Seychelles has formally signed an agreement with Libya to settle a debt repayment from an original loan amounting to over $3 million, dated back to 1981, the Ministry of Finance said in a press release on Tuesday.

"Under the 'settlement agreement', the principal debt amounting to $3.65 million is to be paid in one cash installment within three months of the signing of the document. Whereas the interest accrued on the debt amounting to $885,000, will be paid in two installments during 2023," said the Ministry.

According to the press release in an earlier interview with the Seychelles Nation newspaper, the director general of Debt Management, Dick Labonte, explained that "with the financial crisis in 2008, Seychelles defaulted on the majority of the repayment of its loans, leading to renegotiations with creditors to reschedule its debt as part of the IMF reform programme which the country embarked on. The loan from Libya was also part of the rescheduled loan."

Seychelles, an archipelago in the western Indian Ocean, embarked on an IMF-backed economic reform programme in 2008, prompted by a default in the repayment of its debts. At the time the total public debt stood at 151 percent of GDP, with the external public debt representing almost 95 percent of GDP -- or $808 million.

Labonte noted that in 2010, according to the settlement agreement with Libya, Seychelles effected the first repayment of the debt and an amount of $977,000 was paid to Libya.

"No other payments were effected thereafter, due to the instability in Libya at the time. Nonetheless, a special account was set up at the Central Bank of Seychelles and payments were effected as per the agreed specified amount annually, until the Libyan authority could confirm their account and receipt of payment," said the ministry.

The conclusion of the repayment of this long-standing debt followed a meeting between Minister Naadir Hassan and his Libyan counterpart, Dr. Khalid Al Mabrouk Abdalla, at the margins of the IMF/World Bank meetings in October.

Both parties agreed to settle the debt and on Monday, December 12, the signed debt repayment agreement, by both sides, was officially handed over by Hassan to the Libyan Ambassador in Seychelles and a representative from the Libyan Ministry of Finance.