Press Release No. 09/440

Press Release No. 09/440
December 2, 2009

An International Monetary Fund (IMF) staff team led by Norbert Toé visited Mbabane during November 18–December 2 to conduct the 2009 Article IV Consultation with Swaziland. The mission’s work focused on policies needed to restore fiscal sustainability, preserve macroeconomic and financial stability, and spur economic growth. The mission met with Minister of Finance Hon. Majozi V. Sithole, Central Bank Governor Martin G. Dlamini, members of the Cabinet and the Finance Committee of Parliament. The mission met also other senior government officials, members of the donor community, the private sector, and civil society.

At the end of the mission, Mr. Toé, Mission Chief for Swaziland, issued the following statement today in Mbabane:

“Since the last Article IV consultation a little more than a year ago, Swaziland has been grappling with the impact of the 2008 oil and food crisis and the global economic crisis of 2009. The latter has led to a significant drop in transfers from the Southern African Customs Union (SACU), which in the context of high spending levels, is posing serious risk to medium-term fiscal sustainability. Economic activity remains sluggish in 2009 with GDP growth estimated at 0.4 percent. Inflation continues to moderate as food and fuel prices trend downwards, and is expected to be around 5 percent by year-end.

“The economic outlook is subject to downside risks stemming from the uncertainty about the strength of the global recovery, particularly in South Africa which is destination to more than half of Swaziland’s exports, the phasing-out of preferential agreements, the sustainability of structural reforms to foster competitiveness and improve the business environment. The mission welcomes the establishment of the Anti-Corruption Commission and the recent passage by parliament of the Financial Services Regulatory Authority Bill. It encourages the authorities to accelerate the adoption of other pending legislation to further strengthen the financial system, improve the regulatory environment, and promote private-sector led growth.

“The key challenge going forward is for the authorities to address the emerging large fiscal deficits by building public support for the necessary adjustments. This is all the more necessary as the financing of persistent high fiscal deficits and the ensuing reserve losses could undermine confidence in the current monetary arrangement and result in unsustainable debt levels. Consequently, the mission urges the authorities to embark without delay on a fiscal adjustment path focused on expenditure cuts. In particular, the recent across-the-board salary increases, which are unsustainable given the sharp and permanent drop in SACU revenue, need to be revisited. Mobilizing more domestic resources through a strengthening of taxpayers’ compliance and a broadening of the tax base is essential for the fiscal consolidation efforts. Improving the quality of spending and strengthening public financial management to shift resources to critical social programs, including investment in human capital and expenditures that foster economic growth are also needed.

“The IMF stands ready to continue to assist the authorities in developing their policy response to enable the Swazi economy to weather this unprecedented deterioration in the fiscal position and put the country on a sustained growth path.

“The mission would like to thank the authorities for their excellent cooperation.”