Inflation remained below the upper SWAZILAND bound threshold of 6% in 2015, and Recent developments averaged 5% in 2015. The decline in international commodity prices kept Recent real GDP growth slowed to 1.7% in inflation within the threshold while the 2015 from 2.5% in 2014, on the back of 2015 drought exerted an upward pres- Table 1 2015 declining SACU revenues, adverse weath- sure on prices. Population, million 1.1 er conditions and poor regional economic The decline in growth continued to put GDP, c urrent US$ billion 4.1 outlook especially in South Africa. The pressure on development challenges in GDP per c apita, c urrent US$ 3625 manufacturing sector suffered from the Swaziland, which have not significantly Poverty rate ($1.9/day 2011PPP terms) a 42.0 loss of the country’s African Growth and improved over the past decade. 63% of a Opportunity Act (AGOA) trade benefits in Swazis lived below the national poverty Poverty rate ($3.1/day 2011PPP terms) 63.1 January 2015, and the textile industry was line in 2010 which is relatively high for a Gini Coeffic ient a 51.5 characterized by retrenchments. lower middle income country. Poverty is b Sc hool enrollment, primary (% gross) 114.4 Despite significant improvements in largely a rural phenomenon: in 2010, b Life Expec tanc y at birth, years 48.9 domestic revenue collection as a result of 73% of Swazis living in rural areas were Sources: World Bank WDI and M acro Poverty Outlook. tax reforms including the new VAT re- living below the national poverty line Notes: fund at border posts with South Africa, compared to 31.1% in urban areas. The (a) M ost recent value (2009) (b) M ost recent WDI value (2013) the fiscal deficit widened to 3.6% of GDP adverse weather conditions are expected in 2015/16 (the fiscal year starts April 1) to further widen the gap between rural on the back of declining SACU revenues and urban poverty. Using the interna- (which constitute about 48% of Swazi- tional extreme poverty line of $1.9 per land revenue) and rising recurrent ex- day suggests that an estimated 41.1% of Economic growth in Swaziland is estimat- penditures especially the wage bill. Swazis were poor in 2015 compared to ed to have decelerated to 1.7% in 2015 SACU revenues are estimated to have 42.0% in 2010. fallen to 13.3% of GDP in 2015/16 from With a Gini coefficient of 51.5, inequality down from 2.5% in 2014, and is forecast- 15.3% in 2014/15. is high and actually increased in rural ed to further decline to 1.3% in 2016. This The external sector position moderated in areas between 2001 and 2010. Swaziland’s is partly due to adverse weather conditions 2015. The current account surplus nar- labor markets suffer from low labor force and a gloomy regional economic outlook. rowed to 0.4% of GDP in 2015 down from participation rates and high unemploy- 4.4% in 2014, while international reserves ment, exacerbated by skills mismatches A marginal recovery is expected in 2017 rose slightly to 3.6 months of import cover and a high prevalence of HIV/AIDS and 2018 with 1.4% and 1.6% real GDP in 2015 from 3.5 in 2014. This is above the (27.7% among adults). The bulk of em- growth forecasts, respectively. Declining international accepted minimum thresh- ployment is in low value added activities, Southern Africa Customs Union (SACU) old of 3 months of import cover but below particularly in subsistence agriculture and revenues pose fiscal challenges. As a result the government’s medium term target of 5 low value added services. Government -7 months of imports. The current account accounts for a large share of employment, of poor macroeconomic conditions, poverty decline was cushioned by increased ex- with the private sector lacking the vibran- rates are expected to remain high while ports of textiles to South Africa following cy to create employment opportunities to labor conditions remain weak. the depreciation of the Rand. support faster poverty reduction. FIGURE 1 Swaziland / Contribution to annual growth FIGURE 2 Swaziland / Actual and estimated poverty rates (%) and GDP per capita (PPP) Percent Poverty Rate (%) GDP per capita (USD PPP) 10 80 6,200 8 70 6,000 6 4 60 5,800 2 50 5,600 0 40 5,400 -2 30 5,200 -4 -6 20 5,000 -8 10 4,800 -10 2012 2013 2014 2015 2016 0 4,600 2001 2003 2005 2007 2009 2011 2013 2015 2017 Private consumption Government Consumption Investments GDP growth $1.9/day PPP $3.1/day PPP GDP per capita PPP Source: World Bank staff calculations. Sources: World Bank (see notes to table 2). MPO 278 Apr 16 As a result of these weak economic pro- for South Africa and the SACU region. Outlook spects, poverty and inequality are ex- pected to remain critical