• Reference: P-SZ-KA0-002
• Appraisal Date: 15/11/2010
• Board Presentation: 13/04/2011
• Status: PipelinePIPE
• Implementing Agency: GOVERNMENT OF SWAZILAND MINISTRY OF FINANCE
• Location: KINGDOM OF SWAZILAND

A one financial year Development Budget Support loan with two tranches (US$45 million and US$35 million) the EEGRP focuses on two pillars:

(i) fostering competitiveness and improving the business environment; and

(ii) strengthening public financial management in support of the Government's reform program. The EEGRP includes one substantive trigger for disbursement of first tranche and three disbursement triggers for second tranche focused on business climate and expenditure and revenue measures.

(i)Promoting private sector driven growth through fostering competitiveness and improving the business environment: Swaziland is faced with the challenge of remaining competitive in a changing global environment. A crucial factor in addressing this challenge is the investment climate. The 2010 World Bank Doing Business revealed that the burden of regulation is still an impediment to economic growth and Swaziland ranks 115 out of 181 countries covered. Its ranking in 2010 is below some of its neighboring countries South Africa (35), Botswana (45), Namibia (66), Zambia (90), but higher than those of Malawi (132) and Mozambique (135). The proposed program will therefore contribute by enhancing the business climate in the following three areas. (a) Streamlining procedures and eliminating administrative bottlenecks: The government recognizes that administrative bottlenecks undermine a country's competitiveness because they contribute to the "transaction costs" of conducting business. Efforts are now underway within the government to identify areas where the reduction in red tape can improve competitiveness and implement the recommendations from the Investor Roadmap which identified barriers to investment in a wide number of areas with regard to locating a business, employment issues, company reporting systems, and operating a business in Swaziland; (b) Increasing transparency and reducing corruption: Corruption remains a problem that must be further rooted out in order to increase Swaziland's competitiveness and friendliness towards all forms of investment. Fraud and corruption have been identified as factors behind unsatisfactory service delivery and public sector waste, especially in tendering and procurement. The reforms envisaged include creation of a procurement agency, amending stores regulations, finalizing a procurement manual and contract and supplier performance management; and (c) Removing barriers to trade and improving procedures for trading across borders: Government should continue to focus on identifying and removing barriers to trade and improve procedures for trading across borders. The reforms envisaged include the implementation of Automated System for Customs Data (ASYCUDA) in order to improve customs clearance process as well as improving revenue collection.

(ii)Strengthening Public Finance Management (PFM). As regards PFM, 8.2.7 have highlighted concerns emanating from the diagnostic work that has been carried out in Swaziland and immediate reforms that are necessary to address the risks. The Bank intends to accompany the authorities in the implementation of reforms to address some of these weaknesses namely: (a) Improving transparency and accountability in public finance management (PFM): The Government has received significant Technical Assistance to identify outstanding issues and recommend ways to address them (a PER, Debt management TA, Revenue Authority implementation Strategy, the Bank's MIC grant, Financial Management Bill TA, Procurement bill TA, IFA etc). Under the program, the Government will be supported in finalizing the processing of the Public Finance Management Bill; (b) Reforming the civil service: The size of the civil service is too large and it places a great burden on government revenue in terms of salaries and benefits. As early as 2005, a Voluntary Retirement Program (VRP) for civil servants was adopted with a view to controlling overall spending in particular, wages and pensions. To-date, it has not been implemented. Civil service payroll has since increased to more than 30,000 vis-à-vis a right size for the civil service which is put at 20,000 employees. A provision of E168 million has been made in the 2010 budget for the implementation of Enhanced Voluntary Early Retirement Scheme (EVERS) and Alternative Service Delivery (ASD) - outsourcing.-Two services have been identified namely security and cleaning services; and (c) Improving domestic revenue mobilization: The authorities have planned since 2003 to combine the Department of Customs and Excise and the Income Tax Commission into a unified Revenue Authority and then to introduce a broad-based value added tax. The Revenue Authority was established since 2008, and is expected to be operational in July 2010. The operationalisation of the Revenue Authority will be a condition by December 2010 will be a condition for disbursement of the second tranche.

The program is designed to help Swaziland redress its fiscal position while supporting the Government's reform agenda. The overall objective is to mitigate the impact of global financial and economic crisis and restore fiscal sustainability, thereby promoting private sector-led growth with a view to reducing poverty. The Bank's intervention will be anchored on supporting measures to enhance economic diversification, competiveness and the business environment and strengthen public financial management (PFM). It will also reinforce Government's efforts to sustain growth, employment creation and poverty reduction in the medium to long-term. The program is consistent with the PRSAP and the National Development Strategy; and the reforms articulated in the 2010/11 - 2012/13 Medium Term Budget Policy Statement.

The proposed emergency policy-based operation is being carried out in a context where the country is faced with a sharp reversal in its fiscal fortune and where the Government intends to implement a comprehensive economic reform program to address the key issues which are currently constraining economic growth. Whilst it is recognized that the Government is committed to its reform program and the provision of social services to address the challenges of the high level of HIV/AIDS, it is also evident that its own funds will not be sufficient to close the financing gap for FY 2010/2011. Hence, access to quick-disbursing finance during such a period is of paramount importance for Swaziland to support its efforts in improving public finance management. It is also noteworthy that the Government recognizes the urgent need to improve the management of public finances as emphasized in the 2010/2011 Budget Speech. Indeed, by focusing on strengthening the PFM systems and reinforcing the private sector environment, the proposed program is promoting efficient management of public financial resources, thereby contributing to strengthen the private sector that should be the engine of growth.

The operation is expected to generate several benefits. At the general level, it will contribute to the stimulation of private sector growth and which will feed into the revival of economic growth. It will directly benefit the Ministry of Finance and other key public sector institutions (such as the Ministry of Economic Planning and Development) in the short term by allowing them to speed up reform processes that promote transparency and accountability in the management of public resources. It will also address some aspects of improving the business climate. It should lead therefore to improving the ranking of Swaziland in key international governance indicators, in particular CPIA and those related to Doing Business.

Principal specific expected results are:

"Revival of annual GDP growth rate; "Enhanced private sector contribution to GDP; "Strengthened pubic financial management; "Civil service reform; and "Greater delivery of social services, particularly for the poor.

In this way, the programme will contribute to strengthening economic and financial governance and to funding pro poor expenditures for poverty reduction (both directly as funds are used for these purposes, and indirectly as a result of improved government efficiency and effectiveness.

NDISALE Victor Charles - OSGE1

Amount
UAC 2,147,483,647