Policy options for Swaziland

So Swaziland is in a whole heap of economic and political trouble; South Africa’s loan isn’t going to change any of that in the long run.

The way the global economy looks at the moment, there’s no particular reason to think that the SA economy is going to be anything better than stagnant over the next couple of years as well.

Swaziland is in a hole and isn’t going to get out of it soon.

How much of their problem is related to the currency peg to the Rand? In part that depends on how much of their public debt is in Rands and how complete their internal economy is.

Depreciation / devauation of the currency would reduce the burden of Public debt that isn’t denominated in Rands.

Default is a possibility too. The use of that depends on how much of the debt is held by nationals (where it would be a transfer of wealth from the creditors to the country as a whole) or foreigners (transfer of wealth from foreigners to locals).

The long-term impact of sovereign credit rating and access to international capital markets must also be considered here, although the history of sovereign defaults is that they are forgiven surprisingly quickly. Greece has spent much of the last hundred years in default, but most people are simply unaware of this.

Increasing taxes might help balance the budget, ceteris paribus, except of course all would not be equal since the increase in taxes would decrease the attractiveness of doing business in Swaziland. The alternative, tax decreases, might attract additional investment and job creation, but it’s always a stretch to believe that a reduction in taxes will inspire enough growth to raise overall revenues.

The case for it here is perhaps better than in the US. The revenue growth could be at the direct expense of SA government revenues since operations setting up in Swaziland would pay less tax there but pay no tax in SA.

Provided transport infrastructure and border processes are not blockers to SA firms setting up in Swaziland, and provided the government puts in place sufficient reforms to give SA firms the protection from public opinion, this might be a winner. At least for Swaziland. South African skills (developed by government education budgets) could be employed in Swaziland. The power of labour mobility.

So there are some interesting options for Swaziland, but much of it is at SA’s expense.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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