The Kingdom of Swaziland: 2008 Article IV Consultation-Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director

International Monetary Fund

doi:10.5089/9781451836165.002.A001

The Kingdom of Swaziland

2008 Article IV Consultation-Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director

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International Monetary Fund

International Monetary Fund
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Publication Date:: 03 Nov 2008

eISBN:: 9781451836165

ISBN:: 9781451836165

Language:: English

Keywords:: ISCR; CR; government; Swazi authorities; current account; Swaziland; government priority; regime of the Common Monetary Authority; authorities' effort; broad money; banking soundness indicator; money market; HIV and AIDS; Government finance statistics; Africa; Southern Africa; Global; GDP deflator; nominal interest rate; debt ratio; fuel price surge; Inflation

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1. High and sustained economic growth remains elusive. Real GDP growth is lower than the 5 percent government target for effectively reducing poverty. Growth prospects are clouded by low investments, slow pace of economic reforms, and deterioration of preferential treatment for Swaziland’s main exports, sugar and textiles. The recent global shocks—surges of commodity prices and inflation, slowdown of economic growth, and continuing financial rebalancing—further increases risks to the Swazi economy. Years of persistently low growth have pushed up poverty and unemployment, a situation worsened by the prevalence of HIV/AIDS, labor force absenteeism, and low productivity. Since 1997 the epidemic has also limited annual population growth to about 0.4 percent.1

Abstract

I. Background

1. High and sustained economic growth remains elusive. Real GDP growth is lower than the 5 percent government target for effectively reducing poverty. Growth prospects are clouded by low investments, slow pace of economic reforms, and deterioration of preferential treatment for Swaziland’s main exports, sugar and textiles. The recent global shocks—surges of commodity prices and inflation, slowdown of economic growth, and continuing financial rebalancing—further increases risks to the Swazi economy. Years of persistently low growth have pushed up poverty and unemployment, a situation worsened by the prevalence of HIV/AIDS, labor force absenteeism, and low productivity. Since 1997 the epidemic has also limited annual population growth to about 0.4 percent.^¹

2. High and rising revenues from the Southern African Customs Union (SACU) have allowed Swaziland to expand public expenditure and accumulate international reserves. The authorities have increased fiscal savings during the last two years; international reserves now cover more than three months of imports of goods and services after years of less than adequate coverage. Yet despite escalated public expenditure, the country’s social challenges remain daunting.

3. The first parliamentary election under the new constitution took place on September 19 using the traditional tinkhundla system—a grass roots system of local government and chiefdoms (Swaziland is a constitutional monarchy). A new Cabinet is expected to be sworn in during October 2008.

II. Recent Economic Developments and Outlook

4. As Swaziland recovered from the 2006 drought, real GDP growth in 2007 rose to 3.5 percent, and inflation escalated. Growth was also driven by increases in output in services and manufacturing. Inflation reached 9.8 percent at the end of 2007 as food and fuel prices rose. By the end of July 2008, inflation was at 13.4 percent. The authorities have responded to the recent surges of food, fuel and transportation prices mainly through a delayed pass-through of price increases.^² In 2008 average inflation is expected to be about 13 percent based on second-round effects from double-digit wage settlements, and despite recent declines in global fuel prices. Interest rates generally have risen in line with those of South Africa but the authorities decided in June 2008 not to match a 50 basis point increase by the South African Reserve Bank (SARB).

5. In 2007/08 high SACU transfers contributed to the second consecutive budget surplus (6.4 percent of GDP), an improved current account, and an accumulation of international reserves. The recent depreciation of the nominal exchange rate along with the South African rand, to which it is pegged, is possibly having a positive impact on the export sector. External debt in 2007 declined to 16.7 percent of GDP, and international reserves reached the equivalent of 3.5 months of imports.

6. Since the last consultation the authorities have consolidated international reserves at the central bank (CBS) and enhanced supervision of the financial sector, but have done little to tighten expenditures and reform the civil service. The 2008/09 budget forecasts increased expenditure by 7 percent of GDP to 40.3 percent and the wage bill to rise to 16.7 percent of GDP. Under the 2007 Revenue Authority (RA) Act, the authorities have established the RA and are recruiting staff. With insurance sector liberalization, four new companies started up in 2008. The authorities have begun the process of privatizing the government owned Swazi Bank and of supervising saving and credit cooperatives (SCCOs.)

7. With current policies, medium-term prospects are not encouraging and subject to substantial risks that could undermine macroeconomic stability. Growth could be further hampered by uncertainties about the viability and timing of investment projects, low competitiveness scores, an investment climate that keeps the cost of doing business high, and the prevalence of HIV/AIDS. Staff therefore expects a growth slowdown to less than 3 percent annually, although the authorities, anticipating investment projects, expect growth rates of at least 3 percent. The current account deficit is expected to widen as tariff protection in the SACU market is eliminated, and preferential prices for sugar in the EU market are reduced.^³ Furthermore, recent global financial market developments may have an adverse impact on the country’s financial sector should South African banks, which dominate the sector, suffer significant losses. The outlook is further clouded by a fiscal stance that is overly dependent on SACU revenue, high inflation, and a vulnerable financial sector.

III. Policy Discussions

Box 1.

Summary of the 2007 Consultation Discussions

Directors expressed concern about the slow pace of economic growth that lags behind most of other lower middle income countries, emphasized the need to ensure fiscal sustainability and safeguard priority spending to address urgent social needs (HIV/AIDS and unemployment). The Fund encouraged the authorities to use the buoyant SACU revenues to accelerate fiscal and structural reforms aimed at securing macroeconomic stability and addressing impediments to higher growth and poverty reduction. It commended the authorities’ efforts in rebuilding international reserves, strengthening banking supervision, and the passage of key financial legislation. Finally, directors recommended the timely implementation of the Poverty Reduction Strategy and Action Program and in line with the medium-term fiscal expenditure framework.

A. Fiscal Sustainability and Reforms

8. Swaziland’s fiscal stance is highly dependent on SACU revenues but these are not likely to be sustained, based on: (i) a call by South Africa to revisit the revenue-sharing formula; (ii) a slowdown in South Africa’s economic growth; (iii) a reduction in common external tariff rates due to trade liberalization; and (iv) possible transformation of the Southern African Development Community (SADC) into a customs union, which would imply lower shares for SACU members.

9. In anticipation of SACU revenue declines in the long term, fiscal policy is not tight enough to make room for the savings needed to smooth expenditure and prevent abrupt fiscal adjustment that could undermine macroeconomic stability. Furthermore, a tighter fiscal policy in the near term is also advisable from a cyclical perspective given the current high inflation that is anticipated to remain in 2009. Hence, the fiscal expansion of the 2008/09 budget and its medium-term fiscal outlook should be corrected, with adjustments equivalent to 4 percent of GDP over the medium term to secure savings (see below).

10. To help put in context recent fiscal surpluses owing to temporary surges of SACU revenue, the non-SACU fiscal balance is used to estimate the deficit and level of adjustment needed for fiscal sustainability.^⁴ Based on “normal” SACU revenue of 13 percent of GDP (the average for 1996/97–2004/05), staff targeted a sustainable non-SACU deficit of 16.8 percent of GDP. However, the authorities project a non-SACU deficit of 26.8 percent of GDP in the 2008/09 budget. Staff estimates that without reform, the fiscal imbalance would worsen, with non-SACU deficits of about 22 percent over the medium term.

11. To achieve sustainable fiscal balances, staff proposed a phased implementation of revenue and expenditure reforms while providing for more spending on high-priority sectors. Measures to immediately improve tax administration and introduce the VAT in the next few years should increase revenue by about 2 percent of GDP by 2013/14.^⁵ Civil service reform could bring the wage bill back to 12 percent of GDP, about the level in 2004/05—though the sub-Saharan African average is 7.3 percent to GDP. Expenditure reform should therefore combine consolidation, reorientation, and quality improvements to reduce spending by about 2 percent of GDP and allow fiscal space to facilitate economic growth and reduce poverty. On civil service reform, the performance management system, developed with the Botswana National Productivity Board, needs to be implemented promptly; it should involve redeployment toward prioritized sectors such as health care while promoting increased productivity, transparency, and accountability.^⁶ Though they concurred with the staff analysis, the authorities admitted that social pressures and a cumbersome bureaucracy had delayed implementation.

Swaziland: Medium Term Fiscal Scenario Without and With Measures ^{^1/}

(Percent of GDP)

^{^1/}The fiscal year runs from April 1 to March 31.

^{^2/}The buoyant SACU revenues through 2013/14 are consistent with the forecast of the South African staff team.

Swaziland: Medium Term Fiscal Scenario Without and With Measures ^{^1/}

(Percent of GDP)

				2007/08	2008/09	2008/09	2009/10	2010/11	2011/12	2012/13	2013/14
					Budget
Baseline
Non-SACU fiscal balance w/o measures				-17.3	-26.9	-23.9	-22.7	-22.4	-21.5	-21.2	-20.4
	Revenues w/o SACU			16.0	13.6	13.4	13.8	14.0	14.0	14.2	14.6
	Expenditures			33.3	40.5	37.2	36.5	36.4	35.5	35.4	35.0
		Wages and salaries		13.1	16.7	13.8	13.8	13.7	13.6	13.5	13.2
		Goods and services		6.4	6.5	6.4	6.4	6.4	6.4	6.5	6.5
		Subsidies and transfers		4.3	7.0	7.1	5.7	5.7	4.8	4.8	4.7
		Capital Expenditure		8.2	9.5	9.2	10.0	10.0	10.0	10.0	10.0
		Interest payments		1.0	0.9	0.9	0.8	0.7	0.7	0.6	0.6
Adjusted scenario
Non-SACU fiscal balance with measures							-20.8	-19.9	-18.8	-17.6	-16.8
	Revenue w/o SACU						14.7	15.1	15.3	16.2	16.5
	Expenditures						35.6	35.1	34.1	33.8	33.3
		Of Which:
			Wages and salaries				13.3	13.0	12.8	12.6	12.2
			Goods and services				6.4	6.4	6.4	6.4	6.3
			Subsidies and transfers				5.3	5.1	4.2	4.0	3.8
			Capital Expenditure				10.2	10.3	10.4	10.7	10.9
Memorandum items:
		SACU receipts ^{^2/}		23.8	25.6	25.6	24.9	24.5	23.3	23.0	22.3
		Overall balance without measures		6.4	-1.3	1.7	2.1	2.2	1.8	1.8	1.8
		Overall balance with measures					4.0	4.7	4.5	5.4	5.5

^{^1/}The fiscal year runs from April 1 to March 31.

^{^2/}The buoyant SACU revenues through 2013/14 are consistent with the forecast of the South African staff team.

Swaziland: Medium Term Fiscal Scenario Without and With Measures ^{^1/}

(Percent of GDP)

				2007/08	2008/09	2008/09	2009/10	2010/11	2011/12	2012/13	2013/14
					Budget
Baseline
Non-SACU fiscal balance w/o measures				-17.3	-26.9	-23.9	-22.7	-22.4	-21.5	-21.2	-20.4
	Revenues w/o SACU			16.0	13.6	13.4	13.8	14.0	14.0	14.2	14.6
	Expenditures			33.3	40.5	37.2	36.5	36.4	35.5	35.4	35.0
		Wages and salaries		13.1	16.7	13.8	13.8	13.7	13.6	13.5	13.2
		Goods and services		6.4	6.5	6.4	6.4	6.4	6.4	6.5	6.5
		Subsidies and transfers		4.3	7.0	7.1	5.7	5.7	4.8	4.8	4.7
		Capital Expenditure		8.2	9.5	9.2	10.0	10.0	10.0	10.0	10.0
		Interest payments		1.0	0.9	0.9	0.8	0.7	0.7	0.6	0.6
Adjusted scenario
Non-SACU fiscal balance with measures							-20.8	-19.9	-18.8	-17.6	-16.8
	Revenue w/o SACU						14.7	15.1	15.3	16.2	16.5
	Expenditures						35.6	35.1	34.1	33.8	33.3
		Of Which:
			Wages and salaries				13.3	13.0	12.8	12.6	12.2
			Goods and services				6.4	6.4	6.4	6.4	6.3
			Subsidies and transfers				5.3	5.1	4.2	4.0	3.8
			Capital Expenditure				10.2	10.3	10.4	10.7	10.9
Memorandum items:
		SACU receipts ^{^2/}		23.8	25.6	25.6	24.9	24.5	23.3	23.0	22.3
		Overall balance without measures		6.4	-1.3	1.7	2.1	2.2	1.8	1.8	1.8
		Overall balance with measures					4.0	4.7	4.5	5.4	5.5

^{^1/}The fiscal year runs from April 1 to March 31.

^{^2/}The buoyant SACU revenues through 2013/14 are consistent with the forecast of the South African staff team.

12. Improvement in public expenditure management and assurance that spending is of high quality is crucial to successful fiscal adjustment. Poor coordination of budget execution across government agencies has resulted in under-spending for some, arrears for others, and frequent supplementary budgets. To better manage public expenditure, the authorities highlighted continuing improvement of the procurement system and reform of the Public Finance Management Act. Staff underscored the need to assess expenditure and budget allocation on the basis of the social rate of return and government priorities in health, education, and agriculture, consistent with the Poverty Reduction Strategy and Action Program (PRSAP).

13. Staff proposed an alternative scenario based on fiscal and structural reforms, preferably starting in 2008/09, that could generate GDP growth of about 4 percent over the medium term. With reforms, the saving-investment balance should improve and foreign investment and donor financing be attracted, thus helping to raise GDP growth. Improved fiscal surpluses will help sustain reserves at more than 3.5 months of imports of goods and services^⁷ while reducing the debt-to-GDP ratio to about 8 percent by 2012. While agreeing with staff on the risk to SACU revenues and the need for fiscal adjustments, the authorities identified political constraints and enormous social needs as formidable challenges to fiscal consolidation. Nonetheless, the authorities plan to save this year’s unbudgeted SACU windfall.^⁸

Swaziland: Medium-Term Scenario, 2008–2013

(Percent of GDP, unless noted otherwise)

^¹Fiscal year runs from April 1 to March 31.

^²Assuming that fiscal policy and structural reforms including reducing the cost of doing business; improving the quality of public institutions; addressing the lack of transparency and poor administrative coordination; increasing labor market flexibility; simplifying business licensing; and improving infrastructure) will result in fiscal and current account surpluses.

Swaziland: Medium-Term Scenario, 2008–2013

(Percent of GDP, unless noted otherwise)

		2007	2008	2009	2010	2011	2012	2013
Main macroeconomic variables ^¹
Without measures
	Real GDP growth	3.5	2.6	2.5	2.5	2.5	2.5	2.5
	Inflation	8.2	12.7	8.9	6.0	5.9	5.5	5.3
	Investment/GDP	16.2	17.4	17.7	17.2	16.8	16.8	16.3
	GDP per capita at constant prices	3.1	2.1	2.1	2.1	2.1	2.1	2.1
	Current account balance	-1.4	-5.3	-2.0	-2.6	-3.2	-3.1	-2.6
	Gross official reserves (months of imports of goods and
	nonfactor services)	3.6	3.2	2.9	2.8	2.6	2.6	2.7
	Government debt	18.8	15.9	14.4	13.5	12.7	12.0	11.5
	Total Revenues and grants	39.7	39.0	38.7	38.5	37.3	37.2	36.9
	Total Expenditure and Net Lending	33.3	37.2	36.5	36.4	35.5	35.4	35.0
	Fiscal balance, including grants	6.4	1.7	2.1	2.2	1.8	1.8	1.8
Reform policies scenario ^²
	Real GDP growth		2.6	3.4	3.8	4.1	4.6	4.6
	Investment/GDP		17.4	18.4	18.6	18.9	19.3	19.5
	GDP per capita at constant prices		2.1	3.0	3.4	3.7	4.2	4.2
	Current account balance		-5.3	-0.3	-0.1	0.5	1.3	1.3
	Gross official reserves (months of imports of goods and
	nonfactor services)		3.2	3.4	3.6	3.7	3.9	4.0
	Government debt		15.9	10.6	9.0	8.0	7.6	5.1
	Total Revenues and grants		39.0	39.6	39.6	38.6	39.2	38.8
	Total Expenditure and Net Lending		37.2	35.5	35.0	34.1	33.8	33.3
	Fiscal balance, including grants		1.7	4.0	4.7	4.5	5.4	5.5

^¹Fiscal year runs from April 1 to March 31.

Swaziland: Medium-Term Scenario, 2008–2013

(Percent of GDP, unless noted otherwise)

		2007	2008	2009	2010	2011	2012	2013
Main macroeconomic variables ^¹
Without measures
	Real GDP growth	3.5	2.6	2.5	2.5	2.5	2.5	2.5
	Inflation	8.2	12.7	8.9	6.0	5.9	5.5	5.3
	Investment/GDP	16.2	17.4	17.7	17.2	16.8	16.8	16.3
	GDP per capita at constant prices	3.1	2.1	2.1	2.1	2.1	2.1	2.1
	Current account balance	-1.4	-5.3	-2.0	-2.6	-3.2	-3.1	-2.6
	Gross official reserves (months of imports of goods and
	nonfactor services)	3.6	3.2	2.9	2.8	2.6	2.6	2.7
	Government debt	18.8	15.9	14.4	13.5	12.7	12.0	11.5
	Total Revenues and grants	39.7	39.0	38.7	38.5	37.3	37.2	36.9
	Total Expenditure and Net Lending	33.3	37.2	36.5	36.4	35.5	35.4	35.0
	Fiscal balance, including grants	6.4	1.7	2.1	2.2	1.8	1.8	1.8
Reform policies scenario ^²
	Real GDP growth		2.6	3.4	3.8	4.1	4.6	4.6
	Investment/GDP		17.4	18.4	18.6	18.9	19.3	19.5
	GDP per capita at constant prices		2.1	3.0	3.4	3.7	4.2	4.2
	Current account balance		-5.3	-0.3	-0.1	0.5	1.3	1.3
	Gross official reserves (months of imports of goods and
	nonfactor services)		3.2	3.4	3.6	3.7	3.9	4.0
	Government debt		15.9	10.6	9.0	8.0	7.6	5.1
	Total Revenues and grants		39.0	39.6	39.6	38.6	39.2	38.8
	Total Expenditure and Net Lending		37.2	35.5	35.0	34.1	33.8	33.3
	Fiscal balance, including grants		1.7	4.0	4.7	4.5	5.4	5.5

^¹Fiscal year runs from April 1 to March 31.

B. External Stability and Exchange Rate Policy

14. Sufficient international reserves are critical to safeguard external stability and confidence in the currency peg with South Africa, which has served the country well. Staff supported the authorities’ policy to have reserves of at least three months of import cover. The authorities believe that this level is appropriate in relation to the domestic monetary base (reflecting the free circulation of the rand) and external debt, while preserving confidence in the peg and serving as a cushion against adverse external shocks.

15. Debt sustainability analysis (DSA) shows that Swaziland has very low debt Tables 7 and 8). Since 2002 despite the most recent depreciation, total public sector debt has declined, reflecting in part limited new borrowing and an exchange rate appreciation between 2003 and 2006. As a lower-medium-income country, Swaziland has limited access to concessionary loans; any large increases in external debt would carry high interest costs.

Table 1.

Swaziland: Basic Economic and Financial Indicators, 2005–2013

Sources: Swazi authorities; and IMF staff projections.

^¹IMF Information Notice System trade-weighted; end of period.

^²In percent of beginning-of-period broad money.

^³Includes government holdings abroad.

^⁴The fiscal year runs from April 1 to March 31.

^⁵The official GDP numbers from 1994 to 2006 were significantly revised in 2007, and recently in 2008.

Table 1.

Swaziland: Basic Economic and Financial Indicators, 2005–2013

			2005	2006	2007	2008	2009	2010	2011	2012	2013
					Est.	Projections
	(Annual percentage change, unless stated otherwise)
National income and prices
	GDP at constant prices		2.2	2.9	3.5	2.6	2.5	2.5	2.5	2.5	2.5
	GDP per capita at constant prices		1.8	2.5	3.1	2.1	2.1	2.1	2.1	2.1	2.1
	GDP deflator		6.6	6.5	9.0	9.2	8.1	6.5	6.6	5.4	4.8
	CPI (period average)		4.8	5.3	8.2	12.7	8.9	6.0	5.9	5.5	5.3
	CPI (end of period)		6.3	5.5	9.8	13.5	7.5	5.9	5.7	5.4	5.3
External sector
	Current account balance (millions of U.S. dollars)		-102.6	-196.7	-41.2	-158.4	-64.2	-88.9	-115.9	-118.3	-102.4
	Export volume, f.o.b.		-15.5	-2.6	-3.7	12.7	10.8	-7.5	-0.4	0.6	0.6
	Import volume, f.o.b.		-2.0	-2.4	4.0	3.6	2.0	5.8	11.5	13.8	5.2
	Nominal effective exchange rate ^{^1/}		2.6	-4.2	8.7	…	…	…	…	…	…
	Real effective exchange rate ^{^1/}		-2.6	-8.0	3.3	…	…	…	…	…	…
	Terms of trade		7.7	4.5	3.0
Money and credit ^²
	Broad money		5.9	25.1	21.4	…	…	…	…	…	…
	Domestic Credit		10.6	-4.9	-28.7
		Central government (net) ^³	-5.6	-26.7	-50.0
		Private sector	16.2	21.8	21.4
	Prime lending rate (percent; end of period)		10.5	12.5	14.5	…	…	…	…	…	…
	Interest rate on 12-month time deposits (percent; end of period		3.5	8.5	10.0	…	…	…	…	…	…
	Discount rate (end of period)		7.5	9.0	11.0	…	…
	(Percent of GDP)
Gross national savings			14.5	9.3	14.8	12.1	15.7	14.6	13.6	13.7	13.7
	Of which: government		6.7	12.8	15.3	11.1	12.3	12.4	12.1	12.1	12.0
Gross domestic investment			18.6	16.7	16.2	17.4	17.7	17.2	16.8	16.8	16.3
	Of which: government		8.8	7.9	8.5	9.4	10.2	10.2	10.2	10.2	10.2
Central government finances (fiscal year) ^⁴
	Total revenue and grants		33.2	43.0	39.7	39.0	38.7	38.5	37.3	37.2	36.9
		Of which: South African Customs Union (SACU) receipts	18.7	28.5	23.8	25.6	24.9	24.5	23.3	23.0	22.3
	Total expenditure and net lending		34.8	32.5	33.3	37.2	36.5	36.4	35.5	35.4	35.0
		Current expenditure and net lending	26.7	25.1	24.8	28.1	26.6	26.5	25.5	25.4	25.0
	Central government balance (including grants)		-1.6	10.5	6.4	1.7	2.1	2.2	1.8	1.8	1.8
	Primary balance (including grants)		-0.4	11.4	7.4	2.6	2.9	2.9	2.5	2.5	2.4
	Government debt		16.5	17.4	18.8	15.5	15.9	14.4	13.5	12.7	12.7
	Non-SACU fiscal balance		-20.3	-18.0	-17.3	-23.9	-21.6	-20.8	-20.5	-21.5	-21.2
External sector
	Current account balance		-4.1	-7.4	-1.4	-5.3	-2.0	-2.6	-3.2	-3.1	-2.6
	Trade balance (merchandise goods)		-10.2	-9.4	-8.5	-19.3	-15.3	-14.7	-15.0	-14.5	-13.3
	Capital and financial account balance		-1.4	11.5	26.4	7.5	-0.4	2.4	4.0	5.1	5.6
	Overall balance		0.4	5.6	12.4	1.1	-1.2	-0.1	0.4	1.0	1.5
	External debt		17.2	16.6	16.7	17.2	16.0	15.2	14.5	13.9	11.9
Memorandum items:
	GDP in current prices (millions of emalangeni) ^⁵		16,050	18,078	20,386	22,856	25,321	27,634	30,177	32,621	35,017
	Balance of payments (millions of U.S. dollars)		11	150	358	32	-38	-5	14	37	60
	Gross official reserves (millions of U.S. dollars)		244	367	747	681	622	608	607	631	677
		(months of imports of goods and nonfactor services)	1.3	1.9	3.6	3.2	2.9	2.8	2.6	2.6	2.7
	Net official international reserves (millions of U.S. dollars)		240	363	743	677	618	604	603	627	674
		(months of imports of goods and nonfactor services)	1.3	1.9	3.5	3.2	2.9	2.7	2.6	2.6	2.7
		(months of imports of goods)	1.5	2.3	4.4	3.6	3.3	3.2	3.0	3.0	3.1
	Total external debt (millions of U.S. dollars)		435	441	507	520	520	530	534	541	550

Sources: Swazi authorities; and IMF staff projections.

^¹IMF Information Notice System trade-weighted; end of period.

^²In percent of beginning-of-period broad money.

^³Includes government holdings abroad.

^⁴The fiscal year runs from April 1 to March 31.

^⁵The official GDP numbers from 1994 to 2006 were significantly revised in 2007, and recently in 2008.

Table 1.

Swaziland: Basic Economic and Financial Indicators, 2005–2013

			2005	2006	2007	2008	2009	2010	2011	2012	2013
					Est.	Projections
	(Annual percentage change, unless stated otherwise)
National income and prices
	GDP at constant prices		2.2	2.9	3.5	2.6	2.5	2.5	2.5	2.5	2.5
	GDP per capita at constant prices		1.8	2.5	3.1	2.1	2.1	2.1	2.1	2.1	2.1
	GDP deflator		6.6	6.5	9.0	9.2	8.1	6.5	6.6	5.4	4.8
	CPI (period average)		4.8	5.3	8.2	12.7	8.9	6.0	5.9	5.5	5.3
	CPI (end of period)		6.3	5.5	9.8	13.5	7.5	5.9	5.7	5.4	5.3
External sector
	Current account balance (millions of U.S. dollars)		-102.6	-196.7	-41.2	-158.4	-64.2	-88.9	-115.9	-118.3	-102.4
	Export volume, f.o.b.		-15.5	-2.6	-3.7	12.7	10.8	-7.5	-0.4	0.6	0.6
	Import volume, f.o.b.		-2.0	-2.4	4.0	3.6	2.0	5.8	11.5	13.8	5.2
	Nominal effective exchange rate ^{^1/}		2.6	-4.2	8.7	…	…	…	…	…	…
	Real effective exchange rate ^{^1/}		-2.6	-8.0	3.3	…	…	…	…	…	…
	Terms of trade		7.7	4.5	3.0
Money and credit ^²
	Broad money		5.9	25.1	21.4	…	…	…	…	…	…
	Domestic Credit		10.6	-4.9	-28.7
		Central government (net) ^³	-5.6	-26.7	-50.0
		Private sector	16.2	21.8	21.4
	Prime lending rate (percent; end of period)		10.5	12.5	14.5	…	…	…	…	…	…
	Interest rate on 12-month time deposits (percent; end of period		3.5	8.5	10.0	…	…	…	…	…	…
	Discount rate (end of period)		7.5	9.0	11.0	…	…
	(Percent of GDP)
Gross national savings			14.5	9.3	14.8	12.1	15.7	14.6	13.6	13.7	13.7
	Of which: government		6.7	12.8	15.3	11.1	12.3	12.4	12.1	12.1	12.0
Gross domestic investment			18.6	16.7	16.2	17.4	17.7	17.2	16.8	16.8	16.3
	Of which: government		8.8	7.9	8.5	9.4	10.2	10.2	10.2	10.2	10.2
Central government finances (fiscal year) ^⁴
	Total revenue and grants		33.2	43.0	39.7	39.0	38.7	38.5	37.3	37.2	36.9
		Of which: South African Customs Union (SACU) receipts	18.7	28.5	23.8	25.6	24.9	24.5	23.3	23.0	22.3
	Total expenditure and net lending		34.8	32.5	33.3	37.2	36.5	36.4	35.5	35.4	35.0
		Current expenditure and net lending	26.7	25.1	24.8	28.1	26.6	26.5	25.5	25.4	25.0
	Central government balance (including grants)		-1.6	10.5	6.4	1.7	2.1	2.2	1.8	1.8	1.8
	Primary balance (including grants)		-0.4	11.4	7.4	2.6	2.9	2.9	2.5	2.5	2.4
	Government debt		16.5	17.4	18.8	15.5	15.9	14.4	13.5	12.7	12.7
	Non-SACU fiscal balance		-20.3	-18.0	-17.3	-23.9	-21.6	-20.8	-20.5	-21.5	-21.2
External sector
	Current account balance		-4.1	-7.4	-1.4	-5.3	-2.0	-2.6	-3.2	-3.1	-2.6
	Trade balance (merchandise goods)		-10.2	-9.4	-8.5	-19.3	-15.3	-14.7	-15.0	-14.5	-13.3
	Capital and financial account balance		-1.4	11.5	26.4	7.5	-0.4	2.4	4.0	5.1	5.6
	Overall balance		0.4	5.6	12.4	1.1	-1.2	-0.1	0.4	1.0	1.5
	External debt		17.2	16.6	16.7	17.2	16.0	15.2	14.5	13.9	11.9
Memorandum items:
	GDP in current prices (millions of emalangeni) ^⁵		16,050	18,078	20,386	22,856	25,321	27,634	30,177	32,621	35,017
	Balance of payments (millions of U.S. dollars)		11	150	358	32	-38	-5	14	37	60
	Gross official reserves (millions of U.S. dollars)		244	367	747	681	622	608	607	631	677
		(months of imports of goods and nonfactor services)	1.3	1.9	3.6	3.2	2.9	2.8	2.6	2.6	2.7
	Net official international reserves (millions of U.S. dollars)		240	363	743	677	618	604	603	627	674
		(months of imports of goods and nonfactor services)	1.3	1.9	3.5	3.2	2.9	2.7	2.6	2.6	2.7
		(months of imports of goods)	1.5	2.3	4.4	3.6	3.3	3.2	3.0	3.0	3.1
	Total external debt (millions of U.S. dollars)		435	441	507	520	520	530	534	541	550

