By Staff Reporter
Moody’s Ratings (Moody’s) has upgraded the Government of eSwatini’s long-term local-currency and foreign-currency issuer rating to B2 from B3.
Concurrently, the government’s South Africa national scale rating (NSR) Senior Unsecured MTN rating was upgraded to (P)Baa3.za from (P)Ba2.za. Moody’s said the outlook has changed from stable to positive.
“The upgrade to B2 reflects eSwatini’s track record of fiscal policy effectiveness, which has led to an improved fiscal trajectory, with a primary surplus achieved in fiscal 2023 (ending March 31, 2024) and expected in 2024,” Moody’s said.
“The government’s commitment to fiscal consolidation and reforms increases our confidence that debt will stabilize around 40% of GDP, a level well below that of similarly rated peers. The government has implemented significant institutional reforms.
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These include establishing and capitalizing the Southern African Customs Union (SACU) Revenue Stabilization Fund, also known as the SACU Fund.”
Additionally, the government has been lauded for clearing domestic arrears owed to goods and service providers. Moody’s said these efforts have created a more stable fiscal landscape, which will support the economy.
“The B2 rating reflects eSwatini’s comparatively high wealth levels, close economic integration with neighbouring economies and moderate debt and interest burdens.
eSwatini’s membership in the Common Monetary Area (CMA) and the stability of the South African rand provide a policy anchor, supporting relatively low and stable inflation, and contributing to macroeconomic stability,” the ratings agency said.
It added that the country’s modest medium-term growth potential limits the ability of economic growth to attenuate underlying social risks.
It maintained that the stable outlook reflects its expectations that the government will maintain progress in addressing fiscal challenges while preserving macroeconomic stability.
“We expect the government to continue to pursue fiscal and structural reforms, with these reforms taking time to materialize into an improvement in our assessment of institutional and governance strength.
This is balanced against the economy’s susceptibility to external shocks and prevailing institutional constraints that limit the government’s ability to mitigate these shocks.”
“Today’s rating action also upgraded the government of eSwatini’s South Africa NSR Senior Unsecured MTN rating to (P)Baa3.za. The NSR maps from the government of eSwatini’s B2 global scale rating.”
Moody’s further added that it has also raised eSwatini’s local-currency country ceilings to Ba2 from Ba3 previously.
“The three-notch gap between the local currency ceiling and the sovereign rating balances the high level of government involvement in the economy and relatively weak institutions against low political risk and limited external imbalances. We have also raised the foreign-currency country ceiling to Ba3 from B1 previously.
The one-notch gap between foreign-currency and local-currency ceilings reflects the low transfer and convertibility risk given the need to maintain capital flows between eSwatini and South Africa with no exchange controls in place among all CMA members, coupled with the country’s moderate debt, despite eSwatini having a relatively closed capital account,” said Moody’s.
The rating upgrade comes at a time when the economy is performing a bit better. In October, Finance Minister Neal Rijkenberg said the economy witnessed a 5 per cent growth phase.
The minister said the government was ambitious in driving that growth and making more means of access to finance and financial inclusion.
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Rijkenberg said the economy of the country is on an upward trajectory, as it has surpassed previous projections.
The minister said his opinion was that the economy could surpass seven or eight per cent in the medium term.
Rijkenberg said the genesis of the economic growth was based mostly on the country’s taking a stance to fight corruption, as per the submissions of the members of the People’s Parliament during Sibaya.
In dealing with corruption, the minister said they are exposing everything through forensic investigations and also engaging in internal investigations.
The minister highlighted that the current growth is around five per cent, but if the country would use a conservative three per cent as a baseline and then add the possible growth percentages of the projects that they are doing and planning to do, then one would notice that the country can reach a growth rate of 10.2 per cent by the end of the term in 2028.
The budget deficit for the financial year 2024/25 is projected at 1.96 per cent of GDP, equal to E1.84 billion. He added that government revenue, excluding grants in the 2024/25 fiscal year, is projected to reach E26.99 billion, which is 28.8 per cent of GDP, an increase of 1.1 per cent in 2023/24.
Minister Neal said, overall, the economy performed well during the first half of 2024, supported by both domestic and foreign demand.
He said the sustained increase in SACU revenues boosted domestic demand and lifted growth in the service sector.
“The growth was broad-based with merchandise exports increasing by 14% over the past 12 months. Real GDP growth is projected to remain strong at 4.6% in 2024 (from 4.8% in 2023),” he said.
Rijkenberg said Eswatini’s economic prospects remain favourable. Rising external demand is expected to drive manufacturing and other exports.