Swaziland
2002 Article IV Consultation-Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Swaziland

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.

Abstract

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.

I. Background

1. The discussions took place against the background of a serious socioeconomic situation. The drought in the southern African region has affected Swaziland, and over one-fourth of the population (280,000 people) could need emergency food assistance by the end of the year. Meanwhile, HIV/AIDS has continued to spread, and now infects one-third of the working-age population. These developments have further exacerbated social conditions. Although Swaziland is considered a lower-middle-income country, its income distribution is highly skewed, two-thirds of the population lives on less than US$1 per day, and nearly one-third of the labor force is estimated to be unemployed.1

2. The political situation is broadly unchanged, and the outlook is dominated by prospects for a new draft constitution and upcoming parliamentary elections. Political parties have been disallowed since 1973, when the constitution was also suspended, and parliament is in part appointed by the King and in part elected through a traditional system. A new draft constitution was completed in October 2002, and is expected to be made public in 2003. The next parliamentary election is expected to take place in 2003.

II. Economic Developments

3. Swaziland’s growth performance has weakened since the early 1990s, in part because the emergence of South Africa from political and economic isolation has eroded some of the country’s advantage as a location for investment. The average annual growth rate of real GDP fell from 7¾ percent in the 1980s to 3¾ percent during the 1990s. In 2001, a fall in export demand associated with the economic slowdown in South Africa contributed to a further decline in real GDP growth to 1.8 percent (Table 1 and-Figure 1). Manufacturing output was dampened by divestments in some industries, notably the withdrawal of a large foreign refrigerator manufacturer (Fridgemaster), and poor weather contributed to a 10 percent decline in agricultural output.2 Economic activity appears to have weakened further in 2002, with manufacturing output showing the effects of additional closures by foreign firms and agricultural output affected by the drought.

Figure 1
Figure 1

GDP Growth, 1997–2001

(In annual Percent Change)

Citation: IMF Staff Country Reports 2003, 021; 10.5089/9781451836080.002.A001

Table 1.

Swaziland Selected Economic and Financial Indicators, 1998–2003

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Sources: Swazi authorities; and staff projections.

Staff projections, assuming unchanged policies.

Based on values in U.S. dollars.

IMF Information Notice System trade-weighted; end of period. For 2002, data relates to 12-month change as of July.

Data for 2002 relates to September.

The fiscal year runs from April 1 to March 31.

Excluding net errors and omissions.

4. Along with other countries in the region, Swaziland faces a serious food shortage (Box 1). Around 144,000 people are estimated to have been severely affected and in immediate need of food aid, and another 87,000–136,000 may need assistance by the end of 2002. The authorities are making efforts to alleviate the food shortage, including through budgetary allocations and the formation of a task force on disaster relief to organize foreign food inflows.3

5. The HIV/AIDS pandemic continues unabated (Box 2). The infection rate is among the highest in the world, having increased by 10 percentage points during 1999–2001 to reach over 33 percent of the working-age population. By 2010, the population could be reduced to 75 percent of what it would have been in the absence of AIDS. The authorities have shown a renewed commitment to fighting HIV/AIDS, notably through the establishment of a National Emergency Response Committee on HIV/AIDS (NERCHA) in December 2001, which has resulted in an improved coordination of the effort and a more effective utilization of public resources.

The Food Situation

Swaziland faces a severe food shortage after two consecutive years of poor cereal harvests.1 Cereal production in both 2000/01 and 2001/02 was only two-thirds of the average annual production during 1995/96–1999/2000.2 In 2002/03, Food and Agricultural Organization (FAO)/World Food Programme (WFP) estimates suggest that total cereal production may be only 62 percent of the 1995/96–1999/2000 average, and equivalent to only 36 percent of consumption. The FAO estimated in May 2002 that at least 144,000 people (15 percent of the population) had been severely affected by the food crisis and were in immediate need of food aid, and that an additional 87,000 (9 percent of the population) had been moderately affected and may need assistance by the end of 2002. A recent official statement estimated that the total number of people requiring food assistance by end-2002 could be substantially higher, at around 280,000. Most maize, Swaziland’s main staple food, is imported from South Africa, which traditionally is a surplus producer. The shortfall would need to be filled by additional imports, both on a commercial basis and in the form of aid.

Swaziland did not receive any food aid in 2001/02. The FAO/WFP and other UN agencies have launched an appeal for food aid of around 17,720 tons, including 15,200 tons of maize (equivalent to 10 percent of total cereal consumption). The government has distributed more than 1,500 tons of maize to the most vulnerable people. By end-July 2002, Swaziland had received only 23 percent of all commercial cereal imports envisaged for 2002/03.

Table 1.

Swaziland: Cereal Balance Estimates, 2001/02–2002/03 1/

(Thousands of metric tons)

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Sources: FAO/WFP and the Southern Africa Development Community.

FAO/WFP estimates as of May 29, 2002.

1Cereals account for about three fourths of the average daily calorie intake in Swaziland.2The maize marketing year runs from April 1 until March 31.

Assessing The Impact of HIV/AIDS

Background

Swaziland is among the African countries most affected by HIV/AIDS. The population is 6 percent smaller than it would have been without the pandemic, and the disease accounted for 12.000 deaths in 2001. Life expectancy was reduced from 58 years in 1997 to 46 years in 2000. As of 2001, over one-third of the country’s adults (170,000 people) were infected. Around 40,000 children (10 percent of all children) have been orphaned as a result of HIV/AIDS. These developments have contributed to raising the dependency ratio to 1.0 in 2001.

Table 1:

HIV/AIDS Infection Rate

(In percent)

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Sources: World Development Indicators, 2002; UNAIDS; U.S. Census Bureau; and Swaziland Ministry of Health and Social Welfare, 7th HIV Sentinel Serosurveillance Report, December 2000.
Table 2:

Social Indicators

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The government has shown a renewed sense of urgency in addressing the disease, notably by forming the National Emergency Response Committee on HIV/AIDS (NERCHA) in December 2001. NERCHA’s operating budget for 2002/03 is E 32 million, of which E 20 million was allocated from the national budget.1 NERCHA has spent E 10 million since becoming operational in June 2002, and there is an expectation that the committee’s funds will be exhausted by the end of the year. In contrast, in 2001/02, only one-fourth of the budget allocation to HIV/AIDS was actually spent, owing to coordination problems among the agencies involved.

