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MBABANE – The Central Bank of Swaziland (CBS) has been strongly advised to refrain from additional budget financing.

On September 1, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Kingdom of Swaziland.  The report was released Monday afternoon.
Directors noted that strong fiscal adjustment would help release pressures on monetary policy. They underscored that the Central Bank of Swaziland (CBS) should refrain from additional budget financing and, in the context of the peg with the South African Rand; the CBS should maintain the policy rate at a positive spread with the South African Reserve Bank’s rate.

Directors welcomed the authorities’ plans to amend the CBS Act to bolster the central bank mandate and independence and strengthen its supervisory structure. They stressed the importance of monitoring and assessing financial stability and macro-financial risks arising from tight linkages between the government and the financial sector, and systemically large non‑bank financial institutions. In this context, Directors recommended to accelerate plans to create a financial regulatory architecture and enhance the CBS’s capacity to assess macro‑ financial risks and exercise macro‑ prudential controls.

CBS Governor Majozi Sithole said the provision that speaks to additional budget financing was stipulated in legislation. He said the law clearly states how the process and when government should pay back the money, to which the State fully complies.

“Total removal of this process would require us to engage on the issue with government,” said Sithole.
Sithole said he was fully aware that other countries were implementing processes that would do away with additional budget financing but it would require extensive consultation prior to any considerations for implementation.
In terms of the recommendation related to the bank rate, he said they would look into the issue with a view of ascertaining whether the IMF recommendation could be implemented locally. He mentioned that fundamental factors that include economic performance and inflation were normally taken into consideration before determining the policy rate.     

The executive directors noted that while Swaziland has experienced sustained growth and macroeconomic stability in recent years, the country was now facing formidable challenges.
A prolonged drought and a sharp decline in Southern African Customs Union (SACU) revenues recently hit the economy.

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