Eswatini

(e): estimation ; (f): forecast

* Last fiscal year from April 1, 2023 to March 31, 2024  

Risk assessment

Moderate economic growth, dependent on South Africa's performance and the weather

Moderately dynamic growth is expected in 2024 in eSwatini, a small country nestled between South Africa and Mozambique. This performance is due to positive growth prospects in South Africa (70% of exports and 65% of imports). Investments such as the construction of the Mkhondvo Ngwavuma Dam (MNWAP), which will provide better access to water for agriculture, will boost public spending in 2024 and stimulate economic activity over the medium term. Public spending, estimated at 30% of GDP in 2023, will be supported by SACU revenues. That said, growth will remain moderate due to limited diversification in the economy and modest private investment (less than 10% of GDP), which will limit job creation, despite the need to reduce the unemployment rate (22%). In addition, the continuing adverse effects of El Niño will keep agricultural production below potential. The government is planning structural reforms for the timber and sugar sectors (industrial parks, funds for small and medium-sized enterprises, simplification of administrative procedures) that could boost exports. However, given the tense socio-political context, the policies put in place in 2024 will be aimed above all at containing discontent to ensure the monarch remains in power. As a result, the persistently unfavourable regulatory environment and the lack of a skilled workforce will perpetuate the significant operational risk and deter foreign direct investment.
In line with the monetary cycle of the Central Bank of South Africa (SARB), the eSwatini Central Bank decided to maintain rates at 7.5% in January 2024. The SARB's pause in monetary tightening, induced by falling inflation in 2023, suggests a possible rate cut in 2024 and 2025. The easing of logistical disruptions, lower fuel prices (12% of imports) and lower inflation in South Africa will see inflation fall in eSwatini in 2024.

An improving public account and a current account surplus

Eswatini will maintain a public deficit in 2024-2025. The government is struggling to significantly reduce current expenditure. Among other things, the objective of reducing the public sector wage bill (from 11% to 10% of GDP) will be difficult to achieve in view of public discontent. On the other hand, increased royalties from the sugar sector, together with higher SACU revenues, will reduce the deficit. In fact, the government plans to pay the equivalent of USD 82 million (1.8% of GDP) into the new SACU revenue stabilisation fund. Its aim is to smooth out the amount of these highly volatile revenues in annual budgets to a level equivalent to 7% of GDP. Public spending as a percentage of GDP is set to fall in 2024-2025, as election-related spending declines and moderate inflation reduces the cost of subsidies. However, infrastructure projects such as the Swaziland railway (linking eSwatini to South Africa and Mozambique) could reverse the trend in 2025/26. In addition, the reduction in the public deficit will require budget support from international institutions (World Bank, African Development Bank). With external debt accounting for 50% of total public debt, the country plans to finance the budget deficit mainly through domestic borrowing (bond issues).
Despite substantial imports of services (linked to public investment) and an increase in interest on debt in 2024-2025, the current account will remain in surplus. This surplus is largely due to higher SACU revenues. The trade balance will also remain in surplus, but it will shrink. The impact of El Niño on the agricultural sector will weigh on exports. Furthermore, the lilangeni should continue to depreciate against the US dollar, imitating trends in the South African rand. A reversal of the trend is not expected, as South Africa's external position is unlikely to improve.

An absolute monarchy in peril and democratic reforms on hold

The political situation in eSwatini, which is the last absolute monarchy on the African continent, will remain unstable and fragile in 2024. Despite growing opposition and increasing unpopularity, King Mswati III is likely to remain in power. Most of the 59 members of Parliament elected in September 2023 are pro-royalist. In fact, the electoral system is such that candidates are selected in the first instance by village councils presided over by traditional chiefs close to the king. Mswati III appointed his loyal followers as ministers and Russel Dlamini was the first among them. In 2024, the political reforms demanded by the population, including the transition to a multi-party system – political parties have been banned since 1973 – and limits on the monarch's executive powers are unlikely to be endorsed by the King. Poor socio-economic conditions (high unemployment, inadequate public services, widespread poverty), excessive corruption and the absence of civil and political liberties all fuel the population's frustration. General dissatisfaction with the King, who has been sovereign for 37 years and lives in opulence, has led to recurrent demonstrations and strikes in recent years. While the sovereign continues to rely on the security forces to assert his authority and quell any form of popular insurrection, the government is struggling to effectively stem discontent and, in particular, to control an increasingly committed young population, especially since the recent series of successful coups d'état on the continent.
In terms of external relations, eSwatini is the only African country to maintain diplomatic relations with Taiwan. Despite Chinese economic and diplomatic pressure, the country seems determined to maintain its ties with the Republic of China, a major source of foreign aid. Furthermore, the stagnation of democratic reforms continues to worry the Southern African Development Community (SADC), which, however, is unlikely to interfere too much, except in the event of slippage.

Last update: May 2024