eSwatini Economic Outlook

Macroeconomic performance

Real GDP contracted an estimated 0.5% in 2018 after 1.9% growth in 2017. Growth was hampered by weak recovery in the raw materials extraction sector, a slowdown in the production sector, and contraction in the services sector. Agriculture has not yet fully recovered from the 2015/16 drought, and mining has declined. Production sector performance was expected to be dampened by decelerating manufacturing resulting from shrinking external demand, notably an underperforming textile industry and the September 2017 European Free Trade Association ban on selected eSwatini exports. The estimated 1.3% service sector contraction was due to anticipated consumer and government spending declines.

eSwatini’s fiscal challenges emanate from high public spending and heavy dependence on the volatile and declining Southern Africa Customs Union (SACU) revenue. The fiscal deficit declined to an estimated 7.4% of GDP in 2018 from 7.9% in 2017 and has been financed by domestic borrowing, accumulating domestic arrears, and international reserve withdrawals. Total public debt increased from 19.6% of GDP in June 2017 to 20.8% of GDP in June 2018.

With the eSwatini lilangeni pegged at par to the rand, authorities pursued a restrictive and steady monetary stance, maintaining the discount rate at 6.75% since March 2018. Inflation declined to an estimated 5.4% in 2018 from 6.2% in 2017, and gross official reserves averaged around three months of imports in 2018.

The current account registered a surplus of an estimated 0.4% of GDP in 2018, up from a deficit of 1.3% in 2017, spurred by merchandise trade surpluses and secondary income inflows. The country is overdependent on pulp, sugar, and cotton exports, with about 60% of exports going to South Africa and 80% of imports coming from that country.

Tailwinds and headwinds

The economy faces ongoing fiscal challenges, exacerbated by a weak external position. But real GDP growth is projected to recover modestly to 1.7% in 2019 and 2.3% in 2020, driven by supply-side developments. In 2019, agriculture is projected to fully recover from the drought, construction will benefit from continued expansion (such as the Lower Usuthu Smallholder Irrigation [Phase II] Project), and manufacturing will regain the US African Growth and Opportunity Act market as well as new markets opened by other trade agreements. Improving the business climate and reforming the legal and regulatory framework for infrastructure development present opportunities for enhancing private development and unlocking the economy’s potential.

eSwatini faces potential headwinds from persistent fiscal challenges arising from low SACU revenue, a weak external environment, insufficient fiscal consolidation, and a challenging investment climate constraining private development. Growing domestic arrears, if unchecked, will continue to constrain business activity and may increase financial sector vulnerabilities as companies struggle to service their debts. The narrow export base and high market concentration make eSwatini vulnerable to external shocks, particularly those affecting South Africa. Average inflation is projected to be 5.4% in 2019 and 5.5% in 2020.

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