Seychelles News
			2008 BUDGET ADDRESS
	Budget Address By the Minister for Finance - Mr Danny Faure December 14th 2007    Mr Speaker Leader of the Opposition Leader of Government Business Honourable Members of the National Assembly Seychellois Brothers and Sisters     1.      Introduction and Pre-amble Over these recent years, we have continuously fine-tuned and recalibrated our economy to make it more modern and more responsive to external forces often beyond our control. In doing so we have always alluded to the fact that as Seychelles reaches outwards to the world, so does the world reach closer and more quickly to our shores. This has never been more true than in these recent months, when we have taken the full brutal force of this fast-changing economic wave. Soaring world commodity prices and fast rising fuel prices – Seychellois have felt the impact, at home as well as during their travels. The world over, rich and poor, big and small, governments are urging their people to become more conscientious in their consumption and expenditure, to be more careful of resources, and to save more, while banks tighten their credit to corporations and individuals alike. In countries much richer and more resilient than us, governments have had to intervene to control the effects of rising market speculations, on the one hand, as well as to cushion the less well off in society against rampant price rises, on the other. Mr. Speaker, Seychelles has not been spared of the effects of these drastic developments, for we are very much part and parcel of the global village.   Our key role at the Ministry of Finance has been to monitor this situation very closely and manage their effects on our small economy, while we steer the financial management of the country so that it best delivers the mission and ambitions set out by President James Michel, and continues to guarantee the well-being and prospects of the Seychellois nation. Thus, 2007 has been a year of fiscal consolidation and one in which we have spared no effort to bring about the stability required within Seychelles’ macro-economic framework.  Yes, Mr Speaker, we have continually adapted and, as my Budget will outline,  we need to continue to show resilience, as well as remain innovative and nationally relevant in the face of challenges.  In this budget speech, I will first review the 2007 budget performance followed by a detour on international developments and a sectoral review within Seychelles. I will then outline the challenges we face and new measures the Government proposes to take in the light of such challenges facing our small country, under the theme: “Modernising Seychelles through Economic Change”. I will finally present you with the new 2008 budget estimates and its main highlights. 2.      Budgetary Performance 2007 I will start thus, Mr Speaker, by looking at the year 2007, and provide details to you of budgetary performance. This year, the forecasted surplus will be around SR 155 million which represents 3% of GDP.  Mr Speaker, members will recall that the original budget surplus for 2007 was 7% of GDP.  This, however, was not reached in the light of the negative external factors affecting our economic performance.  The 3% budget surplus that has been achieved is seen as a solid achievement in the light of the circumstances and extends to 5 the number of years that Government has been able to achieve a fiscal budget surplus. The government is expecting to collect SR 2.61 billion in revenue in 2007, exceeding the projected target by over SR 186 million or an 8% increase.   This is mainly due to recurrent revenues from our 3 main revenue streams increasing from SR1.19b to SR1.44b in addition to Statutory Transfers from Central Bank which has increased from the SR 40 million and anticipated at SR 150 million. Furthermore dividends from Nouvobanq have increased by SR 51 million. Trades tax that will be collected from Motor Vehicles will be SR 17.5 million or 29% above the 2007 target of SR 59.5 million. In addition to that, Business tax from companies surpassed the 2007 target of SR 257.4 million by over SR 19 million or 7% more. Most other revenue categories performed up to or above expectation providing compelling evidence that the underlying economic recovery is gaining in scope as well as in strength. Regarding expenditure targets, the trend shows that both development and recurrent expenditure have exceeded expectations. The targeted expenditure was SR 2.1 billion whilst we expect to complete the year with an expenditure of SR 2.45 billion, an excess of SR 358 million or 17% above the budgeted amount. This, Mr Speaker, is on the one hand due to subvention that Government has had to provide to PUC to absorb the increase in fuel price increases given that electricity prices have not been changed for at least 11 years despite PUC’s rising cost of fuel purchases in the same period. The Government also had to subsidise SMB by SR 48 million given that the latter, for most of this year, had not changed prices of its basic commodity goods, e.g. price of liquid milk has not changed for the past 15 years until recently. Another notable factor is the effect of the change in exchange rates to clear our debt. These additional payments were not budgeted for and we had to pay out an additional SR 35 million to clear our external debts.  Owing to an increase in exchange rate, an additional SR 19 million will also be needed, for overseas training fund for payments of tuition fees and stipends for our students who are studying overseas. Ministries and Departments’ expenditures are estimated to reach SR 996 million, an increase of close to SR 63 million or 7%, representing additional funding to cover unforeseen expenses. Capital projects will cost SR 320 million in 2007, compared to the budgeted SR 200 million.  The main component of the capital programme is housing which has been accelerated but which is costing more with the increase in cost of building materials. Therefore, the positive fiscal result, Mr Speaker, regardless of the unforeseen expenditure, is a direct result of the Government’s determined efforts to continue tightening fiscal policy and improving revenue collection, even if our country remains vulnerable to economic shocks notably with regards to sharp movements in fuel and commodity prices, interest and exchange rates. 3.      International Outlook By the end of the year, world economic developments point to an overall annual performance which compared less favourably relative to the start of the year.  Consequently, growth in annual global GDP has been revised downwards by most analysts. The contributing elements varied, but the main factors include the performance of the US – the world leading economy – and the rising global inflationary pressures.  Of important significance was also the turbulence experienced in the global financial markets which followed the fallouts from the U.S sub-prime mortgage market.  The effect has been a credit squeeze which has had spill-over effects on other economies. Whilst the US dollar remains one of the most accepted currencies worldwide, recent concerns over the US economy have resulted in sharp depreciation in the American currency, especially in relation to the euro and Pound sterling.  