Swaziland faces a fiscal crisis, driven by a large decline in Southern African Customs Union (SACU) revenues and one of the largest government wage bills in Sub-Saharan Africa. Absent corrective measures, the overall fiscal deficit is projected to reach 16 percent of GDP. The deficit is being financed through a significant accumulation of domestic arrears as the government runs down its deposits at the central bank. The debt dynamic is becoming unsustainable.
The Swaziland government has responded to the crisis by adopting a Fiscal Adjustment Roadmap (FAR) in October 2010, while taking immediate actions as well. On the latter, the authorities increased the fuel levy in November 2010, cancelled a large amount of investment projects, and implemented measures to reduce the wage bill.
Over the medium-term, the aims to continue to expanding revenue sources and rationalize expenditures. On the revenue side, the authorities will shortly submit legislation to introduce a value-added tax. On the expenditure side, they intend to introduce a civil servants’ wage and hiring freeze for the next three years, and are implementing a significant reduction in civil service payroll through a voluntary separation package.
Overall, the FAR is expected to reduce the fiscal deficit gradually to about 3 percent of GDP by 2014/15. In support of the FAR, the authorities have requested financial and technical assistance (TA) from the African Development Bank (AfDB), the European Union (EU), the Fund, and the World Bank (WB).
The Article IV Consultation discussions focused on restoring fiscal sustainability, improving competitiveness, and strengthening financial supervision. The authorities and staff shared the same diagnostic on the current situation. In light of the imminent fiscal crisis, staff advised upfront fiscal measures to eliminate domestic arrears, while preserving pro-poor spending. The authorities preferred a more gradual approach in 2010, but agreed that a conservative 2011/12 budget would be needed. While noting that the FAR is a welcome step, staff suggested that it needed to be strengthened and firmly implemented in order to successfully bring the deficit down to a sustainable level and reduce dependence on SACU transfers. There was a broad agreement on the need to improve competitiveness, to tackle widespread HIV/AIDS and poverty, and to preserve financial stability by strengthening the surveillance of the financial sector.
Political and social risks are significant. During the mission, trade unions indicated their willingness to make sacrifices, provided that these are fairly distributed across all income groups. Protecting pro-poor spending, as well as bold actions to address the spread of HIV/AIDS, are essential for maintaining political support for the needed fiscal adjustment.
* The above is the executive summary from the report. The full report can be accessed here.