Eswatini is a landlocked country bordering South Africa and Mozambique in Southern Africa. Poverty levels have stagnated at high levels in the last five years, with 36.1% of the population of 1.2 million estimated to have been living under the international $2.15 poverty line in 2016 and 2017.
Eswatini’s close economic ties to South Africa mean about 85% of its imports and about 60% of its exports depend on its much larger neighbor. 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 economy had a strong rebound in 2021, with real GDP growth estimated at 7.9%, up from a 1.6% contraction in 2020. The easing of lockdown measures in 2021 supported export-oriented sectors, as well as the robust recovery in external demand in key destination markets. Though political unrest in June/July 2021 resulted in the destruction of physical assets, theft of inventory, and constrained operational hours, its impact on production was partly mitigated by a Reconstruction Fund, set up by the government to cushion businesses from lasting effects of the damage.
Inflationary pressures picked up during 2022Q2, mainly driven by food and transport costs and a depreciating local currency. Annual inflation averaged 4.2% in 2022Q2, higher than 3.2% in 2022Q1 and 3.7% in 2021Q2; it continued on an upward trend as it increased to 5.8% in August 2022 from 5.4% in July 2022. Transport and food contributed to over half of annual inflation, and the exchange rate depreciated by about 6% during first half of 2022. In response to these high inflationary pressures, the Central Bank increased the discount/repo rate by a cumulative 200 basis points between January and September 2022 (from 4% at the beginning of the year). The fiscal deficit was contained within budget limits—at 4.6% of GDP—as the government implemented expenditure cuts, including public investment, in line with its three-year fiscal adjustment plan. The reduction in the fiscal deficit took place in the context of lower overall revenues amid lower South African Customs Union (SACU) revenues. However, public debt increased as the government accessed loans to finance the budget deficit.
Real GDP growth is projected to slow to 1.1% in 2022, reflecting implementation of the government’s three-year fiscal adjustment program and inflationary pressures from the war in Ukraine. Annual average inflation is projected to increase to 4.8% in 2022 from 3.7% in 2021, driven by high food and fuel prices. The current account balance is projected to turn into a deficit in 2022—the first time since the 2010/11 fiscal crisis, reflecting declining SACU revenues and rising imports due to higher fuel/food costs arising from the war.
As a small and landlocked country, Eswatini is vulnerable to international and regional developments. The war in Ukraine has contributed to rising oil and food prices, hurting the poor most. Poverty, unemployment, inequality, and HIV prevalence levels were already high even before these external shocks. Progress toward reducing poverty has been slow, with data showing 36% of the population living below the $2.15/day (2017 PPP) international poverty line.
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 $2.15/person/day 2017 purchasing power parity (PPP) international poverty rate has hovered at around 30% since 2016 and was still estimated at 28.5% in 2021. This, together with a consumption per capita Gini index of 54.6 in 2017 (reflecting high inequality), increases the nation’s vulnerability to economic shocks.
High vulnerability to natural disasters and economic shocks also undermines economic growth, poverty, and inequality reduction. Vulnerability to drought, in the context of heavy reliance on smallholder agriculture, is in particular 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 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: Oct 04, 2022