LOCAL POLICY RATE SHOULD ALIGN WITH SA RESERVE BANK

MBABANE – Given Eswatini’s peg to the Rand, the policy rate should be realigned with the South Africa Reserve Bank (SARB).

The International Monetary Fund (IMF) said this will also obviate the need for potentially distortionary stopgap measures. In the absence of immediate inflationary pressures, this realignment can occur gradually.

Engaged

In a previous interview, when reacting to this, the Central Bank of Eswatini Governor, Dr Phil Mnisi, said indeed they engaged with IMF officials, who expressed their opinion, and as the bank, they respected that opinion.He said, however, it did not mean they would just wake up and attempt to close the aforementioned 75 basis points gap between Eswatini’s policy rate and that of the SARB. He said as the bank, they have their own fundamentals, which inform the country’s monetary policy.

Fundamentals

The governor acknowledged that because of the pegging of the Lilangeni to the Rand, ordinarily, one would expect the same interest rate, but that was not a given and it should be informed by macroeconomic fundamentals, which informed the policy decision. The IMF staff said they stand ready to assist the authorities in modernising the liquidity management framework and strengthening financial sector surveillance, including its AML/CFT aspects. The package of financial law amendments paves the way to a comprehensive modernisation of the financial system. Before their adoption by Parliament, the amendments should be reviewed to ensure that they conform to international standards. The IMF staff stand ready to assist with this task.

Challenges

Raising potential growth faces many structural challenges, including a poor business environment and weak governance. More efforts are needed to support entrepreneurship, financial literacy and credit to micro, small and medium enterprises. Stepped-up anti-corruption plans are well noted as governance remains high among challenges of doing business, and negative perceptions in this regard limit Eswatini’s attractiveness for foreign investors.

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