Abstract
2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Kingdom of Eswatini
On January 31, 2020, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the Kingdom of Eswatini.
Following the severe fiscal deterioration in 2010, Eswatini experienced a period of macroeconomic stability. Fiscal consolidation, a temporary rebound in Southern African Customs Union (SACU) revenue, and credibility in the peg with the South African rand contributed to improve fiscal and external balances and rebuild buffers. However, declining private investment and weakening external competitiveness have kept growth below the pre-2010 period and are hindering the long-term growth prospects of the economy. With subdued growth, socio-economic challenges have remained entrenched reflected by widespread poverty, high income inequality, and elevated unemployment.
Macroeconomic conditions have recently deteriorated. After a period of subdued growth, real GDP growth picked up somewhat in 2018, as the drought impact faded, and public spending remained elevated. However, over the last three years, expansionary budget policies and low SACU revenue have widened the fiscal deficit to an annual average of 9 percent of GDP. Public debt has risen rapidly, and financing constraints have led to the accumulation of domestic arrears. The current account surplus has narrowed and international reserves have fallen. With a weakening economic environment, credit to the private sector has lately decelerated, and banks’ asset quality has deteriorated. The authorities have recently implemented some actions to contain the rise in the fiscal deficit, which remains large.
Economic indicators are expected to remain weak. GDP growth is projected to temporarily pick up in 2020, as the government plans to repay some arrears, but growth would be subdued afterwards as fiscal imbalances persist and the private sector remains hamstrung. The fiscal deficit is expected to remain large and budget financing risks to be elevated. The large deficit would raise public debt above 60 percent of GDP over the medium-term and contribute to further reduce international reserves.
Downside risks weigh on this fragile outlook. Risks emanate from possible further fiscal slippages that could undermine confidence in the government’s ability to control public finances and in the peg. Other risks arise from further decline in SACU revenue, weak demand for key exports, and rising interest rates. With a highly interconnected financial sector, macro-financial feedback loops could amplify the adverse effects of shocks.
Executive Board Assessment2
Executive Directors noted that Eswatini is at a critical juncture, with subdued growth, rising public debt, and depleting international reserves. Moreover, falling private investment and declining competitiveness are hindering growth prospects. Directors welcomed the recent fiscal measures to stabilize the economy and support growth and encouraged more decisive policy action to bring the economy back on a sustainable path. An ambitious structural reform agenda is key to promoting private-sector-led growth and addressing poverty and inequality.
Directors recommended a credible medium-term fiscal adjustment plan to achieve debt sustainability and macroeconomic stability. Building on initial steps to rationalize expenditures, Directors emphasized the need for additional high-quality adjustment measures, while supporting long-term growth and protecting the most vulnerable through better-targeted social programs. Specifically, they encouraged the authorities to contain public wage spending and administrative expenses, rationalize transfers to state-owned entities, prioritize capital projects, and broaden the tax base.
Directors underscored the importance of fiscal reforms to support consolidation efforts. They called for further steps to strengthen budget formulation and public financial management to restore fiscal discipline and contain the build-up in arrears. They also encouraged reforms to revamp the public procurement process, improve the efficiency and governance of public enterprises, and adopt a transparent arrears clearance strategy.
Directors concurred that, given the exchange rate peg to the South African rand, the central bank should maintain the policy rate broadly in line with the South African Reserve Bank’s rate and refrain from providing further budget financing. They noted that stable monetary conditions and fiscal consolidation would help strengthen the country’s external position and support the rebuilding of reserve buffers.
Directors noted that, while the financial sector is overall stable, vulnerabilities are rising. They highlighted the need to strengthen financial sector oversight and accelerate efforts to improve the regulatory and supervisory frameworks for the large non-bank financial sector, including through legislative changes. They also underlined the importance of establishing a macroprudential structure and developing crisis preparedness and management capacity, as well as addressing non-performing loans and the high concentration risks in the banking sector. Directors also supported enhancing the AML/CFT framework and looked forward to this year’s planned assessment.
Directors welcomed the authorities’ efforts to promote growth, job creation, and good governance, as articulated in the National Development Plan 2019–22 and the Strategic Roadmap. They stressed the importance of complementary supply-side and governance reforms to support private investment and strengthen competitiveness. Directors agreed that structural reforms should aim to improve business conditions, address weaknesses in product and labor markets, and invest in human capital. Reform of the electricity and telecommunications industries is also key. Determined efforts are needed to reduce vulnerabilities to state-capture and other forms of corruption.
Eswatini: Selected Economic Indicators
IMF Information Notice System trade-weighted; end of period.
12-month time deposit rate.
The series reflect the adoption of the BPM6 methodology and recent data revisions.
Public debt includes domestic arrears. Fiscal year runs from April 1 to March 31.
Eswatini: Selected Economic Indicators
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Prel. | Proj. | |||||||||||
| (Percentage changes; unless otherwise indicated) | ||||||||||||
| National account and prices | ||||||||||||
| GDP at constant prices | 2.3 | 1.3 | 2.0 | 2.4 | 1.2 | 2.5 | 1.6 | 0.9 | 0.8 | 0.8 | ||
| GDP deflator | 5.8 | 7.3 | 2.9 | 2.8 | 5.1 | 5.6 | 5.3 | 6.8 | 7.0 | 7.0 | ||
| GDP at market prices | ||||||||||||
| (Emalangeni billions) | 52.0 | 56.5 | 59.3 | 62.4 | 66.3 | 71.8 | 76.9 | 82.9 | 89.4 | 96.4 | ||
| GDP at market prices (US dollar | ||||||||||||
| billions) | 4.1 | 3.8 | 4.5 | 4.7 | 4.6 | 4.9 | 5.1 | 5.3 | 5.6 | 5.9 | ||
| Consumer prices (average) | 5.0 | 7.8 | 6.2 | 4.8 | 2.6 | 4.3 | 4.8 | 6.5 | 7.0 | 7.0 | ||
| External sector | ||||||||||||
| Average exchange rate (local | ||||||||||||
| currency per US$) | 12.8 | 14.7 | 13.3 | 13.2 | … | … | … | … | … | … | ||
| Nominal exchange rate change (– = depreciation) 1 | ||||||||||||
| Real effective exchange rate (– | ||||||||||||
| = depreciation) 1 | 0.7 | 2.7 | -7.8 | -1.3 | … | … | … | … | … | … | ||
| Terms of trade (deterioration -) | 10.2 | 19.4 | -18.3 | -11.9 | 2.9 | 6.2 | 2.8 | 1.4 | 0.4 | 0.1 | ||
| Gross international reserves | ||||||||||||
| (months of imports) | 4.2 | 3.6 | 3.1 | 2.6 | 2.0 | 3.0 | 2.9 | 2.4 | 1.6 | 0.9 | ||
| (percent of GDP) | 16.4 | 13.7 | 11.7 | 9.9 | 7.9 | 11.9 | 11.5 | 9.4 | 6.4 | 3.4 | ||
| (percent of reserve money) | 392 | 269 | 244 | 186 | 131 | 168 | 156 | 119 | 81 | 42 | ||
| Gross reserves minus reserve money | ||||||||||||
| (percent of deposits) | 50.1 | 30.3 | 24.5 | 16.4 | 7.1 | 18.3 | 16.1 | 6.1 | -6.3 | -19.7 | ||
| Money and credit | ||||||||||||
| Domestic credit to the private | ||||||||||||
