- Swaziland’s economic outlook is subject to downside risks stemming from the uncertainty about the strength of the global recovery, particularly in South Africa which is destination to more than half of the country’s exports.
The visiting International Monetary Fund (IMF) team to the Kingdom has said, adding that the phasing-out of preferential agreements, the sustainability of structural reforms to foster competitiveness and improve the business environment, will also add to the risks.
“Since the last Article IV consultation a little more than a year ago, Swaziland has been grappling with the impact of the 2008 oil and food crisis and the global economic crisis of 2009. The latter has led to a significant drop in transfers from the Southern African Customs Union (SACU), which in the context of high spending levels, is posing serious risk to medium-term fiscal sustainability,” the IMF team said in a statement, further adding that economic activity remains sluggish in 2009 in Swaziland, with GDP growth estimated at 0.4 percent.
The fund further said inflation continues to moderate as food and fuel prices trend downwards, and is expected to be around 5 percent by year-end.
The mission also welcomed the establishment of the Anti-Corruption Commission and the recent passage by parliament of the Financial Services Regulatory Authority Bill, encouraging the Swazi authorities to accelerate the adoption of other pending legislation to further strengthen the financial system, improve the regulatory environment, and promote private-sector led growth.
“The key challenge going forward is for the authorities to address the emerging large fiscal deficits by building public support for the necessary adjustments. This is all the more necessary as the financing of persistent high fiscal deficits and the ensuing reserve losses could undermine confidence in the current monetary arrangement and result in unsustainable debt levels,” the IMF team said.
The mission also urged the authorities to embark without delay on a fiscal adjustment path focused on expenditure cuts. In particular, the recent across-the-board salary increases, which are unsustainable given the sharp and permanent drop in SACU revenue, need to be revisited, the IMF team warned.
The team concluded by encouraging the Swazi authorities to improve the quality of spending and strengthen the public financial management to shift resources to critical social programmes, including investment in human capital and expenditures that foster economic growth.
The IMF staff team led by Norbert Toé visited Mbabane during 18 November – 2 December to conduct the 2009 Article IV Consultation with Swaziland. The mission’s work focused on policies needed to restore fiscal sustainability, preserve macroeconomic and financial stability, and spur economic growth.
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