Statement by IMF Staff Mission to SwazilandPress Release No. 08/191
August 7, 2008
An International Monetary Fund (IMF) mission, headed by Ms. Wipada Soonthornsima, visited Mbabane during July 23-August 5 to conduct the 2008 Article IV consultation discussions. Meetings were held with the Minister of Finance Sithole, Central Bank Governor Dlamini, senior government officials, and members of the donor community and the private sector.
The mission issued the following statement today:
"The discussions took place against the backdrop of increasing downside risk to macroeconomic stability with high inflation driven by rising fuel and food prices, and with declining trade preferences and a slow down of the global economy. Real GDP growth is expected to moderate to below 3 percent in 2008 from 3½ percent in 2007, reflecting slowdown in the construction, sugar, and textile sectors. The high level of revenue from the Southern Africa Customs Union (SACU) contributed to a marked improvement in the external current account and international reserves in 2007. The current account in 2008 is expected to deteriorate somewhat reflecting the decline of trade preferences for sugar and textiles.
"With prospects of continued high fuel and food prices, inflation is expected to rise to 12.9 percent in 2008 from 8 percent in 2007. Noting the recent double-digit wage increases, the mission recommended maintaining a tight monetary policy to contain the second-round effects of higher fuel and food prices.
"The mission discussed reforms to accelerate growth and make progress toward poverty reduction. Fiscal policy should take account of the downside risks to SACU revenue-the main source of government revenues. The mission welcomed further fiscal savings as they allow for expenditure smoothing in anticipation of a decline in SACU revenues over the medium term. The mission recommended that the composition of government spending shift toward higher quality spending on health, education, agriculture, and capital projects with high social rate of return. Further improving expenditure efficiency and targeting are needed to help ease the burden of high food and fuel prices. The authorities are taking important steps to expedite the establishment of Revenue Authority and to introduce VAT in 2009/10.
"The mission welcomed efforts to expedite the use of resources from the Global Fund and other donors to fight HIV/AIDS. It urged stronger efforts to improve capacity to fully utilize the budgetary allocation for the social sectors. The mission supported implementation of the performance management system to improve productivity in the public sector. A clear implementation strategy for the Poverty Reduction Strategy and Action Program (PRSAP) is also needed, including ensuring its consistency with the medium-term fiscal framework and macroeconomic stability. In light of the adverse effects of high fuel and food prices, additional efforts are needed now in order to ensure progress toward the Millennium Development Goals. This will also require steps to improve the enabling environment for private sector-led growth..
"In recent years, growth of nonbank financial institutions has increased access to finance for a larger segment of the population, but has also created risks. In this connection, the mission urged the authorities to strengthen the supervision and regulation of nonbank financial institutions, including by passing the Financial Regulatory Authority Bill."