20230504-IMF-Kingdom_of_Eswatini_2023_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Kingdom_of_Eswatini_106页_5mb

Summary of the 2023 Article IV Consultation with the Kingdom of Eswatini

Core Content

The 2023 Article IV Consultation with the Kingdom of Eswatini was conducted by the IMF and concluded on May 3, 2023. The consultation aimed to evaluate the country's economic performance, assess macroeconomic challenges, and recommend reforms to ensure long-term stability and growth. Key areas of focus included fiscal sustainability, monetary policy, financial sector resilience, and macro-structural reforms.

Main Economic Developments

• Real GDP:

  • Contracted by 1.6% in 2020 due to the pandemic.
  • Surged by 7.9% in 2021 driven by easing of COVID-19 restrictions, strengthened external demand, and increased hydroelectric power generation.
  • Declined to 3.6% in 2022 due to base effects, government cash constraints, and shocks to agriculture (excessive rainfall, high input costs, arson, and industrial action).
  • Projected to grow by 3.2% in 2023 and remain stable at 3.1–3.0% from 2024–2026.

• Inflation:

  • Rose due to international food and fuel price increases, peaking in 2022.
  • Expected to stabilize at around 5% in 2023, in line with declining global commodity prices.

• Fiscal Deficit:

  • Remained at 4.5% of GDP in FY21/22 despite SACU revenue declines.
  • Widened to 5% of GDP in FY22/23 due to further SACU revenue drops and higher government spending.
  • Projected to narrow to 0.3% of GDP in FY23/24 with doubled SACU transfers.

• Public Debt:

  • Rose to 42.3% of GDP by end FY22/23.
  • Expected to decline to 40.6% of GDP in FY23/24.

• External Position:

  • Trade balance worsened in 2022, leading to the first current account deficit in over ten years.
  • Foreign exchange reserves fell to $449 million (about 2.3 months of import cover).
  • External sector is broadly in line with economic fundamentals and desirable policies, though uncertainty remains due to statistical issues.

Key Challenges and Risks

• Low Fiscal and External Buffers:

  • Fiscal and external buffers are insufficient, increasing vulnerability to shocks.

• Civil Unrest:

  • Protests in 2021 and 2022 led to loss of life, school closures, and military deployment.
  • Nationwide dialogue to address unrest has been delayed.
  • General elections are planned for mid-2023.

• Downside Risks:

  • Weaker South African growth and new commodity price shocks could harm Eswatini's economy.
  • Delays in fiscal consolidation risk continued macroeconomic imbalances.
  • Climate shocks remain a source of vulnerability.

IMF Recommendations

Fiscal Reforms

• Continue fiscal adjustment to reduce public debt and rebuild buffers.
• Contain the wage bill through hiring freezes and below-inflation salary adjustments.
• Rationalize tax expenditure and public enterprise transfers.
• Implement a revised medium-term fiscal adjustment plan with a primary surplus.
• Clear outstanding payment arrears to public enterprises and suppliers.

Monetary Policy

• Focus on price stability and maintaining reserves to safeguard the exchange rate peg.
• Maintain a data-dependent approach and align policy rates with SARB.
• Address gaps in AML/CFT compliance with IMF support.

Financial Sector

• Improve financial inclusion and literacy to support private sector credit growth.
• Strengthen supervision of nonbank financial institutions (NBFIs), which hold 70% of financial system assets.
• Monitor non-performing loans (NPLs), which rose to 6.5% of total loans in 2022.
• Improve public financial management and budget implementation to avoid payment arrears.

Macroeconomic Reforms

• Shift to a private sector and export-led growth model to reduce poverty and inequality.
• Improve the business environment, diversify the economy, and close gender gaps.
• Strengthen governance with IMF diagnostics and capacity development.
• Enhance climate resilience to mitigate shocks to food and economic stability.

Key Data and Indicators

Conclusion

The IMF Executive Board welcomed government efforts in fiscal adjustment and reforms, but emphasized the need for sustained action to address long-standing imbalances and structural weaknesses. The recovery is fragile, and the external position is vulnerable to shocks and delays in fiscal consolidation. The focus remains on fiscal sustainability, monetary stability, and structural reforms to support inclusive growth and reduce poverty and inequality.