| sector | 4.2 | 11.6 | 3.9 | 5.1 | 5.9 | 4.4 | 4.4 | 3.5 | 2.8 | 2.6 | ||
| Reserve money | 15.4 | 32.3 | -0.9 | 16.4 | 20.9 | 26.3 | 11.9 | 14.7 | 9.4 | 9.0 | ||
| M2 | 13.6 | 26.4 | 3.8 | 4.1 | 0.8 | 8.2 | 6.2 | 5.4 | 6.2 | 5.6 | ||
| Interest rate (percent) 2 | 5.3 | 5.8 | 7.0 | 7.3 | … | … | … | … | … | … | ||
| (Percent of GDP) | ||||||||||||
| National accounts | ||||||||||||
| Gross capital formation | 12.5 | 12.8 | 12.7 | 13.1 | 10.7 | 11.1 | 10.8 | 10.7 | 10.7 | 10.8 | ||
| Government | 6.9 | 8.3 | 7.5 | 5.3 | 5.5 | 6.0 | 5.6 | 5.5 | 5.5 | 5.4 | ||
| Private | 5.5 | 4.4 | 5.2 | 7.7 | 5.2 | 5.1 | 5.1 | 5.2 | 5.3 | 5.3 | ||
| National savings | 25.4 | 20.6 | 19.7 | 15.0 | 14.4 | 14.6 | 13.8 | 12.8 | 12.4 | 12.5 | ||
| Government | 3.8 | -0.1 | 0.3 | -3.7 | -1.2 | 1.9 | 1.0 | -0.9 | -2.0 | -3.2 | ||
| Private | 21.6 | 20.7 | 19.3 | 18.8 | 15.6 | 12.7 | 12.8 | 13.7 | 14.4 | 15.7 | ||
| External sector 3 | ||||||||||||
| Current account balance | ||||||||||||
| (including official transfers) | 12.9 | 7.8 | 7.0 | 2.0 | 3.8 | 3.5 | 3.0 | 2.1 | 1.7 | 1.7 | ||
| (excluding official transfers) | -0.8 | -2.1 | -4.3 | -7.9 | -5.6 | -7.4 | -7.6 | -7.8 | -8.1 | -8.1 | ||
| Trade balance | 4.5 | 4.7 | 4.2 | 0.6 | 3.7 | 2.4 | 2.7 | 2.4 | 2.0 | 2.0 | ||
| Financial account | 5.0 | 1.4 | 2.3 | -2.7 | 5.2 | -0.7 | 3.0 | 3.7 | 4.2 | 4.4 | ||
| of which foreign direct | ||||||||||||
| investment | -1.0 | -0.7 | 2.7 | -1.0 | -0.6 | -0.8 | -0.8 | 0.8 | 0.8 | 0.8 | ||
| External debt | 13.4 | 17.7 | 15.8 | 17.2 | 19.0 | 23.5 | 25.0 | 25.0 | 24.7 | 24.1 | ||
| of which: public | 8.8 | 9.1 | 8.9 | 9.8 | 11.9 | 16.8 | 18.6 | 18.8 | 18.9 | 18.6 | ||
| Central government fiscal operations 4 | ||||||||||||
| Overall balance | -5.5 | -8.9 | -7.0 | -11.2 | -7.9 | -6.6 | -7.2 | -9.1 | -10.0 | -11.3 | ||
| Total revenue and grants | 27.5 | 25.1 | 28.0 | 24.8 | 25.6 | 28.0 | 26.7 | 25.7 | 25.7 | 25.7 | ||
| of which: SACU receipts | 15.3 | 13.1 | 9.2 | 11.8 | 9.2 | 9.3 | 11.4 | 10.3 | 9.8 | 9.8 | ||
| Total expenditure | 33.0 | 34.0 | 35.0 | 35.9 | 33.5 | 34.6 | 33.9 | 34.8 | 35.7 | 37.0 | ||
| Public debt, gross | 17.7 | 23.1 | 25.1 | 33.4 | 38.1 | 41.6 | 45.3 | 50.3 | 55.9 | 62.2 | ||
| Public debt, net | 9.3 | 15.6 | 20.1 | 29.5 | 34.4 | 38.2 | 42.1 | 47.3 | 53.1 | 59.7 | ||
| Net lending (excl. SACU | ||||||||||||
| revenues) | -18.6 | -18.2 | -18.9 | -20.4 | -17.2 | -18.1 | -17.6 | -18.9 | -19.8 | -21.1 | ||
| Primary net lending (excl. | ||||||||||||
| SACU revenues) | -17.9 | -17.3 | -17.7 | -19.1 | -15.5 | -15.9 | -14.7 | -15.4 | -15.8 | -16.2 | ||
| Memorandum item: | ||||||||||||
| Population (in million) | 1.08 | 1.09 | 1.09 | 1.10 | 1.11 | 1.13 | 1.14 | 1.15 | 1.16 | 1.18 | ||
IMF Information Notice System trade-weighted; end of period.
