PRIORITISE FISCAL ADJUSTMENT - SARFED

Mbabane – “The current scenario in Eswatini is suggesting that without strengthening  the fiscal adjustment plan, the country’s debt ratio would become unsustainable over the medium and long term period.”

This observation has been made by the Southern African Research Foundation for Economic Development (SARFED).

Regional Coordinator George Choongwa said the debt sustainability trend of Eswatini showed that the country’s debt ratios would continue to rise for the foreseeable future, which would eventually lead to an unsustainable debt position. 

“This is likely to constrain the economic resources if the cost of debt servicing absorbs an excessive amount of resources. 

“Assessing the sustainability of a government’s debt position may not be clear cut, but depends highly on policy makers’ prudence on the trends and projections of key factors like interest rates, economic growth rates, as well as government revenues and expenditures. 

“However, sustainability is likely to become a particular problem when the growth of government interest payments exceeds that of government revenues,” shared Choongwa.

Sustainable

Choongwa highlighted that efforts to promote sustainable growth, job creation and good governance, as articulated in the National Development Plan and the Strategic Road map would be key in the country’s current situation. 

“Therefore, it is important for government to balance the supply side and governance reforms to support private investment and strengthen competitiveness. 

“It is important also to note that fiscal structural reforms in the country should aim at improving business conditions, address weaknesses in product and labour markets, and invest in human capital,” he said.

In his situational analysis, Choongwa shared that COVID-19 greatly contributed to Eswatini’s recession, taking into consideration the fact that its real gross domestic product (GDP) growth was estimated at 1.4 per cent in 2019. It was a decline of 2.4 per cent in 2018. 

“The fiscal situation  has remained weak, with the budget deficit estimated at 7.8 per cent of GDP in 2019, up from 6.5 per cent in 2018, with low revenues outpaced by elevated expenditures, particularly transfers, the wage bill and capital outlays. 

“Deficits have been financed by central bank advances, drawdowns of reserves, and external and domestic borrowing. Public debt escalated to nearly 30 per cent of GDP by mid-2019, raising sustainability concerns,” said Choongwa.

In order to maintain a stable economic recovery agenda, the Government of Eswatini has been advised to take into consideration the several key issues. They include cutting down on what has been termed foreign financing. 

Initiatives 

“Cutting down on foreign financing would demand government’s initiatives in financing current account with market-based capital inflows. This is because a current account cannot be sustainable if it cannot be financed on a lasting basis with market-based capital inflows and it is not consistent with adequate growth, price stability, and the country’s ability to service fully its external debt obligations. The government must ensure that it does not ensure costly external debt by cutting down foreign financing,” he shared. 

Choongwa stressed that high external debt was increasing vulnerability. 

He felt a high or rising debt level could be a source of macroeconomic difficulties and create imbalances in both short and long term basis.  

This is due to the fact that high external debt increases the vulnerability of the fiscal position (and the exchange rate) of the country which might even bring about loss of competitiveness on the global markets capital markets. 

“Cut down on public debt on financing operations. Cutting down on government debt for financing operations during COVID-19 would be a benefactor for the country. 

“The danger that comes along the borrowing aspect is that there might be an imbalance in the ratio of public debt to Gross Domestic Product (GDP). 

“This would eventually bring about government’s failure to effectively run deficit, hence threatening economic stability,” he highlighted.

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