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Financial crisis looming in 2021 – SARFED

Nhlanhla Ngwenya by Nhlanhla Ngwenya
December 8, 2020
in Business, Economy
3 min read
0
SARFED encourages diversification programmes

Southern African Research Foundation for Economic Development

Mbabane: The coronavirus impact on Eswatini’s economy will be felt from multiple facets.

The Southern African Research Foundation for Economic Development (SARFED) has warned on the looming of financial crisis in 2021. SARFED has warned firms not to retrench, but rationalize labour force.

This is contained in Economic and Business Commentary, Vol.  4, issue 41, December, 2020 which was published by SARFED Regional Coordinator, Dr. George H. Choongwa.

SARFED says one of the reasons for such causes was the increase in debt. During the time of COVID-19 many firms failed to honor their debt services with various financial institutions around the world and Eswatini in particular.

“The kingdom of Eswatini is likely to face a serious financial crisis at all levels of the economic frontiers namely; micro, meso, and macro levels. Therefore, it will be prudent if precautionary measures are maintained in balance between production and consumption spending. Labour rationalization would be the best option for now as one way of ensuring sustainability in fiscal constriction”.

Worth noting is that, the Central Bank of Eswatini  reduced the interest rates around April, 2020 this year from 5.5% to 4.5% as one of the immediate measures that would be used to curb the COVID-19 crisis in the country. Despite this strategic initiative from Central Bank, firms are still expected to have financial problem due to poor cash flow trends for their business that might have been caused by the COVID-19 crisis.

According to SARFED, research indicates that Eswatini should expect a negative economic performance for the period of 2019 to 2022 as economic growth has been declining from 2.4 percent in 2018 to 1.3 percent in 2019 due to a slowdown in economic activity in the primary and tertiary sectors of the economy.

This is even likely to be the trend in 2021/22 financial year as the country’s GDP (Gross Domestic Product) growth is expected to fall by 6.7% because of COVID-19 disruptions in economic activities. The trend is likely to cause the overall government revenue to fall by E2.7 billion to a total of E18.3 billion instead of E21 billion in the 2020/21 financial year. 

Economic expects around the globe had earlier warned of a looming Global recession. This will bring about unemployment, drop in public revenues, decline in profitability and a long recovery, among other adverse impacts. It is thus important to look at unemployment along with the informality of certain sectors and the vulnerability of those who have a job but are economically poor.

The looming economic contraction and potential negative spillovers it will have a great negative impact in Eswatini as it is also facing some fiscal challenges.

It is said that the containment measures and weak external demand will trigger a deep economic recession in 2020/21 and have created urgent balance of payments.

At present, 59% of Swazi are living below the nationally defined poverty line. Those ones will be even more vulnerable to the economic shocks emanating from COVID-19. Among the poor, levels of deprivations and vulnerabilities vary. For those close to the poverty line, COVID-19 may easily bring them further below the poverty threshold. In Eswatini, close to 29% of the population is living in extreme poverty.

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