Eswatini is a small, open economy bordering South Africa and Mozambique. The country has a population of around 1.2 million, with an estimated per capita (Gross Domestic Product) GDP of $3,823 in 2023. Slightly more than half the economy is concentrated in services, and industry (particularly manufacturing) comprises another third. South Africa continues to be Eswatini’s main trading partner, accounting for about 65% of its exports and 75% of its imports.
Overall, the economy performed well during the first half of 2024, supported by both domestic and foreign demand. The sustained increase in SACU revenues boosted domestic demand and lifted growth in the service sector. The growth was broad based with merchandise exports increasing by 14% over the past 12 months. Real GDP growth is projected to remain strong at 4.6% in 2024 (from 4.8% in 2023).
Inflationary pressures eased in the first eight months of 2024, partly due to easing of global inflation drivers. Annual inflation averaged 4.2% during this period compared to 5.3% during the same period in 2023. The Central Bank has maintained repo rate at 7.5% from July 2023 until September 2024 – aligning its monetary policy stance with South Africa, but 75 basis points lower.
The fiscal situation has improved driven by high SACU revenues, yet high public expenditure arrears still require urgent resolution. The fiscal deficit is estimated to have declined to 2.0% of GDP in 2023 (from 6.5% in 2022), as SACU revenues more than doubled. Notwithstanding the surge in revenues, expenditure arrears increased from 4.9% at the end of 2023 to over 5.0% of GDP in July 2024, reflecting deficiencies in cash management and commitment controls. Public debt declined to below 40% of GDP and the government deposited E750 million into Revenue Stabilization Fund during the first half of 2024.
Despite some progress, Eswatini’s social indicators are lagging those of other lower middle-income countries The most recent labor force survey placed unemployment at 33.3% in 2021 (from 23% in 2016), the highest rate on record in over a decade and over 50% of the population continue to live below the $3.65/day (2017 PPP) lower middle-income country poverty line. Eswatini has high and persistent inequality with a Gini index of 54.6% in 2016- among the highest in the world.
Poverty persists in part because of the lack of quality jobs. According to the Integrated Labor Force Survey, labor force participation among the working-age population fell from 50.6% in 2016 to 45.9% in 2021. Without sufficient formal job creation, employment is concentrated in low value-added activities, such as subsistence agriculture, and low-quality jobs—40.8% of employed people are in the informal sector. Unemployment is high and rising. It is even higher among young people, with those between 15 and 24 years facing an unemployment rate of 59.1% in 2021. Quality problems in education mean that young people lack the right skills to participate in the labor market. This undermines Eswatini’s potential to effectively leverage its demographic dividend.
Inequality in consumption per capita and disparities in access to basic public services across income groups and geographic locations persist, although access is being expanded. Factors such as early education, parental education, place of birth, and place of residence explained 38.5% of consumption inequality in 2017.
Eswatini’s economic prospects remain favorable. Rising external demand is expected to drive manufacturing and other exports. High SACU revenues in 2024 are projected to ease fiscal and external pressures, but the situation is complicated by financing challenges and associated expenditure arrears. The fiscal deficit is projected to remain at 2.0% of GDP in 2024, on account of higher SACU revenues. Public debt is projected to remain below 40% of GDP. In the medium-term fiscal deficit may increase due to declining SACU revenue. The current account surplus is projected to increase in 2024. Nevertheless, gross official reserves are projected to remain below 3 months of import cover, as the government uses SACU reserves to finance the fiscal deficit.
Growth is projected to gradually decline in the medium term as growth potential remains constrained by structural challenges. The main drivers of growth over the medium term are expected to be investments in the mining and energy sectors, and the commencement of Phase I of the Mkhondvo-Ngwavuma Water Augmentation Program. However, there is a need to durably boost private investment in growth-enhancing sectors such as digital services to levels that can sustain higher economic growth. Inflation is projected to remain within the 3-6% target band, reflecting easing global inflationary trends.
Development Challenges
Eswatini faces multiple development challenges to ensure inclusive, sustainable, and resilient economic growth. Central among these is a fiscally unsustainable public sector-driven growth model, which has trapped the country in a low growth and high poverty and inequality equilibrium and crowded out investments in productive sectors and private sector development. Fluctuations in SACU have complicated fiscal management, and constrained long-term planning for growth-enhancing investments.
Access to credit for Small and Medium Enterprises (SMEs) is constrained by limited digitization of enterprise cash flows, weak secured transaction and insolvency regimes, high collateral requirements, and limited quality of credit information. Women-owned SMEs are particularly impacted by lack of access to credit. A 2016-17 survey found that only 10% of all Micro, Small, and Medium Enterprises (MSME) owners in Eswatini accessed formal credit to start their business, while 90% reported starting their businesses using their savings, borrowing from friends and family, informal credit, and grants. Many women struggle to find access to credit to launch or grow their businesses. In 2020 only 13% of women-owned businesses accessed formal credit versus 19 % of male-owned enterprises.
Gaps in infrastructure, notably in energy, transport, and Information and Communication Technologies (ICTs), stymie economic development and national and regional integration. Limited access to electricity remains an impediment, cited by businesses participating in a 2016 World Bank Enterprise Survey. Despite significant progress in bringing overall access to about 82%, access is only 60.6% in Lubombo and 63% in Shiselweni, which constrains agriculture output and agro-processing in these mostly rural regions.
Energy security is a major concern as Eswatini imports up to 90% of its needed electricity from South Africa. To address dependency on power import, the Government of the Kingdom of Ewatini (GoKE) has recently updated its Generation Master Plan, which includes development of a significant coal plant (200-300MW) in the country along with renewable energy development to increase domestic installed capacity to 1GW by 2050. This would require a cumulative domestic capacity increase of about 700MW within 20 years.
While the government’s expenditure on education (5% of GDP in 2021) exceeds the Low- or Middle-Income Country (LMIC) average and near-universal access to primary education has been achieved, education quality is insufficient; access and retention are low in secondary school; and the education system is not responsive to the labor market. In 2017, Eswatini was ranked 136 out of the 139 countries captured on the International Labour Organization (ILO) Skills Mismatch Index. Eswatini spends relatively more on health and education than its neighbors in the region. However, this spending results in poorer health and education outcomes than expected due to inefficient and inequitable spending. For example, despite steady progress on several key health outcomes such as under-five mortality per 1,000 live births, Eswatini’s maternal mortality ratio has remained high and unchanged at 237 per 100,000 live births in 2017 to 240 per 100,000 live births in 2021. Similarly, there is evidence that the education system does not meet the needs of the labor market. Eswatini suffers from a high burden of HIV/AIDS, noncommunicable diseases (NCDs), and sub-optimal child and maternal health outcomes. HIV prevalence among adults is still the highest in the world at 27.4% (32.5% for women versus 20.4% for men), which increases co-morbidities with tuberculosis and other diseases.
Last Updated: Oct 11, 2024
