Mbabane: An International Monetary Fund (IMF) team, led by Ms. Xiangming Li, recently concluded its 2026 Article IV Consultation with the Kingdom of Eswatini. The mission, which took place from July 23 to August 5, 2026, noted that Eswatini's economic growth accelerated in 2025, largely due to significant public and private investment projects. Despite this growth, the unemployment rate remains high at 33.5 percent.
According to African Press Organization, the IMF projects that economic growth in Eswatini will moderate in 2026, influenced by higher fuel costs, weaker global demand, tighter financing conditions, weather-related disruptions, and a slowdown in investment activities. Inflation, which had moderated in 2025, is expected to see a modest rise, reaching 2.6 percent in June 2026, primarily due to increased fuel prices.
The nation's external position showed modest improvement in 2025, with the current account surplus increasing from 2.1 percent of GDP in 2024 to 2.4 percent. This was driven by an improved primary income balance. However, higher fuel costs and strong investment-related imports are anticipated to narrow the current account surplus, while reserve coverage is projected to decline, affecting external buffers over the medium term.
The IMF report highlights significant downside risks to Eswatini's economic outlook, including potential prolonged conflicts in the Middle East that could further elevate fuel and fertilizer prices, weaken external demand, and increase fiscal pressures. Climate-related shocks, particularly droughts and erratic rainfall, could disrupt agricultural production, increase food prices, and exacerbate poverty levels.
Eswatini's fiscal deficit grew sharply in FY25/26 to 6.1 percent of GDP, primarily due to public wage increases and higher public investments. Consequently, public debt rose to 44.7 percent of GDP by the end of FY25/26. The FY26/27 budget projects a slight reduction in the deficit to 5.9 percent of GDP, with public debt expected to reach 50 percent of GDP by the end of the fiscal year.
The Medium-Term Fiscal Framework, approved by the Cabinet, aims 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. Public debt is projected to peak at over 52 percent of GDP before declining to about 45 percent by the end of FY31/32. The government is also increasing its reliance on concessional external financing to lower borrowing costs.
Structural reforms are identified as critical to supporting fiscal consolidation efforts. Priorities include implementing the 2017 Public Financial Management Act, advancing amendments to strengthen public debt and investment management, and enhancing financial management systems for improved expenditure management and transparency.
The Central Bank of Eswatini (CBE) has maintained a policy rate of 6.75 percent since May 2025. Despite being 25 basis points below the South African Reserve Bank's (SARB) policy rate, the CBE has aligned its overnight deposit rate with the South African money market rate to manage capital outflows. The banking system remains liquid and well-capitalized, though financial performance varies across banks.
Given global uncertainties and SARB's lower inflation target transition, the CBE is advised to closely monitor developments, adjust its policy rate alignment with SARB, and take necessary measures to safeguard the exchange rate peg. Enhancing the monetary policy framework could improve policy transmission and support macroeconomic stability.
Strengthening financial sector oversight is emphasized to ensure financial stability and enhance resilience. Key reforms include updating legal and regulatory frameworks and operationalizing the deposit insurance scheme and emergency liquidity assistance framework.
Structural reforms to support economic diversification and job creation remain essential. Reducing regulatory hurdles and accelerating digitalization, including the responsible use of artificial intelligence, could enhance productivity and create growth opportunities. Eswatini's progress in strengthening digital foundations is noted, with further efforts in building digital skills and modernizing regulatory frameworks being key to unlocking digitalization benefits.
The mission expressed gratitude to the authorities for their cooperation and hospitality.