Swaziland mulls multi-million dollar bailout

[Swaziland] Falling sugar prices are devastating livelihoods and contributing to Swaziland's worsening poverty levels. [Date picture taken: 06/2005]
(Mujahid Safodien/IRIN)

South Africa recently granted a US$350 million bailout to Swaziland’s King Mswati III - following desperate overtures to his neighbour to stave-off his kingdom’s financial meltdown - but the king has now cooled to the idea and left the Memorandum of Understanding (MOU) unsigned and the loan in limbo.

The first tranche of the three-tranche loan was scheduled to be released in August 2011, but among the loan conditions were “confidence-building measures” on democracy, human rights and fiscal reform, as well as the “overhaul of its budgetary systems”.

These vague conditions were dismissed by the Congress of South African Trade Unions (COSATU), the country’s largest union federation and alliance partner to South African President Jacob Zuma’s ruling ANC government, as giving “breathing space for the regime,” and not “serious” in inducing a democratic transition, while pro-democracy activists in Swaziland dismissed it out of hand as a “betrayal” of the Swazi people.

Mswati’s government is reportedly trying to source additional finance from non-traditional sources of revenue such as Qatar and Kuwait, but as these efforts proceed so the country sinks further into the financial quagmire.

The impact of the current financial crisis is severe and according to the World Food Programme, annual production of the staple maize since 2000 has gradually dropped - from an average of 100,000 tons to about 70,000 tons - a consequence of erratic weather, high input and fuel costs, HIV/AIDS and the declining use of “improved agricultural practices”.

Stocks of antiretrovirals have become alarmingly low and were reportedly standing at one month’s supply. Swaziland has the world's highest prevalence, with one in four Swazis aged 15-49 HIV-positive and about 70 percent of the population living below the poverty line.

Dimpho Motsamai, a researcher in the Africa Conflict Prevention Programme at the Pretoria-based think-tank the Institute for Security Studies, told IRIN South Africa’s loan “was small and will be quickly absorbed” and the government needed to look for other financing opportunities.

However, the MOU created the impression in Swaziland the country was being “dictated to” and issues of sovereignty and patriotism had reared their heads.

“The government does not fully appreciate the magnitude of the fiscal crisis, the potential for a social crisis and the need for dialogue… They think it is just about money and think it will be fine if they get a loan as it will address the liquidity crisis. It’s a band aid approach… [But] it is not about money. It’s about governance,” Motsamai said.

Government has opaque accounting systems of its spending and has approved multi-million dollar vanity projects such as the Sikhuphe International Airport. It also has a free-spending and unaudited Royal Household, and there have been recent disclosures in the media that more than US$10 million each month disappeared from government coffers.

Meanwhile, Circular No 1, 2010, provides politicians (from the prime minister to regional administrators) with numerous perks - from entertainment allowances to their water, rates and electricity bills being paid.

The public sector wage bill is difficult to assess, as the budget for the security personnel is withheld for “security reasons” as are payments for an indeterminate number of traditional authorities.

“Double standards”

Mswati III, in a speech on 14 September, railed against the international community for leaving his country bereft, and specifically the International Monetary Fund (IMF), for refusing to bail out his country until it had implemented economic reforms. One of the IMF conditions was the reduction of the public service wage bill, seen as too large for the country’s size, and widely regarded as a store for patronage. 

Mswati, who has a personal fortune estimated at about US$200 million, said the IMF had “double standards” and was assisting countries such as Greece - which has a similar debt-to-GDP-ratio as Swaziland - with bailouts.

“However, when they [IMF] come here you see that they treat us in a different spirit. What is worrying then is why do these organizations apply different standards when dealing with Swaziland? They start making unreasonable conditions like we should retrench people and effect salary cuts. They flatly refused to discuss the bail-outs with us as they do with European countries,” Mswati said.

Joannes Mongardini, IMF head of delegation responsible for Swaziland, told local media on 22 September 2011, in response to allegations of double standards, that “Swaziland is not alone… The cuts in Europe were much more significant than those being proposed in Swaziland. Swaziland salary cuts are not extreme. The longer it takes [to restructure its finances], the more painful it will become.”

Prime Minister Sibusiso Dlamini has candidly admitted any significant public sector salary cuts or retrenchments would create social instability, although growing socio-economic and pro-democracy protests this year have been met with a heavy-handed police response.

Swaziland’s financial crisis began in earnest after revenue from the Southern African Customs Union (SACU) - the world's oldest customs union, comprising Botswana, Lesotho, Namibia, Swaziland and South Africa that applies a common set of tariffs and disproportionately distributes the revenue to member states - declined significantly in the wake of the 2008 global slowdown.

South Africa has said if Swaziland was unable to repay the loan - if it were accepted - it would deduct it from SACU contributions to the country, although the drop in revenue receipts was one of the drivers of its financial crisis.

Home-grown recovery plan

An economist based in the capital Mbabane and working for a South African finance institution, who declined to be named, told IRIN: “There is now, and for some years has been, a way for Swaziland’s government to get out of its hole, and that is to follow IMF recommendations for such things as reducing salaries for government workers earning more than R150,000 (US$20,000) a year. This recommendation spares the lower earners.”

He said the IMF was scheduled to return in November to review the government’s home-grown financial recovery plan, but the politics of the government was to portray the international finance institution as the villain of the piece and it can “only make international lenders and donors suspicious and nervous. If they don’t do what Swaziland wants, will they be called racists and hypocrites for their good intentions?”

Recent public protests have highlighted two royal conglomerates, Tibiyo TakaNgwane and Tisuka TakaNgwane, which have extensive business dealings within the kingdom based on property developments, manufacturing, coal mining, and tourism, but are exempt from taxation.

The conglomerates were established by Royal Charter in 1968 - the year the country achieved independence - with the objective of complementing the government’s national development priorities.

However, in a recent letter to the labour union about their role, Finance Minister Majozi Sithole said the money from these entities belonged to the Royal Household and not the people, as “these entities were formed in terms of a Royal Charter which does not provide for their income to be part of government income.”

Landlocked between South Africa and Mozambique, Swaziland is not endowed with an array of natural resources like many other African countries. Coal and sugar are important exports for the country as are soft drink concentrates, and the country has a vibrant tourist industry.

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This article was produced by IRIN News while it was part of the United Nations Office for the Coordination of Humanitarian Affairs. Please send queries on copyright or liability to the UN. For more information: https://shop.un.org/rights-permissions

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