23 February 2013

Swaziland: Swazi Budget Snubs IMF Advice

Swaziland's Government is on a collision course with the International Monetary Fund (IMF) after announcing extra spending on public service salaries and tax cuts for workers and companies.

The decision announced by Swazi Finance Minister Majozi Sithole in his budget speech on Friday (22 February 2013) also puts the kingdom at odds with global banks which it must rely on for loans.

In his speech to the Swaziland Parliament, Sithole announced a budget totalling E13.1 billion (US$1.9 billion), of which E5.2 billion (40 percent) would go on public sector salaries. This is an increase in salaries of E600 million on the previous year.

Last year (2012), public sector unions took to the streets in protest against the government when it told them workers were expected to take salary cuts of up to 10 percent. Instead, unions wanted a 4.5 percent increase in salaries to meet the rising cost of living.

Sithole expects to get E7.1 billion as receipts from the Southern African Customs Union (SACU) in the coming financial year and end up with a budget deficit of E397 million.

With the new increases the Swaziland Government salaries bill would amount to 86 percent of its total income if SACU receipts were excluded from the calculation.

Sithole also announced income tax cuts that would put an estimated E300 million back in the pockets of taxpayers and a cut of 2.5 percent in Corporation Tax for companies.

These moves put the Swazi Government at odds with the IMF which has been trying to help Swaziland out of the mess that has been created by successive governments, handpicked by King Mswati III. Swaziland has failed to secure loans from the World Bank and the African Development Bank because it cannot show that it can run its own economy sensibly.

The IMF has told the Swaziland Government that to secure its confidence it must reduce the public sector wage bill and find ways to increase non-SACU revenue through raising extra taxes and collecting them more efficiently than they have in the past.

At the same time, the IMF says, Swaziland should be more careful in the way it spends what money it has, avoiding unnecessary capital projects and putting resources into projects that help poor people.

Sithole's budget does the opposite of that. He announced two capital spending projects, an 'international conference centre' and a 'millennium hotel', both costing E80 million. In addition, a further E220 million is to be spent on the discredited Sikhuphe International Airport, dubbed by critics a 'vanity project' for King Mswati, who rules Swaziland as sub-Saharan Africa's last absolute monarch.

The cost of these unnecessary capital projects contrast to the spending announced by Sithole on pro-poor projects. Only E125 million will go to free primary education; E170.5 million to

the Orphaned and Vulnerable Children (OVC) Education Fund, set up to help mainly children whose parents had died from HIV-related illness; and grants for the elderly will rise by only E20 per month to E220.

The IMF has yet to respond publicly to the budget announcement, but only this week it released one of its regular reports about the state of the economy in Swaziland.

The IMF reported the Swaziland economy 'will be unsustainable over the medium term and subject to significant downside risks'. It said there needed to be 'upfront expenditure cuts, including on the wage bill'.

The IMF said that in the recent past the government had repaid some of its debt but this was 'partly achieved through cuts in education, health, and other poverty-alleviating spending'.

To underline the fragile state of the economy, the IMF said, 'Swaziland's economic prospects remain difficult and that, without credible and comprehensive fiscal adjustment and structural reforms, the current fiscal and external position will be unsustainable over the medium term and subject to significant downside risks.'

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