Sources: Swazi authorities; and IMF staff projections.

^¹IMF Information Notice System trade-weighted; end of period.

^²In percent of beginning-of-period broad money.

^³Includes government holdings abroad.

^⁴The fiscal year runs from April 1 to March 31.

^⁵The official GDP numbers from 1994 to 2006 were significantly revised in 2007, and recently in 2008.

Table 2.

Swaziland: Summary of Central Government Operations, 2006/07–2013/14 ^¹

Sources: Ministry of Finance; and Fund staff projections.

^¹Without corrective policy measures. The fiscal year runs from April 1 to March 31.

^²Includes requested supplementary budget

^³Disbursements less amortizations.

Table 2.

Swaziland: Summary of Central Government Operations, 2006/07–2013/14 ^¹

			2006/07	2007/08	2008/09	2008/09	2009/10	2010/11	2011/12	2012/13	2013/14
				Est.	Budget	Est.^²	Projections
	(Millions of emalangeni)
Total revenue and grants			8,021	8,341	9,209	9,145	10,013	10,896	11,487	12,371	13,145
	Tax revenue		7,683	7,565	8,846	8,852	9,672	10,519	11,081	11,913	12,652
		SACU receipts	5,322	4,990	6,009	6,009	6,440	6,934	7,174	7,641	7,938
		Non-SACU revenue	2,361	2,575	2,837	2,843	3,233	3,585	3,907	4,272	4,713
	Nontax revenue		172	713	217	204	242	267	283	309	333
Total expenditure and net lending			6,063	6,993	9,504	8,737	9,462	10,287	10,922	11,760	12,490
	Current expenditure		4,681	5,217	7,288	6,607	6,891	7,478	7,843	8,434	8,926
		Wages and salaries	2,589	2,750	3,924	3,247	3,572	3,873	4,187	4,485	4,704
		Goods and services	1,203	1,343	1,517	1,490	1,645	1,805	1,970	2,159	2,331
		Interest payments	163	211	212	212	198	203	207	212	216
		Subsidies and transfers	726	913	1,635	1,657	1,476	1,597	1,478	1,578	1,675
	Capital expenditure		1,437	1,733	2,233	2,148	2,590	2,827	3,079	3,327	3,564
	Net lending		-55	43	-18	-18	-18	-18	0	0	0
Primary balance			2,121	1,560	-82	620	749	812	773	822	871
Overall balance (including grants)			1,958	1,348	-295	408	551	610	565	611	655
Overall balance (excluding grants)			1,792	1,285	-440	319	452	499	442	461	494
Financing			-1,958	-1,348	295	-408	-551	-610	-565	-611	-655
	Foreign (net)		214	98	40	129	96	75	79	90	94
	Domestic (net)		-868	-1,446	255	-537	-646	-684	-644	-701	-749
	Government deposits abroad		-1,304	-855	…	…	…	…	…
Government debt ^³			3,252	3,940	3,641	3,736	3,736	3,821	3,900	3,990	4,084
	Foreign		2,742	3,500	3,531	3,626	3,626	3,701	3,780	3,870	3,964
	Domestic		509	440	110	110	110	120	120	120	120
	(Percent of GDP, unless otherwise specified)
Total revenue and grants			43.0	39.7	39.2	39.0	38.7	38.5	37.3	37.2	36.9
	Tax revenue		41.2	36.0	37.7	37.7	37.3	37.2	36.0	35.9	35.5
		SACU receipts	28.5	23.8	25.6	25.6	24.9	24.5	23.3	23.0	22.3
		Non-SACU revenue	12.7	12.3	12.1	12.1	12.5	12.7	12.7	12.9	13.2
		Nontax revenue	0.9	3.4	0.9	0.9	0.9	0.9	0.9	0.9	0.9
		Grants	0.9	0.3	0.6	0.4	0.4	0.4	0.4	0.5	0.5
Total expenditure and net lending			32.5	33.3	40.5	37.2	36.5	36.4	35.5	35.4	35.0
	Current expenditure		25.1	24.8	31.1	28.1	26.6	26.5	25.5	25.4	25.0
		Of which:
		Wages and salaries	13.9	13.1	16.7	13.8	13.8	13.7	13.6	13.5	13.2
		Goods and services	6.4	6.4	6.5	6.4	6.4	6.4	6.4	6.5	6.5
		Interest payments	0.9	1.0	0.9	0.9	0.8	0.7	0.7	0.6	0.6
		Subsidies and transfers	3.9	4.3	7.0	7.1	5.7	5.7	4.8	4.8	4.7
	Capital expenditure		7.7	8.2	9.5	9.2	10.0	10.0	10.0	10.0	10.0
Primary balance			11.4	7.4	-0.4	2.6	2.9	2.9	2.5	2.5	2.4
Overall balance (including grants)			10.5	6.4	-1.3	1.7	2.1	2.2	1.8	1.8	1.8
Overall balance (excluding grants)			9.6	6.1	-1.9	1.4	1.7	1.8	1.4	1.4	1.4
Non-SACU fiscal balance (w/grants)			-18.0	-17.3	-26.9	-23.9	-22.7	-22.4	-21.5	-21.2	-20.4
Financing			-10.5	-6.4	1.3	-1.7	-2.1	-2.2	-1.8	-1.8	-1.8
	Foreign (net)		-5.8	0.5	0.2	0.5	0.4	0.3	0.3	0.3	0.3
	Domestic (net)		-4.7	-6.9	1.1	-2.3	-2.5	-2.4	-2.1	-2.1	-2.1
	Government deposits abroad		-7.0	-4.1
Government debt			17.4	18.8	15.5	15.9	14.4	13.5	12.7	12.0	11.5
	Foreign		14.7	16.7	15.0	15.4	14.0	13.1	12.3	11.6	11.1
	Domestic		2.7	2.1	0.5	0.5	0.4	0.4	0.4	0.4	0.3
Memorandum items:
	GDP at current prices (millions of emalangeni)		18,655	21,004	23,472	23,472	25,899	28,270	30,788	33,220	35,638
	Wages and salaries (percent of current		55.3	52.7	53.8	49.1	51.8	51.8	53.4	53.2	52.7

Sources: Ministry of Finance; and Fund staff projections.

^¹Without corrective policy measures. The fiscal year runs from April 1 to March 31.

^²Includes requested supplementary budget

^³Disbursements less amortizations.

Table 2.

Swaziland: Summary of Central Government Operations, 2006/07–2013/14 ^¹

			2006/07	2007/08	2008/09	2008/09	2009/10	2010/11	2011/12	2012/13	2013/14
				Est.	Budget	Est.^²	Projections
	(Millions of emalangeni)
Total revenue and grants			8,021	8,341	9,209	9,145	10,013	10,896	11,487	12,371	13,145
	Tax revenue		7,683	7,565	8,846	8,852	9,672	10,519	11,081	11,913	12,652
		SACU receipts	5,322	4,990	6,009	6,009	6,440	6,934	7,174	7,641	7,938
		Non-SACU revenue	2,361	2,575	2,837	2,843	3,233	3,585	3,907	4,272	4,713
	Nontax revenue		172	713	217	204	242	267	283	309	333
Total expenditure and net lending			6,063	6,993	9,504	8,737	9,462	10,287	10,922	11,760	12,490
	Current expenditure		4,681	5,217	7,288	6,607	6,891	7,478	7,843	8,434	8,926
		Wages and salaries	2,589	2,750	3,924	3,247	3,572	3,873	4,187	4,485	4,704
		Goods and services	1,203	1,343	1,517	1,490	1,645	1,805	1,970	2,159	2,331
		Interest payments	163	211	212	212	198	203	207	212	216
		Subsidies and transfers	726	913	1,635	1,657	1,476	1,597	1,478	1,578	1,675
	Capital expenditure		1,437	1,733	2,233	2,148	2,590	2,827	3,079	3,327	3,564
	Net lending		-55	43	-18	-18	-18	-18	0	0	0
Primary balance			2,121	1,560	-82	620	749	812	773	822	871
Overall balance (including grants)			1,958	1,348	-295	408	551	610	565	611	655
Overall balance (excluding grants)			1,792	1,285	-440	319	452	499	442	461	494
Financing			-1,958	-1,348	295	-408	-551	-610	-565	-611	-655
	Foreign (net)		214	98	40	129	96	75	79	90	94
	Domestic (net)		-868	-1,446	255	-537	-646	-684	-644	-701	-749
	Government deposits abroad		-1,304	-855	…	…	…	…	…
Government debt ^³			3,252	3,940	3,641	3,736	3,736	3,821	3,900	3,990	4,084
	Foreign		2,742	3,500	3,531	3,626	3,626	3,701	3,780	3,870	3,964
	Domestic		509	440	110	110	110	120	120	120	120
	(Percent of GDP, unless otherwise specified)
Total revenue and grants			43.0	39.7	39.2	39.0	38.7	38.5	37.3	37.2	36.9
	Tax revenue		41.2	36.0	37.7	37.7	37.3	37.2	36.0	35.9	35.5
		SACU receipts	28.5	23.8	25.6	25.6	24.9	24.5	23.3	23.0	22.3
		Non-SACU revenue	12.7	12.3	12.1	12.1	12.5	12.7	12.7	12.9	13.2
		Nontax revenue	0.9	3.4	0.9	0.9	0.9	0.9	0.9	0.9	0.9
		Grants	0.9	0.3	0.6	0.4	0.4	0.4	0.4	0.5	0.5
Total expenditure and net lending			32.5	33.3	40.5	37.2	36.5	36.4	35.5	35.4	35.0
	Current expenditure		25.1	24.8	31.1	28.1	26.6	26.5	25.5	25.4	25.0
		Of which:
		Wages and salaries	13.9	13.1	16.7	13.8	13.8	13.7	13.6	13.5	13.2
		Goods and services	6.4	6.4	6.5	6.4	6.4	6.4	6.4	6.5	6.5
		Interest payments	0.9	1.0	0.9	0.9	0.8	0.7	0.7	0.6	0.6
		Subsidies and transfers	3.9	4.3	7.0	7.1	5.7	5.7	4.8	4.8	4.7
	Capital expenditure		7.7	8.2	9.5	9.2	10.0	10.0	10.0	10.0	10.0
Primary balance			11.4	7.4	-0.4	2.6	2.9	2.9	2.5	2.5	2.4
Overall balance (including grants)			10.5	6.4	-1.3	1.7	2.1	2.2	1.8	1.8	1.8
Overall balance (excluding grants)			9.6	6.1	-1.9	1.4	1.7	1.8	1.4	1.4	1.4
Non-SACU fiscal balance (w/grants)			-18.0	-17.3	-26.9	-23.9	-22.7	-22.4	-21.5	-21.2	-20.4
Financing			-10.5	-6.4	1.3	-1.7	-2.1	-2.2	-1.8	-1.8	-1.8
	Foreign (net)		-5.8	0.5	0.2	0.5	0.4	0.3	0.3	0.3	0.3
	Domestic (net)		-4.7	-6.9	1.1	-2.3	-2.5	-2.4	-2.1	-2.1	-2.1
	Government deposits abroad		-7.0	-4.1
Government debt			17.4	18.8	15.5	15.9	14.4	13.5	12.7	12.0	11.5
	Foreign		14.7	16.7	15.0	15.4	14.0	13.1	12.3	11.6	11.1
	Domestic		2.7	2.1	0.5	0.5	0.4	0.4	0.4	0.4	0.3
Memorandum items:
	GDP at current prices (millions of emalangeni)		18,655	21,004	23,472	23,472	25,899	28,270	30,788	33,220	35,638
	Wages and salaries (percent of current		55.3	52.7	53.8	49.1	51.8	51.8	53.4	53.2	52.7

Sources: Ministry of Finance; and Fund staff projections.

