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MBABANE – The country’s Gross Official Reserves currently stand at E7.4 billion and only enough to cover imports over 2.7 months.

This is below the recommended benchmark of three months import cover and such a scenario has left the Central Bank of Eswatini (CBE) greatly disturbed. Yesterday, the CBE released its Monetary Policy Statement in which it reported that the reserves were at E7.4 billion as at September 16, 2022 and that this was below the levels observed for September 2021 where the reserves were at E8.6 billion – equivalent to 3.4 import cover. “The bank is highly concerned by the observed deterioration on the country’s reserves position,” CBE Governor Phil Mnisi said in the statement, and further stated: “At this level, the reserves are lower than the recommended benchmark of three months import cover.” This is the lowest that the country’s reserves have gotten since the year 2022 began and this is the only time this year that they have fallen below the three months benchmark. The latest figures show that the reserves have dwindled by as much as E2.6 billion over the past two months.


This is when taking into account that as of July 15, 2022, the reserves were at E10 billion and enough to cover 3.7 months of imports. Before the latest figures were released, the lowest the reserves had been this year was at March 18 when they were at E8.1 billion, which was enough to cover 3.1 months of imports. When the year began, the reserves, as at January 29, were at E9.6 billion, equivalent to an estimated 3.8 months of imports cover. The lowest that the country’s reserves have reached was in 2012 when they were enough to cover only 1.9 months of imports. This was the culmination of a financial crisis that began in 2008 when revenue received from the Southern African Customs Union (SACU) plummeted.

Before the reserves hit this historic low, there was panic earlier in 2011 when the reserves were equivalent to 2.5 months of imports cover and statements began doing the rounds that the local currency (Lilangeni) would be de-linked from the South African Rand. This prompted the then CBE Governor, Martin Dlamini, to call a press conference to say there were many reasons why that would not be possible for now, citing the fact that Eswatini was part of the Common Monetary Area agreement (CMA) as one of the reasons. The CMA allows for the free flow of money between the two countries at equal value.


According to the agreement, if a country petitions to withdraw, the agreement is in effect for 12 more months. The then governor maintained that there was no threat of the country being de-linked because the Rand held by the country was adequate to meet the country’s liabilities. The following year in 2012, the International Monetary Fund (IMF) withdrew its advisory team from Eswatini after failing to agree on the kingdom’s proposed financial reform programme. The IMF was assisting the government in implementing the Fiscal Adjustment Roadmap (FAR), to right-size the budget, where government spending exceeded its revenue. Of fundamental disagreement was the implementation of 10 per cent salary cuts on public sector employees, including politicians. Parliamentarians voted to reverse their 10 per cent salary cuts, arguing that they were the only public sector employees who had taken the cut.

There were allegations that government was drawing down central bank reserves to bridge the gap and cover public sector salaries. The CBE had committed to continue helping government to meet its financial obligations – including paying civil servants’ salaries. The bank said bonds could be sold and a credit line could be extended to government. However, it said this was not meant to encourage government to keep on digging into the country’s gross official reserves.

Interest rate increases to 6%

Meanwhile, individuals and businesses that have loans with banks will have to pay more in servicing these debts after the CBE announced an increase in the interest rate. “Taking into consideration relevant global, regional and domestic economic factors; as well as the price and financial stability mandate, the bank decided to increase the discount rate by 100 basis points (1 per cent) from five per cent to six per cent,” reads the statement issued by the governor. As per the statement, this means that banks are expected to increase the prime lending rate on loans extended to individuals and businesses to 9.5 per cent until the next monetary policy meeting.

On the domestic front, economic activity, as measured by the Gross Domestic Product (GDP) is forecasted to be subdued in 2022 at 1.2 per cent, and this is reportedly mainly due to base effects after recording 7.9 per cent growth in 2021. The CBE said with regard to the South African economy, which is linked to Eswatini’s, it contracted by 0.7 per cent in the second quarter of 2022, from 1.9 per cent expansion in the first quarter. “The South African Reserve Bank (SARB) revised down its forecast to 1.9 per cent for 2022 (from 2.0 per cent in the July forecast). The SARB left its inflation forecasts for 2022 unchanged at 6.5 per cent. In the medium term, the SARB expects a slowdown in inflationary pressures and inflation coming down to 5.3 per cent for 2023 (from 5.7 per cent),” the CBE said.


The SARB Monetary Policy Committee reportedly increased the report rate by 75 basis points (0.75 per cent) from 5.5 per cent to 6.25 per cent in September 2022, citing heightened risks to inflation. On the global front, the CBE said an IMF outlook released in July 2022 reflected stalling global economic growth with a forecast of 3.2 per cent for 2022 (from 3.6 per cent in April projections) and 2.9 per cent for 2023 (from 3.6 per cent). “In the same vein, advanced economies are expected to grow by a lower 2.5 per cent (from 3.3 per cent) in 2022, while emerging markets and developing economies are expected to grow by 3.6 per cent in 2022 (from 3.8 per cent),” said the CBE. The bank said risks to global growth included geopolitical tensions, rising inflation which could be harder to contain, and tighter global financial conditions, among others.

Inflation now at 5.8%

Headline inflation also increased to 5.8 per cent in August 2022 from 5.4 per cent in the previous month, showing that inflation remains on an upward trend. The CBE has noted that the inflation has been increasing and likely to continue on this path over the short to medium term. “Since the last meeting, inflation has risen by 2.2 percentage points, i.e., from 4.6 per cent to 5.8 per cent in August 2022,” the banks said. According to the bank, inflationary pressures were coming mainly from elevated food and transport prices. “The 2022 inflation forecast has been revised up to 4.8 per cent (from 4.4 per cent in the last meeting). For 2023, inflation is seen averaging at 5.3 per cent (from 4.5 per cent),” said the CBE.

The bank also reported that credit extended to the private sector grew by 0.2 per cent over the month to E16.7 billion at the end of July 2022. Growth was also observed in credit to other sectors of the economy and households and non-profit institutions serving households (NPISH) while credit to businesses declined. “Credit extended to NPISH increased by 1.2 per cent over the month to settle a E7.9 billion while credit extended to businesses reflected a 1.8 per cent contraction to settle at E7.9 billion at the end of July 2022,” the bank said. Credit to other sectors of the economy reportedly improved by 11.2 per cent over the month to settle at E844.5 million at the end of July 2022. Asset quality as measured by non-performing loans is said to have deteriorated slightly to reach 6.7 per cent (from 6.5 per cent prior). “The bank sees this as not alarming given that most businesses are still recovering from the effects of COVID-19 and the Russia-Ukraine war,” said the bank.

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