The fiscal crisis gripping Swaziland is deepening despite an emergency R2,4 billion loan from South Africa earlier this month, the International Monetary Fund (IMF) said on Thursday.
An IMF delegation completed a two-week visit to Swaziland to investigate whether it was doing enough to win the fund’s blessing to secure foreign loans. Swaziland has failed several times to satisfy demands for greater austerity.
The IMF has now urged the government of Africa’s last absolute monarchy to make further cuts to its bloated budget.
It gave a candid assessment of reforms so far, saying the appointed administration of King Mswati III, who has a personal fortune estimated at $200 million, had missed several targets to cut a budget deficit of more than 14% of gross domestic product (GDP).
“The mission concurred with the authorities’ view that the government will continue to face severe liquidity constraints over the coming months, notwithstanding the recently announced R2,4 billion loan from the South African authorities,” mission leader Joannes Mongardini said on Thursday.
“The mission advised the government to pass a supplementary budget to cut expenditures, while preserving pro- poor spending, and strengthen expenditure controls in order to restore fiscal sustainability,” Mongardini said.
The IMF, which has refused to lend money until Swaziland takes a hatchet to its large public wage bill, also urged the government to pay back money borrowed from the central bank, lest it jeopardise a one-to-one currency peg with the rand.
“Preserving the parity with the South African rand is of utmost priority,” Mongardini said, adding that Swazi central bank reserves had dropped to $554 million, or 2,2 months of import cover, as of last Friday. Three months’ cover is widely considered the minimum for a stable currency.
Swaziland’s fiscal problems stem from a 2009 recession in SA that triggered a collapse in revenue from the Southern Africa Customs Union that has historically accounted for two-thirds of Swaziland’s budget.
Its government has kept its head above water by using central bank reserves and running up at least $180 million in unpaid bills.
Its efforts to cut public spending and raise taxes from a moribund economy have met with little success.
Public services have been slashed in recent months.
The University of Swaziland failed to open on August 8 for the final semester of the year and public hospitals have run out of medicines for patients.
“The mission observed that economic activity remains subdued and inflation is on the rise,” Mongardini warned. “Electricity consumption, which can be used as a coincident indicator of economic activity in the absence of quarterly GDP data, declined in May while broad money growth remained subdued in June.”
However, Swazi Finance minister Majozi Sithole said the IMF targets were unreasonable.
“The IMF has certain targets of their own with a view to push us to do certain things,” he said.
“We have no objection to that, but they had made so many assumptions that are not reasonable. They are pushing certain things that will probably cause more problems than answers.”
The budget crunch sparked unprecedented public protests against King Mswati III, who is accused of running the country as his personal fiefdom.
Dissident groups inside and outside the country where political parties are banned are hoping the cash crunch will force political change.