Swaziland budget repeats failed economic policies of the past

The first budget from the Swaziland / eSwatini Minister of Finance Neal Rijkenberg has been largely welcomed in the media in the kingdom. But memories are short. Commentators have failed to notice the similarities between the 2019 budget plan and the Fiscal Adjustment Roadmap of 2010 (FAR 2010) that failed to save the Swazi economy. 

FAR 2010 was a blueprint for getting the Swazi economy out of what was then described as the worst economic crisis in its history. It was intended to be implemented between 2010 and 2015.

The similarities between FAR 2010 and Budget 2019 are many. They include reforms on tax and increasing the efficiency of tax collection, increasing the so-called Sin taxes (tobacco and alcohol), improving the efficiency of public services, decreasing the public service wage bill, selling government assets, building investor confidence, attracting both private investment and foreign direct investment.

Key to FAR 2010 was the reform of public services, privatising government assets and ensuring ‘that the wage bill remains under control’. FAR 2010 proposed cutting 7,000 public service jobs.

FAR 2010 failed. As an indicator of this in 2010 total external debt was about 13.4 percent of Swaziland’s gross domestic product (GDP). In 2018, Swaziland’s external debt was 23.3 percent of GDP. GDP is the total value of goods produced and services provided in a country during one year. 

In his budget speech delivered on Wednesday (27 February 2019) Finance Minister Rijkenberg said Swaziland, ‘is facing an unprecedented economic crisis’. He added the economic outlook remained ‘subdued’. 

He said, ‘Foreign Direct Investment has been on average negative for a number of years. Arrears have accumulated and we continue to draw down on our reserves. The economy has stagnated and we are failing to attract investment as the gap between the rich and poor continues to grow.’

He said the government wage bill was ‘a key component of our crisis’, stating in the past ten years the wage bill had grown by 125 percent. Decreasing the public sector wage bill had been a key objective of the FAR 2010.

He said the Swaziland economy was in trouble, ‘because our private sector is too small and its growth is too slow. We are in trouble because we have not been balancing our books.’ 

Then he announced a range of polices very close to those of FAR 2010 that failed.

There is no reason to be optimistic about Swaziland’s economic future if the past few years are a guide. FAR 2010 was never likely to succeed and Budget 2019 faces the same fate.

A key reason for failure is the nature of the political system in Swaziland. The kingdom is ruled by King Mswati III as an absolute monarch. Political parties are banned and the King chooses a significant number of the House of Assembly and Senate. He also chooses the Prime Minister and Cabinet ministers.

The King chooses people who will do his will. They owe their positions to him, not to the people who elected them. Put simply, he does not want people in power who will change the economic structure of Swaziland. The King holds all profits from Tibiyo Taka Ngwane, which is an investment fund with extensive shares in a number of businesses, industries, property developments and tourism facilities in Swaziland.

He also takes 25 percent of all mining royalties in Swaziland. Neither Tibiyo nor the King pay tax. The monies are reportedly held by the King ‘in trust for the Swazi nation’ but it is no secret that he uses this money to finance his own lavish lifestyle. He has two private jets, 13 palaces and diamonds and gold. Meanwhile, nearly seven in ten of the 1.3 million population live in abject poverty on incomes less than the equivalent of US$3 per day.

The first thing an independent Finance Minister should do is to take Tibiyo and mining profits away from the King and use them to boost the economy.

A second reason for failure is that the people the King chooses for high office tend not have the experience nor the abilities to deliver complicated policies. After the last election in September 2019 King Mswati appointed Ambrose Dlamini as Prime Minister and Neal Rijkenberg as Finance Minister. Neither men have any experience in politics. They do not know how to successfully draft the necessary legislation to enact Budget 2019 (Rijkenberg has reportedly tabled eight new bills around the Budget 2019) and they do not know how to deliver on policies. 

Again, Rijkenberg said that in the coming year government needed to sell off assets to raise E400 million but he also said he did not know what was to be sold. ‘An exercise’ was underway at the Ministry of Finance to identify these, he said. 