Many investors, including central banks have switched their holdings of US dollar in favour of other currencies, such as the euro.  Indeed, the interest differential between the main markets has also helped bring the US dollar to its lowest level compared to most major currencies.  Rising oil prices have pushed up energy costs.  From an average of US$50.79 per barrel in January this year, the price of oil has increased in recent times to around $100 per barrel.  Other important influencing factors included the ongoing geopolitical tensions in the main markets with the potential to affect supplies amid the strong global demand, particularly from China and India, coupled with concerns about oil inventories in the peak winter season.  Despite such developments, OPEC maintained that oil supply was sufficient and blamed the high prices on speculation about the weak US dollar.  Although a view not necessarily shared by OPEC, many analysts believe that the price of oil may surpass US$100 per barrel in the medium term. The oil price hike has not been an isolated event.  Several other commodities including precious metals, industrial inputs such as lead and nickel, as well as foods such as dairy products, wheat, coffee and edible oil, have during the year 2007 been traded at record highs.  Accelerated increases in food prices have been in many cases associated with low harvest due to unfavourable weather conditions in some countries and the increasing use of food items for bio-fuel production. Inflationary pressure has been more apparent in the developing and emerging markets relative to the advanced economies.  This reflects the relatively greater weight of food and energy prices in consumer price indices of developing countries.  According to the IMF World Economic Outlook (WEO), the contribution of food to worldwide inflation has increased from a quarter in 2000-2006 to more than a third in the first four months of 2007. 4.      Sectoral Overview a.    Health With this budget, we will continue to make progress in health care as one of our priorities.  Modern societies increasingly place quality of health at the top of national agenda. For this reason, we are also happy to note the national dialogue which has started to improve the efficiency in our health service provision, bearing in mind the country’s limited financial resources. Mr Speaker, there is a political commitment on the part of the Government and the National Assembly to make a difference where HIV-AIDS is concerned and help spread the message on the real dangers of this epidemic and to encourage people to do their HIV test early. As has been the case this year, the Government will continue to contribute SR1m to the National Aids Trust Fund. In terms of specific health infrastructure, Government’s priority in 2008, will be to complete the construction of the Beau Vallon Health Centre. Work will also begin on the refurbishment of the Mental Health Hospital at Les Canelles to provide for a more modern facility for medical and rehabilitative management of people with mental illness.  Mr. Speaker, as the cost of provision of health care continues to spiral upwards, we need to bear in mind that many costly and disabling conditions - cardiovascular diseases, diabetes and chronic respiratory diseases - are linked by common preventable risk factors. Tobacco use, unhealthy nutrition, physical inactivity, and excessive alcohol use are major causes and risk factors for these conditions. Some provisions are being made in this budget to address these. For example, in order to promote healthy nutrition, effective January 1st 2008, we are removing trades taxes on all imported slim milk, yogurt and soya milk.   We also believe Mr. Speaker that to promote prevention in health care, sensitization is crucial to bring about a change in thinking as well as to stimulate the commitment and action of patients and their families, health care teams and the community in general. In this regard, we believe that the public dialogue that has recently started to review public and private sector activities in health sector and roles and interaction among the stake holders, should continue vigorously. b.    Education In Education, Government will continue with its programme of upgrading of educational facilities.  In 2008 we will start construction of 2 new Primary Schools at Mont Fleuri and Au Cap. As for post secondary institutions, after some delays, construction of the Maritime Training School, the Seychelles Tourism Academy and the National Institute of Health and Social Studies will start next year. The huge investment in overseas training which currently stands at SR64m only for 2007, clearly demonstrates the righteousness of President Michel’s vision of a Seychelles University for the future human resource development of the country. We are happy to report a growing list of contributors to the Seychelles University Foundation ranging from individuals and private sector organisations to multi-lateral agencies. c.     Housing Government will continue its policy of assisting with the provision of affordable housing to the population and especially to those more in need. This can be seen through the various on-going housing projects in our districts.  I would like to note that the the infrastructural works on Ile Perseverance have started and the first phase of the housing development will be completed in 2009.The Housing Finance Corporation will have the added responsibility of managing the Government’s housing stock. Housing and loan repayments to HFC will be calculated depending on the means of each family. d.    Community Development Increase participation of the residents of the districts and ownership of programs by the community is an ideal to follow.  The Government 2008 budget will accelerate President Michel’s plan of decentralising services, reducing duplication of programmes, optimising both financial and physical resources and maximising the potential of human resources at community level. We shall continue to explore better avenues and ways to foster better and more harmonious community relations, as well as to bring services within better reach of districts.  Government will maintain its programme for the building of day care centres and a scheme to assist parents with the costs. The 2008 budget provides for sufficient resources for community based infrastructural projects that will allow for improved roads, health, recreational and other community based facilities. Government will invest SR6m in additional infrastructure to improve the working environment in district administration offices. e.     Agriculture As part of Government’s move towards enhancing agricultural production, we are now actively seeking a strategic partner that would bring in the necessary resources and know-how to set up a parent stock, expand the hatchery and invest in the animal feed factory. It is our hope that this will help increase local production of poultry and eggs in line with Government’s commitment to self sufficiency and improve food security. f.       