Eswatini is a landlocked country bordering South Africa and Mozambique in Southern Africa. It 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 has strong economic ties with South Africa, with over 60% of exports going to South Africa and over 80% of imports coming from South Africa.
GDP growth slowed to an estimated 0.4% in 2022 from 7.9% in 2021, partly reflecting the impact of pressures on domestic demand, weak performance in agriculture, and persistent uncertainties in the domestic political and social context. Weak performance of agriculture and agro-processing subsectors, mainly the sugar industry, reflects the impact of higher input costs, above-average rainfall, arson attacks, and labor unrest. Higher inflation and supply disruptions emanating from the war in Ukraine constrained both demand and supply. Higher growth was recorded in electricity, tourism, professional, administrative, and support services.
Inflationary pressures picked up in 2022, largely driven by increased prices for energy, food, and transport, reflecting the impact of the war in Ukraine. Annual inflation increased from 3.7% in 2021 to 4.8% in 2022. In response, between January and December 2022, the central bank increased the discount/repo rate by a cumulative 275 basis points to 6.5%. It further increased this rate by 25 basis points in February 2023. The combination of slow economic growth and high inflation led to a slight increase in the estimated poverty rate in 2022. Inflationary pressures are projected to remain elevated in 2023 due to the expected gradual transmission of higher imported prices to local prices and the increase in administered prices.
The fiscal deficit increased to 5.5% of GDP in FY22-23 from 4.6% of GDP in FY21-22, driven by an increase in wages and security spending as well as a decline in Southern African Customs Union (SACU) revenue. Public debt reached a peak of 45% of GDP in 2022, as the government increased external borrowing in the aftermath of the pandemic and the shocks emanating from the war in Ukraine. The current account balance turned into a deficit in 2022 for the first time since the FY10-11 fiscal crisis, due to lower SACU revenue and higher imports. Gross official reserves declined in 2022 as import cover stood at 2.5 months of imports compared with 3.5 months in 2021.
The near-term outlook is positive, supported by higher SACU revenues. Real GDP growth is projected to rebound to 3% in 2023. The higher SACU revenue will support an increase in government expenditure that is projected to boost economic activity. The wholesale and retail, construction, and public administration sectors are all expected to benefit from higher SACU revenue and public spending. Tourism is expected to continue recovering. However, significant external and domestic risks, including slower global growth, unfavorable weather conditions, and social and political uncertainty may affect the growth outlook. The fiscal deficit is projected to decline while the current account balance is projected to record a surplus in 2023, partly reflecting higher SACU revenues.
Development challenges
Unemployment, inequality, and poverty are high in Eswatini partly due to weak job creation in the formal economy. The 2021 Labor Force Survey puts the unemployment rate at 33.3%, the highest in over a decade. An estimated 32% of the population lived below the $2.15/day (2017 PPP) international poverty line in 2022, while 55% of the population was under the lower-middle-income country poverty line ($3.65/day, 2017 PPP). High inequality (54.6% in 2016) could fuel social tension. The consumption per capita Gini index of 54.6 in 2017 (reflecting high inequality), increases the nation’s vulnerability to economic shocks.
At about 27%, Eswatini has the world’s highest HIV prevalence rate among adults aged 15 to 49, which is both a driver and a consequence of high poverty and inequality. Almost 60% of Emaswati lived below the national poverty line in 2017, following a decline from 63% in 2009, and 69% in 2001. The population percentage living under $2.15/day has hovered at around 30% since 2016 and was still estimated at 28.5% in 2021.
High vulnerability to external shocks, natural disasters, and economic shocks undermines economic growth, poverty, and inequality reduction. Vulnerability to drought, in the context of heavy reliance on smallholder agriculture, is in particular associated with a high incidence of food insecurity. The war in Ukraine has exacerbated these vulnerabilities.
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 political unrest that has persisted since June 2021), and a generally weak business environment.
The fiscal situation has been fragile due to overreliance on volatile customs revenues. Overreliance on SACU revenues has led to substantial fluctuations in public spending and continues to pose a challenge to managing fiscal resources and the potential for growth. Volatile SACU receipts, coupled with rigid government expenditure, have led to fiscal deficits persisting in the recent past.
Last Updated: Mar 31, 2023
