NOT MUCH COMFORT FROM IMF

If this is a letter of support from the International Monetary Fund (IMF), I’d hate to see a rejection.

Barnabas Dlamini, Swaziland’s illegally-appointed Prime Minister, held a press conference widely reported in the Swazi media on Friday (29 April 2011), to announce he had received a ‘letter of comfort’ from the IMF and he was now in a position to go to the African Development Bank for a loan – possibly for as much as $US150 million, according to a report in the Times of Swaziland.

The Times reported, ‘The Prime Minister said the letter of comfort will provide an important degree of assurance to governments, and international and local organisations and financial institutions.’

Following the publication of these newspaper reports, we at Swazi Media Commentary were a little confused. What exactly did this ‘letter of comfort’ say? We contacted the IMF and were told the only letter that had been given to the government was an ‘assessment letter’ dated 14 April 2011. You can read it yourself by clicking here. http://www.imf.org/external/pp/longres.aspx?id=4561

So what is this letter? This is what it says in the first paragraph, ‘This letter provides an assessment of recent macroeconomic developments in Swaziland and an update on the discussions between IMF staff and the Swaziland authorities.’

Nowhere does it say the IMF supports Swaziland’s bid for a loan.

It does, however, give an assessment of the economic situation in Swaziland as of April 2011.

Here are some excerpts.

‘IMF staff considers the revenue projections in the budget optimistic and called for additional measures to reduce recurrent expenditures.’ Or put another way, the government got its sums wrong on how much it was likely to get in income and therefore the IMF wants more public expenditure cuts.

‘While capital expenditure commitments have been halved in recent months to offset the impact of lower Southern African Customs Union (SACU) revenue, this was partly reversed by a supplementary budget in November 2010 to regularize capital expenditure overruns of about E 350 million (1.3 percent of GDP) for a new airport project.’ That means the government is wasting money on unnecessary expenditure. The airport project refers to Sikhuphe Airport, King Mswati III’s vanity project.

‘The government is facing serious challenges in financing its large fiscal deficit. In addition to issuing government bonds, the government has drawn down its deposits at the central bank and has incurred large domestic payment arrears, estimated at E 1.2 billion (US$150 million; 4 percent of GDP) at end-March 2011. The central bank has also provided the government with an emergency credit line of E 620 million (2.3 percent of GDP) in February 2011. Arrears are likely to rise further in the coming months, before external budget support becomes available in the second half of 2011. In addition, the government may not be in a position to pay public sector wages in the next few months, without further drawing on the gross international reserves of the central bank.’ That means the government hasn’t got enough money to pay its bills – including the wages and salaries of public servants.

‘Given the size of the fiscal deficit, the government will not be in a position to rely exclusively on domestic resources to finance its operations. Consequently, there is still a financing gap of about E 1.3 billion (about $200 million), which the authorities hope to close through external assistance from the international community.’ This means the government needs an international loan.

You will notice that nowhere does the IMF say it supports the application for a loan, only that the Swaziland Government wants one.So what happens next? Majozi Sithole, the Swaziland Finance Minister, told the press conference he was going to contact the African Development Bank again to ask for a loan.

This is where we were in October 2010, when Swaziland’s economic meltdown first became public.