Mbabane: An International Monetary Fund (IMF) team, led by Ms. Xiangming Li, recently concluded its 2026 Article IV Consultation with the Kingdom of Eswatini, noting a projected moderation in economic growth due to several external and internal factors.
According to African Press Organization, Eswatini's economy experienced a growth acceleration to 4.9 percent in 2025, driven by substantial public and private investment projects. However, challenges such as higher fuel costs, weakened global demand, and weather-related disruptions are expected to temper growth in 2026. The IMF highlighted that despite the economic expansion, unemployment remains elevated at 33.5 percent. Inflation, which moderated in early 2026, rose modestly to 2.6 percent in June 2026, influenced by increasing fuel prices.
The IMF noted an improvement in Eswatini's external position in 2025, with the current account surplus widening due to a better primary income balance. However, this surplus is anticipated to narrow as a result of higher fuel costs and strong investment-related imports. The country's gross international reserves remained low, covering only 2.5 months of imports by the end of 2025, with reserve coverage expected to decrease further, thereby weakening external buffers over the medium term.
The outlook for Eswatini is fraught with significant downside risks, including the potential impact of prolonged Middle Eastern conflicts on fuel and fertilizer prices, as well as climate-related shocks that could disrupt agriculture and exacerbate poverty. The fiscal deficit sharply increased in FY25/26, primarily due to public wage increases and higher public investment, raising public debt from 40 percent of GDP in FY24/25 to 44.7 percent by FY25/26.
The FY26/27 budget projects a slight narrowing of the fiscal deficit to 5.9 percent of GDP, although public debt is expected to escalate to 50 percent by the end of FY26/27. The Medium-Term Fiscal Framework approved by Eswatini's Cabinet plans for fiscal consolidation to mitigate debt vulnerability, aiming for a cumulative reduction of 6.2 percentage points of GDP in the structural primary balance by FY31/32.
Structural reforms, focused on public financial management, are deemed critical to support fiscal consolidation. The IMF emphasizes the importance of implementing the 2017 Public Financial Management Act and advancing amendments to strengthen public debt and investment management. Enhancements in financial management systems and public sector employment rationalization are recommended to alleviate fiscal pressures while ensuring service delivery.
The Central Bank of Eswatini (CBE) has kept its policy rate at 6.75 percent since May 2025, aligning its overnight deposit rate with the South African money market rate to manage capital outflows. The IMF advises the CBE to closely monitor global developments and adjust its policy rate as needed to protect the exchange rate peg and support macroeconomic stability. Strengthening financial sector oversight, including updating legal frameworks and operationalizing emergency liquidity assistance, remains a priority to bolster financial stability.
Furthermore, structural reforms aimed at economic diversification, reducing regulatory hurdles, and accelerating digitalization are essential for enhancing productivity and creating growth opportunities. The IMF acknowledges Eswatini's progress in digitalization and underscores the need for further efforts to modernize regulatory frameworks and build digital skills to maximize the benefits of digital advancements.
The IMF mission expressed gratitude to Eswatini's authorities for their cooperation and hospitality during the consultation process.
