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Cover Story: We need a miracle to save us

A finance minister’s job in Swaziland is certainly unpleasant. This is particularly so today with our government flat broke. Majozi Sithole, the minister delivered a Budget Speech that tells the horrifying story of the times we live in. While he urged all Swazis to come together and save this country, the government wage bill and a seeming reluctance to deal effectively with corruption will undermine all such efforts. We are quickly sliding to a point where we will need a miracle to save us.

In an analysis of a 2006 International Monetary Fund report, an international publication noted; “Swaziland is increasingly paralysed by poor governance, corruption and the and his large royal family.

"The growing social crisis in the country and the lessening interest of donors to support King Mswati ’s regime has also created escalating needs for social services beyond the scale of national budgets.”

The Honourable Minister for Finance Majozi Sithole 

For Finance Minister, Majozi Sithole who presented his 11th consecutive national budget last month, government’s financial position has been steadily getting worse by the year to the dire levels it is in now. Sithole had since 2006 been the bearer of bad news as government’s fiscal position spurred on by stagnant economic growth, a huge wage bill and reckless expenditure worsened. His previous budgets show that the fiscal problems that government is faced with today did not just drop out of nowhere; it has been long coming with the full awareness of everybody concerned.

While the kingdom’s longest serving finance minister and economist repetitively called for fiscal discipline, his was the lone voice in the wilderness as it never attracted responsive action from the government that has no pressure from outside oversight. It has taken Sithole a long time to realise that there is absolutely nothing he can do. In the absence of democracy in this country, inadvertently it slides to a kleptocracy.

Zodwa Mabuza, Executive Director at the federation of employers makes a comment at a meeting hosted by Sithole

Weak as the kingdom’s parliament is, it has made considerable efforts, where it can, to prevent the looting of public funds. Said Sithole in his 2006 national budget; “Mr. Speaker, the budget I present here today has been prepared under very hard economic conditions with barely a 2% GDP growth rate. This budget continues to be in line with the main priority areas for the coming financial year and in the medium term, which are: poverty alleviation, HIV/ AIDS, employment creation, food security, sound macroeconomic management, robust economic growth and revenue diversification.”

In the same year, the International Monetary Fund in its report expressed concern about Swaziland’s continued weak economic performance. For almost a decade, economic growth in the kingdom had been around 2% annually.

“Rising government expenditures, especially on the wage bill, undermined fiscal sustainability and reduced foreign reserves to critically low levels,” the IMF had noted.

Again, Sithole highlighted in yet another budget presentation later; “Mr. Speaker, it must be noted though that this budget is being presented under extremely difficult economic conditions.

Businessman Tums Du Pont chats with principal Secretary Evart Madlopha

“The economy of Swaziland has not achieved the desired growth levels of above 5% seen in yester years and indications are that current trends are not going to lead to the desired improvements. “Unemployment, low investment levels, food insecurity, coupled with the high HIV/AIDS prevalence continues to pose a major challenge to growth.”

Sithole’s message did not change over the years; coming to almost monotonous levels to be taken seriously. While economic growth did not show the slightest signs of improvement over the years; the wage bill was spiralling out of control with the IMF always coming down hard on government to reduce it. However, this was to no avail and expenditure, particularly on projects less of a national priority, continuing unabated. As the global economic meltdown hit hard on countries, Sithole warned of the possible decline in donor funding but avoided pressing the panic buttons.

Swazi businessmen listen to Minister for Finance Majozi Sithole

“Mr Speaker, even though there is no evidence so far to suggest cut backs by donors on grant funding, past experience points to a high possibility. Developing countries including Swaziland should brace themselves for a dry spell which may take some years. This crisis is worse than one experienced in Asia in 1997.”

“The challenge of sustaining the economy in these turbulent times in the global economy will be a difficult task but one of utmost importance if we are to ensure that the gains made in the past years are not completely lost,” said Sithole. As was the trend, it was all talk and no action. Sithole’s warnings were not heeded. But with the huge decline of revenue from the SACU, which accounts for 60% of national budget, government has been forced to see the situation differently. 

But the leadership of this country wasn’t convinced and suspected foul play. This came out clearly in King Mswati III’s 2010 speech from the throne. “As government we will continue to monitor the situation as it unfolds using all available channels to find out what exactly happened.

The bearer of bad news... Minister Majozi arrives in parliament in 2010

“As it were, the original projections were impressive but what we eventually received was far below our expectations,” said the king on the sharp decline in SACU revenue. Said Sithole in 2010: “Mr. Speaker, let me state unequivocally that in my 10 presentations to this Honourable House, this is the most difficult budget I have ever presented.

“Recent developments, which stem mainly from the global economic crisis, have made our task this year exceedingly difficult and have required us to be courageous, innovative and pragmatic in determining how we can meet our commitments as government, yet maintain fiscal stability.

“Planning and implementing policies that you are aware affect people’s everyday lives is never easy but is made even more difficult by the knowledge that there are insufficient resources for the numerous challenges the country faces.

