Maravi

Swaziland must get its house in order, warns World Bank

COMMENT - Again, another country that does not have a spending problem, but a revenue collection problem. Reinstate the customs union, and the problem disappears. Why doesn't the IMF insist that revenues are collected, instead of demanding a reduction in spending?

Swaziland must get its house in order, warns World Bank
JINTY JACKSON MBABANE, SWAZILAND - May 22 2011 07:40

Swaziland may be forced to devalue its currency unless the crisis-hit Southern African kingdom can urgently cut government spending, a World Bank economist warned.

"It is getting to the point of reckoning -- when Swaziland will no longer be able to sustain its deficit," visiting World Bank economist Jean van Houtte told Agence France-Presse, ahead of a meeting here on Monday organised by the lender on the crisis.

"We have said if you need a little time to get your house in order you can re-peg at a different level."

Swaziland's currency, the lilangeni, is pegged at one-to-one with the rand.

But pressure to devalue is growing as the country faces a fiscal crisis brought on by a 60% drop last year in revenues from a regional customs union, the government's main source of income.

The country has been paying civil servants by drawing down its foreign reserves, but as the crisis deepens the kingdom's cash is running out.

Finance Minister Majozi Sithole warned on state radio last week that it would be "difficult" for the government to pay May salaries, adding: "I do not even want to mention June" -- a bombshell he later retracted, promising the government would find a way.

According to the International Monetary Fund, Swaziland's central bank had to issue an emergency loan for the government to pay salaries in February.

The IMF says Swaziland has one of the world's highest wage bills --almost half of government spending -- and a deficit that stood at 13% of GDP at the end of March, nearly double that of the previous year.

The global lender on Wednesday gave Swaziland's financial reform programme a harsh review, a major blow to its urgent attempts to secure international loans.

Protests
"A large fiscal adjustment is needed to bring the programme back on track and reduce the fiscal deficit in line with available financing," said mission head Joannes Mongardini in a statement at the end of an IMF visit.

In March, Cabinet members agreed to take a 10% pay cut, but negotiations to get public-sector workers to accept a 4.5% wage cut have failed.

The government's moves to slash its wage bill sparked large protests in April that were forcefully put down by King Mswati III's regime. Police beat, detained and tear-gassed protesters, drawing condemnation from international human rights groups.

A finance ministry source said the government is determined not to devalue the currency and will try to get through the next two months by drawing down reserves.

The country's commercial banks are not buying government bonds, limiting the state's capacity to borrow domestically.

The World Bank has agreed to loan Swaziland $20-million, but the money will only be available in September. Even coupled with a potential $150-million loan from the African Development Bank, van Houtte warned, "they are not close to closing their financial gap".

The government's 2011 budget deficit is expected to hit $565-million.

The government is now in a position where it will have to take "unilateral action" to force through salary cuts, he said.

About 70% of Swazis live on less than a dollar a day and face growing strain from rising food and transport costs.

Van Houtte warned that if the currency peg is scrapped, income distribution could become more unequal, hitting civil servants especially hard.

"You would have an immediate impoverishment of civil servants at the same level of depreciation," he said.

"That is because most goods they buy are imported from South Africa." - AFP

Labels: IMF, NEOLIBERALISM, SAP, SWAZILAND

posted by MrK @ 2:00 PM