IMF Executive Board Concludes 2023 Article IV Consultation with Kingdom of Eswatini
IMF News, May 4, 2023
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- Published: May 4, 2023
Economic performance and recent shocks
- Real GDP contracted by a comparatively modest 1.6 percent in 2020 and surged by 7.9 percent in 2021 as manufacturing rebounded on the easing of COVID-19 restrictions and strengthened external demand.
- Real GDP growth declined in 2022 due in part to base effects, slowing construction projects tied to government cash constraints, and adverse developments in sugar cultivation and processing (excessive rainfall, high fertilizer and pesticide costs, and arson).
- Inflation rose following surging international food and fuel prices but appears to have peaked in 2022.
Fiscal and external positions
- Fiscal deficit: held at 4.5 percent of GDP in FY21/22; estimated to have widened to 5 percent in FY22/23 due to further declines in SACU revenues and higher spending on goods and services, transfers, and interest payments.
- Public debt: rose to an estimated 42.3 percent of GDP by end FY22/23.
- Trade and current account: trade balance worsened in 2022 with rising food and fuel import costs, driving the external current account into deficit for the first time in over ten years.
- Reserves and external funding: central bank foreign exchange reserves fell to about $449 million by end-2022 (2.3 months of import cover).
- Assessment: the external position is assessed as broadly in line with the level implied by economic fundamentals and desirable policies.
Financial sector conditions and vulnerabilities
- Liquidity and capitalization: the banking sector is liquid and well-capitalized; banks’ profitability improved in the first half of 2022.
- Government exposure: lending to the government remained high; financial sector holdings of government securities amounted to about 16 percent of total assets in June 2022, exposing the sector to sovereign risk.
- Asset quality: the ratio of non-performing loans to total loans increased to 6.5 percent at end-June 2022, from 5.6 percent a year earlier.
- Nonbank dominance: nonbank financial institutions account for roughly 70 percent of total financial system assets.
- Other priorities: need for vigilance on nonbank financial institutions, financial inclusion, financial literacy, and addressing gaps in AML/CFT compliance (supported by IMF capacity development).
Near-term outlook and projections
- Real GDP growth: projected at 3.2 percent in 2023.
- Inflation: expected to stabilize at around 5 percent in 2023.
- SACU transfers: projected to double in FY23/24, bolstering near-term fiscal balances.
- FY23/24 fiscal deficit: projected to narrow to 0.3 percent of GDP despite an expansionary fiscal policy.
- Public debt trajectory: projected to decline to 40.6 percent of GDP.
- Downside risks: include weaker growth in South Africa and new shocks to food, fuel, and fertilizer prices.
Executive Board assessment, policy recommendations, and reform priorities
- General assessment: Directors welcomed the authorities’ pandemic response and reform efforts, but noted medium-term uncertainty because of low fiscal and external buffers and macro-structural weaknesses.
- Fiscal policy and debt:
- Call for continued fiscal adjustment to put public debt on a downward path and rebuild fiscal buffers.
- Clear domestic payment arrears and reduce pressure on external accounts.
- Develop a revised medium-term fiscal adjustment plan anchored on a primary surplus.
- Further reduce the public wage bill.
- Introduce and operationalize a SACU revenue stabilization fund.
- Rationalize Eswatini’s tax expenditure regime.
- Improve the social safety net.
- Public financial management and revenue administration:
- Implement a Treasury Single Account and an Integrated Financial Management Information System.
- Strengthen budget planning and implementation to avoid payment arrears.
- Monetary and exchange rate policy:
- Focus on price stability and maintaining adequate reserves to safeguard the exchange rate peg.
- Maintain a data-dependent approach and vigilance.
- Financial sector and governance:
- Continue vigilance over financial sector resilience, especially nonbank institutions.
- Promote financial inclusion and financial literacy to expand private sector credit.
- Address AML/CFT compliance gaps with IMF support.
- Implement macro-structural and governance reforms to support private sector-led inclusive growth, reduce poverty and inequality, improve the business climate, diversify the economy, close gender gaps, and strengthen climate resilience.
- Technical support: Directors highlighted the value of an IMF governance diagnostic to help address governance weaknesses.
Key statistics and selected economic indicators (2019–28)
- GDP at constant prices (annual percent changes): 2019: 2.7; 2020: -1.6; 2021: 7.9; 2022: 3.6; 2023: 3.2; 2024: 3.1; 2025: 3.0; 2026: 2.9; 2027: 2.8; 2028: (not provided).
- GDP at market prices (Emalangeni billions): 2019: 65.0; 2020: 65.6; 2021: 70.1; 2022: 79.2; 2023: 85.4; 2024: 91.6; 2025: 98.1; 2026: 104.9; 2027: 112.0; 2028: 119.4.
- GDP at market prices (US dollar billions): 2019: 4.7; 2020: 4.9; 2021: 5.2; 2022: 5.5; 2023: 5.7; 2024: 6.0; 2025: 6.3; 2026: 6.4.
- Nominal GDP per capita (US dollar): 2019: 4,032; 2020: 3,535; 2021: 4,165; 2022: 4,271; 2023: 4,463; 2024: 4,648; 2025: 4,821; 2026: 4,989; 2027: 5,154; 2028: 5,239.
- Consumer prices (average): 2019: 4.8; 2020: 5.1; 2021: 4.3; 2022: (not provided).
- Consumer prices (end of period): 2019: 2.0; 2020: 4.6; 2021: 3.5; 2022: 5.6.
- Trade balance (percent of GDP): 2019: 1.9; 2020: 1.1.
- Current account balance (including official transfers, percent of GDP): 2019: -1.0; 2020: 5.8; 2021: 1.2; 2022: 0.8; 2023: (not provided).
- Current account balance (excluding official transfers, percent of GDP): 2019: -5.6; 2020: -4.9; 2021: -7.1; 2022: -8.4; 2023: -7.3; 2024: -7.5; 2025: -7.6; 2026: -7.4.
- Foreign direct investment (percent of GDP, financial account item): 2019: -2.4; 2020: -1.2; 2021: -0.7; 2022: -0.8; 2023: -1.4; 2024: -1.5.
- External debt (percent of GDP): 2019: 20.5; 2020: 22.5; 2021: 22.2; 2022: 24.2; 2023: 25.3; 2024: 26.4; 2025: 27.9; 2026: 29.2.
- External debt, public component (percent of GDP): 2019: 12.7; 2020: 15.2; 2021: 16.9; 2022: 19.6; 2023: 21.1; 2024: 22.9; 2025: 24.5; 2026: 26.1.
- Gross international reserves (months of imports): 2019: 2.5; 2020: 2.2; 2021: 9.2; 2022: 13.0; 2023: 9.6; 2024: 12.6; 2025: 11.5; 2026: 10.6; 2027: 8.7.
- Gross international reserves (percent of reserve money): 2019: 137; 2020: 148; 2021: 187; 2022: 117; 2023: 147; 2024: 152; 2025: 139; 2026: 128; 2027: 116; 2028: 105.
- Central government overall balance (percent of GDP): 2019: -6.7; 2020: -4.5; 2021: -5.0; 2022: -0.3; 2023: -3.1; 2024: -4.0; 2025: -4.3.
- Total revenue and grants (percent of GDP): 2019: 27.3; 2020: 28.9; 2021: 24.8; 2022: 23.8; 2023: 30.1; 2024: 26.9; 2025: 26.5; 2026: 26.7; 2027: 26.8.
- SACU receipts (percent of GDP, component of revenues): 2019: 12.5; 2020: 8.8; 2021: 13.5; 2022: 9.1.
- Total expenditure (percent of GDP): 2019: 34.0; 2020: 33.5; 2021: 29.4; 2022: 28.8; 2023: 30.4; 2024: 30.0; 2025: 30.3; 2026: 30.7; 2027: 31.0; 2028: 31.1.
- Public debt, gross (percent of GDP): 2019: 39.5; 2020: 41.2; 2021: 40.6; 2022: 42.3; 2023: 41.4; 2024: 43.3; 2025: 45.6; 2026: 48.1; 2027: 50.0.
- Public debt, net (percent of GDP): 2019: 33.7; 2020: 31.4; 2021: 36.3; 2022: 36.8; 2023: 37.9; 2024: 40.0; 2025: 42.5; 2026: 45.2; 2027: 47.3.
- Net lending (excluding SACU revenues, percent of GDP): 2019: -16.4; 2020: -17.1; 2021: -13.4; 2022: -12.2; 2023: -13.9; 2024: -12.9; 2025: -13.0; 2026: -13.1; 2027: -13.3.
- Primary net lending (excluding SACU revenues, percent of GDP): 2019: -14.3; 2020: -14.9; 2021: -11.5; 2022: -10.4; 2023: -12.1; 2024: -11.4; 2025: -11.2; 2026: -11.0; 2027: -10.9.
- Population (million): 2019: 1.11; 2020: 1.13; 2021: 1.14; 2022: 1.15; 2023: 1.16; 2024: 1.18; 2025: 1.19; 2026: 1.20; 2027: 1.21; 2028: 1.23.
Source: IMF Communications Department — Press Release No. 23/134; IMF staff estimates and projections.