| Summary: | This Technical Assistance Report on the Seychelles discusses Stress Testing the Central Bank Balance Sheet (CBS). The CBS balance sheet is weak, due to the cost of carrying foreign exchange (FX) reserves. The conditions of CBS lending in Seychellois rupees (SCR) also contributed to weakening the CBS balance sheet. Multiyear budget planning would support the CBS’s balance sheet strength. A capital injection is necessary to strengthen the CBS’s balance sheet. The income stream of the CBS should be strengthened, through an increase in the authorized capital, to cover operational costs and the carry cost of the FX reserve. In addition, the profit distribution rule should be revised to allow the CBS to retain all distributable earnings if statutory capital is below the target level of 10 percent of monetary liabilities. A communications strategy should be prepared to bolster public support for the recapitalization plan. Communications should explain the causes of the losses, reiterate the commitment to the policy objective regardless of financial considerations, and present the solution devised to address the financial weakness
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