IMF review slams crisis-hit Swaziland

MBABANE (AFP) - The IMF on Wednesday gave cash-strapped Swaziland a firm thumbs-down on its fiscal reform programme, effectively dashing King Mswati III's hopes of accessing international loans.

An International Monetary Fund delegation closed out a two-week visit to the small southern African kingdom with a harsh appraisal of the government's progress on getting its finances in order -- the IMF's third negative assessment in a year.

"Expenditure overruns and lack of financing have led to the non-observance of several targets under the staff-monitored programme," said the head of the IMF's mission to Swaziland, Joannes Mongardini, in a statement.

The negative report represents a failure for a six-month IMF monitoring programme that hoped to bring about reform in Africa's last absolute monarchy and help it cope with a financial melt-down that has seen the government nearly run out of cash.

The most important missed targets relate to the country's soaring government deficit -- which stands at more than 14 percent of total economic output -- and its failure to curb spending on social programmes like health and education.

The IMF also sharply criticised Swaziland's public wage bill, one of the continent's highest at 51 percent of recurrent spending in the government's annual budget.

Mswati's cabinet has been reluctant to force through salary cuts recommended by the IMF after fierce resistance by trade unions and a series of mass demonstrations by public-sector workers earlier this year.

Without the IMF's blessing, international lenders like the World Bank and African Development Bank are unlikely to extend loans to Swaziland.

Although IMF recommendations -- called "letters of comfort" -- are not binding, international lenders are reluctant to make loans without them.

The African Development Bank was poised to loan Swaziland $150 million (104 million euros) in June, but decided not to go ahead after a negative review from the IMF.

Swaziland has been borrowing from its own central bank to pay for the day-to-day running of the country since a sudden drop in earnings from the regional Southern African Customs Union (SACU), previously the government's main source of income.

The global recession saw Swaziland lose more than half its earnings from SACU, sparking a severe financial crisis.

Foreign reserves currently stand at 2.2 months of import cover -- below the three months recommended by the IMF.

The IMF warns the hole in Swaziland's reserves could threaten the kingdom's currency, lilangeni, currently pegged to neighbouring South Africa's rand.

"Preserving the parity with the South African rand is of utmost priority," said Mongardini, urging government to "stop borrowing from the central bank and repay the outstanding emergency credit line from the central bank at the earliest possible convenience."

The IMF's assessment could affect negotiations over a 2.4-billion-rand ($343-million, 237-million-euro) loan promised to Mswati last month by South Africa.

South Africa's finance minister said earlier this month the loan would be paid out in three stages, each conditional on fiscal reforms required by the IMF.

The IMF said it will not consider giving Swaziland another chance to improve its creditworthiness unless the country first carries out key reforms, including cutting its wage bill in line with available financing.