^¹Without corrective policy measures. The fiscal year runs from April 1 to March 31.

^²Includes requested supplementary budget

^³Disbursements less amortizations.

Table 3.

Swaziland: Monetary Survey, 2004–2008 ^¹

(Millions of emalangeni)

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

^¹End-of-year data. (For 2008, as of end-June)

^²Counterpart of government deposits held abroad.

^³Excludes rand in circulation.

4/ For 2008, change from June 2007.

Table 3.

Swaziland: Monetary Survey, 2004–2008 ^¹

(Millions of emalangeni)

				2004	2005	2006	2007	Mar-08	Jun-08
Monetary authorities
Net foreign assets				1,450	1,520	2,532	5,060	5,815	5,818
	Central Bank of Swaziland (CBS)			1,243	1,520	2,497	3,780	4,994	5,818
	Of which: Capital Investment Fund (CIF), managed by CBS.			667	0	0	0	0	0
	Government			207	0	35	1,280	821	0
Net domestic assets				-973	-1,031	-2,003	-4,354	-5,171	-5,047
	Central government (net)			-933	-1,083	-2,012	-4,049	-4,553	-4,488
		CBS claims on government		252	101	55	15	0	11
		Government deposits with CBS		-1,185	-1,184	-2,067	-4,063	-4,553	-4,499
			Domestic	-311	-1,183	-1,993	-2,780	-3,691	-4,495
			Foreign ^²	-874	0	-74	-1,283	-862	-4
	Private sector			10	9	20	8	8	9
	Commercial banks (net)			0	1	22	2	2	2
	Other items (net)			-50	43	-33	-315	-628	-570
Reserve money				477	490	565	706	645	771
Commercial banks
Net foreign assets				490	374	762	698	749	1,145
Reserves				256	211	354	499	472	525
Domestic credit				3,344	3,832	4,581	5,385	5,656	5,507
	Central government (net)			331	302	306	169	196	80
		Claims on Government		332	315	369	344	425	379
		Government deposits		2	13	64	175	228	299
	Private sector			3,013	3,531	4,276	5,216	5,460	5,427
Other items (net)				-1,110	-1,196	-1,589	-1,559	-1,642	-1,697
Private sector deposits				2,946	3,221	4,088	5,023	5,235	5,480
Monetary survey
Net foreign assets				1,941	1,894	3,294	5,757	6,564	6,963
Domestic credit				2,421	2,758	2,590	1,344	1,111	1,028
	Central government (net)			-602	-781	-1,706	-3,880	-4,356	-4,408
	Private sector			3,023	3,539	4,296	5,224	5,468	5,436
Other items (net)				-1,180	-1,182	-1,542	-1,828	-2,199	-2,235
Broad money				3,182	3,471	4,342	5,273	5,477	5,756
	Currency in circulation ^³			236	242	251	249	234	275
	Deposits			2,946	3,229	4,091	5,024	5,243	5,482
				Annual change in percent of beginning-of-period broad money
Broad money				7.2	9.1	25.1	21.4	18.0	14.1
Net foreign assets				2.2	-1.5	40.3	56.7	68.1	37.8
Domestic credit				30.9	10.6	-4.9	-28.7	-32.9	26.7
	Central government (net)			4.8	-5.6	-26.7	-50.0	-52.9	14.7
	Private sector			26.1	16.2	21.8	21.4	20.0	12.0
Other items (net)				-26.0	-0.1	-10.4	-6.6	-17.2	-50.4
Memorandum items:
	Currency/broad money (percent)			7.4	7.0	5.8	4.7	4.3	4.8
	Reserve money/deposits (percent)			16.2	15.2	13.8	14.0	12.3	14.1
	Money multiplier (broad money/reserve money)			6.7	7.1	7.7	7.5	8.5	7.5
	Velocity (GDP/period average broad money)			4.72	4.32	4.26	4.24	4.12	4.11

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

^¹End-of-year data. (For 2008, as of end-June)

^²Counterpart of government deposits held abroad.

^³Excludes rand in circulation.

4/ For 2008, change from June 2007.

Table 3.

Swaziland: Monetary Survey, 2004–2008 ^¹

(Millions of emalangeni)

				2004	2005	2006	2007	Mar-08	Jun-08
Monetary authorities
Net foreign assets				1,450	1,520	2,532	5,060	5,815	5,818
	Central Bank of Swaziland (CBS)			1,243	1,520	2,497	3,780	4,994	5,818
	Of which: Capital Investment Fund (CIF), managed by CBS.			667	0	0	0	0	0
	Government			207	0	35	1,280	821	0
Net domestic assets				-973	-1,031	-2,003	-4,354	-5,171	-5,047
	Central government (net)			-933	-1,083	-2,012	-4,049	-4,553	-4,488
		CBS claims on government		252	101	55	15	0	11
		Government deposits with CBS		-1,185	-1,184	-2,067	-4,063	-4,553	-4,499
			Domestic	-311	-1,183	-1,993	-2,780	-3,691	-4,495
			Foreign ^²	-874	0	-74	-1,283	-862	-4
	Private sector			10	9	20	8	8	9
	Commercial banks (net)			0	1	22	2	2	2
	Other items (net)			-50	43	-33	-315	-628	-570
Reserve money				477	490	565	706	645	771
Commercial banks
Net foreign assets				490	374	762	698	749	1,145
Reserves				256	211	354	499	472	525
Domestic credit				3,344	3,832	4,581	5,385	5,656	5,507
	Central government (net)			331	302	306	169	196	80
		Claims on Government		332	315	369	344	425	379
		Government deposits		2	13	64	175	228	299
	Private sector			3,013	3,531	4,276	5,216	5,460	5,427
Other items (net)				-1,110	-1,196	-1,589	-1,559	-1,642	-1,697
Private sector deposits				2,946	3,221	4,088	5,023	5,235	5,480
Monetary survey
Net foreign assets				1,941	1,894	3,294	5,757	6,564	6,963
Domestic credit				2,421	2,758	2,590	1,344	1,111	1,028
	Central government (net)			-602	-781	-1,706	-3,880	-4,356	-4,408
	Private sector			3,023	3,539	4,296	5,224	5,468	5,436
Other items (net)				-1,180	-1,182	-1,542	-1,828	-2,199	-2,235
Broad money				3,182	3,471	4,342	5,273	5,477	5,756
	Currency in circulation ^³			236	242	251	249	234	275
	Deposits			2,946	3,229	4,091	5,024	5,243	5,482
				Annual change in percent of beginning-of-period broad money
Broad money				7.2	9.1	25.1	21.4	18.0	14.1
Net foreign assets				2.2	-1.5	40.3	56.7	68.1	37.8
Domestic credit				30.9	10.6	-4.9	-28.7	-32.9	26.7
	Central government (net)			4.8	-5.6	-26.7	-50.0	-52.9	14.7
	Private sector			26.1	16.2	21.8	21.4	20.0	12.0
Other items (net)				-26.0	-0.1	-10.4	-6.6	-17.2	-50.4
Memorandum items:
	Currency/broad money (percent)			7.4	7.0	5.8	4.7	4.3	4.8
	Reserve money/deposits (percent)			16.2	15.2	13.8	14.0	12.3	14.1
	Money multiplier (broad money/reserve money)			6.7	7.1	7.7	7.5	8.5	7.5
	Velocity (GDP/period average broad money)			4.72	4.32	4.26	4.24	4.12	4.11

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

^¹End-of-year data. (For 2008, as of end-June)

^²Counterpart of government deposits held abroad.

^³Excludes rand in circulation.

4/ For 2008, change from June 2007.

Table 4.

Swaziland: Commercial Banks’ Performance Ratios, Dec. 2003–2008

Source: Central Bank of Swaziland.

^¹Excluding the Swaziland Development and Savings Bank, which is owned by the government and offers both development finance and commercial banking services since its recapitalization and relaunch by the government in 2001.

Table 4.

Swaziland: Commercial Banks’ Performance Ratios, Dec. 2003–2008

		2003 Dec.	2004 Dec.	2005 Dec.	2006 Dec.	2007 June.	2007 Dec.	2008 June.
		(Percent)
Performance Ratios
	Basle capital ratio (Tier 1)	14	14	15	20	23	21	18
	Basle capital ratio (Tier 2)	20	16	17	26	23	24	20
Asset Quality
	Loans to deposit ratio ^¹	75	73	83	86	88	105	86
	Earning assets to total assets	90	87	92	65	67	69	73
	Nonperforming loans to total loans ^¹	2	3	2	4	4	6	8
	Reserve for losses to total loans	9	8	7	10	9	8	6
Liquidity Ratios
	Liquid assets to total deposits	19	18	17	20	20	19	16
	Available reserves to total deposits	18	19	20	10	12	12	5
	Liquid assets to total assets	14	14	13	15	14	13	13
Profitability Ratios
	Net income to average total assets (return on assets)	43	3	3	63	3	3	4
	Net income to average total equity (return on equity)	29	20	20	52	26	15	14
	Total expenses to total income	60	64	68	71	74	63	68

Source: Central Bank of Swaziland.

Table 4.

Swaziland: Commercial Banks’ Performance Ratios, Dec. 2003–2008

		2003 Dec.	2004 Dec.	2005 Dec.	2006 Dec.	2007 June.	2007 Dec.	2008 June.
		(Percent)
Performance Ratios
	Basle capital ratio (Tier 1)	14	14	15	20	23	21	18
	Basle capital ratio (Tier 2)	20	16	17	26	23	24	20
Asset Quality
	Loans to deposit ratio ^¹	75	73	83	86	88	105	86
	Earning assets to total assets	90	87	92	65	67	69	73
	Nonperforming loans to total loans ^¹	2	3	2	4	4	6	8
	Reserve for losses to total loans	9	8	7	10	9	8	6
Liquidity Ratios
	Liquid assets to total deposits	19	18	17	20	20	19	16
	Available reserves to total deposits	18	19	20	10	12	12	5
	Liquid assets to total assets	14	14	13	15	14	13	13
Profitability Ratios
	Net income to average total assets (return on assets)	43	3	3	63	3	3	4
	Net income to average total equity (return on equity)	29	20	20	52	26	15	14
	Total expenses to total income	60	64	68	71	74	63	68

Source: Central Bank of Swaziland.

Table 5.

Swaziland: Balance of Payments, 2005–2013 ^¹

(Millions of U.S. dollars, unless otherwise specified)

Sources: Central Bank of Swaziland; and IMF staff projections.

^¹Without corrective policy measures.

^²SACU: Southern African Customs Union. SACU transfers in the current account does not reflect the true level of SACU revenue because of the particular treatment of those transfers in the accounts where the authorities make an estimate based on the level of imports and adjust in ‘other investment’ to reflect the total SACU revenues.

Table 5.

Swaziland: Balance of Payments, 2005–2013 ^¹

(Millions of U.S. dollars, unless otherwise specified)

				2005	2006	2007	2008	2009	2010	2011	2012	2013
					Est.	Projections
Current account balance				-102.6	-196.7	-41.2	-158.4	-64.2	-88.9	-115.9	-118.3	-102.4
	Trade balance			-258.1	-252.1	-246.5	-573.1	-487.3	-493.7	-537.7	-548.0	-528.8
		Exports, f.o.b.		1,636.5	1,663.9	1,766.8	1,681.1	1,737.3	1,804.0	1,850.8	1,965.9	2,093.0
		Imports, f.o.b.		-1,894.6	-1,916.1	-2,013.3	-2,254.3	-2,224.6	-2,297.7	-2,388.5	-2,513.9	-2,621.8
	Services (net)			-120.4	-90.1	-52.1	-16.9	-17.5	-22.7	-24.0	-25.8	-27.7
		Exports of services		282.4	283.5	454.1	304.6	315.9	328.0	346.7	373.6	401.1
		Imports of services		-402.8	-373.6	-506.2	-321.5	-333.5	-350.7	-370.7	-399.5	-428.8
	Goods and services balance			-378.5	-342.3	-298.6	-590.0	-504.8	-516.4	-561.7	-573.8	-556.5
	Income (net)			178.3	14.0	63.7	39.0	22.9	-2.5	-16.7	-46.1	-78.6
		Income (credits)		271.3	241.8	280.5	201.5	197.0	198.2	207.6	205.4	203.6
		Income (debits)		-93.0	-227.8	-216.8	-162.5	-174.0	-200.7	-224.3	-251.6	-282.2
			Of which: interest	-20.1	-21.9	-24.5	-26.5	-26.4	-26.5	-26.7	-27.1	-27.5
	Transfers (net)			97.5	131.6	193.7	392.6	417.7	429.9	462.5	501.7	532.7
		Official sector (mainly SACU receipts) ^²		339.6	366.5	403.0	623.9	663.6	692.2	705.7	730.1	747.5
		Private sector		-242.1	-234.9	-209.2	-231.3	-245.9	-262.3	-243.2	-228.4	-214.8
Capital and financial account balance				-46.7	158.6	404.0	190.2	26.0	84.4	129.6	155.5	162.1
	Capital account balance			-3.5	24.8	-30.1	23.8	23.9	29.4	38.5	28.6	28.0
	Financial account balance (excluding reserve assets)			-43.2	133.8	434.1	166.3	2.0	55.0	91.1	126.9	134.1
		Direct investment		-23.8	121.7	14.3	33.4	37.8	36.6	35.4	40.1	44.5
		Portfolio investment		4.5	-4.0	5.2	-3.0	-3.2	-3.4	-3.6	-3.8	-4.0
		Other investment		-23.9	16.0	414.5	135.9	-32.6	21.7	59.3	90.6	93.6
Errors and omissions				148.2	162.7	-4.5	0.0	0.0	0.0	0.0	0.0	0.0
Overall balance				-1.1	124.6	358.3	31.8	-38.2	-4.6	13.7	37.2	59.7
Memorandum items:
	Current account/GDP (percent)			-4.1	-7.4	-1.4	-5.3	-2.0	-2.6	-3.2	-3.1	-2.6
	Goods and services balance/GDP (percent)			-15.0	-12.8	-10.3	-19.9	-15.9	-15.3	-15.7	-15.1	-14.0
	Direct Investment/GDP (percent)			-0.9	4.6	0.5	1.1	1.2	1.1	1.0	1.1	1.1
	Net official reserves (end of period)			240.3	363.8	721.8	735.7	680.2	674.2	603.4	627.3	674.2
		In months of imports of goods and services		1.3	1.9	3.4	3.4	3.2	3.1	2.6	2.6	2.7
	Total SACU Receipts			474.5	704.4	719.1	747.3	794.8	829.2	845.3	874.5	895.3

Sources: Central Bank of Swaziland; and IMF staff projections.

