under pressure as trade balance slipped SWAZILAND into deficit in 2017 Q2. This is mainly due Recent developments to underperforming exports that declined by 10.2 percent quarter-on quarter to E5.1 Economic growth was revised upwards billion in 2017 Q2 while imports increased to 1.3 percent in 2016 from an earlier pro- by 5.5 percent. Table 1 2016 jected contraction of 0.6 percent, follow- The Central Bank maintained the bank P o pulatio n, millio n 1.1 ing easing of supply side constraints in rate at 7.25 percent for 8 consecutive GDP , current US$ billio n 3.9 agriculture, food processing, and utilities months to August 2017, as inflation rate GDP per capita, current US$ 3427 production. Sugarcane production fell by continues to trend down. Inflation rate a 15 percent, lower than the 25 percent declined to 6.7 percent in July, 2017 from Internatio nal po verty rate ($ 1.9) 42.0 Lo wer middle-inco me po verty rate ($ 3.2) a 64.4 decline that was previously projected. 6.9 percent in June, and 7.1 percent in May Upper middle-inco me po verty rate ($ 5.5) a 82.0 Further, the civil service salary review 2017. Credit extended to the private sector a 51.5 boosted aggregate demand, stimulating has been growing at a steady rate, grow- Gini co efficient b the tertiary sector. ing by 6.5 percent year-on-year at the end Scho o l enro llment, primary (% gro ss) 112.8 b Fiscal expansion continued into the first of May 2017. Life expectancy at birth, years 48.9 half of 2017, financed partly by accumulat- Poverty stagnated between 2015 and 2016 Source: WDI, M acro Poverty Outlook, and official data. ing domestic arrears. Domestic arrears with 38.1 percent of Swazis living below Notes: (a) M ost recent value (2009), 2011 PPPs. have doubled to 4 percent of GDP in May the $1.9 per day international poverty line (b) M ost recent WDI value (2014) 2017 from about 2 percent in December in both years. Though there was a contrac- 2016. Total public debt levels increased by tion in agriculture between 2015 and 2016, 26 percent between July 2016 and July the modest growth in the economy, to 2017, reaching 19.7 percent of GDP. While some extent, cushioned further deteriora- external debt remained stable, domestic tion of poverty. Economic growth is expected to decline to debt increased by over 50 percent during the same period. As the fiscal situation 0.9 percent in 2017 from 1.3 percent in 2016, due to slow recovery in agriculture remains tight, the government is reverting to the use of foreign currency reserves to Outlook and escalating fiscal challenges. Domestic finance the deficit. Thus, reserves have arrears doubled in less than a year, posing declined by 17 percent year-on-year to 3.3 Growth is expected to remain subdued at significant macroeconomic risks. Public months of import cover in June 2017. Re- 0.9 percent in 2017 as agriculture takes serves remained volatile between January time to recover and fiscal challenges per- debt may breach the Government’s medi- and July 2017, heavily dependent on sist. The contraction in agriculture and um term threshold, unless corrective Southern African Customs Union (SACU) forestry sectors is projected to slow to -0.3 measures are taken. Foreign reserves have revenue inflows. Import cover only in- percent in 2017 from -2.7 percent in 2016 been deteriorating as they are partly fi- creased to around 3.9 months during as sugar production takes time to recover. months when SACU revenues were re- Demand will remain subdued as retail nancing the fiscal deficit. No gains in ceived (figure 1). and wholesale trade will slumber due to poverty reduction are expected in 2017 Current account balance stayed positive prevailing fiscal challenges. Growth in the owing to slow recovery in agriculture. during the first half of 2017, but remains medium term will remain constrained by FIGURE 1 Swaziland / Debt and months of import cover FIGURE 2 Swaziland / Actual and projected poverty rates and GDP per capita Percent of GDP Months Poverty rate (%) GDP per capita (constant LCU) 20 4.5 100 35000 18 4 30000 16 3.5 80 14 25000 3 12 60 20000 2.5 10 2 40 15000 8 1.5 10000 6 20 4 1 5000 2 0.5 0 0 0 0 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 International poverty rate Lower middle-income pov. rate Import cover(rhs) Domestic debt (lhs) Total debt(lhs) Upper middle-income pov. rate GDP pc Source: Swaziland Central Bank. Source: World Bank. Notes: see table 2. MPO 282 Oct 17 accumulation of domestic arrears that marginally recovers. While, food imports vicious cycle. As government accumu- will negatively affect the tertiary sector, will decline due to recovery in the agricul- lates domestic arrears, companies that general business