Eswatini Faces a Tenuous Growth Path Amid Global and Regional Headwinds

By Karabo Ngoepe

The latest quarterly economic bulletin from the Ministry of Economic Planning and Development reveals a nation grappling with muted growth, cautious optimism, and complex challenges both at home and abroad.

Against a backdrop of shifting global trade policies, fluctuating commodity prices, and domestic sectoral contractions, the kingdom’s economic landscape demands a clear-eyed diagnosis and bold remedy.

To address these challenges, strategic policy responses are essential, such as fostering economic diversification, enhancing export competitiveness, and reinforcing fiscal management.

These actions will be crucial in navigating the nation through its current economic hurdles and towards sustainable growth.

However, a statistic from the previous quarter starkly highlights Eswatini’s precarious economic position: the kingdom recorded a 0.3% year-on-year economic contraction, primarily driven by declines in the primary and secondary sectors.

The global economy is forecast to grow moderately at 3.0% in 2025, edging up slightly in 2026. This tempered optimism stems from easing US trade tensions, subdued inflation, and fiscal stimulus in key jurisdictions. Yet risks linger: geopolitical tensions, supply chain jitters, and commodity price volatility threaten to trip up fragile gains.

Globally, the external shocks include geopolitical tensions, which can disrupt international trade, and fluctuations in global commodity prices, which can affect import costs.

Additionally, supply chain disruptions can have ripple effects on local businesses that rely on foreign materials.

Eswatini, nestled in the Southern African Development Community, is not insulated from this volatility. Locally, the kingdom faces several homegrown vulnerabilities.

These include a heavy reliance on external inputs for its industries, fiscal pressures from government spending, and sector-specific issues like the decline in mining output.

The Swazi Lilangeni’s recent strengthening against the US dollar offers some respite; yet headwinds from weakening against the British Pound and Euro present a mixed exchange rate picture.

Imports, particularly construction materials and capital goods, surged 3.2% in the second quarter, reflecting both domestic demand and the kingdom’s reliance on external inputs.

On paper, Eswatini’s domestic economy grew 0.5% in the first quarter of 2025 compared to the previous quarter, a hopeful sign. Yet year-on-year comparisons paint a more sobering reality, a 0.3% contraction driven by faltering primary and secondary sectors.

The primary sector, agriculture, forestry, and mining, shrank by 7.3%, weighed down by a steep 28.9% decline in mining and quarrying output, notably platinum group metals. Forestry and crop production also suffered, though animal production bucked the trend with solid growth.

The secondary sector contracted by over 10%, hobbled by stalled manufacturing and declines in electricity and water supply. Here, too, the construction subsector struggled despite isolated booms tied to government megaprojects like the Mpakeni Dam and the International Convention Centre.

Meanwhile, the tertiary sector shone with a 4.0% growth spurt, buoyed by vibrant wholesale and retail activities, finance and insurance services, ICT, real estate, and expanding public administration, a reflection of investment confidence and government employment initiatives.

Good news arrives in the form of disinflation: headline inflation fell from 4.0% in Q1 to 3.1% in Q2, led by slower price rises in food, non-alcoholic beverages, bread, and cereals. Housing and utilities inflation also eased markedly.

This declining inflation rate translates into tangible benefits for households, as staple-food affordability improves, allowing families to stretch their budgets further.

For instance, a family that previously spent a significant portion of its income on basic food items like maize meal, vegetables, and rice now finds that it can afford additional nutrition or save for other needs.

Yet caution is warranted: semi-durable goods price inflation ticked up slightly, and external shocks from weakened currency and energy costs loom as potential disruptors.

Credit extension to the private sector grew marginally by 0.8%, with notable upticks in agriculture, construction, and real estate lending. However, declines in mining, tourism, and social services credit signal sector-specific distress. Household credit held steady, with increased loans for motor vehicles overshadowing a dip in housing loans.

Fiscal challenges persist. Eswatini recorded a deficit of E1.8 billion in the first quarter of its 2025/26 financial year. Total government expenditure climbed sharply, over 24%, driven by expanded employee compensation and increased operational costs. Meanwhile, revenue collections declined slightly, pressured by falling Southern African Customs Union (SACU) receipts and fuel tax revenues.

Trade data reflect a worrying dip in merchandise exports by 9.3%, influenced by falling sugar and textile exports. Imports rose slightly, led by construction materials and intermediate goods. The kingdom’s trade deficit in Q2 reached E325 million, reversing a surplus seen in the prior quarter.

SACU remains Eswatini’s dominant trading block, accounting for over 70% of imports and nearly three-quarters of exports, underscoring both dependency and regional integration’s critical role.

Eswatini’s economic landscape is one of contrasts: pockets of growth amid sectoral contractions, inflation easing against persistent fiscal and trade pressures.

The challenge lies in navigating these complexities with a strategic policy that supports diversification, targets key sectors like agriculture and construction, and strengthens fiscal resilience. To achieve this, specific strategic policy tools could be utilized.

Introducing targeted subsidies for key sectors such as agriculture can incentivize growth. Tax incentives for industries that demonstrate export potential can help improve competitiveness on the global stage.

Furthermore, fostering public-private partnerships, especially in the construction and infrastructure sectors, can attract investment and enhance sectoral growth.

These tools not only provide immediate relief but also lay the groundwork for sustainable economic development.

The kingdom’s modest growth and contained inflation offer a foundation, but sustainable progress requires addressing vulnerabilities exposed by global shifts and domestic structural weaknesses.

For policy-makers and stakeholders, the time is now to act decisively, investing in innovation, improving export competitiveness, and managing public finances prudently to ensure that Eswatini’s economic future is not caught in the crosswinds of uncertainty but propelled by firm resolve and inclusive growth.