Swaziland might be forced to devalue its currency unless the crisis-hit kingdom urgently cut government spending, a World Bank economist said yesterday.
“It is getting to the point of reckoning – when Swaziland will no longer be able to sustain its deficit,” World Bank economist Jean van Houtte warned ahead of a meeting today organised by the bank.
“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 parity with the rand.
But pressure to devalue is growing as the country faces a financial crisis brought on by a 60 percent drop last year in revenues from the Southern African Customs Union, the government’s main source of income.
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.
The International Monetary Fund (IMF) said 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 percent of gross domestic product at the end of March, nearly double that of the previous year.
The key issues for Swaziland to focus on are securing broad-based economic growth, attracting foreign direct investment, and improving the investment climate by implementing business-friendly reforms,John Panzer, World Bank manager on poverty alleviation in Africa.
A World Bank team have been in Swaziland this week to try to generate ideas on how to kick start the country's economy.
The Bank has emphasised the tiny kingdom's advantages for investors, including a high literacy rate, lower wages than in neighbouring South Africa and relatively good roads and infrastructure.
"This is a time of crisis and it is easy to lose sight of the many opportunities that are within the reach of Swaziland," said Ruth Kagia, World Bank country director for Swaziland.
Swaziland is seeking loans, but the International Monetary Fund says government needs to implement tighter fiscal reforms before it is eligible.
The governor of Swaziland's Central Bank on Tuesday denied the country's currency was in danger of losing its peg to the rand because of the current economic crisis.
The World Bank said it was not its role to advise on exchange rate policy, which is the purview of the International Monetary Fund.