Africa-Press – Eswatini. The country’s E7.1 billion gross official reserves have been reduced beyond the internationally recommended level of three months import cover.
Import cover refers to the number of months of imports that could be covered by a country’s international reserves. Import cover remains an important indicator of the stability of a currency.
In the monthly statistical release issued by the Central Bank of Eswatini (CBE) yesterday, it was disclosed that reserves amounted to E7.1 billion at the end of August 2022, reflecting a decline of 10.6 per cent month-on-month and 18.8 per cent year-on-year.
At this point, CBE Governor Dr Phil Mnisi explained that the reserves were sufficient to cover 2.5 months of imports of goods and services, lower than the 2.8 months covered in July 2022 when reserves stood at E7.9 billion.
According to the International Monetary Fund’s (IMF) traditional ‘rules of thumb’ used to guide reserve adequacy, it was suggested that countries should hold reserves covering 100 per cent of short-term debt or the equivalent of three months’ worth of imports. “The decline was mainly attributed to a net outflow of foreign currency from trades with local banks coupled with payment of government’s fiscal obligations over the month under review,” Mnisi explained.
It was mentioned that when valued in special drawing rights (SDR), the reserves amounted to SDR319.4 million which was lower by 12.2 per cent month-on-month and 24.3 per cent year-on-year.
Decline
An independent economist, who preferred anonymity, explained that the decline in reserves had not yet reached alarming levels because it was primarily driven by the reduced Southern African Customs Union (SACU) receipts which largely finance the local budget of E24 billion.
Minister of Finance Neal Rijkenberg disclosed that Eswatini received E8.3 billion through SACU in 2020/21 and E6.3 billion in 2021/22. He explained that initial projections estimated receipt of E4.3 billion for 2022/23.
The minister said the sharp reduction was a consequence of the delayed impact of the first COVID-19 lockdown.
“Fortunately, SACU collections were not impacted as heavily as initially predicted and measures to increase our share of the SACU revenue are bearing fruit. SACU revenue receipts for 2022/23 are estimated at E5.8 billion,” said Rijkenberg when delivering the budget speech.
However, Rijkenberg pointed out that the other good news was that estimates for the next finicial year, 2023/24, were E8.7 billion. “This is a conservative estimation for 2023/24 as it does not take into account the full impact of the measures that we have been implementing.
We have started working on regulations for a SACU stabilisation fund that will force us to save some of our SACU income in the good years to cater for when SACU is down, hopefully alleviating the harsh impacts of volatile SACU receipts,” added Rijkenberg.
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