Swaziland Budget Speech 2018/19
The Minister of Finance, Martin G. Dlamini, has presented to Parliament the National Budget 2018/19
It is once again my honour to present to the fifth session of the tenth Parliament, the National Budget for 2018/19 Fiscal Year. I am truly delighted that this budget is presented during the most auspicious period for the Kingdom of Eswatini as the Nation looks forward to celebrate the Golden Jubilee – 50 years of independence.
This is my last Budget presentation in our term of office as well as the end of the tenth Parliament. As I look back in the last four years, I have come to the conclusion that one must always strive and hasten to do good works and God will make straight your paths. I believe I have given my absolute ability, and I thank God for the graces he has bestowed upon me. In that spirit, I acknowledge with gratitude the achievements that we have made as Government.
In spite of the severe fiscal challenges, Government managed to achieve the following milestones during the course of 2017/18:
Government has successfully concluded two trade agreements; the WTO Trade Facilitation Agreement, and the SADC Protocol on Trade in Services.
New Tinkhundla Centres have been constructed and completed at Lugongolweni, Mayiwane, Lobamba and Mhlambayatsi and completed installation of Local Area Network (LAN) in 50 Tinkhundla Centres
Government approved and implemented a total of 101 projects under the Regional Development Fund. Of these, 12 were income generating and 89 were infrastructural projects.
Government rehabilitated rural water systems whereby 57 boreholes were refurbished and 60 were cleaned for harnessing and constructed 8 dip tanks across the country
Launched the high technology dairy farm at Sidvokodvo, known as Swazi Milk that will produce over 25 million litres of milk a year.
Completed the feasibility study for Mpakeni and Ethemba Dam.
Improved maize yield from 33,000 metric tons in 2016 ploughing season to 83,000 metric tons in 2017 ploughing season.
Government was able to extend electricity coverage to 2,444 households, 8 schools, one clinic and one hammer mill.
Completed the upgrading of the access road to Phuzumoya Strategic Oil Reserve Facility.
Creating Fiscal Space for Inclusive Growth
As I have alluded earlier, the public sector has grown at a much faster pace over the years creating significant dependency in the economy and compromising growth and employment creation. This has led to the large size of government, increased the wage bill significantly, and limited the space for social and infrastructure spending. The model where government is the employer of first choice has to be changed in order to create space for investment spending on critical infrastructure projects, that would encourage private sector activity and job creation.
The widening of the budget deficits without adequate financing is exerting pressures on the domestic economy. Government spending continues to outpace its ability to raise enough revenues resulting in cash flow challenges and accumulation of arrears. The cash flow challenges experienced in 2016/17 continued into 2017/18, and this has negatively affected local businesses. It is therefore, very important that Government restores fiscal sustainability to ensure macroeconomic stability and unlock the country’s potential to place growth on a higher growth trajectory.
In His Speech from the Throne, His Majesty The King commanded Government to prepare a budget that is based on available resources. Indeed, in this budget we have initiated fiscal consolidation measures in order to reduce the unfinanceable deficits. This would allow us to prudently address fiscal challenges, which are now exerting pressures on the economy and depriving the country from realizing growth dividends. Fiscal consolidation will be reenforced in the medium term to strategically interrogate all budget items including the wage bill and transfers to public enterprises.
The role of Government in the economy cannot be emphasized enough. However, Government spending should not come at the expense of economic growth. In recent years, Government has not been able to raise enough revenues to cover the everincreasing expenditures, which is a clear indication that the current Government model cannot be sustained in the medium-term.
Budget Strategy for 2018/19
Significant effort will be required to reduce the wage bill, rationalize spending and prioritize growth enhancing capital spending. If well planned, high-quality public investment could augment private sector initiatives, especially in infrastructure.
The country is facing significant fiscal challenges. Restoring fiscal sustainability is critical to ensure macroeconomic stability and unlock the country’s potential to place growth on a higher trajectory. The Government is therefore looking at adopting a fiscal consolidation, reform and recovery strategy that will address the fiscal challenges and create the needed fiscal space for investment and social spending.
