ANOTHER 2010/11 FISCAL CRISIS?

THE economy is really struggling to grow. The country’s gross domestic product (GDP) grew from E54.7 billion in 2016 to 58.7 billion in 2017, which signifies a real growth rate of a meagre 1.9 per cent.

Still, it is better than the 0.5 per cent growth rate the country experienced in 2015 during one of the worst droughts ever recorded. Are GDP growth rates less than two per cent becoming the norm going forward? In 2012 and 2013, real growth rates were as high as 4.3 per cent and 6.4 per cent, respectively.

Note that in 2010/11, government experienced a serious fiscal crisis following the 2008 global financial crisis. In 2011/12, government deliberately reigned in on spending to try to manage the public purse and the strain it was exerting on the economy. Hence, the Fiscal Adjustment Roadmap (FAR) came into shape in 2010/11 to implement decisive immediate measures and reforms to deal with challenges of the global financial crisis and sharp deterioration in government’s budget.

 
In 2011, the state of public finance was really in a sorry shape, with total revenue and grants amounting to a measly E7.2 billion compared to E16.8 billion in 2017. Government committed to tightening the belt and also to make critical decisions on its revenue and spending priorities. It committed to seek out more innovative methods of meeting its commitments, realise savings, and improve efficiency. Specifically, government committed to:

l Introduce fiscal reforms to broaden the tax base and tax collection, while reducing the tax burden on the poor and impediment to economic activity;
l Restructure, right-size, and improve the efficiency of the public expenditure and services;
l Improve governance so as to build investor confidence and allow for greater transparency and accountability;
l Improve the export base and facilitate increased participation of the small and medium enterprise sector in international trade; and
l Attract foreign direct investment and provide support for the development and involvement of domestic investors in manufacturing and other businesses.

Looking at this set of commitments, government has been successful on one front, which is broadening the scope of economic activities liable for tax and increasing overall tax collection. In fact, this has become a well-established pattern with our government in that as soon as it falls into a fiscal pit, it pushes the burden on taxpayers. This was true in 2010 when government increased excise taxes, a minimum income tax of three per cent came into effect, and it also introduced capital gains tax on disposal of business assets, while the casino levy and lotteries and gaming taxes increased from three per cent to 15 per cent. Most of all, government also established the Swaziland Revenue Authority (SRA), which came with a broad-based value added tax (VAT) replacing the sales tax, among all the other tax regimes it introduced to the economy.
What about reducing the tax burden on the poor? In the current fiscal crisis that is worsening by the day, government seems to be issuing bonds every other day just to raise money to meet its budgetary constraints. And where is the money going? Headline inflation actually shot up in April 2018, from 4.0 per cent to 4.8 per cent as a result of a higher increase in the price index for Housing and Utilities, which jumped to 13.3 per cent from 8.1 per cent owing to a 15 per cent increase in prices for rentals and a 15 per cent average increase in electricity tariffs.

But the real issue is what about government restructuring what  was promised as part of FAR that would make government the right size and improve issues of non-priority spending and general service provision? The truth is that it has simply been quiet on that end, it is a forgotten priority. Sadly, these forgotten strategies were meant to resuscitate the economy and now they are simply good for collecting dust in the different government offices. Despite the fact that revenue and grants to government have increased by more than double from what they were in 2011 (E7.1 billion) to E 16.8 billion in 2017, government expenditure has spiralled out of control from E9.1 billion in 2011 to E21.7 billion in 2017.

Tightening the belt was really a one-year thing for our government, as it only managed to turn the E1.9 billion deficit in 2011 to a surplus of E1.6 billion in 2012. Beyond 2012, government has been spending itself into a deeper hole such that the deficit has increased from 1.2 per cent of GDP (E573 million) in 2014 to an astonishing 12.3 per cent of GDP in 2016. That is equivalent to an overspending amount of E6.8 billion in a space of just two years!

Does the economy need to come to a screeching halt before government becomes serious about the current fiscal crisis? Do we even realise that things are really that bad? I wish government could take its own advice by revisiting the things it committed to do in FAR and in the Economic Recovery Strategy of 2011 that were meant to grow the economy and loosen the burden on the taxpayer. We desperately need government spending that will grow the economy into prosperity not into a sinking hole.

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