IMF Concludes 2026 Article IV Mission in Eswatini

Mbabane, Eswatini: An International Monetary Fund (IMF) team led by Ms. Xiangming Li visited Mbabane during July 23 - August 5, 2026, to hold discussions for the 2026 Article IV Consultation with the Kingdom of Eswatini.

At the conclusion of the mission, Ms. Li made the following statement.

"Eswatini's real GDP growth accelerated to 4.9 percent in 2025, supported by large public and private investment projects. Despite the strong growth, unemployment remains high at 33.5 percent. Growth is expected to moderate in 2026, reflecting higher fuel costs, weaker global demand, tighter financing conditions, weather-related disruptions, and easing of investment activity. Inflation moderated in 2025 and continued to decline through early 2026 before rising modestly to 2.6 percent in June 2026. Higher fuel prices are projected to raise average inflation for the year.

"The external position improved modestly in 2025, with the current account surplus widening from 2.1 percent of GDP in 2024 to 2.4 percent. This was driven largely by an improvement in the primary income balance. Gross international reserves remained low at 2.5 months of imports at end-2025. The current account surplus is expected to narrow, reflecting higher fuel costs and strong investment-related imports. Reserve coverage is projected to edge down, weakening external buffers over the medium term.

"The outlook is subject to significant downside risks. A prolonged conflict in the Middle East could further increase fuel and fertilizer prices, weaken external demand, and heighten fiscal pressures. Climate-related shocks, particularly drought and erratic rainfall patterns, could disrupt agricultural production, raise food prices, and worsen poverty. Under a severe global shock scenario, growth would be weaker, inflation higher, and public debt would rise more rapidly, underscoring the need for continued fiscal adjustment and structural reforms to build resilience.

"The fiscal deficit rose sharply in FY25/26 to 6.1 percent of GDP from 1.1 percent the previous year, largely reflecting public wage increases and higher public investment. As a result, public debt rose from 40 percent of GDP at end-FY24/25 to 44.7 percent of GDP at end-FY25/26.

"The FY26/27 budgeted deficit narrows slightly to 5.9 percent of GDP, as higher public wages and interest payments offset declines in other spending and higher SACU revenues. Public debt is expected to reach 50 percent of GDP by end-FY26/27.

"The Medium-Term Fiscal Framework approved by Cabinet envisages fiscal consolidation over the medium term to reduce debt vulnerability, with a cumulative reduction of 6.2 percentage points of GDP in the structural primary balance (excluding SACU revenue) through FY31/32. As a result, public debt is projected to peak at over 52 percent of GDP before declining to about 45 percent by end-FY31/32. Meanwhile, the government has been expanding its use of concessional external financing, helping lower borrowing costs.

"Further rationalization of recurrent spending, particularly transfers and other expenses over FY26/27-FY28/29, is advisable to accelerate debt reduction, strengthen fiscal buffers, and create space for growth-enhancing capital spending.

"Structural reforms to strengthen public financial management will be critical to support the fiscal consolidation effort. Priorities include fully implementing and enforcing the 2017 Public Financial Management Act while advancing targeted amendments to strengthen public debt and public investment management. Accelerating the rollout of the Integrated Financial Management Information System and e-procurement, alongside stronger budget execution and financial controls, would improve expenditure management and transparency. Rationalizing public sector employment and strengthening the financial discipline of public enterprises would help contain fiscal pressures while safeguarding service delivery.

"The Central Bank of Eswatini (CBE) has maintained its policy rate at 6.75 percent since May 2025. While this leaves it 25 basis points below the South African Reserve Bank's (SARB) policy rate, the CBE has kept its overnight deposit rate for banks aligned with the South African money market rate, helping contain capital outflows. Private sector credit growth remained robust at 10.6 percent year-on-year at end-May 2026. The banking system remains liquid and well-capitalized, though financial performance remains uneven across banks.

"Given elevated global uncertainty and the SARB's transition to a lower inflation target, the CBE should closely monitor developments, carefully calibrate its policy rate alignment with the SARB, and stand ready to take measures as needed to safeguard the exchange rate peg. Strengthening the monetary policy framework, including through refining policy instruments, enhanced liquidity forecasting, and further development of money markets, would improve policy transmission and support macroeconomic stability.

"Strengthening financial sector oversight remains a priority to safeguard financial stability and enhance resilience. Priority reforms include updating the legal and regulatory framework, notably the Central Bank of Eswatini Act and the Financial Services Regulatory Authority Act, and operationalizing the deposit insurance scheme and emergency liquidity assistance framework.

"Structural reforms remain essential to support economic diversification and create jobs. Notably, reducing regulatory hurdles and accelerating digitalization, including the responsible use of artificial intelligence, could boost productivity, improve public service delivery, and create new growth opportunities. Eswatini has made important progress in strengthening its digital foundations; further efforts to build digital skills and modernize regulatory frameworks will be key to unlocking the full benefits of digitalization.

"The mission thanks the authorities for their excellent collaboration and warm hospitality."