Tourism Tourism arrivals in 2007 have been unprecedented achieving a growth level of 16% over the same period in 2006 which in itself was a record year. We are on track to surpass 160,000 tourist arrivals by the end of 2007, an increase of more than 20,000 tourist arrivals over 2006. This positive growth in the tourism sector continues to drive the expansion within tourism accommodation and other related industries such as car hire, charter boats, dive operations, etc.  The overall effect of this lift in tourism activity has generated positive spin-offs across the economy as a whole. This trend is expected to continue as more investments, both local and foreign, come on line in the next 3 years, e.g. completion of Eden Island, the Shangri-La Hotel on Long Island, Four Seasons Hotel at Petit Anse, T-Club Allamanda Hotel at Anse Forbans, Round Island Resort and the Ephilia Resort at Port Launay, Emirates Resort Cap Ternay, Qatar Resort Anse a la Mouche, Raffles Hotel Resorts at Anse Takamaka and Beachcomber Hotel on Praslin.. g.    Fisheries The total landed catch in in 2007 is expected to decrease compared to figures of 2006.  This is mainly due to a drop in fish catch which is linked to an El-Nino effect currently affecting many fishing grounds around the world. Nevertheless, much effort has been made to ensure that Seychelles benefits to the maximum in respect of its fish resources whilst at the same time ensuring that our fish resources are not unduly depleted and our environment remains pristine. Every Seychellois is aware of the economic importance of the IOT cannery and the employment opportunities that have been taken up by just over 1,300 Seychellois in addition to a further 1,000 positions being available but having to be currently filled by non Seychellois. Currently Government is negotiating with a major foreign investor for the setting up of a tuna loins factory together with supporting infrastructure which should see an extension to the commercial port facilities, a new cold store, net repair facilities, etc.  This will give rise to new job opportunities and new value added in this sector.       h.     Energy Infra-structure One of our primary focus next year, in terms of capital investment, will be to up-grade our energy infrastructure, so that it meets the growing needs of our people and the country’s development. With a view to improving electricity distribution, Government has signed a contract of $26m with the Exim Bank of China for the construction of a 33 kV network to South Mahe. These works are scheduled to start early next year. Provisions have also been made to improve the electricity distribution on Praslin and La Digue.  Work will start in the next two months to lay an undersea cable to improve electricity distribution to La Digue.  Other investments include the procurement of one generator set of 2 Mega Watts for the Praslin power station. This will cost US$ 4.5 million and is being financed by the OPEC Fund. The tender documents for this purchase are currently being finalised. Other investments will include the procurement of two generator sets of 6.25 Mega Watt each for Victoria C power station. Work on the installation of an electricity, water and sewerage distribution network for Perseverance Housing Estate will also start in 2008. This project will cost SR76m and is being partly funded by BADEA and the OPEC Fund. All of this will be over and above the SR378m which PUC will require to generate the level of electricity required in 2008. Mr Speaker, later on in my address, I will outline measures to redress this imbalance. i.        Telecommunications The importance of a modern telecommunications network for Seychelles cannot be over-emphasised.  Today, business activity and even many of our activities from home be they work-oriented, recreational or educational, can be enhanced with better or faster communications.   We should recognise the efforts of our existing telecommunications operators in endeavouring to upgrade their system and provide even more modern telecommunications systems to the population. Government is currently looking at options to allow for the laying of a submarine cable linking Seychelles to the rest of the world and thus substantially improving the speed of internet through higher bandwidth.  This will be crucial for us to develop and expand our growing financial services centre and business in general. j.        Re-export Activities This is led by two principal activities, namely re-export of fuels and that of our tanker services overseas.  Profits from these activities, which amount to approximately $30m, have been entirely used to support rising domestic fuel imports.  Mr Speaker, without revenue from these two activities, Seychelles would have faced serious difficulties in servicing its demand for petroleum and energy imports. I have here to commend SEPEC and its management for their visionary planning and foresight which has allowed us to create a solid, fourth pillar in our economy alongside tourism, fisheries and financial services.  Mr Speaker, we salute the launching of our fifth tanker, Seychelles Patriot, which was launched last week in Kiel, Germany and is expected to be commissioned in February 2008. k.      Financial Services This sector continues to show strong growth and the recent enactment of new legislation bears well for the long term outlook for Seychelles as a competitive jurisdiction offering financial services. Recent legislation will allow for the setting of mutual funds, a stock exchange and dealings in securities and offshore insurance.  The expansion of this sector will allow for further well paid employment opportunities for our young professionals and create more foreign exchange earnings and value added potential for Seychelles. Just to illustrate my point Mr Speaker, SIBA is expected to generate nearly $4m in 2007 in fees from such activities alone and the corporate service providers servicing the offshore sector are expected to turnover in the region of $30m annually and growing each year. l.        Trade As for trade, Seychelles has been negotiating a continuation of a trade arrangement that will allow our goods (mainly our tuna and other fisheries products) to enter the EU market at 0% customs duties on the condition that the goods originate from Seychelles. Pending the conclusion of these negotiations next year, Seychelles initialled an Interim Agreement on the 29th November 2007 with the European Commission.  The agreement stipulates that after a period of 5 years, there will be gradual elimination of customs duties on most items, excluding those that have been negotiated to be on the sensitive list for reasons of revenue protection or for socio-economic reasons. These products include alcohol, tobacco, some vegetables and fruits, tea, poultry, pork and fish. Our re-entry as a member of SADC will rekindle important links for trade within the southern and east African region as well as provide opportunities for capacity development for both public and private sector. At the regional level, Seychelles has successfully negotiated entry into the COMESA Free Trade Area which will take place in the first quarter of 2008. The FTA allows countries which are party to the agreement, to trade goods at 0% customs duty when the goods originate in the FTA countries. This new development will create an opportunity for our private sector to increase trading within the region as it is expected that goods sourced regionally will incur relatively lower transport costs than current import sources and will therefore be of benefit to consumers. It is also an opportunity for innovation and exportation of our goods to these markets. In short, Government has created an opportunity for the private sector to diversify our economy.   