Mbabane, August 7, 2023 - Restructuring key State-Owned Enterprises (SOEs) in Eswatini will create new opportunities for the private sector and accelerate economic growth, says a World Bank report released today. Making SOEs more efficient will reduce their reliance on public funding and boost private sector-led growth, which is much needed to absorb the growing youth labor force, according to the report.
Eswatini's economy has faced low growth, high fiscal deficits, and unprofitable SOEs in the past few years. The first edition of the Eswatini Economic Update - Raising the Game with Efficient State-Owned Enterprises, highlights that SOEs provide basic infrastructure services to businesses and households, and as such, improving their performance will support private sector activity.
The report analyzes recent global and domestic economic developments and assesses Eswatini's short- and medium-term prospects. It also examines the role of SOEs in enhancing economic performance, evaluating their contribution to the economy, identifying limitations, and proposing areas and actions for reform. The report highlights the urgent need for action to achieve socio-economic aspirations, reduce poverty, and address high unemployment rates.
"The World Bank is ready to support Eswatini in implementing these reforms and fostering sustainable economic development. By embracing these transformative changes, Eswatini can chart a course towards strengthening economic growth, thus improving the lives of all its citizens, and securing a prosperous future," said Marie Francoise Marie-Nelly, World Bank Country Director for Eswatini, Botswana, Lesotho, Namibia, and South Africa.
"The first edition of the Eswatini Economic Update represents a good foundation for data-driven policy formulation. The recommendations are well aligned with our aim to shift to a more private sector-led growth model that can promote inclusive, sustainable, and resilient economic growth, as reflected in the World Bank's Country Partnership Framework for the Kingdom of Eswatini," said the Honorable Thambo Gina, Eswatini's Minister of Economic Planning and Development.
The report indicates that Eswatini experienced a brief economic improvement after the COVID-19 pandemic, but growth has since slowed. Prior to the pandemic, the economy grew at an average annual rate of 2.1 percent from 2015 to 2019. However, challenges such as a narrow economic base, a large public sector, cumbersome government regulations, and constrained socio-political and external environment hindered sustainable growth.
In 2023, domestic factors, including socio-political uncertainty and slow reforms, continue to impede growth. Economic growth is projected to slow further in 2023 and 2024. Rising prices compounded these challenges, adversely affecting household welfare and increasing poverty. External shocks, such as the war in Ukraine, contributed to inflation rising to 4.8 percent in 2022. To reduce inflationary pressures, the central bank tightened monetary policy by increasing its discount rate from 4 percent to 7.5 percent (above pre-COVID rates) between early 2022 and July 2023.
"The Government of Eswatini welcomes the report, as we are determined to implement a series of policy reforms to unlock the potential of the private sector and improve the efficiency of SOEs. Given higher Southern Africa Customs Union (SACU) revenue in 2023, the establishment of the SACU Revenue Stabilization Fund will help to mitigate future unexpected shocks and promote macroeconomic stability," said the Honorable Neal Rijkenberg, Eswatini's Minister of Finance.
To tackle the multiple challenges and increase economic growth, the report proposes three policy actions: (i) address macro-fiscal pressures, (ii) unlock private sector investment, and (iii) enhance service delivery for inclusive growth through an improvement in public spending and acceleration of SOEs reforms.
Reforming SOEs will help improve service delivery and create new opportunities for the private sector, contain fiscal imbalances, and accelerate economic growth. For SOEs, three specific directions are proposed: (i) rethink the state's role in the economy, (ii) strengthen the SOE legal framework, and (iii) strengthen SOE governance and oversight.
