- Declining trade preferences for sugar and textiles could see Swaziland's current account in 2008 deteriorate, with inflation further expected to rise to 12.9 percent from 8 percent in 2007.
A statement issued by International Monetary Fund (IMF) at conclusion of consultations in Mbabane this week, warned of increasing downside risk to macroeconomic stability, in southern African last remaining absolute monarch, as a result of high inflation driven by rising fuel and food prices and a slow down of global economy.
While IMF mission and officials in Mbabane discussed reforms to accelerate growth and make progress toward poverty reduction, the body also encouraged Swaziland to maintain a fiscal policy that should also take into account downside risks to SACU revenues - the main source of Swazi government revenues.
IMF also noted further fiscal savings, saying these would allow for expenditure smoothing in anticipation of revenue declines. "The mission recommended that composition of government spending shift toward higher quality spending on health, education, agriculture, and capital projects with high social rate of return," said IMF mission's statement.
It also added that further improving expenditure efficiency and targeting were needed in Swaziland, to help ease burden of high food and fuel prices.
"The mission welcomed efforts to expedite use of resources from Global Fund and other donors to fight HIV/AIDS. It urged stronger efforts to improve capacity to fully utilise budgetary allocation for social sectors," said IMF statement.
It continued that while it supported implementation of performance management system to improve productivity in the public sector, there was a clear need for an implementation strategy for Poverty Reduction Strategy and Action Program (PRSAP), which would include ensuring its consistency with medium-term fiscal framework and macroeconomic stability.
"In light of the adverse effects of high fuel and food prices, additional efforts are needed now in order to ensure progress toward Millennium Development Goals. This will also require steps to improve the enabling environment for private sector-led growth," added IMF statement.
Known for its extravagancy in up-keeping its monarchy, Swaziland has been forced onto a reforms lane, that could see the country appreciate absolute democracy in near future, while in the economic field, non-state players are already making inroads.
IMF has however warned in the wake of reforms and developments, saying: "In recent years, growth of non-bank financial institutions has increased access to finance for a larger segment of population, but has also created risks. In this connection, the mission urged authorities to strengthen the supervision and regulation of nonbank financial institutions, including by passing the Financial Regulatory Authority Bill."
Swaziland's real GDP growth is expected to moderate to below 3 percent in 2008 from 3.5 percent in 2007, reflecting slowdown in the construction, sugar, and textile sectors, according to IMF, which added that high level of revenue from SACU contributed to a marked improvement in external current account and international reserves in 2007.
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