Swaziland central bank needs macro-prudential powers – IMF

Plans to give the Central Bank of Swaziland macro-prudential powers should be “accelerated”, say directors of the International Monetary Fund.

Authorities in the small African country have already put in motion plans to “bolster” the mandate and independence of the central bank, while “strengthening” its supervisory structure, including the creation of a financial stability unit.

But the fund believes more could be done to give the central bank greater oversight over financial stability and the governance of macro-financial risk.

“Directors recommended to accelerate plans to create a financial regulatory architecture, and enhance the CBS’s capacity to assess macro-financial risks and exercise macro-prudential controls,” states the IMF’s latest report on Swaziland.

Swaziland’s authorities agreed with the IMF’s assessment and confirmed they were in the process of finalising amendments to the Central Bank Act, which would clarify the institution’s mandate and independence, in addition to strengthening its supervisory framework.

The bill is currently before parliamentarians, who are in the process of drafting the regulations needed for the amendments to become operational. The IMF expects draft legislation to be finalised by the end of September and passed into law by December.

Rising debt

Swaziland is currently experiencing a period of macroeconomic stability, but the IMF believes it will face “formidable” challenges in the coming years.

A decline in revenue from the Southern African Customs Union (SACU) in 2010 prompted a financial crisis. However, revenue has since “bounced back”, with fiscal and external balances improving. The peg to the South African rand has helped to contain inflation and allowed growth to recover, providing buffers in case of future instability, the fund says.

In 2016/17, however, growth has slowed compared with pre-crisis levels and another dip in revenue from the SACU has hit the economy hard, causing the government to expand its borrowing, and increase its reliance on domestic markets and the central bank.

The current account remains heavily dependent on SACU revenue and exports concentrated on a few products

International Monetary Fund

“The current account remains heavily dependent on SACU revenue and exports concentrated on a few products,” the IMF says, noting recent fiscal policy has depleted buffers, leaving global reserves below “adequate” levels and prompting a rapid increase in public debt.

Fund data shows that between 2014/15 and 2016/17, the public debt-to-GDP ratio almost doubled, from 14.3% to 25.5%, which the fund attributes to a “large and growing primary deficit”.   

As a result, short-term treasury bills and other short-term debt (including central bank advances) accounted for 66% of the government’s domestic debt.

However, the IMF noted the nation’s financial sector remained stable, well capitalised and profitable. However, accumulation of domestic debt by the government is likely to adversely affect asset quality, with non-performing loans rising, especially in the construction sector.

“To reduce banking sector vulnerabilities associated with the rising NPLs, the government and the Central Bank of Swaziland have developed an arrears’ clearance programme,” the fund says.