Outlook

On current trends, the pandemic could have a further significant impact on demographic and social patterns. By 2010, the population could start to shrink by 0.4 percent annually and could be 25 percent smaller than it would have been without AIDS, and life expectancy could fall to 27 years.2 Over the same horizon, the number of orphans is projected to rise to 25 percent of children, which would further increase the dependency ratio.

Although budget spending on HIV/AIDS has doubled, it remains small, having increased from 0.1 percent of GDP in 2001/02 to 0.2 percent of GDP in 2002/03. NERCHA estimates that the cost of treating the full-blown AIDS population would be E 60 million per year, or three times the size of total budget expenditure at present. Additional costs arising from AIDS-related deaths (around 2 percent of the country’s working-age population per year), such as a shrinking tax base, increasing pressure on pension funds, and lower productivity, could be over E 1 billion (cumulative) during 1999–2016 and would undermine growth prospects.3 One study estimates that the level of per capita output, relative to a baseline, could be depressed by some 7 percent over the medium term and by around 2 percent over the long term, owing in part to declines in total factor productivity arising from a decline in the average level of experience of workers.4

1The country has submitted an application to the Global HIV/AIDS Fund for E 160 million per year during 2003–07. NERCHA has not solicited funds from other international donors.2U.S. Census Bureau forecast.3Swaziland Human Development Report, 2000.4Markus Haacker, “The Economic Consequences of HIV/AIDS in Southern Africa”, IMF Working Paper /02/38 (Washington: IMF, 2002).

6. Unemployment remains high, at an estimated 31 percent of the labor force. The emergence of a fledgling export-oriented clothing industry, in part related to Swaziland’s preferential access to U.S. markets under the U.S. African Growth and Opportunity Act (AGOA) since January 2001, has helped to create new jobs equivalent to 6 percent of total employment. However, limited investment in other labor-intensive industries, factory closures, and the sluggish growth of output on communally owned Swazi Nation Land (nearly two thirds of the country’s land area) have prevented a reduction in the overall unemployment rate.

7. The central government fiscal balance has shifted into deficit since 1999/2000 (April-March), and by 2001/02 the deficit (including grants) had widened to 2.8 percent of GDP (Table 2 and Figure 2).4 The primary deficit increased to nearly 2 percent of GDP in 2001/02. The deterioration in public finances has mainly reflected a decline in tax receipts as a share of GDP, principally Southern African Customs Union (SACU) receipts.5 Fiscal expenditure remained broadly unchanged as a percent of GDP, as an increase in capital expenditure was offset by a decline in the public wage bill stemming from the retrenchment of 3,000 workers in 2001/02. In recent years, the deficit has been financed entirely from domestic nonbank and foreign sources. However, in April 2002 the government issued domestic debt worth E 230 million to commercial banks.6 Total government debt stood at 22 percent of GDP in 2001/02.

Figure 2.
Figure 2.

Central Government Operations 1997/98–2001/02

(In percent of GDP)

Citation: IMF Staff Country Reports 2003, 021; 10.5089/9781451836080.002.A001

Table 2.

Swaziland: Summary of Central Government Operations. 1998/99–2002/03 1/

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Sources: Ministry of Finance; and Fund staff projections.

The fiscal year runs from April 1 to March 31.

Reflects supplementary budget of January 200:.

Estimates by Ministry of Finance as of September 2002.

Fiscal-year basis.

8. Developments during April-July 2002 suggest a further widening of the central government deficit to nearly 4 percent of GDP in 2002/03.7 The increase mainly reflects the implementation of higher wage rates for public servants, contributing to an increase in the civil service wage bill to 12 percent of GDP from 10.2 percent in 2001/02.

9. Inflationary pressures have picked up since late 2001 (Figure 3). In July 2002, consumer price inflation was 11.8 percent (12-month basis), which was 1.2 percentage points higher than in South Africa. Both external factors, such as inflation imported from South Africa and rising food and oil prices, and domestic factors, such as increases in wages and the cost of education, have contributed to the pickup in inflation.

Figure 3.
Figure 3.

Consumer Price Inflation

(In percent)

Citation: IMF Staff Country Reports 2003, 021; 10.5089/9781451836080.002.A001

10. The rise in inflation has blunted the impact on competitiveness of a depreciation in the nominal effective exchange rate (NEER) of the lilangeni (Box 3 and Figure 4).8 The NEER depreciated by 5 percent in 2001 (end-year basis), largely reflecting the substantial depreciation of the South African rand vis-à-vis the U.S. dollar, but the real effective exchange rate (REER) appreciated by 1 percent. During January-July 2002, both the NEER and the REER appreciated by around ½ of 1 percent.

Figure 4.
Figure 4.

Nominal (NEER) and Real (REER) Effective Exchange Rates

(Index, 1990=100)

Citation: IMF Staff Country Reports 2003, 021; 10.5089/9781451836080.002.A001

Competitiveness and the Real Effective Exchange Rate in Swaziland

During 1990–2002, the nominal effective exchange rate of the lilangeni depreciated steadily, reflecting a substantial depreciation of the South African rand (around 70 percent) with respect to the currencies of advanced economies (Swaziland has maintained an unchanged peg of the lilangeni to me rand for over 50 years).1 However, relatively high inflation has blunted the effect on competitiveness. Thus, despite the significant nominal depreciation, in July 2002 the real effective exchange rate of the lilangeni was close to its 1990 level (see figure below).

Consistent with the exchange rate peg, the price dynamics of Swaziland and South Africa have tended to converge over long time horizons (although they have diverged temporarily), generating a roughly neutral impact on Swaziland’s real effective exchange rate. However, both countries have had higher inflation than the advanced economies, thereby offsetting the nominal exchange rate depreciation.

