Government to pursue expansionary fiscal policy

MBABANE – The *overnment of Eswatini, yesterday, announced that it would now be pursuing an expansionary fiscal policy, shifting from the contractionary monetary policy.

This policy will increase money circulation, influence the reduction of unemployment and enable the government to lift its hiring free]e.

Expansionary fiscal policy is when the government expands the money supply in the economy using budgetary tools, to either increase spending or cut taxes, both of which provide consumers and businesses with more money to spend.

The purpose of the expansionary fiscal policy is to boost growth to a healthy economic level, which is needed during the contractionary phase of the business cycle.

By pursuing this policy, the government will be able to reduce unemployment, increase consumer demand, and avoid a recession.

RESTRICTIVE

:orth noting, the Central Bank of Eswatini (CBE) pursued a restrictive monetary policy also known as the contractionary monetary policy stance in 2022, which led to the cumulative increase of the discount rate by 275 basis points.

The contractionary policy distortions include high inflation from an expanding money supply, unreasonable asset prices, or crowding-out effects, where a spike in interest rates leads to a reduction in private investment spending, such that it dampens the initial increase of total investment spending.

,n his budget yesterday, the Minister of )inance, Neal RiMkenberg, yesterday said through the adoption of a more expansionary fiscal policy, this budget sought to make additional provisions to the most critical and mandatory line items and programmes, to ensure that operations were not compromised.

+e said attention was given to make enhanced provisions for previously compromised budget lines and programmes such as tertiary education scholarships, free primary education grants, more grants for the elderly and the disabled, youth empowerment programmes, public investment and capital expenditure.

This, however, he said it did not suggest reckless and irresponsible spending, but a move towards striking a balance between improving lives and livelihoods, while supporting sustainable growth.

³The short to medium term monetary policy outlook remains uncertain with an upward bias threatened by persistent inflationary pressures at global level, with inflation remaining way above target in advanced, emerging markets and developing economies.

³The CBE is therefore likely to continue pursuing a relatively restrictive stance in line with regional and global monetary policy conditions,´ he said.

Broad money supply (M2) growth decelerated from positive territory in 2021 to negative territory in 2022. Notably, M2 growth averaged -1.0 per cent between April and October 2022 compared to a positive average of 5.7