity from the system, the CAA, which is a

liquidity-injecting instrument, was not utilised during the year under review.

3.6.4 Repurchase Operations

Two additional instruments that can be used for liquidity management purposes are reverse repurchase and

repurchase agreements, which require the use of government Treasury bills as underlying securities. Given that

the document governing these instruments was being reviewed, the instrument was not employed in the Bank’s

open market operations in 2018.

3.6.5 Standing Facilities

Offered by some central banks, standing facilities are instruments that may be availed by ODCs to assist with their

short-term liquidity management, by providing deposit and lending arrangements on an overnight basis.

3.6.5.1 Standing Deposit Facility (SDF)

The SDF, which serves as the floor of the interest rate corridor, enables ODCs to place their end-of-day excess

funds in an overnight deposit at an interest rate set by the Bank. Following the tightening of monetary policy as of

the second quarter of 2018, the SDF was raised from 1.0%18 to 2.0%. During the year under review, 297 SDF

placements were recorded, for a total R22,419 million.

3.6.5.2 Standing Credit Facility (SCF)

When funding is unavailable on the interbank market, ODCs can access credit on an overnight basis through the

SCF, which serves as the ceiling of the interest rate corridor. As of the second quarter of 2018, the SCF was

raised from 6.0% to 8.0% in line with the tightening of monetary policy19. A total of six SCF requests were received

by the Central Bank, and these amounted to R405 million. A concern of the Bank is the fact that this facility is not

18 The SDF rate increased from 0.25% to 1.00% in July 2017 19 Since July 2017, the applicable rate on SCF stood at 6.0%, following an increase from 1.75%.


necessarily being accessed as a last resort given some challenges to borrow on the interbank. Such issue is

being discussed amongst market participants.

3.6.6 Emergency Lending Facility (ELF)

In addition to the standing facilities, the Bank can extend emergency liquidity support through its ELF20 in its

capacity as the lender of last resort if a bank encounters severe financial difficulty. This collateralised facility was

not requested by any institution in 2018.

During the latter half of 2018, the ELF was moved out of the MPF and became part of the Macroprudential

Framework.

3.6.7 Foreign Exchange Auction (FEA)

The FEA is a tool 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. During 2018, the Bank

purchased US$22 million from the market with the strategic aim of accumulating international reserves. No FEA

was conducted to influence exchange rate given that such interventions are only carried out when there is excess

volatility in the foreign exchange market.

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. Since its introduction in 2010, the Bank has yet to make use of this instrument.

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


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 21

4.0 Overview

In 2018, the government remained dedicated to maintaining fiscal discipline to ensure successful achievement of

its medium-term target. As such, the authorities were committed to achieving a primary fiscal surplus that is

consistent with reducing the level of public debt to below 50 per cent of GDP by 2021 in line with its medium-term

fiscal strategy.

By the end of the year, a primary fiscal surplus of 3.3 per cent of GDP was achieved. Such outcome was mainly

as a result of savings on the expenditure side, which partially offset the shortfall in revenue collection.

A key focus of the government in 2018 was on addressing the cost of living and poverty reduction. Among the

measures that were introduced were tax exemptions on a number of imported items. There was also the

implementation of the third and final phase of PIT.

During the year, the government also put in place measures to improve the efficiency of revenue collection, to

address concerns over possible leakages.

Moreover, tax policies that target the protection of the environment were given specific attention with some geared

towards reducing waste as well as promoting more environmentally-friendly means of transportation.

4.1 Policy Changes

Issues surrounding the cost of living were given further prominence in 2018 and the topic was a key narrative

around many government policies. Announcements included the possibility of importing commodities through

‘bulk buying’, in collaboration with the Republic of Mauritius, such that both countries can benefit from economies

of scale. Government also intensified its efforts to tap into new markets where goods could be imported at

relatively lower prices. Such initiatives are expected to lower the costs payable by domestic suppliers, and

therefore generate savings that could be passed on to consumers. Other measures included consultations with

different stakeholders in the economy including banking, insurance and telecommunications sectors in a bid to

reduce charges on their products.

Tax incentives were included amongst the measures introduced to address the cost of living. Trade tax was

revised downwards on selected imported items, notably ear muffs, protective clothing and dietary supplements,

between January and April 2018. In addition, there was also the removal of customs duty on clothing in July.

21 Statistics and analysis are based on GFS 2018, as per latest data available as at March 06, 2019.


A notable tax revision was introduced in April and this was related to the excise tax applicable on plug-in hybrid

motor vehicles with the objective to promote the use of more environmentally-friendly vehicles. Moreover, in a bid

to improve waste management, government introduced a levy of R2.00 on all alcoholic glass bottles effective

October as part of a recycling scheme introduced by the Ministry responsible for environment. The levy was

imposed on all pre-packed alcoholic drinks and empty glass bottles for use in local production, and will thus be

borne by importers and local manufacturers alike.

In June, the third and final phase of the PIT, aimed at addressing income inequality in addition to the cost of living

was implemented. The tax-free threshold of R8,555.50, which was effected in July 2016, was maintained and

became applicable to all Seychellois employees. A progressive income tax rate was introduced to the remaining

income brackets22.

4.2 Public Debt

In 2018, the government remained committed to reducing public debt to below 50 per cent of GDP by 2021. Such

a commitment was supported by strong fiscal discipline which continued to be prevalent.

As at end December, the aggregate stock of public debt stood at US$862 million, compared to US$900 million at

the end of 2017. As a share of GDP, total public debt declined to 55 per cent from 62 per cent in the previous

year. The fall was primarily driven by a contraction of 5.1 per cent in domestic debt. The aggregated stock of

domestic debt stood at R6,463 million (29 per cent of GDP) in December, as compared to R6,807 million (34 per

cent of GDP) in the same month in 2017. The stock of external debt fell by 1.3 per cent in US dollar, from US$407

million in 2017 to US$401 million in 2018.

22The tax on income in the range R8,555.50 to R10,000 was set at 15%. A 20% income tax became applicable on the difference between R10,001 to R83,333, whilst income above R83,333 is subject to a tax of 30%.


Table 4.1: Government Budget Summary

(2017 - 2018)

2017 2017 2018 2018

Budget Actual 1 Budget 2 Actual 1

SCR(‘000)

Total revenue and grants 8,362,659 7,447,688 8,787,545 8,502,738

Total revenue 7,685,770 7,275,117 8,539,018 8,232,656

of which:

Tax 6,572,842 6,600,422 7,397,320 7,318,664

Personal Income Tax 847,141 900,059 878,080 960,491

Social Security Tax-Arrears - - 207,615 207,615

Trade Tax 333,490 284,939 299,055 315,260

Excise Tax 1,291,234 1,311,674 1,334,053 1,292,501

GST 100 16,955 2,278 3,136

Value Added Tax 2,138,664 2,133,831 2,441,176 2,499,633

Business tax 1,007,483 1,363,881 1,521,480 1,378,501

Corporate Social Responsibility Tax 90,920 95,052 104,621 106,181

Tourism Marketing Tax 63,002 59,869 68,408 69,980

Other Tax 800,808 434,161 540,554 485,353

Property Tax - - - 14

Nontax 1,112,928 674,696 1,141,698 913,992

Fee and Charges 468,722 349,319 391,019 334,742

Dividends Income 429,255 279,903 531,491 426,355

Other Nontax 214,951 45,474 44,090 32,193

Proceeds from sale of assets - - 175,098 120,701

Grants 676,889 172,571 248,527 270,082

Expenditure and net lending 8,577,620

7,456,657 8,851,087 8,491,657

Current expenditure 6,876,340 6,688,310 7,645,626 7,430,410

Primary Current Expenditure 6,051,045 6,057,672 6,924,929 6,732,361

Interest due 825,294 630,637 720,697 698,049

Transfers - - 61,587 54,701

Capital expenditure 1,304,326 598,925 876,326 748,333

Net lending 209,547 -1,399 101,159 85,470

Contingency 25,000 21,467 47,346 46,787

Primary balance, Accrual basis (GFS)3

Including grants 610,075 619,702 657,155 709,130

In per cent of GDP 3.0% 3.0% 3.0% 3.3%

Excluding grants (66,814) 448,427 408,628 439,047

In per cent of GDP -0.3% 2.2% 1.9% 2.0%

Overall balance, Accrual basis (GFS) (215,219) (10,936) (63,542) 11,081

In per cent of GDP -1.1% -0.1% -0.3% 0.1%

Overall balance, cash basis (after grants) -215,219 -8,347 -63,542 205,344

Financing 215,219 8,347 63,542 (205,344)

Foreign Financing (accrual basis, net) 181,547 -407,244 386,201 (340,046)

Domestic Financing, net (67,106) 232,692 (322,659) (756,123)

Bank Financing (60,395) 331,875 (290,393) (643,108)

Non-Bank Financing (6,711) (99,183) (32,266) (113,015)

Figures do not necessarily add up due to rounding. 1 These series are subject to audit and might be revised accordingly. 2 Revised government budget

3 The primary balance is obtained by excluding interest payments from the overall balance.

Source: Ministry responsible for Finance


4.3 Outcome for 2018

The primary fiscal outcome for 2018 remained in surplus. This was supported by savings on the expenditure side

which helped to counter the under-performance on the revenue side.

Chart 4.1: Government Finance Outcome (2008 – 2018)


4.4 Revenue

Total revenue (inclusive of grants) stood at R8,503 million in 2018 which was 3.2 per cent below forecast. The

under-performance on the revenue side was as a result of lower than anticipated receipts under both the tax and

non-tax categories.

Tax revenue amounted to R7,319 million or 1.1 per cent below projection. This outcome was due to a shortfall in

revenue collected under ‘other tax’ (10 per cent), ‘business tax’ (9.4 per cent) and ‘excise tax’ (3.1 per cent). By

contrast, ‘income tax’ as well as ‘trade tax’ were above the expected amount by 9.4 per cent and 5.4 per cent,

respectively.

With regards to non-tax revenue, this stood at R914 million which was 20 per cent below the projected figure.

Such outcome was driven by the lower-than-expected receipts across all of its components and this was with the

exception of the amount received as grants. At R270 million, receipts from grants were above forecast by 8.7 per

cent.

(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

9,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

R m

illio

m

R m

illio

n

Years

Total Receipts (Primary Axis) Total Outlays (Primary Axis)

Overall Balance (Secondary Axis)


Chart 4.2: Major Revenue Flows in Current Receipts (2008 - 2018)


4.5 Expenditure and Net Lending

The year’s total spending and net lending amounted to R8,492 million, representing a savings of R359 million

relative to the budgeted amount. As at end-December, the total value for net lending was R85 million, at R16

million below the expected outcome.

4.5.1 Current Outlays

In 2018, current expenditure aggregated to R7,430 million, which was savings of R215 million compared to the

budgeted figure. This was primarily as a result of lower spending under most sub-components of current

expenditure, with the exception of ‘benefits and approved programmes of ASP’ which exceeded its allocation by

R36 million.

4.5.2 Capital Outlays

Total capital outlays stood at R1,014 million, at 12 per cent below the budgeted amount. The bulk of capital

expenses was directed towards the financing of capital projects and this was to the tune of R748 million. In

addition, a total of R181 million was spent under the category ‘development grants’. The sum was mainly allotted

to PUC (R120 million), Property Management Corporation (R30 million), the Seychelles Public Transport

Corporation (SPTC) (R25 million) and IDC, with the latter for the renovation of the Providence Airstrip (R5.0

million).

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

R m

illio

n

Years

Fees and Charges Other Tax

Income / Business Tax Trades Tax

Pension Fund Contribution


Chart 4.3: Government Capital Expenditure (2008 - 2018)


4.6 Financing

Funding for the government’s budget were from both the domestic and foreign sources. In addition to grants,

external loans were sourced from bilateral and multilateral partners as well as from commercial sources.

Domestic financing was mainly in the form of Treasury bills. The actual financing needed by government by the

end of the year stood at negative R205 million compared to a budgeted positive R64 million, an outcome that was

consistent with a net reduction in overall public debt.

Chart 4.4: Stock of Domestic Debt (Jan – Dec 2018)

Source: Ministry responsible for Finance; Central Bank of Seychelles

-1000

0

1000

2000

3000

4000

5000

6000

7000

8000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

R m

illio

n

Years

Current outlays Capital outlays Net Lending

5,300

5,400

5,500

5,600

5,700

5,800

5,900

6,000

6,100

6,200

6,300

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

R m

illio

n

Months


4.6.1 Treasury Bills

As customary practice, issuance of Treasury bills was the main source of meeting the domestic financing needs

during 2018. There was an increase in issuance of government securities for fiscal needs but this was

counterbalanced by a reduction in the amount issued in support of monetary policy. As such, the year recorded

an overall decline in the stock of outstanding Treasury bills relative to end-2017. The decrease was by 7.9 per

cent at cost value and 7.5 per cent at face value.

With regards to the average yields, that on the 91-day, 182-day and 365-day Treasury bills, these ended the year

at 5.20%, 5.44% and 5.81%, respectively. The outcome was in comparison to 3.06%, 4.79% and 5.33% on the

same securities at end-2017.

Table 4.2: Treasury Bills 1/2/3/4 (2014 – 2018)

2014 2015 2016 2017 2018

R (million)

Stock outstanding 1/3/4 2,215.4 2,857.3 4,005.0 3,859.5 3,554.4

91-day bills (tender issue) 279.7 404.4 510.8 566.1 366.5

182-day bills (tender issue) 535.8 524.9 1,055.4 1,108.4 726.7

365-day bills (tender issue) 1,399.8 1,927.9 2,438.8 2,185.1 2,461.1

Stock outstanding 2/3/4 2,312.8 3,096.9 4,218.2 4,023.6 3,722.9

91-day bills (tender issue) 284.6 410.8 518.1 570.4 371.1

182-day bills (tender issue) 551.3 549.4 1,088.6 1,132.6 746.9

365-day bills (tender issue) 1,476.9 2,136.7 2,611.5 2,320.5 2,604.9

Held By 3/

Commercial banks 1,841.5 2,186.5 3,114.7 3,158.6 2,546.9

Other financial institutions 152.4 289.0 510.0 324.2 392.4

Others 319.0 621.4 593.5 540.8 783.5 1 At cost value 2 At face value 3 End-of-period data 4 Balances exclude stock of bills held by the Central Bank and includes stock issued for monetary

policy purposes



4.6.2 Treasury Bonds

At the end of the year under review, the outstanding stock of bonds was R600 million. In view that there were no

new bond issuances as well as maturities of this instrument in 2018, this figure remained unchanged relative to

the previous year.

Table 4.3: Treasury Bonds 1 (2014 - 2018)

2014 2015 2016 2017 2018

R (million)

Stock outstanding 911.0 814.6 512.6 600.0 600.0

4.0%, 2-yr 300.0 300.0 - - -

4.5%, 3-yr 262.6 262.6 262.6 - -

5.5%, 5-yr 250.0 250.0 250.0 250.0 250.0

6.0%, 3-yr 50.0 50.0

6.5%, 5-yr 150.0 150.0

7.0%, 7-yr 150.0 150.0

16%, 10-yr (8%) 98.4 2.0 - - -

Held by

Commercial banks 614.0 610.9 330.3 302.0 302.0

Other financial institutions 159.2 91.4 91.4 129.4 129.4

Others 139.1 112.2 90.9 168.5 168.5

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 23

5.0 Overview

As a small, open island developing state (SIDS), with limited available resources, Seychelles is heavily dependent

on the rest of the world. The balance of payments (BOP), which records transactions of the country’s residents

with other countries provides an estimate of the level of this dependency.

As a net importer, Seychelles BOP statistics show a current account that is inherently in deficit although the country

is a net exporter of services, driven primarily by the contribution of the tourism industry. It is important therefore

for the country to hold adequate level of international reserves such that it has the ability to weather potential

external shocks.

During 2018, the Central Bank managed to purchase foreign exchange for reserves accumulation purposes with

the overarching aim of safeguarding the economy against external shocks and in addition to further improving the

country’s ability to honour external payment obligations. At the end of 2018, gross international reserves stood at

US$549 million, an increase of US$4.3 million relative to 2017. However, in terms of reserves adequacy, this

represented a decline from 4.2 months of imports in the previous year to 3.8 months in 2018. Nonetheless, the

NIR figure for the year stood at US$408 million to outperform its target by US$33 million.

According to preliminary BOP statistics, Seychelles external position improved in 2018 compared to 2017. Such

conclusion is based on the aforementioned growth in external reserves and a narrowing of the current account

deficit with the latter attributed to a rise in export earnings, coupled with a slowdown in the growth of imports. The

improved current account deficit was from US$296 million to US$269 million. Despite a moderate increase of 3.4

per cent in visitor arrivals, tourism earnings grew by a noteworthy 17 per cent to amount to US$564 million.

Statistics from the foreign exchange market show a higher level of both the demand for, and supply of foreign

exchange in comparison to the previous year. The data also show that on average, the Seychelles rupee

weakened against all of the three major traded currencies, namely the USD, EUR and GBP. The rate of

depreciation was more pronounced vis-à-vis the EUR and GBP, both of which continued to mainly reflect

developments in international currency markets.

With regards to international relations, Seychelles continued to maintain strong diplomatic ties with its bilateral and

multilateral partners, as evidenced by the numerous agreements signed and assistance received, both financially,

23 Since 2015 the Bank has started to include offshore sector data, particularly the activities of entities registered as Special Licence Companies (CSLs), in the 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.


and in kind. On the agenda of regional integration, the country remained dedicated in upholding its commitment

towards 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

In 2018, the current account remained expectedly in deficit which continued to portray the country’s heavy reliance

on imports and limited scope for growth in export earnings, in part due to very few opportunities to diversify the

economy. However, initial provisional estimates show a narrowing of the current account shortfall by US$27 million

to US$269 million (or 17 per cent of GDP) relative to the previous year when it was US$296 million (or 20 per cent

of GDP). Such outcome was due to the double-digit increase in tourism earnings as well as in receipts from

merchandise exports.

Chart 5.1: Overall balance, current account and capital & financial account of the BOP (2008 - 2018)


-600

-400

-200

0

200

400

600

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

US

$ m

illio

n

Current Account Capital and Financial Account Overall Balance


5.1.1 Trade in goods

In 2018, the country’s trade deficit is estimated at US$671 million, worsening by 14 per cent relative to 2017.

Although the total value of exported goods increased by 7.0 per cent, it was still inadequate to offset a rise of 1.4

per cent in the value of imported goods.

Chart 5.2: Trade in Goods (2008 - 2018)

Source: National Bureau of Statistics & Central Bank of Seychelles

-1,000

-500

0

500

1,000

1,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

US

$ m

illio

n

Merchandise exports (f.o.b.) Merchandise imports (f.o.b.) Merchandise, Net



Table 5.1: Seychelles Balance of Payments1 (2014 - 2018)

2014 2015 2016 2017 2018

Prov. CURRENT ACCOUNT (USD million) -308.1 -256.2 -287.4 -295.7 -269.2

Goods, -541.9 -473.0 -531.9 -590.3 -670.7 Credits (of which:) 539.0 449.4 459.2 525.3 561.9 Merchandise exports (f.o.b.) 336.9 253.1 286.5 286.4 330.7 Debits (of which:) 1,081.0 922.4 991.0 1,215.7 1,232.5 Merchandise imports (f.o.b.) 996.7 848.0 895.5 1,115.6 1,143.1

Services, net 330.6 322.0 386.3 446.5 496.9 Credits (of which:) 834.2 805.0 893.7 998.1 1,036.4 Tourism Earnings 397.6 392.0 413.7 482.7 563.9 Debits 503.6 483.6 507.4 551.6 539.5 Primary Income, net -99.6 -105.4 -132.2 -136.2 -96.9 Compensation of employees -4.6 -15.1 -7.5 -8.9 -7.3 Credits 3.6 5.0 5.1 4.7 4.7 Debits 8.2 20.1 12.5 13.6 12.0 Investment income -95.0 -90.3 -124.8 -127.3 -89.6 Credits 13.7 12.4 8.2 10.8 17.4 Debits 108.8 102.7 133.0 138.1 107.0

Secondary Income, net 2.8 -27.0 -9.7 -15.7 1.5 General government 38.2 18.6 30.7 22.4 41.1 Credits 38.2 18.6 30.7 22.4 41.1 Fishing licence fees 7.6 5.7 7.5 10.9 9.2 Other grants 30.7 12.9 23.2 11.5 32.0 Debits 0.0 0.0 0.0 0.0 0.0 Other sectors -35.3 -45.6 -40.4 -38.0 -39.7 Credits 14.1 13.5 17.1 20.1 21.1 Debits 49.5 59.1 57.5 58.1 60.8

CAPITAL AND FINANCIAL ACCOUNT 275.0 252.6 280.3 299.1 248.0 CAPITAL ACCOUNT 39.1 36.9 54.2 52.3 49.8 FINANCIAL ACCOUNT -235.9 -215.8 -226.2 -246.8 -198.3

Direct investment -185.2 -193.0 -119.3 -206.3 -102.1 Assets -76.9 -87.1 -78.4 -81.9 -67.1 Liabilities 108.4 105.9 40.9 124.5 34.9

Portfolio investment 12.9 -35.9 51.8 53.5 -40.5 Assets -8.0 -43.9 61.1 38.5 -59.8 Liabilities -20.9 -8.0 9.3 -15.0 -19.3

Other investment -106.9 -59.9 -158.8 -112.4 -59.6 Assets -128.7 -187.4 -91.1 -12.2 83.6 Liabilities -21.8 -127.5 67.8 100.1 143.1

Net errors and omissions 33.1 3.6 7.1 -3.4 21.2

OVERALL BALANCE -43.3 -73.0 -0.1 -18.4 -3.8 Financing of overall balance 43.3 73.0 0.1 18.4 3.8 Reserve assets 43.3 73.0 0.1 18.4 3.8 Arrears 0.0 0.0 0.0 0.0 0.0

Memorandum items: Current account (percentage of GDP) -21.6 -18.6 -18.4 -20.0 -17.1 Trade Balance (f.o.b.). (merchandise exports less imports) -659.8 -594.9 -609.0 -829.2 -812.4 Stock of Reserves (Gross) (US$ million) 464.3 535.5 524.0 545.2 549.0 Stock of Reserves (Gross) (Months of cif imports) 3.9 4.3 4.1 4.2 3.8 Exchange Rate (Rupee/US$; period average) 12.7527 13.3096 13.3194 13.6481 13.9115 1Data series may differ from previous publications due to revisions.


5.1.2 Merchandise exports

At US$331 million, the aggregate value of merchandise exports (fob)24 is estimated to have risen by a notable

US$44 million from the level recorded in 2017. This was primarily as a result of increased canned tuna exports,

from US$265 million in the previous year to US$285 million in the period under review.

5.1.3 Merchandise imports

Trade statistics show total spending on imported merchandise (fob) by the country amounting to US$1,143 million

in 2018, which was an increase of 2.5 per cent in comparison to an import bill of US$1,116 million in 2017. In

terms of composition, the main category was ‘food, live animals & vegetables oils’ which accounted for 26 per cent

of the total value of merchandise imports. This was followed by ‘machinery & transport equipment’ and ‘mineral

fuels’ which each represented 25 per cent of the overall cost of imports. Another prominent category was

‘manufactured goods & miscellaneous manufactured articles’ (15 per cent). In terms of the change from the

previous year, the most significant increase was under the category ‘mineral fuels’ and this was by 40 per cent,

an outcome that was mainly as a result of higher fuel prices on average in 2018 in comparison to 2017, in addition

to growing demand.

Table 5.2: Imports (f.o.b.) - by HS1 Sections (2014 - 2018)

2014 2015 2016 2017 2018

Description (US$ million)

Total Imports 1,143 987 1,042 1,116 1,143

Beverages and tobacco 23 22 27 23 23

Chemicals 51 59 63 50 55

Food, live animals & vegetable oils 257 224 277 286 293

Machinery and transport equipment 288 298 275 338 289

Manufactured goods & misc. manufactured articles 217 194 215 196 174

Mineral fuels 288 174 165 210 288

Other commodities 19 15 20 13 21

Notes: 1 Harmonised System

Source: National Bureau of Statistics & Central Bank of Seychelles

24 “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.) 2018


5.2 Services

The country’s services account remained in surplus in 2018. Exports of services rose by US$38 million (or 3.8

per cent) from US$998 million in 2018 to US$1,036 million. This was primarily on account of improved foreign

exchange inflows generated by the tourism industry, the principal sources of receipts from export of services.

Despite a slowdown in the growth in visitor arrivals in 2018 to a rate of 3.4 per cent, tourism earnings are estimated

at US$564 million, an outcome that was 17 per cent higher than in the previous year.

Growth in visitor arrivals was mainly driven by a rise of 11 per cent in the number of tourists from the traditional

European markets, partly as a result of the increased level of connectivity to Europe following the arrival of new

airlines during the year. This performance helped mitigate the fall in visitors originating from other markets, namely

the UAE, South Africa, Russia and China.

With regards to the total value of services imported from non-residents in 2018, this is estimated at US$539 million,

a drop of US$12 million or 2.2 per cent compared to 2017. As such, the net value of the country’s exports of

services amounted to US$497 million in 2018, which was 11 per cent higher than that of the previous year.

5.3 Primary Income

For 2018, the primary income account is estimated to be a deficit of US$97 million, which was an improvement of

29 per cent relative to 2017. The overall outcome under this account continued to be driven by outflows associated

with investment income, in addition to payments of interest, dividend and management fees.

Beverages and tobacco

2.0%

Chemicals4.8%

Food, live animals &

vegetable oils25.6%

Machinery and transport equipment

25.3%

Manufactured goods &

misc. manufactured

articles15.2%

Mineral fuels25.2%

Other commodities

1.9%


5.4 Secondary Income

Preliminary results show a surplus of US$1.5 million in the secondary income account compared to the estimated

deficit US$16 million in 2017. Such outcome was largely attributed to an increase in net inward official transfers

from mutual partner countries, from US$22 million in 2017 to US$41 million in 2018. Despite this outcome, there

was an increase of 4.6 per cent on the debit side which was mainly due to outward remittances by foreign workers,

an entry with strong correlations with the growth in the number of expatriates employed in the country.

5.5 Capital and financial accounts

In 2018, the capital and financial accounts remained in surplus although its value fell from US$299 million in 2017

to US$248 million.

5.5.1 Capital account

A surplus of US$50 million is estimated in the capital account in 2018, which was US$2.5 million (or 4.9 per cent)

lower than in 2017. Official capital transfers remained the main component of this account. These were funds

received from the country’s partners to finance important projects as well as inward transfer for budget supports.

Official inward capital transfers in 2018 were also representative of high-value official donations such as buses

and ambulance received from the country’s bilateral partners.

5.5.2 Financial account

Preliminary estimates of the financial account showed US$198 million worth of financing of the current account in

2018, which was US$49 million lower than in 2017. Its largest component was direct investment, under which

gross inflows of FDI were estimated at US$102 million. This was a decrease of US$104 million in comparison to

the previous year and was primarily due to a slowdown in the implementation of new FDI projects. Despite ongoing

re-investment by business entities, primarily in tourism, telecommunication, manufacturing, and the fishing

industries, it was insufficient to meet the FDI level achieved in 2017. It can be argued that the moratorium of 2015-

2020 restricting new large hotel projects had adversely impacted on FDI flows. To note, the estimated value of

total FDI also include liabilities of offshore companies, namely entities registered under Special Licence

Companies (CSLs).

5.6 External reserves

In 2018, the Bank continued to hold the maximum possible level of international reserves consistent with its

commitment to ensure that the country’s external position remained strong to safeguard the economy against

external shocks. At the close of 2018, gross official reserves stood at US$549 million, which was an increase of

US$4.3 million (or 0.8 per cent) relative to the previous year. In terms of reserves adequacy, this was equivalent

to 3.8 months of total imports of goods and services. Although the import coverage has fallen from 4.2 months in

2017, based on most measures, international reserves remained at a level that is considered to be adequate. In


its second review under the PCI, the IMF had expected end-2018 reserves “to remain at around the level to

adequately buffer the country’s liabilities against external shocks”, which the Fund found to be “consistent with the

IMF-calculated metrics on foreign reserves adequacy”.

