The COVID-19 pandemic is having a severe impact on Eswatini’s economy at a time when the country is already facing deep economic challenges, and the government has begun fiscal consolidation efforts. A national lockdown to contain the spread of the virus, disruptions in supply chains, and lower external demand for key exports are curtailing economic activity. While the authorities’ policy response has been timely and proactive, the economic shock and containment policies are triggering
a severe recession with significant social costs, and have created urgent balance of payments needs. The pandemic is unfolding in a context of high prevalence of HIV/AIDS and a stretched health care system, which increase Eswatini’s vulnerability.
This 2019 Article IV Consultation with the Kingdom of Eswatini highlights that the financial system remains sound, although vulnerabilities are rising. Hence, bank supervision should be intensified, the early intervention regime strengthened, and plans to relax single borrower concentration regulations suspended. The paper explains that the authorities have recently taken some policy actions toward stabilizing the economy. However, reflecting expansionary spending policies and declining Southern African Customs Union revenue, public debt is still rising, domestic arrears have accumulated, and international reserves have fallen below adequate levels. Supply side and governance reforms are needed to support private investment and strengthen competitiveness. Reforms should reduce vulnerabilities to state-capture and other forms of corruption, streamline business regulations and regulatory requirements, reduce high electricity and telecommunications costs, contain wage growth, and address shortages of skilled workers. A credible medium-term fiscal adjustment plan, starting with measures to reduce next year’s fiscal deficit, is needed to bring the economy on a sustainable path. Policies should combine expenditure reductions and revenue increases that enhance long-term growth prospects. Expanding and better targeting cash transfers would help protect the poor.
This 2017 Article IV Consultation highlights that the macroeconomic conditions have recently deteriorated in Swaziland. In 2016, two shocks—a prolonged drought and a sharp decline in South African Customs Union (SACU) receipts—severely hit the economy, while an expansionary fiscal policy worsened fiscal and external balances. Growth in 2016 stagnated, as agricultural productions declined, and headline inflation increased sharply, mostly owing to rising food prices. Fiscal policy remains on an expansionary course, while the monetary stance has tightened. Despite a pickup in SACU revenue, the 2017 budget envisages a continuation of large fiscal deficits, and further increase in public debt.
This paper highlights that banks and nonbank financial institutions, businesses and households have large exposures to the government and, in some cases, their own vulnerabilities. In this context, a fiscal shock can rapidly propagate into the economy through the financial sector. The financial sector is also likely to amplify the impact of shocks on the economy, possibly opening the way to deep recession. In the case of an extreme shock with difficulties in servicing debt, the banking system capitalization would be significantly hit. Staff analysis highlights the need for fiscal consolidation and for strengthening the CBS’s role in monitoring and managing macrofinancial risks. Since 2015, the government’s balance sheet, liquidity, and risk exposures have been rapidly deteriorating, raising concerns about the impact on other sectors of the economy. As in many countries, the government in Swaziland is a major economic player with strong linkages with both the financial and nonfinancial sectors.
This 2015 Article IV Consultation highlights that Swaziland’s growth has been recovering since the 2010–11 fiscal crisis, albeit at a slower pace recently. Growth recovery following the fiscal crisis was broadly supported by the manufacturing and service sectors. In 2015, however, growth is expected to slow, owing to adverse weather conditions and a slowdown in tourism and transport sectors. Swaziland’s growth outlook is projected to remain subdued over the medium term, while it is clouded with downside risks. Growth is expected to slow in 2016/17, followed by a modest recovery in the following years.
This Selected Issues paper assesses Swaziland’s export diversification and quality. Swaziland’s export structure has experienced sizable changes over the past 15 years. The share of textile exports has halved, and the expiration of trade benefits under Africa Growth Opportunity Act (AGOA) implies that the share of textile exports would decline further. Swaziland’s exports are relatively diversified with good quality index compared with its peers. However, diversification and product quality have declined in recent years, while the expiration of the access to AGOA calls for enhanced efforts in this area. Improving education and training, strengthening institutional framework, and further developing the financial market will help improve export diversification and quality upgrading.
This Selected Issues paper focuses on the challenges of small middle-income countries (MIC) in sSub-Saharan Africa (SSA) comprising Cape Verde, Namibia, and the Kingdom of Swaziland. The IMF report summarizes the analytic underpinnings that support the IMF staff’s advice on policies to strengthen macroeconomic stability, foster more inclusive growth, and enhance the resilience of their financial systems. It recommends that macroeconomic policies should aim to rebuild policy buffers to help cushion against large external shocks especially given the prevalence of pegged exchange rate regimes in these economies.
The fiscal crisis in the Kingdom of Swaziland emanating from a decline in revenue from the Southern African Customs Union and one of the largest public wage bills in sub-Saharan Africa has reached a critical stage. Faced with revenue shortfalls associated with slowing economic activity, uncontrolled public spending, and lack of financing, the authorities continued to deplete central bank reserves and accumulate domestic arrears. The authorities have been able to finance only a minimal amount of expenditure, including wages, utilities, and essential transfers.
The current high Southern African Customs Unions revenues should be used to implement fiscal measures to secure fiscal sustainability and support economic growth. The government should formulate a financial sector strategy that addresses Swaziland’s twin challenges of enhancing financial development and ensuring financial stability. Compounding the threat to exports of sugar and textiles is the looming issue of remaining competitive in a quickly changing global environment. The statistics on export and import, gross domestic product, assets and liabilities, and other such data have also been provided.
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.