WEAK RAND HURTS SACU PARTNERS – REPORT

MBABANE – Eswatini’s SACU counterpart Botswana has warned that the continued weakening of the South African Rand will pull down the national budgets of the regional body’s member States.

SACU is the Southern African Customs Union which is made up of Eswatini, Botswana, Lesotho, Namibia and South Africa. The member States derive key portions of their revenue from SACU.  

Receipts

In a 2021 Budget Strategic Paper, Botswana’s Ministry of Finance and Economic Development warned that SACU receipts in 2021/22 were now projected to be 6.3 per cent lower than original estimates, mainly due to a slowing of economic activity amongst SACU member countries.

“This is being made worse by the decline in the value of the South African Rand - the currency in which SACU distributions are denominated - due to a combination of global risk concerns and structural weaknesses in the South African economy. 

Consequently, the Pula is appreciating against the Rand, which in-turn undermines the potential revenues from SACU,” reads a report from the Southern Times.

Reports suggested that Eswatini, Lesotho and Namibia would also feel the pinch as they too were beholden to economic developments in South Africa, with their exchange rates pegged to the Rand. 

The Botswana Finance Ministry’s 2021 strategy paper noted there was need to develop a robust domestic revenue mobilisation initiative as a vital component for expansion of the revenue base, given the current high level of dependence on minerals and SACU receipts in that country.

Presentation

Meanwhile, a team from the country’s Ministry of Finance led by Minister Neal Rijkenberg told senators during a presentation on medium-term fiscal framework (MTFF) at the Happy Valley Hotel Conference Room last Thursday that SACU receipts were anticipated to decrease over the medium-term estimated at E6.1 billion in 2021/22. It would be E4.3 billion in 2022/23 and then E5.2 billion the following financial year. 

SACU receipts and the Eswatini wage bill are both expected to decline over the medium-term, although with substantially different magnitudes.

In the 2020/21 budget, SACU receipts cover close to the total cost of wages and salaries. In 2021/22, only about half of the wage bill is covered. On average, SACU receipts cover around 66 per cent of the total expenditure of government wages. In response to the challenges, there were policy measures and efficiency gains that were proposed.

They include introducing a turnover based alternative minimum tax at 0.5 per cent of turnover.

There are also calls to expand the tax base to include items currently exempted such as diary products and eggs.  

There are non-tax revenue proposed measures that include increasing the user fees and fines, efficiencies in dividend collections and efficiency gains from transferring all other revenue collection offices to the Eswatini Revenue Authority (SRA).

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