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Saturday, 29 January 2011

SWAZI GOVERNMENT TO BLAME FOR CRISIS

We can now put to rest any suggestion that Swaziland’s present economic crisis is a result of the so-called global financial meltdown of 2008. Successive Swazi Governments are to blame.


Barnabas Dlamini, Swaziland’s illegally-appointed Prime Minister, and Majozi Sithole, who has been Finance Minister for the past 10 years, constantly try to kid us that the kingdom’s economic mess is none of their fault and is all down to a mixture of the ‘global crisis’ and a cut in income from the Southern Africa Customs Union (SACU).


But, they are exposed by the latest of an increasing number of reports from the International Monetary Fund (IMF) about Swaziland’s economic mess. The report, published this week (24 January 2011), contains ample, damning, evidence about the consequences of economic mismanagement by successive governments chosen by King Mswati III, sub-Saharan Africa’s last absolute monarch.


The 59-page IMF report reveals that the government is responsible for wasting resources by creating and sustaining a too-large public sector. IMF says the size of the public sector may actually stop activity in the private sector. ‘The Swazi government participates in the economy in a wide range of areas (transportation and telecommunication being prominent ones) and often in a proportion, which theoretical and empirical studies would suggest are detrimental to a healthy and sustainable long term growth and development path,’ the report states.


It goes on to say that government consumption as a percentage of Gross Domestic Product (GDP) – everything produced in the kingdom - is relatively high in Swaziland, when compared to other similar nations, or when compared to the fast growing Asian region.


In addition, far too much of the government’s spending goes on public sector wages. ‘In 2010 the cost of the civil service wage bill added up to 17.8 percent of GDP, which is more than half of the overall expenditure. Budget expenses on the wage bill are much higher in Swaziland than in many parts of the world.’


Despite the problems of the private sector, even when businesses do want to operate in Swaziland, government ’red tape’ prevents it.


The IMF reveals that Swazi authorities request in excess of 15 percent more documents prior to export than the sub-Saharan Africa average, and twice as many documents prior to export than the Euro Area.


The IMF goes on, ‘On the time required to enforce a contract the picture is even worse. The World Bank Doing Business database also shows that over time various indicators have been stagnant for Swaziland, while they have improved in the majority of other countries.’


It adds, ‘This means that the Swazi competitiveness has been deteriorating compared to other regions of the world.’


There are also huge disadvantages for business by having the Lilangeni (Swaziland’s currency) pegged in value to the South African Rand.


‘While the Lilangeni has been pegged to the South African Rand, the Swazi currency has been appreciating in real terms against the Rand, especially in the second half of the last decade, suggesting a loss of competitiveness against South African producers.’ Which, in plain English means Swaziland would be able to sell goods in the international market at a cheaper price than its South African competitors if its currency wasn’t pegged to the Rand.


The IMF says the main factor behind the overvaluation lies in the public sector wage policy, which has given consistent wage increases over the years, while productivity did not improve. ‘Moreover, despite comparative advantages in some export-oriented sectors (e.g., sugar, cassava, fruit juices), the private sector is still in dire need of further development, being held back by the high cost of doing business, as assessed by the World Bank.’


Present government policies are unsustainable. The IMF describes as ‘unfortunate’ (diplomatic-speak for ‘crazy’) ‘that the government moved forward with a supplementary budget [in December 2010] on a nonpriority capital project in the midst of a fiscal crisis’. That would be the E350 million extra it allocated to Sikhuphe Airport, King Mswati’s vanity project.


Furthermore, against IMF advice, cuts were proposed on [unspecified] pro-poor spending projects.


The IMF also says that if the government is unable to pay public service wages it would have ‘dire consequences for the rest of the economy, including the banking system’.


Banks would find that there could be a ‘rapid increase’ in the number of people defaulting on their loans. ‘As the government continues to draw down its deposits at the central bank, the gross official reserves of the central bank will be further depleted, calling into question external stability.’


In conclusion, the IMF says, The sharp decline of SACU revenue this year and the steady ratcheting up of the wage bill over the last decade have led to a fiscal crisis. The treasury balances have been depleted, the gross international reserves have fallen dramatically, and the government is starting to accumulate large domestic arrears on all expenditure items, except wages and utilities. Continuing on the same trend will lead to higher domestic arrears, including on civil service wages, a spreading of the crisis to the financial sector, and possibly social upheaval.’


See also


SWAZILAND FACES FISCAL CRISIS: IMF

http://mg.co.za/article/2011-01-28-swaziland-faces-fiscal-crisis-imf/

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