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MBABANE – Going beyond the ceiling. Last month, the Central Bank of Eswatini (CBE) extended a further E600 million advance to government, bringing the total advance amount to E1.1 billion. During the month of June 2020, CBE had extended an additional advance of E510 million to government.

Legislator Marwick Khumalo, who heads the House of Assembly Finance Portfolio Committee, had raised concerns on government’s tendencies to run to CBE for advances. He was speaking during the Post Budget seminar at Happy Valley in Ezulwini in February this year. However, it was before COVID-19 reared its ugly head in the country, leaving the economy battered. The first coronavirus case in the country was recorded back on March 14, 2020.


According to recent economic developments from CBE, Eswatini’s total debt stock stood at E23.6 billion as at the end of August 2020, an equivalent of 32.9 per cent of gross domestic product (GDP).This shows an increase of four per cent when compared to E22.7 billion recorded in July 2020.

“Preliminary public external debt figures show that external debt stood at E9.3 billion as at the end of August 2020, an equivalent of 13.0 per cent to GDP. This shows that external debt has decreased marginally over the months due to a slight strengthening of the Lilangeni against major currencies in which, the country’s liabilities are denominated,” reported CBE.

Outstanding public domestic debt stood at E14.3 billion at the end of August 2020, an equivalent of 19.9 per cent to GDP. This shows that domestic debt increased by 6.7 per cent from E13.4 billion recorded in July 2020.  
The increase can be attributed to an additional advance extended to government as well as issuance of suppliers’ bonds. Over the same period, a total of E310 million was issued in suppliers’ bonds while E40 million of the same reached maturity.

In the long run, public debt that is too large is like driving with the emergency brake on. Investors drive up interest rates in return for the increased risk of default.
Meanwhile, during the past month, according to the CBE report; the Lilangeni/Rand exchange rate depreciated against the major external currencies reversing the major gains recorded in the previous two-month period. The Rand depreciated on the back of a generally stronger rebound of the US Dollar, record high gold prices and higher US treasury yields as investors seek better safe-havens.  


“Emerging  market  (EM)  currencies  (including  the  Rand)  were  under  pressure  from mounting  concerns  about  the  depleted  reserves  and  the  Central  Bank  policies  in  Turkey. While  South  Africa’s  economic  developments  are  not  directly  linked  to  Turkish developments,  the  Rand  often  comes  under  significant  pressure  if  broader  sentiment towards EMs turn sour.
Incidentally, the Rand’s depreciation follows a huge depreciation in the  Turkish  Lira  that  resulted  in  a  negative  drag  on  investor  sentiments  towards  EM economies.
“Meanwhile the US-China trade debacle further precipitated the Rand’s downward trend.

Against the US Dollar, the Lilangeni depreciated by a monthly average of 2.1 per cent from E16.78 recorded in July 2020. The domestic unit also depreciated against the Pound Sterling and the Euro by 1.0 per cent and 0.4 per cent to close the month of July 2020 at averages of E21.47 and E19.29, respectively.  On a year-on-year basis the Lilangeni/Rand remains on a weaker footing, depreciating by 14.2 per cent against the US Dollar in August slightly lower than the annualised 14.9 per cent depreciation recorded in July 2020.The local unit ended the period trading at E17.29 to the US Dollar, E19.40 to the Euro and at E21.25 to the Pound Sterling,” reads the CBE report.

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