E24bn readily available for Minister Neal
MBABANE – Even before he thinks about loans and donations from international agencies, Minister of Finance Neal Rijkenberg already has about E24 billion to finance the country’s national budget.
The figure, which is approximately E23.8 billion, is made up of the E11.75 billion which was recently announced as being the share of the Kingdom of Eswatini from the Southern African Customs Union (SACU).
Recently, it was reported that the country’s SACU receipts had increased by a historic 102 per cent.
The money was a major increment from the E5.8 billion received in the previous financial year.
Economists viewed the development as an opportunity for the State to fund core social development initiatives, such as tertiary education, drugs in hospitals and to reduce the debt burden. SACU receipts refer to the money that the bloc’s members share annually from the revenue they generate through the collection of customs duties. The amount due for each member State is determined by a formula approved by a council, mostly formed by ministers of Finance. The SACU receipts form one of the country’s major revenue generators after tax collection.
When announcing the figure, Minister Rijkenberg said it was the highest share that the country had ever received from the regional bloc. Besides the E11.75 billion SACU receipts, the country already has around E12 billion, which has come in the form of tax revenues collected by the Eswatini Revenue Service (ERS) for the financial year 2022/23.
This is reflected in the ERS Integrated Annual Report, which the minister tabled. The exact tax collection revenue amounted to E12.037 billion against a target of E12.323 billion, which reflects a two-per cent below target performance. The revenue collections to target short fall was E0.285 billion. However, the collections were E1.250 billion above the previous year.
TAX REVENUE INCREASE
The figure contained in the annual report reflects that the 11.6 per cent tax revenue increase was higher than the six per cent nominal gross domestic product (GDP) increase projected by the Central Bank of Eswatini (CBE) and the Ministry of Economic Planning and Development and this is characteristic of an improving revenue administration.
When adding both the ERS collections and SACU receipts, the two figures add up to E23.8 billion, which when rounded up total to E24 billion.
The minister is expected to deliver the budget speech in the House of Assembly tomorrow, with the session starting at 10am. This means that, as was the case last year, the minister could flash the biggest smile for tabling a fully-funded budget. The available revenue without grants, is among the highest since 2019 and it also surpasses some of the total budgets of the past four years (2019 – 2022).
The budget for 2019 was E21.83 billion, for 2020 it was E24.08 billion, E24.04 billion for 2021 and E23.2 billion for 2022. Last year, the budget stood at E26.44 billion. With the E24.73 billion revenue without grants, this suggests that Rijkenberg could have easily fully financed some of the budgets of the previous years without having to borrow money from the domestic and international financial markets.
An economist who was interviewed by this publication concurred that the collections from SACU and those from taxation will help a lot in funding the national budget. “We come from an era where Finance ministers would table a budget that was far from being realistic and this ended up causing problems. Presenting a budget when you know where it will come from makes things easier. There is no use in presenting a budget that has huge deficits. The huge deficits meant the government had to borrow more money to honour its budgetary obligations. Notably, the fiscal deficit had been fluctuating but on the high side since 2019 as it was above 4.0 per cent of the GDP,” the economist said.
When sought for comment, Minister Rijkenberg played his cards close to his chest. The minister shared that the ERS annual report, which contained the E12.037 billion was for the financial year 2023 and that the current year finishes at the end of March 2024.
He said by the time the current financial year ended, ERS would have collected around E13 billion and that they appeared to be on the right track to meet such a target. “I will announce from the budget speech the amount of money that they are promising to collect from April 2024 until March 31, 2025 and that number continues to go up,” he said.
Regarding the SACU receipts, the minister stated that even though the country received around E11 billion, about E1.5 billion would go to the SACU Stabilisation Fund. “The coming year, we are getting E13 billion and again I will announce how much I am putting in the Stabilisation Fund. This should give you a picture of where we are going, but yes the numbers you are working with are on the onside,” the minister said.
Besides the E11.75 billion SACU receipts, the country already has around E12 billion which has come in the form of tax revenues collected by ERS.”