As movements in Swaziland’s nominal effective exchange rate have tended to offset the inflation differential with advanced economies, the movements in the real effective exchange rate have mainly reflected changes in relative prices vis-à-vis South Africa. In 2001 and 2002, notwithstanding significantly higher inflation with respect to South Africa, the substantial nominal depreciation vis-à-vis other countries helped to keep the lilangeni stable in real terms. While Swaziland has lost some competitiveness with respect to South Africa, its main trading partner, it has experienced significant gains in competitiveness with respect to industrial countries.2 This has been reflected in a recent increase in the share of exports going to industrial countries (which rose to 55 percent in 2001 from 40 percent in 1999).3

uA01fig01

Swaziland: Exchange Rate Developments, 1990–2002 (Index, 1990=100);

Citation: IMF Staff Country Reports 2003, 021; 10.5089/9781451836080.002.A001

Source: IMF, Information Notice System (INS).
1System (INS) for calculating the real effective exchange rate, the weight of the South African rand for Swaziland is 86 percent.2The adjustment in relative inflation between the two countries could be eased by the pass-through effect from the substantial nominal exchange rate depreciation vis-à-vis advanced economies in 2001. Such a pass-through may, in fact, be larger in South Africa than in Swaziland, given the greater share of advanced economies in South Africa’s imports.3These figures are from the Central Bank of Swaziland and may differ somewhat from data of the Department of Customs and Excise.

11. The external current account deficit rose to 4 percent of GDP in 2001 as a reduction in the trade deficit was more than offset by lower foreign income and transfers (Table 4 and Figure 5).9 The trade deficit declined due to a contraction in imports of goods and services related to weak private investment. The sharp reduction in official transfers in 2001 reflected lower SACU receipts. Net international reserves decreased slightly to US$228 million (2½ months of imports), total external debt fell to 22 percent of GDP, and the ratio of external debt-service payments to exports declined to 2¼ percent (Table 5).

Figure 5.
Figure 5.

Balance of Payments, 1997–2001

(in percent of GDP)

Citation: IMF Staff Country Reports 2003, 021; 10.5089/9781451836080.002.A001

12. Given the peg of the lilangeni to the rand and Swaziland’s membership in the Common Monetary Area (CMA), the scope for the Central Bank of Swaziland (CBS) to pursue an independent monetary policy is limited. The CBS raised short-term interest rates by 400 basis points during January-September 2002, in step with monetary tightening by the South African Reserve Bank.10 Data for the 12 months through July 2002 (the most recent month available) indicate that the pace of broad money growth moderated to 15½ percent, after having risen above 20 percent in the first quarter (Table 3).

Table 3.

Swaziland: Monetary Accounts, 1998–2002 1/

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Sources: Central Bank of Swaziland (CBS); and Fund staff estimates.

End-of-year data, except 2002.

Comprises government domestic deposits with the central bank and fee counterpart of government (including CIF) external assets in rand.

Includes public sector entities other than the government.

Excludes rand in circulation.

For 2002, percent change of July 2002 over July 2001.

Table 4.

Swaziland: Balance of Payments, 1998–2003

(In millions of U.S. dollars, unless otherwise specified)

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Sources: Central Bank of Swaziland; and staff projections.
Table 5.

Swaziland: Indicators of External Vulnerability, 1998–2002

(In percent of GDP. unless otherwise indicated)

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National government debt.

End of period.

Backward-looking with actual CPI.

Customs-based data, in current U.S. dollar prices.

Net foreign assets plus foreign exchange credit to government and banks less foreign exchange deposits at CBS, Does not include foreign exchange position arising from off-balance sheet operations.

Net foreign assets less net foreign liabilities. Does not include foreign exchange position arising from off-balance-sheet operations.

Including intercompany loans.

13. Swaziland has a well-developed banking system, although some concerns remain about the government-owned Swaziland Development and Savings Bank (SDSB).11 Nonperforming loans of the three commercial banks fell to 1½ percent of total loans and advances in June 2002 and their overall profitability increased to nearly 15 percent (pretax return on capital). Their capitalization exceeds the Basel Accord requirements, and their risk management and provisioning are considered by the banking supervisors to be sound. The SDSB, which lost its commercial banking license in 1995 owing to poor financial performance, relaunched commercial banking operations in June 2001 following recapitalization by the government, a write-off of its nonperforming loans, and the adoption of new lending and risk management procedures.12 The bank broke even during 2001/02, but it continues to engage in noncommercial lending.

III. Report On The Discussions

14. The Fund’s policy advice to Swaziland in recent years has focused on the need for fiscal adjustment to restore macroeconomic stability and prepare for medium-term needs, and for structural reforms, particularly with regard to the financial sector, public enterprises, and land tenure. The authorities have been in broad agreement with this advice and have responded in a few areas, but substantial progress remains to be made. They recognize the need for fiscal consolidation, although the central government deficit has continued to widen (as noted) and key medium-term vulnerabilities still have to be addressed. Structural reforms have progressed in some areas, notably in strengthening the financial sector, but have been slower in others, particularly public enterprise restructuring and land reform. The policy response has been hampered by governance problems, which have slowed down the passage of needed legislation, and by limitations in the institutional capacity to develop and implement the necessary changes.

15. The staff and the authorities agreed that the central policy challenge was to address the factors that were holding down Swaziland’s longer-term growth prospects and preventing a sustained and broad-based increase in the standard of living. Looser fiscal policy is endangering macroeconomic stability, as reflected in higher inflation, and is eroding competitiveness and external viability and jeopardizing growth prospects. At the same time, a decline in capital accumulation as a percent of GDP is weakening the platform for growth, and relatively low investment in health and human capital is contributing to a worsening of social outcomes, particularly in the context of the rapid spread in HIV/AIDS. Economic performance also continues to be hindered by inefficiencies among public enterprises, low productivity on agricultural land, and impediments to higher employment.

16. Against this background, the discussions focused on:

  • the economic dimensions of the food shortage and the HIV/AIDS pandemic, and the formulation of an adequate response;

  • the macroeconomic outlook and policies that would help to raise the sustainable growth rate and spread its benefits widely;

  • fiscal policy adjustments that were needed to ensure macroeconomic stability (thereby also helping to sustain competitiveness and the exchange rate peg of the lilangeni to the rand) and meet the prospective medium-term pressures on the budget arising from HIV/AIDS, other social priorities, and contingent government liabilities (such as the public pension fund);

  • the continued usefulness of the pegged exchange-rate arrangement in providing a nominal anchor;

  • the health of the banking system, and particularly reform of the SDSB;

  • the strategies for addressing unemployment and agricultural efficiency/land reform.