One critical element of the consolidation and recovery strategy is to establish the right size of the public sector that would make Government more agile and efficient in delivering public goods and services.
The size of the adjustment we need to restore fiscal sustainability is significant as the vulnerabilities have accumulated over time. Therefore, the fiscal consolidation will have to be spread over the medium-term. In this regard, the success of the planned adjustment and recovery strategy will require a combination of revenue, expenditure and structural reform measures. At the same time, the implementation of the newly enacted Public Finance Management Law will be crucial in ensuring efficiency and accountability in the use of public resources.
As part of the consolidation strategy and in line with His Majesty The King’s Pronouncement, for the 2018/19 Budget, upfront measures have been adopted to make the budget realistic, ease the cash flow challenges and reduce arrears. These include a freeze on hiring across all sectors of the Government, reducing recurrent spending and slowing capital investment.
Promoting Inclusive Growth and Industrialization for Job Creation
While Government’s primary objective in this budget has been fiscal consolidation we have attempted to balance our efforts without infringing on our commitments to the promotion of inclusive growth.
His Majesty’s Government intends to ensure access to affordable, appropriate and quality financial services & products, since this is a key component of inclusive economic growth. Not long ago, Government led by His Excellency the Right Honorable Prime Minister officially launched the National Financial Inclusion Strategy for Swaziland (NFIS) covering the period 2017-2022. This strategy will provide the framework for an effective partnership between policy-makers, financial regulators, and financial institutions as well as the mobile network operators to enhance access to financial services for micro and small and medium businesses, as well as those segments of the Swazi population that have, hitherto, been unable to access financial services.
During the course of 2018/19, Government and partners will establish a Centre for Financial Inclusion (CFI), which will coordinate all issues of financial inclusion. This represents Government’s commitment to creating an enabling environment, therefore making it easier for Swazis to save, invest, do business and mitigate risks, as well as access appropriate financial products in order to enhance sustainable livelihoods.
Government through the Central Bank of Swaziland has launched the Financial Sector Development Implementation Plan (FSDIP). This is a three-year national strategy, that will guide the development of the financial sector. Implementation of this strategy is facilitated with the help of the World Bank with a grant amounting to approximately E5.4 million. This strategy will also promote Government’s agenda for financial inclusion.
Tourism continues to be one of the sectors that have a potential to stimulate economic growth. As such the country has advanced its efforts in ensuring the development of the tourism industry, safeguarding the environment, conserving wildlife and culture. Mr. Speaker, the Ministry’s efforts to market the country as a preferred tourist destination has resulted in an increase in tourist figures.
Government is concerned with the ever-increasing numbers of public enterprises. Most of these entities are fully dependent on Government funding and very few are self-sustaining. Therefore, the Government of Swaziland through the Ministry of Finance, has secured technical assistance from the World Bank to conduct a study to streamline, enhance performance and self-sustenance of these entities. Within the assistance from the World Bank there will be development of policy guidelines for the establishment and management of Public Enterprises.
Information, Communication and Technology
The opportunities unveiled by the advancement of Information Technology also present a challenge for Government to not only keep abreast with the constant changes, but put in place policies that address the present scope and also seek to protect the country from cybercrimes going forward. In this regard, in 2017/18 Government began the development of a new Broadcasting and Media Policy in order to harmonize the industry developments with improvements and innovations in the broadcasting and media sector. This policy will therefore guide the diversification of the media industry as it opens up for entry by the private sector.
The banking industry and telecommunications companies are partnering in efforts that will make movement of funds easier, in the promotion of financial inclusion. As a country, we will endeavor to mitigate the threats that come with a development of this nature. In this regard, we have started the process of enacting cybersecurity laws to prevent cyber-crime and other related incidents.
