Restructuring key State-owned enterprises (SOEs) in eSwatini will create new opportunities for the private sector and accelerate economic growth, and more efficient SOEs will reduce their reliance on public funding and boost private sector-led growth, which is much needed to absorb the growing youth labour force, says international financial institution the World Bank.

SOEs provide basic infrastructure services to businesses and households and, therefore, improving their performance will support private sector activity, the World Bank's 'eSwatini Economic Update - Raising the Game with Efficient State-Owned Enterprises' report outlines.

eSwatini's economy has faced low growth, high fiscal deficits and unprofitable SOEs in the past few years.

Reforming SOEs will help improve service delivery and create new opportunities for the private sector, contain fiscal imbalances, and accelerate economic growth. For SOEs, three specific directions are proposed, namely rethinking the State’s role in the economy, strengthening the SOE legal framework, and strengthening SOE governance and oversight, the report states.

“The first edition of the eSwatini Economic Update represents a good foundation for data-driven policy formulation. The recommendations are well aligned with our aim to shift to a more private sector-led growth model that can promote inclusive, sustainable, and resilient economic growth, as reflected in the World Bank’s Country Partnership Framework for the Kingdom of eSwatini,” says eSwatini Economic Planning and Development Minister Thambo Gina.

The report analyses recent global and domestic economic developments and assesses eSwatini's short- and medium-term prospects. It also examines the role of SOEs in enhancing economic performance, evaluating their contribution to the economy, identifying limitations, and proposing areas and actions for reform.

The report highlights the urgent need for action to achieve socio-economic aspirations, reduce poverty and address high unemployment rates.

“The World Bank is ready to support eSwatini in implementing these reforms and fostering sustainable economic development. By embracing these transformative changes, eSwatini can chart a course towards strengthening economic growth, thus improving the lives of all its citizens, and securing a prosperous future,” says World Bank eSwatini, Botswana, Lesotho, Namibia and South Africa country director Marie Francoise Marie-Nelly.

Additionally, the report indicates that eSwatini experienced a brief economic improvement after the Covid-19 pandemic, but growth has since slowed. Prior to the pandemic, the economy grew at an average yearly rate of 2.1% from 2015 to 2019.

However, challenges such as a narrow economic base, a large public sector, cumbersome government regulations, and constrained socio-political and external environment hindered sustainable growth.

Further, this year, domestic factors, including socio-political uncertainty and slow reforms, continue to impede growth. Economic growth is projected to slow further in 2023 and 2024. Rising prices compounded these challenges, adversely affecting household welfare and increasing poverty.

External shocks, such as Russia's invasion of Ukraine, contributed to inflation rising to 4.8% in 2022. To reduce inflationary pressures, the central bank tightened monetary policy by increasing its discount rate from 4% to 7.5%, above pre-Covid-19 rates, between early 2022 and July this year.

To tackle the multiple challenges and increase economic growth, the report proposes three policy actions, namely addressing macro-fiscal pressures, unlocking private sector investment, and enhancing service delivery for inclusive growth through an improvement in public spending and acceleration of SOE reforms.

“The government of eSwatini welcomes the report, as we are determined to implement a series of policy reforms to unlock the potential of the private sector and improve the efficiency of SOEs. Given higher Southern Africa Customs Union (SACU) revenue in 2023, the establishment of the SACU Revenue Stabilisation Fund will help to mitigate future unexpected shocks and promote macroeconomic stability,” says eSwatini Finance Minister Neal Rijkenberg.