Abstract
© 2008 International Monetary Fund
Title Page
© 2008 International Monetary Fund
October 2008
IMF Country Report No. 356
The Kingdom of Swaziland: 2008 Article IV Consultation—Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the Article IV consultation with the Kingdom of Swaziland, the following documents have been released and are included in this package:
The staff report for the 2008 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on August 5, 2008 with the officials of the Kingdom of Swaziland on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on October 1, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its October 17, 2008 discussion of the staff report that concluded the Article IV consultation.
A statement by the Executive Director for the Kingdom of Swaziland.
The document listed below has been or will be separately released.
Selected Issues and Statistical Appendix Paper
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copyright Page
Copies of this report are available to the public from
International Monetary Fund • Publication Services
700 19th Street, N.W. • Washington, D.C. 20431
Telephone: (202) 623-7430 • Telefax: (202) 623-7201
E-mail: publications@imf.org Internet: http://www.imf.org
Price: $18.00 a copy
International Monetary Fund
Washington, D.C.
Frontmatter Page
INTERNATIONAL MONETARY FUND
KINGDOM OF SWAZILAND
Staff Report for the 2008 Article IV Consultation
Prepared by the Staff Representatives for the 2008 Consultation with the Kingdom of Swaziland
Approved by Anne-Marie Gulde-Wolf and Anthony R. Boote
October 1, 2008
Date: July 23–August 5, 2008.
Team: Ms. Soonthornsima (head), Messrs. Torrez, Fontaine, Davoodi (all AFR), and Bartholomew (MCM), Ms. Gesami (OED), and Mr. Van Houtte (World Bank) also participated.
Staff met with senior government officials including Prime Minister Dlamini, the Cabinet, Finance Minister Sithole and Central Bank Governor Dlamini. Staff also conducted an outreach seminar for public officials, representatives of the private sector, labor unions, media and donors.
Swaziland has accepted the obligations of Article VIII, Sections 2–4; it maintains two exchange restrictions arising from limits on the provision of foreign exchange for advance payments for imports: (i) an overall limit of E 250,000, and (ii) a 33.33 percent limit for the import of certain capital goods. The Swazi lilangeni is pegged at par with the South African rand, which is also legal tender.
Statistical quality is adequate for surveillance, but there is scope for improvement especially in national accounts and balance of payments data.
Contents
Abbreviations and Acronyms
Executive Summary
I. Background
II. Recent Economic Developments and Outlook
III. Policy Discussions
A. Fiscal Sustainability and Reforms
B. External Stability and Exchange Rate Policy
C. Monetary and Financial Sector Policies
D. Response to the Fuel and Food Price Increases
E. Growth, Poverty Reduction, and Competitiveness
IV. Staff Appraisal
Tables
1. Basic Economic and Financial Indicators, 2005–13
2. Summary of Central Government Operations, 2006/07–2013/14
3. Monetary Survey, 2004–08
4. Commercial Bank’s Performance Ratios, Dec. 2003–08
5. Balance of Payments, 2005–13
6. Millennium Development Goals
7. External Debt Sustainability Framework, 2002–13
8. Public Sector Debt Sustainability Framework, 2002–13
Figures
1. Competitiveness Indicators
2. Monetary and Financial Developments
3. Regional Comparison
4. External Debt Sustainability: Bound Tests
5. Public Debt Sustainability: Bound Tests
Boxes
1. Summary of Previous Consultation Discussions
2. Macroeconomic Impact of HIV/AIDS in Swaziland
Abbreviations and Acronyms
| CBS | Central Bank of Swaziland |
| CMA | Common Monetary Area |
| CPI | Consumer price index |
| DSA | Debt sustainability analysis |
| EFTA | European Free Trade Association |
| ES | External sustainability approach |
| EU | European Union Commission |
| FDI | Foreign direct investment |
| FSRA | Financial Services and Regulatory Authority |
| GDP | Gross domestic product |
| GNI | Gross national income |
| MCM | IMF Monetary and Capital Markets Department |
| MDGs | Millennium Development Goals |
| MOAC | Ministry of Agriculture and Co-operatives |
| MTEF | Medium-Term Expenditure Framework |
| NBFI | Nonbank financial institutions |
| NERCHA | National Emergency Response Council on HIV/AIDS |
| NFA | Net foreign assets |
| NIIP | Net International Investment Position |
| PPP | Purchasing power parity |
| REER | Real effective exchange rate |
| PRSAP | Poverty Reduction Strategy and Action Program |
| RA | Revenue Authority |
| SACU | Southern African Customs Union |
| SADC | Southern African Development Community |
| SARB | South African Reserve Bank. |
| SCCO | Saving and Credit Cooperatives |
| TICA | Trade and Investment Cooperation Agreement |
Executive Summary
High rates of economic growth remain elusive and downside risks have increased. Growth recovered moderately in 2007, but inflation escalated into double digits, initially owing to high food and fuel prices. High Southern African Customs Union (SACU) revenue contributed to the second consecutive budget surplus, an improved current account, and a build-up of international reserves. The authorities anticipate higher growth rates than the staff but agreed that the growth was still too low. The global economic slowdown and the high food and fuel prices increase downside risks.
Growth could be bolstered by fiscal and structural reforms to improve the investment climate, address financial sector vulnerabilities, and control the HIV/AIDS epidemic. The authorities generally agreed with the reforms recommended but noted that capacity constraints limit the pace of their implementation.
Fiscal adjustment is needed to mitigate the risks of high dependence on SACU revenue, given their likely eventual decline, and to safeguard macroeconomic stability. High SACU revenues currently provide an opportunity for orderly fiscal and structural reforms that could increase fiscal savings and GDP growth. Staff recommended efforts toward an improvement in the quality of expenditure, domestic revenue measures, streamlining expenditures, and public finance management. The authorities indicated that enormous social needs and political constraints, including the program of the government elected in September, could limit fiscal consolidation.
The level of the exchange rate seems broadly adequate, but competitiveness remains a concern. Efforts should focus on structural reforms, such as enhancing the investment climate and governance. As a member of the Common Monetary Area (CMA), the authorities have limited independence in monetary policy and should keep the policy interest rate as close as possible to South Africa’s to help control inflation while mitigating capital outflows.
To alleviate the impact of high food and fuel prices while being fiscally responsible, the authorities should focus assistance on the most vulnerable within the population and use the existing distribution channels to deliver such assistance. Staff recommended liberalization of food imports, prompt pass-through of exogenous price increases, and better coordination among stakeholders.
To safeguard financial stability, prompt actions are required to tighten supervision of saving and credit cooperatives and address pyramid schemes. Beginning with the privatization of the government-owned bank is a welcome step. The requirement that insurance and retirement funds invest domestically should be reconsidered, with a view to gradual phase-out, because it could reduce returns and undermine deepening of the financial sector. Several financial bills should be enacted as soon as possible.