Swaziland: IMF Walks Away From the Kingdom

Mbabane — The International Monetary Fund (IMF) has withdrawn its advisory team from Swaziland, saying it is unable to support the government's proposed financial reform programme.

The IMF was assisting the government in implementing the Fiscal Adjustment Roadmap (FAR), to right-size the budget, where government spending currently exceeds its revenue.

"Government has yet to propose a credible reform programme that could be supported by a new IMF staff monitored programme... the budget allocates an increasing share of resources to some sectors at the expense of education and health," Joannes Mongardini, head of the IMF team in Swaziland, told a recent press conference.

Swaziland's severe financial woes began after the global slowdown in 2008, when revenue from the Southern African Customs Union (SACU) plummeted. The union - comprising Botswana, Lesotho, Namibia, South Africa and Swaziland - applies a common set of tariffs and disproportionately distributes the revenue to member states.

The spending habits of King Mswati III - sub-Saharan Africa's last absolute monarch - and the royal household are routinely splashed across newspapers, from the overseas shopping trips of his 13 wives to a "birthday present" for the king this year of a multimillion-dollar private jet. The South African daily newspaper, The Star, reported on 17 May that one of Mswati's wives had run up a bill of US$65,000 at a luxury Johannesburg hotel during her month-long stay.

About two-thirds of Swaziland's 1.1 million population live in chronic poverty in a food insecure country that also has the world's highest HIV/AIDS prevalence, with one in four people aged 15-49 infected.

"Government is now further away from feeding its people, providing medical aid, meeting educational needs and supporting children and the elderly with grants. This means international aid will be required to avoid a humanitarian crisis," Janice Sibandze, a community health activist in the commercial city of Manzini, told IRIN.

Grants for many of the elderly have not been paid this year, shortages of medicines have been reported in hospitals, and the government is struggling to meet its constitutional obligations to provide primary education to all children. Hundreds of mobile classrooms purchased two years ago were reportedly at risk of becoming unusable due to lack of maintenance.

More donor dependent

"Despite government mismanagement of the economy, people still need to eat, children still need to be educated, the sick still need to be treated. Swaziland will depend more than ever on the international donor community - the world needs to be prepared," said Sibandze.

People still need to eat, children still need to be educated, the sick still need to be treated. Swaziland will depend more than ever on the international donor community

A key IMF recommendation was that Swaziland's public sector workforce be trimmed by 10 percent. But with private sector unemployment estimated at more than 40 percent, analysts say the government fears that large-scale public sector retrenchments would spark unrest. About 4 percent of government spending in the mainly agrarian society goes to agriculture, while 17 percent is spent on the security services.

In March 2012, parliamentarians voted to reverse their 10 percent salary cuts, arguing that they were the only public sector employees to have taken a wage cut.

The government is drawing down central bank reserves to bridge the gap and cover public sector salaries. The IMF recommends that any nation's central bank hold three months' of foreign reserves as guarantee for payment of imports. The Central Bank of Swaziland recently announced that its reserves were at a historic low of 1.9 months.

An economist employed by a bank in the capital, Mbabane, who declined to be identified, told IRIN that further erosion of the bank's reserves could jeopardize one of the country's last pillars of economic stability, the pegging of its currency, the lilangeni, to the South African rand.

"If the value of the Swazi currency drops so low it cannot be linked to the rand anymore, we will have Zimbabwe-style hyperinflation that will push lower-income earners into poverty," the economist said.

The president of the Federation of the Swazi Business Community (FESBC), Johannes Manikela, said at a recent press briefing that "Sixty percent of SMEs [small and medium enterprises] are at risk of failure because they are not getting government tenders."

Amos Dlamini, an investment counsellor in Mbabane, told IRIN that Swaziland's economic health was dependent on revenue from SACU, which helped fund its exports to South Africa. "The so-called private sector in Swaziland depends on government for contracts, paid for by this same external funding but without which they would go out of business."

The IMF withdrawal, Dlamini said, was a signal that financial reform was going nowhere, and the private sector could not be expected to generate sufficient tax revenue to keep the government solvent.

Poor financial image

"Swaziland cannot survive on its own. Its natural resources are few and tied up by political factors, its agriculture is constricted by medieval farming practices (about 70 percent of the population are subsistence farmers) and its consumer market is too small to sustain a viable retail sector," said Dlamini.

The IMF has described the government's prediction of five percent annual economic growth as "optimistic". In the past decade growth has averaged around two percent a year, below that of population growth.

On 1 April 2012 the government replaced the general sales tax system and introduced a 14 percent Value Added Tax (VAT) regime, which is estimated to have raised prices at the retail level by between four and eight percent. Basic foods are among the zero-rated items.

"It is a regressive tax - it hurts the poor," said Musa Hlope, a former President of the Federation of Swaziland Employers.

The IMF advisory team's withdrawal is also expected to send a negative message to other international lending institutions, such as the World Bank and the African Development Bank.

"Government needs to borrow massively to pay its bills. That is why it tolerated the IMF team in the country in the first place - it needed that letter of comfort," the Mbabane bank economist said.

"Without the IMF's endorsement of progress toward economic reform in Swaziland, South Africa will not extend its loan of R2.4 billion (US$300 million). There was a lot of talk about South Africa bailing out Swaziland last year, but not any more."

[This report does not necessarily reflect the views of the United Nations]

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