IMF Warns Eswatini Debt to Rise as Fiscal Deficit Widens Despite Strong Growth

August 7, 2026
By Mintesinot Nigussie

An International Monetary Fund (IMF) mission has warned that Eswatini’s public debt is set to increase further as higher government spending pushes fiscal deficits higher, despite stronger economic growth in 2025. The IMF said Eswatini’s economy expanded by 4.9 percent in 2025, supported by large public and private investment projects, but unemployment remained elevated at 33.5 percent. Growth is expected to slow in 2026 due to higher fuel costs, weaker global demand, tighter financing conditions, weather-related disruptions and a decline in investment activity.

The assessment followed an IMF mission led by Xiangming Li, which visited Mbabane from July 23 to August 5, 2026, for consultations under the Fund’s Article IV review. The Fund said Eswatini’s fiscal deficit increased sharply to 6.1 percent of GDP in the 2025/26 fiscal year from 1.1 percent a year earlier, mainly driven by public wage increases and higher public investment. As a result, public debt rose from 40 percent of GDP at the end of 2024/25 to 44.7 percent by the end of 2025/26.

The IMF expects public debt to reach 50 percent of GDP by the end of the 2026/27 fiscal year, with the budget deficit projected at 5.9 percent of GDP. The government’s medium-term fiscal framework targets a gradual reduction in debt vulnerabilities through fiscal consolidation, with the IMF projecting debt to peak above 52 percent of GDP before declining to about 45 percent by the end of 2031/32. The Fund recommended further reductions in recurrent spending, particularly transfers and other expenses, to accelerate debt reduction and create room for growth-enhancing investment.

“Further rationalization of recurrent spending, particularly transfers and other expenses over FY26/27-FY28/29, is advisable to accelerate debt reduction, strengthen fiscal buffers, and create space for growth-enhancing capital spending,” the IMF said. The IMF also called for reforms to strengthen public financial management, including implementation of the 2017 Public Financial Management Act, improved debt and public investment management, and faster adoption of digital financial systems such as integrated financial management and e-procurement platforms.

On the external sector, the IMF said Eswatini’s current account surplus improved slightly to 2.4 percent of GDP in 2025 from 2.1 percent in 2024, supported mainly by an improvement in primary income. However, foreign exchange reserves remained limited at 2.5 months of imports at the end of 2025. The Fund expects the current account surplus to narrow as higher fuel costs and investment-related imports increase pressure on external balances. Inflation moderated through early 2026 before rising to 2.6 percent in June, with higher fuel prices expected to lift average inflation during the year. The IMF said risks to the outlook remain tilted downward, citing potential increases in fuel and fertiliser prices from prolonged conflict in the Middle East, climate-related shocks affecting agricultural production, and possible global economic disruptions. The Central Bank of Eswatini has maintained its policy rate at 6.75 percent since May 2025, while private sector credit expanded by 10.6 percent year-on-year by the end of May 2026. The IMF said the banking system remained liquid and well-capitalised, although financial performance differed among banks. The Fund urged the central bank to continue monitoring developments in South Africa, given the country’s currency peg arrangement and close monetary relationship with the South African Reserve Bank. Beyond fiscal reforms, the IMF said Eswatini needs structural changes to diversify its economy and create jobs. It identified reducing regulatory barriers, expanding digitalisation and strengthening digital skills as priorities to improve productivity and generate new growth opportunities.

Source: FSX Business News