Eswatini

(e): estimation ; (f): forecast

* Last fiscal year from April 1, 2023 to March 31, 2024  

Moderate, stable economic growth, underpinned by stronger agricultural and manufacturing exports

A small territory heavily dependent on its neighbour South Africa (the destination of over 70% of exports) and on its agricultural sector (which accounts for 9% of GDP, but provides a livelihood for around 70% of the country's population), Eswatini's economic activity slowed in 2022, affected by weak growth in South Africa (2%) and the high cost of fertilisers and pesticides. In addition, while the country has based its growth model on the state, the government's cash flow constraints have damped public investment and restricted construction activity. Although the significant rise in transfers from the Southern African Customs Union (SACU) in 2023 will enable the government to increase its public investment spending, economic growth will continue to be largely driven by the rise in net exports. Net exports, supported by the depreciation of the national currency (the lilangeni), will benefit from high sugar prices and increased agricultural and manufacturing output. The development of new activities in the beverage and dairy sectors, the opening by the government of industrial parks providing improved infrastructure for sugar and timber production, and improved access to water for agricultural activities made possible by the implementation of the Mkhondvo-Ngwavuma Water Augmented Project (MNWAP) and the Lower Usuthu Smallholder Irrigation Project (LUSIP II), will support the growth of Eswatini's exports to its African trading partners. In addition, the import bill will fall due to the combined effects of lower world commodity prices and reduced domestic demand. Despite the government's determination to develop the still fledgling private sector through investment promotion mechanisms such as the creation of a USD 45 million emergency fund for micro-, small- and medium-sized enterprises, the contribution of private investment to growth will be neutral as a result of rising interest rates. Last, household consumption, the main component of domestic demand, will continue to be damped by high unemployment (24.5% of the population) and poverty (63% of the population) rates, as well as by the price of imported commodities, with the lilangeni having depreciated by 4.7% in 2022. After peaking at 6.7% in September 2022, inflation should stabilise at around 5% in 2023, thanks to the moderation of inflation imported from South Africa and monetary tightening by the Central Bank of Eswatini (CBE) until May 2023. The CBE lowered its key rate by 25 bp to 7.50% in July 2023, which nevertheless remains in restrictive terrain.

Consolidation of external and fiscal balances thanks to a good performance from SACU and sugar transfers

Given the fall in SACU receipts (7.2% of GDP) and the increase in public spending on goods and services in order to contain social unrest in the country, the public deficit deteriorated during the 2022-23 financial year. Despite the implementation of the Three-Year Adjustment Plan (PAF) – the plan will end in 2023-24 and aims to consolidate public finances and stabilise outstanding debt by privatising public enterprises and reducing ministerial and departmental spending – insufficient budgetary resources and a lack of political will are hampering fiscal consolidation initiatives. However, while expenditure (30.4% of GDP) will remain high in 2023-24 against a backdrop of social tensions and the election period, the budget deficit is expected to be almost wiped out thanks to the significant increase in SACU transfers (13.5% of GDP). The latter will double as a result of an adjustment to the large forecast error for the common revenue reserve for the 2021-22 financial year and the increase in that projected for the 2023-24 financial year. In addition, government revenue (30.1% of GDP) will be supported by high royalties from the sugar sector in line with the increase in production. The small public deficit will be financed by domestic debt issuance, while budget support from the World Bank and the African Development Bank will remain limited. Eswatini's lack of political will to consolidate its budget is damaging relations with multilateral lenders, which are gradually cutting back on their loans to the country. While its public debt as a percentage of GDP has tripled over the last decade due to successive budget deficits, it is expected to fall in 2023-24 thanks to an exceptional primary surplus.
In 2022, Eswatini recorded its first current account deficit for more than 10 years, mainly due to the deterioration in its trade balance surplus (1.2% of GDP) following the increase in the cost of food and fuel imports. The country's external balances should, however, improve significantly by 2023. Indeed, the trade balance surplus (1.9% of GDP) will increase under the combined effects of a rise in exports and a fall in the import bill. Similarly, the transfer income surplus (14.8% of GDP) will benefit from the significant increase in SACU receipts. Last, while the recovery in tourism will drive a slight reduction in the services deficit (4.2% of GDP), the need for imports to support government-financed investment projects will remain high. Only the primary income deficit (6.8% of GDP) will widen, due to the increase in profit transfers by foreign companies. While FDI inflows will remain low, the financial account will show large outflows in portfolio investment. After falling by 21% in 2022 as a result of the deterioration in the lilangeni and higher import prices, the Central Bank of Eswatini's foreign exchange reserves are expected to stabilise at around 2.2 months of imports in 2022.

Social tensions and widespread anger against the absolute monarchy ahead of the September 2023 general elections

The political environment in Eswatini will remain unstable in 2023 as the reign of Mswati III, the country's absolute monarch since 1986, has prompted strong social discontent. The lack of basic infrastructure (roads, electricity transmission lines, etc.), high domestic prices, slow wage growth and lack of economic opportunities are all sources of discontent among the population with outcries against the ostentatious lifestyle of the king and his entourage, which has led to the mismanagement of public funds. In addition, the approach of the parliamentary elections in September 2023, when 59 of the 65 seats in the Assembly will be renewed, is fuelling the population’s frustration given that the absolute monarchy has banned political parties since 1973 and that parliament has very little control over the government: the prime minister and ministers are appointed by the king without consulting the legislature. As the lack of political freedoms and the absence of democratic reforms are exacerbating widespread anger against the ruling family, any latent conflict could trigger a spontaneous escalation of protests in the months ahead. In February 2023, for example, the assassination of Thulani Maseko, one of Eswatini's best-known human rights lawyers and chairman of the Multi Stake Holder Forum, a pro-democracy coalition, sparked a widespread public outcry, with human rights groups alleging the monarchy's involvement in the murder.

Last update: September 2023