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FEARS SA COULD WORSEN ESWATINI’S DEBT

06/12/2021 08:22:00 BY ASHMOND NZIMA

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MBABANE – Eswatini has been named among four countries in southern Africa that have experienced a rapid increase in debt between 2010 and 2020.

Others are Malawi, Namibia and South Africa. This is as per the latest Southern Africa Economic Outlook 2021 released by the African Development Bank Group (AfDB). The report is entitled, ‘Debt Dynamics: The Path to Post-COVID Recovery.” Southern Africa comprises Angola, Botswana, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, São Tomé & Príncipe, South Africa, Eswatini, Zambia and Zimbabwe. South Africa is the region’s largest economy, accounting for about 60 per cent of its gross domestic product (GDP).

Though the debt for Eswatini and the three other countries may not yet be unsustainable, the AfDB report stressed that policymakers should be concerned by the uptick. Eswatini’s ratio of debt to gross domestic product (GDP) is still below 50 per cent - and thus within the realm of sustainable debt - but has grown at a steep pace. The country’s total public debt was estimated at E26.4 billion as at the end of October this year. At this rate, it was equivalent to 37.8 per cent of GDP.

The report suggests that COVID-19 could further affect the country’s debt dynamics, particularly if the pandemic would leave scarring effects that slow growth and thus revenue. “Eswatini’s debt could also rise if South Africa, the country’s main trade partner, continues to experience slow growth. South Africa’s National Treasury’s budget for 2021 projects that South Africa’s debt will peak at 89 per cent of GDP in 2022/23 before slowly easing (National Treasury 2021),” highlighted the report.

Stressed

The report stressed that external debt was driving the regional increase in government debt. In 2010, external debt accounted for 43 per cent of outstanding debt in the region; by 2021 it accounted for an estimated 51 per cent. Eswatini’s public external debt was last calculated at E 10.8 billion, an equivalent of 15.5 per cent of GDP. These were figures as at the end of October this year. During 2010–21 Malawi and Eswatini had low domestic debt, averaging about 13 and seven per cent.

But between 2019 and 2020 Eswatini use of domestic debt increased from six to 34 per cent. Botswana’s use of domestic debt has been rising, from 53 per cent in 2012 to a projected 70 per cent in 2021. These trends in domestic debt use is said to be reflecting the deepening of some countries’ bond markets, enabling them to mobilise domestic resources and tap into idle domestic savings. “For countries with underdeveloped financial markets, external debt will continue to be the only option for funding,” reads the report.

Meanwhile, according to the International Monetary Fund (IMF), Southern African countries in debt distress are Mozambique, São Tomé & Príncipe and Zimbabwe. “The risk of debt distress is moderate in Lesotho, Madagascar, and Malawi and high in Zambia. Because it is harder for countries to move from lower to stronger credit ratings, creditworthy countries must do all they can to maintain their ratings. Though external debt is expected to fall this year for the region as a whole, that is not the case for Madagascar, Eswatini and Zambia,” said AfDB.

An analyst, on condition of anonymity, told this publication that the debt needed to remain at sustainable levels, saying the higher the ratio, the less likely the country would pay back its debt and the higher its risk of default. “This could cause a financial panic in the domestic and international markets,” said the expert. In his recent midterm budget statement, Minister of Finance Neal Rijkenberg said external debt was projected to grow by 7.8 per cent in 2022/23 and nine per cent 2023/24, respectively. “ In general, the trend of a rapidly increasing public debt stock observed in the recent past is projected to peak in 2022/23 and slightly decline over the medium-term, equaling 37.7 per cent of GDP in 2024/25.

Evidence

“This provides evidence that government is moving towards a more sustainable accumulation of public debt,” said the minister. In terms of solving the region’s challenges, the AfDB report stressed on the need for government policies to enhance revenue mobilisation. This challenge predates COVID-19 but is more urgent than ever before.With the possible exception of Botswana, the other countries that make up the Southern African Customs Union (SACU) - Lesotho, Namibia, South Africa and Eswatini - are heavily reliant on SACU revenues and the performance of the South African economy.

With South Africa’s economy underperforming since the global financial crisis of 2008–09, COVID-19 has heightened the urgency of identifying alterative revenue sources to buffer future exogenous shocks. To aid recovery, targeted support may be needed for sectors—such as tourism—hit hardest by the pandemic.