Mbabane: The Budget is a statement of the revenues the Government expects to collect over the next 12 months, and how they will be spent. This coming year, Government expects to collect 35 percent of Swaziland’s GDP, of which 18.4 percent will come from SACU. Government also expects to receive project grants equivalent to about 2 percent of GDP. On the other hand, total spending will be approximately 38 percent of GDP, which means we will need to borrow to be able to reach the planned spending levels. Agreeing to spend more than we can receive has been a tough decision to take, together as Government. However such a stance is not uncommon especially after an election year. There is always pressure on Government, to increase spending to meet and fulfil the promises made to the electorate.
Mr. Speaker, this now brings me to the main purpose of this budget. Before introducing the main theme of the budget, let me assure Parliament that we are committed not to leave a legacy of needless debt to future generations. We will ensure that total public debt remains relatively low, below the 35 percent of GDP threshold.
- Fiscal Year 2014/15 Budget Strategy
7. Mr. Speaker, the main purpose and focus of this budget is to “Invigorate economic growth, create employment opportunities, and accelerate public sector reforms” aimed at maintaining macroeconomic stability; maintaining peace and security, and improving the welfare of the people of Swaziland. These objectives must be seen in the long term perspective, of transforming Swaziland into a developed country status, as per His Majesty’s Vision.
8. These objectives are already contained in the national planning documents including Vision 2022, the National Development Strategy, Economic Recovery Strategy, Fiscal Adjustment Roadmap, and the Poverty Reduction Strategy and Action Plan. The budget strategy I am going to describe is consistent with these documents. The Ministry of Economic Planning and Development is in the process of delivering, a new National Development Plan with performance targets, which will help guide future allocations of resources. Government is also in the process of developing a set of development indicators to measure and monitor progress towards economic and social goals, as communicated by His Majesty in his recent Speech from the Throne.
9. Mr. Speaker, I believe that in order to have full comprehension of the Government’s actions in this budget, it is essential to briefly highlight recent international, regional, and domestic economic developments. Later I will briefly review our fiscal performance for the financial year 2013/14.
- International and regional developments
10. Mr Speaker, we are witnessing the gradual recovery of the world economy from a severe crisis. But it is not yet back to normal. The IMF estimate that the world economy grew by 3 percent in 2013. In 2014 and 2015 global growth is expected to accelerate to 3.7 percent and 3.9 percent, respectively. This approaches the trend growth rate of around 4 percent seen in the decade before the global financial crisis.
11. While the outlook is encouraging, some concerns remain. Emerging economies have grown more slowly in 2013 than in recent years. Growth in sub-Saharan Africa was lower than forecast last year, but is expected to accelerate from 5.1 percent in 2013 to 6.1 percent this year. In the medium term, lower commodity prices are expected, which may dampen growth across the region.
12. Mr Speaker, South Africa is Swaziland’s main economic partner and our economy depends largely on South Africa’s trade performance. The National Treasury of South Africa estimates growth of 2.1 percent in 2013. This was 0.9 percent short of earlier expectations. Economic activity is projected to pick up to 3 percent in 2014, but there are still challenges. Firstly, South Africa trades heavily with Europe, which is recovering slowly. Secondly, its public borrowing and private investment costs are expected to increase this coming fiscal year. Finally, labour disputes, electricity shortages and other supply-side challenges could continue to be deterrents to growth.
- Domestic developments
13. Mr Speaker, our own economy is recovering as well and inflation is below 6 percent, compared to 8.9 percent in 2012. Preliminary estimates indicate that real GDP growth rose from 2 percent in 2012 to 2.8 percent in 2013. The agricultural sector was affected in 2013 by storms and heavy rains, but manufacturing and services sectors have expanded. Construction grew by 9.5 percent, wholesale and retail by 4.0 percent and communications by 8.5 percent. Commercial bank credit to the private sector has been growing faster and consumer spending power has been helped by falling inflation, low interest rates and increased Government expenditure.
14. Higher SACU revenues and improved exports have reversed the current account deficit of over 8 percent of GDP recorded in 2011. 2013 is expected to yield a surplus of over 5 percent. International reserves have reached 4.6 months of import cover by end-2013, after falling to lows of 2.1 months in March 2011. However the start of monetary tapering in the United States has resulted in a 11 percent depreciation of the Lilangeni in the last 4 months. For now, we are unsure of the implications such events will have for the domestic economy.
15. The continued implementation of policies to improve economic competitiveness and increase the share of capital spending has supported higher growth. However, most industries are relatively mature and barriers remain that limit the capacity of the economy to expand. Overall, our economy is projected to grow by around 2 percent in 2014.
- Fiscal Performance
16. Mr Speaker, nearly two years have passed since SACU revenues recovered and ended the three year fiscal crisis. Growth in the Common Revenue Pool means that receipts from SACU was E6.5 billion in 2013/14, around 7 percent higher than in 2012/13. In addition, we received a E643 million repayment following the Common Revenue Pool over-performance in 2011/12. Mr. Speaker, let me hasten to mention that this is a one-off payment that will not be repeated every year. Sometimes we receive such a windfall, and sometimes we pay back to the SACU pool, like it happened in FY2010/11 and FY2011/12, where we paid back around E900 million and E1.4 billion respectively. Government will continue to look for ways to reduce dependence on SACU revenues and to reduce the risks of another fiscal crisis.
