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IMF Country Report No. 12/37
KINGDOM OF SWAZILAND
2011 ARTICLE IV CONSULTATION
February 2012
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2011 Article IV consultation with Swaziland, the following documents have been released and are included in this package:
Staff Report for the 2011 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on November 16, 2011, with the officials of Swaziland on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on December 23, 2011. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
Informational Annex prepared by the IMF.
Staff Statement of January 23, 2012
Statement by the Executive Director for Swaziland.
Press Release
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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KINGDOM OF SWAZILAND
STAFF REPORT FOR THE 2011 ARTICLE IV CONSULTATION
December 23, 2011
KEY ISSUES
The fiscal crisis in the Kingdom of Swaziland (hereinafter “Swaziland”)—emanating from a decline in revenue from the Southern African Customs Union (SACU) and one of the largest public wage bills in sub-Saharan Africa—has reached a critical stage. Delays in implementing up-front fiscal measures committed under the Staff-Monitored Program (SMP) led to a slowdown of economic activity, a drying up of budget financing, and a large buildup of domestic arrears. The fiscal crisis is also spilling over to the financial sector and affecting external stability.
In the Article IV Consultation discussions, staff emphasized the need for up-front measures embedded in a credible medium-term fiscal consolidation strategy. Key policy recommendations are:
Cutting the wage bill by E 300 million (1¼ percent of GDP) on an annual basis, while protecting pro-poor spending, as a first step toward restoring fiscal sustainability. The authorities prefer a more gradual approach, based on reducing the civil service through an audit of the civil service roster, attrition, a reduction in the retirement age, and possibly a revised voluntary retirement scheme.
Preserving parity with the rand by stopping central bank financing to the government and repaying the emergency credit line provided by the central bank. The authorities agreed that preserving the parity is a priority and took a decision in September 2011 to stop borrowing from the central bank.
Addressing emerging pressures in the financial sector and strengthening nonbank financial sector supervision. The authorities are aware of the need for liquidity injections in the financial sector, and the central bank will shortly take over the regulation and supervision of savings and credit cooperatives.
Approved By
Sharmini Coorey and Dhaneshwar Ghura
Discussions took place in Mbabane November 2–16, 2011. The staff comprised Messrs. Mongardini (head) and Basdevant, and Mmes. Baba and Mircheva (all AFR). Mr. Carter Biggs (MCM expert) joined part of the mission to examine financial sector issues.
Ms. Dlamini-Kunene (OED) participated in the policy discussions. Mmes. Forrest and Coyne provided excellent research and editorial assistance, respectively, to the drafting of this report.
CONTENTS
RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK
A. The Fiscal Crisis Has Reached a Critical Stage
B. Outlook and Risks: A Significant Contraction in 2012
POLICY DISCUSSIONS
A. Policy Theme 1: Restoring Fiscal Sustainability
B. Policy Theme 2: Preserving External Stability and Improving Competitiveness
C. Policy Theme 3: Addressing Emerging Pressures in the Financial Sector
STAFF APPRAISAL
TABLES
1. Selected Economic Indicators, 2009–16, Projections (unchanged policies scenario)
2. Selected Economic Indicators, 2009–16, Projections (baseline scenario)
3. Fiscal Operations of the Central Government, 2009/10–16/17
4. Fiscal Operations of the Central Government, 2009/10–16/17
5. Monetary Accounts, 2009–16
6. Balance of Payments, 2009–16
7. Financial Sector Indicators, 2005–10
8. Millennium Development Goals, 1995–11
FIGURES
1. Recent Economic Developments
2. Cross-Country Comparison
3. Defense Spending
4. Risks to the Outlook
5. Medium-Term Outlook Under the Baseline Scenario
BOXES
1. Performance Under the Staff-Monitored Program
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KINGDOM OF SWAZILAND
STAFF REPORT FOR THE 2011 ARTICLE IV
CONSULTATION—INFORMATIONAL ANNEX
December 29, 2011
Prepared By
African Department
(In collaboration with other departments)
CONTENTS
RELATIONS WITH THE FUND
BANK-FUND JOINT MANAGEMENT ACTION PLAN
STATISTICAL ISSUES
SOCIAL AND DEMOGRAPHIC INDICATORS
TABLES
Table of Common Indicators Required for Surveillance
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Press Release No.12/39
FOR IMMEDIATE RELEASE
February 7, 2012
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
