IMF: Eswatini’s fiscal, external buffers low
MBABANE - The Executive Board of the International Monetary Fund (IMF) is of the view that Eswatini has shown resilience to multiple economic shocks.
This was mentioned in a recently released IMF Board Article IV in consultation with the government.
They said the fiscal and external buffers for Eswatini were low.
“The fiscal deficit held steady at 4.5 per cent of GDP in 21/22 despite a drop in SACU revenues, but is estimated to have widened to five per cent in 2022/2023 in the wake of further declines in SACU revenues and higher spending on goods and services, transfers, and interest payments.”
The IMF said Eswatini’s public debt rose to an estimated 42.3 per cent of gross deomestic product (GDP) by the end of 2022-2023. The trade balance worsened in 2022, with the rising cost of food and fuel imports driving the external current account into deficit for the first time in over 10 years.
“Together with lower SACU receipts and weakening foreign direct investment, central bank foreign exchange reserves fell to about US$449 million by the end of 2022 (2.3 months of import cover). The external position is assessed as broadly in line with the level implied by economic fundamentals and desirable policies,” added the IMF.
Profitability
They also mentioned that the banking sector was liquid and well-capitalised. Banks’ profitability improved in the first half of 2022. Lending to the government remained high, reflecting large fiscal financing needs. Financial sector holdings of government securities amounted to about 16 per cent of total assets in June 2022, leaving the sector exposed to sovereign risk.
The ratio of non-performing loans to total loans increased to 6.5 per cent at the end of June 2022, from 5.6 per cent a year earlier. Non-bank financial institutions continued to be the dominant element in the financial system, accounting for roughly 70 per cent of total financial system assets.
“The near-term outlook is buoyed by continued recovery and a surge in
SACU revenue transfers, but downside risks remain. Real GDP growth is projected at 3.2 per cent in 2023, and inflation is expected to stabilise at around five per cent. SACU transfers will double in 2023-2024,” added the IMF.
They said this should allow the overall 2023–2024 fiscal deficit to narrow to 0.3 per cent of GDP despite an expansionary fiscal policy. Public debt was projected to decline to 40.6 per cent of GDP. The outlook is subject to downside risks, including the impact of weaker growth in South Africa, and new shocks to food, fuel, and fertiliser prices.
Proposed
The Government of Eswatini has proposed to put E1.5 billion into the Stabilisation Fund to cater for any reduced Southern African Customs Union (SACU) receipts.
The SACU receipts for Eswatini are expected to increase from E5.8 billion to E11.75 billion in the 2023–24 financial year. The announcement was made by the Minister of Finance, Neal Rijkenberg, in the budget speech.
This is the highest amount that the country has ever received from the regional bloc, and the minister said it was driven by a higher than projected outturn of the 2021–2022 Common Revenue Pool (CRP).
Increase
This reflects a 25 per cent increase in the projected size of the CRP for 2023/2024 compared to 2022/2023 and an increase in Eswatini’s share of total intra-SACU imports from 9.6 per cent in the revenue sharing framework for 2022/2023 to 10.8 per cent in 2023/2024.
Rijkenberg said the volatility in SACU receipts has caused the economy to remain on an unsustainable path for a long time. For that reason, he tabled the regulations for the SACU Stabilisation Fund; he proposed to put E1.5 billion into the Stabilisation Fund to cater for any reduced SACU receipts in the future.
“As this year’s budget is driven by sustainability, this fund should ensure that we remain on a sustainable path in the long-term,” he said.