m.  Investment Climate To further enhance the investment climate as I announced last year, Government will be putting to this assembly three very important pieces of legislation shortly.  These will comprise amendments to the Companies Act, amendments to the Licences Act and amendments to the Tourism Incentives Act. Licensing is an important mechanism to regulate activities that offer goods or services to the general public for payment of a fee.  This is to ensure that basic requirements and conditions for example, health and safety set for a licensable activity, are met by the operator. In meetings with the Chamber of Commerce and other stakeholders the general consensus is that there is a need to review the present licensing system and procedures so that they better respond to the challenges of new development in the economy. The objectives of the proposed amendments are: ü      to  simplify the  processes for the  granting of licenses, ü      minimize the administrative red tape for investors and the business community ü      to rationalize the list of activities requiring a licence. ü      to remove the obligation on businesses to require multiple licenses ü      to review the various fees charged for licences. Government further recognizes the need to strengthen the inspectorate and enforcement section of not only the SLA but other regulatory bodies including Environmental Health, Seychelles Bureau of Standards, Seychelles Tourism Board, Dept. of Environment, Planning Dept, etc, not only to regulate but also provide guidance and support to businesses and entrepreneurs. The amendments to the Companies Act are intended to modernise our existing legislation which dates back to 1972 and they pertain to matters such as company formation, management, share transactions and annual returns. Government also plans to amend schedules to the Tourism Incentives Act to streamline the existing concessions to various tourism operators.  Mr Speaker, in a separate sitting before the Assembly goes into recess this year, I will be tabling the proposed amendments to the Tourism Incentives Act for your approval. Both the companies act and the licences act amendments will be submitted to the National Assembly for approval during the first quarter of 2008. 5.      The Challenges Mr Speaker, this Assembly will recall that when I presented the Budget last year, I spoke about the challenges and threats which we were facing, namely the rising cost of fuel and commodities, the environment, employment and that of ICT.  Today these challenges continue to take even greater dimensions and underscore the need for us to act fast and resolutely in order to maintain our competitiveness and achieve our target to double our GDP by the year 2017. a.    Cost of Living The rising cost of energy, especially in the latter half of 2007 has dampened our net earnings and added to our cost of living.  The situation has not been helped by the fact that goods of all kinds including rice, milk, flour, maize and sugar have risen considerably on the international market due to many reasons beyond our control.  We live in a global village and thus cannot escape such knocks which every now and again rock the entire world and remind us how inter-connected we all are. b.    Access to Foreign exchange Timely access to foreign exchange through the official banking system remains an important challenge that most us face,for example ü      for Government needs in paying for imports such as fuel, medecines, education, etc., for the business ü      for the businessman to pay for his raw materials, spare parts or other vital components of his business operations ü      for the ordinary Seychellois who is unable from time to time to obtain things that he needs within the country and must resort to sourcing it from overseas. Given that we firmly believe that the country can generate sufficient foreign currency to meet most of these needs, the big challenge for Government is to put in place appropriate measures to ensure a fair and equitable distribution to all stakeholders through the official banking system. c.     Capital Imports The rapid increase in construction to meet new infrastructure, houses, roads etc whilst also putting aside resources for construction of new hotels and industries, is another important challenge facing Government.  It is clear to me that when we have limited resources, we have to make choices based on what is practical, achievable and above all what is sustainable. This is why, Mr Speaker, Government has decided to prioritise its capital projects so that those having merits are done in priority to others whilst FDI is not constrained. Another major capital import is vehicles.  Mr Speaker, over 2,800 vehicles will have entered Seychelles this year.  This is equivalent to approximately 8 new additions of vehicles per day or some $32m minimum import cost to the country in a full year. There is a limit as to how many vehicles we can sustain in the long term.  There is a need therefore for us to optimise and review the costs to the country of dealing with the increasing traffic and congestion on our roads, delays that this causes and even increased cost of fuel burned as a result of waiting time in traffic. As for our long standing desire to make traffic on La Digue more conducive to its tourism environment, the Government is commissioning the Department of Land Transport to come up with a comprehensive policy for transport on the island. d.    Streamlining Employment Mr Speaker, when it comes to human resources we can either use our local men and women, or depend on external labour forces.  The latter option is of course possible but the question is, “Is it not preferable that we use our people as effectively as we can so that the benefits of these investments can be maximised within this country and for the benefit of our people instead of relying on expatriates to fill in this vacuum?” while of course remaining open and flexible to attracting key foreign talent where we do not possess. This is why this Government believes that we should re-examine the manner in which Government operates, become leaner and more efficient whilst allowing for part of its workforce to meet the challenges of new opportunities that will come by in the private sector where new jobs are being created.  This will allow Government to focus more on its role as a regulator whilst speeding up the process of its withdrawal from commercial or business activity.  This move will be accelerated in 2008 and we are confident that this will drive us effectively through the next phase of our economic development.  This Mr Speaker, brings me to the new measures which Government is proposing to meet the challenges which I spoke about earlier. 6.      New Measures a.    New Electricity Tariffs Throughout 2007, we have through various sensitisation programmes, brought to the attention of our population the rising cost of fuel and the need to conserve energy at every opportunity. As the economy expands, we are faced with an increasing demand for energy.  