IMF Wraps Up 2025 Article IV Review With Eswatini

• Economic growth is expected to strengthen in the near term, up to 4.6 percent in 2026, supported by domestically financed investments.
• Continued fiscal consolidation to reduce financing pressure, complemented by calibrated monetary policy and financial sector reforms, is key to macroeconomic stability.
• Deep structural reforms to improve the business environment and address infrastructure and skills gaps are essential to unlocking growth potential and reducing unemployment and income inequality.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for the Kingdom of Eswatini. [1]

Eswatini's economic growth moderated from 3.4 percent in 2023 to 2.8 percent in 2024.

CPI inflation decelerated in 2024 to average 4 percent, led by easing housing and utilities costs and food and beverage prices. While the external current account surplus declined to 1.3 percent of GDP in 2024 from 2.4 percent of GDP the previous year, gross international reserves at end-2024 remained somewhat below the IMF's reserve adequacy metric. The overall fiscal deficit widened to 1.3 percent of GDP in 2024, up from 0.7 percent of GDP the previous year, despite historically high Southern African Customs Union revenues. While public debt remained moderate at 39.2 percent of GDP in FY24/25, Eswatini faces higher borrowing costs than neighboring countries, likely reflecting a higher risk premium.

Eswatini faces economic and social challenges. Unemployment is elevated at 34 percent, with youth unemployment reaching 58 percent in 2023. Income inequality is among the highest in the sub-Saharan African region, contributing to a poverty rate of 59 percent in 2023. Health outcomes are lower than those of middle-income peers.

Growth is projected to rise to 4.3 percent and 4.6 percent in 2025 and 2026, respectively, driven by domestically-funded public and private capital projects. As the impulse from this investment wanes and in the absence of decisive structural reforms, growth is expected to taper to 2.8 percent over the medium term. Annual average CPI inflation is projected to fall slightly in 2025 to 3.5 percent but is expected to edge up in 2026 due to negotiated increases in electricity tariffs. Risks to the outlook are tilted to the downside. Key downside risks include a global growth slowdown, particularly if it impacts South Africa, as well as a significant increase in oil prices. Upside risks include an acceleration of global growth, increased FDI, and better-than-expected investment implementation.

Executive Board Assessment [2]

Executive Directors welcomed the strengthened near-term economic outlook despite the difficult global environment, while noting that Eswatini continues to face serious economic and social challenges. Against this backdrop, Directors emphasized the importance of maintaining prudent macroeconomic policies and accelerating deep structural reforms, with technical assistance support, to foster stronger, inclusive, private sector-led growth.

Directors supported the planned fiscal consolidation and the authorities' commitment to contain public debt and reduce government financing pressures, emphasizing the need for fiscal discipline given volatile Southern African Customs Union revenues. They called for strengthening domestic revenue mobilization and for civil service and public enterprise reforms to contain public debt and create space for social and development spending. Directors welcomed the ongoing public financial management reforms and recommended accelerating them to improve the efficiency of public spending and investment, reduce arrears, and limit transfers to public enterprises.

Directors welcomed the narrowing of the interest rate differential with the South African Reserve Bank (SARB) to help stem capital outflows and support the pegged exchange rate regime. Looking ahead, they called for careful calibration of the policy rate against that of the SARB, for strengthening reserve buffers, and for modernizing the monetary policy framework. Directors also recommended strengthening central bank independence and limiting central bank cash advances to the government to lower pressure on foreign reserves.

Directors welcomed the ongoing financial sector initiatives to implement the recommendations of the Financial Sector Stability Review. They highlighted the importance of updating legislation related to financial sector oversight and operationalizing the Emergency Liquidity Assistance facility and the deposit insurance scheme.

To catalyze much-needed private sector-led growth and generate employment, Directors recommended improving the business environment and closing skill and infrastructure gaps. They welcomed the progress made on strengthening the AML/CFT and governance frameworks and called for continued efforts. Directors also encouraged further steps to improve data quality and timeliness.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .