Swaziland begins to face up to a financial crisis

From IRIN, a story on the financial crisis in Swaziland and how it is impacting the poor.

While Swaziland’s government considers recommendations from the International Monetary Fund (IMF) aimed at staving off economic disaster, the impacts of a growing financial crisis are already being felt by the country's poor.

Thabsile Ndlovu, a widower in the mountainous northern Hhohho region has not been able to pay her children's school fees because she cannot travel to town to sell vegetables from her garden.

"The buses are not coming to my area because the roads are now so bad,” she said.

Recent heavy rains have made some roads impassable but the government announced this week that its fleet of road graders was inoperative because it lacked money to buy spare parts.

“At the start of the financial crisis government told us that education and health would not be affected, but we find there are many ways these can be affected,” said Stanley Dube, a financial consultant in the central commercial town of Manzini.

He noted that while government clinics may still be providing basic health services, many patients are finding it difficult to reach them.

Local humanitarian NGOs are also feeling the pinch following a government decision to cut financial support to such organizations by 14 percent.

“Just as prices are going up, government support is going down,” Thembi Nkambule, director of the Swaziland Network of People Living with HIV and AIDS (SWANEPHA), told IRIN.

SACU revenue down

Swaziland is among several smaller countries in the region that have benefitted from a boom in revenue payments from the Southern African Customs Union (SACU) in recent years.

SACU, which comprises Botswana, Lesotho, Namibia, South Africa and Swaziland, applies a common set of tariffs and disproportionately distributes the revenue to member states. It has provided an economic lifeline to Lesotho and Swaziland, in particular, which have small impoverished populations, large numbers of HIV-infected people, and few or no natural resources.

In 2009, SACU revenue accounted for about 20 percent of Swaziland's gross domestic product (GDP). However, the global economic crisis saw SACU revenue drop by about 70 percent in 2010 and further drops are expected over the next few years.

The IMF recently released a report proposing various fiscal adjustment strategies the governments of Botswana, Lesotho, Namibia and Swaziland should adopt in the face of lower SACU revenues.

Job cuts

One of the key recommendations for Swaziland was to dramatically reduce its disproportionately large public sector wage bill. The government has responded by announcing that 7,000 public service jobs will be cut in 2011, a move that may save money but is also likely to compromise public service delivery and further contribute to an unemployment rate that already stands at 40 percent.

Other fixes announced by the government have included the suspension of new hiring, cosmetic cutbacks like an end to the purchase of biscuits for bureaucrats’ afternoon teas, and short-term borrowing.

The IMF report predicts that if government does nothing to confront its economic problems public debt will jump from accounting for 19 percent of GDP in 2010 to 31 percent in 2011, eventually constituting 75 percent of GDP by 2015.

“That’s a doomsday scenario; no country can survive with such a debt load,” said an economist with the Swaziland branch of a South African bank who did not wish to be named.

However, he was unconvinced by IMF recommendations such as introducing value added tax (VAT) to raise revenue to replace lost SACU receipts.

“In a country where two-thirds of people live in absolute poverty... where are the consumers who can pay VAT?” he asked.

He was also skeptical that Swaziland's private sector would be able to attract enough investment to mitigate the effects of the financial crisis.

“While this would be ideal, private investment in Swaziland was on the decline even before SACU receipts were cut and the global recession occurred,” he said.

NGOs to seek more foreign aid

On 12 January, government officials were due to meet key industrial players to discuss ways to raise revenue. A corporate chief executive officer invited to the meeting told IRIN that a proposal to increase mining activity was on the agenda.

However, according to the IMF report, mining revenues, like SACU revenues, are on a declining trend even in countries like Namibia and Botswana which have considerably more mineral wealth than Swaziland. The authors urged governments to consider "measures to bring down the level of spending... before relying on measures to enhance revenue".

Several NGOs working to meet Swaziland’s considerable humanitarian needs, told IRIN they will be seeking more foreign assistance to address expected disruption to government services.

“We do have foreign donors who are sympathetic but because of the world economic situation they are cutting back. It’s a dilemma,” said SWANEPHA’s Nkambule.