Staff Report for the 2005 Article IV Consultation
Prepared by the Staff Representatives for the 2005 Consultation with Swaziland.

Approved by David Andrews and Juha Kähkönen, January 23, 2006


1. Swaziland is a small, open economy, with close trade and financial ties
with South Africa.
It is a member of the South African Customs Union (SACU) and the Common
Monetary Area (CMA). The Swazi lilangeni exchanges at parity with the
rand, which is also legal tender in the country. There are no exchange
controls between CMA countries. Trade among SACU countries is free of
tariffs and duties. About half of fiscal revenues come from Swaziland’s
share in the SACU joint customs and excise pool. South Africa absorbs
about 60 percent of Swazi exports, and provides 80 percent of the
country's imported goods and services, including most electricity and all
petroleum products. Remittances from migrant workers are an important
source of income for Swaziland, amounting to about 5 percent of GDP in
recent years.

2. Economic growth in Swaziland has weakened over the past decade.
Since South Africa democratized in 1994, Swaziland has lost part of its
attractiveness to foreign investors. As foreign direct investment inflows
declined, real GDP growth fell from 3.6 percent in the 1990s to just over
2 percent since 2000. Swaziland’s economy is based
mainly on agriculture and agro-processing. In recent years, the garment
sector, benefiting from preferences under the US African Growth and
Opportunity Act (AGOA), has emerged as one of the largest employers in the
country. At its peak, in early 2004, it provided about one quarter of
formal sector jobs.

3. Although Swaziland is a low middle-income country, poverty is
widespread,aggravated by food shortages in parts of the country and a
severe HIV/AIDS epidemic.

A highly skewed income distribution, persistent drought, and an
inefficient internal market for agricultural products have contributed to
shortfalls in food production. The World Food Program estimates that about
20 percent of the population are in need of food aid
during 2005/06. HIV prevalence is among the highest in the world. As a
consequence, overall mortality has doubled since the 1990s, and life
expectancy has dropped from 57 years around 1990 to 33 years.

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