challenges as Lower SACU transfers and exports to South Africa are expected. There is no growth of disposable income and job crea- scope for public sector stimulus, and a Swaziland’s economic outlook is expected tion slows down. The international ex- rationalization of expenditures in line to continue on a downward path particu- treme poverty ($1.9 per day) rate is fore- with the fall in SACU transfers is needed, larly in the short term. Real GDP growth casted to remain near 41% through to particularly with respect to the public is projected at 1.3% in 2016 down from 2018. The prolonged drought is expected wage bill. Postponed implementation of 1.7% in 2015. This is due to downside risks to increase rural poverty, as three out of the salary review would help in this re- emanating from weak economic prospects four households depend on subsistence gard, as well as improved focus on the for South Africa and the expected contin- farming. Further, the drought is expected quality of spending and coordination of ued drought conditions in 2016. The coun- to exert inflationary pressure on food pric- social protection programs, together with try is facing the worst drought in 35 years, es: the inflation rate is projected to breach adjustments to their design and imple- and the country has already lost over the upper bound threshold of 6% in 2016, mentation. 44,000 cattle since January 2015. South with early year warnings already showing Swaziland needs to step up efforts to in- Africa is projected to grow by only 1% in the buildup of food and non-alcoholic crease investment especially in the private both 2016 and 2017, a growth rate that beverages prices at 6.6% in January 2016 sector. This is crucial for stimulating presents downside risks to already declin- up from 5.2% in December 2015. This will growth and job creation which is key to ing SACU revenues and prospectively to negatively affect the poor who spend a higher, inclusive economic growth needed Swaziland’s textile exports to South Afri- disproportionately higher share of their to tackle the challenges of high poverty, ca. SACU revenues are projected to de- total expenditure on food. Limited access inequality, and unemployment. To pro- crease to E5.3 billion in 2016/17 from E6.9 to borrowing through financial markets is mote private investment, there is need to billion received in 2015/16, representing a expected to continue to compromise the implement policies that address human 22% decline year on year. poor and vulnerable ability to adequately capital challenges, improve the regulatory The budget deficit is expected to deterio- cushion themselves from the weak eco- environment and ease of doing business rate in the short term as revenue falls, and nomic conditions. (currently ranked 105 out of 189 coun- public recurrent expenditures especially tries). Private investment is central to ex- on wages increase. The external sector is port diversification that will build resili- expected to deteriorate, as exports fall due to the slowdown in South Africa’s Risks and challenges ence to external shocks such as the one emanating from expiration of AGOA. economy and the effects of expiration of AGOA qualification, the major export The economic outlook for Swaziland re- destination of Swaziland. mains poor, in line with broader concerns TABLE 2 Swaziland / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2013 2014 2015 e 2016 f 2017 f 2018 f Real GDP growth, at constant market prices 3.0 2.5 1.7 1.3 1.4 1.6 Private Consumption -12.1 -2.3 -4.3 -7.0 -8.0 -9.5 Government Consumption 5.5 10.1 2.4 1.3 1.5 1.5 Gross Fixed Capital Investment 26.2 3.4 25.1 28.6 17.8 13.4 Exports, Goods and Services 2.4 6.6 5.5 5.0 6.0 6.5 Imports, Goods and Services 5.7 3.6 5.1 4.8 4.4 4.0 Real GDP growth, at constant factor prices 1.8 1.9 2.4 2.6 2.8 3.0 Agriculture 2.3 2.6 -1.8 -2.9 10.7 5.0 Industry -3.0 -2.9 3.6 4.2 -11.9 -5.5 Services 4.7 4.5 2.6 2.7 9.7 6.5 Inflation (Consumer Price Index) 5.6 5.7 5.0 5.9 6.1 6.0 Current Account Balance (% of GDP) 7.0 4.4 0.4 -2.4 -1.8 -2.4 Fiscal Balance (% of GDP) 0.6 -2.1 -3.6 -4.3 -6.8 -2.3 Debt (% of GDP) 15.1 13.9 13.2 15.9 17.6 23.4 Primary Balance (% of GDP) 1.3 -0.7 -1.4 -1.7 -2.8 0.5 Poverty rate ($1.9/day PPP terms) a,b,c 41.3 41.1 41.1 41.1 41.1 40.9 Poverty rate ($3.1/day PPP terms) a,b,c 62.3 62.0 62.0 62.0 62.0 61.9 So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice. No tes: e = estimate, f = fo recast. (a) Calculatio ns based o n 2009-HIES. (b) P ro jectio n using neutral distributio n (2009) with pass-thro ugh = 0.7 based o n GDP per capita co nstant P P P . (c) P ro jectio ns are fro m 2013 to 201 8. MPO 279 Apr 16