Until 2008, Seychelles pursued astate-led economic model of self sufficiency whichultimately proved unsustainable. In 2008, precipitated byrising global commodity prices, Seychelles entered a balanceof payments and debt crisis, as international reserves werevirtually depleted and external debt service payments weremissed. The Government of Seychelles responded quickly byfloating the rupee and liberalizing the foreign exchangeregime, and agreeing a program with the InternationalMonetary Fund under a 2 year stand-by agreement in November2008. Although the liberalization of the exchange rate inNovember 2008 led to initial inflation rates in excess of 60percent, the relative prices shock was quickly absorbed.Annual inflation fell from a high of positive 63.3 percentin December 2008 to negative 1.0 in August 2010. As theprice and foreign exchange controls were lifted, theinformal market in foreign currency quickly disappeared.This Public Expenditure Review (PER) also provided the Bankwith an analytical basis to inform development policylending in 2010. The specific objectives of the review areto: (i) provide an update on the macroeconomic stabilizationefforts and changes to the fiscal policy for medium termdebt sustainability and a more efficient and affordablepublic sector; (ii) analyze key public enterprise reformissues, including a review of the recently introduced legaland institutional changes to improve governance andoversight of the sector; and (iii) review the performance ofthe social security and labor market and an assessment ofthe ability of the private sector to absorb employees beingretrenched as a result of the civil service reforms.
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