12-month time deposit rate.
The series reflect the adoption of the BPM6 methodology and recent data revisions.
Public debt includes domestic arrears. Fiscal year runs from April 1 to March 31.
Eswatini: Selected Economic Indicators
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Prel. | Proj. | |||||||||||
| (Percentage changes; unless otherwise indicated) | ||||||||||||
| National account and prices | ||||||||||||
| GDP at constant prices | 2.3 | 1.3 | 2.0 | 2.4 | 1.2 | 2.5 | 1.6 | 0.9 | 0.8 | 0.8 | ||
| GDP deflator | 5.8 | 7.3 | 2.9 | 2.8 | 5.1 | 5.6 | 5.3 | 6.8 | 7.0 | 7.0 | ||
| GDP at market prices | ||||||||||||
| (Emalangeni billions) | 52.0 | 56.5 | 59.3 | 62.4 | 66.3 | 71.8 | 76.9 | 82.9 | 89.4 | 96.4 | ||
| GDP at market prices (US dollar | ||||||||||||
| billions) | 4.1 | 3.8 | 4.5 | 4.7 | 4.6 | 4.9 | 5.1 | 5.3 | 5.6 | 5.9 | ||
| Consumer prices (average) | 5.0 | 7.8 | 6.2 | 4.8 | 2.6 | 4.3 | 4.8 | 6.5 | 7.0 | 7.0 | ||
| External sector | ||||||||||||
| Average exchange rate (local | ||||||||||||
| currency per US$) | 12.8 | 14.7 | 13.3 | 13.2 | … | … | … | … | … | … | ||
| Nominal exchange rate change (– = depreciation) 1 | ||||||||||||
| Real effective exchange rate (– | ||||||||||||
| = depreciation) 1 | 0.7 | 2.7 | -7.8 | -1.3 | … | … | … | … | … | … | ||
| Terms of trade (deterioration -) | 10.2 | 19.4 | -18.3 | -11.9 | 2.9 | 6.2 | 2.8 | 1.4 | 0.4 | 0.1 | ||
| Gross international reserves | ||||||||||||
| (months of imports) | 4.2 | 3.6 | 3.1 | 2.6 | 2.0 | 3.0 | 2.9 | 2.4 | 1.6 | 0.9 | ||
| (percent of GDP) | 16.4 | 13.7 | 11.7 | 9.9 | 7.9 | 11.9 | 11.5 | 9.4 | 6.4 | 3.4 | ||
| (percent of reserve money) | 392 | 269 | 244 | 186 | 131 | 168 | 156 | 119 | 81 | 42 | ||
| Gross reserves minus reserve money | ||||||||||||
| (percent of deposits) | 50.1 | 30.3 | 24.5 | 16.4 | 7.1 | 18.3 | 16.1 | 6.1 | -6.3 | -19.7 | ||
| Money and credit | ||||||||||||
| Domestic credit to the private | ||||||||||||
| sector | 4.2 | 11.6 | 3.9 | 5.1 | 5.9 | 4.4 | 4.4 | 3.5 | 2.8 | 2.6 | ||
| Reserve money | 15.4 | 32.3 | -0.9 | 16.4 | 20.9 | 26.3 | 11.9 | 14.7 | 9.4 | 9.0 | ||
| M2 | 13.6 | 26.4 | 3.8 | 4.1 | 0.8 | 8.2 | 6.2 | 5.4 | 6.2 | 5.6 | ||
| Interest rate (percent) 2 | 5.3 | 5.8 | 7.0 | 7.3 | … | … | … | … | … | … | ||
| (Percent of GDP) | ||||||||||||
| National accounts | ||||||||||||
| Gross capital formation | 12.5 | 12.8 | 12.7 | 13.1 | 10.7 | 11.1 | 10.8 | 10.7 | 10.7 | 10.8 | ||
| Government | 6.9 | 8.3 | 7.5 | 5.3 | 5.5 | 6.0 | 5.6 | 5.5 | 5.5 | 5.4 | ||