King Mswati III arrives at the official opening of parliament

King Mswati III arrives at the official opening of parliament

“It has taken time for us to feel it but the effects of the global economic crisis are upon us. “We are likely to continue to encounter economic hardships in the medium term as both the global and the regional economy make a slow recovery.

“However, Government is cognisant of the fact that if we fail to make and implement the correct policy decisions at this crucial time we may reverse the major gains made in the past.”

In November last year, Sithole dragged an IMF team to brief cabinet on the appalling situation in Swaziland. As a desperate measure, Sithole had the IMF urge government to let the Minister of Finance control the budget. Concluding his brief IMF mission chief, Dr Joannes Mongardini, told cabinet; “I sincerely hope that the mission’s message will also be conveyed to His Majesty, so that he is fully informed of the current critical situation and can make the appropriate decisions.”

He added that Swaziland is at cross-roads and a strong political will is essential if the country is to come out of the crisis. Presenting his current budget, Sithole moaned about the hardships he encountered in the previous financial year. But at least he came out clearly on the actual causes without exhausting the list of the financial problems that government is faced with today. “Mr. Speaker, the 2010/2011 financial year has been the most challenging year since I joined the Ministry of Finance in 2001. The dependence of the country’s economy on the expansion of Government and the Government’s dependence on revenue from SACU have caught up with us.

“The gap between revenue and expenditure has widened to unsustainable levels. Our deficit is expected to rise to around 13% of GDP by the end of the fiscal year. “The past gains are being eroded in aftermath of the recent global economic downturn as Government has had to plug the gap in its finances by drawing down on its reserves and borrowing domestically.

Minister majozi arrives with his wife bearing bad news for Swazis

“To continue along this path can lead to a devastating financial crisis which will result in serious economic hardships.” The uncertainty over government’s ability to pay salaries for civil servants still menacingly hangs over Swaziland. At the rate government is going in terms of expenditure, it may in the near future find itself unable to honour its obligation of paying salaries to civil servants, warned Sithole.

He reiterated a warning by the IMF issued three months ago. According to the minister, the wage bill is currently at around 18% of gross domestic product and is unsustainable. It is the highest wage bill in sub-Saharan Africa. Sithole intended his message to sink home as he used the simplest illustration to show how precarious government’s financial position is.

“Mr. Speaker, unless this trend of expenditure is addressed with speed in the medium term, the Government will no longer be able to pay salaries in the near future, with devastating potential consequences for our civil servants, our banks, our businesses and social peace,” he said. 

Officials come closer to His Majesty King Mswati III as he arrives to open parliament

In a cabinet briefing in November last year, the IMF told Prime Minister Barnabas Sibusiso Dlamini and his cabinet that Swaziland’s economy was in a “full-blown fiscal crisis that could have serious economic, financial and social repercussions if not addressed immediately.” IMF mission chief, Dr Mongardini, had warned of depleted treasury balances saying that as of November 5, 2010 government’s operational accounts had only E212 million left, not enough for the December wage bill unless domestic borrowing was mobilised. Government moved quickly and motivated in parliament approval for the increase of the debt ceiling on domestic debt. Over the years, the IMF had been warning government on the wage bill that had been steadily increasing to reach unsustainable levels.

While calling for measures to control the “bloated wage bill” Sithole illustrated the threat it poses. He said it makes up nearly “fifty cents of every Lilangeni spent by Government, and takes up most of our revenue.” This means that for this financial year, nearly half of the E7.87 billion recurrent budget goes to wages for the over 35 000 civil service. In the 2009/10 financial year, wages and salaries accounted for E4.4 billion of the E8.69 billion recurrent budget.

 To further simplify the problem posed, Sithole said; “The recurrent budget accounts for around 80 cents for every Lilangeni spent by Government. This leaves no room for investment in the real sector to stimulate economic growth. I therefore call upon all stakeholders to engage on the matter urgently, objectively and effectively.” This means that for every Lilangeni government spends, government is only left with 20 cents and that’s a drop in the ocean in terms of investment to boost economic growth. Sithole minced no words about the hardships ahead.

MP Rogers Mamba chats with Minister Mtiti Fakudze

“It means 2011/12 will be a difficult year. A year where there can be no more “business as usual” in the way we manage our resources. “We have a national responsibility to make the tough decisions necessary to build a credible budget and restore fiscal sustainability and promote growth. “It is time for the nation to take heed of the situation and go back to basics: reducing wastage, eradicating corrupt practices that have polluted government, finding efficiencies and embracing reform.”

Government, Sithole said, has requested for an IMF staff-monitored programme that entails assessing performance in reducing the budget deficit and provides advice and technical assistance for a period of six months. The target is to reduce the budget deficit down to 3% of GDP in two years time. Currently, the deficit stands at E2.3 billion which is 7.5% of GDP. It dropped from last year’s E3.8 billion.

Members of parliament and a cabinet minister on their way to listen to Minister Majozi

“If the staff-monitored programme is implemented successfully, Mr Speaker, it will give confidence to other donors to provide further support and will establish a track record for possible financial support from the IMF in the future. That is a decision we would need to make as a nation,” said Sithole.