As for NIR, it ended 2018 at US$408 million which exceeded its target of US$375 million by US$33 million.

Table 5.3

External Reserves1 (2014-2018)

2014 2015 2016 2017 2018

(US$ million)

Gross official reserves 465.0 536.1 523.5 545.2 549.5

Central Bank 464.3 535.5 523.0 544.7 549.0

Government 0.7 0.6 0.5 0.6 0.5

Central Bank's External liabilities 42.2 42.3 38.1 41.8 34.5

Net official Reserves (including blocked deposits) 422.8 493.8 485.4 503.3 515.1

Net official Reserves (excluding blocked deposits) 363.7 423.4 415.0 424.3 407.7

1 End of period data Source: Central Bank of Seychelles

5.7 Exchange rates

In 2018, both the demand for, and supply of foreign exchange was higher than in 2017. Statistics reported by

authorised dealers25 suggest an overall orderly market condition which therefore did not warrant any intervention

from the Central Bank. In terms of the external value of the rupee, it depreciated against all of the three most

traded currencies (USD, EUR and GBP) compared to the preceding year albeit at a lower magnitude against the

USD.

On average, the rupee traded at R13.9115 against the USD, R16.4669 to the EUR and R18.5044 in relation to the

GBP. This translated into depreciation of the domestic currency vis-à-vis the USD by 26 cents; by a greater extent

of R1.0 and 98 cents against the EUR and GBP respectively.

During the year under review, the domestic value of the EUR and GBP continued to be greatly influenced by

developments in international currency markets. Two key events were the ongoing economic recovery in the Euro

area, and uncertainties surrounding UK’s negotiations to exit from the European Union (EU).

25 Authorised dealers are banks and bureau de change


Table 5.4: Exchange Rates1 (2014 – 2018)

2014 2015 2016 2017 2018

(Seychelles Rupees per currency unit)

Euro 16.9395 14.7554 14.7605 15.4618 16.4669

US Dollar 12.7527 13.3096 13.3199 13.6481 13.9115

Pound Sterling 20.8874 20.2793 18.0142 17.5237 18.5044

Japanese Yen 0.1205 0.1100 0.1230 0.1221 0.1260

South African Rand 1.1752 1.0506 0.9096 1.0270 1.0566

Singapore Dollar 10.0595 9.6840 9.6284 9.8952 10.3128

1 Period Averages


Chart 5.4: Exchange rate movements of the three main currencies (2008 - 2018)


5.8 Developments in Financial Services

At the start of the year, the Financial Services Authority (FSA) met with stakeholders within the Fiduciary Services

Industry to pave the way forward for a more collaborative relationship. This was under the theme ‘Moving forward

through innovation and collaboration for success.’

In March, FSA became an Associate Member of the International Organisation of Securities Commissions

(IOSCO) and started work on the necessary legislative and regulatory changes in order to apply to become an

ordinary member and a signatory of a Memorandum of Understanding (MoU). These changes will allow FSA to

cooperate and exchange information with its foreign counterparts. Being an associate member of an international

body will not only increase Seychelles' visibility in the global environment, but also improves its transparency and

6

8

10

12

14

16

18

20

22

24

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Rup

ees

Euro US Dollar Pound Sterling


accountability by adhering to the IOSCO principles. The IOSCO is the international body that brings together the

world's securities regulators and is recognised as the global setter of standards for the securities sector.

In light of the growing globalisation of gambling activities, in July, FSA and the Jersey Gambling Commission

(JGC) signed a MoU. This Commission regulates gambling in the Bailiwick of Jersey, except for the Channel

Islands Lottery. Considering that FSA is the regulator of casinos, gambling machines and interactive gambling

businesses in Seychelles, this MoU will create a formal basis for cooperation and coordination, including

arrangements for the acquisition, sharing of information, protection as well as use of information relevant to

gambling services.

As part of the implementation of the National Financial Education Strategy 2017-2020, FSA in collaboration with

the Central Bank organised a first financial education fair which was held from November 23 to 24 on Mahé. The

fair brought together different partners and stakeholders within the financial services sector, encompassing both

the banking and non-banking segments of the financial services industry. This included both government and the

private sector and covered banks, bureaux de change, insurance companies and capital markets. The fair created

a platform for the public to engage with representatives across the financial services community as part of the

continuous effort towards educating the public on the different financial products and services available, and to

clarify any queries relating to the different financial services organisations and stakeholders.

In December, FSA organised a capacity building session on FinTech, which was facilitated by Mr. Henri Arslanian

and Mr. Tom Huynh from PricewaterhouseCoopers (PwC) Hong Kong. The training ran for a whole day and

served as a starting point to educate and enhance the knowledge of FSA staff and relevant stakeholders on

FinTech.

Gaming Regulators Africa Forum (GRAF), which was inaugurated in 2003, is made up of national gambling

regulators from the African Continent. Seychelles, one of its newest member and represented by FSA, attended

the 14th Annual GRAF Conference for the first time in 2018, and this was hosted in Botswana. As part of its mission

to increase efficiencies in the gambling regulation, administration and enforcement of gambling laws in the region,

GRAF conferences cover a range of topics which are key to the protection of citizens through ensuring adherence

to regulatory laws applicable in member states, and serve as a platform for sharing knowledge and experiences

between various stakeholders of the gambling industry.

During 2018, various amendments were made to a series of legislations in order to align them with the Base

Erosion and Profit Shifting (BEPS) project of the Organisation for Economic Co-operation and Development

(OECD). These new legislations will take effect as of January 01, 2019. With these amendments, Seychelles

hopes to reinforce its commitment to adopting international best practices.


5.9 International Relations

During 2018, Seychelles continued to uphold the strong diplomatic ties that exist with its bilateral and multilateral

partners. The year saw the signing of a number of agreements aimed at enhancing political and economic

relations. Seychelles also benefitted from various forms of assistance from its sovereign counterparts. The

country maintained its commitment to the regional integration programmes of SADC and COMESA through its

attendance and hosting of several meetings and workshops.

5.9.1 Multilateral Institutions

The invaluable 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 year marked ten years since Seychelles embarked on the IMF-supported macroeconomic reform programme.

This milestone was commemorated by a symposium on Economic and Social Transformation where Mr Paul

Mathieu, former IMF Mission Chief who was instrumental at the onset of the reforms, delivered a presentation on

the successes of the reform programme, as well as the lessons learnt.

The PCI arrangement with the IMF that started in December 2017 came under review for the first time. Whilst this

is a non-financing programme, successful completion of reviews demonstrated Seychelles’ commitments to

continued strong economic policies and structural reforms aimed at ensuring economic stability whilst fostering

sustained and inclusive growth.

5.9.1.2 World Bank

In February, Seychelles and the World Bank co-hosted a two-day conference on Financing Sustainable and

Climate-Resilient Ocean Economies in Africa. The conference focused on ways to attract private and public sector

investment to build the resilience of ocean economies in the region given climate change and other challenges. It

brought together 150 representatives from African countries, development partners, international organisations,

private investors, scientists, civil society and members from the field of academia.

In October, with the support of the World Bank, Seychelles launched the world’s first sovereign Blue bond,

designed to support sustainable marine and fisheries projects. The Blue bond valued at US$15 million was

guaranteed for US$5 million by the World Bank and was further supported by a concessional loan of US$5 million

from the Global Environmental Fund (GEF) which will partially cover interest payments. Proceeds from the bond

will be used to promote the expansion of marine protected areas, improve governance of priority fisheries and the

development of Seychelles’ blue economy.

In the World Bank 2019 Doing Business Report, published late 2018, Seychelles ranked 96 out of 190 countries

in the Ease of Doing Business Index, falling by one place from last year’s ranking of 95. The country improved


from a rank of 131 in 2018 to 118 in Dealing with construction permits and from 134 to 118 for Getting electricity.

In contrast, it deteriorated by 4 places to rank at 118 in Starting a Business. Of note, Seychelles’ ranking remained

unchanged at 62 for Registering property.

5.9.1.3 World Trade Organisation

Seychelles maintained its active participation at the World Trade Organisation (WTO), three years after becoming

the 161st member of this organisation. With the aim of benefitting from, and contributing towards trade negotiations

at a multilateral level, Seychelles’ main interests continued to be in the areas of fisheries subsidies; market access;

agriculture; trade in services; domestic regulation and electronic commerce.

In ensuring adequate market access both for its exports as well as imports from other WTO member countries,

Seychelles has undertaken a substantial level of liberalisation of customs duties prior to its accession to the WTO.

It continued to support the position that Recently Acceded Members (RAMs) should not be obligated to make

further reduction commitments for a certain period of time.

Seychelles has expressed its support along with other developing countries, especially through the Africa Group,

to have reforms in the trade-related disciplines relating to agriculture. The aim is to remove the disparity that exists

between members that benefitted from having Aggregated Measurement of Support (AMS) entitlements in their

schedules, compared to others that did not, which includes most of the African countries. Moreover, Seychelles

continued to follow the negotiations on special safeguard mechanisms for agriculture products which aim to ensure

that such measures can be imposed in the event of a rise in imports or if prices drop.

For trade in services, negotiations continued in the WTO Working Party on Domestic Regulations. The aim is to

develop any necessary disciplines to ensure that measures relating to licensing requirements and procedures,

technical standards and qualification requirements and procedures do not constitute unnecessary barriers to trade

in services. Seychelles continued to ensure that these disciplines do not erode its domestic policy space.

Furthermore, it remains vital that flexibilities are built in the agreement, taking into consideration specificities of

developing countries.

Electronic commerce as a result of an enhanced digital era has made it necessary to keep abreast with

technological advancements, even in the area of trade. Seychelles’ participation in the Working Group discussions

on electronic commerce was with the aim of safeguarding its business communities, especially the growth of Small

and Medium Enterprises (SMEs), and to further encourage business development through electronic means. With

these advancements, there is a need for continued capacity building and technical assistance to develop a

comprehensive national electronic commerce framework as well as support Seychelles’ businesses to compete

and grow.


5.9.1.4 African Development Bank (AfDB)

Cooperation between AfDB and Seychelles began in 1978 and over the years, AfDB has been instrumental in the

implementation of several projects and has been a key supporter of the development initiatives of the Seychelles

government. The executive director of AfDB, Mr Nyamejeje Weggoro, visited the country in March, where he

expressed AfDB’s interest in assisting Seychelles in funding the reclamation of additional land. Other areas that

the bank agreed to help Seychelles finance were in the field of the blue economy, fisheries and tourism; vital

sectors for the Seychelles economy.

AfDB has also been a strategic partner in several projects implemented by PUC where it provided a loan for US$21

million to increase the holding capacity of the La Gogue Dam. Work on the project that began in November 2017

is expected to be fully completed in 2020.

5.9.2 Bilateral Relations

Seychelles continued to benefit from excellent diplomatic relations with its sovereign counterparts. Traditional

partners, such as China and India amongst others, maintained their invaluable support to Seychelles’

developmental objectives.

5.9.2.1 China

Seychelles and China established diplomatic ties in 1976 and thereafter, Seychelles has been benefiting from

much needed assistances, both financially and in kind. In August, the Chinese government agreed to write-off a

loan to Seychelles for the amount of 37,816,400 renminbi (US$5.5 million). This followed the signing of a protocol

on partial debt relief which reduced the country’s debt burden in addition to supporting its economy.

In September, a Seychelles delegation, including the President, travelled to Beijing to attend a Forum on China-

Africa Cooperation (FOCAC) where Seychelles and China signed two MoUs. The first was in regards to

‘Cooperation within the Framework of the Silk Road Economic Belt and the 21st Century Maritime Silk Road

Initiative’ which aims to promote socio-economic and infrastructural development between the two nations. The

second MoU was on ‘Marine Cooperation towards Blue Partnership’ which is expected to improve the

understanding of the ocean and climate change as well as strengthen marine environmental protection and

integrated marine management. In addition, the ‘Agreement on Economic and Technical Cooperation’ was signed,

which makes provision for a new grant of R102 million (CNY50 million) for the implementation of projects that will

be mutually agreed upon by the two governments.

Construction of a Seychelles Broadcasting House and TV Centre with the financial support of the Chinese

government began in December. It has an estimated cost of R240 million and is expected to complete in mid-

2020.


5.9.2.2 India

The relations between Seychelles and India were further strengthened following the President’s first State Visit to

India in June. A list of programmes to support development and cooperation were agreed upon and included small

development grant projects to meet the needs of communities; grant assistance for a new building complex to

house government offices; new police headquarters and a building for the Attorney General’s Chambers; a new

international convention centre to be named after Mahatma Ghandi to commemorate his 150th birthday; a state of

the art speciality hospital; the construction of 3,000 housing units; and a Grand Anse Dam to be financed through

the combination of a soft loan and grant assistance. Moreover, Seychelles was offered a second line of credit for

defence and maritime security cooperation for a sum of US$100 million.

That same month, delivery of the second Dornier aircraft from the Indian government was made to the Seychelles

People’s Defence Forces (SPDF) to be used for security and maritime surveillance. This further enhanced m ilitary

cooperation between the two states. A large number of local military personnel benefitted from various training

opportunities as well as participated in several joint military exercises during the year.

India pledged to extend financial assistance worth US$8.4 million to be geared towards civil projects. This included

a grant for US$3.5 million for the construction of a Magistrate’s Court and tribunals which is also the first

construction project to be financed by India in Seychelles. Building began in October and completion is expected

in 2020. A grant was allocated to the Seychelles Public Transport Corporation (SPTC) to assist with the

procurement of 71 Tata buses which would also be specifically designed to suit the needs of the elderly and

disabled. The buses were valued at US$3.5 million and in August, the first shipment comprising of 24 buses had

been received to service Mahé routes. A further 6 Tata buses and a Tata twin-cab were received in October and

handed over to SPTC on Praslin.

During the year, the government of India donated 10 vehicles to the Anti-Narcotics Bureau (ANB) to enhance its

capacity in drug law enforcement. The vehicles comprised of 5 Tata Safari Storme, 2 Tata mini-buses and 3 Tata

Xenon Carry vehicles for a total cost of US$250,000.

With regards to cooperation in health, a grant of US$0.4 million was allocated to the Health Care Agency (HCA)

for the procurement of 10 ambulances and for the setting up of emergency response systems on the main islands.

A grant of US$2.8 million was also made to the HCA for essential life-saving equipment, which was further

supplemented by an additional grant of US$0.5 million for the same purpose.

With regards to housing assistances, during 2018, a total of 700 vulnerable households benefitted from a grant of

US$3.4 million that will make provisions for solar photovoltaic (PV) systems to be installed. They will benefit

through rooftop PV systems being set up on individual houses or by having a share of the energy produced from

the collective PV systems at housing estates. The project also includes the construction of a 1 megawatt solar

farm on Ile de Romainville that will help alleviate energy costs for low-income and vulnerable households.


In November, it was announced that Seychelles would receive a grant of US$68 million to help fund a new police

station with a forensic laboratory and for the new building for the Attorney General’s office. In addition, the grant

will be used to construct the new government house as well as go towards several other community projects. This

was as part of the agreements that were signed during the President’s State Visit to India in June.

5.9.2.3 European Union

Technical Assistance

The European Union (EU) and Seychelles have a partnership spanning over four decades and through the years,

Seychelles has received EUR40 million in development aid under the European Development Funds (EDF) which

were allocated towards various sectors. For 2014 to 2020, Seychelles has received an allocation of EUR10 million.

A project for modernisation and extension of Port Victoria was launched in April with the support from the EU. This

project is through a grant of EUR5.0 million from the EU along with loans totalling EUR29 million from the European

Investment Bank (EIB) (EUR12.5 million) and Agence Française de Développement (AFD) (EUR16.5 million). The

Seychelles Ports Authority is also set to benefit from EUR2.0 million worth of technical assistance.

In June, a Financing Agreement of the interim Economic Partnership Agreement Programme valued at EUR10

million to facilitate trade was signed. This ensured duty free and quota free access for Seychelles’ exports to the

EU market of 500 million consumers, whilst reciprocally allowing consumers in Seychelles access to EU goods

and services. It also promotes regional integration in the Eastern and Southern Africa region which represents

another important market for Seychelles. Furthermore, the project aims to support and encourage greater women

entrepreneurship as a means to ensure gender balance and the socio-economic empowerment of women.

The sixth political dialogue between Seychelles and EU was held in November with the attendance of the EU

Ambassador to Seychelles, H.E Marjaana Sall, accompanied by representatives from 15 EU member states. With

concerns raised on the challenges faced by Small Island Development States (SIDS), the EU reaffirmed that in

the future, agreement-specific attention would be paid to the vulnerability and fragility challenges faced by SIDS.

The EU is already a solid partner of Seychelles for climate change adaptation and has assisted financially towards

the prevention of flooding on La Digue. It additionally financed a solid waste landfill at Providence with a grant of

R33 million. Also discussed in the dialogue was the importance of solid and independent institutions and the EU

announced that it would provide further assistance in the fight against drugs and in capacity building of State

institutions. It also agreed to finance a master plan for solid waste management.

5.9.3 Regional Integration

The Regional Economic Communities (RECs), namely SADC and COMESA, remained committed to their

individual integration programmes and Seychelles maintained its active participation in the various activities and

initiatives of both blocs.


5.9.3.1 SADC Harmonisation Programme

During 2018, the country maintained its active involvement in SADC-related affairs. Seychelles, through FSA,

hosted the 40th Bi-annual Committee of Insurance, Securities and Non-Banking Authorities (CISNA) meeting for

the first time in April. CISNA consists of the non-bank financial services authorities which includes capital markets,

collective investment schemes, insurance businesses, retirement funds and other providers of intermediary

services in the SADC region. The three-day meeting focused on sharing knowledge and experiences in core

regulatory functions of insurance, securities and non-bank financial authorities. This was in addition to exploring

ways to enhance cooperation and harmonise legislations and regulatory frameworks across the region.

The 38th Summit of Heads of States and Governments was held in August. This meeting was a first for Comoros

following its admission as a SADC member state in 2017, bringing the membership of SADC to sixteen. There,

Seychelles signed the revised SADC Protocol on Gender and Development which is aligned with the Post-2015

SDGs and targets, African Union Agenda 2063 and the Beijing Declaration and Platform for Action. This

demonstrated Seychelles’ commitment towards the empowerment of women and gender equality in the region

and the attainment of the SDGs. At the same summit, Ambassador Joseph André Nourrice became the first

Seychellois to be sworn in as the Deputy Executive Secretary Responsible for Corporate Affairs at the SADC

Secretariat.

Another milestone for the SADC region was the adoption of the first ever SADC Model Law on Elections by the

SADC Parliamentary Forum (SADC PF) in December. This is an added step in the harmonisation of regulations

and attainment of regional integration objectives.

On the domestic front, the Food Chemistry Laboratory of the Seychelles Bureau of Standards (SBS) achieved

accreditation from SADC Accreditation Services (SADCAS) for histamine testing in fish and fish products to be

exported. This was a step forward for the fisheries industry and the development of the blue economy as the

laboratory became more in line with international standards and requirements. This accreditation means that

Seychelles meets the EU Directive requirement which states that fish and fish products exported to the EU must

be tested in an accredited laboratory.


5.9.3.2 COMESA Integration Programme

Seychelles hosted several COMESA meetings and workshops during 2018 which included a two-day COMESA

Digital Free Trade Area (DFTA) workshop in January under the theme ‘Towards Digital Economic Integration’.

This was part of the organisation’s agenda to promote and facilitate regional integration in the area of trade through

the use of Information and Communication Technology (ICT).

Seychelles Ambassador Marie-Pierre Lloyd became one of 6 new members elected by the Ministers of Foreign

Affairs of COMESA on the Committee of Elders in July. This Committee supports diplomatic endeavours

surrounding regional peace, security and stability by recognising the fact that sustainable economic and social

development can only be attained through stability in the region. At the same meeting, the Seychelles

government’s nomination of Mr Francis Lebon to the Board of the COMESA Competition Commission was

endorsed.

Seychelles hosted a two-day stakeholder engagement meeting in October to promote a new project called ‘The

50 Million African Women Speak’ (50MAWS). The three-year project is financed by AfDB and implemented by

COMESA in conjunction with the East African Community (EAC) and the Economic Community of West African

States (ECOWAS). The main objective is to create a digital platform that will be accessible to women within the

38-member states, providing them with access to financial and non-financial information for the growth and

empowerment of women entrepreneurship.

5.9.3.3 Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)

Based on its rotation schedule, Seychelles hosted the 18th Eastern and Southern Africa Anti-Money Laundering

Group (ESAAMLG) Council of Ministers’ Meeting in September at which it also took over presidency of ESAAMLG

from Tanzania for one year. The presidency was handed over to Minister Maurice Loustau-Lalanne whilst Mr

Philip Moustache, director of the Financial Intelligence Unit (FIU), took over chairmanship of the ESAAMLG Task

Force of Senior Officials.

The aim of the ESAAMLG is to combat money laundering by implementing the recommendations of the Financial

Action Task Force (FATF), which is an inter-governmental body established in 1989. This task force sets the

standards and measures for combating money laundering, terrorist financing and other threats that may affect the

global financial system.


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 main responsibilities of the division are to review and

formulate policies, collation and dissemination of data, analysis of macroeconomic variables and conduct research.

These responsibilities are jointly carried out by the Policy and Research Section (PRS) and the Statistics Section.

Added to that, RSD coordinates with the different Divisions and external stakeholders to prepare and publish the

Bank’s Monthly Reviews, Statistical Bulletins and Annual Report.

As part of the division’s mandate, staff undertook periodic sectoral meetings to better understand the domestic

economy. The Division also conducted a confidence and expectation survey with the banks on a quarterly basis.

In addition, to improve economic awareness and increase the understanding of the Bank’s policies and revised

MPF, staff also delivered presentations to local media houses as well as other relevant stakeholders.

RSD also coordinates the Bank’s relationships with other institutions, both regionally and internationally, such as

SADC, COMESA, AfDB, IMF and World Bank. Consequently, staff attended to various reporting requirements

and participated in meetings and conferences associated with the aforementioned organisations.

6.1.1 Capacity Building and Development

One of the main objectives of the division is to enhance the technical expertise and knowledge of the staff as a

means to improve overall analysis and output. In that respect, staff attended various workshops and training

encompassing topics related to macroeconomics, finance, statistics and policy formulation. In April, staff received

Technical Assistance (TA) from COMESA on trade in services statistics, which aimed to further improve the

collection and compilation of external sector statistics. Added to that, there was in-house training with TA from the

IMF which focused on the improvement of the Bank’s econometrics-based forecasting models.

6.1.2 Policy and Research Section

The Section’s key function is to formulate the Bank’s monetary and exchange rate policies and ensure they are in

line with recent developments in the domestic and global economic environment. Notably, amendments were

made to the MPF to make it more reflective of the current economic environment with the objective to improve the

transmission mechanism of monetary policy, key of which is the expectations channel. In December, the Board

approved for the MPF to shift from reserve money targeting to an interest rate-based framework. The move from

a framework that indirectly influenced the intermediate target of money supply growth, towards having short-term

interest rates as the target for monetary policy, saw the introduction of an MPR. The shift implies that the

implementation of the revised monetary policy regime will go beyond removing excess liquidity, but more


importantly ensure that this is done at an interest rate which is in line with economic fundamentals, whilst attaining

the ultimate objective of price stability.

PRS delivered presentations to stakeholders outside the Bank such as the Bankers’ Association, technical staff of

the banking sector, Seychelles Chamber of Commerce and Industry (SCCI) and media houses amongst others in

order to increase external understanding of the new monetary policy framework and the effects of recent economic

developments. PRS was also extensively involved in the coordination of activities surrounding the Bank’s 40 th

anniversary celebrations. Moreover, staff were involved in updating and improving the Bank’s macroeconomic

model, conduct researches upon request on a number of other topics relevant to the domestic economy.

6.1.3 Statistics Section

In 2018, compilation and dissemination of data as per the Special Data Dissemination Standards (SDDS)

guidelines remained an important focus for staff of the Statistics Section. The main responsibility of the Section is

to ensure that reliable data of several economic and financial indicators are available on a timely and regular basis.

Data is compiled through surveys carried out by the Section as well as from information collected by other agencies

such as NBS and the Ministry responsible for Finance. Additionally, the Section intensified its efforts to improve

the accuracy and timeliness of data received from various respondents.

6.1.3.1 Monetary and Financial Statistics

The compilation of monetary and financial data was done according to the guidelines specified in the Monetary

and Financial Statistics Manual (2001). At present, the banking sector contributes to a major proportion of these

statistics, but going forward, one of the main goals is to improve the coverage to include the pension fund and

insurance companies.

6.1.3.2 External Sector Statistics

The regular annual offshore sector survey was conducted jointly with FSA to collect relevant data. Despite

substantial challenges faced in regards to data coverage, the data collected was a key requirement for the

compilation of BOP statistics, more specifically the international investment positions (IIP), which is compulsory

under SDDS, to which Seychelles has subscribed since May 2015.

During 2018, the Section conducted visits to several stakeholders on Mahe, Praslin and La Digue to get the latest

and more precise statistics. This also aided in improving the relationship with key stakeholders. The whole

Division also undertook an extensive survey of Small and Medium-sized Enterprises (SMEs) to better understand

the sector, challenges faced and matters relating to SME loan schemes.

6.2 Financial Surveillance Division

The core objective of the Financial Surveillance Division (FSD) is to promote a sound financial system through

effective supervision and oversight of supervised entities at both a micro and macro level. This is articulated in

section 4(2)(b) of the Central Bank of Seychelles (CBS) Act, 2004. To note, the supervised entities include banks,


bureaux de change (BDCs), financial leasing companies26, non-bank credit granting institutions, credit unions

(CUs), payment service providers (PSPs) 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 regulation 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); and

• Stability of the financial sector at a macro-level.

Further to the above, FSD is divided administratively into three respective sections which although are separate,

are linked in terms of objectives and purpose. The table below provides a summary of the functions of each

section.

26 As at the end of 2018, no such company had been licensed by the Bank.

Chart 6.1: Summary of FSD's Sections


6.2.1 Regulatory and Supervisory Portfolio

6.2.1.1 The Financial Sector

During the year, the Bank issued 1 Class B27 BDC licence, which however had to be later revoked in view that the

licensee was non-compliant to section 13(1)(b)28 of the FIA. Likewise, 1 Class A29 and PSP licence and 1 Class

B licence were surrendered. Accordingly, this brought the total number of Class A BDCs to 14 and that of Class B

to 12. As regards the count of PSP licence holders, as at the end of 2018, this was at 1530.

There were 9 banks in operation as at the end of December 2018, despite a total of 10 licences being issued. Of

note, SBM Bank (Seychelles) Limited is yet to commence operations since being licensed in December 2016 due

to delays encountered in the setting up of its operations.

Moreover, the Bank granted approval for Habib Bank Limited (HBL) to close down its operations in Seychelles,

following a request from the bank. The winding up process proceeded smoothly and HBL formally ceased all

operations and transactions with the public on December 28, 2018. HBL repaid all its depositors who came forward

to claim their funds. As for unclaimed funds, these have been satisfactorily surrendered to the Bank, where

customers will have to claim their funds after March 2019. HBL is expected to finalise its closure and the final

revocation of its license has been set for the end of March 2019.

6.2.2 Developments in the Supervisory Framework

6.2.2.1 Credit Union Rules

Following from 2017, work was undertaken on two new rules during the year under review. These pertained to

capital adequacy and foreign currency exposure. Of note, rules are issued by virtue of section 70 of the Credit

Union Act, 2009 as amended (CUA).

6.2.2.1.1 Capital Adequacy

Regulations pertaining to capital adequacy seek to ensure that similar to banks, credit unions (CUs) manage their

activities with sufficient levels of capital. By restricting the degree of risk-taking, it acts as a buffer to absorb

unexpected losses. Consequently, capital adequacy aims at maintaining the stability of individual institutions and

is also geared towards the protection of their clients.

By virtue of section 48A of the CUA, work on capital adequacy requirements progressed to the consultation stage

between the Bank and the Seychelles Credit Union (SCU). The objective of such consultation was to understand

the institution’s perspective in view that some of the recommendations departed from what is allowed in the CUA.