^¹Without corrective policy measures.

Table 5.

Swaziland: Balance of Payments, 2005–2013 ^¹

(Millions of U.S. dollars, unless otherwise specified)

				2005	2006	2007	2008	2009	2010	2011	2012	2013
					Est.	Projections
Current account balance				-102.6	-196.7	-41.2	-158.4	-64.2	-88.9	-115.9	-118.3	-102.4
	Trade balance			-258.1	-252.1	-246.5	-573.1	-487.3	-493.7	-537.7	-548.0	-528.8
		Exports, f.o.b.		1,636.5	1,663.9	1,766.8	1,681.1	1,737.3	1,804.0	1,850.8	1,965.9	2,093.0
		Imports, f.o.b.		-1,894.6	-1,916.1	-2,013.3	-2,254.3	-2,224.6	-2,297.7	-2,388.5	-2,513.9	-2,621.8
	Services (net)			-120.4	-90.1	-52.1	-16.9	-17.5	-22.7	-24.0	-25.8	-27.7
		Exports of services		282.4	283.5	454.1	304.6	315.9	328.0	346.7	373.6	401.1
		Imports of services		-402.8	-373.6	-506.2	-321.5	-333.5	-350.7	-370.7	-399.5	-428.8
	Goods and services balance			-378.5	-342.3	-298.6	-590.0	-504.8	-516.4	-561.7	-573.8	-556.5
	Income (net)			178.3	14.0	63.7	39.0	22.9	-2.5	-16.7	-46.1	-78.6
		Income (credits)		271.3	241.8	280.5	201.5	197.0	198.2	207.6	205.4	203.6
		Income (debits)		-93.0	-227.8	-216.8	-162.5	-174.0	-200.7	-224.3	-251.6	-282.2
			Of which: interest	-20.1	-21.9	-24.5	-26.5	-26.4	-26.5	-26.7	-27.1	-27.5
	Transfers (net)			97.5	131.6	193.7	392.6	417.7	429.9	462.5	501.7	532.7
		Official sector (mainly SACU receipts) ^²		339.6	366.5	403.0	623.9	663.6	692.2	705.7	730.1	747.5
		Private sector		-242.1	-234.9	-209.2	-231.3	-245.9	-262.3	-243.2	-228.4	-214.8
Capital and financial account balance				-46.7	158.6	404.0	190.2	26.0	84.4	129.6	155.5	162.1
	Capital account balance			-3.5	24.8	-30.1	23.8	23.9	29.4	38.5	28.6	28.0
	Financial account balance (excluding reserve assets)			-43.2	133.8	434.1	166.3	2.0	55.0	91.1	126.9	134.1
		Direct investment		-23.8	121.7	14.3	33.4	37.8	36.6	35.4	40.1	44.5
		Portfolio investment		4.5	-4.0	5.2	-3.0	-3.2	-3.4	-3.6	-3.8	-4.0
		Other investment		-23.9	16.0	414.5	135.9	-32.6	21.7	59.3	90.6	93.6
Errors and omissions				148.2	162.7	-4.5	0.0	0.0	0.0	0.0	0.0	0.0
Overall balance				-1.1	124.6	358.3	31.8	-38.2	-4.6	13.7	37.2	59.7
Memorandum items:
	Current account/GDP (percent)			-4.1	-7.4	-1.4	-5.3	-2.0	-2.6	-3.2	-3.1	-2.6
	Goods and services balance/GDP (percent)			-15.0	-12.8	-10.3	-19.9	-15.9	-15.3	-15.7	-15.1	-14.0
	Direct Investment/GDP (percent)			-0.9	4.6	0.5	1.1	1.2	1.1	1.0	1.1	1.1
	Net official reserves (end of period)			240.3	363.8	721.8	735.7	680.2	674.2	603.4	627.3	674.2
		In months of imports of goods and services		1.3	1.9	3.4	3.4	3.2	3.1	2.6	2.6	2.7
	Total SACU Receipts			474.5	704.4	719.1	747.3	794.8	829.2	845.3	874.5	895.3

Sources: Central Bank of Swaziland; and IMF staff projections.

^¹Without corrective policy measures.

Table 6.

Swaziland: Millennium Development Goals

Source: World Development Indicators database, June 2008

Table 6.

Swaziland: Millennium Development Goals

			1990	1995	2000	2006
Goal 1: Eradicate extreme poverty and hunger
	Employment to population ratio, total (% of people ages 15 and over)		42	44	40	39
	Employment to population ratio, total (% of people ages 15–24)		26	27	23	22
	Income share held by lowest 20%		..	2.7	4.3	..
	Malnutrition prevalence, weight for age (% of children under 5)		..	..	9.1	..
	Poverty gap at $1 a day (PPP) (%)		..	..	..	..
	Poverty headcount ratio at $1 a day (PPP) (% of population)		..	..	..	..
	Poverty headcount ratio at national poverty line (% of population)		..	..	69.2	..
	Prevalence of undernourishment (% of population)		14	23	..	22
	Vulnerable employment, total (% of total employment)		..	21	..	..
Goal 2: Achieve universal primary education
	Literacy rate, youth female (% of females ages 15–24)		..	..	90	..
	Literacy rate, youth male (% of males ages 15–24)		..	..	87	..
	Persistence to last grade of prmiary, total (% of cohort)		..	..	58	71
	Primary completion rate, total (% of relevant age group)		61	61	64	67
	School enrollment, primary (% net)		75	..	75	78
Goal 3: Promote gender equality and empower women
	Proportion of seats held by women in national parliament (%)		4	3	3	11
	Ratio of female to male enrollments in tertiary education (%)		76	..	89	98
	Ratio of female to male in primary enrollment (%)		99	..	94	93
	Ratio of female to male in secondary enrollment (%)		96	..	100	100
	Ratio of young literate females to males (% ages 15–24)		..	..	103	..
	Share of women employed in the nonagricultural sector (% of total nonagricultural employment)		..	33.2	..		..
Goal 4: Reduce child mortality
	Immunization, measles (% of children ages 12–23 months)		85	94	72	57
	Mortality rate, infant (per 1,000 live births)		78	78	98	112
	Mortality rate, under-5 (per 1,000)		110	110	142	164
Goal 5: Improve maternal health
	Adolescent fertility rate (births per 1,000 women ages 15–19)		..	46	41	34
	Births attended by skilled health staff (% of total)		..	56	70.0	..
	Contraceptive prevalence (% of women ages 15–49)		20	..	28	..
	Maternal mortality ratio (modeled estimate, per 100,000 live births)		..	..	..	390
	Pregnant women receiving prenatal care (%)		..	..	87	..
Goal 6: Combat HIV/AIDS, malaria, and other diseases
	Children with fever receiving antimalarial drugs (% of children under age 5)	..	..		26	..
	Condom use, female (% ages 15–24)	..	..	..		..
	Condom use, male (% ages 15–24)	..	..	..		..
	Incidence of tuberculosis (per 100,000 people)		267	337	801	1,155
	Prevalence of HIV, female (% ages 15–24)	..	..	..		23
	Prevalence of HIV, total (% of population ages 15–49)	..	..	..		33
	Tuberculosis cases detected under DOTS (%)	..	..		33	49
Goal 7: Ensure environmental sustainability
	Annual freshwater withdrawals, total (% of internal resources)		..	..	40.1	..
	CO2 emissions (kg per PPP $ of GDP)		0.2	0.1	0.3	0.2
	CO2 emissions (metric tons per capita)		0.6	0.5	1.0	0.9
	Forest area (% of land area)		27	..	30	31
	Improved sanitation facilities (% of population with access)		..	48	48	48
	Improved water source (% of population with access)		..	62	62	62
	Marine protected areas, (% of surface area)		..	..	..	..
	Nationally protected areas (% of total land area)		..	..	..	4
Goal 8: Develop a global partnership for development
	Aid per capita (current US$)		70	64	13	30
	Debt service (PPG and IMF only, % of exports of G&S, excl. workers’ remittances)		5.6	1.7	2.3	1.7
	Internet users (per 1,000 people)		..	0.0	1.0	3.7
	Mobile phone subscribers (per 100 people)		..	..	3.2	22.0
	Telephone mainlines (per 100 people)		1.8	2.3	3.0	3.9
Other
	Fertility rate, total (births per woman)		5.3	4.9	4.1	3.5
	GNI per capita, Atlas method (current US$)		1,200	1,500	1,370	2,400
	GNI, Atlas method (current US$) (billions)		0.9	1.4	1.4	2.7
	Gross capital formation (% of GDP)		19.1	20.0	18.6	17.2
	Life expectancy at birth, total (years)		57	58	45	41
	Literacy rate, adult total (% of people ages 15 and above)		..	..	80	..
	Population, total (millions)		0.8	0.9	1.0	1.1
	Trade (% of GDP)		161.7	168.1	178.7	167.5

Source: World Development Indicators database, June 2008

Table 6.

Swaziland: Millennium Development Goals

			1990	1995	2000	2006
Goal 1: Eradicate extreme poverty and hunger
	Employment to population ratio, total (% of people ages 15 and over)		42	44	40	39
	Employment to population ratio, total (% of people ages 15–24)		26	27	23	22
	Income share held by lowest 20%		..	2.7	4.3	..
	Malnutrition prevalence, weight for age (% of children under 5)		..	..	9.1	..
	Poverty gap at $1 a day (PPP) (%)		..	..	..	..
	Poverty headcount ratio at $1 a day (PPP) (% of population)		..	..	..	..
	Poverty headcount ratio at national poverty line (% of population)		..	..	69.2	..
	Prevalence of undernourishment (% of population)		14	23	..	22
	Vulnerable employment, total (% of total employment)		..	21	..	..
Goal 2: Achieve universal primary education
	Literacy rate, youth female (% of females ages 15–24)		..	..	90	..
	Literacy rate, youth male (% of males ages 15–24)		..	..	87	..
	Persistence to last grade of prmiary, total (% of cohort)		..	..	58	71
	Primary completion rate, total (% of relevant age group)		61	61	64	67
	School enrollment, primary (% net)		75	..	75	78
Goal 3: Promote gender equality and empower women
	Proportion of seats held by women in national parliament (%)		4	3	3	11
	Ratio of female to male enrollments in tertiary education (%)		76	..	89	98
	Ratio of female to male in primary enrollment (%)		99	..	94	93
	Ratio of female to male in secondary enrollment (%)		96	..	100	100
	Ratio of young literate females to males (% ages 15–24)		..	..	103	..
	Share of women employed in the nonagricultural sector (% of total nonagricultural employment)		..	33.2	..		..
Goal 4: Reduce child mortality
	Immunization, measles (% of children ages 12–23 months)		85	94	72	57
	Mortality rate, infant (per 1,000 live births)		78	78	98	112
	Mortality rate, under-5 (per 1,000)		110	110	142	164
Goal 5: Improve maternal health
	Adolescent fertility rate (births per 1,000 women ages 15–19)		..	46	41	34
	Births attended by skilled health staff (% of total)		..	56	70.0	..
	Contraceptive prevalence (% of women ages 15–49)		20	..	28	..
	Maternal mortality ratio (modeled estimate, per 100,000 live births)		..	..	..	390
	Pregnant women receiving prenatal care (%)		..	..	87	..
Goal 6: Combat HIV/AIDS, malaria, and other diseases
	Children with fever receiving antimalarial drugs (% of children under age 5)	..	..		26	..
	Condom use, female (% ages 15–24)	..	..	..		..
	Condom use, male (% ages 15–24)	..	..	..		..
	Incidence of tuberculosis (per 100,000 people)		267	337	801	1,155
	Prevalence of HIV, female (% ages 15–24)	..	..	..		23
	Prevalence of HIV, total (% of population ages 15–49)	..	..	..		33
	Tuberculosis cases detected under DOTS (%)	..	..		33	49
Goal 7: Ensure environmental sustainability
	Annual freshwater withdrawals, total (% of internal resources)		..	..	40.1	..
	CO2 emissions (kg per PPP $ of GDP)		0.2	0.1	0.3	0.2
	CO2 emissions (metric tons per capita)		0.6	0.5	1.0	0.9
	Forest area (% of land area)		27	..	30	31
	Improved sanitation facilities (% of population with access)		..	48	48	48
	Improved water source (% of population with access)		..	62	62	62
	Marine protected areas, (% of surface area)		..	..	..	..
	Nationally protected areas (% of total land area)		..	..	..	4
Goal 8: Develop a global partnership for development
	Aid per capita (current US$)		70	64	13	30
	Debt service (PPG and IMF only, % of exports of G&S, excl. workers’ remittances)		5.6	1.7	2.3	1.7
	Internet users (per 1,000 people)		..	0.0	1.0	3.7
	Mobile phone subscribers (per 100 people)		..	..	3.2	22.0
	Telephone mainlines (per 100 people)		1.8	2.3	3.0	3.9
Other
	Fertility rate, total (births per woman)		5.3	4.9	4.1	3.5
	GNI per capita, Atlas method (current US$)		1,200	1,500	1,370	2,400
	GNI, Atlas method (current US$) (billions)		0.9	1.4	1.4	2.7
	Gross capital formation (% of GDP)		19.1	20.0	18.6	17.2
	Life expectancy at birth, total (years)		57	58	45	41
	Literacy rate, adult total (% of people ages 15 and above)		..	..	80	..
	Population, total (millions)		0.8	0.9	1.0	1.1
	Trade (% of GDP)		161.7	168.1	178.7	167.5

Source: World Development Indicators database, June 2008

^{Table 7.}

Swaziland: External Debt Sustainability Framework, 2002–2013

(Percent of GDP, unless otherwise indicated)

^¹Derived as [r- g - ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock, with r = nominal effective interest rate on external debt; ρ = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a= share of domestic-currency denominated debt in total external debt.

