Concern grows over eSwatini mounting debt

By Zwelethu Dlamini

As Eswatini seeks a new loan of E2.08 billion from the African Development Bank (AfDB) for the Mkhondvo-Ngwavuma Water Project (MNWAP), concerns over the country’s mounting debt levels are growing. While the government has made bold claims about the necessity of capital projects like MNWAP for national development and food security, the long-term financial sustainability of such borrowing is being questioned. With public debt projected to rise to E36.8 billion, or 43.4% of GDP as per the report of the finance committee on the African development bank phase IB loan Bill,2024, experts are asking whether Eswatini is headed toward a debt crisis.

The Eswatini government argues that the new AfDB loan is vital for securing the country’s water resources, enhancing agricultural productivity, and supporting climate change resilience in drought-prone regions. The Minister of Finance stated that the Mkhondvo-Ngwavuma Water Project will help alleviate food insecurity by promoting crop diversification and increasing agricultural output, especially beyond the dominant sugarcane industry.

At the heart of this project is the Mpakeni Dam, which is already under construction and expected to be completed by 2028. The dam is projected to irrigate 25,000 hectares of land and benefit over 100,000 people directly. Prime Minister Russell Dlamini, during a recent site visit, hailed the project as a cornerstone of Eswatini’s broader infrastructure investment strategy. Yet, the Prime Minister’s optimism does not quell concerns over whether the benefits of such large-scale infrastructure can justify the mounting debt burden.

A Debt Trap in the Making

Eswatini’s public debt has ballooned in recent years, raising alarms both locally and internationally. From E3.78 billion in 2010 to a projected E36.8 billion, the country’s debt-to-GDP ratio is set to rise to 43.4%, a significant jump from previous years. As of December 31, 2022, total public debt stood at E31.75 billion, representing 42.7% of GDP. Financial experts at the University of Eswatini (UNESWA) have expressed concerns about the rapid pace of borrowing, particularly given Eswatini’s constrained economic growth and limited fiscal space.

University of Eswatini lecturer and economist Sanele Sibiya raised concerns about the government’s lack of financial prudence. He pointed out that Parliament recently allowed the Ministry of Finance to raise about E4 billion from the Johannesburg Stock Exchange (JSE), of which E400 million has already been drawn. Sibiya highlighted the risk of cost overruns in government projects, citing instances where projects initially estimated at E1 billion ended up costing E7 billion.

Sibiya advised the government to focus on policies that prioritize growing the economy and urged Parliament to closely monitor the Ministry of Finance to prevent further increases in the debt stock. He cautioned against taking both the E2.08 billion from the African Development Bank and the E4 billion from the JSE, suggesting instead that the government should continue with the JSE financing to fund the Ngwavuma Water Augmentation Project and avoid further borrowing from the AfDB.

“My worry is that as a nation, we are struggling to finance our expenditures—health is facing challenges, including drug shortages, and our education sector is also in a dire situation. Schools were supposed to open, but we know there are challenges,” Sibiya said. He also expressed concern that if the debt-to-GDP ratio exceeds 40%, Eswatini could face scrutiny from international financial institutions like the IMF.

A Path to Debt Distress

Eswatini’s Framework for Action Plan (FAP) aims to ensure debt sustainability, yet the growing reliance on budget support, rather than project-specific financing, is problematic. Between 2019 and 2021, Eswatini’s public debt surged due to the fiscal crisis brought on by the COVID-19 pandemic and recessionary pressures. Public debt jumped from E20.45 billion in 2019 to E29.98 billion by the end of 2021.

According to the National Development Plan, government projections remain optimistic, forecasting a gradual reduction in the debt-to-GDP ratio to 38% by 2027/28. However, this figure remains above the internationally recommended threshold of 35%, and such projections rely heavily on assumptions of steady economic growth and enhanced fiscal discipline—assumptions that may prove overly optimistic in a global economy marked by uncertainty. In its justification for seeking the World Bank Second Economic Recovery Development Policy Loan, eSwatini government defended its debt sustainability by acknowledging the continuous rise in public debt since 2016. However, the government noted that the country’s debt levels remained relatively lower than those of other countries in the region. It highlighted that the pandemic had driven a significant increase in borrowing, particularly externally, due to the shallow domestic financial markets.

