Press Release No. 12/29

Press Release No. 12/29
February 1, 2012

At the request of the authorities, a mission of the International Monetary Fund (IMF), led by Mr. Joannes Mongardini, visited Swaziland during January 26-February 1, 2012, to (i) review the draft budget for the fiscal year 2012/13 starting April 1, 2012, (ii) assist the authorities in elaborating a strategy to improve public finance management, in collaboration with development partners, and (iii) take stock of recent developments and update the risk assessment pertaining to the financial sector. The mission met with the Minister of Finance, Hon. Majozi Sithole; the Governor of the Central Bank of Swaziland, Mr. Martin Dlamini; and other senior officials. It also held fruitful discussions with development partners, and representatives of the private sector.

At the end of the mission, Mr. Mongardini issued the following statement:

“The year 2011 was a difficult one for the economy of the Kingdom of Swaziland. Economic activity stagnated, with real gross domestic product (GDP) growth estimated at 0.3 percent, while inflation accelerated to an annual rate of 7.8 percent in December 2011, due to higher food and fuel prices. The overall fiscal deficit remained above 10 percent of GDP, while the lack of financing led the government to accumulate a large amount of domestic arrears. Recourse to central bank financing reduced the gross official reserves of the central bank to E 4.2 billion at end-December 2011, equivalent to 2.3 months of prospective import cover.

“For 2012, economic performance will critically depend on the authorities’ actions to restore fiscal sustainability. In concluding the 2011 Article IV Consultation on January 23, 2012, the IMF Executive Board called upon the authorities to take urgent upfront measures, including a reduction of the wage bill, and to use the windfall Southern African Customs Union revenue to repay domestic arrears. In this context, the mission advised the government to take immediate measures to reduce the wage bill by at least E 300 million (1 percent of GDP). Using these and other savings to launch the government’s Enhanced Voluntary Early Retirement Scheme would help bring the wage bill in the medium term more in line with the available resources. In order to repay domestic arrears and advances from the central bank, the 2012/13 budget should aim at an overall surplus of E 919 million (3.1 percent of GDP). In addition to adjusting the size of the budget, the quality of spending should be improved, with more resources allocated to education, the fight against HIV/AIDS, and social protection for orphaned and vulnerable children and the elderly.

“The mission welcomes the government’s resolve to move forward with an ambitious reform agenda on public finance management (PFM), drawn up with assistance from IMF staff and other development partners. Significant technical and financial assistance will be available to support the government’s implementation of the reform agenda, once it is approved by cabinet. Key priorities for 2012 include: passage of the revised PFM bill, drawn up with technical assistance from IMF staff, improving budget reporting, strengthening expenditure control, and enhancing budget preparation.

“The financial sector in Swaziland requires effective supervision. The mission called on the authorities to monitor closely developments in the banking sector and to ensure that commercial banks maintain an adequate level of liquidity. It urged the authorities to move swiftly to make operational the new regulatory authority for the non-bank financial institutions, while shifting the supervision of savings and credit cooperatives to the central bank in the interim.

“The mission would like to thank the authorities for the frank and constructive discussions.”