June 22, 2011

Government turns to South Africa for bailout

Swaziland has asked neighbouring South Africa for an emergency bailout to patch over a national cash crunch that has sparked rare political unrest against King Mswati III. Swazi dissident groups have suggested Mswati was looking for a R10-billion loan from Pretoria. However, Deputy Finance Minister Nhlanhla Nene said that was probably too high. "I'm not sure where the R10-billion figure comes from and I don't foresee assistance amounting to that much," he said. "It is too early to put a figure to it until such time as the review and the assessment of Swaziland's problems are done." The sums of money are a drop in the ocean for South Africa, far and away the continent's biggest economy, but, in a curiously African echo of the euro zone debt crisis, Pretoria fears it may be simply the first of a series of bailouts for Swaziland.

Like the International Monetary Fund (IMF), it will also balk at lending anything to the landlocked nation of 1.4-million people until its government takes the carving knife to what is Africa's most bloated civil service. The IMF said last month the tiny southern African country was near financial collapse, with a budget deficit of 14.3% percent of GDP -- similar to Greece -- and an economy stuck in the doldrums. Swaziland's public wage bill amounts to 18% of GDP, more than any other country in Africa. The IMF identified $87-million in immediate state spending cuts but described the general commitment to reform as "mixed", rendering immediate budgetary assistance impossible for now. South African aid is also complicated by the loathing felt towards Mswati's notoriously inept and unaccountable rule -- cabinet posts are dished out on the whim of the king -- by the ruling ANC's allies in the unions.

Swaziland's fiscal troubles stem from a sharp decline in revenues from the regional Southern African Customs Union (Sacu), which has historically accounted for two-thirds of the government's budget. The Sacu drop-off, caused by a 2009 South African recession, is equivalent to 11% of Swazi output although the IMF says profligate state spending is just as much to blame. So far, the government has just about managed to keep its head above water by eating into central bank reserves and running up $180-million in domestic arrears. (Mail & Guardian)


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