Africa-Press – Eswatini. Minister of Finance Neal Rijkenberg says about E350 million is currently in the South African Custom Union (SACU) Revenue Stabilisation Fund.
The fund was established to smooth out volatility in future SACU revenue.
The minister said they were trying to meet the target of E1.5 billion, adding that such was something that government committed to work on.
“We want to beat the E1.5 billion target of the SACU Revenue Stabilisation Fund. we are committed and want to see how this pans out,” he said when commenting on the news that Moodys Investors Service, had given the country positive ratings
According to Moodys, Eswatini had recently been rated positive from stable adding that a number of factors led to such a good rating. which included the establishment of the SACU Fund.
According to Moodys in fiscal year 2023, the government intended to put E1.5 billion, or about 1.5 per cent of GDP, into the stabilisation fund.
Moodys said government indicated that it had deposited less than E400 million into the stabilisation fund to date, but remained committed to the E1.5 billion target in the fiscal year ending March 31, 2024 (fiscal year 2023).
It said the establishment of the SACU stabilisation fund, and its eventual capitalisation, would reduce year-to-year volatility from SACU revenue and lead to improved budget planning and medium-term budgeting.
Moodys highlighted that reduced volatility and improved budget planning would contribute to greater macroeconomic stability.
“Without such a stabilisation fund, the benefits from higher SACU revenue are likely to prove temporary, as future fiscal outturns would remain susceptible to swings in SACU revenue, a key vulnerability constraining policy effectiveness and Eswatini’s rating,” said Moody’s.
It indicated that government had become reliant on SACU revenues to fill in gaps in the budget and stabilize the balance of payments saying government’s reliance on SACU revenue combined with a rigid expenditure had limited fiscal flexibility, resulting in large fiscal deficits, the incurrence of government expenditure arrears during periods of lower SACU revenue.
Moody further stated that government financing constraints and the incurrence of arrears weighed on economic activity while increasing NPLs at banks and limited the willingness of banks to lend to private creditors.
It indicated that delays in paying goods and services providers also had a knock-on effect on economic activity in other industries, such as services.
Moreover it was reported that sluggish medium-term growth potential limits the ability for economic growth to dampen underlying social risks.
anchored
The government’s domestic borrowing costs were reported to be anchored by its close financial linkages to the South African market.
“Because of the presence of South African banks in Eswatini and because of free capital flows between the two countries, most investors in Eswatini’s government securities are content with a small premium to borrowing costs for the South African government,” said Moody’s.
It however noted that the domestic market lacked the capacity to absorb unanticipated financing needs therefore highlighting that government intended to issue a bond in the South African market this year.
Moody’s said this issuance was an important source of Eswatini’s external financing for the fiscal year 2023, and a successful bond issuance would demonstrate access to an additional funding source.
Moody’s however highlighted that given delays in the planned issuance, shortfalls in external financing would likely be met through lower contributions to the SACU Revenue Stabilization Fund or the build-up of additional government expenditure arrears.
“In future years, without improved budget preparation and execution, increased financing options, including a fully capitalized and operating SACU stabilization fund, financing shortfalls will be a challenge amid fluctuations in SACU revenue,” said Moody’s.
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