A. Humanitarian Situation

17. It was agreed that the most immediate issue to be addressed was an adequate response to the humanitarian crisis. Notwithstanding the authorities’ ongoing efforts to alleviate the food shortage and fight HIV/AIDS, it was recognized that an effective response to the crisis would require adequate foreign assistance in the near term. The authorities expressed only limited interest in using the Fund’s emergency assistance facility, mainly because of the lack of concessionality.13 Donor sentiment, however, was negative on account of misgivings about the policy orientation and concerns about governance, particularly the government’s proposed acquisition of a new airplane for the King and the extent of its participation in the large so-called Millennium Projects (discussed below), as well as the slow pace of legislative change and lapses in the rule of law. The staff argued that a reorientation of policies with a clear, determined focus on the humanitarian situation would be beneficial both through its direct impact on the economy and by attracting donor support. The staff supported the authorities’ intention to organize a donor conference, in collaboration with the UNDP, but advised that this be done at a time when they were able to present a strong policy package that showed a clear focus on key social priorities.

B. Economic Outlook

18. The near-term economic outlook is for a further slowdown in economic activity in 2002. Real GDP growth could slow to 1½ percent in 2002, reflecting the effects of the drought and additional factory closures. It could then pick up to 2 percent in 2003 as agricultural output returns to more normal levels and an envisaged recovery in economic activity in South Africa provides some temporary support to Swaziland’s output. Inflation could be expected to remain somewhat above the level envisaged in South Africa, and the external current account deficit should narrow slightly, to 3½ percent of GDP, reflecting lagged effects of the depreciation of the lilangeni in 2001.

19. The medium-term outlook is clouded by the deteriorating fiscal picture, HIV/AIDS, and the need for structural reforms. The staff presented two alternative scenarios (see Appendix IV), with which the authorities broadly agreed:

  • With no change in policies, the real GDP growth rate could remain at around 1½ percent. Fiscal and external sustainability would deteriorate sharply, and inflation would remain somewhat higher than in South Africa.

  • With fiscal policy set on a sustainable trend and structural reforms being implemented in a range of areas, the real GDP growth rate could rise to around 2½ percent, representing somewhat higher per capita growth than was experienced during the 1990s.14 The fiscal and external positions would become more viable, and inflation could converge to the South African level.

The outlook is susceptible to significant downside risks. It could be substantially worsened by a lack of strengthening in policies and by a further loosening in fiscal policy, such as spending on large capital projects not related to the humanitarian situation. In addition, key medium-term risks include Swaziland’s vulnerability to regional and global trade shocks as well as uncertainties about the economic impact of the HIV/AIDS pandemic.

20. Over the longer term, Swaziland’s economic prospects depend importantly on its attractiveness as an investment destination relative to its neighbors, particularly South Africa. Having in place policies and institutions that help to raise the country’s risk-adjusted rate of return is critical in this regard, Swaziland already possesses several of the key elements that are necessary for improving its longer-term economic prospects, notably a physical infrastructure that compares reasonably well with that in neighboring countries, relatively low crime, and corporate income tax rates that are comparable with those in South Africa. However, during the discussions, business representatives pointed out that investment was deterred by concerns about governance and the high incidence of HIV/AIDS. Addressing these issues, as well as continued integration into the global economy, including in the context of regional arrangements such as the Southern African Development Community (SADC) and SACU, the continued adoption of international standards and regulations, and sound macroeconomic policies, all would help strengthen longer-term growth prospects.

C. Macroeconomic Policies

Fiscal policy

21. The authorities recognized that greater fiscal discipline was needed to regain macroeconomic stability and to address social priorities and improve growth prospects while maintaining a sustainable public debt position. A failure to reduce the fiscal deficit would worsen macroeconomic stability, reduce competitiveness, and harm debt sustainability. In addition, the current stance of fiscal policy would not prepare the budget for the looming medium-term pressures (from HIV/AIDS, other social priorities, and contingent liabilities). The authorities broadly agreed with this assessment and indicated that they intended to target a reduction in the deficit to 1–2 percent of GDP over the medium term. Against this background, the mission recommended, as a realistic and feasible target, that the overall deficit (including grants) be reduced to around 3 percent of GDP in 2003/04;15 it also recommended that further fiscal adjustment be undertaken over the medium term that aimed to achieve a primary surplus. The mission welcomed the authorities’ efforts to move toward a medium-term fiscal framework in conjunction with an EU-sponsored fiscal restructuring project initiated in 2002.

22. The authorities noted progress with implementing the measures initiated in 2001/02 to broaden the tax base.16 The base-broadening measures would help to compensate for an envisaged decline in SACU-related trade taxes over the medium term.17 The mission encouraged further measures in this direction, given the need for fiscal adjustment in subsequent years and from the standpoint of efficiency.18 The mission and the authorities agreed that there was a continued need to strengthen tax administration, particularly in terms of audit and enforcement, and to step up efforts to collect tax arrears, which were sizable.19

23. On the expenditure side, the mission and the authorities agreed on the need to reorient spending toward critical social sectors while restraining overall expenditure. In particular, the mission recommended a reorientation of current and capital spending toward education and health, the allocations for which had been relatively stagnant since 1990 and were smaller than in neighboring countries,20 and restraint over the wage bill and transfers to public enterprises (which together accounted for two-thirds of current expenditure in 2001/02).

24. The mission also recommended reconsideration of some of the prospective expenditure items that were being discussed. A government proposal to acquire a new airplane for the King could crowd out current social needs and was a deterrent to donor support.21 The mission urged that the authorities’ concerns about an appropriate form of transport for the King be met through less costly alternatives that did not require significant additional budgetary resources, and it suggested that the timing of the transaction be reconsidered. After the mission, on October 18, parliament voted against the government’s proposal on the new airplane.

25. A careful sequencing of civil service reform would help to improve the efficiency of public services while avoiding an increase in the public wage bill. The mission and the authorities agreed that wider wage dispersion in the public sector could help to attract and retain skilled employees (as the Salary Review Commission had concluded), but the mission urged that this should only be done alongside a reduction in the overall size of the civil service. The Public Sector Management Program needed to be speeded up to identify alternative approaches to right sizing the civil service while ensuring adequate staffing in key social sectors.22 The authorities expected that a proposal would be submitted to the cabinet by May 2003 to determine the sustainable size and cost of the civil service, which, if passed, would be implemented in 2004. Meanwhile, they were advised to avoid public wage increases of the scale seen in recent years as these, in addition to worsening the public finances, influenced private sector wages (including unions’ wage negotiations) and raised economy-wide labor costs.