27 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. 28 This section states that, “the Central Bank may revoke or vary the terms and conditions of a licence if the licensee fails to

commence operations within a period of 6 months or such longer period as has been allowed in writing by the Central Bank”. 29 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. 30 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.


Recommendations and best practices advocated by the global trade organisation and development agency for

CUs, the World Council of Credit Unions (WoCCU) as well as the International Credit Union Regulators’ Network

(ICURN) were taken into account as relevant. The recommendations which showed a departure from the CUA

highlighted the need to amend the Act accordingly.

6.2.2.1.2 Foreign Currency Exposure

The condition raised for ‘in-principle approval’ from the Bank for CUs to engage in foreign exchange business was

the issuance of the enabling legislation. Accordingly, within the first quarter of 2018, the proposed Regulations to

allow CUs to undertake foreign currency activities and the proposed rules to prescribe prudential requirements in

this regard were circulated to SCU. The rules will allow foreign currency transactions, including Class A BDC

activities, to be undertaken with members of CUs only. Amendments to the CUA and the Foreign Exchange Act

(FEA) are expected to eventually allow CUs to extend BDC-related services to non-members. The proposed rules

adopt total open position limits using the shorthand method with institutional capital as the denominator. This is

consistent with the proposed Capital Adequacy Rules for CUs whereby regulatory capital is represented by

institutional capital.

Following consultations with SCU in regards to both Capital Adequacy and Foreign Currency exposure,

discussions ensued on the technical aspects of these legislations. Consequently, within the fourth quarter of 2018,

the proposed draft regulations and rules were submitted to the Attorney General’s Office for legal drafting. As

such, further work will be undertaken during 2019.

6.2.2.2 Financial Leasing

In 2018, the Bank pursued its initiatives on the development of the legislative framework for financial leasing . Two

regulations were issued in December 2018, namely, the Financial Leasing (Liquidity Management) Regulations

and the Financial Leasing (Gearing) Regulations, which set requirements for liquidity risk management and

gearing (leverage) management for companies engaging in the leasing business. The overall purpose of the

regulations is to reduce the frequency and severity of liquidity and financial problems that such companies may

face. The Bank, in the discharge of its mandate, has to ensure that a balanced approach to regulation is

maintained to ascertain that its licensees are not subjected to excessive requirements that may suppress their

growth. Accordingly, to harmonise the legislative framework for Financial Leasing institutions, an amendment to

Regulation 5 under the Financial Leasing (Capital Adequacy and Reserve Fund) Regulations 2014 was made

which removed the requirement for a Financial Leasing institution, that is not a bank, to at all times invest or deposit

at least half of its paid-up capital in a bank, Treasury Bills or other Government securities of not more than 365

days.

Throughout 2018, further work on the development of the financial leasing framework was ongoing. The Bank

commenced work on the development of a set of regulations to establish a framework for management of financial

leasing concentration risks with the aim of preventing institutions engaged in Financial Leasing activities from

making excessive financial leases to a single lessee or group of associated lessees. In addition, the regulations

will concurrently include a framework for managing financial lease exposures with connected parties to reduce the


risk of improper and excessive lending to connected parties which may jeopardise a financial leasing institution’s

interests or be detrimental to its financial position. The regulations are expected to be gazetted in 2019.

6.2.2.3 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 second round Mutual Evaluation Report (MER) was published by the ESAAMLG in

November 2018. The exercise assessed the country’s effectiveness and technical compliance in regards to the

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.

Additionally, the Bank participated in a working group along with other authorities so as to introduce a new AML

Act. The new act will rectify deficiencies observed in both the NRA and the MER and will strengthen the institutional

framework. The policy paper for the amendments of the Act was presented and approved by the Cabinet of

Ministers in the last quarter of 2018. The Act is expected to be gazetted in 2019.

6.2.2.4 Enhancing Industry Standards in Retail Payments

Following the issuance of the Guidelines on the operation of Automated Teller Machines (ATMs), Point of Sale

(POS) terminals and payment cards in August 2017, the Bank conducted limited scope onsite examinations at the

institutions offering such products/services throughout 2018. This was to determine the level of adherence by

these institutions to the requirements stipulated in the guidelines with further recommendations provided so as to

ensure full compliance. The guidelines were issued in order to uphold minimum security standards to safeguard

the use of retail payment services in the country. In addition, certain concerns that were raised during the limited

scope onsite examinations were analysed and the guidelines were amended and issued in December, 2018 to

reflect same.

6.2.2.5 FIA Amendments

Throughout 2018, work on the amendments to the FIA continued. Following identification of areas warranting

revisions, research work was conducted throughout the year on certain parts of the Act and the respective research

papers comprising of recommendations for amendments were compiled. The proposals made reflect changes in

the supervisory environment with a view to align them with international best practices. Work on the project will

continue in 2019.

6.2.2.6 NPSA and NPS (Licensing & Authorisation) Regulations Amendments

Throughout the year under review, research was done on the amendments to the NPSA and the NPS (Licensing

& Authorisation) Regulations in order to address deficiencies identified therein and to enhance the legislations’

compliance with international standards and best practices. Information gathered are being used to produce a


policy paper outlining the proposed amendments. Practices adopted in other jurisdictions as well as international

standards were considered during the research so as to ensure that the amended legislations are aligned with

international norms.

6.2.3 Upcoming Developments within the Supervisory Framework

6.2.3.1 Islamic Banking & Finance

With the endorsement of the National Policy and Strategy for Islamic Banking & Finance in late 2018 by the Cabinet

of Ministers, it is expected that work on this front will intensify in 2019. To this end, the Bank is targeting expert

assistance to further enhance internal capacity on the subject matter as well as setting up the appropriate

regulatory and supervisory framework for Islamic Banking & Finance. This is with the aim of fostering a sound

and growing environment for such form of banking and financing in the country. In addition, a technical working

group has been created with the representation of all relevant stakeholders and it is envisaged that policies which

need to be in place so as to facilitate the inception of Islamic financing and banking will be identified by members

of the working group and brought forth for consideration and approval.

6.2.3.2 Investment Banking

During the first quarter of 2016, the Bank and FSA undertook a fact-finding mission to Hong Kong in order to gain

an overview of the regulatory and supervisory framework for investment banking which was already established

in that country. Based on findings and further research conducted, work was initiated in 2018 whereby a policy

paper was drafted with the guidance of the World Bank. The policy paper identifies gaps and puts forth

recommendations which will provide sound guidance to the Bank and FSA in undertaking policy decisions on the

introduction of investment banking in Seychelles. Work in respect to same is expected to continue in 2019.

6.2.3.4 Private Banking

In July 2016, a fact finding mission was undertaken in Guernsey to obtain insights into the regulatory and

supervisory framework for private banking as well as the various challenges faced by the Guernsey authorities. A

policy paper was drafted to share the findings and identify the necessary work which needs to be undertaken to

ensure successful development of a framework for private banking in Seychelles. In 2018, further research was

done to address comments on the preliminary paper. Work concerning private banking is expected to continue in

2019.

6.2.3.5 Basel II & III and Risk Based Supervision (RBS)

In relation to Pillar I, the necessary amendments to the Capital Adequacy Regulations for its full implementation

were identified with the corresponding policy paper submitted to the Attorney General’s Office. While work was

underway on the revisions to these Regulations, the Bank initiated parallel run reporting of the new capital

adequacy returns so as to identify any problematic areas and ensure that banks could adequately compile the new

returns. For 2019, the Bank will focus on the engagement with the said office for the gazetting of the Capital

Adequacy Regulations, following which further guidance will be issued to banks pertaining to formal adoption of

the new returns.


Moreover, the Bank intends to issue a paper on the Basel III definition of capital during 2019 whereby banks would

be required to highlight Basel III capital components that are of relevance to them. 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 will take a position as regards to the implementation of Basel III capital definition once

all relevant work is finalised.

In June, the Bank sought TA to assist in the implementation of RBS including on a capacity-building front for both

the supervisor and supervised institutions. The RBS framework will allow, inter alia, for a more optimal use of

supervisory resources and a greater appreciation of risk management practices and its interplay with the capital

planning process of supervised institutions. Pillar II of Basel II will be incorporated within the RBS framework as

it focuses on risk management with an eye on the capital framework. Ultimately, this will serve as a complementary

and valuable component to the RBS structure. Work in this respect is expected to continue in 2019.

6.2.3.6 International Financial Reporting Standard (IFRS) 9 – Financial instrument

The FIA requires financial institutions to prepare financial statements every year in accordance with an

internationally recognised financial reporting framework. Currently, all banks in Seychelles are adopting the

IFRS/IAS and a precedence is set for continual application of IFRS 9.

Although IFRS 9 was mandatorily effective as of January 01, 2018, most banks and other institutions31

implemented the standard during the course of the year. They engaged with consultants and auditors to assist in

the implementation of same. Likewise, analysis was conducted on banks and other institutions’ implementation

process throughout the year so that the Bank could remain abreast with same.

In that respect, during the second quarter of the year, the Bank issued a circular on the implementation of IFRS 9,

which is in line with the Basel Committee on Banking Supervision’s (BCBS) principle on accounting for expected

credit losses. The Bank also received TA from the IMF during the year in order to review and enhance the

effectiveness of implementing IFRS 9.

6.2.3.7 E-money Regulation

For the purpose of issuing the electronic money (e-money) regulations, a policy paper was drafted during 2018

and approved by the Bank’s Board of Directors. The e-money regulations will provide the Bank with the power

that it requires to adequately regulate and supervise e-money services in order to maintain the safety and security

of the country’s national payment system. The regulations would provide guidance to e-money institutions on

licensing requirements, prudential requirements and on other general requirements for providing e-money

services. The e-money regulations would also address measures of managing risks related to the provision of e-

money services. The Regulations is expected to be issued in 2019.

31 Excluding SCU as IFRS 9 is not applicable to the institution.


6.2.3.8 Resolution Framework

Following a review of the resolution framework in Seychelles by the IMF in 2017, the Bank undertook a project to

revamp the resolution options found in the schedules to the FIA. The formulation of an effective resolution regime

would provide for an alternative means of protecting the financial system from disruption of critical financial

services resulting from a failing financial institution. It would also contain the potential contagion effect to other

parts of the financial system.

The regime will be supported by an Act on Bank Restructuring and Resolution and would also provide for a

coordinated approach to resolution between Seychelles authorities and its international counterparts in the event

that the failing institution operates in multiple jurisdictions. The Act will aim to ensure that the resolution authority

is sufficiently equipped to be able to:

• Maintain financial stability within the financial system in the event of a crisis by ensuring continuity of

systemically important financial services, and payment, clearing and settlement functions;

• Put in place an ongoing process for recovery and resolution planning, informed by resolvability

assessments;

• Deal with a scenario in which a bank in the Seychelles was to fail, and stand-alone powers were needed

to resolve the local business;

• Assist a foreign jurisdiction in respect of a resolution action being taken on a bank conducting business in

Seychelles through a branch or subsidiary; and

• Consider other domestic laws which reduce the efficacy of the resolution mechanism in the existing

banking laws.

The policy paper for the implementation of the regime was approved by the Cabinet of Ministers in December

2018 and the Act is expected to be gazetted in 2019.

6.2.3.9 Foreign Exchange Act

During the year under review, certain amendments were proposed for the FEA. These amendments would serve

to remove existing impediments to PSPs that wish to undertake cross-border transactions but that are currently

unable to pursue same in view that they are not considered as authorised dealers. Moreover, the amendments

will allow for CUs to participate in the buying and selling of foreign exchange. The proposed amendments also

seek to ensure the relevance of certain provisions of the FEA in the prevailing environment as well as its

consistency with existing laws. The amendments are expected to be finalised in 2019.

6.2.3.10 Non-bank Credit Granting Institutions

One of the recommendations from the Financial Sector Development Implementation Plan (FSDIP) of 2014 is the

introduction of a Non-Bank Financial Institutions Act which will serve as an umbrella legislation over all the non-

banks supervised by the Bank, such as DBS, Housing Finance Company Limited (HFCL), and SCU. Nonetheless,


in view that legislations already exist for some of aforementioned institutions like the CUA, and that the FSA is

mandated to regulate and supervise the non-banks, therefore, it is being proposed that a specific legislation for

non-bank credit granting institutions like DBS and HFCL, and those that may be formed in the future be enacted.

In this regard, work was initiated in 2018 whereby a policy paper was formulated so that the Bank will be provided

with clear and adequate powers for the regulation and supervision of these institutions. Work in this regard is

expected to continue in 2019.

6.2.3.11 Self-Assessment of the Basel Core Principles

The Core Principles for Effective Banking Supervision (hereafter referred to as the Core Principles) developed by

the BCBS encourage bank supervisors to undertake self-assessments of their regulatory practices. The objective

of the self-assessment is to produce a comprehensive, credible and action-oriented overview of the national

banking supervisory system based on the Core Principles and the Core Principles Methodology32. In line with this,

the Bank started work in 2018 to review and assess its compliance with the Core Principles. Work in regards to

same is expected to continue in 2019.

6.2.3.12 Outsourcing

Financial institutions are increasingly using third parties services to carry out their activities, functions and

processes through outsourcing arrangements to meet new and complex challenges. Such includes innovation in

technology, increasing competition, economies of scale and improvement in quality of services to stakeholders.

In this regard, the Bank has received numerous requests from financial institutions to engage in outsourcing.

Consequently, the Bank initiated work in 2018 to establish an outsourcing framework to guide supervisors in the

processing of such requests, to be in line with international best practices and regulatory standards. Work in

respect to same is expected to continue in 2019.

6.2.3.13 Cyber security

As the financial services industry has moved into an increasingly technologically oriented era, the importance of

institutions’ cyber security posture and capabilities cannot be understated and has been the subject of regulatory

scrutiny in many jurisdictions. In this direction, the year 2018 saw close industry engagement, primarily with banks,

on proposed cyber security guidelines that will aim to contribute to a financial sector that is more resilient to risks

emanating from the cyber space. The finalised guidelines are due to be issued in 2019.

6.2.4 Micro Prudential Surveillance Section

The Micro Prudential Surveillance Section (MPSS) is mandated to conduct the prudential offsite and onsite

surveillance of licensed entities under the Bank’s supervisory purview. The team consists of analysts for each

licensed entity – assisted by a team of diverse competences – who conduct the offsite supervision of institutions

under their portfolio, and are the lead examiners when conducting onsite examination of these entities.

32 https://www.bis.org/publ/bcbs130.pdf

https://www.bis.org/publ/bcbs130.pdf


As regards to reporting, the licensed institutions are required to submit periodic prudential returns relating to bank

supervision matters as well as payment services oversight to MPSS. This permits continuous offsite monitoring33

of their financial position and performance. Essentially, offsite reviews enable the detection of areas of concerns

and ensure that corrective measures are taken in a timely manner. Additionally, the supervisors monitor major or

adverse trends which they clarify with supervised entities. These trends also act as a signal for emerging risks.

Accordingly, this may result in an onsite examination for further scrutiny or other remedial actions in accordance

with relevant legislations.

In light of the dynamic landscape of the payments arena, the team worked on revising the payment systems returns

in order to allow for more effective oversight of these activities. In 2018, information on new and existing payment

services were collected to monitor the trend and assess the effectiveness of the payment systems in Seychelles.

Examples of new and extended information captured on the different payment streams were as follows:

• the active usage of internet and mobile banking services;

• on-us34 bank transfers;

• additional information on ATM transactions such as bill payments and cash deposits;

• more information on POS transactions such as the cash back service;

• the active usage of plastic cards (debit and credit cards) and the behaviour of those transactions towards

online and more innovative platforms as well as the traditional ATMs and POS terminals.

Furthermore, the team worked on enhancing the process for submitting returns by banks to improve the accuracy

in reporting and the effectiveness of supervision and oversight. As such, the development of a statistical

application framework was initiated and once completed, the submission of all returns will be automated, thereby

improving the work process. Moreover, the implementation of the RBS framework was initiated to allow risks of

supervised entity to be assessed and supervision to be undertaken using the RBS approach. This is expected to

take effect in 2019.

As regards to onsite supervision, this involves examination35 of licensed entities’ premises and it allows for the

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. In 2018, the team conducted four examinations36, and assisted the Financial

33 Monitoring of supervised entities are carried out through desk reviews to guarantee compliance with prudential requirements. 34 Transfer of funds within the same bank. 35 The examiners are mandated to conduct examination of licensed entities in accordance with section 33(1) of the CBS Act,

section 42 of the FIA; section 18(1) of the NPSA; and section 54 of the CUA. 36 1 full scope and the other 3 for BDCs.


Regulation Section with assessing banks’ compliance to the Guidelines on the operation of ATMs, POS and

acquiring and issuing payment cards.

Other tasks performed by the team during the year included:

• ad-hoc and recurrent analyses of major vulnerability observed;

• business plan analyses;

• monthly review 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 financial statements;

• sensitivity analyses to test the impact of adverse effects on financial institutions’ capital adequacy and

profitability amongst other indicators; and

• 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 deepening of the Seychelles financial sector,

the increased number of market participants and the greater interconnectedness of participants has brought the

importance of such to the fore in recent years. This increased focus reflects the global recognition of financial

stability which was heightened after the 2008 Global Financial Crisis.

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. FSC

comprises the:

• Governor of the Bank as the Chair;

• Secretary of State 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. This objective is

implemented through close co-ordination and co-operation amongst members.

The FSC’s supportive arm is the Financial Stability Section (FSS), which as of June 2017 has formed part of FSD.

The FSC met four times throughout 2018, during which concerns over potential risk areas were brought up for

discussion as well as close monitoring thereof in order to take swift recovery measures should the need arise. As

had been the case in 2017, the threat of global de-risking37 remained. Whilst the measures taken the previous

37 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 incurred by these correspondent banks in undertaking the required


year had a positive impact, it was observed that certain institutions continued to face challenges in maintaining

correspondent banking relationships. The FSC, and specifically the Bank, continued with various initiatives and

noted an overall improvement in the system with regards to access to correspondent banking.

Going forward, FSS will be working in close collaboration with various stakeholders for the establishment of a

dedicated legal framework to encapsulate FSC’s mandate and objectives as well as to clarify and empower all

relevant stakeholders in the attainment of such financial stability objectives.

6.3 Financial Markets Division

The operational objectives of the Financial Markets Division (FMD) are to effectively implement the Bank’s

monetary policy as well as manage the country’s international reserves. FMD is segregated into the front, middle

and back offices, in line with good governance practice.

The front office comprises the Market Operations and the Reserves Management sections. Notably, the former

executes open market operations (OMOs) as well as administers all processes that relate to the issuance of

government (treasury) and government-guaranteed securities in the domestic financial market. These are

necessary to ensure that the Bank’s monetary policy decisions and its function as government’s agent are

effectively achieved. The Reserves Management section is responsible for the day-to-day management of the

country’s international reserves as guided by the Bank’s Investment Policy and Guidelines.

The middle office, which is under the auspice of the Financial and Risk Analysis Section, works in close

collaboration with the front office. Primarily, the section is responsible for measuring and reporting financial risks,

by monitoring compliance of the front office’s activities against set limits, guidelines, policies and approved

strategies. On a periodic basis, engagements with the front office are required to formulate appropriate targets

and define investment objectives for the Bank’s financial market operations. The section also supports the

decision making role of the Bank’s MPTC and the IC within the scope of domestic and international markets’

operations respectively, through research and analysis. Overall, the functions of the section are directed towards

enhancing the risk management and operational objectives of the Bank in the areas of reserves management and

monetary policy implementation.

As regards to the back office duties, these are conducted by the Settlement and Accounting section. Its core

function is focused on ensuring that the final leg of all reserve management transactions are effectively concluded.

This entails satisfying the requirements for settlement processes across counterparties, as well as effectively

accounting for the transactions in the Bank’s records.

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.


6.3.1 Open Market Operations

OMOs are transactions conducted in the money market to manage the level of liquidity in line with the Bank’s

monetary policy targets. During the year, this was done through the use of the Bank’s monetary policy instruments

to meet quarterly average reserve money targets. As in 2017, the DAA was the only instrument used for the

conduct of OMOs throughout the year under review. The lowest and highest levels of DAA stock during the year

were recorded in the month of April, at R245 million and R971 million respectively. By the end of 2018, the stock

of DAA stood at R845 million. Compared to the previous year, the cost of interventions increased by R7.8 million

to stand at almost R32 million. This was attributed to the increase in the volume of DAA issuances throughout the

year amounting to R33,358 million, in addition to higher interest rates, in line with the tightening of monetary policy

which began in the second quarter of 2018.

6.3.2 Standing Facilities

For the year under review, a total of 302 placements in the SDF were recorded, amounting to R22,604 million.

This represented an increase of R8.1 million compared to the previous year. The increase in SDF placements

may have been driven by the shift in the deposit rate from 1.0% in Q1 2018 to 2.0% in Q2 2018 until year end.

The maximum value of transactions were recorded in the second and third quarters of the year. With regards to

the SCF, a total of 6 requests were received to access the facility during the year. This amounted to R405 million

being disbursed during the year, with the majority of requests falling within the third quarter. No request was made

in the second and fourth quarters. The level of these overnight loans remained lower than the deposits received,

attributed by the environment of surplus liquidity which is prevalent in the country’s banking system.

Table 6.1: Standing Facility Placements during 2018

Standing Deposit Facility (SDF) Standing Credit Facility (SCF)

(SCR million)

Amount Interest paid Amount Interest earned

Q1 3,980 0.109 55 0.009

Q2 6,930 0.380 0 0

Q3 6,704 0.367 350 0.077

Q4 4,990 0.273 0 0

Total 22,604 1.130 405 0.086


6.3.3 Management of Government Securities

The Bank, through FMD, administered the issuances and management of government securities during the year.

The government continued to support the Bank with the withdrawal of excess liquidity from the banking system,

through issuance of securities for monetary policy purposes.


6.3.3.1 Treasury Bills

T-bills auctions were mostly held twice a week throughout the year. 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 T-bills for monetary

policy purposes stood at R1,416 million, a reduction of R261 million or 16 per cent compared to the previous year.

The outstanding stock of T-bills for fiscal policy purposes stood at R2,219 million, an increase of 3.0 per cent

compared to the previous year. By the end of the year, the interest rates for all three tenors had increased

compared to end-2017.

Table 6.2: Interest rates as at end-2018 compared to end-2017

2017 2018

91-day 3.16% 5.31%

182-day 4.92% 5.48%

365-day 5.34% 5.89%


6.3.3.2 Treasury and Government-Guaranteed Bonds

There was no new issuance of Treasury or government-guaranteed bonds in 2018. However, the 2-year 6.0%

DBS bond matured during the year.

6.3.3.3 Central Bank’s Holdings of Treasury Bills

The Bank continued to roll-over its holding of T-bills upon maturity, as agreed in the MOU with the Ministry

responsible for Finance. Hence, throughout 2018, the Bank continued to hold a total of R1,185 million in 365-day

T-bills.

6.4.4 Management of External Reserves

The CBS Act, 2004, as amended, gives the Bank the mandate to manage the country’s international reserves.

Countries wishing to access economic and financial resources from other markets internationally hold international

reserves to satisfy a range of macroeconomic rationales. In the case of Seychelles, these include support for the

domestic monetary and foreign exchange policies, settlement of foreign currency debts and other operational

requirements, as well as a buffer for balance of payments shocks in times of economic crisis, national disasters or

other emergencies.

The Board provides guidance on the management of international reserves by way of the Investment Policy

document, which outlines the objectives for the investment of these reserves in line with the abovementioned

macro level rationales. In order of precedence, the first investment objective is capital preservation; ensuring that

the investment strategies and activities engaged in, do not erode the international reserves level and involve

prudent management of associated risk. Secondly, guaranteeing the liquidity of the reserves, which implies that

the reserves should be readily available to cover any of the abovementioned rationales. The third and final


objective is return generation, whereby the reserves may be geared to provide income to further sustain the

rationales for maintaining reserves.

During the year, continued political and economic pressures on international fronts motivated the Bank to maintain

the currency composition of the international reserves’ portfolio primarily in the US dollar. The composition trended

at about 90 to 95 per cent throughout the year. This was necessary in order to minimise the effect of market risks

on the capital position and maintain an optimal level of income, all in line with the prescriptions of the Investment

Policy.

The management strategy employed achieved a year-on-year growth in the Gross International Reserves (GIR)

of 0.7 per cent, from US$545 million in 2017 to US$548 million. The quantitative performance indicator of

international reserves management is measured by way of the NIR target. For the last quarter of 2018, the NIR

target was set at US$375 million and at the end of the period it stood at US$407 million, exceeding the mark by

US$32 million.

Although the GIR level was generally maintained, there was a noteworthy decline in the accumulation of reserves

from the domestic market. The amount of foreign exchange bought from the commercial banks through FEA

dropped to US$22 million in 2018 from US$50 million in the preceding year, due to lower participation in auctions

as a result of demand pressures in the domestic market. Nonetheless, the country’s stable financial standing

continued to allow its access to international capital markets, whereby inflows of almost US$60 million in terms of

project loans, bonds and grants were recorded for the year.

In regards to return generation, as mentioned above, the majority of the reserves were kept in US dollars in view

of the advantages associated with investing in this currency relative to other major reserve currencies, both in

terms of interest and exchange rates. As such, the income levels continued to improve and nearly doubled the

level of returns generated in 2017 which stood at US$5.2 million compared to US$9.5 million by end-2018 primarily

due to higher US dollar interest rate.

6.4 Banking Services Division

The Banking Services Division (BSD) is responsible for domestic and foreign banking, currency and numismatics,

and 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 namely the Foreign Banking Operations

(FBO), Domestic Banking Operations (DBO) and Financial Reporting Units. The Foreign and Domestic Banking

Operations Units mainly function 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. In addition, DBO


functions as operator of the domestic payment system platforms. Coordination of the Bank’s annual budget

preparation process, budget monitoring and the preparation of the financial statements fall under the responsibility

of the Financial Reporting unit.

6.4.1.1 Foreign Banking Operations

The FBO Unit is responsible for the management of the foreign currency denominated accounts held by the Bank

on behalf of government, commercial banks and other financial institutions. It is also responsible for the accounting

of all foreign currency related transactions affecting these 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 repurchases related to the country’s recent programme

with the Fund.

6.4.1.1.1 Correspondent Banking Relationship

To supplement current correspondent banking facilities and ensure the timely and efficient settlement of foreign

exchange transactions, the Bank established two additional correspondent banking relationships in April and

August 2018, with Crown Agents Bank (CAB) and JP Morgan Chase, respectively. These are in addition to the

existing facilities with Bank of England, Banque de France, and Federal Reserve Bank of New York. Furthermore,

in order to settle ZAR denominated payments, the unit is a participant in the SADC Real Time Gross Settlement

(SADC RTGS) system, previously known as the SADC Integrated Regional Electronic Settlement System -

SIRESS.

6.4.1.1.2 SWIFT Sanctions Screening Solution

With the aim of enhancing its compliance process and thus assist with risk mitigation in this area, the Bank has

adopted the Society for Worldwide Interbank Financial Telecommunication (SWIFT) Sanctions Screening System,

which automatically screens the Bank’s financial transactions against international sanctions lists and flags

suspicious activities. This allows for real time monitoring and decision making for transactions deemed to be

potential threats, or in violation of 30 international sanctions lists, which include the US OFAC list, UN Sanctions

list and EU countries embargoes. At the end of the first quarter of 2018, the SWIFT Sanctions Screening solution

went live.

The unit also organised and participated in the SWIFT Customer Security Programme (CSP) workshop, which

targeted the local banking community and was delivered by Trustlink Pty Ltd. The CSP is a programme established

by SWIFT to support its customers in the fight against cyber-attacks in the financial system. It helps customers to

secure and protect their internal environment, assists with fraud prevention and detection in the customers’

commercial relationship and provides a platform for sharing information whilst preparing them to defend against

future cyber threats.