^²The contribution from price and exchange rate changes is defined as [-ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock, ρ increases with an appreciating domestic currency (ε >0) and rising inflation (based on GDP deflator).

^³For projection, line includes the impact of price and exchange rate changes.

^⁴Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

^⁵The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

^⁶Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

^{Table 7.}

Swaziland: External Debt Sustainability Framework, 2002–2013

(Percent of GDP, unless otherwise indicated)

				Actual					Prejections
				2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	Debt-stabilizing non-interest current account^⁶
Baseline: External debt				29.5	22.7	18.2	17.2	16.6	16.7	17.2	16.0	15.2	14.4	13.8	11.9	-1.1
Change in external debt				7.6	-6.8	-4.5	-1.0	-0.6	0.1	0.6	-1.3	-0.8	-0.7	-0.6	-1.9
Identified external debt-creating flows				-10.0	-20.9	-13.2	6.1	3.3	0.2	3.8	0.5	1.2	1.9	1.8	1.1
	Current account deficit, excluding interest payments			-6.2	-7.8	-4.1	3.0	6.7	0.7	4.5	1.3	1.9	2.5	2.4	1.7
		Deficit in balance of goods and services		-2.3	-2.5	1.6	15.0	12.8	9.8	19.5	15.5	14.8	15.2	14.6	12.0
			Exports	81.4	84.5	90.1	76.0	73.0	72.9	65.8	63.0	61.1	59.4	59.7	53.9
			Imports	79.1	82.0	91.7	91.0	85.7	82.7	85.3	78.5	75.8	74.6	74.4	65.9
	Net non-debt creating capital inflows (negative)			-7.5	-3.9	-3.1	0.8	-4.4	-0.6	-1.0	-1.1	-1.0	-0.9	-0.9	-0.9
	Automatic debt dynamics ^¹			3.7	-9.2	-6.1	2.3	1.0	0.1	0.3	0.3	0.3	0.3	0.3	0.2
		Contribution from nominal interest rate		1.3	1.0	0.8	1.2	0.7	0.6	0.8	0.7	0.7	0.6	0.6	0.5
		Contribution from real GDP growth		-0.4	-0.7	-0.4	-0.4	-0.5	-0.5	-0.4	-0.4	-0.4	-0.4	-0.3	-0.3
		Contribution from price and exchange rate changes ^²		2.8	-9.5	-6.5	1.5	0.8	…	…	…	…	…	…	…
Residual, incl. change in gross foreign assets ^³				17.6	14.1	8.7	-7.1	-4.0	-0.2	-3.2	-1.8	-2.0	-2.6	-2.4	-3.0
External debt-to-exports ratio (percent)				36.2	26.8	20.2	22.7	22.8	22.8	26.2	25.3	24.8	24.3	23.1	22.0
Gross external financing need (in percent of GDP)^⁴				-3.8	-6.0	-2.4	5.1	8.0	2.1	6.0	2.7	3.3	3.9	3.7	3.2
Scenario with key variables at their historical averages ^⁵									15.9	9.8	6.7	3.2	-1.1	3.2	3.0	-2.6
Key Macroeconomic Assumptions Underlying Baseline
Real GDP growth (percent)				1.8	3.9	2.3	2.2	2.9	3.5	2.6	2.5	2.5	2.5	2.5	2.5
GDP deflator in US dollars (change in percent)				-11.3	47.3	40.5	-7.8	-4.4	10.7	-3.4	5.4	4.5	3.4	3.3	2.7
Nominal external interest rate (percent)				5.5	5.2	5.1	6.2	4.2	4.2	4.6	4.5	4.5	4.4	4.4	4.2
Growth of exports (US dollar terms, percent)				-1.0	30.0	33.8	-6.8	1.1	14.5	-10.6	3.4	3.8	3.1	6.5	6.6
Growth of imports (US dollar terms, percent)				-13.8	29.8	40.4	9.6	-0.8	10.6	2.2	-0.7	3.5	4.2	5.6	4.7
Current account balance, excluding interest payments				6.2	7.8	4.1	-3.0	-6.7	-0.7	-4.5	-1.3	-1.9	-2.5	-2.4	-1.7
Net non-debt creating capital inflows				7.5	3.9	3.1	-0.8	4.4	0.6	1.0	1.1	1.0	0.9	0.9	0.9

^³For projection, line includes the impact of price and exchange rate changes.

^⁴Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

^⁵The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

^{Table 7.}

Swaziland: External Debt Sustainability Framework, 2002–2013

(Percent of GDP, unless otherwise indicated)

				Actual					Prejections
				2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	Debt-stabilizing non-interest current account^⁶
Baseline: External debt				29.5	22.7	18.2	17.2	16.6	16.7	17.2	16.0	15.2	14.4	13.8	11.9	-1.1
Change in external debt				7.6	-6.8	-4.5	-1.0	-0.6	0.1	0.6	-1.3	-0.8	-0.7	-0.6	-1.9
Identified external debt-creating flows				-10.0	-20.9	-13.2	6.1	3.3	0.2	3.8	0.5	1.2	1.9	1.8	1.1
	Current account deficit, excluding interest payments			-6.2	-7.8	-4.1	3.0	6.7	0.7	4.5	1.3	1.9	2.5	2.4	1.7
		Deficit in balance of goods and services		-2.3	-2.5	1.6	15.0	12.8	9.8	19.5	15.5	14.8	15.2	14.6	12.0
			Exports	81.4	84.5	90.1	76.0	73.0	72.9	65.8	63.0	61.1	59.4	59.7	53.9
			Imports	79.1	82.0	91.7	91.0	85.7	82.7	85.3	78.5	75.8	74.6	74.4	65.9
	Net non-debt creating capital inflows (negative)			-7.5	-3.9	-3.1	0.8	-4.4	-0.6	-1.0	-1.1	-1.0	-0.9	-0.9	-0.9
	Automatic debt dynamics ^¹			3.7	-9.2	-6.1	2.3	1.0	0.1	0.3	0.3	0.3	0.3	0.3	0.2
		Contribution from nominal interest rate		1.3	1.0	0.8	1.2	0.7	0.6	0.8	0.7	0.7	0.6	0.6	0.5
		Contribution from real GDP growth		-0.4	-0.7	-0.4	-0.4	-0.5	-0.5	-0.4	-0.4	-0.4	-0.4	-0.3	-0.3
		Contribution from price and exchange rate changes ^²		2.8	-9.5	-6.5	1.5	0.8	…	…	…	…	…	…	…
Residual, incl. change in gross foreign assets ^³				17.6	14.1	8.7	-7.1	-4.0	-0.2	-3.2	-1.8	-2.0	-2.6	-2.4	-3.0
External debt-to-exports ratio (percent)				36.2	26.8	20.2	22.7	22.8	22.8	26.2	25.3	24.8	24.3	23.1	22.0
Gross external financing need (in percent of GDP)^⁴				-3.8	-6.0	-2.4	5.1	8.0	2.1	6.0	2.7	3.3	3.9	3.7	3.2
Scenario with key variables at their historical averages ^⁵									15.9	9.8	6.7	3.2	-1.1	3.2	3.0	-2.6
Key Macroeconomic Assumptions Underlying Baseline
Real GDP growth (percent)				1.8	3.9	2.3	2.2	2.9	3.5	2.6	2.5	2.5	2.5	2.5	2.5
GDP deflator in US dollars (change in percent)				-11.3	47.3	40.5	-7.8	-4.4	10.7	-3.4	5.4	4.5	3.4	3.3	2.7
Nominal external interest rate (percent)				5.5	5.2	5.1	6.2	4.2	4.2	4.6	4.5	4.5	4.4	4.4	4.2
Growth of exports (US dollar terms, percent)				-1.0	30.0	33.8	-6.8	1.1	14.5	-10.6	3.4	3.8	3.1	6.5	6.6
Growth of imports (US dollar terms, percent)				-13.8	29.8	40.4	9.6	-0.8	10.6	2.2	-0.7	3.5	4.2	5.6	4.7
Current account balance, excluding interest payments				6.2	7.8	4.1	-3.0	-6.7	-0.7	-4.5	-1.3	-1.9	-2.5	-2.4	-1.7
Net non-debt creating capital inflows				7.5	3.9	3.1	-0.8	4.4	0.6	1.0	1.1	1.0	0.9	0.9	0.9

^³For projection, line includes the impact of price and exchange rate changes.

^⁴Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

^⁵The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

^{Table 8.}

Swaziland: Public Sector Debt Sustainability Framework, 2002–2013

(Percent of GDP, unless otherwise Indicated)

^¹Gross debt of the general government.

^²Derived as [(r - π(1 +g) - g + αε (1 +r)]/(1 +g+π+gπ)) times previous period debt ratio, with r = interest rate;π= growth rate of GDP deflator; g = real GDP growth rate; α = share of foreign-currency denominated debt; and ε = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

^³The real interest rate contribution is derived from the denominator in footnote 2/as r-π(1+g) and the real growth contribution as-g.

^⁴The exchange rate contribution is derived from the numerator in footnote 2/asαε (l+r).

^⁵For projections, this line includes exchange rate changes.

^⁶Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.

^⁷The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.

^⁸Derived as nominal interest expenditure divided by previous period debt stock.

^⁹Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

^{Table 8.}

Swaziland: Public Sector Debt Sustainability Framework, 2002–2013

(Percent of GDP, unless otherwise Indicated)

				Actual					Projections
				2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	Debt-stabilizing primary balance^⁹
Baseline: Public sector debt^¹				22.8	19.2	19.6	17.4	17.1	16.5	15.9	14.7	13.7	12.9	12.2	11.6	0.0
	o/w foreign-currency denominated			24.2	19.9	15.9	14.7	14.5	14.5	15.4	14.2	13.3	12.5	11.8	11.3
Change In public sector debt				-2.8	-3.6	0.5	-2.2	-0.3	-0.6	-0.6	-1.2	-0.9	-0.9	-0.7	-0.6
Identified debt-creating flows				-6.6	-4.1	-1.3	2.2	-8.3	-9.3	-2.3	-2.9	-3.4	-3.1	-2.8	-2.4
	Primary deficit			3.0	2.0	1.6	0.7	-8.7	-8.3	-1.4	-2.1	-2.9	-2.6	-2.5	-2.5
		Revenue and grants		26.7	27.5	31.7	33.4	40.9	40.5	39.3	38.8	38.6	37.6	37.2	37.0
		Primary (nonlnterest) expenditure		29.8	29.5	33.3	34.1	32.2	32.2	37.9	36.6	35.7	35.0	34.8	34.5
	Automatic debt dynamics ^²			-9.6	-6.2	-2.9	1.5	0.4	-1.0	-0.9	-0.8	-0.5	-0.5	-0.3	0.1
		Contribution from interest rate/growth differential^³		-1.2	-0.8	0.0	-0.4	-1.0	-1.0	-0.9	-0.8	-0.5	-0.5	-0.3	0.1
			Of which contribution from real Interest rate	-0.8	0.0	0.5	0.0	-0.6	-0.4	-0.5	-0.4	-0.2	-0.2	0.0	0.4
			Of which contribution from real GDP growth	-0.4	-0.8	-0.4	-0.4	-0.4	-0.5	-0.4	-0.4	-0.3	-0.3	-0.3	-0.3
		Contribution from exchange rate depreciation^⁴		-8.4	-5.3	-3.0	1.9	1.4	…	…	…	…	…	…	…
	Other Identified debt-creating flows			0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
			Privatization receipts (negative)	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
			Recognition of implicit or contingent liabilities	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
			Other (specify, e.g. bank recapitalization)	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Residual, Including asset changes^⁵				3.8	0.5	1.8	-4.4	8.0	8.7	1.7	1.7	2.4	2.2	2.1	1.8
Public sector debt-to-revenue ratio¹				85.2	69.7	61.8	52.2	41.8	40.8	40.4	37.8	35.5	34.2	32.7	31.3
Gross financing need (percent of GDP)^⁶				5.8	3.7	5.5	2.7	-10.2	-5.8	-1.0	-1.4	-1.5	-1.1	-1.1	-1.3
Scenario with key variables at their historical averages^⁷									24.9	26.4	27.0	28.2	29.3	30.3	31.2	-0.7
Scenario with no policy change (constant primary balance) In 2007–2012									16.5	11.4	5.0	-1.5	-6.9	-12.2	12.8	0.0
Key Macroeconomic and Fiscal Assumptions Underlying Baseline
Real GDP growth (in percent)				1.8	3.9	2.3	2.2	2.9	3.5	2.6	2.5	2.5	2.5	2.5	2.5
Average nominal interest rate on public debt (In percent)^⁸				5.2	6.0	7.2	6.7	6.1	6.4	6.3	5.6	5.4	5.4	5.4	8.0
Average real Interest rate (nominal rate minus change In GDP deflator, percent)				-3.3	0.1	2.6	0.1	-3.3	-2.5	-2.9	-2.5	-1.1	-1.1	0.0	3.2
Nominal appreciation (increase in US dollar value of local currency, percent)				40.4	30.1	17.9	-11.0	-9.3	…	…	…	…	…	…	…	…
Inflation rate (GDP deflator, percent)				8.5	5.9	4.6	6.6	9.5	9.0	9.2	8.1	6.5	6.6	5.4	4.8
Growth of real primary spending (deflated by GDP deflator, percent)				6.0	3.0	15.5	4.3	-2.8	3.5	20.9	-1.0	0.1	0.3	1.9	1.8
Primary deficit				3.0	2.0	1.6	0.7	-8.7	-8.3	-1.4	-2.1	-2.9	-2.6	-2.5	-2.5

^¹Gross debt of the general government.

