Eswatini’s Medium-Term Outlook Remains Uncertain Despite SACU Windfall- IMF

By Phesheya Mkhonta

The Executive Board of the International Monetary Fund (IMF) has concluded the Article IV consultation with the Kingdom of Eswatini.

In its assessment, the IMF has noted with concern that despite the country’s recovery and a surge in SACU revenue transfers, downside risks remain.

The Minister of Finance Neal Rijkenberg announced earlier this year that SACU receipts have increased from E5.8 billion to E11.75 billion. Worth noting as well is that the amount that Eswatini will receive is the largest share of SACU receipts that the country has ever received from the regional bloc.

“Directors noted that while the economy will be buoyed in the short run by strong Southern African Customs Union (SACU) revenue transfers, the medium-term outlook remains uncertain given low fiscal and external buffers and macro-structural weaknesses.”

The IMF notes that the increased downside risk is exacerbated by factors that include the impact of weaker growth in South Africa, and new shocks to food, fuel, and fertilizer prices.

The Executive Board posits that it projects Real GDP growth to be at 3.2 percent in 2023 and expects inflation to stabilize at around 5 percent.  Positively, the IMF says SACU transfers will double in FY23/24, which should allow the overall FY23/24 fiscal deficit to narrow to 0.3 percent of GDP despite an expansionary fiscal policy, and public debt is projected to decline to 40.6 percent of GDP.

Furthermore, the IMF has urged the country to implement fiscal adjustment in an effort to put public debt on a downward path, rebuild fiscal buffers, clear domestic payment arrears, and reduce pressure on external accounts.

“While welcoming efforts to contain the wage bill, and the introduction of a SACU revenue stabilization fund, Directors emphasized the need for a revised medium-term fiscal adjustment plan anchored on a primary surplus and supported by macro structural reforms to facilitate private sector-led growth. In addition to further reductions of the public wage bill, they highlighted the criticality of public enterprise reform and rationalization of Eswatini’s tax expenditure regime, together with efforts to improve the social safety net.”

In addition to these reforms, the government has been encouraged to implement macro-structural and governance reforms to support private sector-led inclusive growth which will reduce poverty and inequality.

The IMF Directors agreed that continued efforts to improve the business climate, diversify the economy, and close gender gaps are key, and addressing governance weaknesses with the support of an IMF governance diagnostic and strengthening climate resilience would also be important.

Share With Friends