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Executive Summary & Economic Overview
Eswatini’s economy demonstrated strong growth momentum in 2025, expanding by 4.9 percent on the back of major public and private investment projects. However, according to preliminary findings from the 2026 IMF Article IV Consultation led by Ms. Xiangming Li, economic growth is expected to moderate in 2026.
The anticipated slowdown stems from a combination of higher domestic fuel costs, weakening external global demand, tighter financing conditions, climate and weather disruptions, and an easing of large-scale public investment projects.
Despite the recent growth acceleration, deep-seated structural issues continue to weigh on the domestic economy. Eswatini’s unemployment rate remains critically high at 33.5 percent, pointing to a persistent gap between capital investment and labour market absorption.
Inflation Trends & External Buffer Vulnerabilities
- Inflation Dynamics: Consumer price inflation moderated through 2025 and early 2026 before ticking up slightly to 2.6 percent in June 2026. Higher international fuel prices are expected to elevate average annual inflation for the remainder of 2026.
- External Sector Balance: The current account surplus widened modestly from 2.1 percent of GDP in 2024 to 2.4 percent in 2025, primarily supported by an improved primary income balance.
- Foreign Exchange Reserves: Gross international reserves remained thin at 2.5 months of import cover at the end of 2025. The current account surplus is projected to narrow as fuel costs remain elevated and capital import demand stays strong, potentially eroding external liquidity buffers over the medium term.
- Downside Risk Profile: Risks remain tilted to the downside, including potential geopolitical conflicts in the Middle East driving up fuel and fertilizer costs, as well as climate shocks (droughts and erratic rainfall) threatening agricultural production and food security.
Fiscal Deficit Expansion and Sovereign Debt Dynamics
Eswatini’s fiscal landscape widened sharply during Fiscal Year 2025/26:
- Fiscal Deficit Spike: The public fiscal deficit rose from 1.1 percent of GDP in FY24/25 to 6.1 percent of GDP in FY25/26, driven primarily by government wage increases and capital spending outlays.
- Budgeted Outlook: The budgeted deficit for FY26/27 narrows only slightly to 5.9 percent of GDP, as higher South African Customs Union (SACU) revenues are largely offset by public wage commitments and rising interest payments.
- Sovereign Debt Trajectory: Total public debt expanded from 40.0 percent of GDP at end-FY24/25 to 44.7 percent by end-FY25/26, and is projected to reach 50.0 percent by end-FY26/27. Under Cabinet’s Medium-Term Fiscal Framework, debt is expected to peak above 52 percent before consolidating toward 45 percent of GDP by FY31/32.
Monetary Alignment and Financial Stability
The Central Bank of Eswatini (CBE) has maintained its key policy rate at 6.75 percent since May 2025, keeping it 25 basis points below the South African Reserve Bank (SARB) policy rate. By aligning its overnight deposit rate with South African money market rates, the CBE has successfully contained capital outflows while maintaining exchange rate parity.
The domestic banking sector remains liquid, well-capitalized, and resilient, supporting private sector credit growth of 10.6 percent year-on-year as of May 2026. However, performance across individual financial institutions remains uneven, necessitating enhanced oversight, legal updates to the CBE Act, and the operationalization of emergency liquidity and deposit insurance frameworks.
Key Structural & Policy Recommendations
- Fiscal Rationalization: Accelerate structural primary balance consolidation (target of 6.2 percentage points of GDP by FY31/32) by curbing recurrent spending, particularly public sector transfers and wage expenditures.
- Public Financial Management: Fully enforce the 2017 PFM Act, advance targeted debt and investment management amendments, and roll out the Integrated Financial Management Information System (IFMIS) and e-procurement.
- Digitalization & Modernization: Accelerate digital skills acquisition and regulatory modernization—including the responsible adoption of artificial intelligence—to boost productivity, strengthen governance, and diversify the economy.
