IMF Staff Completes 2023 Article IV Mission to Eswatini

IMF News, March 10, 2023

Source details

Real GDP growth: rebound of 7.9 percent in 2021; stagnated at 0.4 percent in 2022.
Headline inflation: 5.6 percent at end-2022.
Government fiscal deficit: projected to widen to 5.4 percent of GDP by end-FY22-23.
Current account balance: shifted to an estimated deficit of about 1.1 percent of GDP.
Foreign reserves: declined to $449 million, equivalent to about 2.3 months of import cover.
Public debt: 45.5 percent of GDP.
Domestic payment arrears: rose again in 2022 (after a sharp reduction in 2021).
Nonbank financial institutions (NBFIs): accounted for almost half of total household credit in 2022Q2 and accounting for about 70 percent of total financial system assets.

Real GDP growth projection for 2023: 3.2 percent, supported by agricultural production and manufacturing, and higher government capital spending.
Inflation projection: expected to stabilize at around 5 percent.
SACU revenue transfers: expected to roughly double in FY23-24, facilitating a significant reduction in the fiscal deficit and a modest reduction in the ratio of public debt to GDP.
Risks noted: volatile international commodity prices; tighter global financial conditions; slowing growth in South Africa; other downside risks that could affect the positive near-term outlook.

Recent drags on activity in 2022: civil unrest, government payment arrears, slowing growth in South Africa, heavier than normal rainfall, and industrial action on the sugar sector.
External and fiscal buffer deterioration: foreign exchange reserves below three months of import cover; fiscal and external buffers have fallen, leaving Eswatini less prepared to counter new shocks.
Sovereign risk assessment: Eswatini’s risk of sovereign debt distress is high.

Revise and implement a fiscal adjustment plan linked to a medium-term fiscal framework to guide year-by-year adjustment.
Combine expenditure measures with revenue measures:
- Expenditure-focused actions: reduce the public wage bill (noted as high by international standards) and reduce transfers to public enterprises.
- Revenue-focused actions: continue progress in tax administration and close holes in the tax net.
Strengthen public financial management and apply more rigorous assessment of public investments.
Establish and effectively implement the SACU revenue stabilization fund to manage swings in SACU revenue transfers and enhance macroeconomic management.
Design measures to mitigate the effects of fiscal adjustment on low-income households.

Facilitate private investment and strengthen competitiveness by:
- Streamlining licensing requirements and property registration.
- Establishing a one-stop shop for businesses.
- Bolstering protection of investor rights (e.g., contract enforcement, property, and investor rights).
- Enhancing the rule of law and effective operation of the commercial court.
- Simplifying tax payment procedures.
- Addressing high electricity and communication costs.
Address gender-based disparities in access to education, healthcare, financial services, ownership of assets, and the labor market to enable women to participate fully in economic activities and support a shift to private sector–led growth.

System soundness: the banking system is generally well capitalized and liquid; for most banks nonperforming loans appear to have peaked and are starting to decline.
Financial sector risks: prolonged macroeconomic imbalances, a volatile global and regional environment, and potential additional shocks warrant continued monitoring and management of financial stability risks.
NBFI regulatory gap: legislative efforts to update the regulatory framework need to be expedited together with supervision for systemically large NBFIs.

Source: IMF Press Release No. 23/66 (March 10, 2023).