IMF CUTS ESWATINI GROWTH FORECAST

MBABANE – Global lender International Monetary Fund (IMF) now projects a negative growth for the country due to the coronavirus pandemic.
In January, IMF had projected a 0.5 growth for Eswatini in 2020. The forecast has since been slashed to -0.9 per cent.

The IMF, in its monthly global outlook, noted that as countries were implement necessary quarantines and social distancing practices to contain the pandemic, the world had been put in a Great Lockdown,” the IMF said in this month’s world economic outlook.
The IMF said although governments were providing unprecedented support to households, businesses and financial markets, there was considerable uncertainty about what the economic landscape would be after the pandemic.

It said its forecast assumed that the pandemic and required containment would peak in the second quarter and recede in the second half of this year.
The IMF figures are way below the country’s projections  at the beginning of the year. They were around 2.8 per cent.
This comes at a time when the IMF recently revised global growth 6.3 per cent downwards from its January estimates, charging that lockdowns implemented in most countries to deal with the coronavirus pandemic would lead to the worst recession since the Great Depression of the 1930s and would be worse than the 2008 financial meltdown.

Decline

The lender said the global economy would decline minus three per cent this year, with neighbouring South Africa expected to decelerate to -5.8 per cent as a result of the pandemic. “If the pandemic faded as predicted and policy actions were effective in preventing widespread bankruptcies, job losses, and system-wide financial strains, global growth would rebound to 5.8 per cent next year.
“This recovery in 2021 is only partial, as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit,” the IMF said.

“The cumulative loss to global gross domestic product this year and the next from the pandemic could be about US$9trillion greater than the economies of Japan and Germany combined. The IMF said emerging and developing economies faced additional challenges with ‘unprecedented reversals in capital’, reported IMF.

Early this year IMF had reported that following the severe fiscal deterioration in 2010, Eswatini experienced a period of macroeconomic stability. Fiscal consolidation, a temporary rebound in Southern African Customs Union (SACU) revenue, and credibility in the peg with the South African rand contributed to improve fiscal and external balances and rebuild buffers.

Investment

However, declining private investment and weakening external competitiveness have kept growth below the pre-2010 period and are hindering the long-term growth prospects of the economy. With subdued growth, socio-economic challenges have remained entrenched reflected by widespread poverty, high income inequality, and elevated unemployment.

“Macroeconomic conditions have recently deteriorated. After a period of subdued growth, real GDP growth picked up somewhat in 2018, as the drought impact faded, and public spending remained elevated. However, over the last three years, expansionary budget policies and low SACU revenue have widened the fiscal deficit to an annual average of nine per cent of GDP. Public debt has risen rapidly, and financing constraints have led to the accumulation of domestic arrears. The current account surplus has narrowed and international reserves have fallen.

“With a weakening economic environment, credit to the private sector has lately decelerated, and banks’ asset quality has deteriorated. The authorities have recently implemented some actions to contain the rise in the fiscal deficit, which remains large. Economic indicators are expected to remain weak.

The fiscal deficit is expected to remain large and budget financing risks to be elevated. The large deficit would raise public debt above 60 per cent of GDP over the medium-term and contribute to further reduce international reserves,” IMF had earlier said.
South African Research Foundation for Economic Development (SARFED) Regional Coordinator George Choongwa recently told this publication that there was a possible recession both on a global and national level.

“In real terms the developing countries like Eswatini are likely to lose their growth momentum with more than 50 per cent , which means that the country would no longer be growing on its projected 2.5 percent this year, but if not well managed, this growth trend might slide to less than 1 percent. The reasoning to this concept is based on the reduced economic activities at both micro and macro level,” he said.
 

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