Mr Speaker, I explained earlier the substantial investments in physical infra-structure made by Government to cater for this increasing demand. Mr Speaker, the challenge we face today is not so much in ensuring that we have the necessary infra-structure in place to meet demand but the cost of producing the electricity and the manner in which we are able to recoup this cost from the consumer. What is to be stressed is that the current tariffs in place by PUC have remained constant since 1996.  With the increase in fuel prices that we have seen, the cost charged to the consumer now no longer meets the cost to produce electricity.  In other words, Mr Speaker, we are paying far too low for the electricity we consume. It is to be noted that until 2005, PUC had never been subsidised by the State for its recurrent operations, in other words, from amounts collected from its bills to customers, it was able to pay its workers, pay for its fuel and running costs and sustain its operations independently. As a result of a higher cost of producing electricity, primarily as a result of high world oil prices, the Government subvention to PUC is expected to reach close to SR100m in 2007 and an amount which could go as high as SR200m in 2008 unless we address this issue. After careful consultation, it has been agreed that effective January 1st 2008: ·        Government will forego the tax on electricity that it currently collects which amounts to SR50m in 2007. ·        PUC will increase its tariffs to a level that will allow it to recover its running costs and review these tariffs every 6 months to reflect any change in the cost of the fuel used to produce electricity. In order to assist households and businesses to conserve energy and utilise renewable sources of energy, Government has decided to remove all import taxes on solar panels used in respect of energy saving, lighting or heating systems with effect from January 1st 2008.  Likewise all energy saving lighting (CFL) devices will be exempt of all import taxes. b.    New LPG Price As with other energy products, the price of LPG will be adjusted every quarter depending on the landed cost of LPG.  This pricing policy will apply as from January 1st 2008. c.     Road Fund Licence In order to mitigate the impact of more vehicles on the roads, Government will increase the road fund license from SR1.00 per cc to SR1.50 per cc effective January 1st 2008. d.    Vehicle Tariff Alignment Government has re-aligned trades taxes on vehicles to ensure that effective January 1st 2008, trades tax on all imported vehicles, whether diesel or petrol, will be aligned to the existing rates for petrol cars.       e.     Environment Levy As we face the challenges of maintaining our environment in the wake of rapidly rising construction and development, Government has decided to introduce an environmental levy of SR10 per month per household which will be added to your utility bills effective January 1st 2008. This amount will be our collective contribution to protect the environment.  A mechanism will be put in place to allow for such sums collected to be transferred to Environment Trust Fund which is responsible for programmes of environmental protection and conservation. f.       Telecommunications Licence Fee With effect from January 1st 2008, the licence fee for telecommunications operators will increase from 10% to 12.5%. g.    Foreign Exchange Measures                                                                i.      Possession of Foreign Exchange By the end of this year, Government will repeal provisions in the Exchange Control Act that so that the mere possession of foreign currency will no longer be illegal. This change will support recent Government policy to encourage Seychellois to open foreign exchange accounts in Seychelles and I now call upon the banking sector of Seychelles to actively assist the Seychellois people in opening their own foreign currency accounts with which they may freely deposit and withdraw at their own discretion.                                                              ii.      Restaurants outside hotels I am also pleased to inform this assembly that new regulations will be introduced to allow licenced restaurants outside hotels to charge non residents in hard currency in respect of the services that they provide.                                                             iii.      Payments to Government in foreign exchange Mr Speaker, I come now to a more topical issue which is: access to foreign exchange that all of us help to generate. I stated earlier that Government does not wish to re-impose stringent controls especially on foreign exchange earners, traders and the business community in general. However, we all have a responsibility both in the Government and in the private sector, to ensure that when the country earns foreign exchange through its major industries, that same foreign exchange is available to create new opportunities in the domestic economy and to cover the cost of the country’s basic operating requirements. We thus consider that it is only reasonable and fair that those key entities in our economy, who are the large earners of foreign exchange who have authorised retention levels in excess of 25%, should be required to settle some of their bills in FX as follows:: ·        GST on turnover; this will apply only to invoices which have been raised in foreign exchange ·        Gainful Occupation Permit fees ·        Commercial utility bills to PUC ·        Fuel purchased directly from SEPEC Mr Speaker, this is one way that Government can ensure that more of the foreign exchange that this country generates flows back into the economy. h.     Salary Increase In 2008, Government will continue with its long-term review of public sector pay with the assistance of the Commonwealth Secretariat, and we expect that recommendations for a long term salary structure will be finalised during the course of the year. Meanwhile, in order to mitigate against increases in the cost of living, Government is proposing salary enhancements for public sector employees who are in service on 31st December 2007, to take effect as follows, from 1st January 2008: Ø      An increase of SR400 per month for public sector employees holding posts at Grade V and Grade IV, i.e. posts in the salary band SP20-25 and SP25-29. Ø      An increase of S300 per month for public sector employees holding posts at Grade III, i.e. posts in the salary band SP29-34; Ø      An increase of SR200 per month for public sector employees holding posts at Grade II, i.e. posts in the salary bands SP34-39; and Ø      An increase of SR100 per month for public sector employees holding posts at Grade I and the Senior Officer Band, i.e. posts in the salary bands SP39-44 and SP44-49. Part-time employees will receive enhancements proportionate to the hours worked. The remuneration of officers employed on public sector commission contract terms will be reviewed upon renewal of their contracts, as is the current practice. i.        