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IMF Country Report No. 20/41
KINGDOM OF ESWATINI
2019 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE KINGDOM OF ESWATINI
February 2020
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 2019 Article IV consultation with the Kingdom of Eswatini, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its January 31, 2020 consideration of the staff report that concluded the Article IV consultation with the Kingdom of Eswatini.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on January 31, 2020, following discussions that ended on November 4, 2019, with the officials of Kingdom of Eswatini on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on January 15, 2020.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for the Kingdom of Eswatini.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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KINGDOM OF ESWATINI
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION
January 15, 2020
Key Issues
Context. The authorities have recently taken some policy actions toward stabilizing the economy. However, reflecting expansionary spending policies and declining Southern African Customs Union (SACU) revenue, public debt is still rising, domestic arrears have accumulated, and international reserves have fallen below adequate levels. Decelerating private investment and declining external competitiveness are hindering the country’s growth prospects, leaving 40 percent of the population in extreme poverty and unemployment high.
Outlook and Risks. Fiscal policy is unsustainable, weighing on macroeconomic stability and growth. Absent policy actions, growth is expected to decline and international reserve to deplete. Downside risks dominate this fragile outlook and stem from further fiscal slippages that may undermine the capacity to support the peg, further declines in SACU revenue, lower demand for key exports, and increases in risk premia.
Fiscal and Monetary Policy. A credible medium-term fiscal adjustment plan, starting with measures to reduce next year’s fiscal deficit, is needed to bring the economy on a sustainable path. Policies should combine expenditure reductions and revenue increases that enhance long-term growth prospects. Expanding and better targeting cash transfers would help protect the poor. Strengthening budget formulation and expenditure controls, revamping the procurement process, and reforming public entities and enterprises are essential to deliver fiscal adjustment. In the context of the peg, the Central Bank should refrain from providing further budget financing and should keep the policy rate broadly in line with the South African Reserve Bank’s rate.
Structural Reforms. Supply-side and governance reforms are needed to support private investment and strengthen competitiveness. Reforms should reduce vulnerabilities to state-capture and other forms of corruption, streamline business regulations and regulatory requirements, reduce high electricity and telecommunications costs, contain wage growth, and address shortages of skilled workers.
Financial Stability. The financial system remains sound, although vulnerabilities are rising. Hence, bank supervision should be intensified, the early intervention regime strengthened, and plans to relax single borrower concentration regulations suspended. Legislative changes to address regulatory and oversight gaps for NBFIs should be accelerated. Setting up macro-prudential and crisis preparedness and management frameworks is a critical step to manage macro-financial risks. Efforts to update and improve the AML/CFT framework should be stepped up.
Approved By
David Robinson (AFR) and Ashvin Ahuja (SPR)
Discussions for the 2019 Article IV consultation took place in Mbabane during October 23-November 4, 2019. The team comprised Mr. Palomba (head), Ms. Ganum, Messrs. Habib and Thakoor (all AFR) and Mr. Jeasakul (MCM). Messrs. Mahlinza and Ismail (both OED) participated in the discussions. Ms. Wang and Mr. Alsokhebr provided research and editorial assistance for the preparation of this report.
Contents
THE PITFALLS OF UNSUSTAINABLE FISCAL EXPANSION
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Restoring Fiscal Sustainability and Supporting Long-term Growth
B. Implementing Supply-Side and Governance Reforms to Reignite Growth
C. Managing Macro-Financial and Financial Stability Risks
OTHER ISSUES
STAFF APPRAISAL
FIGURES
1. Macroeconomic Volatility and Elevated Poverty and Inequality
2. Weak Governance and Regulatory Frameworks Hindering Investment and Growth
3. Unsustainable Fiscal Expansion Undermining Macroeconomic Stability
4. A Resilient Banking Sector Amid a Weak Economy
5. Public Spending Inefficiencies
6. Weakening Export Competitiveness
7. Supply-Side and Governance Constraints Limiting Private Investment
8. Persistent Macrofinancial Vulnerabilities
TABLES
1. Selected Economic Indicators, 2015–24
2. Fiscal Operations of the Central Government, 2015/16–24/25 (Emalangeni millions)
3. Fiscal Operations of the Central Government, 2015/16–24/25 (Percent of GDP)
4. Balance of Payments, 2015–24
5. Monetary Accounts, 2015–24
6. Financial Sector Indicators, 2011–2018
ANNEXES
I. External Sector Assessment
II. Risk Assessment Matrix
III. Debt Sustainability Analysis
IV. Poverty and Inequality Trends in Eswatini: Harnessing Fiscal Policy
V. Strengthening Public Investment
VI. Designing an Effective and Transparent Arrears Clearance Strategy
VII. Trade, Export Competitiveness, and Growth
VIII. Supply-Side and Governance Reforms to Reignite Growth
IX. Strengthening the Financial Stability Architecture
X. Implementation of Past IMF Advice
XI. Capacity Development Strategy: Summary
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KINGDOM OF ESWATINI
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
January 15, 2020
Prepared By
International Monetary Fund Staff in collaboration with the World Bank.
Contents
FUND RELATIONS
JOINT WORLD BANK AND FUND WORK PLAN
STATISTICAL ISSUES
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Press Release No. 20/43
FOR IMMEDIATE RELEASE
February 11, 2020
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