This paper studies likely macroeconomicimpacts and social consequences of devaluation of theSeychelles rupee. Analyzing potential welfare impacts ofdevaluation ex ante is crucial for policy making, sinceinformation obtained from such analyses would allow policymakers to design cost-effective, well-targeted policymeasures, with the aim of mitigating negative socialconsequences of devaluation. Based on the estimated welfareimpact of devaluation, the paper considers mitigation policyoptions, and discusses their effectiveness and associatedbudgetary costs. The focus of this study is the likelyimpacts of devaluation on the prices, economy and socialwelfare. The reminder of the paper is structured as follows.Section two first analyzes Seychelles’ household expendituresurvey data and presents the incidence of poverty andinequality in Seychelles. Section three then discusses howthe Seychelles economy would adjust to an initialdevaluation of the US dollar value of the rupee by 45percent, followed by a gradual move to an equilibrium level.Projected macroeconomic variables and prices are applied tothe household survey data to estimate possible impacts onthe incidence of poverty. Section four discusses a varietyof policy measures designed to alleviate the adverse impactson the poor. Fiscal viability of these measures is alsodiscussed in this section. Section five concludes the paper.
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