Government is also continuing to work towards the full operationalization of the Royal Science Parks which will drive cross cutting research and encourage innovation through access and applications of new technologies. I am happy to report to the Honorable House that in 2017/18, the Advanced School of IT housed at the Innovation Park, enrolled its first batch of students; the incubator for IT business start-ups also admitted ten start-up companies; and a Service Agreement with the Swaziland Posts and Telecommunications (SPTC) for the management of the National Call Centre was signed. Moreover, the National Data Centre’s infrastructure, which will allow for the effective roll-out of E-Government has been completed.
Government is committed to ensuring that the nation benefits from the efficiencies that come with technology for improved service delivery. In this regard, Government has automated the tracking of road transport permit licenses through mobile phone services, implemented fingerprint live scan for the Royal Swaziland Police in the Shiselweni region, as well as completed developments for the use of Point of Sales (POS) at revenue offices.
Efficient transport systems are the drivers of economic growth and development. The Government of the Kingdom of Swaziland continues to place roads infrastructure as key in moving the economy forward. Over the years, huge investments have been made in connecting the Kingdom, as well as with neighboring states. The onus now is that of keeping these roads in quality, which is why we have allocated E50 million for roads maintenance. Government will continue to explore financing options to invest further on our road infrastructure.
Government received a technical assistance from the African Development Bank in 2014 for preparation of the establishment of the Roads Fund and Roads Agency, I am happy to report that extensive work has been done along these lines and the revised Draft Roads Agency and Roads Fund Bill are now ready to be presented to Parliament. Once this Bill has been passed, Government can expect increased service delivery from the Agency which will emanate from the efficient collection of road user fees that will be used for the maintenance of our existing and upcoming roads infrastructure.
The SADC region is promoting regional integration in order to enhance trade among Member States. One of the ways in which the regional integration agenda can be implemented is through providing connectivity between neighboring states, and railways can facilitate connectivity. Railways can play a major role in integrating markets and increasing trade. It is a fact that we trade a lot with our neighboring South Africa, as a result, the two countries saw it appropriate to initiate the Joint Railway Strategic Initiative between Transnet and Swaziland Railways. This venture is expected to create 2,700 jobs related to construction on commencement, and over 300 permanent jobs on completion.
As a landlocked country, air transport provides an alternative mode of transportation. It could also complement tourism by bringing visitors to the country. Our own state of the art airport, the King Mswati III International Airport (KM III IA) presents an opportunity for growth both in aviation and tourism. It has the capacity to handle sizable volumes of passengers, as well as cargo, hence we have the obligation of utilizing it to its full capacity.
In that regard, Government is working on strategies to revive the Royal Swaziland National Airways Corporation (RSNAC), and it will be tasked with the mandate of providing air transportation services of the highest quality and efficiency, that will suit both local and international travelers. We are aware of the costs associated with this endeavor, but we expect the benefits in return to be worth the investment.
Private Sector Private Sector Confidence
The country has made great strides in economic development supported by a vibrant private sector that is characterized by both local and foreign economic players. Despite the recent developmental challenges faced by the country, there has been some improvement in both domestic and foreign investment. Public investment in infrastructure and ICT will continue to improve the country’s competitiveness and this is expected to contribute to accelerated growth rates in the productive sectors such as manufacturing, mining, retail and services.
The Government of the Kingdom of Swaziland is continuing with efforts to create employment through the implementation of the Industrial Development Policy (2015- 2022). The development of the Sidvokodvo Industrial Estate of 301 hectares will alleviate the shortage of land for investors and create employment for Swazis. We are projecting that this investment will open up over 84,000 job opportunities when the Industrial Estate is fully operational.
