ECONOMIST GIVES GOVT THUMBS-UP

MBABANE – Economist Sanele Sibiya has given Minister of Finance Neal Rijkenberg a thumbs-up on the policy to let the shocks affecting the economy play out.

Interviewed yesterday, Sibiya, though critical of government’s failure to follow in the footsteps of Botswana by implementing a two per cent drop in value added tax (VAT) or to completely remove it from basic food products like meat, said the policy was spot on and emaSwati needed to prepare themselves to feel the pinch in the short term. “If Botswana did it, why can’t we do it too?” wondered Sibiya.

The economist said it was clear that the country was grappling with a cost of living problem, which was essentially caused by a combination of factors, including the global supply chain bottlenecks, fuel shortages, the war in Ukraine (grain not moving) and a rapid demand recovery post COVID-19 outpacing the supply side response.  “A tax relief, I am afraid, would not be the right policy action at this period. It would surge an already robust demand response, and the wealth effect would also induce more spending, which might exert pressure on the general price levels to increase again,” he said.

Sibiya said he would have done the same if he was in Rijkenberg’s shoes. He said the country needed a targeted policy response to ensure that it did not prescribe policy actions that would worsen the inflation problem.  “Setting up the fuel cushion fund is one of such targeted programmes that government can implement to ensure that the inflation problem is not made worse. It only reduces the rate at which the fuel prices are increasing and does not create a pseudo wealth effect on our consumption patterns,” he said. Sibiya added that he believed the minister could do the nation better to cushion against the surge in the cost of living, probably by adding bovine meat, chicken, or canned meats in the list of zero rated VAT items.

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