Eswatini is a small, open economy bordering South Africa and Mozambique. The country has a population of around 1.2 million, with a per capita (Gross Domestic Product) GDP of $3,958 (2021). 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.
In 2021 real GDP growth reached 7.9%, driven by services and manufacturing. The easing of lockdown measures and stronger external demand supported an export led expansion and a recovery in services, including tourism. In 2022 growth slowed to 3.6%, reflecting constrained demand and supply, partly because of external shocks. The global turmoil following the start of the war in Ukraine adversely affected exports, trade, and foreign investment. It also precipitated a sharp increase in global commodity prices (oil, fertilizer, and food), raising the cost of production. Within Eswatini, tighter economic policy further dampened economic activity. Both demand- and supply-side factors have contributed to low growth.
Inflationary pressures persisted in 2023, with annual inflation rising from 5.3% in January to 6.0% in May—reaching the upper threshold. Annual inflation breached the upper band threshold in September 2022 for the first time in five years. Inflation has been driven by higher food and transport prices, stemming largely from the war in Ukraine. Food inflation also breached the Central Bank’s threshold for the first time in five years in June 2022; it has grown at double-digit levels since August 2022 and continued to increase to 15.7% in May 2023 with significant effect on poor households.
Despite some progress, Eswatini continues to experience high and persistent poverty. The proportion of the population living below the national poverty line fell moderately from 63% in 2010 to 58.9% in 2017, driven by improvements in educational attainment, the coverage of social protection, and labor incomes. However, most of the decline was in urban areas, thus widening the urban-rural poverty gap. Also, the COVID-19 pandemic and recent sociopolitical unrest reduced economic activity and negatively affected households. The level of poverty remains high, particularly for a lower-middle-income country. Projections for 2022 suggest that 55.2% of people fell below the poverty line for lower-middle-income countries ($3.65/person/day in 2017 Purchasing Power Parity (PPP)), up slightly from 55% in 2021. About 32.1% of people lived below the international poverty line of $2.15/day (2017 PPP) in 2022, up from 31.9% in 2021.
Poverty persists in part because of the lack of quality jobs. According to the Integrated Labor Force Surveys, 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, having increased from 23% in 2016 to 33.3% in 2021, the highest rate in over a decade. 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 benefit from its large, young population.
Inequality in consumption per capita and access to public services remains high. Eswatini is among the most unequal countries in the world, with a Gini index of 54.6 in 2016. Disparities in access to basic public services across income groups and geographic locations persist, although access is being expanded. Factors beyond the control of individuals, including early education, parental education, place of birth, and place of residence explained 38.5% of consumption inequality in 2017.
Eswatini’s economic prospects for 2023 and 2024 are favorable, partly because of higher Southern African Customs Union (SACU) revenues. The government budget proposes an expenditure increase, as SACU revenues are expected to double in 2023. The projected increase in government expenditure will support economic activity, and external funding of major capital projects such as the Mkhondvo-Ngwavuma dam will boost both demand and supply. The wholesale and retail, construction, and public administration sectors are all expected to benefit from higher public spending. The tourism sector is expected to continue its recovery and remittances are picking up.
However, difficulties in the external and domestic environments constrain the country’s growth potential. Although real GDP growth is expected to reach 3.0% in 2023 and 2.9% in 2024, global turmoil is likely to dampen economic activity. With Ukraine and Russia together accounting for over 30% of the global supply of food and commodities (grains, oils, fertilizers, and energy), the ongoing war in Ukraine will continue to affect global output, disrupt supply chains, and raise commodity prices.
Eswatini faces multiple development challenges to ensure inclusive, sustainable, and resilient economic growth. Central among these is Eswatini’s 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 revenues and weak domestic revenue mobilization, with the domestic tax-to-GDP ratio ranging from 12% to 15%; attributable to a narrow tax base, high informality, and Value-Added Tax (VAT) exemptions have contributed to fiscal deficits, complicated fiscal management, and reduced resources for service delivery and investments in job creation.
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 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 the 2016 World Bank Enterprise Survey. Despite significant progress in bringing overall access to 80%, access is only 60.6% in Lubombo and 56.4% 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.
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’s ranking on the International Monetary Fund (IMF) Skills Mismatch Index was a dismal 136th of 139 countries. Government spending on health is relatively high (3.4% of GDP in 2018/19), but 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: Sep 06, 2023