6.4.1.1.3 SADC RTGS - Integrated Regional Electronic Settlement System

Throughout 2018, the SADC RTGS platform remained a successful payment system platform for the Bank in terms

of processing ZAR denominated payment instructions across the SADC region. The fourth quarter of 2018 had

the highest average total number of settled SADC RTGS transactions, which represented an increase of 4.4 per

cent compared to the fourth quarter of 2017. During the same period, the highest average value of settled

transactions was recorded, amounting to ZAR4.8 million, which translated to an 83 per cent increase.

In October 2018, the Operator changed its name from SIRESS to SADC RTGS, due to issues encountered in the

process of registering the SIRESS name.

Table 6.3: Total number and value of settled SADC RTGS transactions for 2018 compared to 2017

Total number of settled transactions

Total value of settled transactions (ZAR '000)

Month 2017 2018 2017 2018

January 26 76 76 2,606

February 35 57 821 3,969

March 61 53 2,051 903

April 62 74 1,215 2,011

May 60 64 5,157 1,266

June 54 46 1,107 2,458

July 89 64 1,511 3,482

August 61 42 2,308 2,841

September 50 46 702 1,773

October 91 70 4,250 8,750

November 42 57 656 771

December 50 64 2,988 4,918

Total 681 713 22,842 35,748


6.4.1.2 Domestic Banking Operations

The DBO unit processes and manages all local currency denominated payments and receipts for the Bank and

on behalf of the Bank’s customers, which include the Treasury Department, Seychelles Pension Fund and other

government entities. It is also responsible for providing back office settlement and accounting services to FMD for

financial transactions relating to OMOs and issuance of government securities administered by the Bank.

Furthermore, the unit operates and maintains payment systems infrastructure that are under the responsibility of

the Bank. These include the Electronic Cheque Clearing (ECC), SWIFT-based Central Bank of Seychelles

Immediate Transfer Service (CBSITS) and Seychelles Electronic Funds Transfer (SEFT) systems. The unit acts

as the project owner for the implementation of all projects linked to the development of these systems and other

similar local payments and settlement systems.


The unit maintained its roles as a participant and primary settlement agent of these systems. As part of its mandate

as systems’ operator, the unit also provides technical support to the systems’ participants with the assistance of

TSD for aspects relating to information technology.

6.4.1.2.1 SEFT System

During 2018, there was a substantial increase in the number of transactions that were routed through the system

from the commercial banks and the SCU as effort was placed on using this system for Rupee denominated

transactions rather than the SWIFT system.

In the second half of the year, the SEFT platform was upgraded to provide for a more user-friendly and customer-

focused system by allowing customers to access the system online and to transact at their convenience. This also

enabled implementation of improved security features in order to enhance their cyber security aspects. The project

also provided for the introduction of the SEFT mobile application that enables customers to view their payment

transactions history and an automatic archiving system. The project was officially launched to the public on

December 20, 2018, in collaboration with the Seychelles Bankers Association. The development of the SEFT

customer interface is in line with the strategy to ensure the continued modernisation of the national payment

systems. Furthermore, given government’s strategy to digitalise its services, the Bank in collaboration with the

Department of Information Communications Technology (DICT) have been working closely to enable government

entities to use the SEFT system as an option for facilitating online payment processing. As of 2019, the facility is

expected to be gradually made available, as and when the different ministries, departments and agencies are

ready to use the system.

6.4.1.3 Financial Reporting Unit

This unit is responsible for the preparation of management accounts and financial statements, which includes the

monthly and annual statement of financial position published in the Official Gazette. The unit also coordinates the

preparation of the Bank’s annual budget based on input from the different Divisions and Units. Moreover, daily,

monthly and quarterly income and expenditure reports are presented to Senior Management. Periodic reports on

the budget and financial performance are also presented to Senior Management as well as to the Board. The unit

also monitors the Bank’s recurrent and capital budget performance as well as prepares and analyses other

financial reports. Moreover, the unit also conducts assessments on the impact of new financial reporting standards

on the Bank’s reporting requirements and takes the lead in the preparation for their adoption and implementation.

The Bank’s financial statements are prepared annually in accordance with IFRS and the Central Bank of

Seychelles Act, 2004, as amended. These are audited by the Office of the Auditor General, with the assistance of

an external auditor. The financial statements for the year ended December 31, 2017 as audited by the Bank’s

external auditor for that period, KPMG (Mauritius), were signed on March 12, 2018. For the financial year 2018,

the external auditor Deloitte Touche Tohmatsu Limited (Deloitte) from South Africa is conducting its first year audit

of the Bank, after having been appointed in 2017 for a period of five years, with the possibility of reviewing the

appointment annually.


During the year, a Request for Proposal (RFP) process was undertaken by the Bank to obtain assistance for the

implementation of IFRS 9 – Financial Instruments and PricewaterhouseCoopers Advisory (Ltd) (Mauritius) was

selected for the same. The project is to be undertaken in three phases whereby Phase I was completed in

November 2018. Phase II is expected to take place in February 2019 and Phase III, which will focus on continuous

support from the consultant, will be completed by October 2019.

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. IFRS 9 is mandatorily effective for the

period beginning on or after January 1, 2018. The standard introduces key changes in the area of; classification

and measurement, impairment and hedge accounting. Given that, as at financial year ending December 31, 2018,

the Bank had not engaged in hedge accounting, the main impact of the adoption relevant to the Bank are the

changes to the classification and measurement, and impairment rules.

6.4.2 Currency and Numismatics Section

The Currency and Numismatics Section is responsible for the issue and management of local currency. It also

manages the issue and sale of numismatics items such as commemorative gold, silver coins and coin packs

produced by the Bank.

6.4.2.1 Management of Local Currency

As part of its mandate under the CBS 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 were soiled or unusable to maintain good quality of currency in circulation.

6.4.2.2 Issuance of Banknotes

The Bank issued approximately 3.0 million pieces of fresh banknotes into circulation in 2018. The table below

provides the breakdown in terms of denomination and total value of issuance.

Table 6.4: New banknotes issued into circulation in 2018

Denomination Number of Pieces

(‘000)

Value in R million

R500 300 150

R100 208 21

R50 1,893 95

R25 525 13

Total 2,926 279


6.4.2.3 Destruction of Soiled and Mutilated Banknotes

In its ongoing endeavour to maintain high quality currency in circulation, soiled and mutilated banknotes were

continuously removed from circulation and set aside for destruction. The year 2018 saw a total of just under 2.4


million pieces of banknotes destroyed in R500, R100, R50, R25 and R10 denominations. These banknotes were

from the previous series, which have been demonetised. That is, no banknotes of the current series issued under

the theme Seychelles’ Unique Biodiversity – the Backbone of our Economy, were destroyed. The destruction

exercises took place mainly during the fourth quarter and were conducted under 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 6.5: Destruction of soiled and mutilated banknotes (2018)

Denomination

Number of Pieces

(‘000) Value in R million

R500 2,070 1,035.0

R100 25 2.5

R50 79 4.0

R25 80 2.0

R10 117 1.2

Total 2,371 1,044.7


6.4.2.4 Demonetisation

Following the introduction of the new currency series in December 2016 and the demonetisation of the R500 and

R100 banknotes on June 30, 2017 from the previous series, the remaining banknotes i.e. R50, R25 and R10 were

demonetised on February 15, 2018. Demonetisation is the act of withdrawing the legal tender status of a currency

by the issuing authority and once demonetised, the currency is no longer accepted as a means of payment or

settlement for goods and services. All coins previously issued continued to be legal tender and as such, co-

circulate alongside the new series.

Below are tabulations of the denominations withdrawn from circulation as at end 2018. This is based on the value

of the five denominations that were in circulation on December 05, 2016; the date on which the new family of

banknotes and coins was first issued.

Table 6.6: Demonetised banknotes

Denomination Balance of previous

banknotes in circulation as

at December 04, 2016

(Value in R million)

Previous series banknotes

withdrawn from circulation

from December 05, 2016 to

December 31, 2018

(Value in R million)

% withdrawn from

circulation as at

December 31, 2018

R500 785 745 95%

R100 205 158 77%

R50 29 16 55%

R25 20 10 50%

R10 25 8 32%

Total 1,064 937 88%



6.4.2.5 Numismatic Items

During the year under review, the Bank maintained its stance on suspending the sale of numismatics items to

collectors as it was in the process of revising its policies and procedures relating to this activity. However, the

Bank entered into new agreements to expand its range of commemorative coins, which is available for sale on the

international markets only and from the sale of which the Bank is paid royalties. New agreements were signed

with Münzhandelsgesellschaft mbH & Co. KG Deutsche Münze (MDM) to issue a variety of coins of different year

dates, sizes and metal contents to commemorate various events or themes of interest to numismatics’ collectors

worldwide. The following coin projects were agreed:

i. Smallest Gold Coins – Isaac Newton

The Smallest Gold Coins series of MDM continued in 2018 and saw the addition of a coin

commemorating Isaac Newton; the renowned scientist recognised as one of the most influential of all

time, and a key figure in the scientific revolution. The coin depicts the portrait of Isaac Newton along

with Newton’s law of universal gravitation formula, the words ‘Isaac Newton’ and a five (5) Rupee face

value, on the reverse. The Coat of Arms of the Republic of Seychelles is depicted on the obverse along

with the year 2018. Minted in Au585 with 24K gold plating, this 11mm in diameter coin weighs 0.5g and

has a maximum mintage of 7,500 pieces worldwide.

ii. History of Seafaring – Charles Darwin ‘Beagle’

The Bank also entered into agreement with MDM for the production of the Charles Darwin ‘Beagle’ coin

which forms part of the commemorative coin series entitled the History of Seafaring. The coin, which is

made of Ag925 silver, measures 38.61mm in diameter, weighs 12g and has a maximum mintage of

7,500 pieces worldwide. The reverse of the coin depicts the image of the HMS Beagle vessel along with

the face value, five (5) Rupees and the words ‘H.M.S Beagle Charles Darwin’. The obverse of the coin

has the Coat of Arms of the Republic of Seychelles together with the year 2018.

iii. 2018 FIFA World Cup Russia™

In line with its tradition, the Bank continued to collaborate with MDM in 2018 for producing FIFA World

Cup coins. MDM and the Bank entered into an agreement for the production of the 2018 FIFA World

Cup Russia™ coin, which forms part of the FIFA World Cup coin series. The coin, which is made of

Ag925 silver, measures 38.61mm in diameter, weighs 20g and has a maximum mintage of 5,000 pieces

worldwide. The reverse of the coin depicts a ballerina dancing alongside a footballer performing the

overhead kick, the Russian patron saint, Saint George on horseback depicted in colour, and the face

value, ten (10) Rupees. The reverse also features the words ‘2018 FIFA World Cup RussiaTM’. The

obverse of the coin has the Coat of Arms of the Republic of Seychelles together with the year 2018.


iv. Silver Coins Limited 2017 and 2019 – Traditional Moutya Dance

As part of the Silver Coins Limited series, the Bank opted for the Traditional Moutya Dance of Seychelles

as theme for the motif and agreed to produce two coins. The reverse of the first coin depicts a man and

a woman dancing the Moutya Dance around a bonfire along with a man playing the traditional Moutya

drum and the words ‘Silver Coins Limited 2017’ and ‘Moutya Dance’. The obverse depicts a five (5)

Rupee face value and the Coat of Arms of the Republic of Seychelles. The coin has a maximum mintage

of 20,000 pieces, made of proof-like Ag999 silver, weighs 3.11g and is 28mm in diameter.

The reverse of the second coin in the same series depicts a couple dancing the traditional Seychellois

Moutya Dance alongside the iconic Clock Tower situated in the heart of Victoria, the words ‘Silver Coins

Limited Moutya Dance’ and the year 2019. The obverse depicts a five (5) Rupee face value and the

Coat of Arms of the Republic of Seychelles. The coin has a maximum mintage of 20,000 pieces, made

of Ag999 silver, weighs 3.11g and is 28mm in diameter.

v. Smallest Gold Coin – Traditional Moutya Dance 2019 and 2020

The Bank also produced two additional coins under the Traditional Moutya Dance theme, however they

are part of the Smallest Gold Coins series. The coins have a maximum mintage of 7,500 pieces, are

made of Au585 24K gold plating, each weighs 0.5g and measure 11mm in diameter.

While they share the same obverse depicting a five (5) Rupee face value and the Coat of Arms of the

Republic of Seychelles, they differ on the reverse side. The reverse side of the first coin depicts a man

and a woman dancing the traditional Seychellois Moutya Dance around the iconic Clock Tower situated

in the heart of Victoria along with the year 2019. Conversely, the second coin depicts two couples

dancing the Moutya around a bonfire along with a man playing the traditional Moutya drum and the year

2020.

vi. Olympic Games – 2020 Finn Dinghy

In 2018, the Bank continued with its tradition of producing different coins for the Olympic Games series.

An agreement was signed with MDM to produce an Ag925 silver coin depicting a sailor in a Finn Dinghy,

the Seychelles National Olympics Logo, the wording ‘Seychelles Olympic Team 2020’ and the

Seychelles National Olympic Committee logo on the reverse. On the obverse, the Coat of Arms of the

Republic of Seychelles and a face value of ten (10) Rupees are depicted. The coin weighs 28.28g, has

a diameter of 38.61mm and has a maximum mintage of 3,000 pieces.

vii. Premium Silver Coins – Aldabra Giant Tortoise

Featuring the Aldabra Giant Tortoise on coins has stood the test of time and late in 2018 this species

featured yet again on an Ag999 silver coin produced by MDM. The reverse side of the coin features an

Aldabra Giant Tortoise, coconut trees, and sea waves with a rocky island in the background. The same


side also features the wording ‘Tortidter’ which is the creole name of the tortoise and the year 2019. The

obverse depicts the Coat of Arms of the Republic of Seychelles and the face value of ten (10) Rupees.

This silver coin weighs 31.1g, has a diameter of 38.61mm and a maximum mintage of 2,500 pieces.

viii. Titanium Coins – Submarine

The Submarine coin was the first coin of the MDM’s Titanium Coins series that the Bank produced. The

Submarine coin is made of Ti990 blue anodized TiO75 Titanium. The coin features a submarine as the

main motif with resonance lines to and from the seabed, a helicopter and a ship in the background as

well as the year 2019. The obverse features the Coat of Arms of the Republic of Seychelles and a five

(5) Rupees face value. The coin has a maximum mintage of 7,500 pieces, has a diameter of 36.1mm

and weighs approximately 10g.

ix. Pirates Series – Treasure Island, Captain La Buse and Ship Victory

The Pirates commemorative coin series has a historical attachment with Seychelles and features three

coins. The reverse of the first coin depicts the image of a pirate, treasure chests, treasure map and the

words ‘Treasure island’. The second depicts the image of a pirate associated with the region’s waters,

the image of Captain La Buse, the words ‘Captain La Buse’ and in the background a treasure map with

names of islands in the Indian Ocean. The third coin depicts the image of the ship called Victory, which

Captain La Buse sailed and the word ‘Victory’. Along with the designs, all coins bear the year 2020. The

obverse of each coin features the Coat of Arms of the Republic of Seychelles and a one (1) Rupee face

value. Additionally, all the coins are 40 mm in diameter and weigh approximately 29.2g. The metal

content is copper with 24K gold plating. Each coin has a maximum mintage of 5,000 pieces.

6.5 Financial Inclusion and Market Conduct Division

The primary role of the Financial Inclusion and Market Conduct Division (FIMCD) is to develop and implement

strategies for enhancing financial inclusion, market conduct and competition in Seychelles. The Division

comprises the Financial Inclusion and Market Conduct Sections.

6.5.1 Financial Inclusion 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.

6.5.1.1 National Payment System (NPS) Vision and Strategy

With the ratification of the NPS Vision and Strategy for 2016–2020 by the CBS board of directors, in 2016, work

progressed in 2018 on implementing the Vision and Strategy focusing mainly on the following:

• The modernisation of the NPS


• Promoting NPS awareness

• Increase the use of Modern Payment Methods by the government.

Further details on the progress made on the projects during the year are provided below.

6.5.1.2 Modernisation of the NPS

The NPS is a set of arrangements and infrastructures that enables economic agents to effect financial transactions

including making payments to one another and using the accounts and payments instruments issued by financial

entities. The NPS enables the payment of goods and services between corporates and citizens as well as their

counterparties, both locally and abroad. The Bank also strives to develop and modernise the NPS with the aim of

enhancing the development of the financial system in the Seychelles.

In light of the above, the Bank commissioned for multiple feasibility studies to assess particular elements of the

NPS that can be further developed and enhanced. Commencing in 2016, the Bank conducted two feasibility

studies namely for: (i) the introduction of a Real Time Gross Settlement System (RTGS) as a means of minimising

settlement and systemic risks associated with the payment system of Seychelles, and (ii) the implementation of a

Central Securities Depository (CSD). This was followed by a diagnostic study for the establishment of a National

Payment Switch conducted in 2017.

In 2018, the Bank developed a proposal to modernise the NPS, building on the above-mentioned studies. This

was followed by consultations with key stakeholders which would benefit from the implementation of such systems.

The Bank, with the assistance of the World Bank, is currently working to identify the most appropriate business

model and the way forward as to the potential systems to implement in the NPS.

6.5.1.3 National Financial Education Strategy

Financial Education was identified within the FSDIP as a key cross-cutting issue in all the components of the

document. With funding received from AfDB, the Bank and FSA commissioned a Financial Literacy Baseline

survey in 2016. The results of this survey informed the National Financial Education Strategy (NFES) 2017 to

2020 was launched on December 13, 2017 with a 3-year implementation plan. The Strategy targets four segments,

namely, adults in the formal work place, Micro, Small and Medium Enterprises (MSMEs), youth, and the socially

and financially vulnerable.

Key activities undertaken in 2018 include Financial Education Fairs which brought together different players within

the financial services sector, encompassing both banking and non-banking. This included government and the

private sector and provided the public with the opportunity to engage with representatives across the financial

services community. The aim of the fair was to educate the general public on available products and services as

well as the effective and responsible usage of same; provide any clarifications on the functions of the different

financial services organisations and to respond to any queries or concerns that members of the public may have

on matters relating to financial services. The Fair was held on both Mahe and Praslin. Also in 2018, the social


media accounts of the financial education strategy was launched and included both Youtube and Facebook as

choices of digital media platforms. In addition, the mascot competition was launched and the winning design was

revealed at the Financial Education Fair held on Mahe.

Upon completion of the implementation plan, a baseline survey will be undertaken so as to measure the impact of

the initiatives.

6.5.1.4 Financial Technologies

FinTech, the abbreviation for financial technology, refers to the innovative use of technology in the design and

delivery of financial services and products. FinTech has immense potential to contribute towards economic and

social development whereby it can transform the way businesses, governments, citizens and civil society interact

and enhance the ease of doing business.

In Seychelles, FinTech can contribute towards the development of the financial sector especially in areas as listed

below:

1. Development of the NPS and other financial infrastructures

2. Improving access to credit, especially for SMEs

3. Fostering capital market development

4. Enhancing Competition and Innovation

5. Promoting greater Financial Stability

Whilst there are several benefits, there are also significant risks associated with the use of FinTech, including

matters relating to financial consumer protection, data protection, cyber security, financial stability, money

laundering and financing of terrorism amongst others.

Hong Kong is a jurisdiction that has invested heavily to be Asia’s leading FinTech hub. As such, in 2018, a team

of CBS and FSA staff visited the country on a fact-finding mission about FinTech. Following this, with knowledge

acquired from the mission combined with research conducted to understand the local context in regards to

FinTech, a report was prepared outlining the main recommendations to introducing FinTech in Seychelles. The

paper identified the range of FinTech, the associated risks and the way forward with regards to developing a

National FinTech Strategy. The Bank and the relevant authorities are seeking the assistance of the World Bank

Group to formulate a nationally coordinated strategy in regards to the adoption of FinTech, including the enabling

regulatory framework, taking into consideration government’s aim of digitising the economy.

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 data is uploaded to the system via a web-portal access by authorised personnel of credit granting

institutions regulated by the Bank. This system was introduced by CBS in Seychelles in 2012 and is now being

operated under the Central Bank of Seychelles (Credit Information System) 2012, later amended in 2014. Among


the findings of the FSDIP report issued in 2014, were recommendations to improve the current legal framework

so as to make provisions for a more efficient, safe, and reliable system as well as for broadening the scope for

collection of information.

Consequently, since 2014, DICT and the Bank embarked on a project to design the new CIS system, which will

be equipped with a Quality Assurance module to enhance the accuracy of information and reduce human

intervention. In 2018, DICT completed the design which is now ready for testing. Following testing and auditing,

changes will be made in the system to address recommendations and findings made.

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 regulated by the Bank. During 2018, the Bank received continued assistance from the World Bank

through a Reimbursable Advisory Service Agreement which has provided legal reviews of existing laws with an

impact on credit information related aspects. In addition, consultations with stakeholders has set the tone for

continued discussions on an adequate legal framework for credit information. The policy decisions of the Bank

are slated for approval at the start of 2019 and the new legal framework is expected be enacted by end of 2019.

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 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 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, 2017 as previously mentioned.

2. Enact a consumer protection law for financial services and supporting regulations. With the work on the Bill

still in progress, the target for 2019 is to finalise the Bill and commence the White Paper Stage where the

public at large will be provided with the opportunity to give their comments and concern on same. Once the

White Paper Stage is completed, the Financial Consumer Protection Bill will be submitted to the National

Assembly for approval, to become law before the end of 2019.

3. Issue regulations relating to mobile financial services and promote cross-border remittances through mobile

payments by December 2018. For 2018, work conducted in this area focused on documenting the policy

decisions behind the e-money regulations which included consultations with stakeholders. The target is to

have the Regulations gazetted by 2020.

The above commitments reflect initiatives that are ongoing and are deemed relevant and important for the Bank,

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.

In 2018, the Bank assessed the recommendations of the study and in order to gain the support of critical

stakeholders, presented the recommendations to the Cabinet of Ministers in 2018. Further to this, an action plan

for the implementation of the recommendations will be formulated.

6.5.1.8 Strategy for Increasing E-Payments

As highlighted in the NPS Vision and Strategy 2016-2020, 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 promoting e-payment modes. This strategy will be drafted in consultation with the National Payment

Task Force (NPTF) working group, to specifically address the limited usage of e-payment facilities. Discussions

and the participation of various stakeholders will bolster the contents of the strategy and ensure early buy-in from

key stakeholders.


6.5.2 Market Conduct Section

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.

6.5.2.1 Financial Consumer Protection Law

After attaining the approval of the Cabinet of Ministers on November 29, 2017, the Bank and FSA submitted the

policy paper to the Office of the Attorney General for the drafting of the Financial Consumer Protection Bill. With

work currently underway in order to finalise the Bill and commence the White Paper Stage where the public at

large will be consulted, the proposed law is expected to be enacted before the end of 2019.

The financial consumer protection 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.

Further work envisioned for 2019 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 April 2018, the amendments made to the Financial Institutions (Bank Charges and Fees) Regulations, 2013

came into effect. The review of the Regulations commenced in 2017 and 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.

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, there were amendments to the limits

placed on loan processing fee for first home acquirers, as well as on penalty interest rates on default loans.

Further to the Regulations being gazetted, the Bank also prepared awareness videos which aired on the national

television station to sensitise the public on the amendments.


6.6 Technical Services Division

The Technical Services Division (TSD) is responsible for the provision of Information Technology (IT) infrastructure

and support functions of any IT-related service, enabling effective communication and collaboration between staff,

clients and other stakeholders.

It is structured into the following functions:

- Network Support: Responsible for the effective management of server and network systems hardware

and software, as well as securing and protecting the Bank’s IT infrastructure and data against attacks from viruses,

cybercriminals and other threats.

- 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, as well as the development of new applications for the Bank depending on the required level of

expertise.

- IT Governance: Responsible for supporting effective governance of enterprise IT and coordinating best

practices adoption of IT function across the bank.

Throughout 2018, TSD implemented a number of projects in keeping up with its responsibility of providing the

Bank with adequate and suitable IT infrastructure and support.

One major project, which started during the year and is due for completion early 2019, is the complete revamping

of the network infrastructure of CBS. The Bank has found it necessary to review its existing infrastructure taking

into account the continuous increase in cybersecurity risks, as a result of threats such as hacking and ransomware,

targeting banking and financial institutions globally. Consequently, some of the existing network appliances have

been upgraded or replaced in order to cope with current and emerging threats. The upgrade will also allow for:

• greater flexibility and efficiency of high security standards

• network scalability

• high availability

• enhanced performance

• email, web and endpoint security

• events and incidents management

• active data backup


Another project that materialised late in the year, was the successful launch of Phase 2 of the SEFT, allowing the

public to initiate online payment transactions from the comfort of their homes or businesses. Phase 2 also

consisted of the launching of a mobile application allowing customers to view the status and keep track of

payments initiated and funds received. This is in line with CBS’ strategy to ensure the continued modernisation of

the country’s national payment systems, in collaboration with relevant stakeholders. Additionally, some of its

existing features were upgraded, including the automation of its archiving system to allow for faster processing of

payments.

Given the increased dependence on technology, it is crucial for IT services to be restored at the earliest in any

eventuality. This component was successfully tested in November, through a disaster simulation exercise,

involving all the critical applications which the Bank operates. This entailed the participation of relevant

stakeholders to troubleshoot any issues that may be encountered.

On December 1, the Bank also launched its new website designed and built in-house by the TSD team. The

launching of the modern website coincided with the Bank’s 40th anniversary. The project, which took about ten

months to complete was aimed at revamping the face of the institution online, with the addition of more dynamic

and interactive features, improved functionality as well as mobile compatibility, so as to provide a more informative

and better browsing experience for the users.

In the area of IT Governance, in June 2018, the Board approved the Governance of Enterprise IT (GEIT) Charter,

which lays out the way forward for IT governance within the Bank. The Charter details the main roles and

responsibilities of all the GEIT stakeholders, including the different committees involved in driving its

implementation. With this Charter, TSD will be able to better manage resources, projects and overall developments

of IT and remain aligned to the COBIT 5 framework, which is the business framework for the governance and

management of enterprise IT.

The Board also approved the Portable Devices Policy, which provides for a better structure to manage portable

devices used by the employees, building on the existing Bring Your Own Devices Policy. The technical part of the

policy is enforced through a Mobile Devices Management (MDM) software, to maintain the security of the Bank’s

network and mitigate threats, such as unauthorised access or the introduction of viruses and malwares.

The Bank acknowledges the increase in electronic communications within the institution. Hence, the Digital

Signature Policy was approved by the Board in November to safeguard the integrity and authenticity of these

communications, and to bring the Bank a step closer to becoming more paper-light. The policy is in accordance

with relevant local legislations. The approval of the policy has paved the way for the Bank to apply for a Certification

Authority License from DICT. Once granted, the license will make it legal for the Bank to issue its own digital

certificates to be used for electronic communications.


6.7 Administration Division

The Administration Division is tasked with providing general administrative, logistical and project management

support services to the Bank.

In 2018, discussions continued around the development of the facility at Bel Eau which will essentially provide for

business continuity and a modern vault. It is anticipated that the project will be completed by December 2023.

As a result of construction activities taking place on a neighbouring property, the CBS Annex, attached

architecturally but not structurally to the main building underwent settlement, causing the building to tilt at the start

of the year. For safety reasons and taking into consideration the risks involved, the tenants occupying the CBS

Annex consequently vacated the building.

The Bank also embarked on a project to enhance the management of its archive documents and modernise the

associated infrastructures. In March, the Bank sought the services of experienced firms to review the current

setup, recommend best practices to be adopted, draft procedures for the effective management of archived

documents and migrate the paper-based documents to digital format. The aim of this project is to enable efficient

search, retrieval and on-going addition to the digital archive system. The supplier commenced work in September

and the project is expected to be completed by July 2019.

Other activities related to Project management during the year included:

• New CIS – The system design has been completed and stakeholders were consulted on the legal aspects

during the year. Further adjustments will be done in 2019 for the successful completion of this project.

The outcome will result in enhancing the security features of the CIS and improvement in its functionalities.

• SEFT Phase II – Officially launched on December 20, 2018. This domestic fund transfer system was

further improved in terms of existing features and security-wise, as well as to incorporate new services.

Of significance, clients may now initiate payments through online access to the system. The next stage,

linking SEFT with government entities such that payments can be made online, is anticipated to go live in

the first quarter of 2019.

6.8 Human Resources Division

The Human Resources Division is responsible for the strategic utilisation of employees and maximising capability

and performance while guiding and supporting employees to evolve knowledge into applied skills. In 2018, the

division strived to deliver its functions to a high standard with the aim of meeting its strategic objectives.


The Bank welcomed a total of 22 new employees bringing its headcount to a total of 198 employees. In addition,

various Divisions and Units were impacted through staff movements which resulted in promotions and internal

transfers.

Continuous effort was placed on finding ways to re-align the Bank’s focus on strategic and transformational

initiatives. The Division reviewed the Competency Framework to include all aspects of Human Resources

Management including Job Profiling, Recruitment and Selection, Performance Management and Training and

Development aimed at enhancing the abilities of the workforce, to adopt the appropriate attributes and behaviours

that will showcase professional standards of performance allowing the Bank to deliver on its mandate.

Furthermore, in line with the Bank’s initiative to promote and support the development of its employees for

professional growth and technical knowledge, the division implemented the ‘Personal Development Plan’ as part

of its Performance Management System.

Additionally, Stay Interviews were conducted to allow the Bank to understand the progress made and the

sentiments of the employees. Those sessions were conducted regularly with employees at different levels,

including management and the feedback received was shared with Senior Management with the view to address

the concerns raised.

As part of Management’s commitment to improve capacity to deliver according to the new strategic plan, a two-

day interactive external retreat, facilitated by a Board member, was organised in February.

In line with the Bank’s initiative to improve employee morale and satisfaction, the annual employee engagement

survey was conducted in June and was launched through an independent online survey platform. Compared to

the previous year, the engagement of employees in the survey increased slightly. The results gathered were

collated and shared with Management and employees with the aim of addressing the points of concern and follow

up through an agreed action plan. Furthermore, in 2018 the Bank introduced a new initiative to improve the work-

life balance of its employees and enhance productivity through the implementation of a ‘Guideline to Working from

Home’. This new initiative has gathered positive feedback since its implementation and the Bank is committed to

finding new ways of adopting flexible work approaches in line with best practices whilst not compromising on work

quality.

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, AFI, SADC, Gerzensee, Federal

Reserve Bank and RAMP to name but a few. Additionally, employees were also provided with the opportunity to

attend in-house soft skills training conducted throughout the year to enhance specific skills required for the delivery

of their duties conducted by both staff and other local service providers.


The Bank also launched the ‘Guy Morel High Achievement Scholarship Programme’ which targets Seychellois

candidates with the aim to attract and inspire individuals to join the Financial Services sector. The Bank will award

the scholarship to two individuals to pursue one undergraduate degree in one of the following fields - Economics,

Finance, Banking, Accounting, or Law; and a postgraduate degree in either Fintech, Financial Law, Financial

Journalism, or Forensic Accounting in 2019. Furthermore, three employees proceeded to pursue long term studies

in 2018 and one employee was awarded an internal competitive scholarship.

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 2018-2020, which is essentially a rolling

plan and informed by the commitment of the Bank to deliver 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. New approaches have been adopted 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 take into account the circumstances as well as input from Management

for each audit engagement. The division carried out 7 audits and presented 132 recommendations in 2018. It also

monitored the 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 Audit

and Risk Committee (ARC).

During the year, IAD met with the Board’s ARC more often 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 Key Progress made during the year

a) IAD underwent its first External Quality Assessment (EQA) to evaluate the internal audit activity’s

conformance to the IIA’s International Standards (2017) for the Professional Practice of Internal Auditing

standards. The assessment identified both strengths and opportunities and offered ideas for improving

effectiveness of the internal audit activity. Following the assessment, the IAD developed an action plan to

address the noted gaps.

b) The ongoing targeted coaching and on-the-field support from a consultant, who previously held the position

of Deputy Managing Director from the Bank of Canada, with significant central bank experience to provide


advice and guidance to the internal audit team, helped strengthen the audit practices. Training was also

delivered on the process of quality assessment prior to the EQA.

c) IAD team members secured relevant professional qualifications.

6.9.2 Plans for the Future

a) Entering into a co-sourcing agreement with another central bank to assist in gaining new skills.

b) Implementation of an audit management software that can improve the efficiency and effectiveness of the

Division.

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 is responsible for providing legal assistance to all Divisions/Units, to ensure the Bank is operating

within the mandate prescribed in the legislation. To achieve this end, the Unit works closely with the Office of the

Attorney General.

In 2018, the Unit addressed various queries and concerns in an effort to mitigate legal risk. The Unit was also

engaged in the review of legislations under the regulatory ambit of the Bank and also assisted in projects

undertaken by the Bank.

6.10.1.2 Risk Management Unit

The Risk Management Unit (RMU) is responsible for the overall monitoring of Bank Wide risks. On a yearly basis,

RMU drives the risk assessment process whereby all Divisions/Units identify risks attached to their processes and

adopt appropriate internal controls to negate or mitigate these risks. In terms of operational risk, RMU also gathers

risk issues/events on a regular basis across the Bank of which the respective division/unit takes ownership and

decides on 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 Risk Management Committee (RMC) as well as

the ARC meetings held every quarter for discussion and resolutions.

Aside from the above, the unit also worked with Divisions/Units to update their process flow charts, especially for

those newly-formed, to assist with identification of risks attached to processes. The unit also contributed to


sections 37 and 38 Financial Risk Management, of the yearly financial statement and worked closely with Internal

Audit on risk-based matters.

Furthermore, to coincide with the Bank’s 40th anniversary in 2018 and to further improve on the visibility of Risk

Management externally, RMU contributed its own page to the new website. This page provides a summary of risk

management including business continuity management as part of CBS governance functions.

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 operations at an acceptable predefined

level at a Disaster Recovery (DR) Facility.

The objectives of the BCMS framework are to plan for a concise business continuity with minimal disruptions to

provide confidence to all stakeholders and to create a culture shift in the organisation to ensure continued

operations of the services offered by the Bank.

Since 2010, the Bank engaged in the planning for business continuity of its core operations in the event of incidents

or disruptions that may infringe such 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 Disaster Recovery Plan for

each division was reviewed and updated with the relevant parties. Furthermore, the Bank is in the process of

building a DR Facility to ensure that it can respond effectively during a crisis. Zoran CSM (a company based in

South Africa) was awarded the contract for the architectural design of the DR Facility for the Bank and to provide

project management support.

In October 2018, a RFP was released to evaluate and further develop the existing framework to include

cybersecurity threats in the context of Business Continuity whilst aligning the same to meet the requirements of

ISO 22301. The consultancy is also expected to enhance the capacity of staff to implement the framework through

training sessions to be delivered in 2019.

In February 2018, a DR switchover test on the Bank’s critical functions such as core banking, ECC and SEFT

systems was conducted, to ensure the mechanism in place at DR site allows straight-through-processing (STP)

with minimal human intervention between different payments systems, similarly to the main office.

In November 2018, a second DR switchover test was successfully conducted, with the support of both Polaris and

ProgressSoft vendors being onsite, to resolve integration issues encountered.

The next test has been scheduled for the 2nd quarter of 2019, with the aim of undertaking the complete switchover

smoothly without the suppliers being onsite, to ensure that staff acquire maximum practice, being effectively

prepared and increase the maturity level.


6.10.1.2.2 Risk Management Committee

The Risk Management Committee is established by the Board of Directors of the Bank to assist the Board in

overseeing the implementation of the Enterprise 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 BCMS prior to Board approval.

6.10.1.3 Information Security

The Chief Information Security Officer (CISO) is responsible for the Bank’s information security policy, the

coordination of information security efforts and Bank-wide information security strategy. In line with the above, the

Bank serves as a role model within the financial system in protecting its Information Communication and

Technology (ICT) Infrastructure through a secure and resilient cyber ecosystem, which is essential for its overall

success.

During 2018, there has been an alarming increase of social engineering and reconnaissance scanning targeting

the Bank’s ICT infrastructure attempting to circumvent the existing controls. Together with the daily processes of

monitoring, information security awareness and a layered defence approach, a high level of visibility of all events

happening within the ICT infrastructure was maintained. This has allowed the Bank to remain resilient against

these cyber threats hence keeping its information assets secure.

Work is underway to formalise the Information Security Governance and the Cyber Security Guidelines which will

enable CBS to set clear direction and demonstrate its commitment to information security both internally and to

commercial banks, bureaux de change and other financial institutions as supervised by the Bank.

6.10.1.4 Communications Unit

The Communications Unit of the CBS was formally established in 2018, spurred by the establishment of the Bank’s

communications function in 2015. The aim of having a Communications Unit is to have a more coordinated

approach to both internal and external communication, in line with the principles of Central Banking worldwide.

This stems from the need for increased transparency in the communication of policies, namely the monetary policy

stance. There is also increased public, media and stakeholders’ expectation for more accountability and

transparency, the need for greater visibility and the Bank’s own efforts to safeguard its credibility. The

Communications Unit is also key in ensuring CBS’ move towards enhancing financial awareness, as well as

increased stakeholder and public engagement.

The Communications Unit, which falls directly under the Governor’s Secretariat is tasked with:

• Managing and coordinating the overall internal and external communications, in line with the Bank’s

communication strategy.

• Managing the public image of the Bank and protecting its reputation.


• Managing the press office - handle press enquiries, assist in organising press interviews and other media

related events.

• Drafting or assisting in finalising and reviewing press releases for publication.

• Monitoring national and international press for related news.

• Reviewing the communication strategy on a regular basis, drafting and advising on communication

activities on topical and/or crisis issues.

• Overseeing the content of the CBS website and other online profiles, ensuring information is clear,

accurate and up-to-date.

• Producing or help to develop articles, videos and other awareness materials.

• Receiving, documenting and responding to request for information in accordance to the Access to

Information Act, 2018.

The Unit, which started off with one Communications Officer, was joined by a second one mid-2018, in view of the

Bank’s growing communications needs. Throughout the year, the main task of the Unit has been to better

understand the mandate of CBS, as well as the communication needs of the Bank and the various Divisions and

Units.

One of the major undertakings of 2018 was the groundwork for the formulation of the Bank’s Communications

Policy and update of the Communications Strategy. The Communications Unit benefitted from TA provided by the

IMF in January 2017. The TA Report has already been submitted and work is ongoing to finalise both documents,

which are expected to be submitted to the CBS Board for approval in the first quarter of 2019.

In 2018, there were also various activities and events spread throughout the year to coincide with CBS’ 40th

Anniversary on December 1. The Communications Unit was represented on the Committee that spearheaded the

various events, including the 40th Anniversary Exhibition, Anniversary Lecture and a series of Open Discussions

on Mahé, Praslin and La Digue. The main role of the Communications Unit was to ensure that materials being

used in these activities were reviewed, as well as helping to coordinate the launching of these events, and handling

of press-related matters including organising interviews, writing and dissemination of press releases and drafting

of speeches.

Another main activity that coincided with the 40th Anniversary was the launch of the new CBS website. Aside of

coordinating the launch event, the Communications Unit worked alongside TSD to coordinate the Website

Committee, made of up representatives from the various Divisions and Units.

The Communications Unit also coordinated the 40th Anniversary Logo competition. The logo was used throughout

the 40th Anniversary celebrations, alongside the logo of CBS.

The year 2018 was quite an eventful year for CBS, and the Communications Unit was involved throughout, mainly

to coordinate press-related matters including interviews, press releases as well as advertising. This included the

launching in February of the CBS Scholarship for an individual to pursue undergraduate studies. Unfortunately,

the call for applications did not attract any candidate. The scholarship, renamed as the Guy Morel High


Achievement Scholarship Programme, was launched again in September 2018, this time calling for applications

for an undergraduate and a postgraduate scholarship, which will be awarded in 2019. CBS also organised the

ESAAMLG Public-Private Sector Dialogue, launched the social media platforms for the National Financial

Education Strategy, which has been followed by the implementation of various activities as part of the strategy.

The Communications Unit also worked with the various Divisions concerned to coordinate the Communications

Strategy for the voluntary winding up of the Seychelles Branch of Habib Bank Limited. This included coordinating

press interviews, writing and issuing press releases, preparation of a TV spot to ensure that clients were given

relevant information, as well as the formulation of a list of Frequently Asked Questions, to provide the bank’s

customers and the general public with as much information as possible.

In terms of awareness, the Communications Unit also coordinated the publication of various articles in the two

daily newspapers, mainly prepared by the various Divisions and Units in the Bank to explain their functions, as

well as articles to educate the public about some of the roles and objectives of CBS. A series of articles to educate

the public about internet scams were also published.

The Communications Unit also assisted in the engagement with the media through seminars designed to help

journalists better understand some of the policies pronounced by CBS, particularly the Monetary Policy stance.

This is aimed at ensuring that the media has a clear understanding of these policies so that they can better relay

the information and pass on the right message to the general population.

In line with the growing demands for creating awareness and to enhance communication of CBS’ objectives and

policy pronouncements, as well as to increase the general public’s awareness and understanding of the Bank's

role in the economy, a RFP to procure the services of a firm or individual, for Filming, Short Production and

Photography of CBS events and other related activities was launched in February 2018. The RFP is being re-

launched in 2019, as the one last year was not successful.

Additionally, in 2018, the two officers of the Communications Unit were designated as the Information Officers of

CBS in accordance with the Access to Information Act, 2018, which was assented by the President in July 2018.

6.10.2 Internal Committees

6.10.2.1 Investment Committees

The Investment Committee (IC) set up by the Board has the responsibility to take decisions relating to reserves

management as well as formulate policies, procedures and guidelines in line with all reserves management

activities. The committee also has the mandate to ensure that risks assumed in the conduct of reserves

management activities are being managed efficiently. The composition of the committee includes the Second

Deputy Governor as the Chairperson, the First Deputy Governor and Heads of BSD, FMD, FSD and RSD as

members.

The reviewed Terms of Reference (TOR) for IC was approved by the Board in September. One of the changes

to the TOR was the inclusion of a clause where an additional member that is not a staff of the CBS who possesses


necessary knowledge and experience in investment management may be appointed by the Governor to the

committee. To note, no individual has been nominated to this position so far. Furthermore, to reinforce good

governance principle, the newly approved TOR dictates that no staff of FMD, which is the operational arm of the

committee shall be nominated as the chairperson of the IC, in the absence of the Chairperson.

In 2018, as scheduled, IC met for its monthly meetings and four ad-hoc meetings were conducted. The annual

review of the Strategic Asset Allocation (SAA) which is the portfolio management action plan for the international

reserves was completed in September following scrutiny by IC to ensure effective management of the country’s

international reserves taking into consideration domestic and international developments in the financial markets.

This led to the review of the investment policy and guidelines for international reserves management activities

which were approved in November and September by the Board and IC respectively. Notable changes included

the revision of the target sizes of the liquidity and investment tranches. Additionally, the currency composition of

the overall reserves level were revised with an increase in the Euro composition amid expected Eurozone Policy

normalisation and to meet anticipated foreign obligations denominated in the currency.

6.10.2.2 Monetary Policy Technical Committee

The Monetary Policy Technical Committee (MPTC) established by the Board of Directors has the mandate to

primarily consider, advise and make key decisions on issues relating to the formulation and implementation of

monetary policy. As per the TOR approved by the Board, the First Deputy Governor is the Chairperson of the

committee. Other representatives of the committee includes the Second Deputy Governor and the Heads of five

Divisions, namely, BSD, FIMCD, FMD, FSD and RSD.

During the year, the committee held monthly meetings which were scheduled at the beginning of every MRR

maintenance period. In addition, eleven ad-hoc meetings were organised as and when deemed necessary so as

to ensure the effectiveness of the implementation of monetary policy. MPTC discussions focused on the

introduction of the revised MPF, including the conduct of the Bank’s open market operations through revisions in

liquidity management operations, with the aim of improving the transmission mechanism of monetary policy. In

addition, MPTC reviewed the recommendations for revision of the MRR framework, a recommendation by the TA

mission held in October 2017. This led to the approval of the Operational Guidelines for Policy Tools. For the

year 2018, the committee also discussed and assessed the domestic debt strategy regarding the issuance of

government securities, as part of the mandate of the CBS to act as an agent to the government in regards to the

issuance of treasury bills and treasury bonds.

6.10.3 Board of Directors

Throughout 2018 recommendations made under the previous year’s Board Evaluation were monitored and acted

on. For instance, a Board Retreat combined with Management was implemented, the performance review of

Senior Management was robustly accomplished by independent Board members and proper orientation of new

Board members was carried out, which included existing Board members.


There are other identified areas which are still work in progress, such as review of the Board and Committee

Charters and ensuring timely submissions of Board documents for preparation of the Board members before

attending the meetings. The outstanding action points of 2017 evaluation were combined with current action points

for 2018 in addressing Board Evaluation findings.

The Board was consistent in carrying out another Board Evaluation for 2018 and concluded that the meetings

were well organised and Board members were encouraged to be open and discuss matters freely. There was high

participation throughout the year and members made special effort to attend and contribute in all meetings even

if it meant using conferencing facilities.

Board members highlighted areas for improvement such as timely submission of documents, continued training,

addressing changes in development of technology and Central Banking. The Board will be monitoring the action

points of 2018 evaluation with quarterly updates on progress made which will be facilitated by the Board Secretary.

6.10.3.1 The Board Meetings

The Board usually meets monthly but should not have less than 8 meetings a year. In 2018, the Board held 25

meetings, including 18 normal Board Meetings, i.e. scheduled Board meetings. Among those, there were also the

quarterly Monetary Policy discussions/decisions and Financial Stability Presentations. In addition, the Board also

held 7 Extraordinary Board Meetings to attend to urgent matters.

Throughout the year, the Board attended to about 172 Agenda items, with the majority relating to divisional

functions, key projects, reports or specific Bank assignments. During the course of 2018, the Board received

reports spanning from various functions of the Bank, which included financial stability, onsite examination of

specific financial institutions, reserve management compliance, domestic money market, progress on IFRS 9,

structural and geotechnical assessment relating to the Annex Building, risk assessment and reports of key events

such as the Public Private Sector Dialogue conducted during the ESAAMLG meeting.

The Board also considered various appointments such as Administrators for commercial banks and the Internal

Audit Division Accompanier who was attached for six months at the Bank. The Board heard two appeals relating

to disciplinary action and licensing of banking application.

In addition, the Board discussed various matters around the Banks’ policies, strategies, planning and budget

allocation and approved the CBS Strategic Plan 2019-2023. On many occasions, the Board deliberated on the

procurement plan and received frequent updates on such from Management. Ample time was also allocated for

proper discussion of the quarterly Monetary Policy stance.

Furthermore, the Board examined key legislative areas for amendments or proposal of new legislations. It also

granted approval for the restructuring of the Internal Audit Division, setting up of a dedicated AML/CFT Supervision

Unit and compliance unit in Financial Surveillance Division. The Board also discussed cross-cutting issues such


as de-risking, AML/CFT and progress in the implementation of the Seychelles Mutual Evaluation and National

Risk Assessment Recommendations.

6.10.3.2 Audit and Risk Committee

ARC’s main purpose 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). The committee’s activities are guided by the ARC Charter.

During the year under review, ARC held nine meetings. It reviewed and provided guidance on the work done by

the IAD and RMU on specific assignments which included the Organisation Wide Risk Management Framework,

the Anti-Fraud Policy, and the Multi Audit Year Plan (2018).

ARC also received and considered the Financial Statement of the CBS for the 2017 and the Budget for 2019 to

which they submitted their recommendations as well as their concerns to the Board. ARC was kept abreast of the

Bank’s risk appetite and its management.

ARC delivered on its responsibilities especially to recommend to the Board for approval, the External Audit scope

of work, and audit fees for both audit and non-audit services. They also had the opportunity to meet with the CBS’

officers, External Auditors as necessary, proposed to invite technical specialists to ARC to provide their assistance

in relation to specific matters.

Going forward, ARC will set standard Agenda items to ensure that the meetings are strategic and aligned with the

work plans of IAD and RMU. An Internal Audit Accompanier, Mrs Keltie Donohue was assigned at the Bank for six

months to provide coaching support to the Internal Audit Team. Mrs Donohue highlighted the strengths and gaps

for the team to build on as well the opportunity for ARC members to leverage the charters to ensure they are

getting the information they need on the Bank’s internal control environment. During 2019, the ARC Charter will

be subjected to review in light of the fast changing context of central banking realities within Seychelles and

international best practices.

6.10.3.3 Human Resources Committee (HRC)

The purpose of the HRC is to set the over-arching principles and parameters of Remuneration Policy across the

organisation, consider and approve remuneration arrangements of the Bank and exercise oversight for strategic

people issues. The HRC is guided by the HRC Terms of Reference.

The HRC comprises 2 Non-Executive Board members, the Chairman - Mr Errol Dias and Dr Sherley Marie, a

specialist in educational leadership, who brings with her commending skills in investigative, management and

leadership skills required to bring innovation. Dr Marie was appointed to the HRC on October 24, 2018 following


Ms Wendy Pierre’s exit on March 13, 2018. The Chairman of HRC was also re-appointed to the role for a term of

3 years on October 24, 2018.

The HRC met 2 times in 2018 compared to 2017 whereby HRC met on 7 occasions. This difference was due to

the changes in membership whereby there was no quorum for HRC for the 2nd and 3rd quarters. During this time,

matters relating to human resources were considered directly by the Board and actioned on.

For the year under review, HRC discharged its responsibilities by considering and providing guidance on talent

management programme, human resources policies, practices and organisational structures, all of which should

provide consistency with the strategic plan, support operational effectiveness and efficiency and maximise human

resources potential.

Going forward, HRC will be overseeing the review of the performance management policy and the code of conduct

and ethics. With a complete quorum, more work would be done on strategic employee issues and training of Board

Directors in particular. HRC will also evaluate the Committee’s performance against its terms of reference.

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, 2018

Management’s commentary on the audited financial statements for the year ended December 31, 2018

The audited financial statements of the Central Bank of Seychelles for the year ended December 31, 2018

were approved and signed by the Board on March 25, 2019. The Auditor General certified and signed the

financial statements on March 25, 2019 following the audit review by the external auditors, Deloitte Touche

Tohmatsu Limited (South Africa). 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.

As highlighted above the Bank’s financial statements for 2018 have been audited by the Bank’s external

auditors, Deloitte Touche Tohmatsu Limited (South Africa), on behalf of the Auditor General as per Section

47(3) of the CBS Act, 2004 as amended. Deloitte Touche Tohmatsu Limited (South Africa) has been

appointed for a period of five years, subject to annual reviews, and 2018 is their first year of audit

assignment with the Bank. In the external auditors’ opinion these 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.

As per the requirement of IFRS, the Bank adopted IFRS 9 - Financial Instruments, as issued by the

International Accounting Standards Board (IASB) in July 2014, which replaced the International Accounting

Standard (IAS) 39 - Financial Instruments: Recognition and Measurement, with a date of transition of

January 1, 2018. The Bank did not adopt any of the IFRS 9 standards requirement in previous accounting

and reporting periods. The Bank’s accounting policies for recognition, classification and measurement of

financial assets and financial liabilities, as well as for the impairment of financial assets have been reviewed

and amended accordingly to be in line with the new standard. The consequential amendments to IFRS 7

- Financial Instruments: Disclosures, have been applied to the current period. Previously, under the

incurred loss model of IAS 39, no impairment loss was recognised as at December 31, 2017. With the

adoption of IFRS 9, as from initial recognition on January 1, 2018, the Bank now measures a financial asset

or financial liability at its fair value, in the case of a financial asset or financial liability not measured at fair

value through profit or loss, plus or minus transaction costs that were incremental and directly attributable

to the acquisition or issue of the financial asset or financial liability, such as fees and commissions.

Transaction costs of financial assets and financial liabilities carried at fair value through profit or loss were

expensed in profit or loss. After initial recognition, an expected credit loss (ECL) allowance was recognised

for financial assets measured at amortised cost and investments in debt instruments measured at fair value

through other comprehensive income (FVOCI), which resulted in an accounting loss being recognised in

profit or loss when an asset is newly originated. At January 1 and December 31, 2018, the Bank did not

have any financial assets measured at FVOCI.

As permitted by the transitional provisions of IFRS 9, the Bank elected not to restate comparative figures

for previous year. At the date of initial recognition, that is January 1, 2018, adjustments were made to the

opening balance of the Bank’s retained earnings in the statement of changes in equity upon transition to

IFRS 9. This resulted in a re-measurement loss of R3.9 million which adjusted the opening balance of

retained earnings at January 1, 2018. The losses in respect ECL on the Bank’s financial assets for the

year 2018 amounted to R0.1 million.

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 2017 and 2018. For the year 2018,

total assets stood at R9,170 million, total liabilities were R8,343 million and total equity stood at R827

million. Total value of foreign currency assets increased from R7,568 million as at the end of 2017 to

R7,733 million as at the end of 2018, which is an increase of approximately 2.2 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 Government receipts and the depreciation of the domestic

currency against the US dollar. The total foreign assets as at December 31, 2018 after adjusting for ECL

comprised of R4,953 million as cash and cash equivalents with short-term maturities, R1,191 million as

other balances and placements with maturities of more than three months, and R1,590 million as financial

assets at fair value through profit or loss. The latter represents an aggregate of funds with the Bank’s

external fund manager, investments in shares, and US dollar Treasury securities and money market funds

being managed internally.

The statement of profit or loss and other comprehensive income shows a total comprehensive income of

R81 million for the year 2018. This is made up of R17 million as actual operating loss as well as other non-

distributable earnings in the form of unrealised revaluation gains arising from foreign currency monetary

assets and liabilities at R55 million, unrealised gains on fair valuation of financial assets at fair value through

profit or loss at R34 million and actuarial losses amounting to R0.2 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 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 2018, these net realised losses amounted to R5.3 million. Both the prior year’s unrealised gains

and losses and the expected credit loss adjustments were included in the Bank’s computation of

distributable earnings for the year 2018 prior to distribution or offsetting against General reserve as

required.

The Bank’s actual operating profit and distributable earnings for the year 2018 were made up primarily of

interest income, interest expense, fees and commission, staff costs, policy costs, impairment loss, financial

stability costs, expected credit loss on financial assets as well as other income and expenses. The primary

contributor to total revenue of R299 million was interest income with a total of R190 million, representing

63.5 per cent of the total revenue of the Bank. Interest earned from the Bank’s deposits with other banks

was the main source of the income, with the Bank earning interest on the more favourable rates offered

from counterparties, mainly on the US dollar portfolio. By contrast, interest expense increased from R25

million in 2017 to R33 million in 2018 mainly due to increase in the interest rate and volume of transactions

of the Deposit Action Arrangement (DAA) monetary policy instrument. It is to be noted that the bulk of the

Bank’s monetary policy cost was incurred through the DAA monetary policy instrument.

In terms of non-interest income, the increase of 7.7 per cent observed in fees and commission income,

from R26 million in 2017 to R28 million in 2018 was primarily caused by an increase in volume of foreign

payments in 2018 compared to 2017. Additionally, in 2018 there were increases in value of foreign

payments in all currencies (USD, EUR, GBP, ZAR) as well as in value of receipts. The differences in daily

exchange rates of 2018 and 2017 also affected the value commission on foreign payments effected on a

daily basis.

On the expenditure side, staff related costs increased from R96 million in 2017 to R105 million in 2018 due

to the continuous implementation of the career management framework whereby employees are

remunerated accordingly as part of the talent management and retention strategy. This strategy is

continuously being reviewed in terms or remuneration levels, performance reward structures,

responsibilities, opportunities and developmental challenges in view of the rapid changing economic

environment that the financial sector is currently facing and the number of constraints and challenges

directly related to attracting and retaining high calibre employees with specific and scarce skills set. Policy

costs, which is directly linked to the Bank’s objective of prudently accumulating foreign reserves decreased

from R11 million in 2017 to R4.2 million in 2018. This was as a result of limited opportunities in the domestic

market throughout the year for the Bank to accumulate reserves. Nevertheless, an increase in gross

international reserves from US$545 million, equivalent to 4.2 months of imports, to US$549 million,

equivalent to 3.8 months of imports was observed, influenced by reserves accumulated through the foreign

exchange auctions and higher Government receipts in comparison to the previous year. To note, the

equivalent number of months of imports was lower in 2018 compared to 2017 in view that the level and

value of imports required for 2018 was slightly higher compared to 2017. The Bank incurred financial

stability costs of R11 million due to the Bank’s commitment to ensuring that the domestic financial system

remains stable by assisting the local banking sector to maintain back-up correspondent banking services

and to review of the Bank’s AML/CFT policies.

