By Phiwa Sikhondze
Despite promising economic growth, household debt in Eswatini remains a concern, Finance Minister, Neal Rijkenberg, has warned.
Speaking during this week’s episode of #FinanceInFocus, a new weekly video series where the Minister of Finance provides updates on financial issues affecting the economy and offers guidance to Emaswati on making informed financial decisions, Rijkenberg highlighted that while the country’s GDP is growing at an average of 5% in 2023 and 2024, many households are sinking deeper into unsustainable debt.
While the growth is a positive indicator of the country’s economic trajectory, household finances are still under significant strain. Over the past two decades, Eswatini’s economy averaged just over 2% growth. However, recent developments particularly since 2020 have seen the country’s growth accelerate to an average of 3%, with forecasts from the World Bank and other financial institutions pointing toward sustained growth around the 5% mark in the coming years.
This growth is attributed to a combination of factors, including an increase in foreign direct investment (FDI), with examples like Kellogg’s setting up in the country, as well as expansions from domestic companies already established in Eswatini.
“Where the biggest growth has been coming from lately is domestic companies,” Minister Rijkenberg said. “These companies are investing significantly more, expanding, and growing, which is a testament to the confidence that shareholders both external and domestic are placing in our economy.”
Despite the optimistic economic outlook, the Recent Economic Developments Report the Recent Economic Developments (June – July 2024) from the Central Bank of Eswatini (CBE) revealed a sharp increase in credit extended to households and Non-Profit Institutions Serving Households (NPISH).
Credit expanded by 2.4% month-on-month and 8.6% year-on-year, reaching E8.8 billion by June 2024. The growth was driven largely by unsecured personal loans, which increased by 4.9% to E3.4 billion, and housing loans, which grew by 1.1% to E4.3 billion. However, motor vehicle loans recorded a slight decline of 0.3%, standing at E1.1 billion.
These figures highlight the growing reliance on credit, as more households take on debt to maintain their standard of living. Rijkenberg noted that the effects of inflation, COVID-19, and global conflicts have made household budgets even tighter, leading many to borrow out of necessity.
At the moment, household debt is too high, the minister stressed. Too many of us are borrowing money simply to survive.
The Minister highlighted the difference between healthy and unhealthy debt. Healthy debt, he explained, could be used for investments like buying a house, while unhealthy debt is used to cover day-to-day living expenses, often leading to further financial strain.
Debt used to keep the lights on or for survival is dangerous, he warned. ”We need to focus on getting rid of unhealthy debt during this time when the economy is showing signs of expansion.”
As Eswatini emerges from a period of fiscal consolidation and enters a phase of potential growth, Minister Rijkenberg advised citizens to be cautious about how they handle their finances. He urged families to avoid overextending themselves with unnecessary expenditures and instead use the potential relief from increased economic activity to reduce their debt burden.
“We must make the right decisions now, both as a country and as individuals, Rijkenberg said. We need to restore the health of our household finances so that, as the economy grows, families are in a position to benefit rather than struggle under the weight of debt.
Households should start feeling some easing of financial pressure soon, but until then, it’s important to make wise financial decisions, Rijkenberg concluded.