^³The real interest rate contribution is derived from the denominator in footnote 2/as r-π(1+g) and the real growth contribution as-g.

^⁴The exchange rate contribution is derived from the numerator in footnote 2/asαε (l+r).

^⁵For projections, this line includes exchange rate changes.

^⁶Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.

^⁷The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.

^⁸Derived as nominal interest expenditure divided by previous period debt stock.

^⁹Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

^{Table 8.}

Swaziland: Public Sector Debt Sustainability Framework, 2002–2013

(Percent of GDP, unless otherwise Indicated)

				Actual					Projections
				2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	Debt-stabilizing primary balance^⁹
Baseline: Public sector debt^¹				22.8	19.2	19.6	17.4	17.1	16.5	15.9	14.7	13.7	12.9	12.2	11.6	0.0
	o/w foreign-currency denominated			24.2	19.9	15.9	14.7	14.5	14.5	15.4	14.2	13.3	12.5	11.8	11.3
Change In public sector debt				-2.8	-3.6	0.5	-2.2	-0.3	-0.6	-0.6	-1.2	-0.9	-0.9	-0.7	-0.6
Identified debt-creating flows				-6.6	-4.1	-1.3	2.2	-8.3	-9.3	-2.3	-2.9	-3.4	-3.1	-2.8	-2.4
	Primary deficit			3.0	2.0	1.6	0.7	-8.7	-8.3	-1.4	-2.1	-2.9	-2.6	-2.5	-2.5
		Revenue and grants		26.7	27.5	31.7	33.4	40.9	40.5	39.3	38.8	38.6	37.6	37.2	37.0
		Primary (nonlnterest) expenditure		29.8	29.5	33.3	34.1	32.2	32.2	37.9	36.6	35.7	35.0	34.8	34.5
	Automatic debt dynamics ^²			-9.6	-6.2	-2.9	1.5	0.4	-1.0	-0.9	-0.8	-0.5	-0.5	-0.3	0.1
		Contribution from interest rate/growth differential^³		-1.2	-0.8	0.0	-0.4	-1.0	-1.0	-0.9	-0.8	-0.5	-0.5	-0.3	0.1
			Of which contribution from real Interest rate	-0.8	0.0	0.5	0.0	-0.6	-0.4	-0.5	-0.4	-0.2	-0.2	0.0	0.4
			Of which contribution from real GDP growth	-0.4	-0.8	-0.4	-0.4	-0.4	-0.5	-0.4	-0.4	-0.3	-0.3	-0.3	-0.3
		Contribution from exchange rate depreciation^⁴		-8.4	-5.3	-3.0	1.9	1.4	…	…	…	…	…	…	…
	Other Identified debt-creating flows			0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
			Privatization receipts (negative)	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
			Recognition of implicit or contingent liabilities	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
			Other (specify, e.g. bank recapitalization)	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Residual, Including asset changes^⁵				3.8	0.5	1.8	-4.4	8.0	8.7	1.7	1.7	2.4	2.2	2.1	1.8
Public sector debt-to-revenue ratio¹				85.2	69.7	61.8	52.2	41.8	40.8	40.4	37.8	35.5	34.2	32.7	31.3
Gross financing need (percent of GDP)^⁶				5.8	3.7	5.5	2.7	-10.2	-5.8	-1.0	-1.4	-1.5	-1.1	-1.1	-1.3
Scenario with key variables at their historical averages^⁷									24.9	26.4	27.0	28.2	29.3	30.3	31.2	-0.7
Scenario with no policy change (constant primary balance) In 2007–2012									16.5	11.4	5.0	-1.5	-6.9	-12.2	12.8	0.0
Key Macroeconomic and Fiscal Assumptions Underlying Baseline
Real GDP growth (in percent)				1.8	3.9	2.3	2.2	2.9	3.5	2.6	2.5	2.5	2.5	2.5	2.5
Average nominal interest rate on public debt (In percent)^⁸				5.2	6.0	7.2	6.7	6.1	6.4	6.3	5.6	5.4	5.4	5.4	8.0
Average real Interest rate (nominal rate minus change In GDP deflator, percent)				-3.3	0.1	2.6	0.1	-3.3	-2.5	-2.9	-2.5	-1.1	-1.1	0.0	3.2
Nominal appreciation (increase in US dollar value of local currency, percent)				40.4	30.1	17.9	-11.0	-9.3	…	…	…	…	…	…	…	…
Inflation rate (GDP deflator, percent)				8.5	5.9	4.6	6.6	9.5	9.0	9.2	8.1	6.5	6.6	5.4	4.8
Growth of real primary spending (deflated by GDP deflator, percent)				6.0	3.0	15.5	4.3	-2.8	3.5	20.9	-1.0	0.1	0.3	1.9	1.8
Primary deficit				3.0	2.0	1.6	0.7	-8.7	-8.3	-1.4	-2.1	-2.9	-2.6	-2.5	-2.5

^¹Gross debt of the general government.

^³The real interest rate contribution is derived from the denominator in footnote 2/as r-π(1+g) and the real growth contribution as-g.

^⁴The exchange rate contribution is derived from the numerator in footnote 2/asαε (l+r).

^⁵For projections, this line includes exchange rate changes.

^⁶Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.

^⁷The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.

^⁸Derived as nominal interest expenditure divided by previous period debt stock.

^⁹Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

16. The level of the exchange rate seems broadly adequate and the exchange rate regime is appropriate. The assessment of the exchange rate level is based on two methodologies. The purchasing power parity methodology, adjusted for productivity differentials, indicates no misalignment as of 2008. The external sustainability approach indicates that stabilizing the current account at the net foreign asset (NFA) position as of 2007 would imply a somewhat stronger current account than projected, which could imply some overvaluation of the real exchange rate. Yet there are no other clear signs of an overvaluation and the depreciation of the real exchange rate since 2006 has boosted Swaziland’s exports. As to the exchange rate regime, staff and the authorities agreed that the currency peg under the CMA should be maintained because it facilitates capital and current transactions with the country’s most important economic partner, South Africa.

17. In the CMA, movements in the real effective exchange rate are largely exogenously determined, and more effort is needed to improve structural competitiveness. With the Swaziland’s inflation rate also closely tracking South Africa’s—and responsibility for macroeconomic stability resting squarely with fiscal policy—competitiveness should be pursued through structural reforms that improve the investment climate and compensate for eroding trade preferences. Staff acknowledged that—despite the depreciation in 2008 of the rand—Swaziland’s lackluster export performance was, to a large part, due to lower preferential prices for sugar exports to the EU. Loss of preferences in the textiles sector is aggravated by escalating wage and other operational costs, labor strikes, and prospects for that sector do not look encouraging.

C. Monetary and Financial Sector Policies

18. The CBS has limited independent monetary policy as a CMA member, and financial institutions tend to follow their rates in South Africa rather than the CBS policy rate. Nevertheless, for the first time in recent memory, the CBS in June this year did not match a 50 basis point increase in the SARB repo rate. A lower policy rate does not necessarily lead to lower effective interest rates in Swaziland and by having a different policy rate from the SARB rate; the CBS could risk public misinterpretation about its commitment to combat inflation. The CBS is closely monitoring the impact of its June interest rate decision and capital outflows.

19. Authorities and staff agreed that continuing supply shocks and rising inflation expectations heighten the importance of clearly communicated justification of policy to help contain the rise in inflation expectations, particularly given the July government wage settlement of 10.5 percent. Efforts could be made to educate the public about the nature of the current shocks, the importance of anchoring second-round inflation effects, and the long-run tradeoff between inflation and growth.

20. The financial sector faces some vulnerabilities from weaknesses in one bank and emerging vulnerabilities from the fast growth of insufficiently regulated SCCOs and the emergence of pyramid schemes. In 2008 the number of nonbank financial institutions (NBFIs) has grown significantly as they attempt to take advantage of the liquidity surge from the requirement that all insurance and retirement funds must increase their holdings of domestic assets from 10 to 30 percent of total assets through 2009. The emergence of pyramid schemes, offering inordinately high rates of return, could also pose significant risks to the financial sector if left unchecked because they face constant rollover risks and are very likely to fail. Staff reiterated the urgency of prompt enactment and full implementation of the Financial Services Regulatory Authority (FSRA), Security, Payment System and Clearance bills to under gird the soundness of the financial sector, prevent regulatory arbitrage, and facilitate deepening of the sector. The authorities welcomed the financial sector strategy note prepared by staff emphasizing the need for deepening.

21. The authorities have approved privatization of Swazi Bank and are monitoring bank lending to the sugar industry. On Swazi Bank, an advisory committee concurred with the staff view that any privatization strategy should be preceded by separation of its development and commercial activities. As prospects for the sugar sector weaken, staff urged the authorities to closely monitor loans to the industry and further scrutinize the risk management practices of banks. It is imperative that revised loan provisioning requirements be issued and enforced.

22. To better supervise and regulate SCCOs, the Ministry of Agriculture and Cooperatives (MACO) and the CBS have begun a technical collaboration plan. The plan sets prudential standards for SCCOs and provides for training of MACO staff to better monitor financial soundness, enforce compliance, and compile information relevant to monitoring SCCOs. MACO should move quickly to preserve the assets of some insolvent SCCOs to ensure public confidence in that sector.

23. The recent emergence of pyramid schemes has increased the threat they pose to the stability of the financial system. These entities as yet are relatively small. The authorities have warned the public of the risks and have taken legal action against some operators. Staff urges further efforts, such as formalizing coordinated efforts among financial sector regulators, improving internal processes for dealing with fraudulent financial operations, and passing legislation prohibiting such operations.

24. Concerning the insurance and retirement sector, a recently announced domestic investment requirement should be reconsidered. Staff noted that, in the absence of deep markets, the requirement—at least 10 percent by 2007 and 30 percent by 2009 of investable funds will need to be held in Swazi assets—could lead to severe distortions, discourage investment flows to Swaziland and undermine efforts to develop the financial sector in the country. It argued that implementation experience to date showed that some insurance and retirement funds are merely displacing commercial bank lending and some are rerouted offshore without financing new capital formation in Swaziland. Hence, staff recommended that the requirement should be gradually phased out.

D. Response to the Fuel and Food Price Increases

25. The recent surges of food and fuel prices have significantly affected the poor and created special challenges for the authorities. Staff discussed policy options for dealing with surging prices, focusing on fiscal viability, minimization of market distortions, and effective and timely delivery to target groups. Staff recommended liberalization of food imports (e.g., maize) and providing assistance through already extensive food distribution programs. The policy of delaying the price pass-through should be abolished to depoliticize price adjustments and eliminate market distortion. Because Swaziland faces frequent food shortages, the authorities need to implement long-term solutions that are consistent with their sectoral policy while remaining fiscally sustainable. The National Disaster Management Agency needs to improve coordination of stakeholders on the food security issue. The authorities agreed that targeted assistance to the most vulnerable groups is appropriate, but are concerned about increasing public outcry for more interventionist programs, mostly general subsidies for commodities, and for agricultural inputs and finance.

26. In September, in response to the surges of food and fuel prices, the “food price crisis” committee proposed several measures to the Cabinet, but it remains unclear when implementation will take place. These measures are consistent with the Comprehensive Agricultural Strategy and the National Program for Food Security. Short-term measures include improvements to the food distribution provided by the World Food Program and other donors, provision of cash transfers, and removal of levies on dairy and wheat products. Other recommendations included subsidies to boost maize production and implementation of the agricultural strategy.

E. Growth, Poverty Reduction, and Competitiveness

27. Poverty and lackluster economic growth are major risks to the social and economic stability of Swaziland. Growth prospects are seriously constrained by a low investment-to-GDP ratio, a poor investment climate, recurrent droughts, the HIV/AIDS epidemic, and the high cost of doing business. Failure to implement other structural and land reforms further reduces growth prospects. The PRSAP approved last year could be the basis for strategies and policies to reduce poverty, but it needs a clearer implementation strategy and measures of tangible progress.

28. To increase its growth prospects, Swaziland needs to increase investment and deepen its financial sector (see the SIP). Since 2002 total investment has been stagnant at about 18 percent of GDP—not enough to promote growth and employment. Foreign direct investment (FDI) continues to decline. Swaziland needs to channel domestic resources to viable investment projects, with special attention to small and medium enterprises and public and Private Partnerships (PPPs). The authorities agreed with staff’s view that the approach to PPPs should be cautious given the country’s limited institutional capacity, inadequate legal framework, and the need to mitigate fiscal risks. Deepening the financial sector should help improve resource allocation.

29. Private-sector-led growth is severely constrained by concerns about Swaziland’s competitiveness and governance issues (Figure 1). To address these issues, staff recommended that the authorities implement the recommendations of the Swaziland Investor Roadmap Study (2005) and the Investment Climate Assessment (2008) prepared by the World Bank. The authorities welcomed the World Bank’s Interim Strategy Note to help them address competitiveness, governance, and HIV/AIDS issues. They also noted that enactment of the Companies and Competition Bills in 2008 provides a legal framework for businesses to flourish, and expected the one-stop shop at the Swaziland Investment Promotion Agency to help reduce the cost of doing business. An anticorruption commissioner was appointed in 2008 and work has started on bringing corruption cases before the court. However, serious constraints within the court system could hinder the work.

