COMMODITY PRICES, INFLATION INCREASE LOOMING

MBABANE – With the increase in unemployment and commodities, experts warn of more economic changes that will affect both consumers and suppliers.

The Southern African Research Foundation for Economic Development (SARFED) has urged consumers to save and adjust their personal finances. This was mentioned by SAFRED Regional Coordinator and economist to Eswatini Dr. George H. Choongwa, in an interview yesterday. Choongwa said the increase in both COVID-19 cases and inflation rate in Eswatini and globally in particular, has the possibility to erode personal income for households in various socioeconomic clusters. He said the pandemic has seen many industries suffer the brunt of a forced change in lifestyle as governments imposed measures to cut the spread of the disease.

capacities

“Many businesses closed down or reduced capacities, leading to income and job losses for many people especially those in the lower socioeconomic bracket”, he said. The coordinator added that the Lilangeni, being pegged to the South African rand is currently being undervalued with about seven per cent based on purchasing power parity causing high expectations of moderate depreciation through the year 2022. He said the International Monetary Fund (IMF) predicts that both the rise in inflation levels across the world, and the resurgence of the COVID-19 cases is likely to bring about significant economic slowdown especially among developing countries. Choongwa mentioned that this will disproportionally impact the most marginalised countries and individuals in various social classes.  

He said the economic losses are expected to be much higher in emerging markets than in advanced economies. “The fact that government continues to responses to the pandemic through constraining measures like market closures, it is expected that one the eminent result would be that of reduce households’ income and thereby affect their demand for services, including transport, food, as well as other social amenities”, he said. The regional coordinator further mentioned that on the aspect of real estate industry, the continued escalation of inflation is likely to cause many landlords to face late payments of rent due to the loss of income or business of some tenants.

He said the economic recession caused by the COVID-19 crisis could affect profits and reduce returns on investments for business owners. At the same time, job losses will decrease monetary transfers to the most vulnerable households. He said losses in household incomes will affect demand for goods and services and could result in changes in prices which would further cause disruptions in production and global supply chains. He said since developing countries import a large share of intermediary goods from developed countries for their industries, disruptions of supply chains may reduce production and aggregate supply and cause instability in consumer prices in developing countries.

reduced

According to the annual 2020/21 integrated report issued by the Central bank of Eswatini, the discount rate was reduced by a cumulative 175 basis points. It was reduced from 5.50 per cent in March 2020 to 4.50 per cent in April 2020 before another cut to 4.0 per cent in May 2020 and further down to 3.75 per cent in July 2020, after which it was maintained until March 2021. The regional coordinator attests that renewal of government restrictions might have had a severe economic impact on youth enterprises, especially those that were at emergent stage of their businesses. He said this is because their businesses did not only operate at a micro level, but that most of them had obtained credit from various lending institutions in the country. Hence their respective levels of income are expected to drastically reduce.

Choongwa added that Spending on food and other necessities has fluctuated significantly since the start of 2021 and it is likely to continue due to high levels of uncertainties caused by a high cost of living. He mentioned that developing countries like Eswatini are likely to have an increase in food inflation due to impact of COVID-19, putting more pressure on households faced with unemployment and shrinking incomes. Worth mentioning, the Eswatini Economic Policy analysis and Research Centre (ESEPARC) conducted a Labour Force Survey (LFS) which revealed that the youth unemployment rate is as high as 58.2 per cent of the overall population.

skills

According to ESEPARC this is because the youth lacks the skills and requirements that are currently needed for jobs that are available in the country. “Most skills supplied by the youth in the economy do not meet industry requirements on the level of the qualification, work experience relevance of programme to the job description” said ESEPARC. They further mentioned that generally, most management position have the most observed skill deficiencies largely because they require higher level qualifications which are not produced by local training institutions. The policy analysers also said it is impossible for the country to be effective in skills development without creating policies that would support the initiative. “Effective skills development in Eswatini is impossible without a nationally dedicated human resources development policy that will coordinate and guide training in all sectors of the economy” mentions ESEPARC.

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