BY BUSINESS EDITOR
MBABANE – “The fiscal situation in Eswatini is improving but more reforms are needed.”
This was mentioned in the first edition of the Eswatini Economic Update published by the World Bank (WB).
“Eswatini needs to continue with its fiscal consolidation plan to sustain macroeconomic stability, reduce public debt, eliminate expenditure arrears, and increase external reserves,” mentions the report.
The report also states that public finances remain extremely exposed to the volatility of SACU revenues; hence any increase in receipts should be carefully managed and used to smooth future shocks in revenue. The SACU Revenue Stabilisation Fund was viewed as a step in the right direction.
WB said Growth rebounded to 7.9% in 2021 but slowed in 2022. The fiscal situation is improving but more reforms are needed. Fiscal consolidation has helped the deficit drop from 8.6% of GDP in 2016 to 4.6% in 2021.
Initial efforts were promising, but by 2022 implementation was uneven, and the overall fiscal deficit rose to 5.3% in 2022. A decline in 2023 owes more to high SACU revenues than to consolidation. Even when SACU revenues increase the authorities should prioritize long-term aspirations over short-term needs.
“Although there are not many commercial SOEs, they retain significant direct and indirect effects on the economy. The government recognizes SOE reform as an important priority if the country is to accelerate growth and ensure fiscal sustainability.”
“This is contained in various documents such as the National Development Framework 2019–22, the Fiscal Adjustment Plan, and the government-commissioned study on improving the performance of SOEs by the Eswatini Economic Policy Analysis and Research Centre.”
The World Bank said Eswatini’s seven commercial-owned enterprises (SOEs) have been marginally profitable over the past five years, but most cannot pay dividends to the state, despite a dividend policy.
The commercial SOE sector remains a net drain on the national budget: the cumulative outflow to SOEs (grants/direct subsidies and equity) over the past five years was US$158 million, whereas the inflow (dividends and income taxes) was only US$47 million.
“Their debt-to-equity ratio almost doubled between 2020 and 2022. SOEs constrain private sector investment in various ways, including through direct competition, higher operating costs, and presenting barriers to the entry of efficient private sector providers,” added the bank.
The report suggests three directions for policy reforms to take:
- Rethink the state’s role in the economy by enacting an SOE ownership policy that explicitly includes a clear rationale for maintaining state shareholding in SOEs.
- Strengthen the legal framework to include a clearer definition of SOEs, separate from regulatory agencies. This involves amongst others, clarifying the definition of SOEs and reclassifying public enterprises.
- Strengthen SOE governance and oversight. This will involve interventions such as improving the monitoring of SOEs including equity stakes held by the state and enhancing the transparency of SOE information.
