Article

Country Briefs: Fiscal Sustainability is Critical if Swaziland is to Fight Poverty

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
June 2006
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Swaziland’s economy has stagnated over the past 10 years, and this trend appears likely to continue. Real GDP growth is projected to be 1.0 percent in 2006, slowing from an estimated 1.8 percent in 2005 and 2.1 percent in 2004, according to the IMF’s annual economic review. A prolonged drought, real effective appreciation of the exchange rate, increased oil import prices, and the removal of textile quotas in industrial countries have contributed to the adverse developments. The fiscal deficit increased to 4.3 percent of GDP in FY2004/05, from 2.7 percent of GDP in FY2003/04, owing in large part to public sector salary increases. To finance the deficit, the government has depleted its financial assets and accumulated domestic arrears.

In October 2004, Swaziland issued a Poverty Reduction Strategy and Action Plan that aims to halve the poverty rate by 2015, in keeping with the Millennium Development Goals. Little progress has been made, however, and poverty and food shortages remain widespread. Encouragingly, the HIV/AIDS infection rate for the 15-19 age group declined for the first time in 2004 (to 29 percent, from 32 percent in 2002), suggesting that preventive measures may have begun to take hold.

The IMF Executive Board stressed that improving fiscal sustainability and external competitiveness will be critical to reducing poverty in Swaziland, and the further loss of trade preferences and expected decline in revenues from the South African Customs Union will only complicate these challenges.

Swaziland
20032004Est.

2005
Proj.

2006
(percent change)
Real GDP2.42.11.81.0
Consumer prices (period average)7.43.44.85.8
(percent of GDP)
Current account balance1.91.6-1.6-2.4
Total government revenue and grants126.329.330.729.0
Total government expenditure and lending129.033.635.034.3

Fiscal year beginning April 1.

Data: Swazi authorities and IMF staff estimates and projections.

Fiscal year beginning April 1.

Data: Swazi authorities and IMF staff estimates and projections.

Directors urged the authorities to pursue fiscal consolidation and structural reforms without further delay. Sharply reducing the budget deficit will be imperative, given the absence of concessional external financing, the presence of large payments arrears and contingent liabilities, limited scope for domestic borrowing, and low economic growth. Structural reforms will be necessary to support fiscal consolidation, Directors pointed out, particularly measures to increase labor productivity, reduce domestic costs, and improve the investment climate.

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