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IMF Executive Board Concludes 2012 Article IV Consultation with the Kingdom of Swaziland

MBABANE, Swaziland, February 20, 2013/African Press Organization (APO)/ — On February 8, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Kingdom of Swaziland.1


The Kingdom of Swaziland is recovering from a severe fiscal crisis. At the end of the fiscal year that ended March 31, 2012 (FY 2011/12), Swaziland registered a fiscal deficit of E 1.7 billion (6.0 percent of gross domestic product—GDP) and a stock of domestic arrears of E 1.6 billion (5.4 percent of GDP). While the deficit was lower than in FY 2010/11, the adjustment was partly achieved through cuts in education, health, and other poverty-alleviating spending. Domestic arrears also reduced economic activity, with real GDP growth projected to decline by 1.5 percent in 2012.

Higher transfers from the Southern African Customs Union (SACU) have improved fiscal and external balances in the first nine months of FY 2012/13. With SACU transfers more than doubling to 22½ percent of GDP compared with the previous fiscal year, fiscal space has been regained and the fiscal deficit is projected to register a small deficit. The government has been using the fiscal space to repay the central bank advance and to reduce domestic arrears by E 250 million as of end-September 2012. An additional E 720 million in arrears to the public pension fund has been restructured into a three-year loan. Higher SACU transfers have also improved external balances by reducing the current account deficit and increasing central bank reserves. Gross official reserves of the Central Bank of Swaziland stood at about E 6 billion (3.1 months of prospective imports) at end–November 2012, a significant improvement from the trough recorded at end-March 2012.

The authorities have taken some measures to reduce fiscal and financial vulnerabilities. Revenue collection has improved with the successful introduction of a value-added tax in April 2012, complemented with continued strengthening of revenue administration. The ministry of finance has also drafted a new Public Finance Management bill, with technical assistance from the IMF, which is expected to be presented to parliament in early 2013. In parallel, the authorities responded to the vulnerabilities in the non-bank financial sector including the Savings and Credit Cooperatives by creating a new supervisory agency, the Financial Services Regulatory Authority, which started its operations in late 2012. The cooperatives are now in the process of submitting their financial statements for offsite supervision.

Additional measures are, however, needed to bring about fiscal and financial sustainability over the medium term. In particular, a front-loaded fiscal adjustment is necessary in the context of the 2013/14 budget to bring the economy back on a sustainable growth path and reduce the significant risks from external shocks. In addition, financial sector surveillance needs to be strengthened through the adoption of a crisis resolution mechanism and the close supervision of and the swift adoption of a new regulatory framework for non-bank financial institutions. Finally, economic growth could be enhanced and made more inclusive by increasing the share of poverty alleviating spending, liberalizing markets, and improving access to modern finance.

Executive Board Assessment

Executive Directors cautioned that Swaziland’s economic prospects remain difficult and that, without credible and comprehensive fiscal adjustment and structural reforms, the current fiscal and external position will be unsustainable over the medium term and subject to significant downside risks.

Directors welcomed the recent improved revenue performance, as well as the implementation of the value-added tax and the strengthening of tax administration. However, they stressed the need for upfront expenditure cuts, including on the wage bill, the swift passage and implementation of the Public Finance Management Bill, and the unification of the budget within the finance ministry. Directors underlined the importance of increasing the share of targeted social spending in the budget, especially on education, poverty alleviation, youth unemployment, and health care.

Directors supported the authorities’ objective of preserving the exchange rate parity with the rand. Noting the staff’s assessment that the real effective exchange rate appears overvalued, they stressed that significant external imbalances will need to be addressed through a comprehensive fiscal adjustment in order to sustain the peg. Directors also urged the authorities to eliminate the remaining exchange restriction subject to approval under Article VIII.

Directors considered that the financial sector requires intensive supervision and appropriate regulation to preserve financial stability. They encouraged the adoption of a crisis resolution mechanism for financial institutions, the effective supervision and regulation of all non-bank financial institutions, including the auditing of savings and credit cooperatives.

Directors concurred that restoring competitiveness is critical for higher sustainable and inclusive growth. They urged the authorities to improve the business climate, move forward with the privatization process, and launch an international tender for a second mobile license. Directors also strongly encouraged the authorities to remove obstacles for the private sector to access bank financing, and welcomed the establishment of a committee to consider the issue of land tenure reform.

Swaziland: Selected Economic and Financial Indicators, 2009–13

2009 2010 2011 2012 2013

Proj. Proj.

National accounts and prices

(Percentage change, unless otherwise indicated)

GDP at constant prices

1.2 1.9 0.3 -1.5 0.0

GDP deflator

5.4 6.1 6.4 8.3 7.2

Nominal GDP (Emalangeni billions)

25.0 27.0 28.8 30.7 33.0

Consumer price inflation (period average)

7.4 4.5 6.1 9.0 8.1

Consumer price inflation (end of period)

4.5 4.5 7.8 8.4 8.5

Money and credit

Reserve money

5.9 -1.7 7.3 2.8 1.9

Change in broad money (percent)

26.8 7.9 1.2 7.6 7.8

Interest rate (percent)

6.5 5.5 5.5 … …

External sector

Terms of trade (deterioration -)

14.5 -10.8 -18.3 -19.0 -21.2

(US$ millions, unless otherwise indicated)

Exports, f.o.b.

1,667.2 1,805.1 1,907.9 1,700.6 1,587.7

Imports, f.o.b.

-1,789.0 -1,955.0 -1,942.0 -1,782.2 -1,814.1

Current account balance

-416.1 -388.3 -340.9 10.1 -43.9

(percent of GDP)

-14.0 -10.5 -8.6 0.3 -1.2

Gross international reserves

877.9 677.7 519.9 527.5 509.9

(months of imports)

3.9 2.8 2.5 2.7 2.6

Debt service (percent of exports)

1.5 2.2 3.7 3.9 4.1

Central government

(Percent of GDP)

Total government revenue and grants 1

36.1 25.2 24.5 37.6 36.8

Total government expenditure1

42.1 38.6 30.5 37.1 37.8

Overall balance1

-6.0 -13.4 -6.0 0.5 -1.0

Public debt, gross

12.6 17.1 18.3 24.5 24.1

Sources: Swazi authorities; and IMF staff estimates and projections.

1 Fiscal year data (fiscal years run from April 1 to March 31). The overall balance is on a commitment basis.

1 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 summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.


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