Currencies / 11 November 2012, 6:51pm / Sandile Lukhele.
The International Monetary Fund’s (IMF) latest assessment of Swaziland’s economy has been condemned by King Mswati’s government as unduly pessimistic. The fundamentals cited by the IMF indicate a nation in serious financial trouble.
“Growth in Swaziland has been weaker over the last 10 years than in other Southern African Customs Union (Sacu) countries. This is associated with high unemployment, widespread poverty, rising inequalities, and the highest HIV/Aids prevalence rate in the world. A poor business climate and the lack of competitiveness are key obstacles to attaining higher sustainable growth and creating jobs,” said a statement released by the IMF staff mission to Swaziland this week.
The statement was in response to a tongue-lashing government officials gave the IMF team, led by chief delegate Johannes Mongardini. The IMF statement characterised its discussions with the government as “frank”, which is diplomat-speak for contentious.
The IMF mission spent a week in the country documenting distressed economic vital signs like a government budget deficit of R1.6 billion that now consumes 5.1 percent of gross domestic product (GDP). Having squandered revenues from Sacu receipts that once financed two-thirds of government spending, Swaziland’s leadership has no option but to draw down on currency reserves to pay civil servants, at the expense of paying other bills or assisting with economic development.
“Faced with unpaid government receivables, many small and medium-sized enterprises have been forced to cut down their operations (contributing to unemployment of over 40 percent). Credit to the private sector is declining in real terms,” said the IMF team, noting the situation will lead to further GDP contraction.
Meanwhile, the introduction of new taxes this year has exacerbated inflation, making life more miserable for Swazis.
Calling government’s expectation of a budgetary surplus of 1 percent of GDP “unlikely”, the IMF repeated its annual calls for massive cuts in the public sector wage bill and non-essential government spending.
Noting the increasing role telecommunications played in the economy, the IMF called for the introduction of additional cellphone companies to break MTN Swaziland’s 15-year monopoly.
The IMF team also raised a sensitive issue by recommending land reform and noting rising spending on the country’s security forces, a matter literally unspeakable in Swaziland. Parliament is not permitted to debate the annual army budget.
King Mswati and high government officials are reportedly major shareholders in MTN Swaziland, making the prospect of competition in the country’s mobile telephony industry a political non-starter. Perhaps for this reason and for the IMF’s raising of the land issue, the attack led by Finance Minister Majozi Sithole against the IMF team’s report was particularly ferocious.
“It doesn’t help us to have such a paper. You look for everything that is negative. The dark picture that is being created is not realistic. It is difficult to accept this paper. We need a balanced paper. This one discourages us from improving,” said Sithole, who as finance minister has overseen the longest continuous drop in GDP in Swaziland’s post-independence history.
Sithole said the IMF was incapable of understanding the cultural underpinnings of the Swazi economy, such as the land tenure system. The IMF recommended that landless Swazi peasants, who comprise 70 percent of the population and live in chronic poverty according to the UN Development Project (UNDP), be given title deed to their farms.
“I’m even more shocked by the overvaluation of (the national currency the lilangeni) by 28 percent to 55 percent. You have wrongly calculated the overvaluation,” Sithole said, without offering the government’s estimate of its worth.
Sithole accused the IMF of using different data and calculations than those employed by the government, and said such reports would discourage foreign direct investment.
The IMF noted that government inaction on financial and land reform could so weaken the economy that local banks would be under pressure to cut their local reserves in half and relocate R2bn to South Africa. This would also affect Central Bank reserves and so weaken the lilangeni that parity with the rand could no longer be sustained. “The financial sector in Swaziland shows early signs of vulnerability,” the IMF said.
Sithole and Central Bank Governor Martin Dlamini characterised the flight of capital into South Africa as “hypothetical”. On balance, the IMF team found progress to praise, such as a rise in the gross official reserves at the Central Bank, which as of October 26 were the equivalent of 3.5 months of prospective import cover, representing “a significant improvement from 2.4 months of import cover recorded in October 2011.”
The IMF also lauded government’s success at raising revenue through higher tax collection. However, by calling for action against the country’s medieval land tenure system, unaccountable spending on security forces and MTN’s Swaziland monopoly, the IMF incurred the wrath of Swazi authorities and may have ensured that its recommendations to achieve economic growth in Swaziland go unheeded.