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Friday, 14 January 2011

IMF WANTS MORE DRASTIC ACTION

The Swaziland Government made the economic crisis in the kingdom worse by agreeing a supplementary budget in November 2010, according to an International Monetary Fund (IMF) report published yesterday (13 January 2011).


And the Government’s decision to increase spending on ‘non-priority’ areas means it must impose even harsher measures on the Swazi people than those already announced.The IMF wants more government services to be privatised and a squeeze on wages in the kingdom, where seven in ten of the population already earn less than one US dollar a day.


The IMF blamed the Swazi Government for helping to create the economic crisis in the first place. It said the Ministry of Finance, headed by Majozie Sithole, the Finance Minister in Swaziland for the past ten years, was not able to cope with the crisis and needed more help to build up its capacity.


Top of the reasons for the economic crisis is what the IMF calls ‘a high government service wage bill’, which has ‘contributed to making the Swaziland wage bill one of the largest in Sub-Saharan Africa’.


The economy generally in the kingdom ruled by King Mswati III, sub-Saharan Africa’s last absolute monarch, ‘continues to underperform other Southern African Customs Union (SACU) members, reflecting an overvalued exchange rate, continued structural impediments to growth, and the heavy toll of HIV/AIDS on economic activity’.


This lack of good management coupled with a reduction in cash receipts from SACU has led to the crisis, the IMF said.


‘The government also added to fiscal pressures by submitting a supplementary budget to parliament in November 2010 to clear capital expenditure arrears. The deficit has been financed through a drawdown of government deposits at the central bank and domestic arrears on all expenditure items, except wages and utilities,’ the IMF said.


IMF Directors said there would have to be ‘additional measures in the 2011/12 budget to compensate for recent increases in non-priority [Government] spending’. Although it did not mention the Sikhuphe Airport project by name, it must have had in mind the government’s decision in December 2010 to to spend another E350 million (about US$50 million) on King Mswati’s vanity project.


The government’s so-called Fiscal Adjustment Roadmap (FAR), put forward by Barnabas Dlamini, Swaziland’s illegally-appointed Prime Minister, and Sithole, the Finance Minister, will not be enough to rescue the economy, the IMF said.


It welcomed the FAR, which includes raising taxes from the poorest people in Swaziland, sacking 7,000 public servants and introducing Value Added Tax (VAT) on goods and services, but emphasized the need for more ambitious and sustained efforts to revitalize Swaziland’s economic performance’.


The IMF welcomed the Government’s ‘intention to reduce the budget deficit to 2 percent of GDP by 2014/15. However, they considered that achieving this target requires bolder fiscal adjustment and budgetary reforms than envisaged in the current plan’.


It said, ‘additional technical assistance is also necessary to build up implementation capacity, particularly at the Ministry of Finance.’


The IMF said the Government should ‘mobilize additional domestic financing’. Although it did not spell out the consequences of this, it could mean new taxes, higher existing taxes and getting more from other forms of government revenue. It could also mean more government borrowing, but in a kingdom of one million people, where seven in ten are in abject poverty, there isn’t much money to borrow.


IMF Directors also ‘called for stepped up efforts to improve the business environment, including by reviving the government’s privatization program, reducing the cost of doing business, and keeping labor costs in line with those in the region’.


The International Monetary Fund (IMF) report came at the end of a visit it made to Swaziland, which ended on 10 January 2011. To read the full report, click here.


See also


MORE DIRE NEWS ON SWAZI ECONOMY

http://swazimedia.blogspot.com/2011/01/more-dire-news-on-swazi-economy.html


WHAT THE IMF SAID TO SWAZILAND

http://swazimedia.blogspot.com/2010/12/what-imf-said-to-swaziland.html

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