The IMF financial support, according to Dr Mongardini, could be seen in the second half of the year if the staff-monitored programme is successful. Last year the IMF refused to issue government with a letter of comfort that would have enabled it secure from the African Development Bank a sum of about E500 million for the 2010/11 budget. In the November meeting with cabinet, Dr Mongardini had recommended that government announce “in the next few days and implement a wage cut” among others to reduce the wage bill and avoid mandatory retrenchments of civil servants. He told cabinet that trade unions were willing to make sacrifices on condition everybody, including politicians, do likewise. The reasoning was that it was better for civil servants to take home a reduced salary than nothing.

Last year, civil servants were awarded a 4.5% salary adjustment.

Politicians later heaped on themselves improved perks.

It is common knowledge that government did not announce in the envisaged “next few days” the recommended wage 32 cut largely because, it would appear, politicians were not willing to make sacrifices. In this regard, Sithole has also not made any sacrifices. Of his two pays one for his cabinet position and another for this position in the Royal Trustees which was last reported to be around E17 000 per month has he sacrificed any of the two as contribution to the reduction of the wage bill? While announcing a comprehensive freeze on salary increase and hiring effective April 1, 2011, Sithole was not committal on the reversal of the 4.5% salary adjustment only going as far as saying that “further cuts still need to be made on personnel costs to bring the wage bill to sustainable levels.”

Minister for Finance Majozi and Dr Joannes Mongardini of the IMF at the Budget Forum

Implementation of the Enhanced Voluntary Retirement Scheme is set for the 2012/13 financial year. The programme should have commenced last year but government ran out of funds for the pay outs.

Sithole’s outspokenness on corruption long ceased to have the desired if any effect. In the 11 national budgets he rarely missed talking about and condemning the scourge. This year, he went further and declared corruption as everybody’s responsibility yindzaba yetfu sonkhe. “I wish to remind them (the corrupt) that His Majesty, in his speech from the throne, called for an “unquestionable display of the highest standards of honesty, integrity and dedication to duty that requires placing the interests of the people above your own,” said Sithole.

Emaswati have become so used to the annual cheap talk on corruption that it doesn’t bother anybody anymore. Sithole may have taken part in that February 2009 infamous meeting where barely a three-month old cabinet took a resolution for their allocation of land in Mbabane.

While Sithole rallies everybody to fight corruption, his budget doesn’t reflect as much. In the 2011/12 budget, the Anti Corruption Commission has received E11.9 million and a greater portion of this money will go to salaries. This allocation to the ACC is far less than the budget for the Elections and Boundaries Commission. In nearby South Africa, investigation of the Jackie Selebi corruption case cost that government nearly the whole of the amount allocated to run the ACC here. Here at home, the forensic audit on the Central Transport Administration swallowed undisclosed millions of Emalangeni.

Prime Minister, Barnabas Sibusiso Dlamini’s target to create 10 000 jobs has failed. In his budget last year, Sithole announced the creation of a cabinet committee on investment to work on initiatives to create employment. “The Prime Minister has given this committee a target of at least 10 000 jobs this year,” he had said. This year, Sithole conceded that low economic growth has not created enough sustainable employment opportunities. He said between January and December 2010, the Swaziland Investment Promotion Authority and the cabinet committee on investment created 2 655 jobs through foreign direct investment. Sadly, while over 2 000 jobs were created last year, close to 4 000 people lost their jobs 3 000 from the textile industry and 900 from other sectors in particular timber. At the beginning of last year, about 600 workers were retrenched at SAPPI Usuthu as it shut down its pulp mill.

According to Sithole, tax reforms punish the sinners sort of for implementation include introduction of a levy “on products which have the potential of being harmful to mankind and society namely alcohol and cigarettes.”

“The main aim of this levy is to reduce consumption of these products thus reducing the effects the products have on families and the society at large,” he said. In that regard, Sales tax on alcohol and cigarettes will be increased from 25% to 30%

If Sithole’s pronouncement is anything to go by, Swazi Bank will be privatised before the end of the year. The change of share structure at Swazi Bank will open flood gates for the privatisation of other parastatals next year. The process of diluting government’s share holding at the national bank will begin by engaging “partners to evaluate the assets and liabilities of Swazi Bank and to prepare a privatisation prospectus for interested investors.

“The launch of an international call for interest in the privatisation of Swazi Bank is expected to follow thereafter,” said Sithole.

Interestingly, in the 1990s, former Finance Minister, Derek von Wissell, was instantly transferred from the ministry after he was accused of making covert attempts to privatised Swazi Bank, which was a huge liability to government at the time after the who’s who of this country had looted the bank through loans that were not serviced.

Sithole called for a concerted effort to join government in the implementation of the Fiscal Adjustment Roadmap to bring back the fiscal balance to sustainable levels. He appealed to taxpayers and recipients of government services to change their attitudes and do business differently to bring the situation under control.

Sithole could do well to show this part of his budget speech to some of his cabinet colleagues whose companies have been doing business with government.

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