WASHINGTON (Reuters) - The Seychelles has met all targets under its IMF loan program and its economy is set to expand by 4 percent this year thanks to a recovery in tourism earnings, the International Monetary Fund said on Monday.

Growth is likely to rise further to 5 percent in 2011, according to the IMF Web site. This is a big improvement after the economy contracted nearly 8 percent in 2009 following an acute balance of payments crisis in late 2008.

The IMF said 12-month inflation in the Seychelles, which was negative during the past few months, would likely return to about 1 percent by year end.

The Seychelles, an archipelago nation of 115 islands in the Indian Ocean, won $26 million in IMF emergency support in November 2008 as its economy teetered on the brink of collapse.

On December 22, 2009, it agreed to a follow-up $31 million IMF program to support a second wave of economic reforms following a debt restructuring.

"All end-March 2010 quantitative targets under the program were met with margins, and good progress has been achieved in the ambitious program of structural reforms," IMF mission chief to Seychelles, Jean le Dem, said in a statement after talks with the government.

Le Dem said policies were appropriately geared to improving fiscal and debt sustainability. Good government revenue performance so far will help put the state on a solid financial footing, while reforming the financial sector will help private-sector growth.

Le Dem said the IMF board would review Seychelles' performance under the program at a meeting in late June. If approved, the government will receive a disbursement of $3.3. million.