Both FAR 2010 and Budget 2019 were imposed on the people. There was no meaningful discussion with the private sector, foreign investors or public service unions. FAR 2010 fell almost at the first hurdle when the government tried to implement public service wage reductions and job cuts. Even members of parliament would not take pay cuts.

A report on Swaziland from the World Bank published in August 2018 said, ‘The business environment remains unconducive to private sector development due to perceived weak transparency in regulatory systems and lack of clarity on government policies and implementation.’

It added, ‘stronger commitment and leadership is required’ to implement government policies. 

The commitment and leadership is unlikely to be forthcoming.

Richard Rooney

See also

Swaziland Finance Minister threatens public sector job cuts if workers don’t back his budget

https://swazimedia.blogspot.com/2019/03/swaziland-finance-minister-threatens.html

Gap between rich and poor in Swaziland continues to grow, Finance Minister reports

https://swazimedia.blogspot.com/2019/02/gap-between-rich-and-poor-in-swaziland.html 

SWAZI ECONOMY SET TO HIT ROCKS

Swaziland’s economy is heading for a shipwreck of Titanic proportions after news that the International Monetary Fund (IMF) has withdrawn support for the kingdom’s financial recovery plan.

Since 2010 the IMF has been working closely with the Swazi Government supporting its ‘fiscal adjustment roadmap (FAR)’ – a plan for recovery that included getting more revenue through taxes and reducing the public sector wage bill.

The Swazi Government drew up the plan and was aided by the IMF in its implementation through a procedure known as the staff-monitored programme.

But even though the FAR was the work of the Swazi Government and was completely under its control, the government failed abysmally to implement it.

Central to the plan was to reduce the public sector wage bill – that of teachers, nurses and other civil servants – by 10 percent. This it failed to do.

The government did force through 10 percent salary reductions for politicians, but last month (March 2012) MPs voted to have their pay restored because they said it was unfair that they were the only public sector workers to have taken the cut.

This week, Joannes Mongardini, head of the IMF mission to Swaziland, confirmed that it was no longer working with Swaziland on the staff-monitored programme.

He told the Times of Swaziland, the only independent daily newspaper in the kingdom, ‘Government has yet to propose a credible reform programme that could be supported by a new IMF Staff-Monitored Programme.’

He added that the national budget announced in February 2012 included, ‘recurrent expenditures that are higher than what can sustainably be financed over the medium term’.

He said the budget did not provide sufficient resources to repay all domestic arrears.

‘Finally, the budget allocates an increasing share of resources to some sectors at the expense of education and health,’ he said.

Swaziland sought the help of the IMF because it was nearly broke and needed loans from international banks, such as the African Development Bank and World Bank, to survive. It could not get these loans until it proved its economy was in order and IMF support in the form of a ‘letter of comfort’ would enable it to do this.

Without the support Swaziland is alone. There is little hope it can secure loans from international banks and even a E2.4 billion (US$307million) loan that had been negotiated with South Africa looks likely to be withdrawn as one of its conditions was that Swaziland provided evidence that it was tackling its economic problems.

So what happens next? Since news of the IMF withdrawal broke this week there has been no public statement from the Swazi Government. We know from the past that it has been less than honest with the Swazi people about the state of the economy, with Barnabas Dlamini, the Prime Minister, even claiming a year ago in April 2011 that it had the ‘letter of comfort’ from the IMF supporting its bid for international loans, when no such letter existed.

Finance Minister Majozi Sithole, however, told local media this week he expected to have further talks with the IMF and World Bank starting next Thursday (19 April 2012), but it is difficult to see what they have to talk about, unless the Swazi Government can demonstrate it has control of the economy – which clearly it does not.

See also

IMF CALLS FOR SACRIFICE FROM THE KING

http://swazimedia.blogspot.com/2011/11/imf-calls-for-sacrifice-from-king.html

SWAZILAND FAILS ITS IMF TARGETS

swazimedia.blogspot.com/2011/08/swaziland-fails-its-imf-targets.html

SWAZI KING FALSELY ACCUSES IMF

King Mswati III, the absolute monarch of Swaziland, has falsely accused the International Monetary Fund (IMF) of treating his kingdom more harshly than other nations over its financial meltdown.