17. In this regard, I am pleased to say that our domestic revenues have performed above target. Despite tax cuts, total domestic revenue is expected to amount to E5.5 billion in 2013/14. This is 12 percent higher than last fiscal year. In 2013/14, higher than expected VAT refunds have been compensated for by strong collections in corporate tax, personal
income tax and fuel tax. We congratulate the Swaziland Revenue Authority over this achievement.
18. Expenditure has grown by E4 billion over the past two years. This is equal to around 6.5 percent of GDP. In 2012/13, expenditure grew by 19 percent but was contained by the previous Government in order to run a budget surplus of around 4.3 percent of GDP. The surplus was used to rebuild reserves and to repay arrears. This action was essential to restore confidence in the economy and to set a stable foundation for economic growth.
19. In 2013/14, the Government raised spending by 23 percent to E13.2 billion in order to stimulate the economy. The budget was not fully financed, so recurrent spending controls are expected to restrict expenditure to E12.9 billion. Around 40 percent of projected outturn would be spent on wages and salaries, 16 percent on goods and services, 21 percent on transfers, and 3 percent on interest payments. As a result, the Government will be able to increase capital spending by nearly 90 percent and still deliver a budget deficit of less than 1 percent of GDP.
The resource envelope for fiscal year 2014/15
20. Mr. Speaker, the total amount of resources available in fiscal year 2014/15 are estimated at E15.3 billion, representing an increase of 19 percent, on fiscal year 2013/14. Fifty one (51) percent of the budget in fiscal year 2014/15 is projected to be financed by non-SACU revenue, estimated at E5.9 billion. This represents a rise in the domestic financing of our budget using non-SACU revenues. This is in line with Government’s plan to reduce dependency on SACU receipts. In 2014/15, SACU receipts will finance 49 percent of the budget, compared to 56 percent in 2013/14.
21. Mr Speaker, the balance of the budget will be financed through the support of our development partners, who have committed to contribute E778.2 million through grants, as well as through borrowing. As already indicated, we will need to borrow about E1.1 billion to finance an estimated deficit of 3 percent of GDP.
- Trade and Industry
51. Government through the Swaziland Investment Promotion Authority (SIPA) has prioritized the creation of an investment climate that is conducive for doing business in the country, through the implementation of the Investor Road Map (IRM). The implementation of the (IRM) is a key strategic pursuit in ensuring that the country is the preferred choice for investment both regionally and globally. As a consequence of implementing the IRM, the country’s ranking improved by 10 places in the Global Competitiveness Index from 134 in 2012 to 124 in 2014.
52. Government is committed to continuing the implementation of the Six Priority Targets that were identified in 2013 in the Investor Road Map, namely; investor protection; starting a business; enforcing contracts; trading across borders; getting electricity and registering property. To this end, Government has set aside E0.75 million to establish a Coordinating Unit to ensure that Government, private sector and the Swazi Nation collaborate in order to realise the aspirations of the IRM priority objectives.
53. Mr. Speaker, Government is currently renegotiating the AGOA (African Growth Opportunity Agreement) trade pact to ensure Swaziland’s continued access to the USA market beyond 2015. Between 2000 and 2004 Swaziland’s textile industry grew in leaps and bounds mainly as a result of AGOA. At its peak in 2004, the clothing and textile sectors employed an estimated 30,000 in 27 business establishments. Government is doing all that is within its reach to ensure that the textile sector continues to benefit from AGOA. More support to this sector will also be provided to facilitate its expansion. E3 million has been set aside in the FY 2014/15 budget for this purpose. The Ministry of Commerce in collaboration with the National Industrial Development Company of Swaziland will be working on the strategic plan for the disbursement of funds to this industry.
Trade facilitation and industrial development
54. Mr. Speaker, as part of the IRM implementation, Government will continue to implement some of the recommendations contained in the World Bank supported Time Release Study that was done for the Ngwenya, Lavumisa and Lomahasha border posts. So far the SRA has extended the border opening hours at Ngwenya up to midnight to give traders more flexibility when transporting their goods. SRA, in partnership with COMESA, has also embarked on upgrading the Automated System of Customs Data (ASYCUDA), which will provide an improved customs administration platform, including the direct payment of VAT refunds at the border, as already mentioned before. I urge all traders to take advantage of the initiatives taken by SRA to reduce your transaction costs.
55. Mr. Speaker, Government also recognized the need to create synergies between trade investment promotion and trade facilitation. Towards that end, the Ministry of Commerce has transferred its trade promotion function and the management of Mavuso Trade Centre to SIPA. It is expected that this will strengthen the local export base through the creation of additional marketing opportunities and capacity building programmes for Small Micro Medium Enterprises (SMMEs) as well as contribute to increased trade promotion ventures such as trade expos and fairs, and to create synergy between trade promotion and trade facilitation. E12.5 million has been allocated to SIPA to implement this programme.
56. Furthermore, Government through SIPA and SEDCO will also continue to prioritise the SMME linkage programme which is a vertical linkage programme between large and small companies for purposes of outsourcing, transferring skills, technology as well as developing business partnerships. The overall objective is to achieve business expansion for effective and profitable participation in the global value chain. This will also include the expansion of the Matsapha industrial estate. E42 million has been allocated for these activities.
- Extracts from: Budget speech 2014, presented by Martin G. Dlamini, Minister of Finance, 21 February 2014. The full text, 28 pages, can be accessed here.