eSwatini

Macroeconomic performance

Real GDP contracted an estimated 0.5% in 2018 after 1.9% growth in 2017. Growth was hampered by weak recovery in the raw materials extraction sector, a slowdown in the production sector, and contraction in the services sector. Agriculture has not yet fully recovered from the 2015/16 drought, and mining has declined. Production sector performance was expected to be dampened by decelerating manufacturing resulting from shrinking external demand, notably an underperforming textile industry and the September 2017 European Free Trade Association ban on selected eSwatini exports. The estimated 1.3% service sector contraction was due to anticipated consumer and government spending declines.

eSwatini’s fiscal challenges emanate from high public spending and heavy dependence on the volatile and declining Southern Africa Customs Union (SACU) revenue. The fiscal deficit declined to an estimated 7.4% of GDP in 2018 from 7.9% in 2017 and has been financed by domestic borrowing, accumulating domestic arrears, and international reserve withdrawals. Total public debt increased from 19.6% of GDP in June 2017 to 20.8% of GDP in June 2018.

With the eSwatini lilangeni pegged at par to the rand, authorities pursued a restrictive and steady monetary stance, maintaining the discount rate at 6.75% since March 2018. Inflation declined to an estimated 5.4% in 2018 from 6.2% in 2017, and gross official reserves averaged around three months of imports in 2018.

The current account registered a surplus of an estimated 0.4% of GDP in 2018, up from a deficit of 1.3% in 2017, spurred by merchandise trade surpluses and secondary income inflows. The country is overdependent on pulp, sugar, and cotton exports, with about 60% of exports going to South Africa and 80% of imports coming from that country

Tailwinds and headwinds

The economy faces ongoing fiscal challenges, exacerbated by a weak external position. But real GDP growth is projected to recover modestly to 1.7% in 2019 and 2.3% in 2020, driven by supply-side developments. In 2019, agriculture is projected to fully recover from the drought, construction will benefit from continued expansion (such as the Lower Usuthu Smallholder Irrigation [Phase II] Project), and manufacturing will regain the US African Growth and Opportunity Act market as well as new markets opened by other trade agreements. Improving the business climate and reforming the legal and regulatory framework for infrastructure development present opportunities for enhancing private development and unlocking the economy’s potential.

eSwatini faces potential headwinds from persistent fiscal challenges arising from low SACU revenue, a weak external environment, insufficient fiscal consolidation, and a challenging investment climate constraining private development. Growing domestic arrears, if unchecked, will continue to constrain business activity and may increase financial sector vulnerabilities as companies struggle to service their debts. The narrow export base and high market concentration make eSwatini vulnerable to external shocks, particularly those affecting South Africa. Average inflation is projected to be 5.4% in 2019 and 5.5% in 2020.

Source: African Economic Outlook 2019

Summary

• The government securities yield curve extended to 10 years with four benchmark points along the curve (3-5-7 and 10 years). 
• It has a Medium-Term Debt Strategy which is published after the budget speech. 

Issuance strategy 

eSwatini has a Medium-Term Debt Strategy which is published after the budget speech. Strategy: enhance availability of financing, by (i) reaching out to potential investors for auctions of government securities, (ii) issuing long-term bonds at floating interest rates, and (iii) bonds linked to specific projects. 

Benchmark issues 

Benchmarks issues (3-5-7 and 10 years) are sold in the market using the auction and Swaziland’s website reopening methods. The yield curve is indicative only. The yield curve is available on the Central Bank of Swaziland 

Yield curve 

Yield curve calculation models 

eSwatini uses the Republic of South Africa’s yield curve plus spread. 

Interpolation methods 

There are no interpolation methods

Yield curve managed by 

The Central Bank of Swaziland is in charge of calculating the yield curve on a daily basis. 

Display platform 

The yield curve is available on the Central Bank of Swaziland’s website.

Challenges in building an efficient yield curve 

The government faces the following challenges in building an efficient yield curve: 

• Illiquid and limited secondary market 
• Narrow investor base: Swaziland does not have foreign participation 
• Lack of transparency in pricing, especially the primary dealers 

Procedures for market participation

The primary market is open to institutional investors and individuals alike. Banks, non-bank financial institutions, stockbrokers, corporate, individuals and non-residents can all participate in the auctions. Investors must contact one of the Primary Dealers or go directly to the Central Bank to purchase Treasury bills (the process to purchase the securities at the Central Bank is more administratively cumbersome).

Foreign participation is limited, hence there were few funds repatriation after the global financial crisis.

Taxation

There is no capital gains tax. Interest income is subject to a withholding tax of 10% for residents but the tax rate is 0% for non-residents.

Swaziland has double taxation agreements with the following countries: the UK, the US, Germany, Mauritius and Kuwait.

Settlement cycle

The settlement cycle for treasury bills is T+2.

Market restrictions

Openness to international investors

The Swaziland Investment Promotions Authority (SIPA) guarantees the equal treatment between domestic and foreign investors. There are no discriminatory practices between domestic and foreign investors.

The SIPA was established in 1998 through the Swaziland Investment Promotion Act. The objective of the SIPA is to foster a job creation environment by encouraging domestic and foreign investments.

International investors may participate in the purchase of Treasury securities through Primary Dealers

Capital controls

There are no restrictions placed on the transfer of interest, profits, dividends and or other accrued income.

Restrictions on foreign exchange and profit repatriation

The Central Bank of Swaziland (CBS) is charged with monitoring the flow of foreign investment in and out of the country. It may screen and regulate foreign exchange and investments in the country.

The process of obtaining foreign exchange in Swaziland is fairly simple and straightforward. To obtain hard currency, one must apply through an authorized dealer. Rules also state that a resident holding foreign currency must sell it to an authorized agent or dealer for local currency within 3 months (90 days).

List of Primary Dealers

The primary dealers in the system are:

o  Nedbank Swaziland Ltd

o  Standard Bank Swaziland Ltd

o  First National Bank of Swaziland

o  Swaziland Development and Savings Bank