He told a meeting of the Smart Partnership National Dialogue in Swaziland yesterday (14 September 2011) that the IMF wanted to help Swaziland with a bailout but it wanted it to meet financial conditions first before it would offer its support.

The king – recently criticised in a cable from the US Embassy in Swaziland as ‘not intellectually well developed’ – showed his deep ignorance of recent history when he told the meeting that his kingdom was being treated differently from countries such as Greece, Portugal and Ireland, which also needed bailouts.

‘However, when they come here you see that they treat us in a different spirit. We are told that before we get a bailout we should implement pay cuts and also retrench government employees,’ the Times of Swaziland quotes the king saying.

But the truth is that these countries were required to cut public expenditure, slash the pay of public employees, and retrench civil servants. So, in fact, Swaziland is being treated in exactly the same way as these other countries.

The king also tried to deflect criticism away from the government he handpicked by claiming that the IMF was forcing it to cut public sector jobs. He also claimed that the IMF was forcing his government to retrench workers without consultation.

The fact is that the IMF has ordered none of these things to be done. King Mswati’s Government, headed by Barnabas Dlamini, the man he illegally-appointed Prime Minister, came up with what it grandly called a Fiscal Adjustment Roadmap (FAR) to save the economy. The Swazi Government had complete control over the contents of this. It knew it had to get its financial house in order and chose to attack public spending and target public sector workers’ pay and jobs rather than, for example, cut the enormous allowances government ministers and MPs pay themselves from the public purse.

The government chose not to engage in meaningful dialogue with the workers. The labour unions are eager for talks.

The Associated Press quoted the king blaming the IMF for the delay in Swaziland implementing any financial changes.

‘It is lies that we refuse to embrace IMF programs.’ the AP quoted the king saying. ‘What we want is that the IMF hear our side of the story as a country. Something which it refuses to do.’

In fact, the IMF regularly visits Swaziland to do exactly that. Its last visit was last month (August 2011), when it met with the king and senior government ministers and asked how far they had got in implementing their own FAR. The answer was not far, so the IMF said it could not offer its support to Swaziland for a loan from the African Development Bank.

The fault for Swaziland’s financial crisis lies with King Mswati and the succession of governments he handpicked. To blame the IMF is a smokescreen.

See also

SWAZILAND FAILS ITS IMF TARGETS

http://swazimedia.blogspot.com/2011/08/swaziland-fails-its-imf-targets.html

DETAILS OF HOW 7,000 JOBS WILL GO

About 3,500 public servants in Swaziland will lose their jobs completely because of the government’s financial crisis.

Another 2,500 people will no longer be public servants as their jobs will be privatised. And, another 1,000 jobs will remain, but they will be in organisations such the Swaziland Revenue Authority and the Civil Aviation Authority which will become ‘semi-autonomous’ from government and not therefore on its payroll.

The figures were published by the Times of Swaziland, the only independent daily newspaper in the kingdom, today (12 August 2011).

The newspaper reports that the majority of the privatised jobs will be low grade cleaners and security guards.

The 7,000 job losses are to meet the requirements of the Swazi Government’s Fiscal Adjustment Roadmap (FAR), which it drew up in response to the International Monetary Fund’s demands that public sector wages in Swaziland be cut.

The Times’ report comes from the Manzini region Smart Partnership Dialogue presentation on the FAR.

It reports that Budget Director Bheki Bhembe gave the figures.

The Times also reported Bhembe saying the Swazi Government owed E1.2 billion to creditors in the kingdom, ruled by King Mswati III, sub-Saharan Africa’s last absolute monarch, for work done.

‘The IMF wants us to expedite payment of these debts because the economy is generated by the circulation of money. If the private sector does not have this money with them, then the economy will reach crisis point,’ he said.