Swaziland: to loan or not to loan?

2011-07-02 12:48

The cost of not bailing Swaziland out of its imminent meltdown is greater than the R10 billion South Africa’s neighbour needs to stay afloat, say some of the country’s top fiscal economists.

Swaziland has turned to Pretoria for the bailout to help it wipe out a $565-million (R3.8-billion) shortfall in its fiscus, which was sparked by a 60% slide in its ­revenue share from the Southern ­African Customs Union, its main source of income.

The nation’s financial woes have also been worsened by its failure to secure credit from the World Bank and International Monetary Fund, which has advised the country’s absolute ruler, King Mswati III, to devalue the Lilangeni.

Bongani Khumalo, the chief executive of the Financial and Fiscal Commission – which advises the Treasury on intergovernmental fiscal relations and fiscal frameworks – said Swaziland could find itself in a dire situation if it failed to secure financial aid and would have to cut its spending to stay afloat.

“This will hurt the civil service and may lead to an implosion in Swaziland similar to the Zimbabwe case, and South Africa will have to carry the brunt due to the intricate connection between the two economies,” said Khumalo.

Dawie Roodt, the chief economist at Efficient Group, echoed this sentiment, saying that if South Africa drops Swaziland in its hour of need, many of the kingdom’s 1.2 million citizens could flock to their richer neighbour to eke out a living.

According to Roodt, South ­Africa has the capacity to help Swaziland as it has relatively low levels of debt, unlike other countries that are experiencing debt crises and are in need of bailouts.

“It is not good to lend if you are a borrower yourself. But South ­Africa has low levels of debt and can afford to write a R10-billion cheque to help Swaziland,” he said.

An economist who declined to be named said that Pretoria could fund the loan comfortably if the SA Revenue Service (SARS) exceeded its revenue target for this year, which ­Finance Minister Pravin Gordhan has set at about R824.4 billion.

“If SARS does not engineer an overrun, government can issue a bond to raise money for the loan,” the economist said.

News of the bailout was first published last month by the Southern Africa Report, a newsletter for diplomats, investors, and politicians.

The newsletter also published details of how the Swazis ­intended to use the loan, including proposing funds for putting 7 000 civil servants on early retirement or voluntary retrenchment. The package also includes funds for supporting the Lilangeni, which is pegged to the rand.

The proposed debt breakdown:

» R5 billion for the wage bill and budget support;

» R2 billion for repaying domestic debt;

R1 billion for supporting Lilangeni-Rand parity;

» R300 million for civil service ­restructuring; and

» R1.7 billion for agriculture and infrastructure.

This week the Presidency, the Treasury and the Department of International Relations and Co-operation declined to ­comment on the loan’s contents, but said the matter was still under consideration.

The deputy director-general for public diplomacy at the department, Clayson Monyela, said: “There is no decision as yet as the matter is still under consideration. We can’t discuss the breakdown because no loan has been granted.”

Roodt said Pretoria should attach conditions to the loan, such as “introducing democracy or restructuring institutions”, before handing it to Swaziland.
He said small countries like Swaziland and Lesotho should be incorporated into South Africa.

“I don’t think countries like ­Lesotho and Swaziland should be countries . . . They have no monetary policies of their own, and South Africa’s monetary policy is their monetary policy,” he said.

But Khumalo warned against imposing conditions that may further stifle Swaziland’s ­fragile economy.

“The conditions should not be designed to punish but to ­incentivise change in the running of government in a positive ­direction,” he said.

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