December 2016 from 4 months in Decem- SWAZILAND ber 2015. Recent developments The current account deteriorated, but re- mained in surplus in 2016. Imports grew Growth slipped into negative territory (- by 4.5 percent partly due to drought in- 0.6 percent) in 2016 from 1.9 percent in duced food imports. This gain was faster Table 1 2016 2015, as agricultural production fell due to than that for exports, which grew by 3.9 Population, million 1.1 drought conditions. The drought had an percent in 2016, driven mainly by recov- GDP, c urrent US$ billion 3.7 adverse effect on secondary sector activi- ery of textile exports to regional markets GDP per c apita, c urrent US$ 3277 ty, especially for the manufacturing sector after the Africa Growth Opportunity Act Poverty rate ($1.9/day 2011PPP terms) a 42.0 that relies on inputs from the primary suspension. Overall, the BOP was in defi- Poverty rate ($3.1/day 2011PPP terms) a 63.1 sector. While the supply side did not per- cit in 2016 and partly financed by draw- a form well, the civil service salary review down of foreign reserves Gini Coeffic ient 51.5 b gave a boost to the demand side in 2016. The monetary policy stance was contrac- Sc hool enrollment, primary (% gross) 113.3 As a result, tertiary sector growth rates tionary in 2016, mainly in response to in- b Life Expec tanc y at birth, years 48.9 reached about 2 percent in 2016 from 1.3 flationary pressures from food prices. In- Source:World Bank WDI and M acro Poverty Outlook percent in 2015, driven by wholesale and flation averaged 7.8 percent (above the Notes: retail trade, and repair of motor vehicles. upper threshold of 6 percent) in 2016, up (a) M ost recent value (2009) (b) M ost recent WDI value (2014) An expansionary fiscal policy, mainly a from 5 percent in year preceding. The cen- result of the 2016 salary review, yielded a tral bank increased the discount rate from substantial budget deficit of 12.3 percent 5.75 percent in 2015 to 7 percent in 2016, of GDP, up from 4.8 percent in 2015. This moderately limiting growth in credit to was compounded by declining revenues, the private sector. Economic growth is projected to rebound falling 0.7 percent in 2016. The drop -off in The last two years of consecutive droughts to 1.7 percent in 2017, in part due to revenue was mainly due to a 24 percent contributed to a slowdown in poverty decline in South African Customs Union reduction. The proportion of Swazis living modestly improved regional growth pro- (SACU) revenues, while payroll and val- below the $1.9 per day poverty line rose spects and recovery of agricultural pro- ue added taxes increased following salary marginally from 39.4 to 39.8 percent be- duction following better rains. This is revisions. As fiscal challenges mounted, tween 2015 and 2016. The Swaziland Vul- expected to support moderate gains in government accumulated domestic ar- nerability Analysis Committee reports rears of about 3 percent of GDP as of end that 350,000 people need emergency food poverty reduction. Over the medium November 2016. Total public debt in- aid. Allocations towards social welfare term, a more favorable regional economic creased to 18.8 percent of GDP in 2016, programs were not increased in 2016, outlook is expected to sustain the external driven mainly by domestic debt. Further, hence no additional resources were made sector. However, accumulation of domes- as cash flows were constrained, govern- available to cushion the poor against ris- tic arrears together with fiscal pressures ment drew down foreign reserves to pay ing prices. Further, poverty reduction budgetary obligations. As a result, re- efforts continued to be dampened by rela- exerted by the 2016 salary review will serves declined by 9.2 percent to E7.7 tively high inequality (a consumption per continue to pose significant risks to mac- billion as of end December 2016. The im- capita Gini coefficient of 51.5) and unem- roeconomic sustainability. port cover narrowed to 3.7 months at end ployment (28.1 percent). FIGURE 1 Swaziland / Sectoral growth rates FIGURE 2 Swaziland / Actual and projected poverty rates and GDP per capita Percent Poverty rate (%) GDP per capita (constant LCU) 15 80 40000 10 70 35000 60 30000 5 50 25000 0 40 20000 -5 30 15000 20 10000 -10 10 5000 -15 0 0 2014 2015 2016 2017 2018 2019 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Primay sector Secondary sector Tertiary sector GDP growth $1.9/day PPP $3.1/day PPP GDP pc Sources: Ministry of Finance and World Bank staff calculations. Sources: World Bank (see notes to table 2). MPO 274 Apr 17 efforts by the government to issue a bond Union-Southern African Development Outlook to raise funds to clear all domestic arrears. External sector pressures are expected to Community Economic Partnership Agree- ment (EU-SADC EPA) implementation moderate as the current account surplus (from October 2016) may constrain an Economic growth is expected to rebound to increases. Exports, especially textiles, will anticipated increase in SACU revenues. 