World Crisis Online

Swaziland plans to slash spending and raise taxes to ease a budget crisis after the fiscal deficit widens to 13 percent of gross domestic product this financial year, Finance Minister Majozi Sithole said.

The government will reduce spending on goods and service by 20 percent to cut the deficit to 7.5 percent of GDP in the year through March 2012, Sithole said in a budget speech today presented to parliament in Mbabane, the capital. State-employee salaries will be frozen and a voluntary retirement program will be offered. Value added tax will be introduced, after consultation, and income tax rates will be reviewed, he said.

“Swaziland’s wage bill stands today at around 18 percent of our gross domestic product, the highest in Sub-Saharan Africa,” Sithole said. “Unless this trend of expenditure is addressed with speed in the medium term, the government will no longer be able to pay salaries in the near future.” State wages account for half of all government spending, he said.

Africa’s last absolute monarchy, a land-locked country of 1.2 million people neighboring South Africa, is facing an economic crisis after a slump in receipts from a regional customs union that makes up 60 percent of government revenue. It started an International Monetary Fund recovery program last year, asked the African Development Bank for a $100 million loan and plans to raise domestic debt by offering bonds.

The government used foreign reserves in 2010 as revenue from the Southern African Customs Union declined because of lower imports during a recession in South Africa in 2009. SACU pools customs income between South Africa, Botswana, Namibia, Lesotho and Swaziland.

Plug the Gap

Reserves fell 31 percent to 4.5 billion emalangeni ($625 million) in 2010 compared with a year earlier, representing less than 3 months of import-cover, Sithole said.

“The past gains are being eroded in the aftermath of the recent global economic downturn as government has had to plug the gap in its finances by drawing down on its reserves and borrowing domestically,” he said. “To continue along this path can lead to a devastating financial crisis which will result in serious economic hardships.”

Swaziland is considering an international tender for a 3G mobile-phone operator license and plans to offer a stake in the state-owned Swazi Bank, Sithole said.

The economy is forecast to expand by 3.3 percent in 2011 after growing an estimated 2 percent last year, he said. The southern African nation’s economy will expand 0.5 percent this year, according to the IMF.

To contact the reporter on this story: Vuyisile Hlathswayo in Mbabane at vshlathswayo@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net