South Africa's Loan To Swaziland Has Fiscal Strings

by Lorys Charalambous, Tax-News.com, Cyprus

05 August 2011

South Africa has agreed to provide a conditional guarantee for a loan of ZAR2.4bn (USD353m) from the South African Reserve Bank (SARB) to the Central Bank of Swaziland (CBS), one of the conditions of which is that Swaziland should implement the fiscal reforms required by the International Monetary Fund (IMF).

It was said that Swaziland had approached South Africa for financial assistance to alleviate the country’s fiscal crisis, which was mainly caused by a decline in its Southern Africa Customs Union (SACU) receipts of more than 60%. The economic recession has resulted in a lower volume of trade and, with import tariffs making up the bulk of SACU’s revenue pool, this has caused a budget shortfall that the Swaziland government is unable to finance in the short-term by any other means.

The loan from the SARB to the CBS will be made available in three equal tranches, starting in August this year, once negotiations have been finalised. The second and final payments will be made in October 2011 and February 2012.

Repayment of the loan will take the form of a debit order against Swaziland’s SACU account that is held by SARB on its behalf, and each repayment will coincide with the quarterly payment schedule of SACU transfer payments by South Africa in its capacity as manager of the SACU Common Revenue Pool.

Amongst other things, South Africa’s loan guarantee is aligned with the conditions of support already delineated by the IMF, World Bank and African Development Bank. The latter have identified economic reforms to be pursued by Swaziland, relating to fiscal policy and public financial management procedures and practices.

Apart from substantial cuts in government expenditure, the main priority areas will be in customs administration, increased taxpayer compliance, the design and implementation of a value added tax, and reform of the country’s budgeting systems and fiscal policy, to ensure the country’s long-term financial sustainability and to meet the requirements of Swaziland’s pre-agreed Fiscal Adjustment Roadmap and the IMF Staff Monitored Programme.

On the revenue side, Swaziland’s government has already increased the fuel levies on gasoline and diesel to bring them in line with those in South Africa. It plans to extend the sales tax on various products and services, and to introduce the VAT by April 2012. The government will also, during the 2011/12 fiscal year, reduce tax exemptions, increase tax rates on alcohol, gambling and tobacco, and improve tax administration.

Recommended