26. It is important for the authorities to regain effective control over transfers to public enterprises.23 The restructuring of public-enterprises and implementation of a sound privatization policy (discussed below) would be essential in this regard, The mission took note of the authorities’ view that some of the Millennium Projects (such as factory shells for foreign investors) had been helpful in generating growth and employment, but encouraged the authorities to move ahead with the intended devolution of the majority of the Millennium Projects to the private sector and to ensure the economic viability of the few projects where government participation was warranted.24

Monetary policy and the exchange rate

27. The authorities and the mission agreed that the pegged exchange rate system of the lilangeni to the rand continued to serve Swaziland well, given the financial discipline that it entailed and in view of the close economic integration between Swaziland and South Africa (Box 4).25 However, a strengthening of public finances, an appropriately prudent monetary policy stance to secure an adequate level of international reserves, and continued structural reforms were important for ensuring the credibility of the peg. There was also agreement that Swaziland was well served by its membership in the CMA and would benefit from a continued increase in financial integration with other member countries.26

Economic Integration Between Swaziland and South Africa

Two key characteristics of Swaziland’s economy are its high degree of openness and very close integration with South Africa. The latter was a key factor behind the authorities’ decision to adopt a fixed exchange rate between the lilangeni and the South African rand. In 2000, the degree of openness (as measured by the ratio of external trade of goods and services to GDP) in Swaziland was 161 percent, which is considerably higher than for most other small, open economies. Swaziland’s merchandise trade with South Africa is equivalent to 70 percent of its total trade and to over 110 percent of its GDP. In contrast, Swaziland’s trade with other SACU countries is equivalent to less than 1 percent of its total trade.

External Trade Within Regions, 2001

(In percent)

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Sources: SACU; and IMF Direction of Trade Statistics. Data refer to aggregate merchandise trade (X+M).

Data are from 1997.

In Swaziland, like in other SACU countries. South Africa is proportionately more important as a source of imports (80 percent) than a destination for exports (50 percent). The differential in part reflects the fact that a substantial share of exports (about 15 percent) is governed by preferential trade agreements with industrial countries. A high degree of labor mobility and a close integration via the capital account exist between Swaziland and South Africa. Swazi contract mining workers in South Africa account for 1–2 percent of the population of Swaziland. Although statistics on foreign direct investment (FDI) are not reliable, South African companies appear to account for the largest share of FDI in Swaziland.

The economic integration between Swaziland and South Africa has contributed to a positive correlation of macroeconomic trends. The correlation between Swaziland and South Africa during 1981–2001 was 0,3 for real GDP growth and 0.5 for consumer price inflation.

uA01fig02

Economic Growth and Inflation in Swaziland and South Africa, 1981–2001

Citation: IMF Staff Country Reports 2003, 021; 10.5089/9781451836080.002.A001

(Annual percentage change)

28. The mission welcomed the reduction in the statutory reserve requirement on banks in August 2002, from 4 percent to 3 percent. This should help bring about deeper financial integration within the CMA, by bringing the requirement closer in line with that in South Africa (2½ percent), and reduce the effective tax on financial intermediation.27 At the same time, the mission noted that the list of assets eligible for the domestic liquidity requirement (15 percent) could be expanded to include South African securities, thereby raising the relative yield on comparable assets in Swaziland, and that the requirement could eventually be eliminated.

D. Structural Issues

Public sector

29. Public enterprise restructuring and privatization need to be accelerated. The mission encouraged early action to finalize the draft privatization policy that the authorities were preparing with support from the UNDP.28 The authorities expect to submit the policy to parliament in time for its approval by March 2003, and to start implementing the policy by 2004. Incorporating the views of labor representatives, the mission suggested that the process be transparent and collaborative in order to ensure broad social acceptance of the policy. The mission supported the cabinet’s approval in 1999 of the decision to restructure the Central Transport Authority (CTA), and urged that the decision now start to be implemented.29 Further measures could include requiring public enterprises to comply with existing reporting regulation, and introducing performance contracts for each enterprise.30 The mission encouraged the authorities to liberalize the importation of maize by reconsidering the monopoly of the National Maize Corporation over imports.

30. The Swaziland Public Service Pensions Fund (PSPF) could pose a significant future liability to the government if its finances are not addressed (Box 5).31 The latest evaluation (April 2001) estimated the actuarial deficit of the fund to be E 1.7 billion (16 percent of annual GDP).32 The mission encouraged the authorities to initiate measures to put the fund on a sustainable path, including the Actuary’s previous recommendations to increase statutory contribution rates and the retirement age. The mission also suggested that proposed amendments to the pending Retirement Fund Act that would recall investments held abroad by domestic pension funds could jeopardize the return or raise the risk profile of the PSPF’s asset portfolio. However, the authorities noted that the amendments were proposed partly because the pension fund’s earnings in South Africa had started being taxed, and they expressed the view that the repatriation of investments would also contribute to developing the domestic capital market in Swaziland.

Financial sector

31. The authorities noted recent progress in strengthening banking supervision. Proposed and gazetted changes in bank legislation would reduce the concentration of banks’ loans to single borrowers, introduce audit committees, and strengthen lending rules (including with regard to insider lending).33 Some banking sector representatives indicated that the reduction in loan concentration could adversely affect their profitability and might have implications for key economic sectors.34 The mission advised the authorities to remain alert, when implementing the legislation, to the implications for financial and business institutions, and encouraged them to request any technical assistance from the Fund that may be useful.

32. The mission noted that the commercial viability of the SDSB remained a source of concern.35 Notwithstanding its recapitalization from the budget and the full provisioning of its nonperforming loans, the bank’s viability would depend on a rigorous application of its new enhanced risk management procedures and on the profitability of its banking services. The mission emphasized that an action plan to prevent bad loans should be a precondition for any budgetary support.36 The mission urged early action to restructure or privatize the institution and reiterated that, as a first step, commercial and developmental activities could be made more distinct and be taken up by different entities in order to increase transparency and accountability in the bank’s financial operations.

Swaziland Public Service Pensions Fund

The Swaziland Public Service Pensions Fund (PSPF) is one of three pillars of Swaziland’s pension system.1 Swaziland also has a diversified social safety net, although it is limited in scale and accounts for only 0.2 percent of total government expenditure in 2002/03.2 The PSPF was established in 1993 as a defined benefit scheme and, as of April 2001, covered 35,710 people (9 percent of the labor force). The PSPF is administered by the Public Service Pensions Board, an autonomous statutory body.