Small and Medium Enterprises
The Government of Swaziland is cognizant of the role played by small and medium enterprises (SMMEs) in promoting economic growth. We are also aware that this sector is not growing fast enough. Accordingly, in 2017 the Ministry of Finance conducted a financial scoping survey on SMMEs “The Swaziland SMME National Survey 2017” (FinScope) which sought to provide us with numbers of existing SMMEs in the country. The study revealed that only 10 percent of the adult population owns a business. Therefore, the hindrances to this entrepreneurial spirit among our population need to be analyzed and a system of incentives needs to be formulated to encourage our population to set up new businesses.
On the other hand Government is continuing with other initiatives aimed at promoting growth within the SMME sector. For instance, we have reviewed the Smallscale Loan Guarantee Scheme in order to align it with the Graduate Enterprise Programme. This will allow our graduates who want to start businesses access leverage from this Scheme. We have also taken the initiative to re-capitalize and increase the leverage value from 3 to 5 times the value of an investment. Graduates are therefore encouraged to visit the Ministry of Commerce Industry and Trade for advice on how they can benefit from this initiative.
Government is cognizant of the existence of many businesses that are not within the formal structures of Government. These businesses have challenges accessing assistance even with finance for investment. In 2014, Government initiated the Informal Sector Fund, however, to only service the Manzini region. This Fund has since been rolled out to the other three regions, and it is now accessible to all.
In order to further support the “Informal Sector”, Government has initiated construction of a trade hub within Manzini City. Construction of this hub is expected to commence within the financial year. On completion, the trade hub will accommodate 2,000 traders with storage facilities
Revenue and Expenditure for 2018/19
Revenue is expected to increase by two percent in 2018/19 to E16.7 billion excluding grants. The increase is attributed to policies expected to be implemented in 2018/19, which are aimed at reducing reliance on SACU revenue. These include:
Collection of license fees from mobile companies
Review of the VAT Act to allow taxation of electricity at the standard rate in order to encourage domestic electricity generation
Increasing the VAT standard rate from 14% to 15% to align with the new rate announced by the Republic of South Africa and to maintain the ‘Sekulula’ refund arrangement
Introduction of a levy on bank revenue
Amendment of the Income Tax Order
Review of user fees and fuel tax
Introduction of an import levy on non-SACU used vehicles
Total expenditure for the financial year 2018/19 is estimated at E21.6 billion. This estimate includes an amount of E2.2 billion which is reserved for public debt payments and other statutory obligations. Appropriated recurrent expenditure is set to grow by 0.3 percent standing at E14.8 billion. I am pleased to announce that Government has been able to deliver on His Majesty’s directive from the Throne regarding a realistic budget.
Government has conducted a thorough analysis of our expenditure in order to prioritise only the most pressing concerns. Thus, the total expenditure for this year is E183 million below the budgeted expenditure for 2017/18. This marks a decline of 1% in total expenditure, from 2017/18 to 2018/19. A similar pattern can be observed in capital expenditure which is expected to grow at a rate of 1 percent resulting from a E36 million increase from the previous year. The capital budget allocation is E5.6 billion in 2018/19.
With the support of this August House Government has embarked on medium term fiscal consolidation exercise to rein in the deficit. Government’s debt servicing costs have increased exponentially as a consequence of the arrears position. Domestic debt markets have been stretched due to the issuance of multiple bonds which were earmarked for arrear-clearance, namely the infrastructure and supplier’s bonds. A fiscal adjustment to the tune of 11% of GDP has been targeted in the medium term, the first step in this exercise has been to curtail Government expenditure where possible and identify additional sources of revenue to increase the scope of our resource envelope.
The budget deficit for the financial year 2017/18 is contingent on the passage of newly identified revenue measures. If these proposed measures are passed the budget deficit is projected to stand at 6.7 percent of GDP with financing for 2.4% of GDP pending policy direction. This figure is in line with the SADC Macroeconomic Convergence targets of single-digit deficit levels and, in the medium term, Government intends to lower it further. Failure to pass these revenue measures would lead to a budget deficit of 8 percent of GDP and would imply a 3.8 percent of GDP as a financing gap, which would add E2.4 billion to the ballooning arrears stock.