Minimum Wage Following negotiations between Government, the Employers’ Federation and workers’ representatives, I am pleased to announce the introduction of a statutory minimum hourly rate. This will be SR14.50 per hour for workers on continuous terms of employment, and SR18 per hour for casual labour. The casual labour rate is higher because it takes into consideration non eligibility for annual leave, lack of job security and non eligibility for compensation upon termination of employment which are otherwise guaranteed to workers who are engaged  on continuous terms of employment. These minimum rates will apply in both public and private sectors. The minimum statutory hourly rate SR14.50 per hour is equivalent to a monthly salary of SR2,199 per month for a 35-hr week. In accordance with this minimum hourly rate of pay, the minimum monthly salary in the public sector will be increased from the existing SR2,025 per month to SR2,200 per month from 1st January 2008.  This new minimum salary represents a 37.5% increase over the corresponding minimum salary of SR1,600 per month that was in effect in 1992. Increases in long-term public sector pay will have to be justified by increased productivity.  Government must therefore find ways of increasing productivity while also becoming leaner and more efficient.  It will therefore continue to encourage surplus staff to find employment in the growing private sector, and contribute more actively to national wealth creation. j.        Social Security Fund and Pension Contributions Mr Speaker, in line with President Michel’s commitment on June 18th 2007 on social security reductions, I am pleased to announce that employee contributions by all employees will be reduced from 5% to 2.5%. Hence for a worker earning SR3,500 per month and who used to pay 5% of his salary or SR175 per month to the SSF, his contribution now becomes only SR87.50 per month; in other words, he saves SR87.50 monthly. We will, at the same time, streamline the employer contribution from the current 3-tier system at a starting rate of 10%, a middle rate of 20%  and a top rate of 40% to become a flat rate of 20% across the board. Thus Mr Speaker, for an employer who pays a worker SR3,500 per month and who paid SR600 to SSF as employer, this contribution now becomes SR700, in other words SR100 more. Notwithstanding this revised rate of social security employer contribution, at this point it is probably timely to remind all employers that a system already exists to grant full exemption from the employers’ social security fund contribution for end-of-year staff bonus schemes that have received approval from the social security fund.  Such approvals provide an opportunity for all employers to recognise the hard work of their employees and to pay them a bonus at the end of each year without the burden of contributions being levied on such payments. Employers who wish to get further details on such exemption may do so by contacting the Social Security Fund or the Revenue Commission. Government has decided that the mandatory SR25 monthly contribution to the pension scheme by employees is increased to SR50 in order that more savings may accrue to the beneficiary and enhance the pension that will become available to him on his retirement. k.      Early Retirement Package Government will, in collaboration with the Seychelles Pension Fund, introduce a scheme which will permit certain public sector employees aged 55 years or above to retire from public service in 2008 and to start drawing their pension upon retirement. Only public sector employees who have already contributed to the Seychelles Pension Fund for the minimum number of years required under the Seychelles Pension Fund Act 2005, and who also obtain the necessary approval from Government, will qualify for early retirement under this scheme.  Employees who retire under the scheme will be paid all their terminal benefits.  They may continue to remain economically active, as self employed persons, or take up private sector employment without their pension being affected. However the opportunity to take early retirement will be offered for one year initially, that is, until 31st December 2008.  Once the scheme closes, employees who have not taken early retirement will have to wait until they reach the normal retiring age of 60 years. The Department of Public Administration will issue a circular advising interested employees on procedures for making applications. l.        Employment Agency A new Employment Agency will be established within the Ministry of Employment and Human Resource Development as from January 1st 2008. It is proposed that eventually, this agency will be be privately-managed . The role of this agency will be to register unemployed individuals who only wish to undertake casual work. Once the individual has been registered, the agency will seek opportunities for the individual either within Government or in the private sector. The agency will charge a small fee for cases referred.  However, it will be the responsibility of either the Government or the private sector being the “employer” to pay for such casual work performed.   m.  Social Security Benefits With regards to benefits paid under the social security system, Government has also decided that from January 1st 2008, the following monthly benefits paid by Social Security Fund will be increased as follows: ·        old age pension by SR100 from SR1,750 to SR1,850 ·        invalidity benefits by SR100 from SR1,650 to SR1,750 ·        other social security benefits to be adjusted accordingly ·        funeral assistance by SR100 from SR1,500 to SR1,600 ·        social assistance by SR200 Government will also maintain the free bus service for students in post-secondary institutions, pensioners and other persons with disabilities.  It is important to note that these services cost the Fund SR7.8m annually. n.     Price Control and GST on basic food items It has always been Government’s commitment to formulate policies and strategies to mitigate against the rising cost of living. Over the past 3 years, Government has reduced import taxes on most imported food items.  Mr Speaker, this Government wants to go one step further in addressing the escalating prices of our basic food commodities.  Accordingly, I wish to announce that Government has decided to remove GST on: ü      all types of rice, onions, potatoes, powdered milk, infant milk ü      high protein flour ü      and sunflower oil. Government will maintain price control only on food items and remove it on all other imported items effective February 1st 2008. As the country faces new challenges with regards to cost of living, it is important that the Consumer Protection Unit and NATCOF intensify their programme to educate and sensitise consumers. Likewise, it is important that consumers recognise the need for them to make purchases based on an analysis as to the quality and price of the product. Mr Speaker, as we continue to open up our economy, it is important that we recognise and protect the rights of consumers and thus the need for them to be sufficiently empowered. o.     Creating New Business Opportunities                                                                i.      Privatisation Government will continue the process of privatisation in 2008.  The latest Government asset scheduled to be privatised is the Seychelles Savings Bank.  