Members and the government contribute at rates of 5–10 percent and 15 percent respectively, of pensionable salary. Benefits accrue at a rate of 2 percent of pensionable salary for each year of service. The minimum contribution period is ten years, and the fund contains strong disincentives for early retirement (a member’s pension is reduced by 0.33 percent for each month of early retirement). The PSPF also extends disability and death benefits (see below).

The PSPF’s finances are vulnerable and represent a potentially significant liability for the government. At end-March 2001 (the latest available information), the ratio of the actuarial value of assets to pension liabilities was estimated by the Actuary (Alexander Forbes Financial Services) at around 46 percent resulting in a shortfall of around E 1.7 billion (16 percent of annual GDP).3 Moreover, in the absence of a response from the government, the contributions required to eliminate the shortfall have been rising rapidly, most recently from 34.9 percent at end-March 2000 to 39.4 percent at end-March 2001.

Over the medium term, HIV/AIDS is expected to have an adverse impact on the PSPF. Disability benefits entail early retirement with no penalty and an additional pension of up to 50 percent of the actual salary at the date of injury, depending on the severity and circumstances of the injury. Death benefits include a payment of twice the annual pensionable salary, a spouse’s pension equal to 50 percent of the accrued pension, and a pension of 10 percent of the accrued pension for each child, with a maximum of 50 percent. Benefits are paid irrespective of the number of years of service. The actuarial evaluation made no explicit allowance for the potential impact of AIDS, although it did raise the assumptions on mortality by 50 percent relative to those in South Africa to take account of Swaziland’s evolving demographic profile. The payment of death benefits rose significantly during the second half of the 1990s, and particularly sharply again in 2001.

In order for the PSPF to attain financial soundness, the Actuary estimated it would be necessary to raise the contribution rate to 39 percent, raise the retirement age (currently 60 years), or restructure the benefits and rules of the fund. The main strategy at present to improve the financial position of the fund entails meeting an objective of the Board of Trustees to maintain a rate of return on the offshore investment portfolio that is at least equal to the benchmark set by the South African financial markets, as well as a real rate of return of at least 3 percent per year on the domestic portfolio.

1The other two are private pension funds and the Swaziland National Provident Fund (SNPF). The government’s legal obligation is limited to the PSPF.2Safety net expenditure consists of pensions for the aged, free medical services for the elderly and children younger than 5, public assistance for the disabled and destitute elderly, disability payments, and support for handicapped children, children in hospitals, children in foster care, and orphans.3According to the Actuary, the PSPF was grossly underfunded at its establishment in 1993, which explains in part how such a large unfunded liability has emerged for such a young system.

33. The mission welcomed the passage of legislation in August 2002 to strengthen the framework to combat money laundering. The authorities responded in full to the Fund’s questionnaire on anti-money laundering and combating the financing of terrorism (AML/CFT), and are now engaged in implementing this legislation. They have established a task force to prepare and carry out an action plan in such areas as drafting detailed regulations and building the necessary institutional capacity and expertise. Swaziland is cooperating with other members of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) to improve AML systems in the region, and to introduce measures to combat the financing of terrorism.

Social issues

34. The mission emphasized the need for a strategy to reduce unemployment. Analysis of the labor market in Swaziland is hampered by serious data deficiencies. However, it would appear that the investment environment, skills shortages, and labor market rigidities have contributed to raising labor costs. There is some urgency to formulating and implementing policies to address these factors. A skills development study that is expected later in 2002 may represent a first step in this direction.

35. In view of the relatively low productivity of Swazi Nation Land, measures to improve the efficiency of land use could yield substantial efficiency gains and help to improve income distribution and alleviate poverty. An important measure in this regard could be reform of the land tenure system.37 The mission recommended early enactment into law of the Land Policy Act (approved by the cabinet in 1999), which would institute long-term leases for agricultural and peri-urban land. Allowing landholders on Swazi Nation Land to use their holdings as collateral (not allowed under the current system of land tenure) could enhance farmers’ access to commercial credit and contribute to investment and productivity gains. The authorities noted that improvements in the irrigation of agricultural land, including through the recently-implemented Maguga dam and prospective Lower Usuthu Smallholder Irrigation Project (LUSIP), would also help to improve agricultural productivity.

External trade

36. Swaziland’s external trade policy is largely determined by its membership in SACU and the SADC.38 The mission encouraged the authorities to remove remaining nontariff barriers, which applied mainly to permits for the importation of some agricultural products. The authorities were also encouraged to reconcile Swaziland’s membership in COMESA and SACU in a timely manner.39 As a practical matter, they noted that eliminating the tariffs on Swaziland’s imports from other COMESA countries may not have a significant impact on its trade given the small size of these imports.

E. Statistical and Other Issues

37. A lack of timely and comprehensive data continues to hamper effective policymaking and surveillance. Significant inadequacies remain in the economic statistics, particularly in the national income, balance of payments, and government accounts. The mission emphasized the need to improve data quality and communication. There is also a need to improve the timeliness of data reporting to the Fund. In this context, the mission welcomed the authorities’ decision to participate in the General Data Dissemination System (GDDS) Project for Anglophone African Countries in 2001 and urged them to pay close attention to the initial GDDS assessment of statistical practices, which had been initiated in July 2002, and would form a sound basis for future technical assistance.

38. The authorities were encouraged to allow publication of the Board documents for this year’s Article IV consultation.

IV. Staff Appraisal

39. Swaziland faces a serious economic situation, with the food shortage and the continued spread of HIV/AIDS exacerbating the already severe impact of persistent high unemployment, income inequality, and poverty. The main economic challenges are to address the humanitarian crisis, regain macroeconomic stability, and raise the economy’s sustainable longer-term growth rate, while ensuring that the benefits are spread widely. Meeting these challenges requires a return to fiscal discipline, the implementation of structural reforms to increase economic efficiency, including through restructuring public enterprises and further strengthening the financial sector, and an urgent and well-coordinated response to the HIV/AIDS pandemic.