30. Swaziland continues to promote regional economic integration and negotiate trade agreements in order to increase market access for its exports. Discussions continue within SADC to initiate a free trade area and eventually a SADC customs union. In 2007Swaziland and four other SADC members initialed an Interim Economic Partnership Agreement with the EU for duty- and quota-free access to the EU market. Negotiations have also been concluded on a SACU-EFTA (European Free Trade Association) free trade agreement. SACU is negotiating with the US on a Trade Investment Development and Cooperation Agreement (TIDCA) and with the Latin American trading block MERCOSUR on a preferential trade agreement.

31. The authorities are taking steps to mitigate the adverse effects of HIV/AIDS (Box 2). A plan will be provided to the Global Fund that details the use of $81 million that was awarded in 2007. The authorities are currently considering a multiyear plan to: (i) scale up investment in education of young children and orphans left behind by HIV/AIDS, providing them with free meals and reducing drop-out rates; (ii) provide short-term child support grants with assistance from the World Bank and IFC; and (iii) scale up use of antiretroviral therapy.

^{Box 2.}

Macroeconomic Impact of HIV/AIDS in Swaziland

HIV/AIDS presents formidable longer-term challenges for Swaziland. Cross-country studies of the impact of HIV/AIDS on growth range from insignificant or very modest to losses of more than 2 percentage points a year. HIV/AIDS affects growth negatively by, among other things, lowering life expectancy, reducing incentives for human and physical capital formation, and limiting productivity growth.

Staff estimates based on two studies^¹ suggest that if life expectancy (a measure of health and human capital) had stayed at 57 years—the level in mid-1990s before HIV/AIDS accelerated and growth decelerated—instead of the current estimate of 41 years, Swaziland’s per capita GDP growth would have been higher on average by 1.3 percentage points a year.

Using a different methodology, the International Labor Organization (2004) estimates that HIV/AIDS reduced per capita GDP growth in Swaziland on average by 1.8 percentage points each year from 1992 through 2002.

The adverse impact on education could be sizable, increasing the burden on future generations. According to the ILO (2004), in Swaziland the cost of hiring and training teachers to replace those lost to HIV/AIDS is projected to reach US$233 million (8 percent of 2007 GDP) by 2016.

The toll on Swaziland’s agriculture, a major source of earnings for a large segment of the population, could be heavy. HIV/AIDS can lower the agricultural labor supply, reduce the productivity of affected farmers, as well as the income needed for purchasing farm inputs. These effects have resulted in an estimated 54 percent reduction in production of maize and 34 percent reduction in land cultivation (UNAIDS, 2002).

The impact on Swaziland’s businesses is significantly larger than in comparator countries that also suffer from HIV/AIDS. According to the 2007 World bank investment climate assessment survey, over 50 percent of company managers reported much higher worker absenteeism due to sickness than other countries in Southern Africa. Among the workers surveyed, 25 percent reported being sick in the previous 30 days compared with less that 20 percent in Botswana and Namibia.

^¹ See Jeffrey D. Sachs and Andrew M. Warner, 1997, “Fundamental Sources of Long-Run Growth,” American Economic Review, Vol. 87, no. 2., pp. 184–88; and Xavier Sala-i-Martin, Gernot Dooppelhofer, and Ronald I. Miller, 2004, “Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach American Economic Review, Vol. 94, no. 4, pp. 813–35. ² International Labor Organization, 2004, “HIV/AIDS and work: global estimates, impact and response.”

IV. Staff Appraisal

32. Achieving government’s target growth over the medium term remains elusive, without prompt structural reforms. Risks stem from the eventual decline of SACU revenues and emerging financial vulnerabilities. The short-term outlook is further clouded by a global economic slowdown and the adverse impact of high food and fuel prices. Timely economic and structural reforms, increasing investment, and aggressively tackling the HIV/AIDS epidemic are necessary to stimulate growth and reduce poverty.

33. Because SACU revenues are expected to stay high in the next few years, they offer an opportunity for Swaziland to generate fiscal savings to help smooth out expenditure later when SACU revenues decline and to safeguard economic stability, address structural reforms, and improve the effectiveness of public policy. The authorities should take immediate steps to reduce the level of expenditures in 2008/09 and make further adjustments in the 2009/10 budget and the medium-term fiscal policy framework. Operationalizing the Revenue Authority and introducing the VAT could increase domestic revenue significantly. Much-needed spending reform requires improving the quality of expenditure, tangible civil service reform, and better assessment of investments. Expenditure must be reoriented toward priority sectors to reduce widespread poverty.

34. The monetary regime under the CMA, including the exchange rate peg to the rand have served the country well given Swaziland’s economic integration with South Africa. Fiscal and structural adjustment is required to support confidence in the peg and ensure external stability. With comfortable reserve levels, the exchange rate does not appear to be misaligned. Monetary policy should stay tight to limit the effects from surges of food and fuel prices, and the CBS should keep its policy rate as close as possible to the SARB’s.

35. Improvement of the financial position of the Swazi Bank through privatization, tighter supervision of SCCOs, and addressing pyramid schemes are priorities for preserving financial stability. Prompt enactment of financial sector bills will help safeguard financial stability. Addressing pyramid schemes implies better coordination among domestic and regional financial regulators, improving internal processes for dealing with fraudulent operations, and passing laws prohibiting pyramid operations. For the insurance and retirement funds, the domestic investment requirement should be reconsidered, with a view to gradual phase-out because it could create a nonmarket risk premium and make it harder to deepen the financial sector if the market perceives it to be a move toward capital control.

36. Responses to food and fuel price surges should focus on the most vulnerable population, using existing distribution channels for food delivery and liberalizing food imports. General subsidies and delayed pass-through of price adjustment should be discouraged.

37. It is proposed that the next Article IV consultation with Swaziland be held on the standard 12-month cycle.

The 2007 census showed the population had increased to 1,018 million from 980 million in 1997.

Between June 2007 and June 2008 the price of maize increased by 38 percent, bread by 58 percent, milk by 11 percent, and rice by 100 percent. Bus fares increased by 60 percent in August. Despite relying mainly on imports from South Africa, electricity prices have been increased only with delays and at a more gradual pace than in South Africa. Swazi electricity prices increased in July, after the South African price increase announced in April.

Sugar prices to the EU will fall by 17.3 percent in 2008 and by a further 19 percent in 2009.

The non-SACU fiscal balance is defined as the overall fiscal balance excluding SACU revenues (see the 2007 Selected Issues Paper). A sustainable non-SACU fiscal balance allows for maintaining international reserves at about three months of imports, sufficient to support confidence in the currency peg and a low debt burden.

In 2007 the revenue administration consultant estimated that only 20 percent of collectible tax is collected.

Human resource allocations should better reflect priority sectors. For example, in 2007/08, only 7 percent of the wage bill was for the health sector; education received 37 percent and protection services 27 percent.

Neighboring countries have higher import coverage: Botswana, more than 26 months; Lesotho, about seven months; and South Africa 3.7 months. Only Namibia has lower import coverage at 2.8 months.

The difference between the estimated and actual value of the revenue-sharing pool in any given year.

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The Kingdom of Swaziland: 2008 Article IV Consultation-Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director

Author:

International Monetary Fund

Volume/Issue:: Volume 2008: Issue 356

Publisher:: International Monetary Fund

ISBN:: 9781451836165

ISSN:: 1934-7685

Pages:: 52

DOI:: https://doi.org/10.5089/9781451836165.002

Keywords
I. Background
II. Recent Economic Developments and Outlook
III. Policy Discussions
IV. Staff Appraisal

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Real Per Capita GDP

(1995=100)

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Poverty rate^¹

(Percent)

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Inflation, July 2003–July 2008

(Annual percent change)

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Inflation July 2003–July 2008

(Annual percent change)

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Current Account and Reserves

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Fiscal Developments

(Percent of GDP, unless otherwise stated)

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SACU Revenues and Fiscal Balance Including Grants 1990/91–2013/14

(Percent of GDP)

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Swaziland and Sub-Saharan Africa: Central Government Wages; Swaziland 2007/08, other countries latest available data

(Percent of GDP)

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Exchange Rates, January 2001–June 2008

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Current Account and REER

(Percent of GDP, 2000=100)

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Real Effective Exchange Rates, January 2001–June 2008

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Monetary Aggregates

(Percent of beginning-of-period broad money)

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Private Sector Credit and Interest Rate

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Ratio of M 2 to GDP

(Percent)

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Ratio of Private Sector Credit to GDP

(Percent)

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Swaziland: Real Per Capita GDP Growth Rate and Investment

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Ratio of Investment to GDP

(Percent)

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^{Figure 1.}

Swaziland: Competitiveness Indicators

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HIV/AIDS prevelance rate

(In percent of pregnant women aged 15–49 years atteding antenatal clinics)

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HIV/AIDS Prevalence in SACU, latest year

(Percent of adult population, ages 15–49)

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Life expectancy at birth, 1960–2006

(In years)

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Figure 2.

Swaziland: Monetary and Financial Developments

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Figure 3.

Swaziland: Regional Comparison

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Figure 4.

Swaziland: External Debt Sustainability: Bound Tests^¹

(External debt in percent of GDP)

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Figure 5.

Swaziland: Public Debt Sustainability: Bound Tests^¹

Foresee

^{Table 8.}

Swaziland: Public Sector Debt Sustainability Framework, 2002–2013

(Percent of GDP, unless otherwise Indicated)

				Actual					Projections
				2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	Debt-stabilizing primary balance^⁹
Baseline: Public sector debt^¹				22.8	19.2	19.6	17.4	17.1	16.5	15.9	14.7	13.7	12.9	12.2	11.6	0.0
	o/w foreign-currency denominated			24.2	19.9	15.9	14.7	14.5	14.5	15.4	14.2	13.3	12.5	11.8	11.3
Change In public sector debt				-2.8	-3.6	0.5	-2.2	-0.3	-0.6	-0.6	-1.2	-0.9	-0.9	-0.7	-0.6
Identified debt-creating flows				-6.6	-4.1	-1.3	2.2	-8.3	-9.3	-2.3	-2.9	-3.4	-3.1	-2.8	-2.4
	Primary deficit			3.0	2.0	1.6	0.7	-8.7	-8.3	-1.4	-2.1	-2.9	-2.6	-2.5	-2.5
		Revenue and grants		26.7	27.5	31.7	33.4	40.9	40.5	39.3	38.8	38.6	37.6	37.2	37.0
		Primary (nonlnterest) expenditure		29.8	29.5	33.3	34.1	32.2	32.2	37.9	36.6	35.7	35.0	34.8	34.5
	Automatic debt dynamics ^²			-9.6	-6.2	-2.9	1.5	0.4	-1.0	-0.9	-0.8	-0.5	-0.5	-0.3	0.1
		Contribution from interest rate/growth differential^³		-1.2	-0.8	0.0	-0.4	-1.0	-1.0	-0.9	-0.8	-0.5	-0.5	-0.3	0.1
			Of which contribution from real Interest rate	-0.8	0.0	0.5	0.0	-0.6	-0.4	-0.5	-0.4	-0.2	-0.2	0.0	0.4
			Of which contribution from real GDP growth	-0.4	-0.8	-0.4	-0.4	-0.4	-0.5	-0.4	-0.4	-0.3	-0.3	-0.3	-0.3
		Contribution from exchange rate depreciation^⁴		-8.4	-5.3	-3.0	1.9	1.4	…	…	…	…	…	…	…
	Other Identified debt-creating flows			0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
			Privatization receipts (negative)	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
			Recognition of implicit or contingent liabilities	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
			Other (specify, e.g. bank recapitalization)	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Residual, Including asset changes^⁵				3.8	0.5	1.8	-4.4	8.0	8.7	1.7	1.7	2.4	2.2	2.1	1.8
Public sector debt-to-revenue ratio¹				85.2	69.7	61.8	52.2	41.8	40.8	40.4	37.8	35.5	34.2	32.7	31.3
Gross financing need (percent of GDP)^⁶				5.8	3.7	5.5	2.7	-10.2	-5.8	-1.0	-1.4	-1.5	-1.1	-1.1	-1.3
Scenario with key variables at their historical averages^⁷									24.9	26.4	27.0	28.2	29.3	30.3	31.2	-0.7
Scenario with no policy change (constant primary balance) In 2007–2012									16.5	11.4	5.0	-1.5	-6.9	-12.2	12.8	0.0
Key Macroeconomic and Fiscal Assumptions Underlying Baseline
Real GDP growth (in percent)				1.8	3.9	2.3	2.2	2.9	3.5	2.6	2.5	2.5	2.5	2.5	2.5
Average nominal interest rate on public debt (In percent)^⁸				5.2	6.0	7.2	6.7	6.1	6.4	6.3	5.6	5.4	5.4	5.4	8.0
Average real Interest rate (nominal rate minus change In GDP deflator, percent)				-3.3	0.1	2.6	0.1	-3.3	-2.5	-2.9	-2.5	-1.1	-1.1	0.0	3.2
Nominal appreciation (increase in US dollar value of local currency, percent)				40.4	30.1	17.9	-11.0	-9.3	…	…	…	…	…	…	…	…
Inflation rate (GDP deflator, percent)				8.5	5.9	4.6	6.6	9.5	9.0	9.2	8.1	6.5	6.6	5.4	4.8
Growth of real primary spending (deflated by GDP deflator, percent)				6.0	3.0	15.5	4.3	-2.8	3.5	20.9	-1.0	0.1	0.3	1.9	1.8
Primary deficit				3.0	2.0	1.6	0.7	-8.7	-8.3	-1.4	-2.1	-2.9	-2.6	-2.5	-2.5

^¹Gross debt of the general government.

^³The real interest rate contribution is derived from the denominator in footnote 2/as r-π(1+g) and the real growth contribution as-g.

^⁴The exchange rate contribution is derived from the numerator in footnote 2/asαε (l+r).

^⁵For projections, this line includes exchange rate changes.

^⁶Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.

^⁷The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.

^⁸Derived as nominal interest expenditure divided by previous period debt stock.

^⁹Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

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Abstract

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

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