Public Information Notices

Kingdom of Swaziland and the IMF

Public Information Notice (PIN) No. 00/77
September 13, 2000
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Concludes Article IV Consultation with Swaziland

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On July 19, 2000, the Executive Board concluded the Article IV consultation with Swaziland.1


Responding to an increase in domestic demand associated mainly with an expansionary fiscal stance, the pace of overall economic activity picked up in 1999, with real GDP estimated to have grown by just over 3 percent. Meanwhile, the rate of consumer price inflation abated to about 6 percent, as the impact of the sharp depreciation in 1998 of the South African rand (to which the Swazi currency-the lilangeni-is pegged) diminished. However, there appears to have been no reversal of the declining trend in private sector employment, and unemployment remains high.

The government budget (including grants) in 1999/2000 (April-March) moved to a deficit position estimated at 4¼ percent of GDP, owing largely to an increase in the wage bill (stemming from the full-year impact of a 15 percent pay raise) and larger subsidies and transfers to public entities. The deficit was financed entirely from foreign and nonbank domestic sources. Monetary conditions eased in line with developments in South Africa, but the interest rate on three-month treasury bills in Swaziland remained about 2 percentage points below that in South Africa.

Highly tentative estimates for the balance of payments in 1999 point to another, albeit smaller, surplus in the current account (including transfers) and, at year's end, Swaziland's net official international reserves were equivalent to 3¼ months of imports. Moreover, Swaziland's external debt and debt-service obligations have remained low, at the equivalent of 221/3 percent of GDP and just under 2½ percent of exports, respectively.

A number of policy actions were taken by the government in 1999 and others are imminent. These include a reduction in the liquid asset requirement for commercial banks; a lowering of the reserve requirement on the banks; the issuance of a revised inspection circular to improve the monitoring of bank loans; a further relaxation of foreign exchange controls; a reduction in the company income tax rate in line with the rate in South Africa, and a lowering of the top personal income tax rate; an increase in the sales tax rate; the issuance of guidelines for investment incentives; enactment of an Industrial Relations Act; the partial privatizations of Royal Swazi National Airways and the Swaziland Dairy Board; and larger allocations in the 2000/01 government budget for social services.

Although Swaziland is a middle-income country with a per capita GDP of US$1,340, adult per capita consumption for the poorest 40 percent of its population is equivalent to US$230 or less. Moreover, Swaziland's HIV prevalence is estimated at 22½ percent of the population aged 15-49.

Executive Board Assessment

Executive Directors commended the authorities on Swaziland's economic performance since the conclusion of the last Article IV consultation in early 1999 and pointed, in particular, to the pickup in overall activity, easing of inflation, and relatively comfortable external reserve position. Directors noted, however, that the government budget had moved into deficit at a time when receipts from the Southern African Customs Union are expected to taper off, and that the country's HIV prevalence and continuing widespread poverty pose major challenges for the period ahead.

Against this background, Directors stressed the importance of pressing forward with reforms in key areas. They welcomed recent policy initiatives, but emphasized that further reforms, particularly in the fiscal, banking, and structural areas, are needed to achieve sustained growth, create employment opportunities, and, at the very least, maintain Swaziland's current living standards over the medium term.

Directors stressed that appropriately phased fiscal consolidation will need to center on expanding both the direct and indirect tax bases, strengthening tax enforcement, and restructuring of the civil service. Furthermore, they agreed that, within a constrained expenditure envelope, increased budgetary allocations will need to be accorded to health and education, particularly in view of Swaziland's AIDS crisis and the need to enhance the skills base of the country's young population.

Directors noted that Swaziland's commitment to the Common Monetary Area and the peg of the lilangeni to the rand had helped strengthen financial stability. They encouraged the authorities to remain committed to policies that protect the country's external competitiveness.

Directors expressed concern about the persistent weaknesses in Swaziland's banking system, as evidenced by the high level of nonperforming loans. They urged the authorities to implement long-overdue actions to enhance the regulatory framework for bank supervision, to increase the capital adequacy of banks, and to restructure and privatize the large and insolvent Swaziland Development and Savings Bank. Directors welcomed the steps being initiated in these areas.

Directors emphasized the need to accelerate the pace of structural reforms in order to help sustain broad-based economic expansion in an increasingly liberalized and competitive regional setting. In particular, they called for action on reforms relating to land tenure arrangements, the restructuring and privatization of additional public enterprises, and the implementation of labor-management conciliation mechanisms. At the same time, Directors encouraged the authorities to retain their new, transparent guidelines for foreign direct investment. They noted that the recent floods had severely affected Swaziland, and that this will require considerable reconstruction efforts and heighten the need for investment in infrastructure.

Directors observed that pervasive deficiencies in the quality of Swaziland's economic data hampered policymaking and effective surveillance, and called for the authorities to make further improvements in Swaziland's economic database. They also urged the authorities to ensure that the extensive Fund technical assistance provided to Swaziland is being put to effective use.

Swaziland: Selected Economic Indicators, 1997-2000

  1997 1998 1999

Domestic economy (Annual percentage change)
Real GDP 4.0 2.7 3.1 3.1
Consumer prices (average) 7.1 8.1 6.1 6.5
External economy (In millions of U.S. dollars) 1/
Exports, f.o.b. 961 968 921 977
Imports, f.o.b. -1,089 -1,068 -1,051 -1,123
Current account balance 2/ 6 46 14 15
(in percent of GDP) 0.4 3.6 1.1 1.2
Capital account balance 30 23 13 -12
Net official international reserves 284 329 318 322
(in months of imports of goods and nonfactor
2.8 3.4 3.2 3.1
Debt service (in percent of exports of goods
and nonfactor services)
3.2 2.7 2.4 ...
Change in real effective exchange rate (in percent) 3/ -0.9 -0.4 0.2 ...
Financial variables (In percent of GDP) 1/
Total government revenue and grants 4/ 30.8 31.3 30.9 31.3
Total government expenditure and net lending 4/ 28.9 30.2 34.1 35.4
Overall government balance 4/ 1.9 1.0 -3.1 -4.1
Change in broad money (in percent) 19.4 12.9 15.6 ...
Interest rate (in percent) 5/ 11.8 12.3 9.3 ...

Sources: Swazi authorities; and IMF staff estimates and projections.

1/ Unless otherwise indicated.
2/ Including transfers.
3/ Trade-weighted period average.
4/ Fiscal data on a calendar-year basis for comparability.
5/ For 12-month time deposits.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. In this PIN, the main features of the Board's discussion are described.


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