operations, and finan- ture sector, fuel and capital goods imports conduct business with government suffer cial sector expansion with non - will continue to increase. and this affects their ability to pay taxes. performing loans. A marginal increase in poverty is expected Lower taxes lead to lower revenue, re- Though the fiscal deficit is expected to in 2017 as economic growth slows. The sulting in further accumulation of do- moderate it will remain fragile as expendi- proportion of Swazis living below $1.9 per mestic arrears and increase in fiscal defi- ture pressures remain elevated and do- day is anticipated to rise marginally from cit and debt. Further, banks’ balance mestic arrears continue accumulating. The 38.1 to 38.2 percent between 2016 and sheet would be negatively affected as fiscal deficit is projected at 8.2 percent of 2017. This is at the back of slow recovery companies will not be able to service GDP in 2017, down from 12.3 percent in in agricultural production as the effects of their loans and may result in increased 2016. To achieve this deficit, fiscal consoli- drought continue to linger on. The re- non-performing loans. In addition, the dation, particularly the reduction in recur- duced income and employment opportu- volatility of SACU revenue may further rent expenditure is expected to continue nities, along with increased food prices, amplify the fiscal challenges. for the rest of the year. SACU revenues exacerbate the poverty impact of the As the fiscal deficit is estimated to remain are projected to increase by 36.8 percent to drought. Modest gains are expected in the large, financing pressures might affect E7.1 billion in 2017. This is due to ex- medium term: the proportion of Swazis both debt sustainability and macroeco- pected lower deductions to repay the living below $1.9 per day is expected to nomic stability. Using the foreign reserves SACU Common Revenue Pool (CRP). fall marginally to 37.9 percent in 2018 and to finance the deficit may threaten the Public expenditures are expected to grow 37.8 percent by 2019. The government currency peg and continued reliance on at a slower pace (3 percent in 2017/18) in recently increased cash transfers to elderly domestic credit poses a risk of crowding comparison to 2016/17. and disadvantaged people to reduce ex- out the private sector. Tight fiscal condi- Current account pressures will persist but treme poverty. This is expected to have an tions and uneven recovery of agriculture the balance is projected to remain positive impact on poverty going forward. across the country pose an additional at 0.1 percent of GDP in 2017. Exports, threat to poverty reduction efforts. Fiscal will partly decline due to protectionist consolidation is therefore needed to create policies from traditional trading partners. Further from 2018/19 sugar exports may Risks and challenges an enabling environment for inclusive growth and shared prosperity. be negatively affected by the EU sugar reforms to take effect from September The downside risks from the fiscal situation 2017. However, textile exports will slight- are high. Continued accumulation of do- ly increase as the South African economy mestic arrears could create a debt-deficit TABLE 2 Swaziland / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2014 2015 2016 e 2017 f 2018 f 2019 f Real GDP growth, at constant market prices 4.2 1.5 1.3 0.9 1.9 1.8 Private Consumption 1.0 3.6 0.0 5.1 3.1 5.0 Government Consumption 24.3 1.7 9.5 7.0 9.6 9.8 Gross Fixed Capital Investment 4.9 7.0 3.7 -6.7 -3.1 -4.5 Exports, Goods and Services 9.9 0.4 2.0 2.1 2.5 3.8 Imports, Goods and Services 4.2 -5.0 4.3 5.0 4.9 4.5 Real GDP growth, at constant factor prices 4.5 1.2 1.1 0.7 1.9 1.8 Agriculture 3.4 4.1 -2.7 -0.3 5.0 3.1 Industry 1.0 0.4 1.5 3.1 2.6 2.9 Services 7.3 1.3 1.7 -0.8 0.7 0.7 Inflation (Consumer Price Index) 5.7 5.0 7.8 7.5 5.2 5.2 Current Account Balance (% of GDP) 4.1 10.8 0.9 0.1 1.5 2.8 Fiscal Balance (% of GDP) -1.1 -4.5 -12.3 -8.2 -4.9 -3.0 Debt (% of GDP) 14.6 16.4 18.7 21.5 23.0 24.0 Primary Balance (% of GDP) -0.3 -3.2 -10.9 -6.6 -3.1 -1.6 International poverty rate ($1.9 in 2011 PPP) a,b 38.1 38.1 38.1 38.2 37.9 37.8 Lower middle-income poverty rate ($3.2 in 2011 PPP) a,b 60.3 60.3 60.3 60.4 60.1 60.0 Upper middle-income poverty rate ($5.5 in 2011 PPP) a,b 79.3 79.3 79.3 79.4 79.1 79.0 So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty and Equity Glo bal P ractice. No tes: f = fo recast. (a) Calculatio ns based o n 2009-HIES. No wcast: 201 4 - 2016. Fo recast are fro m 2017 to 2019. (b) P ro jectio n using neutral distributio n (2009) with pass-thro ugh = 0.7 based o n GDP per capita in co nstant LCU. MPO 283 Oct 17