On the equity side, the current aggregate balance under authorised capital and General reserve of the

Bank, which stood at 6.6 per cent, fell short of the minimum 10 per cent of total monetary liabilities required

at the end of every year. Total monetary liabilities increased from R4,440 million in 2017 to R4,651 million

in 2018. However, for the year 2018, the distributable earnings was less than zero and as per section 16(3)

of the CBS Act, 2004 as amended, which states; “where the distributable earnings of the Bank is less than

zero, they shall be offset against the General reserve”, the negative distributable earnings of R17 million

were offset against the General reserve causing it to drop to from 4.1 per cent to 3.8 per cent of total

monetary liabilities. The losses in respect of ECL on the Bank’s financial assets as at January 1, 2018

amounted to R3.9 million and was adjusted against opening retained earnings. The Bank had no

distributable earnings for 2018, as such, no funds have been paid to the Government Consolidated Fund

as dividends for the year and no transfers were made to build up authorised capital and General reserve.

The full set of the Bank’s audited financial statements and detailed explanatory notes prepared for the year

ended December 31, 2018 are shown overleaf.

CENTRAL BANK OF SEYCHELLES FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

CENTRAL BANK OF SEYCHELLES FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 CONTENTS PAGES OPINION OF THE AUDITOR GENERAL 2 – 4 STATEMENT OF FINANCIAL POSITION 5 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 6 STATEMENT OF DISTRIBUTION 7 STATEMENT OF CHANGES IN EQUITY 8 STATEMENT OF CASH FLOWS 9 NOTES TO THE FINANCIAL STATEMENTS 10 – 90

CENTRAL BANK OF SEYCHELLES STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018

Note 2018 2017

SCR’ 000 SCR’ 000

Interest income 27 189,961 162,428

Interest expense 28 (32,995) (25,420) -------------- --------------

Net interest income 156,966 137,008

Fees and commission income 29 28,055 26,415

Other income 5,082 5,644

Gains arising from dealings in foreign currency transactions 30 4,147 5,452

Gains arising from fair valuation of financial assets at fair value through profit or loss 30 49,729 25,765

Gains arising from revaluation of foreign currency monetary assets and liabilities 30 54,645 73,387

-------------- --------------

Revenue 298,624 273,671

Staff costs 31 (105,038) (96,445)

Currency expenses 32 (12,713) (11,181)

Impairment loss on property and equipment 14 (4,255) -

Depreciation 14 (7,202) (5,960)

Amortisation charge 15 (1,526) (1,012)

Professional charges 33 (9,561) (5,399)

International Monetary Fund (“IMF”) charges (12,025) (10,119)

Policy costs (4,159) (11,064)

Financial stability costs (10,781) -

Expected credit loss on financial assets 34 (139) -

Administrative expenses (18,400) (16,079)

Other operating expenses (32,004) (26,392) -------------- --------------

Profit for the year 80,821 90,020

Other comprehensive income

Items that will never be reclassified to profit or loss

Actuarial losses 22(a) (203) (1,019)

-------------- --------------

(203) (1,019)

-------------- --------------

Items that are or may be reclassified to profit or loss - -

-------------- --------------

Other comprehensive income (203) (1,019)

-------------- --------------

Total comprehensive income for the year 80,618 89,001

======== ========

The notes on pages 10 to 90 form an integral part of these financial statements.

CENTRAL BANK OF SEYCHELLES STATEMENT OF DISTRIBUTION FOR THE YEAR ENDED 31 DECEMBER 2018 2018 2017

SCR’ 000 SCR’ 000

Total comprehensive income for the year 80,618 89,001

Adjusted as follows:

Realised losses transferred from revaluation reserve (5,349) (467)

Unrealised gains transferred to revaluation reserve (88,786) (88,349) Expected credit loss opening adjustments as at 1 January (3,928) - Actuarial losses as per IAS 19 203 1,019 ------------ ------------

Distributable earnings (17,242) 1,204

======= =======

Amount distributed

Distributed as specified by the Central Bank of Seychelles Act, 2004 as amended

Transfer to authorised capital - 602

Transfer from General reserve (17,242) -

Transfer to Government Consolidated Fund (Note 6) - 602 ------------ ------------

(17,242) 1,204

======= =======

The above information has been compiled from information contained in the statement of changes in

equity as set out on page 8 and does not form part of the primary statements.


CENTRAL BANK OF SEYCHELLES STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018

Authorised capital

General reserve

Revaluation reserve

Actuarial reserve

Retained earnings

Total equity

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000

At 1 January 2017 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 losses) - - 467 - (467) - Transfer to revaluation reserve (unrealised gains) - - 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

Impact of adopting IFRS 9 in respect of Expected Credit Loss on financial assets as at 1 January 2018 (see Note 2.1) - - - - (3,928) (3,928)

------------ ------------ ------------ ------------ ------------ ------------

At 1 January 2018, as restated 130,227 192,081 431,009 (2,961) (3,928) 746,428 Profit for the year - - - - 80,821 80,821

Other comprehensive income:

Actuarial losses - - - (203) - (203) ------------ ------------ ------------ ------------ ------------ ------------

130,227 192,081 431,009 (3,164) 76,893 827,046

Transfer from revaluation reserve (realised losses) - - 5,349 - (5,349) - Transfer to revaluation reserve (unrealised gains) - - 88,786 - (88,786) - Transfer from General reserve - (17,242) - - 17,242 -

------------ ------------ ------------ ------------ ------------ ------------At 31 December 2018 130,227 174,839 525,144 (3,164) - 827,046 ======= ======= ======= ======= ======= =======


CENTRAL BANK OF SEYCHELLES STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018 Note 2018 2017

SCR’ 000 SCR’ 000

Net cash (outflow)/inflow from operating activities 35 (79,669) 115,738 -------------- --------------

Cash flows from investing activities

Proceeds from/(investments in) other balances and placements 2,376,369 (33,827)

Payments for acquisition of financial assets at fair value

through profit or loss (1,971,320) (1,699,199)

Proceeds from sale of financial assets at fair value through

profit or loss 1,758,649 673,756

Payments for currency replacement 13 (10,604) (16,352)

Payments for acquisition of property and equipment 14 (18,396) (12,469)

Payments for acquisition of intangible assets 15 (2,570) (3,450)

Proceeds from disposal of property and equipment 1 162

Interest received 192,946 157,595 -------------- --------------

Net cash from/(used in) investing activities 2,325,075 (933,784) -------------- --------------

Cash flows from financing activities

Paid to Government Consolidated Fund 6 (602) (11,642) -------------- --------------

Net cash used in financing activities (602) (11,642) -------------- --------------

Net increase/(decrease) in cash and cash equivalents 2,244,804 (829,688)

Cash and cash equivalents at 1 January 2,465,123 3,190,345

Effects of exchange rate changes on cash and cash equivalents 242,614 104,466

-------------- --------------

Cash and cash equivalents at 31 December 7 4,952,541 2,465,123

======== ========


CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 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 2018 have been approved for issue by

the Board of Directors on 25 March 2019. 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 2018.

Effective for accounting periods ending on or after

IFRS 9 Financial Instruments 1 January 2018

IFRS 15 Revenue from Contracts with Customers 1 January 2018

IFRIC 22 Foreign Currency Transactions and Advance Considerations

1 January 2018

The implementation of IFRS 9 resulted in a significant impact on the financial statements as detailed

in Note 2.1. However, amendments to IFRS 15 and IFRIC 22 did not have a significant impact on

the financial statements of the Bank for the year ended 31 December 2018.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 2. CHANGES IN ACCOUNTING POLICIES (CONTINUED)

2.1 Financial Instruments (IFRS 9)

The Bank has adopted IFRS 9 as issued by the International Accounting Standards Board (“IASB”)

in July 2014 with a date of transition of 1 January 2018, which resulted in changes in accounting

policies and adjustments to the amounts previously recognised in the financial statements. The

Bank did not early adopt IFRS 9 in any previous periods.

As permitted by the transitional provisions of IFRS 9, the Bank elected not to restate comparative

figures. Any adjustments to the carrying amounts of financial assets and liabilities at the date of

transition were recognised in the opening retained earnings of the current period.

The consequential amendments to IFRS 7 – Financial Instruments: Disclosures, have also only

been applied to the current period. The comparative period notes disclosures repeat those

disclosures made in the prior year.

The adoption of IFRS 9 has resulted in changes in our accounting policies for recognition,

classification and measurement of financial assets and financial liabilities, and impairment of

financial assets. IFRS 9 also significantly amends other standards dealing with financial

instruments such as IFRS 7.

Set out overleaf are disclosures relating to the impact of the adoption of IFRS 9 on the Bank.

Further details of the specific IFRS 9 accounting policies applied in the current period (as well as

the previous IAS 39 accounting policies applied in the comparative period) are described in more

details in Note 3.3 overleaf.


2.1 Financial Instruments (IFRS 9) (continued)

(a) Classification and measurement of financial instruments

The measurement category and the carrying amount of financial assets and liabilities in accordance

with IAS 39 and IFRS 9 at 1 January 2018 are compared as follows:

There were no changes to the classification and measurement of the Bank’s financial liabilities.

(b) Reconciliation of statement of financial position balances from IAS 39 to IFRS 9

The Bank performed a detailed analysis of its business models for managing financial assets and

analysis of their cash flow characteristics. Please refer to Note 3.3 for more detailed information

regarding the new classification requirements of IFRS 9.

Under the IAS 39 incurred loss model, no impairment loss was recognised as at 31 December

2017. The table overleaf reconciles the carrying amounts of financial assets, from their previous

measurement categories in accordance with IAS 39 to their new measurement categories upon

transition to IFRS 9 on 1 January 2018.

IAS 39 IFRS 9 Financial assets

Measurement category

Carrying amount SCR’ 000

Measurement category

Carrying amount

SCR’ 000

Cash and cash equivalents Amortised cost

(Loans and receivables)

2,465,123 Amortised cost 2,465,057

Other balances and placements

Amortised cost (Loans and receivables)

3,562,343

Amortised cost 3,562,240

Financial assets at fair value through profit or loss

Fair value through profit or

loss 1,540,450

Fair value through profit or

loss 1,540,450

Investment securities

Amortised cost (Loans and receivables)

1,192,405 Amortised cost 1,189,862

Loans and advances

Amortised cost (Loans and

Receivables)

35,244

Amortised cost

34,633

Other assets

Amortised cost (Loans and

Receivables)

70,810 Amortised cost 70,205


2.1 Financial Instruments (IFRS 9) (continued)

(b) Reconciliation of statement of financial position balances from IAS 39 to IFRS 9 (continued)

The total re-measurement loss of SCR 3.9 million in respect of expected credit loss was

recognised in opening retained earnings as at 1 January 2018.

Note

IAS 39 carrying amount

31 December 2017(Opening balance

as at 1 January 2018)

Re-measureme

nts (Allowance

for expected credit loss)

IFRS 9 carrying amount

1 January 2018(Closing

balance under IFRS 9)

SCR’ 000

SCR’ 000 SCR’ 000Amortised Cost

Cash and cash equivalents 7 2,465,123 (66) 2,465,057 Other balances and placements 8 3,562,343 (103) 3,562,240 Investment securities 10 1,192,405 (2,543) 1,189,862 Loans and advances 11 35,244 (611) 34,633 Other assets 12 70,810 (605) 70,205

-------------- -------------- --------------Total financial assets measured at amortised cost

7,325,925 (3,928) 7,312,997

======== ======== ======== Financial assets at fair value through profit or loss

Financial assets measured at fair value through profit or loss

1,540,450

Not applicable

1,540,450

======== ========

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 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.

The financial statements have been prepared in accordance with International Financial Reporting

Standards (“IFRS”) and the CBS Act.

The disclosures on risks from financial instruments are presented in the financial risk management

disclosures contained in Note 38.

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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.2 Foreign currency translation (continued)

(b) Transactions and balances (continued)

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.

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 include 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 2018 31 December 2017 IMF Special Drawing Rights XDR 1 = SCR 19.5011 XDR 1 = SCR 19.7034United States Dollar USD 1 = SCR 14.0215 USD 1 = SCR 13.8357 British Pound Sterling GBP 1 = SCR 17.7277 GBP 1 = SCR 18.4591Euro EUR 1 = SCR 16.0596 EUR 1 = SCR 16.5296 Australian Dollar AUD 1 = SCR 9.8753 AUD 1 = SCR 10.8084 Canadian Dollar CAD 1 = SCR 10.2918 CAD 1 = SCR 11.0450 South African Rand ZAR 1 = SCR 0.9679 ZAR 1 = SCR 1.1016 Chinese Yuan Renminbi CNY 1 = SCR 2.0387 CNY 1 = SCR 2.1265

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 provision of the instrument.

(i) Initial recognition of financial assets and liabilities

Financial assets and financial liabilities are recognised when the entity becomes a party to the

contractual provisions of the instrument. Regular way purchases and sales of financial assets are

recognised on trade-date, the date on which the Bank commits to purchase or sell the asset.


3.3 Financial instruments (continued)

(i) Initial recognition of financial assets and liabilities (continued)

At initial recognition, the Bank measures a financial asset or financial liability at its fair value plus

or minus, in the case of a financial asset or financial liability not at fair value through profit or loss,

transaction costs that are incremental and directly attributable to the acquisition or issue of the

financial asset or financial liability, such as fees and commissions. Transaction costs of financial

assets and financial liabilities carried at fair value through profit or loss are expensed in profit or

loss.

(ii) Classification and subsequent measurement of financial assets

Up to 31 December 2017, the Bank classified its financial assets into one of the following

categories:

as loans and receivables; or

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 financial liabilities were measured at amortised cost.

(a) 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 de-recognition 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.



(ii) Classification and subsequent measurement of financial assets (continued)

(b) Financial assets at fair value through profit or loss (continued)

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.

From 1 January 2018, the Bank has applied IFRS 9 and classifies its financial assets in the

following measurement categories:

at amortised cost; or

at fair value through profit or loss (“FVTPL”).

The classification requirements for debt and equity instruments are described below:

Debt instruments

Debt instruments are those instruments that meet the definition of a financial liability from the

issuer's perspective, such as loans and government bonds. Classification and subsequent

measurement of debt instruments depend on:

the Bank's business model for managing the asset; and

the cash flow characteristics of the asset.

Business model

The business model reflects how the Bank manages its assets in order to generate cash flows.

That is, whether the Bank's objective is solely to collect the contractual cash flows from the assets

or is to collect both the contractual cash flows and cash flows arising from the sale of assets. If

neither of these is applicable (e.g. financial assets are held for trading purposes), then the financial

assets are classified as part of 'other' business model and measured at FVTPL. Factors considered

by the Bank in determining the business model for a group of assets include past experience on

how the cash flows for these assets were collected, how the asset's performance is evaluated and

how risks are assessed and managed.





Solely Payments of Principal and Interest (“SPPI”) test

Where the business model is to hold assets to collect contractual cash flows or to collect contractual

cash flows and sell, the Bank assesses whether the financial instruments' cash flows represent

solely payments of principal and interest (the SPPI test). In making this assessment, the Bank

considers whether the contractual cash flows are consistent with a basic lending arrangement i.e.

interest includes only consideration for the time value of money, credit risk, other basic lending

risks and a profit margin that is consistent with a basic lending arrangement. Where the contractual

terms introduce exposure to risk or volatility that are inconsistent with a basic lending arrangement,

the related financial asset is classified and measured at FVTPL.

The Bank reclassifies debt instruments when and only when its business model for managing those

assets changes. The reclassification takes place from the start of the first reporting period following

the change. Such changes are expected to be very infrequent and none occurred during the

period.

Based on these factors, the Bank classifies its debt instruments into one of the following

measurement categories:

- Amortised cost

Assets that are held for collection of contractual cash flows where those cash flows represent SPPI,

and that are not designated at FVTPL, are measured at amortised cost. The carrying amount of

these assets is adjusted by any expected credit loss (“ECL”) allowance recognised and measured

as described in Note 3.3(iii). Interest income from these financial assets is included in interest

income using the effective interest method.

The amortised cost is the amount at which the financial asset or financial liability is measured at

initial recognition minus the principal repayments, plus or minus the cumulative amortisation using

the effective interest method of any difference between that initial amount and the maturity amount

and, for financial assets, adjusted for any loss allowance.

The effective interest rate is the rate that exactly discounts estimated future cash payments or

receipts through the expected life of the financial asset or financial liability to the gross carrying

amount of a financial asset (i.e. its amortised cost before any impairment allowance) or to the

amortised cost of a financial liability. The calculation does not consider expected credit losses and

includes transaction costs, premiums or discounts and fees and points paid or received that are

integral to the effective interest rate, such as origination fees.





When the Bank revises the estimates of future cash flows, the carrying amount of the respective

financial assets or financial liability is adjusted to reflect the new estimate discounted using the

original effective interest rate. Any changes are recognised in profit or loss.

- Fair value through profit or loss

Assets that do not meet the criteria for amortised cost or fair value through other comprehensive

income (“FVOCI”) are measured at FVTPL. A gain or loss on a debt instrument that is subsequently

measured at FVTPL is recognised in profit or loss and presented in profit or loss within gains arising

from fair valuation of financial assets at fair value through profit or loss in the period in which it

arises.

Equity instruments

Equity instruments are instruments that meet the definition of equity from the issuer's perspective;

that is, instruments that do not contain a contractual obligation to pay and that evidence a residual

interest in the issuer's net assets.

The Bank subsequently measures all equity instruments at FVTPL. Dividends, when representing

a return on such investments, continue to be recognised in profit or loss under ‘Other income’ when

the Bank's right to receive payments is established. Gains and losses on equity investments at

FVTPL are included in the ‘Gains arising from fair valuation of financial assets at fair value through

profit or loss’ line in profit or loss.

(iii) Impairment

Immediately after initial recognition, an ECL allowance is recognised for financial assets measured

at amortised cost and investments in debt instruments measured at FVOCI, which results in an

accounting loss being recognised in profit or loss when an asset is newly originated. At 1 January

2018 and 31 December 2018, the Bank did not have any financial assets measured at FVOCI.

As from 1 January 2018, the Bank assesses on a forward-looking basis the ECL associated with

its debt instrument assets carried at amortised cost and with the exposure arising from loan

commitments. The Bank recognises a loss allowance for such losses at the end of each reporting

period. The measurement of ECL reflects:

an unbiased and probability-weighted amount that is determined by evaluating a range of

possible outcomes;

the time value of money; and

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


(iii) Impairment (continued)

reasonable and supportable information that is available without undue cost or effort at the

reporting date about past events, current conditions and forecasts of future economic

conditions.

Note 38 provides more detail of how the ECL allowance is measured.

(iv) Classification and subsequent measurement of financial liabilities

All the financial liabilities are measured at amortised cost under both IAS 39 and IFRS 9. 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.

(v) De-recognition of financial assets and liabilities

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 de-recognition).

Financial liabilities are derecognised only when the obligation is discharged, cancelled or expired.

(vi) 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.



(vi) Fair value measurement (continued)

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.

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.


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.5 Balances with International Monetary Fund (“IMF”) (continued)

(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 IMF 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 1.10 percent per annum as at 31 December 2018

(2017 – 0.74 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.

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.


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.6 Impairment of financial assets (continued)

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.

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.


3.7 Impairment of non-financial assets (continued)

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.

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 and are carried at amortised cost.

These are initially measured at fair value plus incremental direct transaction costs, and

subsequently accounted for at amortised cost.

3.11 Financial assets at fair value through profit or loss

Financial assets at FVTPL represents 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 FVTPL 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 and ECL (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 costs of

past replacements are treated as disposals and derecognised.

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.


3.14 Property and equipment (continued)

(d) Impairment

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.

For property and equipment an impairment loss amounting to SCR 4.3 million was recognised

as at 31 December 2018 (2017 – Nil). This impairment loss was as a result of the physical

damages incurred at the start of the year to the Bank’s annex building located on its main site

in Victoria as result of construction work being undertaken on an adjacent plot of land. The

annex building was written down to a nil recoverable amount, which was determined by

using the value in use and fair value less costs to sell methods. Both methods resulted in the

conclusion that the recoverable amount was nil based on the assumptions that no budget

provision for cash inflows or outflows relating to the annex building were made and Board’s

decision to demolish the annex building which implied that the Bank will no longer have the

asset. The carrying amount of the annex building was determined by apportioning the total

carrying amount of the main building according to the size (in square meters) of the Bank’s

annex building. The total approximate cost amounted to SCR 6.4 million, the accumulated

depreciation amounted to SCR 2.1 million resulting in a carrying amount of SCR 4.3 million.

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. 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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3.SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.15 Leases (continued)

(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.

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.


3.16 Intangible assets (continued)

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 measured at face value. This represents an un-serviced liability of the

Bank and is recorded in the statement of financial position.

When banknotes and coins are returned to the Bank by the commercial banks, Seychelles

Credit Union (“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.

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 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 limit was SCR 100.0 million

in 2018 (2017 – 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).


3.18 Deposits

(a) Deposits from Government and banks (continued)

In the event of an overdraft in the commercial banks’ demand deposits denominated in SCR,

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 8.0 percent per annum for the year 2018 (2017 – 6.0 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

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

These other deposits comprise mainly of local and foreign currency denominated abandoned

properties, unclaimed funds 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 are 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 end of term gratuity to 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, compensation 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.

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.


3.20 Employee benefits (continued)

(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 all employees of the Bank except for key

management personnel who are not entitled to this benefit.

(e) Other post-employment benefits

As from 2018, the Bank provides for a one-off payment to certain key management personnel,

namely the Governor, First Deputy Governor and Second Deputy Governor, upon ceasing to

hold office, in view that they are restricted from seeking employment within the domestic

financial system for a period of twelve months immediately after they cease to hold office. The

amount provisioned every year is based on the discounted present value of this future

obligation attributable to the completed years of service.

(f) 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.

(g) 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.

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.


3.20 Employee benefits (continued)

(g) Defined contribution plan (continued)

Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction

in the future payments is available.

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 FVTPL denominated in foreign currencies. 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.

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.


3.30 Gains and losses from financial assets at fair value through profit or loss (continued)

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.

3.32 Comparatives

Certain information has been reclassified and restated to conform to the current year’s

presentation.

The following amounts presented in the 2017 financial statements have been reclassified on

the statement of profit or loss and other comprehensive income as follows:

Amount as previously disclosed

Amount reclassified

Amount disclosed

in 2018 SCR’ 000 SCR’ 000 SCR’ 000

Interest income 170,836 (8,408) 162,428

======= ======= =======

Gains arising from fair valuation of financial asset at fair value through profit or loss 17,357 8,408 25,765 ======= ======= =======

The above changes in classification have a resultant impact on the amounts disclosed and

presented in the statement of cash flows and the notes.

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 2019, and have not been applied in preparing

these financial statements. Those which may be relevant to the Bank are set out overleaf. The

Bank does not plan to early adopt these standards. These will be adopted in the period that

they become mandatory unless otherwise indicated.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 4. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED (CONTINUED)

At the date of authorisation of the financial statements for the year ended 31 December 2018,

the Bank has evaluated the standards and interpretations that were in issue but not yet effective

and have listed below the ones that are deemed applicable to the operations of the Bank and

may have a possible impact on the financial statements:

Standard/Interpretation

Effective date Periods beginning

on or after

IFRS 16 Leases 1 January 2019

Amendments to IAS 19 Plan Amendment, Curtailment or Settlement

1 January 2019

Amendments to IFRS 9 Prepayment Features with Negative Compensation

1 January 2019

4.1 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.

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.

The adoption of this standard is not expected to have a significant impact on the financial

statements.

4.2 Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)

If a plan amendment, curtailment or settlement occurs, it is now mandatory that the current

service cost and the net interest for the period after the re-measurement are determined using

the assumptions used for the re-measurement. In addition, amendments have been included

to clarify the effect of a plan amendment, curtailment or settlement on the requirements

regarding the asset ceiling.

The Bank does not anticipate that the application of the amendments in the future will have an

impact on the Bank’s financial statements.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 4. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED (CONTINUED)

4.3 Prepayment Features with Negative Compensation (Amendments to IFRS 9)

Amends the existing requirements in IFRS 9 regarding termination rights in order to allow

measurement at amortised cost (or, depending on the business model, at fair value through

other comprehensive income) even in the case of negative compensation payments.

The Bank does not anticipate that the application of the amendments in the future will have an

impact on the Bank’s financial 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 Measurement of the ECL allowance

The measurement of the ECL allowance for financial assets measured at amortised cost is an

area that requires the use of complex models and significant assumptions about future

economic conditions and credit behaviour (e.g. the likelihood of default and the resulting

losses). Explanation of the inputs, assumptions and estimation techniques used in measuring

ECL is further detailed in Note 38, which also sets out key sensitivities of the ECL to changes

in these elements.

A number of significant judgements are also required in applying the accounting requirements

for measuring ECL, such as:

• Determining criteria for significant increase in credit risk;

• Choosing appropriate models and assumptions for the measurement of ECL;

• Establishing the number and relative weightings of forward-looking scenarios for each type

of product and the associated ECL; and

• Establishing groups of similar financial assets for the purposes of measuring ECL.

Detailed information about the judgements and estimates made by the Bank in the above areas

is set out in Note 38.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

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.

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 2018 is SCR 18.7

million (2017 – SCR 16.2 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 (2017 – 7.0 percent per annum)

Salary increase rate: 5.0 percent per annum (2017 – 5.0 percent per annum)

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

5.3 Termination and post-employment benefits (continued)

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 39.

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:

2018 2017 SCR’ 000 SCR’ 000

At 1 January 602 11,642Paid to Government Consolidated Fund (602) (11,642)Transfer from retained earnings - 602 -------------- --------------At 31 December (Note 22) - 602 ======== ========

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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 6. TRANSFER TO GOVERNMENT CONSOLIDATED FUND (CONTINUED)

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.

7. CASH AND CASH EQUIVALENTS

2018 2017 SCR’ 000 SCR’ 000 Balances held abroad and foreign currency notes 4,802,831 2,303,073Provision for ECL on Balances held abroad (223) -Holdings of Special Drawing Rights 81,135 92,531Reserve tranche with IMF (see Note 17) 68,805 69,519Provision for ECL on holdings of Special Drawing Rights and Reserve tranche with IMF (7) - -------------- -------------- 4,952,541 2,465,123 ======== ========

Current 4,952,541 2,465,123 ======== ========

Included in cash and cash equivalents are pledged and encumbered balances held abroad

equivalent to SCR 1,436.9 million and SCR 60.9 million respectively (2017 – SCR 1,032.0

million and SCR 53.5 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).

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 8. OTHER BALANCES AND PLACEMENTS

2018 2017 SCR’ 000 SCR’ 000 Other balances and placements held abroad 1,190,589 3,562,343 Provision for ECL on other balances and placements (30) - -------------- -------------- 1,190,559 3,562,343 ======== ========

Current 1,190,559 3,562,343 ======== ========

9. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

2018 2017 SCR’ 000 SCR’ 000 Financial assets at fair value through profit or loss – fund manager’s investments 348,193 337,058Financial assets at fair value through profit or loss – investments in shares 31,628 28,775Financial assets at fair value through profit or loss – investments in money market funds 143,332 138,637Financial assets at fair value through profit or loss – others 1,067,189 1,035,980 -------------- -------------- 1,590,342 1,540,450

======== ======== Current 278,552 270,103Non-current 1,311,790 1,270,347 -------------- -------------- 1,590,342 1,540,450 ======== ========

The financial assets at FVTPL 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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 10. INVESTMENT SECURITIES

2018 2017 SCR’ 000 SCR’ 000

Investment in Government treasury bills 1,198,122 1,192,405 Provision for ECL on investment in Government treasury bills (2,555) - -------------- -------------- 1,195,567 1,192,405 ======== ========

Current 1,195,567 1,192,405 ======== ========

For the year 2018, the Bank’s holding of Government treasury bills as at the reporting date

carried interest rates as follows: 5.48 percent to 5.63 percent per annum for 182-day treasury

bills (2017 – 4.01 percent to 5.25 percent) and 6.38 percent to 7.22 percent per annum for

the 365-day treasury bills (2017 – 5.71 percent).

