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past two years mainly due to the impact of the COVID19 pandemic, impact of social unrest

MBABANE – The Central Bank of Eswatini (CBE) says the construction of the Eswatini Strategic Oil Reserve project should also be aggressively pursued.

The CBE said this could help increase the overall oil supply in Eswatini.

The above recommendation has been made by the central bank as one of the mitigations that should be taken by the government in order to fill in the gaps opened by supply chain disruptions emanating from the Russia Ukraine war, especially in Russia Ukraine linked commodities such as fuel and food like µedible oils’, µwheat and wheat products’ as well as fertiliser.

Currently, the fuel that Eswatini imports is enough to service the country for a few days. Therefore, an oil reserve would cushion the economy against supply shocks and provide for a smooth operation of the whole economy without disruptions.

To buffer the economy against fuel price increases, government should also re-activate and strengthen its fuel ta[ special account which tends to generally shield consumers against an upward price adMustment.

Disruptions

These disruptions indicated a gap in the domestic supply of these essential commodities for Eswatini.

The central bank has recommended that this gap could also be filled by the government taking initiative in implementing strategic food security initiatives in the short- to medium-term.

The Russia-Ukraine conflict has led to notable supply chain disruptions in commodity prices, particularly those that are linked to either Russia or Ukraine mainly food and fuel prices.

Within the food category, commodities that recorded notable increases included µedible oils’ and µcereals’.

Prices of edible oils rose by 23.1 per cent in the period under review, compared to an increase of 12.2 per cent in the previous period. Similarly, prices for µbread and cereals’ grew by 10.7 per cent in 2022, compared to 5.0 per cent in 2021.

Considering increases in the global prices of µcereals’ linked to the Russia-Ukraine conflict, the Ministry of Commerce, Industry and Trade increased the price of bread cumulatively by 26.76 per cent in 2022.

Additional increases were observed in the prices of µmeat and meat products’ and µmilk and dairy products’, both of which were affected by rising input costs particularly feed prices.

As a result, the overall food price inflation accelerated to average 8.5 per cent in 2022, compared to 4.8 per cent in 2021

Aggressive

In response to this it was suggested that food security initiatives could include an aggressive agricultural productivity program that promotes food production diversification and advancement in agricultural technology (agri-tech).

³This would reduce the increased import dependency of these commodities,´ read the report in part.

Another recommendation was that the government could also partner with private sector financial institutions to increase funding for the agricultural sector.

The availability of funding would boost growth in the agricultural sector as well as promote the adoption of agritech.

Given the supply nature of the inflationary pressures which render monetary policy tightening less effective to curtail them, a well coordination between monetary policy and fiscal policy is recommended.

While fiscal policy has potential to deal with supply bottlenecks leading to inflationary pressures, monetary policy on the other hand can deal with the second-round effects of the supply shocks on inflation.