CENTRAL BANK WARNS OF LOOMING FINANCIAL CRISIS

MBABANE – The large deficit in the national budget has resulted in the deterioration of the macroeconomic outlook and threatens another financial crisis.

The actual outturn for 2016/17 financial year shows a deficit of E4.3 billion, an equivalent to 7.3 per cent of Growth Domestic Product (GDP), with 2017/18 estimated at E4.9 billion, an equivalent to 7.9 per cent of GDP. The Central Bank of Eswatini (CBE) has advised that if the proposed policies for fiscal consolidation and revenue enhancement measures are successfully pursued, the budget deficit for 2018/19 is projected to stand at E4.5 billion, an equivalent to 6.7 per cent of GDP. “International reserves have lowered and their coverage of base money, critical for the peg, has halved since 2014,” disclosed CBE General Manager Policy, Research and Statistics Sikhumbuzo Dlamini during the launch of the FNB Forex Online Banking convened at the Royal Villas yesterday.

According to the CBE monthly statistical release, gross official reserves depicted growth of 18.7 per cent at the end of July 2018 to close the review month at E7.2 billion. The increase in reserves was mainly boosted by the quarterly inflow of the Southern African Custom Union (SACU) receipts at the beginning of July 2018. The reserves were therefore enough to cover 3.5 months of imports of goods and services, higher than the 2.9 months observed in June 2018. Compared over the year, the reserves decelerated by 11.7 per cent in Emalangeni terms and by 11.1 per cent in SDR terms. Dlamini pointed out that public debt ratio had increased significantly over the past five years. Moreover, Dlamini mentioned that the government had not been able to fully honour its bills and had run large arrears with suppliers. The GM said more recently, there had been difficulties in fully paying public salaries as mentioned by Minister of Finance Martin Dlamini in Parliament.  “Government’s cash problems are threatening economic growth. Bank credit is declining and bad credits with banks are rising,” revealed.

Dlamini further mentioned that without policy changes, government’s financing problems were damaging the economy and growth prospects. “Government’s financial problems have also resulted in imports stagnating. A shift in policies is needed to bring the country back to sustained growth and avoid another crisis,” Dlamini advised. He said as a first step, the 2018 fiscal deficit has to be brought back within financing means and avoid new arrears. Dlamini said measures to reduce the deficit need to be carefully selected. He emphasised on the need to support the long-term growth potential of the country. “Public salaries and employment policies need to be revisited. Capital spending has to be more selective, and where possible, State Owned Enterprises (SOE) need to be more financially independent,” said Dlamini. The CBE GM mentioned that selected structural reforms could contribute to delivering sustained growth. He said priorities include: better value for money in education and health, aligning wage dynamics to productivity such as controlling public wage rises, increasing market flexibility in wage determination), simplifying business regulations and improving the institutional environment.

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