Eswatini is a landlocked country in Southern Africa bordering South Africa and Mozambique, with a population of 1.2 million. Poverty levels have stagnated at high levels in the last five years, with 39.7% of the population estimated to have been living under the international $1.90 poverty line in 2016 and 2017.
Eswatini has close economic ties to South Africa, which it depends on for about 85% of its imports and about 60% of exports. Eswatini is a member of the Common Monetary Area (CMA), with Lesotho, Namibia, and South Africa. Under the CMA, the Eswatini lilangeni (the domestic currency) is pegged to the South African rand, which is also legal tender in the country.
The country’s economy rebounded in 2021, despite the continued COVID-19 pandemic and the June 2021 political unrest. Real GDP growth is estimated at 2.1 percent in 2021 rising from a 1.9 percent contraction in 2020. The third and fourth COVID-19 wave containment measures were not as restrictive as those of earlier waves, allowing firms to ramp up production in 2021Q4. Economic growth was supported by a strong performance in the manufacturing sector due to improved demand from key export markets following the easing of lockdown measures in key destination markets in the region. The vaccination campaign, which reached about 29.2 percent of the population at end March 2022, helped to contain the spread of the virus and eased uncertainties on both demand and supply prospects. Though the June-July political unrest resulted in the destruction of physical assets, theft of inventory, and constrained operational hours, its impact on production was partly mitigated as firms accessed a Reconstruction Fund set up by the Government to cushion business from damages of the political unrest.
Inflationary pressures are building up in 2022, reflecting the impact of oil and food prices increases due to Russia Ukraine war, after weakening in 2021. Year-on-year inflation started to increase in December 2021 (to 3.5 percent from 3 percent in November 2021) after declining for three consecutive months from September 2021. Inflation increased further in January 2022 to 3.6 percent, prompting the Central Bank to increase the repo rate (for the first time since July 2020) in January 2022, from 3.75 percent to 4.0 percent.
The fiscal deficit is estimated to have declined in FY2021/22 mainly due to underspending on capital expenditure and commitment to the fiscal adjustment plan. The fiscal deficit is estimated at 5 percent of GDP, lower than the 6.5 percent of GDP initially projected in the original budget. The underspending on capital expenditure reflects low disbursements due to delays in the procurement process on foreign financed projects.
Economic growth is projected to continue recovering in 2022. Real GDP growth is projected at 2 percent in 2022 and to 1.8 percent in 2023, reflecting the implementation of the government’s three-year fiscal adjustment program. Economic growth will be supported by growth in agriculture and continued recovery in manufacturing and wholesale and retail trade. The current account balance is projected to turn into a deficit in 2022—the first time since the 2010/11 fiscal crisis—partly reflecting declining SACU revenues and higher oil and food imports.
Being a small and landlocked country, makes Eswatini vulnerable to international and regional developments. The Russia-Ukraine war contributed to rising oil and food prices, hurting the poor most. Already, poverty, unemployment, inequality, and HIV prevalence levels have historically been high. Progress toward reducing poverty has been slow, with close to a third of the population living below the US$1.90/day (2011 PPP) international poverty line.
At about 27 percent, Eswatini has the world’s highest HIV prevalence rate among adults aged 15 to 49, a driver and consequence of high poverty and inequality. In a context of historically persistent and high poverty and inequality, the COVID-19 pandemic presents the risk of reversing the modest gains that have been made. 58.9% of Emaswati lived below the national poverty line in 2017, following a decline from 63% in 2009, and 69.0% in 2001. The $1.90/person/day (2011 purchasing power parity (PPP)) international poverty rate has hovered around 30% since 2016, estimated at 28.5% in 2021. This, together with high inequality levels – with a consumption per capita Gini index of 54.6 in 2017 – increases vulnerability to economic shocks.
High vulnerability to natural disasters and economic shocks also undermines economic growth, poverty, and inequality reduction. In particular, vulnerability to drought in the context of heavy reliance on smallholder agriculture, is associated with high incidence of food insecurity.
Private investment has been low, constrained by, among other factors, heavy state involvement in the economy, lack of transparency due to governance challenges (further exposed by the political unrest that happened in June 2021), and a generally weak business environment.
The fiscal situation has been fragile due to overreliance on volatile Southern African Customs Union (SACU) revenues, which translates into significant fluctuations in public spending and pose a challenge to the management of fiscal operations and growth potential. Volatile SACU receipts have been met by rigid government expenditure, leading to persistent fiscal deficits in the recent past. SACU revenues consist of external trade and excise duties on imported goods, as well as a development component derived from excise taxes. The volatility in SACU revenues largely reflects the volatility in imports and the impact of exchange rate on custom receipts. The fall in SACU revenue was amplified by declining trade and growth during the COVID-19 pandemic.
Last Updated: Apr 07, 2022