Securities pledged as collateral

As at the reporting date, the balance under repurchase agreements was Nil (2017 – Nil) and

as such the amount of Government treasury bills pledged as collateral was Nil (2017 – Nil).

11. LOANS AND ADVANCES

2018 2017 SCR’ 000 SCR’ 000

Staff loans 39,735 35,244

Provision for ECL on staff loans (728) - -------------- -------------- 39,007 35,244

======== ========

Current 3,203 3,336

Non-current 35,804 31,908 -------------- --------------

39,007 35,244 ======== ========

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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 12. OTHER ASSETS 2018 2017 SCR’ 000 SCR’ 000

Cheques held for clearing 59 10 Items due and not received 20,908 27,660 Others 55,533 43,140 Provision for ECL on other assets – stage 3 (524) - -------------- -------------- 75,976 70,810 ======== ======== Current 75,976 70,810 ======== ========

13. CURRENCY REPLACEMENT COSTS

SCR’ 000Cost Balance as at 1 January 2017 34,717 Additions 16,352

-------------- Balance as at 31 December 2017 51,069 Additions 10,604Disposals (11,564)

-------------- Balance as at 31 December 2018 50,109

======== Accumulated amortisation 8,203 Balance as at 1 January 2017

Amortisation charge 10,018 --------------

Balance as at 31 December 2017 18,221

Amortisation charge 12,330Disposals (11,564)

-------------- Balance as at 31 December 2018 18,987 ======== Carrying amounts

31 December 2017 32,848 ======== 31 December 2018 31,122 ======== Disposals relate to fully amortised costs derecognised.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 14. PROPERTY AND EQUIPMENT

Land Buildings

Office furniture

and fittings

Officemachine and

equipmentMotor

vehicles Total

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000Cost Balance as at 1 January 2017 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 2,489 133,250Additions - 2,859 4,515 9,767 1,255 18,396Disposals - - (42) - - (42)Impairment loss - (6,358) - - - (6,358) -------------- -------------- -------------- -------------- -------------- --------------Balance as at 31 December 2018 5,617 82,562 21,883 31,440 3,744 145,246 ======== ======== ======== ======== ======== ========Accumulated depreciation Balance as at 1 January 2017 - 19,195 9,345 14,336 1,175 44,051

Depreciation 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

Depreciation charge - 1,796 2,507 2,690 209 7,202Disposals - - (39) - - (39)Impairment loss - (2,103) - - - (2,103) -------------- -------------- -------------- -------------- -------------- --------------Balance as at 31 December 2018 - 20,753 13,329 18,768 1,437 54,287 ======== ======== ======== ======== ======== ========Carrying amounts 31 December 2017 5,617 65,001 6,549 5,595 1,261 84,023 ======== ======== ======== ======== ======== ======== 31 December 2018 5,617 61,809 8,554 12,672 2,307 90,959 ======== ======== ======== ======== ======== ========

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 15. INTANGIBLE ASSETS

Computer

software SCR’ 000

Cost

Balance as at 1 January 2017

22,228

Additions 3,450 Disposals (120) -------------- Balance as at 31 December 2017 25,558

Additions 2,570 -------------- Balance as at 31 December 2018 28,128 ========

Accumulated amortisation Balance as at 1 January 2017 21,983

Amortisation charge 1,012 Disposals (120)

--------------

Balance as at 31 December 2017 22,875

Amortisation charge 1,526 -------------- Balance as at 31 December 2018 24,401 ========

Carrying amounts 31 December 2017 2,683

======== 31 December 2018 3,727 ========

16. CURRENCY IN CIRCULATION

2018 2017

SCR’ 000 SCR’ 000

Banknotes issued 1,303,510 1,264,705 Coins issued 69,601 63,550 -------------- -------------- 1,373,111 1,328,255 ======== ======== Current 1,373,111 1,328,255

======== ======== Banknotes and coins in circulation are shown at face value.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 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

2018 2017

SCR’ 000 SCR’ 000

Demand deposits 1,215,697 1,182,551 Foreign currency minimum reserve requirement 985,596 872,655 Standing deposit facility 105,000 125,003 -------------- --------------

2,306,293 2,180,209

======== ======== Current 2,306,293 2,180,209 ======== ========

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 2018, the minimum statutory

reserves requirement was maintained at 13.0 percent (2017 – 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.

2018 2017 SCR’ 000 SCR’ 000

Government Rupee deposits 2,402,009 2,713,749 Government foreign exchange deposits (project accounts) 502,512 209,923Government deposits with IMF (see Note 7) 68,805 69,519 Central Bank of Seychelles blocked foreign exchange deposits 9,664 2,859 -------------- -------------- 2,982,990 2,996,050 ======== ======== Current 2,982,990 2,996,050 ======== ========

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 18. DEPOSITS FROM BANKS (CONTINUED) 18.2 Foreign currency Minimum Reserve Requirement (continued)

In 2018 the minimum deposit was maintained at 13.0 percent (2017 – 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 2018.

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. 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 2018 2017 SCR’ 000 SCR’ 000

Demand deposit 90,898 195,842 ======== ======== Current 90,898 195,842

======== ========

Other financial institutions hold demand deposit accounts with the Bank to facilitate external

transactions. These deposits are non-interest bearing and repayable on demand. SCU which

forms part of other financial institutions is also required by the Bank to maintain minimum

statutory reserves requirement at 13.0 percent for the year 2018 (2017 – 13.0 percent),

similarly to all commercial banks (see Note 18.1).


20. OTHER DEPOSITS

2018 2017 SCR’ 000 SCR’ 000

Special deposits 1,901 1,865Abandoned properties

– Local currency 28,142 27,247

– Foreign currency 5,698 3,352Unclaimed funds

– Local currency 588 -

– Foreign currency 11 -Others 2,027 1,838 -------------- -------------- 38,367 34,302 ======== ========

Current 38,367 34,302 ======== ========

As per the Financial Institutions Act 2004 (“FIA”), 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.

In line with section 8(1) of schedule 5 of the FIA which states that unclaimed funds which are

not subject to other provisions of FIA shall, on the direction of the Bank, be transferred to a

special account with the Bank. Upon the winding down of a commercial bank, there was a

transfer of unclaimed funds to the Bank. As at the reporting date, the Bank holds SCR 0.59

million in the domestic currency and SCR 0.01 million in foreign currencies, namely US

Dollars and Euros.

21. OPEN MARKET OPERATIONS 2018 2017 SCR’ 000 SCR’ 000

Deposit Auction Arrangement 846,528 705,232 ======== ========

Current 846,528 705,232 ======== ========

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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 21. OPEN MARKET OPERATIONS (CONTINUED)

Commercial banks and SCU are called to state the amount of funds they would like to bid and

their respective bid interest rates in any of the maturities on offer. Each maturity on offer is

fixed by the Bank and it is up to the Bank to decide on 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 846.5 million was held by the Bank with maturity

periods of 7 days (SCR 600.5 million) and 28 days (SCR 246.0 million). For 2017, the

corresponding figure stood at SCR 705.2 million with maturity period of 7 days.

22. OTHER LIABILITIES

2018 2017 SCR’ 000 SCR’ 000

Payable to Government Consolidated Fund (Note 6) – Transfer from retained earnings - 602Provision for staff gratuities – contractual 11,453 8,693Provision for staff compensation – continuous (Note 22(a)) 14,326 12,404Provision for termination benefits 3,145 3,303Provision for post-employment benefits 6,970 11,504Items due and not yet paid 16,863 6,239Others 5,824 10,963 -------------- -------------- 58,581 53,708 ======== ======== Current 35,192 34,181Non-current 23,389 19,527 -------------- --------------

58,581 53,708 ======== ========

As at the reporting date, all permanent employees were on contracts which are considered

continuous in nature whilst key management personnel, namely the Governor, First Deputy

Governor and Second Deputy Governor are on fixed term contracts. Continuous employment

refers to a permanent employment with no pre-determined end date.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 22. OTHER LIABILITIES (CONTINUED)

(a) Employee Benefit Obligations Total Compensation Gratuity (Continuous) New gratuity 2018 2017 2018 2017 2018 2017 2018 2017

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000

Present value of obligation: At 1 January 16,224 10,998 12,404 10,579 - 419 3,820 -

======== ========

======= ======= ======== ======= ======== ========Included in profit or loss Current service cost 1,709 1,600 1,321 1,246 - - 388 354 Interest cost 1,122 985 855 750 - - 267 235 Past service cost - 3,352

- - - - - 3,352 ------------- --------------

------------- ------------ -------------- ------------ -------------- -------------- 2,831 5,937 2,176 1,996 - - 655 3,941 ======== ========

======= ======= ======== ======= ======== ======== Included in OCI Actuarial losses/(gains) arising from: - Financial assumptions - 7 - 7 - - - - - Experience adjustment 203 1,012 145 1,012 - - 58 -

-------------- --------------

------------- ------------ -------------- ------------ --------------- -------------- 203 1,019 145 1,019 - - 58 - ======== ========

======= ======= ======== ======= ======== ======== Others Employer contributions paid (509) (1,730) (399) (1,190) - (419) (110) (121)

======== ========

======= ======= ======== ======= ======== ======== Balance at 31 December 18,749 16,224 14,326 12,404 - - 4,423 3,820

======== ========

======= ======= ======== ======= ======== ========Represented by:

Net defined benefit liability – Compensation

18,749 12,404

14,326

12,404

-

- 4,423

-

Net defined benefit liability – Gratuity (continuous) - - -

- -

-

- -

Net defined benefit liability – New gratuity

- 3,820

-

-

-

- -

3,820

Expected employer contribution (113) (121) (113) - - - - (121) Discount rate - -

7.0% 7.0% - 7.0% 7.0% 7.0% Future salary increases - - 5.0% 5.0% - 5.0% 5.0% 5.0% The Bank does not have any plan assets as the employee benefit relates to unfunded obligation in relation to compensation and gratuities.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 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 14.3 million for this compensation plan as at 31 December

2018 (2017 – SCR 12.4 million).

Gratuity plan

The Bank provided for a payment of gratuity to permanent employees reaching minimum period

of 5 years of continuous service and typically every 5 years thereafter. This plan has been

discontinued by the Bank in 2017. The Bank has recognised a net liability of Nil for this gratuity

plan as at 31 December 2018 (2017 – Nil).

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 4.4 million for this new gratuity plan (retirement

benefit) as at 31 December 2018 (2017 – SCR 3.8 million).

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 2018, the weighted-average duration of the defined benefit obligation is 19

years for the compensation plan, not applicable for the gratuity plan and 19 years for the

retirement benefit plan (2017 – 19 years for the compensation plan, not applicable for the

gratuity plan and 20 years for the retirement benefit plan).

(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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 22. OTHER LIABILITIES (CONTINUED)

(b) Sensitivity analysis (continued)

Compensation plan New gratuity plan Increase

SCR’ 000

Decrease

SCR’ 000

Increase

SCR’ 000

Decrease

SCR’ 000 2018

Discount rate (1% increase)

- 2,403 - 751

Discount rate (1% decrease)

3,061 - 959 -

2017 Discount rate (1% increase) - 2,116 -

662

Discount rate (1% decrease) 2,700 - 847

-

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

2018 2017 SCR’ 000 SCR’ 000

Purchases outstanding - Extended Fund Facility

483,311 577,704

Allocation of Special Drawing Rights 161,517 163,193IMF no. 1 account 1,141 1,062IMF no. 2 account 17 16 -------------- -------------- 645,986 741,975 ======== ======== Current 96,672 86,846Non-current 549,314 655,129 -------------- -------------- 645,986 741,975 ======== ========


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 (2017 – 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 878.5

million as at the reporting date (2017 – SCR 902.5 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. Total repayments made throughout the year 2018 under the EFF amounted

to XDR 4.54 million (2017 – XDR 3.58 million). As at 31 December 2018, the outstanding

repurchase amount relating to the EFF stood at XDR 24.78 million (2017 – XDR 29.32 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, which is now in its second year, 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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 23. INTERNATIONAL MONETARY FUND OBLIGATIONS (CONTINUED)

The repayment terms for the purchases outstanding are as follows: 2018 2018 2017 2017 XDR’ 000 SCR’ 000 XDR’ 000 SCR’ 000 1 – 3 years 14,123 275,431 14,594 287,552Over 3 years 10,660 207,880 14,726 290,152 -------------- -------------- -------------- --------------Total 24,783 483,311 29,320 577,704 ======== ======== ======== ========

24. STATUTORY CAPITAL 2018 2017 SCR’ 000 SCR’ 000

Authorised capital 130,227 130,227General reserve 174,839 192,081

-------------- -------------- 305,066 322,308 ======== ========

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 6.56 percent of total monetary

liabilities (2017 – 7.26 percent). As at the reporting date the authorised capital was fully paid

up.

As indicated in Note 6, where the Bank has distributable earnings for any financial year, 50

percent of those distributable earnings shall be distributed to authorised capital and General

reserve, subject to the limits stated therein. However, where the distributable earnings of the

Bank is less than zero, they shall be offset against the General reserve. For the year 2018, the

bank recorded negative distributable earnings amounting to SCR 17.2 million (2017 – positive

SCR 1.2 million) which was offset against General reserve and the transfer made to authorised

capital was Nil (2017 – SCR 0.6 million).

Following the above, the authorised capital and General reserve stand at 2.80 percent (2017

– 2.93 percent) and 3.76 percent (2017 – 4.33 percent) of monetary liabilities, respectively.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 24. STATUTORY CAPITAL (CONTINUED)

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. For

the year 2018, no recapitalisation was required (2017 – Nil).

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 2018

amounted to SCR 525.1 million (2017 – SCR 431.0 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 2018

amounts to a shortage of SCR 3.16 million (2017 – shortage of SCR 2.96 million).

27. INTEREST INCOME

2018 2017 SCR’ 000 SCR’ 000

Interest on investment securities 65,707 85,563 Interest on deposits with banks 120,178 73,292 Interest on advances to staff and local banks 4,076 3,573

-------------- -------------- 189,961 162,428

======== ========

28. INTEREST EXPENSE

2018 2017 SCR’ 000 SCR’ 000

Interest on Deposit Auction Arrangement 31,578 24,790 Other interests 1,417 630

-------------- -------------- 32,995 25,420

======== ========

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 29. FEES AND COMMISSION INCOME

2018 2017 SCR’ 000 SCR’ 000

Commission income 21,360 18,929 Licence fees – Financial institutions 5,699 5,812 Licence fees – Payment service providers 50 85 Others 946 1,589

-------------- -------------- 28,055 26,415

======== ========

30. GAINS AND LOSSES ARISING FROM FOREIGN CURRENCY TRANSACTIONS

2018 2017 SCR’ 000 SCR’ 000

Gains arising from dealings in foreign currency transactions – realised 4,146 5,452 Gains arising from dealings in foreign currency transactions – unrealised 1 - Gains arising from fair value of financial assets at fair value through profit or loss – realised 15,589 10,803 Gains arising from fair value of financial assets at fair value through profit or loss – unrealised 34,140 14,962 Gains arising from revaluation of foreign currency monetary assets and liabilities – unrealised 54,645 73,387

-------------- -------------- 108,521 104,604 ======== ========

31. STAFF COSTS

2018 2017 SCR’ 000 SCR’ 000

Salaries and allowances 68,357 61,586Staff training 13,528 13,802Gratuity costs 11,624 8,835Compensation costs 2,292 1,996Termination benefits 226 -Post-employment benefits 3,706 5,680Other staff costs 5,305 4,546 -------------- -------------- 105,038 96,445 ======== ========

32. CURRENCY EXPENSES

2018 2017 SCR’ 000 SCR’ 000

Banknotes and coins expense 383 1,163 Amortisation of currency replacement cost (Note 13) 12,330 10,018 -------------- --------------

12,713 11,181 ======== ========

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 33. PROFESSIONAL CHARGES

2018 2017 SCR’ 000 SCR’ 000

Fees payable to auditor: – Statutory audit (including disbursements) 1,449 1,313 Consultancy fees 5,452 3,242 Legal fees 80 84 Directors fees and allowances 903 622 Others 1,677 138 -------------- -------------- 9,561 5,399 ======== ========

34. EXPECTED CREDIT LOSS ON FINANCIAL ASSETS

2018 2017 SCR’ 000 SCR’ 000

Net losses from expected credit loss on Balances held abroad (165) - Net gains from expected credit loss on holdings of Special Drawing Rights and Reserve tranche with IMF 1 - Net gains from expected credit loss on other balances and placements held abroad 73 - Net losses from expected credit loss on investment in Government treasury bills (12) - Net losses from expected credit loss on staff loans (117) - Net gains from expected credit loss on staff loans – stage 3 81 - -------------- -------------- (139) - ======== ========

Aggregate net losses on ECL on financial assets as at 1 January 2018 amounted to SCR 3.9

million (2017 – Not applicable).

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 35. NET CASH FLOWS FROM OPERATING ACTIVITIES

2018 2017 SCR’ 000 SCR’ 000 Profit for the year 80,821 90,020

Adjustments for: - Interest income (189,961) (162,428)- Interest expense 32,995 25,420 - Impairment loss on property and equipment 4,255 - - Depreciation and amortisation charges 8,728 6,972 - Amortisation of currency replacement costs 12,330 10,018 - Prepaid employee benefits 2,266 2,035 - Expected credit loss on financial assets 139 - - Loss/(profit) on disposal of property and equipment 2 (46)- Unrealised fair valuation and exchange gains (81,510) (226,603)- Realised fair valuation and exchange gains (15,589) (10,803) -------------- -------------- (145,524) (265,415) Changes in: - Loans and advances (3,763) (4,354)- Other assets (5,166) 1,697 - Currency in circulation 44,856 108,328 - Deposits 12,145 136,054 - Open Market Operations 140,000 95,000 - Other liabilities 5,485 (22,677)- Provisions for employee benefits (10) 10,527 - International Monetary Fund obligations (95,989) 82,331 -------------- -------------- Cash (used in)/from operating activities (47,966) 141,491 Interest paid (31,703) (25,753) -------------- -------------- Net cash (outflow)/inflow from operating activities (79,669) 115,738 ======== ========

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 36. 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:

36.1 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.

36.2 Investment in Government Securities

2018 2017 SCR’ 000 SCR’ 000

182-day treasury bills 747,053 935,053 365-day treasury bills 438,000 250,000 -------------- -------------- Total face value 1,185,053 1,185,053

Accrued interest 13,070 7,352 -------------- -------------- Total Investment in Government Securities 1,198,123 1,192,405 ======== ========

Other transactions with the Government consist of receipts and payments in SCR made on

behalf of the Government.

2018 2017 SCR’ 000 SCR’ 000

Purchase of foreign currency 1,184,989 815,020 ======== ========

Sale of foreign currency 1,035,810 1,409,302 ======== ========

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 36. RELATED PARTY TRANSACTIONS (CONTINUED)

36.2 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.

36.3 Deposits from Government

The deposits with Government as at 31 December 2018 are disclosed in Note 17.

36.4 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:

2018 2017 SCR’ 000 SCR’ 000 Salary and allowances 4,413 3,457 Gratuity costs 1,817 661 Car benefits 198 163 Post-employment benefits 3,161 1,739 Others 280 250 -------------- -------------- Total 9,869 6,270 ======== ========

Movements in loans to key management personnel are as follows:

2018 2017 SCR’ 000 SCR’ 000

Balance as at 1 January 928 1,906 Total repayments (928) (444)Transfer - (534) -------------- -------------- Balance as at 31 December - 928 ======== ========

Loans to key management personnel are approved and disbursed as per the Bank’s loan

policy. In 2018, the outstanding loan balance of SCR 0.93 million was repaid in full. As such,

there were no loans to key management personnel outstanding as at 31 December 2018 (2017

– SCR 0.93 million). In accordance with Section 44(1) of the CBS Act no loans are granted to

Non-Executive Board members.


37. COMMITMENTS

Commitments not otherwise provided for in the financial statements and which existed at

31 December 2018 are as follows:

37.1 Capital Subscription in Afreximbank

The Bank has a commitment to pay on call USD 0.79 million (2017 – USD 0.74 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.

37.2 Advances made to the Seychelles Government (included in Note 3.18(a))

The Bank is mandated under Section 40(1) of the CBS Act, 2004 as amended to grant temporary

advances in SCR to the government in respect of temporary deficiencies of revenue. For the

year 2018, no advances were made to the Government (2017 – Nil). The overall borrowing limit

for the year 2018 of SCR 1.29 billion (2017 – SCR 1.29 billion) comprised of investment

securities of SCR 1.19 billion (2017 – SCR 1.19 billion) and the approved borrowing limit of

SCR 100.0 million (2017 - SCR 100.0 million) on short-term advances to the government to

meet any revenue shortfall. This overall borrowing limit stood at 18.0 percent (2017 – 18.0

percent) of total government’s 2017 revenues.

37.3 Employee loans approved but not yet disbursed

The Bank has a loans policy under which it disburses loans for its staff at a preferential rate.

For the year 2018, staff loans approved but not yet disbursed amounted to SCR 3.8 million

(2017 – SCR 1.2 million). Employees shall be eligible for loans under the loans policy if they

have worked with the Bank for a continuous period of at least 2 years from the date of

appointment or they have worked with the Bank for a continuous period of at least 2 years from

the date of appointment. All loans are disbursed in full in one instalment except for loans for

personal residential housing which is disbursed in a minimum of three instalments and in the

case of loans for further education whereby the amount of the loan shall be drawn in annual

instalments.

37.4 Emergency Lending Facility

The Bank has an emergency liquidity support facility primarily aimed at preventing severe and

persistent short-term liquidity problems in a bid to safeguard banks from insolvency events and

to avoid bank runs. As at year end 2018, the total lending under this facility was Nil (2017 –

Nil). Access to this facility requires banks to provide adequate and sufficient collateral.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. 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.

38.1 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.

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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED)

38.1 Market risk (continued)

(a) Interest rate risk (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 and up to 1 month

1 to 3 months

3 to 12 months

1 to 5 years

Over 5 years

Non-interest bearing

Total

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000As at 31 December 2018

Financial assets Cash and cash equivalents 4,768,541 174,579 - - - 9,421 4,952,541

Other balances and placements 290,875 - 899,684 - - - 1,190,559 Financial assets at fair value through profit or loss - - 278,552 1,136,830 174,960 - 1,590,342

Investment securities1 - - 1,195,567 - - - 1,195,567

Loans and advances 200 402 2,366 12,060 23,653 326 39,007 -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total financial assets 5,059,616 174,981 2,376,169 1,148,890 198,613 9,747 8,968,016 -------------- -------------- -------------- -------------- -------------- -------------- -------------- Financial liabilities Currency in circulation - - - - - 1,373,111 1,373,111

Deposits from Government - - - - - 2,982,990 2,982,990

Deposits from banks - - - - - 2,306,293 2,306,293

Deposits from other financial

institutions - - - - - 90,898 90,898

Other deposits - - - - - 38,367 38,367 Open Market Operations 846,528 - - - - - 846,528 International Monetary Fund obligations 6,163 3,575 86,934 339,970 209,344 - 645,986 -------------- -------------- -------------- -------------- -------------- -------------- --------------Total financial liabilities 852,691 3,575 86,934 339,970 209,344 6,791,659 8,284,173 -------------- -------------- -------------- -------------- -------------- -------------- -------------- Net financial position 4,206,925 171,406 2,289,235 808,920 (10,731) (6,781,912) 683,843

======== ======== ======== ======== ======== ======== ======== 1 Though Investment securities mature within 12 months, it is the intention of the Bank to hold the asset to perpetuity.


38. 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 securities2 - - 1,192,405 - - - 1,192,405Loans 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

======== ======== ======== ======== ======== ======== ========

2 Though Investment securities mature within 12 months, it is the intention of the Bank to hold the asset to perpetuity.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED) 38.1 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

2018 2017 2018 2017 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 Impact of: An increase of 100 basis points in the domestic market interest rates 248 177

496

354 A decrease of 100 basis points in the domestic market interest rates (248) (177) (496) (354) An increase of 100 basis points in the market interest rates for foreign currencies 136 145

272

290 A decrease of 100 basis points in the market interest rates for foreign currencies (136) (145) (272) (290)

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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED) 38.1 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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED)



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

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 As at 31 December 2018 Financial assets Cash and cash equivalents 100,870 4,452,983 36,684 149,934 - 26 55 4,974 207,015 4,952,541 Other Balances and placements - 1,190,559 - - - - - - - 1,190,559 Financial assets at fair value through profit or loss

-

1,590,342

-

-

-

-

-

-

-

1,590,342

Investment securities - - - - 1,195,567 - - - - 1,195,567 Loans and advances - - - - 39,007 - - - - 39,007 --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- Total financial assets 100,870 7,233,884 36,684 149,934 1,234,574 26 55 4,974 207,015 8,968,016 --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------

Financial liabilities

Currency in circulation - - - - 1,373,111 - - - - 1,373,111 Deposits from Government 156,744 354,513 918 68,806 2,402,009 - - - - 2,982,990 Deposits from banks 354,105 631,491 - - 1,320,697 - - - - 2,306,293 Deposits from other financial Institutions - - - -

90,898 - - - -

90,898

Other deposits 472 5,037 200 - 32,658 - - - - 38,367 Open Market Operations - - - - 846,528 - - - - 846,528 International Monetary Fund obligations

-

-

-

644,828

1,158

-

-

-

-

645,986

--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- Total financial liabilities 511,321 991,041 1,118 713,634 6,067,059 - - - - 8,284,173 --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- Net financial position (410,451) 6,242,843 35,566 (563,700) (4,832,485) 26 55 4,974 207,015 683,843 ========= ========= ========= ========= ========= ========= ========= ========= ========= =========


38. FINANCIAL RISK MANAGEMENT (CONTINUED) 38.1 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 CNY TOTAL

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 As at 31 December 2017 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 ======== ======== ======== ======== ======== ======== ======== ======== ======== ========

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED) 38.1 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

2018 2017 2018 2017 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 265,217 272,700 265,217 272,700 A depreciation of 5% in the value of the Seychelles Rupee against all other currencies (265,217) (272,700) (265,217) (272,700)

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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED) 38.1 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

2018 2017 2018 2017 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000

Impact of: An increase of 5% in the market price of foreign investments 79,517 77,023 79,517 77,023 A decrease of 5% in the market price of foreign investments (79,517) (77,023) (79,517) (77,023) 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.

38.2 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.

Credit risk also arises from loans and advances. Staff loans are managed by the Bank under

the ambit of the staff loans policy which is approved by the Board. Depending on the staff

loans category, appropriate security or collateral is taken in order to limit the impact of any

potential default event. It is to be noted that whilst the staff is still employed with the Bank the

risk of default is very unlikely in view that loan repayments are taken directly from salary and

other dues which ensures that all loans remain fully serviced.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED) 38.2 Credit risk (continued) (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.