This will be followed by other assets of SMB. Allow me now, Mr Speaker, to provide you with further details. The asset sales of the Hydroponics and Indian Ocean Nursery units have recently been completed.  The tendering process for snacks, pasta and soap manufacturing assets are in the final stage of and is expected to be completed by the end of January 2008. The SMB Foodpro Unit is in the process of being privatized by means of a management buyout as announced earlier.  This will allow the current management and workers to benefit from the fruits of their labour. This will happen by the end of December 2007. Government has invited expression of interest for strategic partnership for the Agro UHT plant as well as Hatchery and Animal Feed business.  As indicated earlier, the Coetivy prawn farm will remain the property of Government and its management will be tendered out. Following the privatization of these assets, what remains of SMB will be transferred to a new company called the Seychelles Trading Company. This company will take up the principal role of ensuring the availability of basic commodities at reasonable and affordable prices The new company will mainly venture in imports, wholesale and retail as well as light manufacturing and value adding.    It is expected to start its operations on the 1st March 2008. Following consultations with local stakeholders on Praslin and La Digue, Government has agreed for the new Seychelles Trading Company to centralise all current SMB operations on Eve Island. Such a move will help create more modern facilities, warehousing and cold storage goods to the two islands.  Thus the existing warehouse facilities at Amitie and Grand Anse to be returned to Government for alternative developments. I am also pleased to announce that as part of efficiency and cost cutting measures, Government will privatise the following activities: a)      the management of the Victoria market b)      the management of the International Conference Centre c)      the management of the SFA ice plants at Anse Royale, Anse a la Mouche and Baie St Anne Praslin It is our hope that these moves will provide new opportunities for Seychellois to further partake in the economic development and progress of the country.                                                              ii.      Transportation Policy Effective 1st January 2008, Government will allow private individuals to provide transportation for hotel staff, funerals, special events including transportation of students. To encourage this business, Government will provide trades tax exemption on importation of all new buses for a period of 18 months effective 1st January 2008. Whilst SPTC will continue providing some of these services, its focus will be more on provision of public transportation. On this note, I have to mention that we are in advanced negotiations on the procurement of buses for SPTC and these are now expected to be in the country by September 2008.   7.      Budget 2008 a.    Main Objectives The aim of the 2008 budget is to achieve a surplus of 5% of GDP and to continue the debt reduction strategy in relation to our GDP. b.    Highlights                                                                i.      Revenue Our total budgeted revenue for 2008 is SR 2.55 billion, an increase of SR 125 million on the 2007 figure. The improvements in revenue collection will be further boosted by the setting up of the new Revenue Commission in January 2008. The SR 2.55 billion revenue for 2008 represents an increase of around 5% over the 2007 budget. The bulk of this would be derived from taxes and dividends from parastatals. Other increases are on account of road tax and telecommunication licences with increases of SR 16.5 million and SR 13 million respectively. This is in line with the new tax revisions. Furthermore, GST collected will also increase by 14% compared to the 2007 estimates. The main increase is apparent under imported goods and tourism due to a growth in imports demand and a strong upturn in the tourism sector and also under tobacco due to a new tax revision as from next year.                                                              ii.      Expenditure The total outlays budgeted for 2008 is SR 2.28 billion representing a decrease of SR 175 million or 7% under the revised estimates of SR 2.45 billion for 2007. On the expenditure side, the budget allocation for 2008 has taken into account the following: Ø      new salary increase Ø      stream-lining of certain Government bodies Ø      Government being a service provider in order to achieve economic stabilisation. The proposed expenditure for 2008 is SR 2.28 billion which is around SR 183 million more than the budgeted figure for 2007. Government ministries and departments will account for SR973m of this figure which is SR 41 million or 4% more than the 2007 budgeted figure. The 2008 budgeted figure for Government Ministries and Departments shows once again the Government’s commitment to education, health and social care which together have a combined budget allocation of SR 416 million. This is approximately 43% of the government budget for ministries and departments. As announced by the President, the restructuring of the health service will result in the creation of a new Department which will be responsible for strategic planning, policy formulation, monitoring and evaluation of the health service and a new Health Service Authority (HSA) which will be responsible for service delivery. Thus, an allocation of SR 219 million for the ministry to fund its restructuring exercise and this budget represents an ambitious plan to bring the health and social services in line with the country’s needs as a growing nation. The Ministry of Education will once again get an increase in their allocation a total sum of SR 196 million.  This represents an increase of SR 11 million or 6% over their 2007 budget. This budget will help the ministry to implement some new programmes and provide for implementing the teachers’ scheme of service. The Ministry of Environment, Natural Resources and Transport will have an allocation of SR 118 million which represents a 12% increase above the 2007 budget. The Police will receive an increase of SR 6 million in their budget allocation, bringing it to a total of SR 86 million. This amount will allow for the Department of Police to implement its new structure and at the same time contribute to a peaceful and harmonious society upon which our long term growth is anchored. The budget allocated to the Ministry of Community Development, Youth, Sports and Culture is SR 78 million.  This represents a decrease of 11% as compared to the 2007 budget. However it should be noted that as from 2008, the National Sports Council and National Arts Council will not form part of this ministry but will be considered as two different councils under the centralised payments. It is to be noted that amounts donated from the private sector already qualify as tax deductions for business tax purposes, thus encouraging businesses to support the councils financially. We are also recommending SR 157 million under centralised payments for various activities and national organisations which is 7% below the 2007 budgeted figure. This is partly to reflect gratuity payments to workers which are now under each ministry’s or department’s budget from 2008 and no longer under “Centralised Payments”. The main increases under centralised payments are to cater for overseas training and takes into account the exchange rate movements.  