Before the pandemic, external debt was relatively flat and lower than domestic debt as a percentage of GDP. Since the pandemic, public debt as a percentage of GDP has increased by approximately 2.5% each year, reaching 42.1% in 2020, and remaining elevated in 2021. The debt was projected to peak in 2022, with expectations of a decline beginning in 2023, reflecting an anticipated reduction in the fiscal deficit. However, the government acknowledged that the failure to fully implement the Fiscal Adjustment Plan would result in unsustainable levels of public debt.

Growing Domestic and External Burden

Both domestic and external debt have played a role in the rapid accumulation of Eswatini’s public debt. Domestic debt rose from E16.63 billion in 2021 to E17.36 billion in 2022, driven by an increase in treasury bonds and domestic loans, while external debt reached E14.39 billion by the end of 2022. The reliance on both domestic and external borrowing has left the government vulnerable to fluctuating exchange rates, which could make external debt more expensive to service.

The increase in disbursements for projects such as the Manzini Golf Course Interchange and the AfDB Water Supply Projects has exacerbated the situation. Between December 2021 and December 2022, public debt disbursements reached E3.47 billion, compared to E1.31 billion the previous year. This sharp increase highlights the government’s heavy borrowing for both infrastructure and budgetary support.

 Fiscal Flexibility

According to the ministry of finance’ annual report of 2023, eSwatini’s rising debt is already constraining the government’s fiscal flexibility. The actual public debt expenditures for the financial year ending March 31, 2023, indicate that principal payments amounted to E649,343,720.51, while interest payments totaled E615,917,295.64. These figures reflect the government’s ongoing efforts to manage its debt obligations. However, as more funds are funneled into servicing debt, less is available for critical areas like healthcare, education, and social services.

“The rising cost of debt servicing is one of the greatest threats to our fiscal health,” said an economist from the ministry of economic planning who requested not to be named because speaking to the media was only permitted to the principal secretary and the minister. 

“We are already seeing a squeeze on public spending in essential sectors. This will only get worse as our debt grows.”

Impact on Citizens

Rising public debt is not just a macroeconomic issue—it has real-world consequences for Eswatini’s citizens. Nowhere is this more evident than in the health and education sectors, which are already feeling the brunt of the government’s fiscal challenges. When schools opened for the third term, the Swaziland National Association of Teachers (SNAT) outlined a dire situation:

• Schools have no food for learners.
• Schools are in the dark because there are no resources to purchase electricity.
• There is no money to procure teaching and learning materials.
• There is no water in schools.
• Support staff have not been paid as the government has not released Free Primary Education (FPE) and Orphaned and Vulnerable Children (OVC) grants.
• There are 4,000 vacant teaching positions that the government has refused to fill.
• 700 high school-qualified, degree-holding teachers are stuck in primary schools.
• Only 20 Grade 0 teachers have been employed nationwide.
• The Teaching Service Commission (TSC) has refused to meet with SNAT’s National Executive Committee to discuss sectoral issues affecting teachers.

This paints a bleak picture of how Eswatini’s growing debt burden is affecting not just government finances but essential services like education. The situation could worsen if more resources are diverted to debt servicing at the expense of funding critical sectors.

A Glimmer of Hope

According to the National Development Plan (NDP) for 2023-2028, Eswatini’s fiscal expenditures are expected to decline in real terms over the plan period due to the implementation of the Framework for Action Plan (FAP). Expenditures will average around 27% of GDP over the Plan period, equivalent to E157.69 billion. While expenditures will remain constant between FY 2022/23 and FY 2024/25, they are expected to rise from FY 2025/26 to FY 2027/28 due to loan repayments and increased public investment.

The government anticipates a reduction in the wage bill, with personnel costs set to decline from an average of 10.6% of GDP in the first three years of the Plan to 9.3% in the last three years. Similarly, the cost of goods and services is expected to fall from 3.1% to 2.8% of GDP. Despite this, the capital program is expected to increase, particularly in the final years of the Plan, driven by major projects like the Mkhondvo-Ngwavuma Water Project, the Parliament building, and the Human Capital and Skills Development TVET project.