/ 18 November 2011

Swaziland ‘being mortgaged for loan’

Swaziland 'being Mortgaged For Loan'

Swaziland’s economy could collapse within six months if drastic steps are not taken to reduce the country’s enormous wage bill and address the spiralling deficit, a source close to the Swazi government said this week.

The Mail & Guardian understands that to pay public servants their salaries this month, and to avoid mass protests, the cash-strapped government is borrowing money from private financial institutions and using state assets as collateral.

These desperate measures follow the apparent collapse of negotiations for a R2.4-billion loan from South Africa, which Swaziland is believed to have turned down because it rejects conditions relating to democratic reform.

Failure to comply with the fiscal reform recommended by the International Monetary Fund has also cut off Africa’s last absolute monarch from loan support from the World Bank, the African Development Bank and Western donors.

A source close to the government said: “The situation is totally unsustainable. I can’t see it lasting more than six months like this. They’re basically mortgaging their country for this loan, but once that money is spent, they will have no way to pay it back. We’re already seeing humanitarian problems with social grants being cut. It’s the HIV patients, the elderly, orphans and vulnerable children who are suffering.”

This week the IMF, after completing a week-long visit to the kingdom, warned that the fiscal crisis had reached a “critical stage”.

Mission chief Joannes Mongardini said: “Government revenue collection is insufficient to cover essential government expenditure, including the wage bill. More importantly, key social programmes like the fight against HIV/Aids, free primary education, support for orphaned and vulnerable children and elderly grants are being negatively affected.”

The IMF said domestic arrears had ballooned to 5.3% of gross domestic product and the fiscal deficit for 2011-2012 is expected to reach about 10% of GDP, well above the budgeted target of 7.5%.

Mongardini said the arrears are having a negative knock-on effect on Swaziland’s small-business sector, with companies dependent on government contracts either retrenching workers or shutting down.

The IMF staff — who were not given an audience with King Mswati III, who is in seclusion prior to the annual Incwala, or first fruits, ceremony — have projected GDP growth of just 0.3% this year and Mongardini said the fiscal crisis is creating “liquidity pressure in commercial banks”.

Swaziland’s fiscal crisis was largely triggered by a fall in revenue from the Southern African Customs Union as a result of the global financial crisis. For more than a year the IMF has been telling the country to reduce its wage bill, which accounts for more than half of government spending, or face dire consequences. But trade unions have refused to accept the cuts and have staged mass action that morphed into pro-democracy protests.

Failure by the government to reduce the wage bill and cut ministerial perks has led to chronic liquidity problems and Swaziland’s local currency, pegged to the South African rand, is coming under pressure. Delinking from the rand would lead to a massive hike in import costs and hit the poorest Swazis hardest.

The source said: “What is worse is that there appears to be no clear political will to address the underlying causes of the problem and find long-term solutions.”

Government spokesperson Percy Simelane told the M&G: “People are entitled to their opinions, but our country is going through the type of crisis that other countries have gone through before and survived.”

The only reason the government borrowed money to pay public service wages this month is because scheduled income has been delayed. “It’s our business where we find our money,” he said.

This week Swaziland Finance Minister Majozi Sithole told local media that the loan deal from South Africa will soon be signed off. But the South African treasury and the department of international relations and co-operation said they could not confirm whether any progress had been made.

Asked about the loan from South Africa, Simelane said he was not aware of any negotiations between the governments. The arrangement between the central banks is still in ­progress, he said.