Swaziland has taken a major step towards bankruptcy now both the International Money Fund (IMF) and World Bank (WB) have refused to back its attempt to get a loan of E500 million (US$75 million) from the African Development Bank.
They refused to assist Swaziland because they are fed up with the way the Swazi Government has consistently refused to take proper control of the economy.
In particular the IMF and WB are angry that the Swaziland Government continues to ignore their advice to cut back on the amount of money it spends on civil servants’ salaries. They say the size of the civil service is too big for a kingdom as small as Swaziland.
The Swaziland Government even went so far as to raise civil service salaries this year by 4.5 percent (2010) and therefore increase its spending by E200 million (about 25 million US dollars), not decrease it.
The IMF has also been worried in the past that Swaziland wasn’t spending public money wisely. The Sikhuphe International Airport is a case in point. Despite IMF advice not to proceed with the building, the airport – a vanity project for King Mswati III, sub-Saharan Africa’s last absolute monarch – is being built. The last official estimate was that it would cost 1 billion US dollars by the time it is completed. The completion date keeps getting put back so it is a fair bet this cost will rise still further.
The refusal to back the loan comes as a point that Swaziland’s economy is in freefall. This year the money the kingdom received from the Southern African Customs Union (SACU) was cut to E1.9 billion from E6 billion last year. SACU receipts accounted for 66 percent of the national budget in 2009. It is unlikely that receipts will rise significantly in future years and they might actually fall further.
To counter the effects of this, the Swaziland Government ordered all departments to slash their budgets by 14 percent to immediately save E1.5 billion.
Swaziland’s foreign reserves are also falling. Sithole told Parliament last week that the kingdom had enough reserves to cover the cost of 3.1 months of imports. He described this as ‘acceptable’, but in fact it is not 'acceptable' and is far below the six months level recommended by the Southern Africa Development Community.
And there’s little hope of Swaziland attracting foreign direct investment (FDI). As was reported in November, Swaziland is not deemed as a good place for investors to set up business because of its small market, its people are too poor and Swaziland’s limited international reputation as a destination for FDI.
Sithole admitted to parliament that the IMF and WB ‘refused to give us a letter of comfort because they are not convinced with our fiscal adjustment programmes’. He said as a result the government is facing a cash flow problem and the government could soon not be able to meet its commitments.
This means salaries will go unpaid and there will be no money for services such as health and education.
‘We are faced with a cash flow problem such that we might find ourselves lacking actual money to make purchases,’ he said.
‘There is no fear that government could grind to a halt,’ said Sithole.
But Sithole says he is on top of the situation. One ‘solution’, he says, is to make sure government collects all revenues and taxes due to it.
Things were going well he said and so far the government had received E36 million (about 4.5 million US dollars).
Oh that’s all right then. You do the arithmetic – the Swaziland Government fails to secure a loan for 500 million dollars, but it has 4.5 million in taxes to make up for it.
Who does he think he is fooling?