| Private | 5.5 | 4.4 | 5.2 | 7.7 | 5.2 | 5.1 | 5.1 | 5.2 | 5.3 | 5.3 | ||
| National savings | 25.4 | 20.6 | 19.7 | 15.0 | 14.4 | 14.6 | 13.8 | 12.8 | 12.4 | 12.5 | ||
| Government | 3.8 | -0.1 | 0.3 | -3.7 | -1.2 | 1.9 | 1.0 | -0.9 | -2.0 | -3.2 | ||
| Private | 21.6 | 20.7 | 19.3 | 18.8 | 15.6 | 12.7 | 12.8 | 13.7 | 14.4 | 15.7 | ||
| External sector 3 | ||||||||||||
| Current account balance | ||||||||||||
| (including official transfers) | 12.9 | 7.8 | 7.0 | 2.0 | 3.8 | 3.5 | 3.0 | 2.1 | 1.7 | 1.7 | ||
| (excluding official transfers) | -0.8 | -2.1 | -4.3 | -7.9 | -5.6 | -7.4 | -7.6 | -7.8 | -8.1 | -8.1 | ||
| Trade balance | 4.5 | 4.7 | 4.2 | 0.6 | 3.7 | 2.4 | 2.7 | 2.4 | 2.0 | 2.0 | ||
| Financial account | 5.0 | 1.4 | 2.3 | -2.7 | 5.2 | -0.7 | 3.0 | 3.7 | 4.2 | 4.4 | ||
| of which foreign direct | ||||||||||||
| investment | -1.0 | -0.7 | 2.7 | -1.0 | -0.6 | -0.8 | -0.8 | 0.8 | 0.8 | 0.8 | ||
| External debt | 13.4 | 17.7 | 15.8 | 17.2 | 19.0 | 23.5 | 25.0 | 25.0 | 24.7 | 24.1 | ||
| of which: public | 8.8 | 9.1 | 8.9 | 9.8 | 11.9 | 16.8 | 18.6 | 18.8 | 18.9 | 18.6 | ||
| Central government fiscal operations 4 | ||||||||||||
| Overall balance | -5.5 | -8.9 | -7.0 | -11.2 | -7.9 | -6.6 | -7.2 | -9.1 | -10.0 | -11.3 | ||
| Total revenue and grants | 27.5 | 25.1 | 28.0 | 24.8 | 25.6 | 28.0 | 26.7 | 25.7 | 25.7 | 25.7 | ||
| of which: SACU receipts | 15.3 | 13.1 | 9.2 | 11.8 | 9.2 | 9.3 | 11.4 | 10.3 | 9.8 | 9.8 | ||
| Total expenditure | 33.0 | 34.0 | 35.0 | 35.9 | 33.5 | 34.6 | 33.9 | 34.8 | 35.7 | 37.0 | ||
| Public debt, gross | 17.7 | 23.1 | 25.1 | 33.4 | 38.1 | 41.6 | 45.3 | 50.3 | 55.9 | 62.2 | ||
| Public debt, net | 9.3 | 15.6 | 20.1 | 29.5 | 34.4 | 38.2 | 42.1 | 47.3 | 53.1 | 59.7 | ||
| Net lending (excl. SACU | ||||||||||||
| revenues) | -18.6 | -18.2 | -18.9 | -20.4 | -17.2 | -18.1 | -17.6 | -18.9 | -19.8 | -21.1 | ||
| Primary net lending (excl. | ||||||||||||
| SACU revenues) | -17.9 | -17.3 | -17.7 | -19.1 | -15.5 | -15.9 | -14.7 | -15.4 | -15.8 | -16.2 | ||
| Memorandum item: | ||||||||||||
| Population (in million) | 1.08 | 1.09 | 1.09 | 1.10 | 1.11 | 1.13 | 1.14 | 1.15 | 1.16 | 1.18 | ||
IMF Information Notice System trade-weighted; end of period.
12-month time deposit rate.
The series reflect the adoption of the BPM6 methodology and recent data revisions.
Public debt includes domestic arrears. Fiscal year runs from April 1 to March 31.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summing up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.