📋 Tender Overview
On September 25, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Kingdom of Eswatini and endorsed the staff appraisal without a meeting on a lapse-of-time basis.
Eswatini’s growth is estimated to have reached 4.9 percent of GDP in 2023, driven by exports of sugar and soft drink concentrates, tourism, and the communication sector, and is poised to remain in the 4.5 to 5 percent range in 2024. Inflation was stable at 4.1 percent year on year in August and is expected to rise in the wake of electricity tariff increases, before easing in line with global trends. The external current account strengthened, posting a surplus of 2.2 percent of GDP in 2023, which is expected to persist in 2024 thanks to high receipts from the Southern African Customs Union (SACU). Despite the surplus, official reserves—equivalent to
2.2 months of imports at end-2023—were below adequacy metrics. The overall fiscal deficit narrowed to 1.5 percent of GDP in FY23/24 from 6.2 percent of GDP in FY22/23, reflecting high SACU transfers. However, public arrears persist, and financing challenges continue to weigh on fiscal sustainability. Public debt is below 40 percent of GDP, and debt vulnerabilities remain moderate.
Unemployment remains high at 35.4 percent in 2023 and 48.7 percent among the youth, with large skill gaps and mismatches being critical factors. While social indicators need to be updated, discussions indicated that poverty, food insecurity, inequality, and gender-based violence remain important social challenges.
Growth is expected to slow while inflation is projected to follow global developments and decline throughout the 5-year projection horizon. With SACU receipts projected to fall, the authorities are expected to exercise the expenditure restraint needed to keep debt around
40 percent of GDP. The current account is projected to remain in surplus but official reserves will likely remain low.
Executive Board Assessment
In concluding the 2024 Article IV consultation with the Kingdom of Eswatini, Executive Directors endorsed staff’s appraisal, as follows.
On the back of a post-pandemic rebound and favorable export prices, real GDP growth in Eswatini reached nearly 5 percent in 2023. Over the medium term, however, as these temporary factors wane, growth is expected to revert gradually to a historical baseline of 2.5 percent. This subdued outlook raises concerns as it constrains the government’s ability to respond to social needs, tackle unemployment, and address poverty; however, this outlook can improve considerably if reforms aiming to boost potential growth are implemented.
A weak economic outlook is compounded by inflationary and external risks. Inflation could increase as electricity tariffs and potentially other administered prices are raised. While foreign reserves have increased thanks to high SACU transfers, their import cover remains below adequacy benchmarks. Going forward, reserves will remain under pressure as SACU receipts normalize.
The fiscal position has strengthened considerably, reaching the objectives of the 2020 fiscal adjustment plan. This reflects both windfall SACU receipts, which increased by 3.6 percent of GDP between FY19/20 and FY23/24, and importantly, in equal measure, expenditure restraint of 3.7 percent of GDP during the same period. The primary fiscal balance in FY23/24 is estimated to have reached a surplus of 1.5 percent of GDP and the public debt-to-GDP ratio was brought under 40 percent of GDP. This demonstrates the authorities’ commitment to fiscal prudence. Taking advantage of this consolidation, the authorities are encouraged to improve public service delivery while ensuring sustainability. Most notably, an end of the hiring freeze should pave the way to a comprehensive civil service reform.
A widening of the deficit in FY25/26—as envisaged under the baseline—is appropriate in light of the anticipated drop in SACU receipts. Staff estimate that this temporary widening of the overall fiscal deficit by 2 ppt of GDP should be adequate to avoid a disruptive compression of expenditure and support growth, while the underlying fiscal position would be tightened (through a 1.7 ppt reduction in the structural deficit) steering it toward a sustainable medium-term level. Setting aside savings in the stabilization ahead of the SACU revenue decline could help cushion the fiscal transition, though difficult to achieve given current tight financial conditions, which present challenges for budget financing. In this context, the authorities are encouraged to pursue other financing options, including from IFIs, to support the public sector reforms and public investment.
Arrears should be cleared as soon as feasible, and public financial management strengthened to reduce their occurrence going forward. Government arrears intensify the bank-sovereign nexus and increase fiscal-induced risks. To this effect, the budget process should reflect realistic assumptions, especially on financing, and include a year-by-year plan to clear arrears while detailing controls that will prevent their further accumulation.
Public financial management remains weak and should be an urgent priority for reform. The authorities are implementing the IFMIS system in the Ministry of Finance, moving to IPSAS in the Treasury, establishing an invoice register, and progressing on a medium-term fiscal framework. However, shortfalls remain in expenditure controls (contributing to arrears), liquidity management, and debt management. The medium-term fiscal framework requires full integration of the fiscal operations, including the financing assumptions and tracking their interest cost implications, to enable the debt sustainability assessment.
The external position of Eswatini in 2023 was moderately stronger than implied by macroeconomic fundamentals and desirable policies.