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 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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED) 38.2 Credit risk (continued) (a) Credit risk measurement (continued)

2018 2017

Credit Rating

% of % ofAmount Financial Amount Financial

SCR’ 000 Assets

SCR’ 000 AssetsFinancial assets Cash and cash equivalents – Demand deposits AAA 439,273 4.90% - 0.00% AA 280,964 3.13% 826,961 9.40% A 819,405 9.14% 343,140 3.90%

BBB - 0.00% 4,236 0.05% BBB- 4,974 0.06% - 0.00% N/R 3,248,060 36.22% 1,118,074 12.71%

– SDR holdings and reserve tranche

N/R 149,933 1.67%

162,050

1.84%

– Foreign currency cash AA 338 0.004% 1,251 0.01% No risk 9,594 0.106% 9,411 0.11% Other balances and placements AA 175,094 1.95% 281,543 3.20% A - 0.00% 1,112,882 12.65% N/R 1,015,465 11.32% 2,167,918 24.65% Financial assets at fair value through profit or loss AAA 1,267,091 14.13% 159,859 1.82% AA 148,291 1.65% 1,241,955 14.12% BBB+ 143,332 1.60% - 0.00% BBB- - 0.00% 138,636 1.58% N/R 31,628 0.35% - 0.00% Investment in Government securities BB- 1,195,567 13.33% - 0.00% B+ - 0.00% 1,192,405 13.56% Loans and advances N/R 39,007 0.43% 35,244 0.40% -------------- -------------- -------------- --------------

8,968,016 100.00% 8,795,565 100.00% ======== ======== ======== ========


The estimation of credit exposure for risk management purposes requires the use of models,

as the exposure varies with changes in market conditions, expected cash flows and the

passage of time. The assessment of credit risk of a portfolio of assets entails further

estimations as to the likelihood of defaults occurring, of the associated loss ratios and of default

correlations between counterparties. The Bank measures credit risk using Probability of

Default (“PD”), Exposure at Default (“EAD”) and Loss Given Default (“LGD”).

Balances with other banks and financial institutions, including other central banks

The Bank uses external credit risk ratings that reflect its assessment of the probability of default

of individual and sovereign counterparties.

The credit grades are calibrated such that the risk of default increases at each higher risk grade.

Staff Loans

After the date of initial recognition, for staff loans, the default event is determined as the staff

leaving the Bank, having loans and not settled within 6 months as per stated policy.

Expected credit loss measurement

IFRS 9 outlines a 'three-stage' model for impairment based on changes in credit quality since

initial recognition as summarised below:

A financial instrument that is not credit-impaired on initial recognition is classified in 'Stage

1' and has its credit risk continuously monitored by the Bank.

If a significant increase in credit risk (“SICR”) since initial recognition is identified, the

financial instrument is moved to 'Stage 2' but is not yet deemed to be credit-impaired.

Please refer to Note 38.2 for a description of how the Bank determines when a significant

increase in credit risk has occurred.

If the financial instrument is credit-impaired, the financial instrument is then moved to 'Stage

3'. Please refer to Note 38.2 for a description of how the Bank defines credit-impaired and

default.


Financial instruments in Stage 1 have their ECL measured at an amount equal to the

portion of lifetime expected credit losses that result from default events possible within the

next 12 months. Instruments in Stages 2 or 3 have their ECL measured based on expected

credit losses on a lifetime basis. Please refer to Note 38.2 for a description of inputs,

assumptions and estimation techniques used in measuring the ECL.

A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider

forward looking information. Note 38.2 includes an explanation of how the Bank has

incorporated this in its ECL models.

Further explanation is also provided of how the Bank determines appropriate groupings when

ECL is measured on a collective basis (refer to Note 38.2).

The key judgements and assumptions adopted by the Bank in addressing the requirements of

the standard are discussed below:

Significant increase in credit risk (SICR)

The Bank considers a financial instrument to have experienced a significant increase in credit

risk when one or more of the following quantitative, qualitative or backstop criteria have been

met:

Quantitative criteria

The remaining life time PD at the reporting date has increased, compared to the residual

lifetime PD expected at the reporting date when the exposure was first recognised.

Balances with other banks and financial institutions, including other central banks: This is

determined by a change/downgrade in external rating and depending on the original rating

more than one may be needed to trigger a SICR transfer. Many of these exposures are short-

term so it should be noted that the ratings changes required to trigger SICR would have to

happen in a very short-timeframe.

Investment Securities will follow a similar approach to other counterparty exposures above.

This is a longer term exposure and the effect to moving to a lifetime ECL would be significant.


Qualitative criteria

The assessment of SICR incorporates forward-looking information in so far as the external

ratings are constructed to reflect macro-economic outlook and impact.

Backstop

A backstop is applied and the financial instrument considered to have experienced a significant

increase in credit risk if the borrower is more than 30 days past due on its contractual payments.

The Bank has not used the low credit risk exemption for any financial instruments in the year

ended 31 December 2018.

Definition of default and credit-impaired assets

The Bank defines a financial instrument as in default, which is fully aligned with the definition

of credit-impaired, when it meets one or more of the following criteria:

Quantitative criteria

The borrower has failed to meet contractual obligations on repayment being either 90 days in

arrears or in the case of staff lending has left the Bank and failed to meet contractual

requirement on settling outstanding loan.

Qualitative criteria

The borrower meets unlikeliness to pay criteria, which indicates the borrower is in significant

financial difficulty. These are instances where:

The borrower is in long-term forbearance

The borrower is insolvent

The borrower is in breach of financial covenant(s)

An active market for that financial asset has disappeared because of financial difficulties

Concessions have been made by the lender relating to the borrower's financial difficulty

It is becoming probable that the borrower will enter bankruptcy


The criteria above have been applied to all financial instruments held by the Bank and are

consistent with the definition of default used for internal credit risk management purposes. The

default definition has been applied consistently to model the Probability of Default (PD),

Exposure at Default (EAD) and Loss given Default (LGD) throughout the Bank's expected loss

calculations.

An instrument is considered to no longer be in default (i.e. to have cured) when it no longer

meets any of the default criteria for a consecutive period of six months.

Measuring ECL — Explanation of inputs, assumptions and estimation techniques

The ECL is measured on either a 12-month (12M) or Lifetime basis depending on whether a

significant increase in credit risk has occurred since initial recognition or whether an asset is

considered to be credit-impaired. Expected credit losses are the discounted product of the

Probability of Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD), defined

as follows:

The PD represents the likelihood of a borrower defaulting on its financial obligation (as per

"Definition of default and credit-impaired" above), either over the next 12 months (12M PD),

or over the remaining lifetime (Lifetime PD) of the obligation.

EAD is based on the amounts the Bank expects to be owed at the time of default, over the

next 12 months (12M EAD) or over the remaining lifetime (Lifetime EAD). For example, for

a revolving commitment, the Bank includes the current drawn balance plus any further

amount that is expected to be drawn up to the current contractual limit by the time of default,

should it occur.

Loss Given Default (LGD) represents the Bank's expectation of the extent of loss on a

defaulted exposure. LGD varies by type of counterparty, type and seniority of claim and

availability of collateral or other credit support. LGD is expressed as a percentage loss per

unit of exposure at the time of default (EAD). LGD is calculated on a 12-month or lifetime

basis, where 12-month LGD is the percentage of loss expected to be made if the default

occurs in the next 12 months and Lifetime LGD is the percentage of loss expected to be

made if the default occurs over the remaining expected lifetime of the loan.


The ECL is determined by projecting the PD, LGD and EAD for each future month and for each

individual exposure or collective segment. These three components are multiplied together

and adjusted for the likelihood of survival (i.e. the exposure has not prepaid or defaulted in an

earlier month). This effectively calculates an ECL for each future month, which is then

discounted back to the reporting date and summed. The discount rate used in the ECL

calculation is the original effective interest rate or an approximation thereof.

The Lifetime PD is developed by applying a maturity profile to the current 12M PD. The maturity

profile looks at how defaults develop on a portfolio from the point of initial recognition

throughout the lifetime of the loans. The maturity profile is based on historical observed data

and is assumed to be the same across all assets within a portfolio and credit grade band. This

is supported by historical analysis.

The 12-month and lifetime EADs are determined based on the expected payment profile, which

varies by product type.

For amortising products and bullet repayment loans, this is based on the contractual

repayments owed by the borrower over a 12month or lifetime basis. This will also be

adjusted for any expected overpayments made by a borrower. Early repayment/refinance

assumptions are also incorporated into the calculation.

For revolving products, the exposure at default is predicted by taking current drawn balance

and adding a "credit conversion factor" which allows for the expected drawdown of the

remaining limit by the time of default. These assumptions vary by product type and current

limit utilisation band, based on analysis of the Bank's recent default data.

The 12-month and lifetime LGDs are determined based on the factors which impact the

recoveries made post default. These vary by product type. LGDs are typically set at product

level due to the limited differentiation in recoveries achieved across different borrowers. These

LGDs are influenced by collection strategies, including contracted debt sales and price.

Forward-looking economic information is also included in determining the 12-month and

lifetime PDs, EADs and LGDs. These assumptions vary by product type. Refer to the note

overleaf for an explanation of forward-looking information and its inclusion in ECL calculations.


The assumptions underlying the ECL calculation — such as how the maturity profile of the PDs

and how collateral values change etc. — are monitored and reviewed on a quarterly basis or

upon new parameters being released by the ratings agencies.

There have been no significant changes in estimation techniques or significant assumptions

made during the reporting period.

Forward-looking information incorporated in the ECL models

The assessment of SICR and the calculation of ECL both incorporate forward-looking

information on the corporate and sovereign exposures derived through the external rating and

outlook.

On staff lending the data is very sparse and does not practically lend itself to macroeconomic

modelling without undue cost and effort. A Pluto-Taasche adjustment is applied to the staff

loan parameters to allow for volatility and prudence.

As with any economic forecasts, the projections and likelihoods of occurrence are subject to a

high degree of inherent uncertainty and therefore the actual outcomes may be significantly

different to those projected. The Bank considers these forecasts to represent its best estimate

of the possible outcomes and has analysed the non-linearities and asymmetries within the

Bank's different portfolios to establish that the chosen scenarios are appropriately

representative of the range of possible scenarios.

Management overlays can also be applied should they seen to be justified, as approved by the

Board.

Sensitivity analysis

The most significant assumptions affecting the ECL allowance are as follows:

The level of rating downgrade needed to trigger SICR on sovereign exposure and invoke a

lifetime ECL calculation. Depending on the rating at origination, a downgrade of 1,2 or 3+

notches is required to trigger a significant increase in credit risk and set using the ratings

PD ranges. For investment securities a downgrade of 3 notches from current rating would

trigger a lifetime ECL calculation and an overall ECL impact in the range of SCR 60.0

million. A downgrade of one notch would have an ECL impact of SCR 2.2 million.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED) 38.2 Credit risk (continued)

(a) Credit risk measurement (continued)

The adoption of a LGD of 45% on sovereign exposures. Recent industry research has

shown this LGD to range between 13% and 73% with an average in the range of 35-45%.

Applying the LGD at the upper end of the range as a sensitivity has an ECL impact of SCR

1.75 million.

The benchmarking and assumptions used in the setting the ECL parameters for staff

lending given the low loan volumes and very limited default history. This has been offset

by invoking a Pluto-Taasche calculation to set some upper confidence limits. Additional

information will be need to be gathered and incorporated over time.

Grouping of instruments for losses measured on a collective basis

For expected credit loss provisions modelled on a collective basis, a grouping of exposures is

performed on the basis of shared risk characteristics, such that risk exposures within a group

are homogeneous.

In performing this grouping, there must be sufficient information for the group to be statistically

credible. Where sufficient information is not available internally, the Bank has considered

benchmarking internal/external supplementary data to use for modelling purposes. The

appropriateness of groupings is monitored and reviewed on a periodic basis by the Bank. The

characteristics and any supplementary data used to determine groupings are outlined below:

Loss allowance

The loss allowance recognised in the period is impacted by a variety of factors, as described

below:

Transfers between Stage 1 and Stages 2 or 3 due to financial instruments experiencing

significant increases (or decreases) of credit risk or becoming credit-impaired in the period,

and the consequent "step up" (or "step down") between 12-month and Lifetime ECL;

Additional allowances for new financial instruments recognised during the period, as well

as releases for financial instruments de-recognised in the period;

Impact on the measurement of ECL due to changes in PDs, EADs and LGDs in the period,

arising from regular refreshing of inputs to models;

Impacts on the measurement of ECL due to changes made to models and assumptions;

Discount unwind within ECL due to the passage of time, as ECL is measured on a present value basis;



Foreign exchange retranslations for assets denominated in foreign currencies and other

movements; and

Financial assets derecognised during the period and write-offs of allowances related to

assets that were written off during the period.

The following tables explain the changes in the loss allowance between the beginning and the

end of the year due to these factors:

Stage 1

Stage 2 Stage 3

12-month ECL

Lifetime ECL

Lifetime ECL Total

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 Loss allowance as at 1 January 2018 3,323 - 605 3,928

Movements with P&L impact Modification of contractual cash flows of financial assets

220 - (81) 139

---------- ---------- ---------- ---------- Loss allowance as at 31 December 2018 3,543 - 524 4,067 ====== ====== ====== ======

Write-off policy

The Bank writes off financial assets, in whole or in part, when it has exhausted all practical

recovery efforts and has concluded there is no reasonable expectation of recovery. Indicators

that there is no reasonable expectation of recovery include (a) ceasing enforcement activity

and (b) where the Bank's recovery method is foreclosing on collateral and the value of the

collateral is such that there is no reasonable expectation of recovering in full.

The Bank may write-off financial assets that are still subject to enforcement activity. The

outstanding contractual amounts of such assets written off during the year ended 31 December

2018 was Nil (2017 – Not applicable). The Bank will seek to recover amounts it is legally owed

in full, but which have been partially written off due to no reasonable expectation of full

recovery.



Exposure to Credit Risk

Maximum exposure to credit risk — Financial instruments subject to impairment

The following table contains an analysis of the credit risk exposure of financial instruments for

which an ECL allowance is recognised. The gross carrying amounts of financial asses below

also represent the Bank’s maximum exposure to credit risk on these assets.

2018

2017

Stage 1 12-month

ECL

Stage 2 Lifetime

ECL

Stage 3 Lifetime

ECL Total Total

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 Investment grade 7,343,971 - - 7,343,971 7,234,088

Standard monitoring 43,536 - - 43,536 36,471

Default - - 1,321 1,321 1,525 -------------- -------------- -------------- -------------- ------------- Gross carrying amount 7,387,507 - 1,321 7,388,828 7,272,084

Loss allowance (3,543) - (524) (4,067) (3,928) -------------- -------------- -------------- -------------- -------------- Carrying amount 7,383,964 - 797 7,384,761 7,268,156 ======== ======== ======== ======== ========

Collateral and other credit enhancements

The Bank has collateral for certain categories of staff loans in the form of guarantees, charges,

property and pledge of insurance.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED) 38.2 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

2018. 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 2018

Financial assets

Cash and cash equivalents 3,562,044 589,207 9,594 412,827 373,895 4,974 4,952,541Other balances and placements 1,015,465 - - 175,094 - - 1,190,559Financial assets at fair value through profit or loss 424,478 1,120,056 - 14,180 - 31,628 1,590,342Investment securities - - 1,195,567 - - - 1,195,567Loans and advances - - 39,007 - - - 39,007 -------------- -------------- -------------- -------------- -------------- -------------- --------------Total financial assets 5,001,987 1,709,263 1,244,168 602,101 373,895 36,602 8,968,016 ======== ======== ======== ======== ======== ======== ========

At 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

======== ======== ======== ======== ======== ======== ========

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

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED) 38.3 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

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED) 38.3 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 2018 Financial liabilities Currency in circulation 1,373,111 - - - - (1,373,111) 1,373,111 Deposits from Government 2,982,990 - - - - (2,982,990) 2,982,990 Deposits from banks 2,306,293 - - - - (2,306,293) 2,306,293 Deposits from other financial institutions 90,898 - - - - (90,898) 90,898Other deposits 38,367 - - - - (38,367) 38,367 Open Market Operations 846,753 - - - - (846,753) 846,528 International Monetary Fund obligations 6,163 6,407 94,710 365,895 218,827 (692,002) 645,986 -------------- -------------- -------------- ------------ -------------- -------------- -------------- Total financial liabilities 7,644,575 6,407 94,710 365,895 218,827 (8,330,414) 8,284,173 -------------- -------------- -------------- ------------ -------------- -------------- -------------- Financial assets Cash and cash equivalents 4,785,743 175,767 - - - 4,961,510 4,952,541Other balances and placements 292,693 - 909,024 - - 1,201,717 1,190,559 Financial assets at fair value through profit or loss - - 279,412 1,143,303 - 1,422,715 1,590,342 Investment securities - - 1,235,175 - - 1,235,175 1,195,567 Loans and advances 630 1,256 5,554 28,772 45,153 81,365 39,007 -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total financial assets 5,079,066 177,023 2,429,165 1,172,075 45,153 8,902,482 8,968,016 -------------- -------------- -------------- -------------- -------------- -------------- --------------

Net liquidity gap 2,565,509 (170,616) (2,334,455) (806,180) 173,674 (572,068) (683,843) ======== ======== ======== ======== ======== ======== ========

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED) 38.3 Liquidity risk (continued)

(a) Contractual maturity of financial assets and liabilities (continued)

Demand andup to 1month

1 to 3months

3 to 12months

1 to 5years

Over 5years

Gross nominal

inflow/(outflow)

Carrying amount

SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000At 31 December 2017 Financial liabilities Currency in circulation 1,328,255 - - - - (1,328,255) 1,328,255Deposits from Government 2,996,050 - - - - (2,996,050) 2,996,050Deposits from banks 2,180,209 - - - - (2,180,209) 2,180,209Deposits from other financial institutions 195,842 - - - - (195,842) 195,842Other deposits 34,302 - - - - (34,302) 34,302Open 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 2,465,123Other balances and placements 1,421,829 1,691,836 469,748 - - 3,583,413 3,562,343Financial 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 1,192,405Loans 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) ======== ======== ======== ======== ======== ======== ========

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38. FINANCIAL RISK MANAGEMENT (CONTINUED) 38.4 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 2018 statutory capital stood at 6.56 percent of monetary liabilities (2017 –

7.26 percent). In the event of 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.

38.5 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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 39. 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.

39.1 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:

2018 2017

Carrying value Fair value Carrying value Fair value SCR’ 000 SCR’ 000 SCR’ 000 SCR’ 000

Financial assets Investment securities 1,195,567 1,179,789 1,192,405 1,175,767 ======== ======== ======== ========

The fair value of investment securities classified at amortised cost 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 5.48

percent per annum for the 182-day treasury bills (2017 – 4.92 percent per annum) and 5.89

percent per annum for the 365-day treasury bills (2017 – 5.34 percent per annum). For all

other financial assets and liabilities, their carrying amounts are a reasonable approximation of

fair value.

39.2 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.

CENTRAL BANK OF SEYCHELLES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 39. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

39.2 Valuation models (continued)

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.

39.3 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.


39.3 Accounting classifications and fair values (continued)

Carrying amount Fair value

At fair value through profit or

loss

SCR' 000

At Amortised

Cost

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 2018 Financial assets measured at fair value

Financial assets at fair value through profit or loss 1,590,342 - - 1,590,342 1,067,189 348,193 174,960 1,590,342 ======== ======== ======== ======== ======== ======== ======== ======== Financial assets not measured at fair value Cash and cash equivalents - 4,952,541 - 4,952,541 - 4,952,541 - 4,952,541 Other balances and placements - 1,190,559 - 1,190,559 - 1,190,559 - 1,190,559 Investment securities - 1,195,567 - 1,195,567 - 1,179,789 - 1,179,789 Loans and advances - 39,007 - 39,007 - - - - -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total assets not measured at fair value - 7,377,674 - 7,377,674 - 7,322,889 - 7,322,889 ======== ======== ======== ======== ======== ======== ======== ======== Financial liabilities not measured at fair value

Currency in circulation - - 1,373,111 1,373,111 - - - - Deposit from Government - - 2,982,990 2,982,990 - - - - Deposit from banks - - 2,306,293 2,306,293 - - - - Deposit from other financial Institutions - - 90,898 90,898 - - - - Other deposits - - 38,367 38,367 - - - - Open Markets Operations - - 846,528 846,528 - 846,528 - 846,528 International Monetary Fund obligations - - 645,986 645,986 - 645,986 - 645,986 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total liabilities not measured at fair value - - 8,284,173 8,284,173 - 1,492,514 - 1,492,514

======== ======== ======== ======== ======== ======== ======== ========


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 39. FAIR VALUES OF FINANCIAL INSTRUMENTS (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

======== ======== ======== ======== ======== ======== ======== ========



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

2018 2017

SCR’ 000 SCR’ 000

Balance as at 1 January 138,637 26,512

Additions - 137,621 Change in fair value 36,323 3,279

-------------- -------------- Balance as at 31 December 174,960 167,412

======== ======== 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.

39.4 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:

40. TAXATION

The Bank is exempted from taxation under Section 49 of the CBS Act but is subject to payments

of value added tax and makes retention in respect of withholding taxes on services acquired

from foreign entities.

41. CURRENCY

The financial statements are presented in Seychelles Rupees and figures are stated in

thousands of Seychelles Rupees.

42. 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

Annex II

CBS List of Officers

Secretariat Designation Ms Caroline Abel Governor

Mr Christophe Edmond First Deputy Governor

Ms Jenifer Sullivan Second Deputy Governor

Mrs Maryse Tambara Board Secretary

Mr Jude Woodcock Chief Information Security Officer

Communications Unit Mrs Marie-Angele Thomas Communications Officer

Mrs Sharon Uranie Communications Officer

Legal Unit Ms Martine Faure Director

Ms Shannon Jolicoeur Senior Legal Officer

Mrs Tanya Thyroomoody Legal Officer

Ms Vivienne Confiance Legal Officer

Ms Annarose Clarisse Legal Officer

Internal Audit Division Mrs Danielle Michaud Director

Ms Vanessa Chang-Lam Internal Auditor

Ms Juliette Malbrook Internal Auditor

Mr Lenin Thyroomoody Information Systems Auditor

Risk Management Unit

Ms Laureenda Mathiot Risk Manager

Ms Antoinette Bistolet Risk Officer

Ms Prisila Laurence Risk Officer

Mr Kevin Fabien Business Continuity Manager

Administration Division Vacant Head of Division

Mr Francis Payet Director

Ms Nelcie Pierre Finance and Admin Officer

Mr Russel Moustache Building and Project Manager

Mr Philip Simeon Security Manager

Ms Yvonne Legaie Health and Safety Officer

Banking Services Division Mr Mike Tirant Head of Division

Mrs Noemie Gobine Director

Mrs Patricia Padayachy Senior Banking Officer

Mr Govani Valentin Banking Officer

Mr Terry Adrienne Banking Officer

Mr Michel Moustache Banking Officer

Mrs Cynthia Sophola Banking Officer

Ms Shannon Confiance Banking Officer

Mr Allen Marie-Therese Banking Officer

Mrs Jeannette Payet Senior Banking Officer

Ms Claire Pragassen Banking Officer

Mr Dean Hissen Lee Banking Officer

Mr Samuel Chang-Sam Banking Officer

Mr Charles Ally Banking Officer

Ms Vanessa Bijoux Senior Financial Reporting Officer

Ms Dianne Pillay Financial Reporting Officer

Ms Diane Alvis Financial Reporting Officer

Ms Sabrina Henriette Financial Reporting Officer

Mrs Angelique Korajkar Financial Reporting Officer

Mr Jude Adolphe Senior Currency and Numismatics Officer

Mr Christopher Rousseau Chief Vault Custodian

Ms Sylvia Woodcock Chief Cashier

Mr Harry Mwale Currency and Numismatics Officer

Ms Irianna Aglae Currency and Numismatics Officer

Financial Markets Division Ms Moyra Alexis Head of Division

Mrs Gina Rosette Director

Ms Vaithegi Naidu Senior Portfolio Analyst

Mr Paul Morel Portfolio Analyst

Mrs Shireen Jumaye-Hoareau Portfolio Analyst

Ms Aneesha Coopoosamy Portfolio Analyst

Mr Davis Laporte Senior Financial and Risk Analyst

Ms Sheera Philoe Financial and Risk Analyst

Ms Jessica Morel Financial and Risk Analyst

Mr Ron Bonne Financial and Risk Analyst

Ms Vanessa Valentin Financial and Risk Analyst

Mr Adolf Nourrice Financial and Risk Analyst

Ms Melissa Naiken Financial and Risk Analyst

Ms Shirley Mendes Market Operations Officer

Ms Marylene Chang-Him Market Operations Officer

Ms Elaine Desnousse Market Operations Officer

Mr Chris Loizeau Senior Settlement and Accounts Officer

Ms Sophie Morel Accounts Officer

Mr Fabien Bristol Accounts Officer

Ms Beverly Labiche Accounts Officer

Ms Sumita Zelia Settlement Officer

Ms Emma Larue Settlement Officer

Ms Anna Sinon Settlement Officer

Financial Surveillance Division Mr Naadir Hassan Head of Division

Mr Aaron Leong Pon Director

Mrs Samanta Esparon Senior Financial Surveillance Analyst

Ms Shirlee Agricole Senior Financial Surveillance Analyst

Mr Edouard Rose Senior Financial Surveillance Analyst

Ms Daniele Chetty Senior Financial Surveillance Analyst

Ms Joan Lespoir Senior Financial Surveillance Analyst

Mrs Vivienne Gertrude Financial Surveillance Analyst

Mrs Audrey Pothin Financial Surveillance Analyst

Mr Tyron Scholastique Financial Surveillance Analyst

Ms Rebecca David Financial Surveillance Analyst

Ms Selma Valentin Financial Surveillance Analyst

Ms Sammia Marchesseau Financial Surveillance Analyst

Mrs Nella Souris Financial Surveillance Analyst

Ms Stephanie Pillay Financial Surveillance Analyst

Mrs Charmine Fanchette Financial Surveillance Analyst

Ms Lana Woodcock Financial Surveillance Analyst

Ms Nathalie Violette Financial Surveillance Analyst

Mrs Lynn Commettant Financial Surveillance Analyst

Ms Mikaella Joubert Financial Surveillance Analyst

Mrs Tracy Julienne Financial Surveillance Analyst

Mr Cyril Benoiton Financial Surveillance Analyst

Mrs Sarah Lang Senior Financial Stability Analyst

Mr Nicholas Cetoupe Financial Surveillance Analyst

Ms Tahiri Lafleur Financial Stability Analyst

Human Resources Division Mrs Juliana AhThew-Rose Head of Division

Mrs Vanessa Dewea Director

Mrs Levina Françoise Senior Human Resources Officer

Ms Sacha Accouche Senior Human Resources Officer

Ms Christie Michel Human Resources Officer

Financial Inclusion and Market Conduct Division Mr James Jean Head of Division

Ms Liz Julienne Director

Ms Beggita Vital Senior Market Conduct Analyst

Ms Pauline Moustache Market Conduct Analyst

Ms Nadia Marcelin Market Conduct Analyst

Ms Sophie-Anne Larue Financial Inclusion Analyst

Mr Jonathan Valentin Financial Inclusion Analyst

Ms Brigitte Lucas Financial Inclusion Analyst

Ms Audrey Khan Financial Inclusion Analyst

Research and Statistics Division Mr Brian Commettant Head of Division

Mrs Hilda Palconit Director

Mr Lenny Palit Senior Economist

Ms Nadine Boniface Economist

Mr Naddy Marie Economist

Ms Audrey Rath Economist

Ms Trudy Lucas Economist

Ms Raghavi Naidu Economist

Mr Ragul Pillay Economist

Ms Dorotha Michel Senior Statistician

Mr Terence Payet Statistician

Ms Kathleen Nicette Statistician

Ms Suza Roselie Statistician

Mrs Jenny Sinon Statistician

Mr Craig Joseph Statistician

Ms Stephanie Jean-Louis Statistician

Mr Graham Adeline Statistician

Mr Andy Ally Statistician

Technical Services Division Mr Darell Edmond Head of Division

Vacant Director

Mr Desire Larue Senior Business Applications Administrator

Mr Riyad Moustache Business Applications Administrator

Mrs Shanthi Pillay Business Applications Administrator

Mr Gary Elisabeth Business Applications Administrator

Mr Rondy Monnaie Business Applications Administrator

Mr Gerry Sopha Senior Network Administrator

Mr Jose Hoffman Network Administrator

Mr Davis Dugasse Systems Administrator

Ms Velma Cafrine IT Governance Officer

Central Bank of SeychellesP.O. Box 701, Victoria, Mahé, Seychelles

Tel: +248 4282000Fax: +248 4224502

Email: [email protected]

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