Africa-Press – Eswatini. A research conducted by World Bank Senior Financial Sector Specialist Barry Maher and Economist Marko Kwaramba has revealed that as the war in Ukraine continues, Eswatini faces current account, reserves, fiscal, and inflation pressures.
The report states that Eswatini like other small countries is struggling to manage the impacts of compounding shocks that spike inflation, drain the budget and current account, impede GDP growth, and increase debt and fiscal deficits. “In 2015/16, an El Niño drought led to one-third of the population facing severe food insecurity, cost the government 19 per cent of its annual expenditure and spiked inflation to 7.8 per cent,” reads part of the report.
It further points out that in 2018/19, drought continued to grip the Southern Africa region, in particular South Africa, which drove customs duties in the Southern African Customs Union (SACU) upon which the government of Eswatini relies for revenue, forcing the government to raise additional debt.
The report further states that in 2020, the global COVID-19 pandemic struck, to which the government mobilised a significant response package, estimated at E1 billion ($67 million), or 1.5 percent of its GDP.
“Today, as the war in Ukraine continues, Eswatini faces current account, reserves, fiscal, and inflation pressures.
Each of these compound shocks depletes budgetary resources and draws civil servants’ time and attention away from service delivery toward crisis response,” part of the report read.
Report
This according to the report pushes the poverty rate lower than where it stubbornly stands at 28 per cent.
The report suggests that strengthening financial resilience needs to become a priority.
In March 2020, government requested support from the World Bank to conduct disaster risk finance diagnostic.
The diagnostic assessed the financial impact of shocks in Eswatini, the existing legal and regulatory structure for disaster risk management and response, and the financing approach for disaster response.
It is stated that the World Bank mobilised a team and crowded in resources from the Disaster Protection Programme.
“The timing was (unfortunately) perfect as the diagnostic began, COVID-19 hit the Africa region and the team observed the ability of the government of Eswatini to finance shock response in real time,” the report read.
The data uncovered confirmed that, like other small states, Eswatini faced challenges financing disaster response. Of particular importance in Eswatini, shocks devour (limited) fiscal space, an issue particularly acute for drought.
“Drought in Eswatini also affects South Africa, which experience has shown to lower SACU revenues.
As revenue from SACU makes up nearly half of the government’s revenue, droughts both increase expenditure and reduce revenue, the ingredients for a fiscal crisis,” the report reads.
Furthermore it is said, although Eswatini’s currency is pegged to the South African rand, the high inflation triggered by rising food prices forced the Central Bank of Eswatini to increase the policy rate increasing the vulnerability of the currency.
The findings according to the report demonstrated the significant cost savings that small states like Eswatini can gain from a risk-layering strategy which is E31million ($2 million) to E93 million ($6 million) for frequent events (1-in-5-year to 1-in-10-year events) and up to E403 million ($26 million) for more severe events.
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