- A mission of the International Monetary Fund (IMF) that visited Mbabane found that "Swaziland's socio-economic situation is serious." The political crisis in the small Kingdom, in addition to the AIDS pandemic, was causing the economy to stagnate and poverty to spread.
An unresolved crisis in Swaziland's judicial system, uncertainties over the new constitution, and concerns about governance in general were "fuelling social tensions and weakening donor sentiment," the IMF mission found.
Further, a significant widening in the central government's fiscal deficit, "through non-social spending, threatens macroeconomic stability and sustainability," the IMF stated in its latest preliminary Swaziland report. The Fund seems to be referring to luxury spending by the controversial Swazi King, Mswati III.
Meanwhile, the small Southern African country was facing "urgent humanitarian needs that are unmet," the IMF observed. Although Swaziland is a lower-middle-income country, its income distribution is skewed and poverty is widespread, with an estimated two thirds of Swazis living on less than US$ 1 per day. A third of the labour force is estimated to be unemployed, and a third of adults are infected with HIV/AIDS.
- The food shortage that affected the country in recent years has abated somewhat in 2003, the IMF said, "but access to food remains difficult for certain segments of society, and one fifth of the population may need emergency food aid by the end of the year."
Swaziland's growth performance has weakened since the early 1990s, in part reflecting the erosion of its advantage as an investment location after South Africa emerged from economic and political isolation. The average annual rate of real GDP growth fell from 7¾ percent in the 1980s to 3¾ percent in the 1990s.
After falling in 2000 and 2001, growth had picked up in 2002, to 3.6 percent, as the completion of the Maguga Dam and some road and housing projects boosted construction; sugarcane production recovered, with knock-on effects on manufacturing output, particularly food processing; and clothing production continued to be supported by foreign investment inflows.
- In 2003, however, growth may be starting to slow in the absence of the one-off factors that occurred in 2002, the IMF report found. The Swazi economy should now expect the "effect of the weakening private investment environment offsets that of expansionary financial policies and higher public sector wages on investment and consumption."
The IMF mission also made several recommendations on how to reverse current trends. The main economic challenges were to regain macroeconomic stability and to raise the sustainable growth rate while ensuring that the benefits are spread widely across the population. "To meet these challenges, it is essential to restore fiscal discipline and at the same time reorient spending toward social sectors," the mission said.
- Improvements in governance, particularly the rule of law, will be important in order for policies to be implemented effectively and their full benefits realised, the report emphasised. Further, there was an urgent need to develop serious strategies for "improving the humanitarian situation, particularly with regard to HIV/AIDS, unemployment, food security, and poverty."
If serious reforms were not initiated this year, the poor economic development expected for 2003 would be made even worse next year. A further decline in growth to 1½-2 percent and a higher inflation rate was expected in 2004 if the Swazi government now failed to reform.
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