IMF says textile quota removal led to factory closures & unemployment

27 Feb '06

2 min read

On February 8, 2006, the Executive Board of the International Monetary Fund (IMF) concluded the 2005 Article IV consultation with Swaziland.1

Background

Economic growth in Swaziland has weakened over the past decade.

More recently, real GDP growth decelerated to 2.1 percent in 2004 and an estimated 1.8 percent in 2005. A prolonged drought affected agricultural output, particularly maize, the main staple crop, and cotton.

The real effective appreciation of the exchange rate of 24 percent in 2002-04 and high oil import prices hurt Swaziland's main exports (sugar, wood pulp, and garments) and manufacturing activities.

In addition, the removal of textile quotas in industrialized countries in January 2005 has led to factory closures and significant job losses in the garment sector, further worsening the unemployment rate (estimated at 30 percent).

The fiscal deficit has increased in the last two fiscal years. In 2004/05, despite a large one-time windfall in South African Customs Union revenues and efforts to increase domestic revenue by removing some tax exemptions, the wage bill and other current expenditures were sharply increased, resulting in a deficit (including grants) of 4.3 percent of GDP, significantly higher than the original budget of 2.8 percent of GDP.

Spending pressures have continued to rise in 2005/06, because of the full-year effect of the civil service wage increase granted in 2004, and further wage increases through a supplementary budget in the third quarter of the fiscal year, further widening the budget deficit.

The deficits have been financed by external and domestic borrowing, drawing down of government financial assets, including the Capital Investment Fund (CIF), and an accumulation of domestic arrears.

As the budgeted obligations exceed inflows of revenues and available financing, the government is facing a serious cash flow problem.

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International Monetary Fund

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