Swaziland Uses IMF Monitoring Program to Fight Fiscal Crisis

Swaziland faces fiscal crisis caused by drop in customs revenue, large wage bill

Staff-Monitored Program to help fiscal adjustment, safeguard pro-poor spending

IMF staff urges improved public financial management, expenditure control

The program entails IMF staff scrutiny of the authorities’ policies, but does not include formal backing of the program or any financial support.

Swaziland is facing a serious fiscal crisis, with an overall budget deficit estimated around 13 percent of GDP for the 2010/11 fiscal year ending on March 31, 2011. The crisis came from structural imbalances in both government expenditures and revenues.

Although its situation is serious, Swaziland confronts a liquidity crisis and not a solvency crisis. The government is facing significant short-term liquidity constraints in financing its large fiscal deficit. However, the debt-to-GDP ratio is relatively low by international standards at around 20 percent of GDP.

The liquidity crisis could quickly turn into a solvency crisis if not addressed up front, as the fiscal adjustment will take time to lead to a more balanced fiscal position, which will imply a growing debt-to-GDP ratio over the coming years.

Fiscal roadmap

The Swazi authorities adopted a Fiscal Adjustment Roadmap in late 2010 to restore fiscal sustainability. The roadmap also includes short-term measures such as tax increases and a hiring and wage freeze.

The roadmap also carries measures to be implemented over the medium term, largely focused on strengthening Finance Ministry functions such as public financial management, expenditure policy, tax policy, and revenue administration. The package also proposes reducing the civil service by 20 percent through an enhanced voluntary early retirement scheme.

The Swazi authorities requested that the roadmap be scrutinized by an IMF Staff-Monitored Program. Following advice from IMF staff, an agreement between national authorities and IMF staff was made to monitor the implementation of the Government of Swaziland’s economic and financial program during a specified period. Approval of this agreement does not represent endorsement of the program by the IMF Executive Board or involve IMF financing.

IMF management approved the program on April 4, 2011 to encourage the needed fiscal adjustment while safeguarding Swaziland’s spending on education and health. The program also seeks to enhance administrative capacity, notably in the area of public financial...