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Swaziland May be Forced to Devalue Lilangeni - World Bank

THE country may be forced to devalue the lilangeni unless government urgently cuts its spending, World Bank Economist Jean van Houtte has warned.

“It is getting to the point of reckoning, when Swaziland will no longer be able to sustain its deficit,” he told AFP in an interview. “We have said if you need a little time to get your house in order you can re-peg at a different level.”
The country’s currency is currently pegged to the South African rand on a one-to-one ratio. Van Houtte warned that if the currency peg was scrapped, income distribution could become more unequal, hitting civil servants especially hard.
“You would have an immediate impoverishment of civil servants at the same level of depreciation,” he said. “That is because most goods they buy are imported from South Africa.”
Meanwhile, Prime Minister Sibusiso Dlamini said (last Friday) government was aware of the threats to the parity of the local currency to the rand, especially if it continued drawing down on the reserves.
He said the immediate solution to cutting expenditure was through reduction of the huge wage bill, currently the highest in sub-Saharan Africa and accounts for almost half of government spending.
Dlamini was imploring civil servants to accept a proposed salary cut as part of government’s Fiscal Adjustment Roadmap (FAR) aimed at improving the fiscal crisis the country is presently facing.
“The proposal to cut salaries would assist government save a lot of money. Therefore, people must consider the fact that if they don’t take pay cuts now their salaries would automatically be reduced if the lilangeni would be delinked from the rand because its value would be lower,” he said.
The International Monetary Fund (IMF) previously warned that it was critical for the lilangeni to maintain its parity with the South African rand as any change would be disastrous to the economy and financial system.
suggested
The IMF suggested that the Central Bank should get some additional contingency financing in order to prop up its reserves and maintain the parity.
 “We have told both the government and Central Bank that maintaining the parity is essential for economic stability in Swaziland and that any change to the parity would have only disastrous effects on the economy and financial system of this country,” said IMF’s Joannes Mongardini.
He said critical to maintaining the fixed exchange rate was for government to reduce its fiscal deficit, which was where the FAR came into play because it was not just about putting the government house in order but also to ensure that the peg with the South African rand was maintained.
However, experts have said pressure to devalue was growing against the country’s fiscal crisis. “The lilangeni has been pegged to the rand for too long and the two currencies have risen and fallen in unison,” said a local economist.
He said because of better economic conditions in South Africa, when the rand strengthened, the lilangeni increased in value artificially. The economist said maybe it was about time the local currency was devalued in order for government to appreciate its value in real terms and, therefore, adopt prudent expenditure patterns.
“As long as we don’t cut government spending or implement the IMF’s recommendations to help us out of the fiscal crisis, then devaluation of the lilangeni will become a reality,” he added.

 

 

Swazi Observer

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