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International Monetary Fund. African Dept.

Abstract

Sub-Saharan Africa is contending with an unprecedented health and economic crisis—one that, in just a few months, has jeopardized years of hard-won development gains and upended the lives and livelihoods of millions.

International Monetary Fund

The Swazi economy has continued to register sluggish economic activity even as rising Southern African Customs Union revenue contributed to a large fiscal surplus and accumulation of international reserves. The unchecked growth of insufficiently regulated saving and credit cooperatives poses risks to the financial system. Fiscal policy should safeguard priority spending and fiscal sustainability. Executive Directors commend the government’s effort in rebuilding international reserves. Further efforts are needed to improve the quality and timeliness of data to better facilitate policy formulation and monitoring.

International Monetary Fund
The Swaziland economy continues to underperform, reflecting the impact of the global economic crisis. The impact of the crisis has been felt mostly in revenue transfers of the Southern African Customs Union (SACU) to Swaziland. Executive Directors welcomed Fiscal Adjustment Roadmap (FAR), which focused on restoring fiscal sustainability, improving competitiveness, and strengthening financial supervision. They noted that key challenges are restoring fiscal sustainability, addressing HIV/AIDS, reducing poverty, and creating employment. Directors emphasized the need for fiscal adjustment and budgetary reforms. Directors noted that the banking system remains in good health.
International Monetary Fund. African Dept.
KEY ISSUES Setting: Swaziland has gradually recovered from the fiscal crisis of 2010-11, buoyed by the improved revenues from the Southern African Customs Union (SACU). Growth modestly recovered, and international reserves rebounded. Swaziland’s challenges, however, remain significant, in view of its high vulnerability to exogenous shocks and its sluggish growth performance, while facing significant social and development challenges with high unemployment and the prevalence of HIV/AIDS. Swaziland now stands at a critical juncture to strengthen its resilience to exogenous shocks, address its weak growth performance, and meet critical social and development needs. Outlook and risks: Under the status-quo policies, the outlook is for continued sluggish growth and increasing fiscal and external imbalances, reflecting low private investment, elevated government spending, and prospective decline in SACU revenues. Risks are associated with the high volatility of the SACU revenues, possible negative spillovers from South Africa (including higher policy rate and lower growth), and uncertain prospects for preferential trade agreements with the U.S. and EU. Strengthening Resilience to Shocks: Over the medium term, international reserves should be targeted at five to seven months of imports, and public debt be kept below 30 percent of GDP. This calls for a prudent fiscal policy stance, with fiscal deficit below 2 percent of GDP. Raising growth: It is essential to enhance the efficiency of the public sector and promote private sector-led growth through structural reforms including improving business climate and accelerating land reforms. Maintaining financial stability: Financial soundness indicators are generally strong. The strong growth of the nonbank financial sector in recent years calls for strengthening of supervision and regulation for the sector. Past advice: There is broad agreement between the Fund and the authorities on macroeconomic policy and structural reform priorities. With the authorities’ fiscal consolidation efforts and the improved SACU revenues, fiscal and external sustainability is being restored, consistent with staff’s advice. However, progress on structural reforms—including re-launching the privatization process, improving access to modern finance and improving the business climate—has been modest.
International Monetary Fund. African Dept.
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.
International Monetary Fund
The Swazi economy has continued to register sluggish economic activity even as rising Southern African Customs Union revenue contributed to a large fiscal surplus and accumulation of international reserves. The unchecked growth of insufficiently regulated saving and credit cooperatives poses risks to the financial system. Fiscal policy should safeguard priority spending and fiscal sustainability. Executive Directors commend the government’s effort in rebuilding international reserves. Further efforts are needed to improve the quality and timeliness of data to better facilitate policy formulation and monitoring.
International Monetary Fund
This Selected Issues paper describes recent economic developments in Swaziland and discusses some of the key issues that have a bearing on the economic outlook and policy debate. The paper examines developments with regard to output and inflation, fiscal policy, monetary policy and financial markets, and the external sector. It elaborates the economic impact of HIV/AIDS. The sources of GDP growth and the outlook are analyzed. The paper also examines the issue of external competitiveness, and describes the finances of the Public Service Pensions Fund.
International Monetary Fund
This 2002 Article IV Consultation highlights that real GDP growth for Swaziland fell from 7¾ percent annually during the 1980s to 3¾ percent during the 1990s. In 2001, growth declined further to 1.8 percent, reflecting a fall in export demand associated with the economic slowdown in South Africa, foreign disinvestment in some industries, and poor weather. Economic activity appears to have weakened further in 2002, with manufacturing output showing the effects of additional closures by foreign firms and agricultural output being affected by the drought in the region.
International Monetary Fund
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.
International Monetary Fund. African Dept.
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.