Seychelles: Poverty in Paradise

The country's per capita GNP was estimated to be about $5,480 in 1992. Despite this relatively high income, small population, and a strong government commitment to social equity, in 1993, almost 20 percent of the population was estimated to be living in poverty and almost 7 percent in absolute poverty. The distribution of income (proxied by reported expenditures) is highly unequal. These measures of poverty are based on reported expenditures, which already include the impact of the Seychelles' generous and untargeted transfer programs. The transfer programs, which absorbed 5.5 percent of GDP in 1993, do not appear to have been very effective in eliminating poverty.

The government has shown a strong commitment to basic health and education. Social indicators are comparable to other countries at the Seychelles' income level, with under five mortality at 20 per thousand live births, total fertility rates at 2.7, and child malnutrition rates at 6 percent. Moreover, although the primary education gross enrollment ratio is 107 percent, the ratio for secondary education is only 63 percent, which is low for an upper middle-income country. The government is moving to rectify this anomaly, and has developed a National Human Resources Development Plan. The Seychelles also has a generous, broad-based transfer program, which has helped to eliminate some of the worst external manifestations of poverty.

The country has made substantial progress in reducing poverty, but poverty levels remain high for a country with the Seychelles' income level and with the Seychelles' high level of transfers. In 1992, an estimated 19 percent of households were below the basic poverty line of R.900 per household per month in 1992 prices compared to 31 percent in 1984. In 1992, 7 percent of households were below the absolute poverty line of R.500 per household per month in 1992 prices compared to 12 percent in 1984. The basic poverty line was based on the cost of a market basket of food, clothing, and shelter, while the absolute poverty line was based on the cost of starchy staples and shelter. The estimates are based on the 1984 survey adjusted to 1992 prices.

Consumption patterns indicate that the poor devote a much larger proportion of their expenditures to food than better-off people do. Housing expenditures among the poor are primarily for rent, while among the nonpoor, they are for mortgage payments. The poor tend to devote proportionately more resources to clothing material. Poor households in the Seychelles tend to be predominantly headed by single mothers who dropped out of school to look after children, and did not acquire marketable skills. Many of these mothers started having children as teenagers and had several out of marriage by different partners.

Incentive and regulatory framework

While the state-led growth strategy combined with large transfers to households has allowed the Seychelles to achieve significant progress in many areas, it is no longer sustainable. The large deficits were financed by foreign grants in the past, but these grants have been getting less common, and, with taxes at over 50 percent of GDP, increasing revenue would be counter-productive.

The external environment is now changing, and the Seychelles needs to reorient its economic policies and re-examine its social programs. Private sector growth is needed not only to create jobs and increase output but also to increase the economy's tax base. The government has already accepted the need to increase the role of the private sector in the economy and increase the competitiveness of the economy. Competitiveness can be enhanced either by addressing the parity of the Seychelles Rupee or by increasing productivity without fully compensating wage increases.

Public expenditure

Changes in macroeconomic policy need to be accompanied by shifts in social expenditures from short-term social support to long-term growth-oriented programs. It is possible to make significant savings from social programs, while still protecting those who need help. These savings could be channeled into priority social investments such as education, which are needed both to stimulate growth and to help the poor to acquire skills to benefit from growth. The government has developed a Human Resources Development Plan and should implement its recommendations.

Safety nets

Transfers are inefficient, leak outside target groups, and create disincentives to seek work. The case for reforming them is strong. Furthermore, with public expenditures at 62 percent of GDP and revenues at 53 percent of GDP in 1993, these programs are financially unsustainable. Moving from the present broadly targeted programs to programs targeted to the poor could yield significant savings.

Poverty strategy

The Seychelles can achieve sustained labor-intensive growth, which would help to reduce poverty to less than 8 percent and propel the country to higher social and economic development levels, provided that economic and social programs are re-oriented. The government has already accepted the need to increase the role of the private sector in the economy and to make basic policy changes that would free up the economy. The growth strategy could be built on the following elements: (i) reducing the role of the state, which presently dominates all productive sectors; (ii) increasing competitiveness in terms of labor cost and labor quality and (iii) developing human resources, particularly marketable skills. Government regulations on economic activity should focus on preserving public safety and the country's pristine natural environment. The government should increase investment in productivity-enhancing areas such as infrastructure and human resources development.

As mentioned above, these changes need to be accompanied by a shift in social expenditures from short-term social support to long-term growth-oriented programs. The new priorities should stress education as spending on education has dropped below levels of other middle-income countries. Also, early pregnancy needs to be discouraged by making family planning education and contraceptives available to girls reaching puberty. Males should be taught about their responsibilities to help to raise their children. Transfer programs can be tailored so that: (i) resources are not wasted on non-essentials; (ii) labor market training is provided to those receiving transfers; and (iii) incentives are given to recipients to seek work by phasing out transfers so that people do not lose all their benefits the moment they start working.

Statistical systems

The country has excellent capacity to monitor poverty and to respond to poverty problems. There is a functioning social safety net, and the small size of the country enables the state to monitor poverty closely and respond to it. The recent human resources development program is an example of how this works in practice.