Economic report paints gloomy picture

The Swaziland Sugar Association (SSA), a conglomeration of sugar estates that produces the country's top export, announced that declining prices would likely render one of the country's largest development projects unviable. Confirming gloomy economic projections from a new government report, Dr. Mike Matsebula, CEO of the sugar association, said in a press statement: "If prices drop as envisioned, then the viability of the Lower Usuthu Smallholder Irrigation Project (LUSIP) will be brought into question." This year government will spend Lilangeni 57 million (US $9.3 million) on the LUSIP project, aimed at improving living standards for 2,500 subsistence farmers by providing piped and irrigation water to small landholdings in the drought-prone areas of Swaziland's central and eastern regions. Peasant farmers have been encouraged to form cooperatives and cultivate sugar cane to sell through the SSA as a requirement for receiving Usuthu River water. A 155 million cubic metre reservoir and canal system are under construction. Critics of the scheme have said it was inappropriate to prioritise sugar cane cultivation over food security. "Presently, over one-quarter of Swazis depend on food aid from international donor groups. Swaziland used to be self-sufficient in food, and used to export to other countries, but no more. We need to grow maize and other cereals for our own survival, and not make our developmental hopes vulnerable to fluctuating world commodity prices for sugar," said a relief worker. That vulnerability became apparent last week when the European Union (EU) indicated it may no longer pay more than the prevailing world price for Swaziland sugar, which a bilateral treaty obliges the EU to purchase. Agricultural extension officers at another irrigation scheme, the Swaziland Komati Project Enterprise, are advising smallholder sugar cane farmers to diversify to other crops by cultivating fruits and vegetables for the local and export markets. Water for this scheme comes from Maguga Dam on the Komati River, a joint South Africa-Swaziland venture that was Swaziland's largest public works project when it opened two years ago. Funding for future projects is also jeopardised by government's ballooning budget deficit, according to a report by the Ministry of Economic Planning and Development. Government's deficit has risen 200 percent since 1999, and the country's first Lilangeni 1.5 billion (US $244.8 million) deficit, nearly double last year's, is expected by 2006/07. "The deficit for 2003/04 reached ... [the] equivalent of six percent of the Gross Domestic Product. Expenditures are increasing much faster than revenue," said the report. "Over half of government revenue comes from Swaziland's portion of import taxes on goods coming into the Southern Africa Customs Union (SACU). These taxes go into a pool that is shared by the countries of the sub-region. Swaziland's share is set to decline as the region enters into free trade agreements with the rest of the world," Musa Fakudze, principal secretary for the Ministry of Finance, told IRIN. Swaziland's SACU revenues will drop by 14 percent this year, at a time when foreign direct investment in the kingdom has largely dried up, leaving government scrambling for other forms of income. Taxes on workers' benefits will increase 40 percent this month. Labour unions have demanded a rollback, and have criticised the royal government for making workers pay for extravagant spending on such things as luxury cars for the royal family, guest houses for royal visitors, overseas trips for dignitaries and a new Lilangeni 550 million (US $89.7 million) airport in the thinly populated eastern lowveld that no airline has expressed an interest in using. Public works projects, such as the construction of a new International Trade Fair complex in the central commercial town of Manzini, have kept that sector occupied in an economy that is expected to grow two percent this year, as finance minister Majozi Sithole reported to parliament. The Central Bank of Swaziland has said a 3.5 percent annual growth rate was required to keep Swazis from slipping further into poverty. Swaziland's currency, the Lilangeni, is linked to the South African rand on a one-to-one basis. Economists quoted in the local press have said the linkage was imperiled by government's spending habits, which have been called into question by the International Monetary Fund and other groups, and the resultant mushrooming national deficit. "The Swazi economy is too small to sustain its own currency, and a loss of the rand parity would bring catastrophic devaluation of the lilangeni," an economist with an Mbabane bank told IRIN.