Eswatini is a landlocked country in Southern Africa bordering South Africa and Mozambique, with a population of 1.2 million.
Eswatini has close economic linkages to South Africa, which it depends on for about 70% of its imports and about 65% 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 at par to the South African rand, which is also legal tender in the country. Fiscal revenues largely depend on Southern African Customs Union (SACU) revenues, which are shaped by developments in South Africa.
The second wave of the COVID-19 (coronavirus) pandemic, which is more severe than the first wave is projected to constrain full economic recovery in 2021. The economy is projected to grow by 1.3% of gross domestic product (GDP) in 2021, a downward revision from a previously projected growth of 1.5%, reflecting COVID-19 related containment measures implemented in early 2021. The country has been under lockdown in early 2021 entailing travel restrictions, a ban on most gatherings except for funerals and restriction on business operating times. This affected both demand and supply. The number of COVID-19 cases more than doubled in two months (during the second wave during of COVID-19) compared to the first wave in 2020. Overall, the recovery remains uncertain and hinges on the evolution of the COVID-19 pandemic, rollout of the vaccines and the pace of recovery of the global and regional economies, particularly that of South Africa.
Annual inflation increased to 3.9% in 2020, from 2.6% in 2019, reflecting COVID-19 induced supply chain disruptions. The freeze of utility prices kept inflationary pressures lower in 2020. In 2021, inflation is projected to continue increasing, driven to rising oil and domestic administered prices. Electricity and oil prices have already been increased in January 2021. Further, the second wave of the pandemic continues to exert inflationary pressures in 2021.
Eswatini received financial support from World Bank and International Monetary Fund in FY2020/21, that helped ease fiscal challenges. The access to these finances enabled the the government to close the financing gap and reduce domestic expenditure arrears. The fiscal deficit stood at 8.7% of GDP in 2020, as public spending increased responding to the pandemic while revenues fall as economic activity declined. The fiscal deficit is projected to narrow over the medium term, as the government implements the three-year fiscal consolidation plan in the face of an anticipated decline in SACU revenues. The current account surplus is expected to increase in 2021- exports are expected to pick up from 2021 onward, as COVID-19-related trade and supply disruptions ease. The rollout of COVID-19 vaccines will support trade.
Poverty has persisted despite the country’s lower-middle-income status. 58.9% of Emaswati lived below the national poverty line in 2017, following a decline from 63% in 2009, and 69.0% in 2001. Use of international poverty lines also supports the persistence of poverty: the $1.90/person/day (2011 purchasing power parity (PPP)) international poverty rate has hover around 30% since 2016, estimated at 29.7% in 2020. This rises to 52.7% when the 2011 PPP $3.20 per person per day poverty line for lower middle-income countries is used. Thus, poverty levels have historically been high and there has been little progress in reducing them.
The projection is a stagnation in poverty rates in the near to medium term. This is in part due to adverse impacts of COVID-19 on livelihoods through a reduction in employment incomes and remittances, among other channels.
Challenges to poverty reduction include weak economic growth due to the impact of COVID-19, adverse weather patterns, high prevalence of HIV/AIDS, high unemployment, and high inequality; the per adult equivalent consumption Gini index stagnated around 49.0 between 2010 and 2017.
Last Updated: Mar 16, 2021