40. The most immediate issue is the need for an adequate response to the humanitarian crisis. The staff welcomes the authorities’ efforts to alleviate the food shortage, including through budgetary allocations and the work of the task force on disaster relief, as well as their renewed commitment to fight HIV/AIDS, notably through establishment of the National Emergency Response Committee on HIV/AIDS (NERCHA) in December 2001. However, an effective response to the crisis will require adequate inflows of foreign assistance in the near term. A reorientation of policies with a clear, determined focus on the humanitarian situation would thus be beneficial both through its direct impact and by influencing international sentiment. Over time, it will be critical for the authorities to address the underlying factors behind the successive run of poor harvests and the continued spread of HIV/AIDS.

41. Against the background of a fragile medium-term outlook, the staff considers that the central policy challenge is to address the factors that are holding down Swaziland’s longer-term growth prospects and preventing improvements in the standard of living. Greater fiscal discipline is needed to regain macroeconomic stability, strengthen competitiveness and external viability, address social priorities, and secure longer-term growth prospects. On the basis of current policies, the central government deficit (including grants) could increase to nearly 4 percent of GDP in 2002/03. Sustained deficits of this magnitude would further undermine macroeconomic stability and would not prepare the budget to withstand prospective medium-term pressures (such as those related to HIV/AIDS and the Swaziland Public Service Pensions Fund). The staff recommends that the deficit be reduced to around 3 percent of GDP in 2003/04, and that further reductions be undertaken over the medium term with a view to achieving a primary surplus. The staff also urges early adoption of a medium-term framework for the formulation of fiscal policy.

42. The staff welcomes the measures initiated in 2001/02 to broaden the tax base, which would help compensate for an envisaged decline in SACU receipts, and urges further measures in this direction. Such measures could include bringing benefits-in-kind into the tax net; reducing the use of tax concessions for developmental purposes; and eliminating several remaining income-tax exemptions. There is also a need to strengthen tax administration, particularly audit and enforcement, and enforce prompt collection of the sizable outstanding tax arrears.

43. On the expenditure side, the staff emphasizes the need to reorient spending toward critical social sectors, such as health and education, while restraining overall expenditure. In particular, there is a need to restrain the public wage bill and transfers to public enterprises. A careful sequencing of civil service reform that increases wage dispersion while reducing staffing would help to increase efficiency while avoiding an increase in the wage bill. The restructuring of public enterprises and implementation of the new privatization policy would help to reduce budgetary transfers. The staff welcomes parliament’s October 2002 decision against the proposed acquisition of a new airplane for the King. The staff supports the authorities’ intended devolution of the majority of the Millennium Projects to the private sector and urges them to ensure the economic viability of the few projects where government participation may be warranted.

44. Membership in the Common Monetary Area, which involves a pegged exchange rate with the South African rand, continues to serve Swaziland well, given the financial discipline that it entails and the close economic integration between Swaziland and South Africa. A strengthening of public finances, a prudent monetary policy stance that secures an adequate level of international reserves, and continued structural reforms will be important for ensuring the credibility of the peg.

45. Swaziland has a well-developed banking system. The banks’ capitalization, risk management, and provisioning appear to be sound, and their nonperforming loans are relatively low. However, the future commercial viability of the Swaziland Development and Savings Bank remains a source of concern. The staff recommends that an action plan to prevent bad loans be a precondition for continued budgetary support to the bank, and urges early action to restructure or privatize the institution.

46. The staff commends the authorities for the passage of legislation, in August 2002, to combat money laundering. The authorities are encouraged to move ahead with their plans to implement the legislation, and to develop institutional capacity in the areas of both anti-money laundering and combating the financing of terrorism.

47. The Swaziland Public Service Pensions Fund could pose a significant future liability to the government if its finances are not addressed. The staff encourages the authorities to initiate measures to put the fund on a sustainable path, including the Actuary’s previous recommendations to increase statutory contribution rates and the retirement age.

48. Reform of the land tenure system would be helpful in raising agricultural productivity and alleviating poverty. The staff welcomes the cabinet’s approval of the Land Policy Act, which would institute long-term leases for agricultural and peri-urban land, and recommends its early enactment into law.

49. The staff considers that the effectiveness of policymaking would be greatly enhanced by improvements in the economic data. The authorities are encouraged to address the shortcomings that remain in the economic statistics, particularly in the national income, balance of payments, and government accounts. The authorities are also encouraged to improve the timeliness of data reporting to the Fund. In this context, their decision to participate in the GDDS Project for Anglophone African Countries is very welcome, and the initial GDDS assessment should form a sound basis for future technical assistance.

50. It is expected that the next Article IV consultation will be held on the standard 12-month cycle.

APPENDIX I Swaziland: Relations with the Fund

(As of September 30, 2002)

I. Membership Status: Joined September 22, 1969; Article VIII

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans: None

V. Financial Arrangements: None

VI. Projected Obligations to the Fund: None

VII. Exchange Rate Arrangement

The lilangeni (plural: emalangeni) continues to be pegged to the South African rand at E 1 = R 1. The intervention currency is the U.S. dollar; exchange rates for the U.S. dollar are based on the floating middle rate of the South African rand against the U.S. dollar. The rate on September 30, 2002 was E 1 = US$0.0946.

VIII. Article IV Consultation

Swaziland is on the standard 12-month cycle. The last Article IV consultation discussions were held in Mbabane in December 2001. The staff report (SM/02/64; 2/21/02) was considered by the Executive Board on March 20, 2002.

IX. Technical Assistance

FAD provided technical assistance in 1997 to Swaziland on tax reform. A technical assistance mission visited Swaziland in 1999 to advise on a new income tax bill.

In 1998, LEG assisted Swaziland in drafting a new income tax bill and amendments to the Sales Tax Act.

A technical assistance mission from MAE visited Swaziland in 1997 to assist in the drafting of the Financial Institutions Act, and, in 1998, MAE provided an advisor to strengthen bank supervision at the Central Bank of Swaziland (CBS). Until January 2000, MAE had provided

a long-term general advisor to the CBS. In 1999, MAE also conducted several staff visits to assist in improving the payments system and to advise on the introduction of electronic payments systems. MAE plan to conduct a multitopic TA needs assessment mission in early 2003.

STA sent a mission to Swaziland in 1998 with the objectives of identifying weaknesses in the statistical system and assisting in capacity building, particularly relating to the national accounts and other real sector data. An STA mission visited Swaziland in April 1999 to assist with balance of payments statistics. Another STA mission also visited Swaziland in April 1999 to establish an action plan for improving government finance statistics. An initial mission in July 2002 made progress with the implementation of GDDS, and once the metadata (including plans for improvement and associated TA needs) process is completed, TA missions will be scheduled.

