Home | News | DVULADVULA CAUSED GOVT’S FINANCIAL CRISIS – WORLD BANK

DVULADVULA CAUSED GOVT’S FINANCIAL CRISIS – WORLD BANK

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mfanukhona@times.co.sz


MBABANE – Who is to blame between the giver and the receiver?
If a document of the World Bank is anything to go by, one of the two groups or both - the Sibusiso Barnabas Dlamini administration and public servants should take the blame for government’s current financial crisis.   


According to the report titled ‘Document of the World Bank (for official use only)’, fiscal challenges picked up in 2016 and persisted thereafter, partly due to the granting of salary review to civil servants.


The bank stated that civil servants were granted a salary increase of more than 17 per cent beyond inflation.
It also pointed to the fact that the salary review dubbed ‘Dvuladvula’ (bumper pay) awarded to the government employees exceeded budgetary provisions. 
As if that was not enough, politicians upped their salaries by 32 per cent.


There are about 42 000 workers on government’s payroll. The least paid employee gets E2 337.66. Besides paying basic salaries, government is understood to be disbursing E1 billion in allowances to public servants.


The wage bill is around E8 billion per annum.
Civil servants are also demanding a Cost of Living Adjustment (CoLA), which government promised to award in the next financial year, which begins in April 2020.


In November last year, Prime Minister Ambrose Mandvulo Dlamini stated that the hiring freeze policy resulted in an average reduction of 692 people in the civil service during the year 2018/2019.


He said an analysis of the movement in basic salaries showed positive effects in terms of the wage bill reduction.
Christian Ntshangase, the Minister of Public Service, is on record to have told Parliament that the overall wage bill growth decreased from seven per cent to one per cent, which meant it decreased from E414.8 million to E175.5 million.


effects of SACU drop


On the other hand, the World Bank pointed out that the dwindling of receipts or gains from the Southern African Customs Union (SACU) also contributed to the financial challenges.
According to the document, SACU transfers significantly declined from 14.8 per cent of Gross Domestic Product (GDP) in 2015 to 12.3 per cent in 2017, reflecting South Africa’s own economic challenges, leading to a decline in government revenue of the same magnitude.


As a result, the bank stated that the fiscal deficit increased from 4.8 per cent of GDP in 2015, 7.7 per cent of GDP in 2016 and 8.3 per cent of GDP in 2017.
It noted that government partly financed the fiscal deficit through the accumulation of domestic arrears and running foreign reserves, which negatively impacted private sector activities, weakened the financial sector’s asset quality (with the ratio of non-performing loans to total loans rising from 3.6 per cent in June 2015 to 8.2 per cent in June 2017), and raising concerns for the currency peg with the South African rand.


World Bank mentioned that the total public debt levels increased by 4.6 per cent points of GDP between December 2015 and December 2017, reaching 21.8 per cent of GDP in December 2017 and leading to an increase in interest payments. 
The document indicates that initial fiscal consolidation efforts announced through various budget statements did not yield intended results, prompting the Government of the Kingdom of Eswatini to take stronger steps by end-2017.


Revenue enhancement measures announced by the Ministry of Finance’s 2017 budget statements did not bring significant changes to the budget outturn, with deficits continuing to increase over the period.


Towards the end of 2017, World Bank further disclosed that authorities stepped up various measures to address public expenditure arrears (with a stock estimated at about two per cent of GDP in December 2017), including their conversion to supplier’s bonds, and the issuance of a circular instructing ministries to stop committing new capital expenditure as from December 2017.


Acknowledging the political difficulty to develop fiscal stabilisation mechanisms at the national level (which would call for saving public resources during good economic times), it is stated that government approved the SACU resolution adopted in 2017 for a stabilisation mechanism at the regional level. 
The monetary policy stance was contractionary in 2016, mainly in response to inflationary pressures from food prices, the World Bank said.


Inflation above threshold


Inflation averaged 7.8 per cent (above the upper threshold of six per cent) in 2016, up from five per cent in 2015. As a result, the Central Bank of Eswatini increased the discount rate from 5.75 per cent in 2015 to 7.25 per cent in 2016, moderately limiting growth in credit to the private sector.
As agriculture production recovered in 2017, food prices declined leading to lower inflation of 6.2 per cent in 2017 and the subsequent cut in the discount/repo rate by 0.25 per cent points to seven per cent, effective January 20, 2018


In an interview, Neal Rijkenberg, the Minister of Finance, said the World Bank report “is correct.” The minister said the salary review increased the wage bill beyond what could be afforded.


E1 billion loan 


The documents reflect that the PLR (Performance and Learning Review) proposed a lending envelope of E1 billion, the equivalent of US$70 million at the current foreign exchange rate.
That was to happen in the financial year 2019/2020.
The PRL was tasked to assess the implementation of both the Eswatini Country Partnership Strategy (CPS) and the first full World Bank Group (WBG) strategy for Eswatini in two decades,


New operations were under preparation in water, energy and health, according to the World Bank.
The country team further confirmed the political commitment and support of the government for these three operations during the PLR consultations.
The proposed new lending was spread out over the extended CPS (Country Partnership Strategy) period to ensure that the new engagement model was in fact resulting in quicker approvals by all the branches of government.


Actual lending was to depend on client demand, overall country performance, global economic and financial developments, IBRD (International Bank for Reconstruction and Development)’s financial capacity, and demand by other bank borrowers.


Projects


World Bank had mentioned that the energy project was to be funded to the tune of E357.5 million, while the health systems reform project was to cost E286 million, with the water project costing E357.5 million.


Civil service reforms


World Bank is of the view that there was to a need to strengthen economic management objectives; outcomes associated with public financial management, auditing capacity and asset management.
The bank stated that local government strengthening would proceed as originally planned, while others such as civil service reforms, public investment planning, PPP development and procurement would be adjusted based on availability of resources.


The International Finance Committee (IFC) was expected to offer workshops on Public Private Partnership (PPP) that would help pave the way for more IFC involvement in Eswatini.


Helping emaSwati


World Bank pledged to render support for public financial management that was to focus on the ongoing work of building an integrated financial management system, in part with grant support from the European Union.


The Bank further undertook to explore possibilities for additional funding to continue and expand this work during the CPS period to cover, inter alia, better commitment control, expenditure arrears management in addition to analytical work on expenditure efficiency. 




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