Tuesday, April 12, 2011

IMF backs Swazi government budget loan

Mantoe Phakathi - April 11 2011

Barely days before a looming “uprising” set for tomorrow to pit the Swaziland government against growing political and economic discontent, Prime Minister Barnabas Dlamini on Friday announced receipt of a letter of comfort from the International Monetary Fund (IMF) to enable the country to borrow funds for budget support.

Through this document expected in the next two weeks, the government can borrow $100 million (R660m) from the African Development Bank and $20m from the World Bank.

“We’ll also borrow from the EU because this organisation promised to assist us after receiving the letter of comfort,” Finance Minister Majozi Sithole told reporters.

This, according to Dlamini, results from the government’s commitment towards the IMF-approved Fiscal Adjustment Roadmap (FAR). Swaziland has been under the programme for the past six months.

“Most significantly, it (the letter of comfort) will send a clear and unchallengeable signal to potential lenders, of government’s total commitment to the roadmap,” Dlamini said.

It is cold comfort though to the growing voices of dissent, particularly civil servants whose pay has become sporadic. They have been asked, like members of parliament, royal advisers and other constitutional bodies, to sacrifice at least 10 percent of their pay.

Cutting the wage bill, which is about 18 percent of gross domestic product (GDP), is part of the government’s commitment to FAR. The government has proposed a 4.5 percent salary cut for public servants to be effected this month and will freeze salary increments for the next three years.

Dlamini said the projected reduction in the payroll would save R240m a year.

“Government is still negotiating with public servants,” Public Service Minister Mtiti Fakudze said. “We’re praying for the best.”

But the civil servants are adamant that they will not give up a penny.

“We can’t trust this government with our money,” said Muzi Mhlanga, the secretary general of the Swaziland National Association of Teachers.

Despite the dire fiscal position, King Mswati III’s budget went up by R40m. This has fuelled unrest in a country where 40 percent of the workforce is unemployed.

About 63 percent of the Swazi population lives below the poverty line of $2 a day while the tiny kingdom leads the world in HIV/Aids prevalence with 26 percent among the age group of 15 to 49 years.

While the prime minister claims the cut in Southern African Customs Union (Sacu) receipts, huge wage bill and corruption are the causes of the fiscal crisis, civil society organisations, on the other hand, blame it on poor governance.

As a result, trade unions have called for protest mass action from tomorrow till Thursday, which will coincide with a political uprising organised by the Swaziland Democracy Campaign. This follows a protest on March 18 where thousands of protesters called for multiparty democracy.

This time, said Mhlanga, protesters would topple the government and make way for multiparty democracy.

“The next step after sending this cabinet home is that the king should adhere to the formation of a government under the multiparty democracy system,” Mhlanga said.

The government last week banned protests and deployed security forces to carry out roadblocks throughout the country leading to tomorrow.


Government requests the private sector, and requires the public sector, to operate the no-work-no-pay policy,” Dlamini said. He discouraged participation in the protest, which he said “will be viewed as representing a threat to the law-abiding members of our society and will be dealt with in accordance with the country’s laws”.

Unionists and other pressure groups remained defiant, declaring they were ready to sacrifice their lives for the liberation of the country.

As the public service sneezes, the private sector is already coughing. Business is suffering from a malfunctioning public sector, given that the government accounts for 40 percent of the GDP.

“Most businesses are going to suffer because government is no longer paying its bills – at least for now,” said central bank governor Martin Dlamini as he gave his annual monetary policy statement on Tuesday.

With the government in R900m debt, some private enterprises were in the red, said Dlamini, and financial institutions had already informed the central bank they would foreclose on some businesses.

“Most businesses depend on government through tendering of goods and services, and they are now feeling the pinch because government has reduced its expenditure,” Dlamini said.

The government is reducing spending on goods and services by 20 percent in addition to the 14 percent cut last year.

As if these challenges are not enough, a proposed Sacu revenue sharing formula is going to further cut receipts for poor member countries including Botswana, Lesotho, Namibia and Swaziland (BLNS).

Sithole said the only country to benefit from the proposed formula was South Africa.

If this formula was implemented in the year 2011/12, argued Sithole, Swazi income would be reduced from R4.3 billion to R1.3bn. Botswana’s income would decrease to R3.6bn from R11bn while Namibia’s would come down from R9bn to R3bn. Lesotho’s receipts would improve from R4.1bn to R4.4bn.

“South Africa’s would improve to about R38bn from R25bn,” Sithole said. “All the BLNS countries are against this formula because is putting us in a worse-off situation.”

While Sithole argued for the BLNS countries to get their dues in terms of customs and excise from Sacu, he said part of the money was compensation because South Africa benefited from unfair competition.

“Given the size of the population and economy, investors would rather settle into South Africa than Swaziland,” said Sithole. “We therefore say South Africa should compensate Sacu members because it’s a developed country.”

This has remained a contentious issue between South Africa and the BLNS countries.

Economic diplomacy programme head at the SA Institute of International Affairs Catherine Grant said South Africa was frustrated at having to hand over so much money without having control over it.

“Most notable is the case of Swaziland where there is little fiscal discipline and the budget is controlled by the royal family,” she said.

Grant suggested South Africa should top up the revenues for reasons of political stability and economic policy but the formula should not just focus on trade.

“It should rather stimulate development,” Grant said.

Thembinkosi Dlamini, the economic governance researcher at the Institute for Democracy in Africa, concurs with Grant about strengthening the formula’s development component. “Lesotho and Swaziland benefit immensely from this component,” he said.

He said the development component was created to foster fair and equitable development of member states with a focus on the poorer states.

“As such, it was meant to be a building block towards regional integration, which involves development of core infrastructure in order to facilitate the movement of goods, people and deepen intra-regional trade,” Dlamini said.

However, Sithole disagreed that the income from the development component constituted a grant and said South Africa should not have a say in how member countries used it.

“It’s not even clear how the money for the cross-border projects are going to be identified and funded,” he said. “It’s unfair for South Africa to dictate to us how to use the money.”

He is consoled by the fact that heads of state at the Sacu summit on March 25 agreed that no country should be left in a worse off economic position because of the formula.

For now, with the letter of comfort, Sithole is smiling all the way to the bank.