Statement at the Conclusion of an IMF Staff Mission to SwazilandPress Release No. 11/318
August 31, 2011
A mission of the International Monetary Fund (IMF), led by Mr. Joannes Mongardini, visited Swaziland during August 17-31, 2011. The mission held discussions on the first assessment under the Staff-Monitored Program (SMP) approved by IMF management on April 4, 2011.1 The mission met with the Prime Minister, His Excellency Dr. Barnabas Sibusiso Dlamini; the Minister of Finance, Hon. Majozi Sithole; the Governor of the Central Bank of Swaziland, Mr. Martin Dlamini; and other senior officials. The mission briefed members of parliament, and the Liqoqo Royal Advisory Council. It also held fruitful discussions with donors and representatives of the private sector.
At the end of the mission, Mr. Mongardini issued the following statement:
“The fiscal crisis in the Kingdom of Swaziland continues to deepen. In the period April-June 2011, expenditure overruns and lack of financing have led to the nonobservance of several targets under the Staff-Monitored Program. While the ceilings on domestic and external arrears were met, the targets on the overall government deficit (measured by its total financing requirement), government social spending, and the net domestic assets and net international reserves of the central bank were missed. On the structural side, most of the benchmarks were met. However, the benchmarks on the 240 million emalangeni cut in the wage bill and on the submission to Parliament of the Public Financial Management Bill were delayed. With many of the key targets and benchmarks not met, the mission was unable to conclude discussions on the first assessment under the SMP, which expired at end-June 2011.
“Against this background, the mission observed that economic activity remains subdued and inflation is on the rise. Electricity consumption, which can be used as a coincident indicator of economic activity in the absence of quarterly GDP data, declined in May 2011 while broad money growth remained subdued in June. Inflation increased to 6.3 percent in July 2011, reflecting higher international food prices. The gross international reserves of the central bank stood at 4.0 billion emalangeni (about $554 million) on August 26, 2011, equivalent to 2.2 months of import cover.
“The mission concurred with the authorities’ views that the government will continue to face severe liquidity constraints over the coming months, notwithstanding the recently-announced 2.4 billion rand loan from the South African authorities. In this context, the mission advised the government to pass a supplementary budget to cut expenditures, while preserving pro-poor spending, and strengthen expenditure controls in order to restore fiscal sustainability. In this context, recent steps by the government to eliminate unauthorized expenditure commitments should help. The quality of spending needs to be improved, with emphasis on education and health, particularly the fight against HIV/AIDS. The mission commended the authorities for the new anti-money laundering and procurement laws, enacted in August 2011, as they will significantly strengthen the anti-corruption framework, once implemented.
“The mission shared the authorities’ view that preserving the parity with the South African rand is of utmost priority. In this context, it urged the government to stop borrowing from the central bank and repay the outstanding emergency credit line from the central bank at the earliest possible convenience. In addition, the mission encouraged the authorities to remain vigilant on developments in the financial sector.
“With the first SMP having gone off track, the authorities expressed an interest in a new SMP. The mission indicated that approval by IMF management of a new SMP would be conditional on a number of prior actions, including passage of a supplementary budget to reduce the wage bill and capital expenditures in line with available financing. Discussions will continue in the context of the Annual Meetings of the IMF and the World Bank in Washington, D.C. in September 2011.
“The mission would like to thank the authorities for the frank and constructive discussions.”
1 A staff-monitored program is an informal and flexible instrument for dialogue between the IMF staff and a member country on its economic policies. Under a staff-monitored program the country's targets and policies are monitored by the IMF staff; a staff-monitored program is not supported by the use of the Fund's financial resources; nor is it subject to the endorsement of the Executive Board of the IMF.