International Monetary Fund (IMF) Staff Completes 2019 Article IV Mission to Eswatini
Eswatini’s key challenges are to implement fiscal adjustment measures to reduce the fiscal deficit and stabilize public debt
Significant fiscal adjustment is needed to ensure fiscal sustainability and rebuild external buffers
An International Monetary Fund (IMF) team, led by Mr. Geremia Palomba, visited Mbabane during October 23-November 4, 2019 to conduct the 2019 Article IV consultations with Eswatini.
At the end of the visit, Mr. Palomba issued the following statement:
“In recent years, GDP growth has averaged 2 percent, but fiscal and macroeconomic imbalances have built up. Since 2016, rising government spending and low revenue from the Southern African Customs Union (SACU) have widened the fiscal deficit. Public debt has increased, domestic arrears have accumulated, and international reserves have declined.
“Absent policy action, the economic outlook remains fragile. In 2019, growth is projected to decelerate to around 1 percent. In a scenario with no policy action, IMF staff expect the fiscal deficit to remain large and domestic arrears to accumulate, weighing on the economic outlook. Growth would remain subdued over the medium term as fiscal imbalances persist and the private sector remains hamstrung. Downside risks to this outlook include lower SACU revenue and possible fiscal slippages.
“Eswatini’s key challenges are to implement fiscal adjustment measures to reduce the fiscal deficit and stabilize public debt, and roll out structural and governance reforms to boost long-term growth and reduce poverty and unemployment.
“Significant fiscal adjustment is needed to ensure fiscal sustainability and rebuild external buffers. Adjustment policies should combine both expenditure and revenue measures that support long-term growth, while protecting and improving social assistance programs. Moreover, they should focus on rationalizing large spending items, particularly wage costs, capital outlays, and transfers to parastatals and other entities.
“Rationalizing public entities and enterprises, developing medium-term fiscal plans and expenditure controls is critical to deliver adjustment plans. Strengthening public procurement would improve the functioning of the administration, reduce mismanagement, and deliver needed spending savings. The mission welcomes the authorities’ plans to restructure key loss-making public entities and improve the efficiency of public spending.
“Undertaking reforms to facilitate private investment and strengthen competitiveness is a must to lift growth and reduce unemployment. The authorities have developed comprehensive reform plans to reignite growth. In parallel with fiscal adjustment policies, reforms should focus on streamlining business regulations, strengthening governance to reduce vulnerabilities to state-capture and corruption (including through better public procurement), improving efficiency in key network industries such electricity and telecommunications, and establishing a well-structured wage policy to better align wage dynamics to productivity growth. Over time, it is important to improve education attainments to address the shortage of well-educated and skilled labor.
“Despite the weakening economy, the financial sector remains sound. The authorities are gradually implementing Basel II requirements for banks, and advancing a series of legislative changes to overhaul the oversight framework of the sector. With the economy weakening, it is important to intensify the supervision of the banking sector. Moreover, accelerating the adoption of the new legislation would provide a strong base to strengthen the non-bank regulatory and supervisory frameworks, and developing adequate macroprudential and crisis management structures. These steps will help to better manage macro-financial risks and structural vulnerabilities in the sector.
“The mission thanks the authorities and other counterparts for their hospitality and productive discussions.”
Distributed by APO Group on behalf of International Monetary Fund (IMF).