X. Resident Representative

None

APPENDIX II Swaziland: Relations with the World Bank Group as of September 30, 2002

Since 1962, the World Bank Group has approved 17 IBRD loans, two IDA credits, and seven IFC investments (loans and equity) for a total of US$136.8 million. Total IDA commitments amounted to US$8.4 million; IBRD commitments amounted to US$104.6 million (of which US$81.4 million was disbursed, US$4.4 million was cancelled, and US$18.9 million remains undisbursed); and IFC commitments amounted to US$23.7 million. The most recent of these operations are an IBRD loan for an Urban Development Project (US$29 million) in 1994, and an IFC loan and equity input of US$3.3 million to Swaziland First Merchant Bank in 1999. Only the IBRD loan for Urban Development is currently disbursing. The IDA/IBRD assistance has been for a broad range of sectors: roads, education, power, water supply/sewerage, rural and urban development, and development finance. The IFC’s investments have been in support of a development finance corporation, agro-industrial enterprises producing sugar and cotton, paper pulp production, and textile/garment production.

World Bank Loan/Credit Summary for Swaziland

(in millions of U.S. dollars; as of September 30, 2002)

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APPENDIX III Swaziland: Statistical Issues

Deficiencies in the quality of Swaziland’s economic data are pervasive and hamper internal policymaking and effective surveillance. The authorities provide available data to the Fund with a lag of 1–2 months, except for the national accounts and international trade data, which are reported with irregular periodicity and with substantial lags.

As one of fourteen countries participating in the Fund’s General Data Dissemination System (GDDS) Project for Anglophone African Countries, Swaziland has undertaken to use the GDDS as a framework for the development of national statistical systems. GDDS metadata for Swaziland are being prepared currently, and, on completion, will be posted to the Fund’s Dissemination Standards Bulletin Board. The Anglophone Africa project (funded by the U.K. Department for International Development (DFID)) aims to assist participating countries to implement plans for improvement identified in the metadata, to meet GDDS recommended statistical practices.

Real sector data

National accounts suffer from serious shortcomings. For example, data on GDP by expenditure category at constant prices are not available; and there is no reporting of unemployment data on a regular basis. For national accounts data, missions rely on estimates provided by the Central Statistical Office.

Prices

The consumer price index (CPI) was significantly revised in 1998. Monthly consumer price data are published by the Central Statistical Office (CSO) with a one-month lag. For IFS purposes, the CPI is reported for the all-income group.

Government finance statistics

Fiscal data are provided to AFR staff only during missions and/or following budget announcements. The CBS reports to STA fiscal data for publication in IFS on an irregular basis. After several years, in 2001 the authorities reported data for publication in the GFS Yearbook. A 1999 government finance statistics (GFS) mission delineated the institutional coverage of the public sector and central government for compiling GFS, and recommended that the same institutional table be used by the Ministry of Finance (MOF) to compile fiscal data and by the CBS to compile monetary data. By correcting the difference in institutional coverage, the discrepancy between fiscal and monetary data was largely resolved. The mission prepared detailed GFS tables for budgetary central government directly from the MOF’s existing receipts and payments spreadsheet, and recommended that the coverage be expanded to include extrabudgetary funds and local government.

Monetary statistics

The CBS provides to the Fund, with a lag of 1–2 months, its own balance sheet and a composite balance sheet of the commercial banks, as well as the monetary survey. The data are generally good. However, problems with nonperforming loans and the capitalization of interest may distort credit data, and the circulation of large amounts of unverifiable South African rand make data on money difficult to interpret.

Balance of payments statistics

The Central Statistical Office publishes data on foreign trade on a quarterly basis, but the lack of sufficient computer resources continues to result in long lags in the production of trade—especially import—data. Missions use trade data provided by the CBS. The CBS now adheres to a methodology consistent with the Fund’s Balance of Payments Manual (fifth edition). However, errors and omissions are large and suggest a need to examine the quality and coverage of data for all components of the balance of payments.

Swaziland: Core Statistical Indicators

(As of October 29, 2002)

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D = daily, M = monthly; Q = quarterly, and A = annually.

Mainly on missions, and when data are received.

From 1992 onward, authorities’ and staff estimates.

A = direct report by the authorities; P = commercial publication; and N = official publications.

C = facsimile; V = staff visit; and O = other.

C = unrestricted use; and D = restricted until officially published.

APPENDIX IV Swaziland: Medium-Term Scenarios

1. Two scenarios were conducted to analyze the medium-term economic outlook: a “baseline” scenario that assumes unchanged policies (that is, policies that have already been announced), and a “reform” scenario that assumes the implementation of reform policies that include achieving a primary fiscal surplus by 2007 and implementing structural reforms to raise economic efficiency.

2. Both scenarios are susceptible to significant negative risks. In particular, projected capital expenditures do not take into account spending on large capital projects that have not yet been budgeted. In addition, neither scenario takes into account the costs of contingent liabilities, such as those related to the public pension fund, and the potentially higher-than-envisaged economic costs of HIV/AIDS. If these costs were to materialize, the needed fiscal adjustment would be correspondingly larger.

Baseline Scenario

3. The “baseline” medium-term scenario assumes a continuation of current policies and developments, in particular:

  • a continued expansionary fiscal policy;

  • revenue sharing under the new SACU agreement coming into effect by 2004/05 and a reduction in SACU revenue on account of continued trade liberalization;

  • a continued slowdown in population growth, largely due to the impact of HIV/AIDS on mortality.

Reform Scenario

4. The “reform” scenario assumes a fiscal policy consistent with achieving a primary surplus by 2007. It also assumes reform policies in a number of areas, including:

  • reducing the share of salaries and wages in recurrent expenditure by implementing the civil service restructuring program;

  • a broadening of the tax base;

  • a higher implementation capacity for public capital investment;

  • public enterprise restructuring and privatization that results in a decline in budgetary subsidies and increases overall economic efficiency;

  • land reform that addresses tenure and efficiency issues.

Table 1.

Swaziland: Medium-Term Scenario, 2001–2007

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Source. Swazi authorities, and staff estimates and projection.