Financing resilience against climate change: The IMF grants a loan to Seychelles
The impacts of climate change on Seychelles’ economy are manifold. The IMF has decided to approve a loan of 103 million USD in favor of the island to support its economy and strengthen its ability to cope with the challenges of climate change.
With about 90 % of the population and most essential infrastructures concentrated along its coastal areas, rising sea levels expose Seychelles to coastal erosion, saltwater intrusion into freshwater sources, and infrastructure damage. The country’s beaches and coral reefs, major tourist attractions, are also threatened by climate change. Since tourism accounts for over 20 % of GDP and a quarter of jobs, these disturbances could have a significant economic impact. Similarly, climate changes affect fish populations, thus harming the economy and livelihoods of residents.
Seychelles has defined comprehensive adaptation and mitigation strategies in response to these challenges. The country aims to transition to renewable energy to achieve the goal of zero emissions by 2050. However, the costs of implementing these strategies are considerable, exceeding 600 million USD over the next ten years, or about 5 % of GDP per year. To finance these measures, Seychelles is seeking financial aid from international organizations. This is how Seychelles became the second African country, after Rwanda, to benefit from the IMF’s Resilience and Sustainability Facility (RSF). This facility aims to help countries address long-term challenges, such as climate change and pandemic preparedness, by providing financial and technical assistance. The RSF is expected to support Seychelles’ efforts to maintain macroeconomic stability, strengthen resilience to climate change, and promote sustainable development. The reforms proposed under the RSF focus on three main aspects: public investment and budget management, the financial sector, and mitigation and adaptation to climate change. Seychelles also plans to regularly track progress by assessing each reform measure against predetermined objectives while presenting updated information on their overall climate action program.
In addition to the RSF, Seychelles has already explored innovative financing options, such as issuing a sovereign blue bond in 2018. This initiative raised 15 million USD from international investors to support sustainable projects related to the marine and fisheries environment. The country is also considering other innovative financing options, including carbon emission rights trading and sustainable development bonds. Financial support will free up the necessary budget space to implement resilience-strengthening measures and mitigate the effects of climate change. In addition, the IMF provides technical assistance, and capacity building will help improve the country’s institutional and policy frameworks.
With this agreement, Seychelles continues its efforts to fight climate change while ensuring sustainable economic growth. Receiving financial aid from the IMF, as well as implementing groundbreaking funding techniques, will greatly fortify the nation’s ability to withstand upcoming climate-related obstacles.
Mias Sylvia
