Customs Revenue, Fiscal Steps Can Power Swaziland Recovery

Fiscal crisis deepened in 2011 while economy weakened severely

Expected higher customs revenue, upfront fiscal steps can ease immediate pressures

Authorities should move forward with measures to improve business climate

In its regular review of the country’s economy, the IMF said upfront fiscal measures, together with external financing and higher customs revenue in 2012, would enable the government to clear its domestic arrears and restore fiscal sustainability.

In addition to adjusting the size of the budget, the quality of spending could be improved, with more resources allocated to education, the fight against HIV/AIDS, and social protection for orphaned and vulnerable children and the elderly.

The year 2011 was difficult for Swaziland’s economy. Economic activity stagnated, with real gross domestic product (GDP) growth estimated at ¼ percent. Output is likely to contract by 2 percent in 2012. Inflation accelerated to an annual rate of 7¾ percent in December 2011, due to higher food and fuel prices.

Because of a large fall in Southern African Customs Union revenue and uncontrolled expenditure, the fiscal deficit reached 13¾ percent of GDP for the fiscal year 2010/11 and is expected to remain high for 2011/12, at about 10 percent of GDP. The lack of financing led the government to accumulate large domestic arrears, and to reduce its cash balance at the central bank.

Following this reduction, Swaziland external position weakened with gross official reserves of the central bank representing 2¼ months of prospective import cover at end-December 2011 compared with 4 months of imports at end-2009.

Chance for budget turnaround

With expected customs revenue for 2012/13 of about 23½ percent of GDP, compared with 10 percent the previous year, the 2012/13 budget offers an opportunity to clear all accumulated arrears. The revenue boost would also help finance a voluntary early retirement program that is critical to reduce the wage bill and subsequently restore fiscal sustainability.

A fiscal surplus of E 900 million (3 percent of GDP) could be targeted in the 2012/13 budget. Such a surplus, combined with external financing, would allow a full clearance of arrears, projected to reach about E 2¾ billion (9½ percent of GDP) by the end of FY 2012.

This surplus could be achieved with an immediate and upfront saving on the wage bill of at least E 300 million (1 percent of GDP). Together with other savings in nonpoverty-alleviating spending...