Swaziland, the kingdom that has been mismanaged by its ruler King Mswati III, sub-Saharan Africa’s last absolute monarch, and the governments he appoints, for years, faces one of the worst economic crises among nations in Southern Africa, a report just published by the International Monetary Fund (IMF) reveals.
And, Swaziland will probably never again return to the level of income it once enjoyed from the South African Customs Union (SACU).
At the same time, the kingdom must increase its revenues (especially from taxes) to get out of the economic mess.
And on top of this, Swaziland will have to pay back money to the SACU that it received in the past. This is because from 2004 to 2007 the money collected by SACU was much higher than expected and ‘windfall’ payments were made to countries in the union, including Swaziland.
Swaziland considered this ‘windfall’ to be ‘a permanent increase and was thus used mostly to finance recurrent expenditures, including civil service wage increases,’ the report states.
But the report also states, ‘this boom turned out to be unsustainable’ and since 2008 revenues (especially customs duty collections) have been lower than expected, so that Swaziland will have to make repayments to the SACU (because of an agreement it made with the SACU in 2002). This means that until 2013 Swaziland will receive even less from the SACU than it expected, until the debt is repaid.
The report states that there will probably be a gradual improvement in Southern African economies from 2012, but in Swaziland it will take longer because of the relatively larger amount of money it owes SACU, compared to other countries.
The report points out that in other SACU countries, including Namibia and Botswana, some of the ‘windfall’ revenues were used to stimulate the economy (for example by building infrastructure and social programmes) whereas, ‘Most of the expenditure increases in Swaziland went into wage increases to civil servants.’
The report states that unless ‘substantial’ financial measures are taken immediately, in Swaziland, the debt-to-Gross Domestic Product (GDP) ratio, at 13.3 percent in 2009, is predicted to increase more than six-fold to 75.1 percent by 2015. As a comparison, the debt-GDP ratio of Namibia is calculated at 29 percent.
If financial measures are taken the prediction is that Swaziland’s debt-GDP ratio in 2015 will still be massive at 38.9 percent, nearly three times the 2009 level, but, according to the report, ‘manageable’.
To get out of the economic mess, the report concludes that Swaziland should introduce Value Added Tax (VAT) on goods and services, increase taxes and stamp duties and improve tax administration.
It also recommends Swaziland implements ‘well-planned permanent expenditure cuts,’ and ‘in particular, a comprehensive civil service reform to reduce the sizable wage bill seems a priority’. It also wants cuts in ‘non priority current spending’.
To read the report, In the Wake of the Global Economic Crisis: Adjusting to Lower Revenue of the Southern African Customs Union in Botswana, Lesotho, Namibia, and Swaziland, click here.
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