BUILD STRONG DOMESTIC REVENUE BASE –SARFED

MBABANE - Eswatini government must build a strong domestic revenue base in response to disruptions caused by COVID-19.

The Southern African Research Foundation for Economic Development (SARFED), stresses on the need to build a strong domestic financial base that will serve the country from suffering more financial depression in both short and long term.  This follows threats that include decrease of Southern African Customs Union (SACU) receipts and increase in debt to gross domestic product (GDP) ratio.

“The COVID-19 crisis is likely to alter the economic structure of Eswatini in a major way, at least in the foreseeable future. As a country that depends on both tourism and export of sugar to the European market, the country is yet to witness a large-scale contraction of the sector in the short and medium term. Because of falling commodity prices on the international market will contribute a considerably large revenue decline. On top of this, remittance flows are expected to drop,” said SARFED Regional Coordinator George Choongwa.

For the year 2019/20, Eswatini received an increase in SACU receipts from about E5.8 billion to about E6.3 billion which contributed to about 36 per cent of the total revenue. 

Substantially

However, due to decline of the global market and the international supply value chain; the overall Eswatini’s share is expected to decline substantially.

“With the COVID-19 lockdowns and stringent government regulations, these countries are expected to result in a significant under collection of revenue towards the common revenue pool, as most businesses remained closed and unproductive in general.

“Despite debt relief granted by IMF and World Bank, the country’s debt-to-GDP ratio is likely to rise from already high levels because of falling output and expansionary fiscal policies. For example, the average debt-to-GDP ratio for Eswatini stood at about 30 per cent of GDP by mid-2019, raising sustainability concerns. If little intervention is done to address this negative indicator, the country would have fiscal challenges in the subsequent periods,” shared Choongwa. As one of the interventions, Choongwa joined the call for mobilising a sustainable domestic revenue base, particularly by building of toll gates on the country’s strategic roads.

Domestic

“Most of the countries in the SADC region have implemented the toll gate initiative as a means of mobilising domestic revenue. Some of these countries with toll gates, fully operational include: South Africa, Mozambique, Zimbabwe, and Zambia. 

“Domestic revenue would be the solution to maintain domestic consumption for non-excludable goods like road network. Therefore, through the establishment of the toll gates, the government would to some degree be in a position to remedy road construction maintenance costs, but through toll gates, public infrastructure like roads would at least  remain sustainable both during and post COVID-19 crisis,” said Choongwa.

In as much as the external debt ratio was still less than 50 percent,  SARFED warned that it would not be safe for the country to have incurred more debt as this would frustrate the quick recovery of the economy as debt was considered as a leakage from the circular flow of national income. 

Effects

“Tax revenues for the country are likely to be significantly reduced for a number of years to come, due to both direct and indirect effects of the COVID-19 crisis as well as due to policy action during the crisis.  

However, one of the best ways to boost domestic tax revenue will be to support solid socioeconomic growth, including through sufficiently strong and sustained stimulus mechanism such that would generate sustainable domestic revenue in both short and medium term basis, some of which would include the establishment of toll gates on strategic roads for the country,” stressed Choongwa.

Post your comment

Your name:

Your e-mail address:

Add your comments:

Please enter the code you see in the image:

Image:

Code: