Monday, March 4, 2019

Swaziland budget repeats failed economic policies of the past

The first budget from the Swaziland / eSwatini Minister of Finance Neal Rijkenberg has been largely welcomed in the media in the kingdom. But memories are short. Commentators have failed to notice the similarities between the 2019 budget plan and the Fiscal Adjustment Roadmap of 2010 (FAR 2010) that failed to save the Swazi economy. 

FAR 2010 was a blueprint for getting the Swazi economy out of what was then described as the worst economic crisis in its history. It was intended to be implemented between 2010 and 2015.

The similarities between FAR 2010 and Budget 2019 are many. They include reforms on tax and increasing the efficiency of tax collection, increasing the so-called Sin taxes (tobacco and alcohol), improving the efficiency of public services, decreasing the public service wage bill, selling government assets, building investor confidence, attracting both private investment and foreign direct investment.

Key to FAR 2010 was the reform of public services, privatising government assets and ensuring ‘that the wage bill remains under control’. FAR 2010 proposed cutting 7,000 public service jobs.

FAR 2010 failed. As an indicator of this in 2010 total external debt was about 13.4 percent of Swaziland’s gross domestic product (GDP). In 2018, Swaziland’s external debt was 23.3 percent of GDP. GDP is the total value of goods produced and services provided in a country during one year.

In his budget speech delivered on Wednesday (27 February 2019) Finance Minister Rijkenberg said Swaziland, ‘is facing an unprecedented economic crisis’. He added the economic outlook remained ‘subdued’. 

He said, ‘Foreign Direct Investment has been on average negative for a number of years. Arrears have accumulated and we continue to draw down on our reserves. The economy has stagnated and we are failing to attract investment as the gap between the rich and poor continues to grow.’

He said the government wage bill was ‘a key component of our crisis’, stating in the past ten years the wage bill had grown by 125 percent. Decreasing the public sector wage bill had been a key objective of the FAR 2010.

He said the Swaziland economy was in trouble, ‘because our private sector is too small and its growth is too slow. We are in trouble because we have not been balancing our books.’ 

Then he announced a range of polices very close to those of FAR 2010 that failed.

There is no reason to be optimistic about Swaziland’s economic future if the past few years are a guide. FAR 2010 was never likely to succeed and Budget 2019 faces the same fate.

A key reason for failure is the nature of the political system in Swaziland. The kingdom is ruled by King Mswati III as an absolute monarch. Political parties are banned and the King chooses a significant number of the House of Assembly and Senate. He also chooses the Prime Minister and Cabinet ministers.

The King chooses people who will do his will. They owe their positions to him, not to the people who elected them. Put simply, he does not want people in power who will change the economic structure of Swaziland. The King holds all profits from Tibiyo Taka Ngwane, which is an investment fund with extensive shares in a number of businesses, industries, property developments and tourism facilities in Swaziland.

He also takes 25 percent of all mining royalties in Swaziland. Neither Tibiyo nor the King pay tax. The monies are reportedly held by the King ‘in trust for the Swazi nation’ but it is no secret that he uses this money to finance his own lavish lifestyle. He has two private jets, 13 palaces and diamonds and gold. Meanwhile, nearly seven in ten of the 1.3 million population live in abject poverty on incomes less than the equivalent of US$3 per day.

The first thing an independent Finance Minister would do is to take Tibiyo and mining profits away from the King and use them to boost the economy.

A second reason for failure is that the people the King chooses for high office tend not have the experience nor the abilities to deliver complicated policies. After the last election in September 2019 King Mswati appointed Ambrose Dlamini as Prime Minister and Neal Rijkenberg as Finance Minister. Neither men have any experience in politics. They do not know how to successfully draft the necessary legislation to enact Budget 2019 (Rijkenberg has reportedly tabled eight new bills around the Budget 2019) and they do not know how to deliver on policies. 

Again, Rijkenberg said that in the coming year government needed to sell off assets to raise E400 million but he also said he did not know what was to be sold. ‘An exercise’ was underway at the Ministry of Finance to identify these, he said. 

Both FAR 2010 and Budget 2019 were imposed on the people. There was no meaningful discussion with the private sector, foreign investors or public service unions. FAR 2010 fell almost at the first hurdle when the government tried to implement public service wage reductions and job cuts. Even members of parliament would not take pay cuts.

A report on Swaziland from the World Bank published in August 2018 said, ‘The business environment remains unconducive to private sector development due to perceived weak transparency in regulatory systems and lack of clarity on government policies and implementation.’

It added, ‘stronger commitment and leadership is required’ to implement government policies. 

The commitment and leadership is unlikely to be forthcoming.

Richard Rooney

See also

Swaziland Finance Minister threatens public sector job cuts if workers don’t back his budget

Gap between rich and poor in Swaziland continues to grow, Finance Minister reports

No comments: