Seychelles: Technical Assistance Report-Emergency Liquidity Assistance and Collateral Frameworks

IMF technical assistance (TA) supported the Central Bank of Seychelles (CBS) in strengthening its emergency liquidity assistance (ELA) framework and collateral policies to enhance the CBS’s liquidity backstop while safeguarding its balance sheet. ELA is a targeted, bilateral liquidity instrument distinct from standard liquidity operations, aimed at preserving or restoring financial stability while mitigating moral hazard. Built on solid legal foundations, the framework rests on a public regulation, internal procedures, and a clarified role for the fiscal authority in the provision of ELA. The TA reviewed existing ELA arrangements and highlighted the importance of a coherent and clearly articulated framework encompassing eligibility criteria, forward looking solvency and viability assessments, and well defined decision making processes. The report provided guidance on communicating the ELA framework to key stakeholders—including financial institutions, government entities, and the broader public—in ways that support effectiveness, promote sound market practices, and manage expectations. A key component of the TA addressed internal preparedness, including clearly documented procedures for assessing ELA requests, calibrating financial terms, evaluating funding plans, and designing appropriate ELA related conditionality. The TA also provided guidance on internal responsibilities and the need for effective interdepartmental coordination in conducting ELA operations. On collateral policy, the TA underscored the need to strengthen readiness for stress scenarios by enhancing operational capacity to accept, value, and manage a broader range of collateral. Through concrete case studies, the TA highlighted the importance of systematic collateral scanning, pre positioning arrangements, robust valuation methodologies, and risk based haircut calibration to contain the financial risks associated with emergency lending.