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Swaziland – Lower reserves and cash flow problems

The Central Bank of Swaziland’s (CBS) Monetary Policy Consultative Committee (MPCC) held its latest bi-monthly meeting on May 23. Policymakers indicated that the short-term outlook for inflation includes notable upside pressures after the headline rate increased from 4.7% y-o-y in February to 5.1% y-o-y during March. Upward pressure is coming from a long-awaited upward adjustment in fuel prices during March, a 25% increase in public transport fares approved by Parliament, and a 9.5% increase in electricity tariffs as of May. Nonetheless, the MPCC decided to keep the discount rate unchanged at 5% in order to support the country’s economic activity.

The CBS indicated that its gross reserves stood at E8.19bn ($795m) on May 16, down from E8.5bn ($824m) recorded a week earlier. The decline was attributed to the payment of external obligations on behalf of the government – a regular and legitimate transaction on the part of the central bank. The CBS estimated that its reserves provided import cover of 4.1 months during mid-May. In a separate development, the CBS is looking into taking legal action against several South African media houses who incorrectly reported that Swaziland’s foreign reserves fell to below $1m last month. It appears that the error could have originated from erroneous reports by AFP and/or SAPA that were carried by, amongst others, News24, the Sowetan, ANN7, and the Cape Times – the CBS is still investigating. This situation underscores the dubious nature of copy-and-paste journalism too often seen when it comes to reporting on African economies. The CBS is now working fiercely to convince international onlookers that corruption was not involved in the claimed plunge in reserves.

The poor reporting on Swaziland’s reserves and the actual use of this money to pay external government obligations have added fuel to concerns about the government’s cash flow situation. According to a June 2 report by the Times of Swaziland, the country’s auditor general informed the Cabinet on May 21 that civil servants’ right to salary advances – a benefit according to a collective remuneration agreement with the state – has been suspended “due to cash flow problems.” This situation, a mere two months into the 2014/15 fiscal year, was last seen during the heights of the country’s fiscal crisis in 2011.

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WHY DO WE CARE? The decline in reserves reported by the CBS and the freezing of public salary advances is nothing to be too concerned about. Both are reflective of Swaziland’s fiscal reality which, despite being markedly improved from a few years ago, still needs a lot of work before it can be deemed sustainable. While inflation has trended higher, we believe the MPCC is justified in keeping the discount rate unchanged given the positive impact this has had on private sector credit growth – up 20% y-o-y during March from virtually no y-o-y growth recorded a year earlier. We expect further monetary policy tightening by the South African Reserve Bank (SARB) to not necessarily translate into higher interest rates in Swaziland.

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