Financial crisis in SD is over - IMF

The E7 billion dividend the kingdom received from the Southern African Customs Union in the current 2012/2013 financial year is largely credited as being responsible for the improved fiscal position.

The International Monetary Fund, in its new report on Swaziland, has even noted that the country’s reserves with the Central Bank were now ‘broadly adequate’ yet at one point they were reported to be dwindling at an unprecedented rate.

When the IMF did its assessment, the reserves were at E6.4 billion.

However, the IMF has warned that even though Swaziland was out of the red, the country still remained at risk mainly due to ‘uncontrolled spending’, a high public wage bill, a fragile business environment, ‘terms-of-trade shocks’ and the ‘fully open capital account with South Africa’.

Minister of Finance Majozi Sithole has welcomed the IMF assessment, albeit with a bit of caution.

"The IMF’s argument was that the crisis was caused by decline of SACU receipts but they have now seen that it has increased and will probably also be the same the following year. We have no problems with their assessment that we are out of the crisis. But to us, we are not saying we are completely out of the woods. It will all depend on how we use the (SACU) receipts. We have to be cautious on spending," the minister said.

Regarding the country’s reserves, the IMF report, which is titled ‘Restoring Sustainability in a

Global Environment - Options for Swaziland’, indicates that they are now above the level used as an international benchmark.

"The fiscal position has improved owing to the windfall transfer from SACU foe fiscal year 2012/2013 but fiscal imbalances are still present as expenditures remain high. Fiscal imbalances originate mostly from uncontrolled spending. The public wage bill, at about 15 per cent of GDP, is one of the highest in sub-Saharan Africa," the report states.

Further, it reads: "A model-based approach indicates that Swaziland’s level of gross official reserves is broadly adequate to protect the country against external shocks. "

The standard measures used to assess the adequacy of reserves are the gross official reserves as a ratio of months of imports, the ratio of the stock of short-term external debt by remaining maturity to gross official reserves, the ratio of gross official reserves to the stock of reserve money and to the stock of broad money.

"Of these metrics, the most widely used rule of thumb is that a country with a fixed exchange rate should maintain reserves equal to at least three prospective months of imports of goods and services. Swaziland’s level of reserves was above this threshold as of end-October 2012," the IMF says in the report.

When using the model-based approach, that is, reflecting the level of risk of the different possible sources of balance of payment pressures, the model reflects that "the minimum level of reserves needed to cover the risk of potential balance of payments outflows in Swaziland is 17 per cent of GDP (about E5.1 billion for 2012). At end-October 2012, gross official reserves stood above this threshold at E6.4 billion, equal to 21 per cent of GDP."

In its conclusion, the IMF report states: "Overall, the immediate risks have shifted somewhat during the last 12 months, from a pure fiscal crisis, to more pressing vulnerabilities on Swaziland’s external position and financial sector."

On these vulnerabilities, Minister Sithole said the IMF based its analysis purely on hypothetical assumptions with no tangible evidence.

"Hypothetically they said we would be vulnerable in the financial sector but for years they have been coming to Swaziland and said our financial sector was not vulnerable. What we are saying is the financial sector is not vulnerable.

"The concern has been on the non-financial sector but we have come up with Bills that are going to regulate this industry. There is no need to fear anything. This is just the IMF’s hypothetical analysis and we are saying they should not be hypothetical," he said.

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