CAPITAL PROJECTS
If used properly, the available funds could help government fund its capital projects by increasing the E5.85 billion it gave out last year to more. Some of the capital projects that need funds include the controversial 570 kilometre roads upgrade which government stated last year had to be stalled because of lack of funds.
Still on capital projects, government can increase the allocation for the construction of factory shells to twice more than the E171 million that was allocated last year. The budget will also be able to accommodate the changes that have happened in the education and health sector, whereby, new staff has had to be hired following the lifting of the hiring freeze.
Still on the education sector, the budget
could help increase the budget allocation for scholarships, which stood at E647 million last year. With social protection being a priority for government, the available funds could help in improving the grants that are received by persons with disabilities and other vulnerable groups.
Worth noting is that in 2019, the fiscal deficit (money that government had to borrow to fill the shortfall) was E2.98 billion, E2.88 billion in 2020, E4.6 billion for 2021 and E3.8 billion. This meant that the government has borrowed over E14.34 billion to finance budgetary shortfalls in the last four years. In actual fact, when the minister was appointed into office in 2018, the economic situation of the country remained daunting.
In his own words, when presenting the budget speech in February 2019, he made it known that the country’s revenues remained under pressure and that, as government’s expenditure had ballooned, the public finances remained unsustainable. When giving examples, he shared that arrears had been accumulating and reserves depleted.
In that same year, His Majesty King Mswati III cautioned government against presenting a national budget that was unrealistic. A summary of his preamble that year was that Eswatini was facing an unprecedented economic crisis as preliminary estimates suggested a contraction of 0.4 per cent in the GDP for 2018 and the economic outlook remained subdued.
Also, foreign direct investment (FDI) had been on average negative for a number of years. “Arrears have accumulated and we continue to draw down on our reserves. The economy has stagnated and we are failing to attract investment as the gap between the rich and poor continues to grow. For too long now, this economic reality has not been addressed - and now is the time to do so. Regional economic weakness, international trade tensions and the lingering impact of the global financial crisis have all contributed to our present crisis, but so too have the structural inefficiencies and deficiencies in our own economic policy and governance,” the minister remarked at the time.
A key component of the crisis at the time was a growing wage bill, which in the previous 10 years has grown by 125 per cent.
In contrast, volatile SACU receipts had made government’s fiscal position untenable, in the medium term SACU receipts were expected to decline due to South Africa’s worsening economic position. With revenue of over E23 billion already available, experts are of the view that the country could achieve its goal of having a fiscal deficit of 1.5 per cent of the country’s GDP.
According to the experts, the positives can be attributed to an increase in collection in the medium term to several proposed revenue measures forming part of the Fiscal Adjustment Plan (FAP), efficiency gains, and favourable economic growth.
POLICY CHANGES
Also, government has introduced revenue enhancement reforms and policy changes that include the introduction of an automated system by ERS which was expected to have a considerable positive impact on the VAT collection. In the event that government does not rely much on donations or loans for the national budget, it will be a good step in the right direction.
The SADC bloc has now again decried that member States and other developing countries often use public debt as a way to gain access to extra funds that are used to induce or maintain economic growth. This, SADC has always argued, led to problems as recurrent budget deficits and borrowing due to insufficient revenue could potentially lead to the accumulation of an unsustainable public debt, especially if a government must use an increasing amount of its revenue to pay interest on loans or service its debt.
These payments will often compete with infrastructure and capital expenditure, and crucial developmental investments will be postponed to service debts. This, in turn, can force a government to borrow more money from external sources as an immediate solution to finance their budget deficit, which if poorly managed exacerbates the problem instead of solving it, and can lead to unmanageable spiraling debts.
Another argument that has been made by experts is that in the SADC region, debt has become more expensive to service because interest rates are often very high. Therefore, a large amount of revenue is being channelled towards servicing the debt instead of investing in critical areas of the economy and this leads to poor long-term economic performance.