It will be noted that the Mean Testing Secretariat which in 2007 was under the social security fund will now be funded separately after the restructuring is completed. The budget allocation for 2008 for subventions to regulatory bodies is around SR 118 million, an increase of SR 47 million over the 2007 figure. This is because of the creation of five new bodies. The Seychelles Revenue Authority, Seychelles Planning Authority, National Sports Council, National Arts Council and the Seychelles Heritage Foundation with a total allocation of SR 45 million. This is to encourage councils to be leaner and to adopt a more pro-active role in fund-raising. Additionally, Seychelles Tourism Board budget has increased by SR 10 million for 2008. This is so because they have taken over the new Seychelles Tourism Academy and also to enable the board to embark on its new marketing concept. 2008 will see an increase under Public Debt Interest of over SR 75 million to SR435 million. This indicates the Government’s commitment in using its surplus to honour its liabilities both domestically and externally. Mr Speaker, we have made provision for additional resources for the Ministry of Foreign Affairs in the 2008 budget, largely to reflect the need for Seychelles to be more active on the international front This has been very evident, for example, in protracted and on-going negotiations with the EU on the economic partnership agreement and the COMESA negotiations for a free trade agreement during 2007. Mr Speaker, every year in our budget we provide substantial amounts under the vote for centralised payments. This portion of the budget is often misunderstood as payments which are arbitrarily disbursed at the whim of Government. In reality, the vote for centralised payments is a very important and well scrutinised cost centre that provides for many vital and important expenses which do not fit readily under any of the other heading. Such expenses would cover, for example, a number of diverse categories, many of them for charitable, non profit or community based organisations such as Mont Royale, National Aids Trust Fund, National Council for the Disabled, Lungos, Family Institute, to name a few. In 2008, the amount Government has provided in the budget under this vote in respect of such organisations and programmes is over 58% of the total amount being provided under Centralised Payments.                                                             iii.      Capital Outlays As mentioned earlier, Government has decided to limit its capital expenditure. In 2008, the limit will be set at SR250m. It has been determined that this amount is what we can afford bearing in mind realistic targets for various housing, public sector infrastructure and social projects. As I pointed out earlier, Government attaches importance to community based development; in 2008, a total of SR72m will be allocated towards capital projects to cover for environmental improvements, transport-related infrastructure, health, sports, recreational and housing within the districts. This, Mr Speaker, represents 27% of the capital budget and shows the importance which we attach to community based development. c.     Negotiations with Multilateral Institutions Government continues to improve and enhance its relationship with all its partners including multilateral Institutions.  Thus in this coming year, we will work with our multilateral partners, especially the Paris Club, the IMF and the World Bank towards a formal understanding and where possible a package of further reforms that will lead to further macro-economic stabilisation, debt re-structuring and new strategies to allow Seychelles to better integrate within the world economy. d.     National Assembly Mr Speaker, we have made provisions for an increase of 25% in the budget of the National Assembly. The National Assembly has an important role to play in the modernisation of our economy through its deliberations process of our economic and financial regulations, by bringing forward to this table the views of the people. The Ministry of Finance intends to strengthen its dialogue and working relationship with the assembly’s “Finance and Public Accounts Committee” with regards to how public funds are spent. As Minister for Finance, I also would like to recognise the importance of the new climate of dialogue between the Head of State and the Leader of the Opposition.  Such a development in political stability can only be good for our economy. It is particularly welcomed for the way it removes bi-partisan politics from the workplace and in the community thus creating a better environment for us to work together and reap the benefits together. 8.      Concluding Remarks Mr Speaker, we have reached the end of another difficult year and we have seen our country forge ahead, improving its existing industries and carving the way for new opportunities that will help us maintain our social cohesion and harmony. This budget is aimed at ensuring that we maintain course, preserving our gains and making the way for new inroads to further growth and prosperity. The Government cannot fulfil what is required for a successful economy on its own.  Thus a partnership with all stakeholders is required and I call on everyone in this country, both private and public, to join hands with us in our march for greater achievements. Mr Speaker, I have outlined dynamic measures for dynamic times, aimed at tackling variously different aspects and areas of our economy. Some measures will please, some will re-assure, others will provoke.  Some are designed to create more balance and equitability, while others are designed to encourage and shift the Seychellois, individuals as well as Government and corporations, to adopt best practices for the future. But they all share one common purpose – and that is to ensure that our small and fragile economy puts its best foot forward. As we streamline the role of Government we are also creating a better platform on which to usher in greater corporate social responsibility on the part of our private sector partners on whose shoulders increasingly rests the role of wealth creation. We believe we have taken a fair and responsible approach in this 2008 Budget, and we shall look forward to another year of continued dialogue and consultations with all stakeholders and partners in order to strengthen the nation’s finances and economic position. It leaves me now to express my appreciation to all those who have helped in the preparation of this 2008 budget — the President and Vice President for their guidance, Cabinet Ministers for their support, Ministries, Departments, Parastatals for their input and to my own dedicated staff in the Ministry of Finance for all their hard work. I join them today in wishing our President and the people of Seychelles our sincere thanks and appreciation for their continued support and hard work, and I take this opportunity to wish them and all the people of Seychelles a Merry Christmas and a Happy New Year. My sincere thanks also go to you Mr Speaker and members of the National Assembly. I now commend the Bill to the Assembly.