WHAT GOVT NEEDS TO IMPLEMENT

BY times sunday reporter MBABANE – Faced with the mammoth task of reviving the economy, there is only one thing which the embattled government needs to do – revisit what the latest international Monetary Fund (IMF) latest (September 2017) Article IV Report and implement some of the recommendations.

The IMF put it clearly that the adjustments should address the sources of recent fiscal deterioration, while supporting long-term growth. It said reductions in key expenditure items and well-designed increases in domestic revenue while strengthening social assistance programmes could enhance long-term growth and protect the poor. In the report, the IMF staff proposed a menu of measures to be considered by the government.

Containing bloated
wage bill

On the spending side, staff suggested to contain the bloated government wage bill by constraining inflation adjustments, and limiting new hires and allowances.
However, in the latest report, the IMF did not suggest how much government should cut the wage bill by. But it should be mentioned that back in 2011, it had suggested that government implement the enhanced voluntary early-retirement scheme – EVERS as one of government’s means to try and reduce its wage bill, which is considered to be one of the highest in Sub-Saharan Africa. It suggested that 7 000 be retrenched.  By then, that was about 20 per cent of the total number of civil servants.

Prioritising capital spending

The IMF also recommended that government should prioritise capital expenditures to improve investment efficiency, reduce transfers to extra-budgetary entities and rationalise their functions; and curb non-essential purchases. “Over time, these measures are likely to bring wage dynamics closer to productivity trends with positive effects on labour market outcomes and long-term growth,” the IMF said.  

Reviewing Tax incentives
On the revenue side measures, the IMF said government should minimise the negative impact on growth by focusing on consumption, including VAT base, fuel levy, excises and property taxation,  and reducing tax incentives and exemptions (e.g., under income taxes).

Improving the progressivity of the personal income tax and renewing efforts to strengthen collection of tax arrears and revenues would contribute to the adjustment and ensure equitable burden sharing.
In Eswatini, the Income Tax Order of 1975 gives powers to the minister of Finance to give qualifying companies 10-year concessions where they pay 10 per cent tax over a certain period instead of the mandatory 27.5 per cent.
 
Streamlining Parastatals

The IMF also told government that the credibility of fiscal adjustment relies on implementing structural reforms in public financial management and rationalising the extra-budgetary public entities.
It said improving budget formulation and expenditure controls, and streamlining public entities, is critical to implement consolidation plans and ensure a more equitable burden sharing. The fund noted that government was aware that public enterprises face financial and governance challenges and rising transfers. 

The IMF noted that in addition to fiscal costs and contingent liabilities, governance of public enterprises remains poor. “The scope and mandate of several entities are not adequately defined and new entities can be created with limited controls,” noted the organisation. 

It went on to point to the fact that there are no uniform rules for the appointment of professional board members, remunerations, preparation and enforcement of management performance agreements, and binding limitations on borrowing powers.
It was further highlighted by the IMF team that there is no clear demarcation between social, developmental and commercial activities, with several entities operating in monopoly positions and under special rules, preventing private investment in key sectors of the economy.

Extra-budgetary entities and funds
 In this regard, it was recommended that reforms of public entities and reviews of fund transfers are needed to lower budgetary costs and contain fiscal risks.
The IMF based this on the fact that transfers to these entities represent a significant burden on public finances and they are a source of contingent liabilities for the central government. “At the same time, they operate key functions and deliver essential services including electricity, water, education, and health,” noted the IMF.

The fund further noted that government was aware that public entities face performance and governance challenges and have recently announced their intention to review and reform the sector.
It is therefore against that backdrop, that it recommended that reforms should focus on key areas, including: reviewing the scope and mandate of all entities and funds, enforcing a stronger governance framework like creation of new entities, board appointments, business plans, performance agreements, borrowing powers and establish clear demarcation between social, regulatory and commercial activities to strengthen accountability and efficiency.

Selected structural
reforms

The IMF also stated that selected structural reforms and expanded cash transfers could contribute to deliver stronger and more inclusive growth.
Structural reforms should focus on the areas with the highest potential to boost private investment and deliver more inclusive growth, including reducing skill mismatches in the labour market  such as improving access and quality of higher education, aligning wage and productivity dynamics  - containing public sector wages, increasing market flexibility in wage determination, and simplifying business regulation and improving the institutional environment (starting businesses, protecting property rights, judicial independence).

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