IMF Executive Board Concludes 2009 Article IV Consultation with Swaziland

Public Information Notice (PIN) No. 11/124
September 30, 2011

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 February 22, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Swaziland.1


The global economic downturn has adversely affected the Swazi economy with a sharp deceleration in real gross domestic product (GDP) growth to 0.4 percent in 2009 and a modest recovery projected for 2010, assuming stronger global demand and implementation of ongoing initiatives to increase agricultural production. Meanwhile, inflation moderated, falling to 5.4 percent by end-2009 and is expected to converge toward South Africa’s inflation rate over the medium term. The global downturn is having its most severe impact on the fiscal and external positions as transfers from the Southern African Customs Union (SACU) decline abruptly. Both the overall fiscal and external current account deficits are projected to widen over the medium term, averaging 11 and 10 percent of GDP, respectively. Gross official reserves are projected to gradually fall to two months of import cover or about 50 percent of broad money by 2014.

The authorities are considering a series of expenditure-cutting measures in response to the rapidly deteriorating fiscal position. These measures combined with sustained efforts to mobilize non-SACU revenue are expected to contain the fiscal deficit to sustainable levels over the medium term and preserve the viability of the exchange rate peg. Faced with the daunting challenge of remaining competitive in a rapidly changing global environment, the authorities are also implementing structural reforms aimed at reducing the high cost of doing business, enhancing land and labor productivity, and spurring private sector-led growth.

Executive Board Assessment

Executive Directors agreed with the thrust of the staff assessment and recommendations. They noted the adverse impact of the global economic crisis and the related sharp decline in revenue from the Southern African Customs Union on Swaziland’s economy. Directors observed that the latter has significantly deteriorated the country’s fiscal position and medium-term outlook with the ensuing risks of unsustainable debt as well as threatened the exchange rate peg. Directors therefore stressed the need for urgent fiscal consolidation along with structural reforms in key areas to help achieve fiscal sustainability over the medium term, boost economic growth, and preserve external stability.

Directors supported the authorities’ efforts to rein in expenditures. They encouraged them to strike an appropriate balance between expenditure cuts and revenue-raising measures while creating fiscal space for spending on priority social programs. Directors recognized that the main challenge will be to identify sustainable expenditure-reducing measures, including a comprehensive civil service reform and rationalization of expenditures. Directors also stressed the need to strengthen public financial management and to accelerate the privatization program. Similarly, broadening the tax base and improving tax administration will be crucial.

Directors agreed that Swaziland’s membership in the Common Monetary Area (CMA) and the currency peg to the South African rand continue to serve the country well. However, they cautioned that the overvaluation of the exchange rate could jeopardize the competiveness of Swaziland’s exports. Directors observed that to remain competitive, steadfast implementation of structural reforms, along with wage moderation, will be necessary to improve productivity, which will also help compensate for eroding trade preferences.

Directors noted that the interest rate differential with the South African Reserve Bank repo rate, in the context of the CMA arrangements, could give rise to significant capital outflows and recommended its elimination. Given the underdeveloped state of the domestic financial markets and in the absence of productive investment opportunities, Directors urged the authorities to reconsider the domestic asset requirement for pension funds and insurance companies.

Swaziland: Selected Economic and Financial Indicators, 2004–2009








  2004 2005 2006 2007 2008 2009

Domestic economy


Real GDP

2.5 2.2 2.9 3.5 2.4 0.4

Consumer price inflation (period average)

3.4 4.8 5.3 8.2 13.1 7.6

Consumer price inflation (end of period)

3.2 6.3 5.5 9.8 12.9 5.4

External economy

(In millions of U.S. dollars, unless otherwise indicated)

Exports, f.o.b.

1,809 1,636 1,664 1,743 1,570 1,568

Imports, f.o.b.

-1,718 -1,894 -1,916 -1,,843 -1,580 -1,632

Current account balance 1/

71 -103 -197 22 -116 -195

(percent of GDP)

3.1 -4.1 -7.4 0.7 -4.1 -6.5

Gross official international reserves

262 244 367 748 723 721

(months of imports of goods and nonfactor services)

1.5 1.3 1.9 3.8 4.0 3.9

Debt service (percent of exports of goods and nonfactor services)

1.0 1.0 1.1 1.2 1.5 1.4

Financial variables

(In percent of GDP, unless otherwise indicated)

Total government revenue and grants 2/

32.1 33.2 42.8 38.9 40.5 34.9

Total government expenditure and net lending 2/

36.9 34.8 32.3 32.4 40.6 42.9

Overall government balance (incl. grants) 2/

-4.7 -1.6 10.4 6.5 -0.2 -8.0

Change in broad money (percent)

10.4 5.9 25.1 21.4 15.4 2.2

Interest rates (percent) 3/

4.1 3.5 8.5 10.0 9.8 4.0

Discount rate (percent)

7.5 7.5 9.0 11.0 11.0 6.5

Sources: Swazi authorities; and IMF staff estimates.

1/ Including transfers.

2/ Fiscal years (April 1-March 31).

3/ 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.


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