Swazi meltdown 'imminent'
The IMF has warned that Swaziland's fiscal crisis has reached a critical point and there is a high risk that the kingdom will be unable to pay wages.
The International Monetary Fund has warned that Swaziland’s fiscal crisis has reached a critical point and there is a high risk that the kingdom will be unable to pay its civil servants’ wages for the next few months.
The report also says that Swaziland’s gross domestic product (GDP) will contract by 2% during 2012 and, if the country does not change its “unsustainable” fiscal policy, its debt-to-GDP ratio could reach more than 80% by 2016.
The IMF sounded the alarm that the macroeconomic outlook for 2012 was “bleak”. It urged the government to take “upfront” action such as cutting jobs and reducing the cumbersome public wage bill to protect the lilangeni, which is pegged to the rand and already overvalued by as much as 33% and at risk, the fund said.
Consumer price inflation rocketed from 6.5% in November last year to 7.8% in December, a trend the IMF expected to continue into 2012, forcing an uncomfortable acceleration in the prices of food and fuel that would be most acutely felt by the poorest members of society.
The IMF warned: “Swaziland’s fiscal crisis has reached a critical stage. Budget financing has dried up, domestic arrears continue to mount and the risk of not being able to pay civil servants’ wages over the next few months is high.”
It added that economic activity, the financial sector and key priority programmes on education, health and social protection were being affected negatively as a result.
The fund also noted that the authorities’ cash-flow issues were creating problems for private-sector businesses such as construction companies and those that offered services to the government, whose bills were not being paid.
The commercial banks were feeling their own liquidity pressures following last year’s transfer by nervous investors of an estimated €1-billion (about 3.25% of GDP) into rand accounts in South Africa.
Swaziland’s fiscal crisis stems from a more than 50% reduction in receipts from the Southern African Customs Union because of a decrease in regional imports and revenues caused by the global financial crisis.
The kingdom’s weak private sector and low levels of foreign direct investment had led it to depend on customs union revenues, which is why the sudden drop in income had triggered a major government cash-flow crisis.
The IMF said this compromised the country’s poverty alleviation commitments. Swaziland has the world’s highest rate of HIV—one in four adults is infected—and two-thirds of the population live in poverty.
For some months now the cash-flow crisis has hit the poorest people the hardest and the government no longer pays into public-sector pension funds. Food parcels for the rural poor have been stopped and there are frequent delays in money for HIV medication and other social grants.
In November the government announced it could not afford to pay civil servants’ wages, although it raised money through a private loan using state assets as collateral at the 11th hour.
Since then Finance Minister Majozi Sithole has played down talk of bankruptcy. He said a R7-billion windfall from the customs union was due at the end of March, which would release some pressures.
But the IMF has warned Swaziland that these revenues would bring only temporary reprieve and “time was of the essence” to reduce spending and rebalance the books or face a “permanent impact ... on the economy”. The IMF wants the government to follow up on a 2010 pledge to cut 7 000 civil service jobs by 2015.
But the government is resisting this following a backlash from labour unions, which last year staged a number of street protests that became a vehicle for pro-democracy demonstrators.
The failure to cut these jobs and meet other IMF targets has prevented Swaziland from accessing international funding from groups such as the African Development Bank. In August last year it turned to the South African government, which agreed to lend King Mswati III’s government R2.4-billion, but only on condition that it followed the IMF’s reform plan and took some steps towards democratic reform.
Swaziland, Africa’s last absolute monarchy, is unwilling to take on the political changes and the loan deal has been left unsigned.
Critics of Mswati, who is infamous for his love of the high life and his 13 wives, and his regime, in which traditional authorities rule with an iron fist and political parties are banned, regard the country’s economic meltdown as an opportunity for democratic reform. They argue that the undemocratic system means there are few checks and balances, which result in public spending being poorly monitored and rife corruption.
Apart from reducing the wage bill, the IMF has called on Swaziland to increase transparency surrounding its budget and other financial processes and make the business environment more competitive to attract foreign direct investment, which would inject money into the economy and create jobs.
The IMF noted that steps were already under way to boost income from the Swaziland Revenue Authority and the introduction of value-added tax in April would also bring in more money for the government.
Although the IMF’s outlook is bleak and the government is struggling to find enough cash to finance its budget, leading Swazi businessperson Paul Friedlander said he was confident the country would get through the storm.
The chief executive of Swaki Group, a multi-portfolio company owned by South African-born billionaire Natie Kirsh, said: “This is a temporary cash-flow and liquidity crisis. We’ve got assets, we’ve got resources, we are imminently credit-worthy and I think we would be helped if it wasn’t for our politics, which seem to be out of favour, and I think largely unfairly.
“We are not going to go bankrupt. We will trade out of this situation through internal initiatives or some external borrowing, or a combination of both.”
Friedlander, who has close personal links with Mswati, said: “Considering the state of Europe’s balance sheet, it’s rather hypocritical for the IMF to come here wagging their finger when they are over there bailing out the West and indebting countless future generations.”?