1.7 percent in 2017, as agricultural produc- continue to increase as the South African Persistent economic management chal- tion recovers. The agriculture and forestry economy gradually recovers. In contrast, lenges in South Africa (as reflected by the sectors are projected to grow by some 10 imports will moderate as food imports de- recent downgrade of long term foreign percent in 2017 contrasted with a notable 11 cline due to recovery in the agriculture sec- currency denominated debt to specula- percent contraction in 2016. As the primary tor. However, from 2018/19 exports may be tive) would also result in lower growth sector recovers, the secondary sector is ex- negatively affected by the EU sugar reforms and SACU revenues, inhibiting fiscal con- pected to grow by 2 percent in 2017, driven to take effect from September 2017. The EU solidation. Further, the forthcoming 2018 by manufacturing and electricity produc- intends to remove reference prices and pro- national elections might force government tion. The secondary and service sectors to- duction quotas, which is likely to lead to a to continue on a path of expenditure ex- gether are expected to support 3.2 percent pickup in EU sugar production, negatively pansion, while the huge wage bill will average economic growth in 2018/19. affecting demand for Swazi sugar exports. continue to weigh down on the fiscal posi- The fiscal situation is expected to improve Gains in poverty reduction are expected to tion, leaving little space for poverty allevi- in 2017 as a result of stronger economic be marginal in 2017. The proportion of Swa- ation interventions. activity and various revenue enhancing zis living below $1.9 per day is anticipated The government continued to finance the policy measures expected to be imple- to fall from 39.8 to 39.6 percent between 2016 fiscal deficit through borrowing from the mented by the government. SACU reve- and 2017. It is expected to fall further to 39.3 private sector and the central bank-- nues are expected to increase by 36.8 per- percent in 2018 and 38.7 percent by 2019. running down foreign reserves is a threat cent to E7.1 billion in 2017. This is due to The muted gains especially in the near term to macroeconomic stability. Continued expected lower deductions to repay the suggest the impact of the recovery of the reliance on domestic credit poses a risk of SACU Common Revenue Pool (CRP) and agricultural sector on poverty reduction is crowding out the private sector while run- about a 15 percent projected increase in the expected to be only modest in the near term. ning down reserves threatens the ex- size of the 2017/18 CRP. Expenditures are change rate peg. Without a clear adjust- expected to grow at a slower pace (3 per- ment path, significant macroeconomic cent in 2017/18) in comparison to 2016/17. The fiscal deficit is projected at 8.2 percent Risks and challenges risks will persist. Tight fiscal conditions and uneven recovery of agriculture partly of GDP. Fiscal consolidation efforts are, due to current floods across the country, however, threatened by the accumulation There are considerable downside risks to pose an additional threat to poverty re- of domestic arrears. This is despite ongoing Swaziland’s fiscal situation. The European duction efforts. 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 2.7 1.9 -0.6 1.7 3.1 3.2 Private Consumption -0.5 1.0 -0.3 0.4 3.9 3.0 Government Consumption -1.2 11.2 -2.7 -0.3 12.9 12.9 Gross Fixed Capital Investment 12.0 -75.1 -0.9 -5.4 -13.4 7.7 Exports, Goods and Services 11.0 5.7 3.9 6.0 6.0 6.0 Imports, Goods and Services 0.0 1.6 4.5 3.0 9.2 9.2 Real GDP growth, at constant factor prices 2.7 1.9 -0.6 1.7 3.1 3.2 Agriculture -4.5 11.3 -11.2 9.6 6.0 5.1 Industry 4.9 1.1 -2.1 2.2 3.1 3.1 Services 2.1 1.3 2.1 0.5 2.7 3.0 Inflation (Consumer Price Index) 5.7 5.0 7.8 7.4 5.5 5.5 Current Account Balance (% of GDP) 3.2 8.2 0.8 4.2 3.7 3.0 Fiscal Balance (% of GDP) -1.4 -4.8 -12.3 -8.2 -5.4 -4.1 Debt (% of GDP) 15.1 15.8 18.8 17.5 15.3 14.4 Primary Balance (% of GDP) -0.5 -3.6 -11.0 -6.6 -3.9 -3.1 Poverty rate ($1.9/day PPP terms) a,b,c 39.5 39.4 39.8 39.6 39.3 38.7 Poverty rate ($3.1/day PPP terms) a,b,c 60.5 60.3 60.9 60.7 60.1 59.7 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 in co nstant LCU. (c) No wcast: 201 4 - 2016. Fo recast are fro m 2017 to 2019. MPO 275 Apr 17