NEVER GET TO THIS

DR Phil Mnisi’s return to the Central Bank of Eswatini (CBE), this time as Governor, has coincided with a shocking development elsewhere that has prompted some caution in other countries.

This week, Sri Lanka made headlines for what can happen when a government accumulates so much debt that it is unable to make repayments.
What drew my attention to this Asian island of 22 million people was the fact that it had depleted its reserves and had run out of foreign currency, forcing the government to declare that it would default on its US$51 billion (E765 billion) external debt for the first time in its 70-year history. This development highlighted the critical role that central banks play in the fiscal management of a country’s economy, as well as the responsibilities that Dr Mnisi will face during these turbulent economic times globally.

Challenges

Sri Lanka is now facing a food and fuel crisis, among other challenges, as a result of its inability to import goods, prompting the government to declare a four-day week for its one million civil servants in order to encourage them to use their ‘free Fridays’ for the next three months to grow food to feed themselves and their families. It is also intended to reduce the amount of fuel required to travel to work.

Is there anything we can glean from this? Absolutely, especially for Eswatini whose debt levels have reached unprecedented levels in the midst of global economic volatility brought on by Russia’s invasion of Ukraine. Various economic monitoring organisations estimate Sri Lanka’s debt-to-GDP ratio to be 118 per cent, well above the internationally recommended 60 per cent threshold.

Approximately US$6.5 billion (E97.5 billion) is owed to mainland China, the majority of which has been criticised as unnecessary and part of the debt traps that several African countries have been warned about. After his predecessor was forced to resign for refusing to participate in an IMF adjustment programme, a new central bank governor has been appointed and now the country is currently negotiating a bailout with the International Monetary Fund (IMF), but this is a lengthy process.

Resignation

The crisis has also culminated in the resignation of the Sri Lankan Cabinet (I don’t see that happening here), including the prime minister, who is the president’s brother. Meanwhile, food shortages have sent inflation soaring to a record-breaking 30 per cent. May we never witness such a day!
Finance Minister, Neal Rijkenberg, has said we should not be concerned about our current debt levels because we are still in comfortable ratios when compared to the international threshold.

Eswatini currently has one of the lowest debt stocks in the Southern Africa Development Community (SADC) as it stands at 38.59 per cent of GDP as at the end of March 31, 2022. The GDP stood at E71.6 billion. Rijkenberg has promised that he will not push us over the edge. Dr Mnisi, the new CBE Governor, with a plethora of experience in the financial industry, is his new right hand who needs to guarantee this. We congratulate Dr Mnisi on his appointment and wish him well in his duties. We appreciate his predecessor, Majozi Sithole, for doing everything he could to ensure that the bank helped us stay afloat with the requisite reserves – despite the temptation to bail out government on occasion.

In an interview with the Times this week, Sithole highlighted the fact that the central bank alone cannot solve Eswatini’s economic woes.
“Monetary policy alone cannot resolve the structural issues faced by the economy. However, monetary policy will continue to catalyse growth and provide a conducive environment for sustained and shared growth,” said Sithole. This statement could be true of what we see in Sri Lanka today; a country that was once a shining example of good governance to the developing world during the 1970s after gaining independence in 1948.

Over the years, it has been a roller-coaster ride, having gone through 30 years of civil war, the COVID-19 pandemic, to the ongoing Russian invasion of Ukraine. Now it faces its worst economic crisis in more than 70 years. The people are up in arms, and street protests have become more frequent.
This war has impacted just about every country across the globe, Eswatini included. Pressure is mounting on government to meet its financial obligations and civil servants are pressing for a salary review as opposed to a cost-of-living adjustment (CoLA).

Fuel prices are rising, and so are food prices. Government has also announced a reduction in school food rations, and cooking oil has been removed from the rations due to recent price increases of more than 60 per cent. In welcoming Dr Mnisi to the CBE, he should know that we are looking to the central bank and government to navigate these turbulent economic times and find solutions that will have the least negative impact on all  emaSwati.

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