A mission of the International Monetary Fund, led by Mr. Joannes Mongardini, visited Swaziland from May 4 to May 18, 2011. The mission held discussions on the first assessment under the Staff-Monitored Program (SMP) approved by IMF management on April 4, 2011. The mission met with the head of state, His Majesty King Mswati III, the Liqoqo Royal Advisory Council, the Prime Minister, His Excellency Dr. Barnabas Sibusiso Dlamini, the Minister of Finance, Hon. Majozi Sithole, the Governor of the Central Bank of Swaziland, Mr. Martin Dlamini, and other senior officials. The mission briefed the full government in a cabinet session on May 17, 2011. It also held fruitful discussions with donors, representatives of the private sector, and labor unions. At the end of the mission, Mr. Mongardini issued the following statement:
'The Kingdom of Swaziland continues to face a severe fiscal crisis. The central government deficit reached 14.3 percent of gross domestic product (GDP) for the fiscal year that ended March 31, 2011. The widening of the fiscal deficit was mainly driven by a large decline in revenues from the Southern Africa Customs Union (down 11 percent of GDP compared with the previous year), a 4.5 percent unbudgeted wage increase granted to civil servants and politicians in April 2010, as well as large expenditure overruns goods and services, notably on defense, and, to a less extent, on capital projects. The large fiscal deficit was financed by drawing down government deposits at the central bank, significant domestic borrowing, and an accumulation of domestic payment arrears of E 1.3 billion. Correspondingly, the external current account deficit is estimated to have widened to 18.5 percent of GDP in 2010. As a result, the gross official reserves of the Central Bank of Swaziland continue to decline and stood at about E 4 billion (equivalent to 2.6 months of import cover) on April 29, 2011. Real GDP growth in 2010 is estimated at 2 percent, while inflation stood at 4.5 percent.
"Performance under the Staff-Monitored Program was mixed. Specifically, two fiscal quantitative targets were missed, on the overall financing of the budget, by E 581 million (1.9 percent of GDP), and on domestic payment arrears, by E 59 million (0.2 percent of GDP). The target on the net international reserves of the central bank was also missed by USD 34 million. On the structural side, the benchmark on the establishment of a commitment register in all line ministries was met. However, the end-April benchmark on the submission to parliament of amendments to the income tax order was missed. The authorities have indicated that they now expect the order to be submitted in June. Discussions to bring the program back on track will continue and performance will be reassessed in August 2011, based on end-June targets.
'The mission concurred with the authorities’ views that the government faces severe liquidity constraints over the coming months. In this context, the mission advised the government to take immediate measures to cut expenditure and mobilize additional financing in order to avoid the accumulation of additional payment arrears, including on wages. A large fiscal adjustment is needed to bring the program back on track and reduce the fiscal deficit in line with available financing. The authorities and the mission have identified E 600 million (2 percent of GDP) in spending cuts that could be implemented swiftly to improve the fiscal situation. This and the continued structural impediments to growth are projected to dampen real GDP growth to -1.9 percent in 2011. Consumer price inflation is projected to rise to about 8 percent in 2011, reflecting higher domestic taxes and levies on various products, as well as the increase of international food and fuel prices. Mirroring the sharp fiscal adjustment, the current account would improve to 12.3 percent of GDP.
'The mission continued to encourage the authorities to find means to cut the wage bill by E 240 million, as envisaged under the program, and to implement without delay the voluntary early-retirement scheme EVERS. It also fully supported the government’s plan to resume its privatization program, starting with Swazi Bank and an international tender for the sale of a new mobile phone license, as announced in the budget speech last February. The mission also recommended the mobilization of additional sources of domestic financing, including through the divestiture or the securitization of other government assets.
'The mission would like to thank the authorities for their excellent cooperation and the frank and constructive discussions.'