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ANNUAL MONETARY POLICY STATEMENT 2016
CENTRAL BANK OF SWAZILAND
GOVERNOR’S ANNUAL MONETARY POLICY STATEMENT 2016
“Escalating equitable and sustainable economic growth through financial and
price stability, financial markets participation - be a shareholder in the Swazi
growth story.” – TOWARDS VISION 2022.
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Introduction………………………………………………………………………………………………..
Global Economic Developments…………………………………………………………………
Domestic Economic Developments……………………………………………………………

Annual Real GDP Developments……………………………………………………

Price Developments……………………………………………………………………….

Fiscal Sector…………………………………………………………………………………...

External Sector…………………………………………………………………………….

Monetary Sector……………………………………………………………………………
Central Bank of Swaziland Monetary Policy Rationale…………………………..
Inflation and Monetary Policy Outlook…………………………………………………….
Fostering Financial Sector Stability…………………………………………

Bank Supervision………………………………………………………………………

Exchange Control……………………………………………………………………

Financial Sector Stability…………………………………………………………

Financial Sector Study…………………………………………………………...

Government Cash Flow Management…………………………………….
Conclusion……………………………………………………………………………………………
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CENTRAL BANK OF SWAZILAND
INTRODUCTION
This Monetary Policy Statement is presented against a background of slow economic
recovery, relatively benign inflationary pressures and a weak exchange rate. The
falling exchange rate has set the pace for monetary policy framework in an
environment of weak growth and relatively benign inflationary pressures. The
weakening of the exchange rate forestalls higher inflation. This has forced the Central
Bank to tighten monetary policy. The monetary policy stance has however been
cautious. The discount rate has been kept lower than that of South Africa due to
mainly weak growth and benign inflation expectations. It is important to note that the
overriding monetary policy stance of the Bank is to track discount rates prevailing in
South Africa to curb capital outflows and stabilise international reserves, maintain
confidence in the exchange rate peg and keep short and long term inflation
expectations and outcomes well anchored. This anchors the Bank’s price stability
mandate.
The Central Bank emerges with a Financial Stability Unit after the global financial
crisis which is a very relevant accomplishment in fulfilling the mandate of the Bank
and most of all setting a tone for financial stability. The observation of prudent ratios
by the financial sector cannot have come at a more important time when the Central
Bank is faced with the huge task of advising government on financing the fiscal
deficit. Financial sector stability is now central to the Bank’s mandate. The
production of a financial sector stability report is planned for the new financial year.
In this Monetary Policy Statement, international and domestic developments are
reviewed. Then a rationale for the past year’s monetary policy stance is presented.
Other developments in support to financial and price stability are presented. Finally,
the outlook is presented. The exchange rate has put pressure on monetary policy in
the past 3 years.
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Figure 1: Inflation, Exchange and Discount Rates January 2013 to March 2016
9.0
18
16
8.0
14
7.0
12
10
6.0
8
5.0
6
4
4.0
2
3.0
0
Mar-16
Jan-16
SA Inflation
Nov-15
Sep-15
Jul-15
SA Discount Rate
May-15
Mar-15
Jan-15
Nov-14
SWD Discount Rate
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
SWD Inflation
SZL/USD
Source: Central Bank of Swaziland (CBS) and Central Statistics Office (CSO)
2.0
GLOBAL ECONOMIC DEVELOPMENTS
Global growth is estimated at 3.1 percent in 2015 compared to 3.4 percent recorded
in 2014. Going forward, growth is projected at 3.4 percent in 2016 and 3.6 percent in
2017. The pickup in global activity is projected to be more gradual, especially in
emerging market and developing economies. In advanced economies, a modest and
uneven recovery is expected to continue, with a steady further narrowing of output
gaps. Growth in advanced economies is projected to rise by 0.2 percentage point in
2016 to 2.1 percent, and remain steady in 2017.
The landscape for emerging market and developing economies is diverse but in many
cases challenging. Growth in emerging market and developing economies, while still
accounting for over 70 percent of global growth—declined for the fifth consecutive
year in 2015 to 4 percent from 4.6 percent in 2014. Growth is projected to increase to
4.3 and 4.7 percent in 2016 and 2017 respectively. The slowdown and rebalancing of
the Chinese economy, lower commodity prices, and strains in some large emerging
market economies will continue to weigh down on growth prospects in 2016 and 2017.
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Overall growth in China is evolving with a faster-than-expected slowdown in imports
and exports, in part reflecting weaker investment and manufacturing activity as the
economy shifts towards the services sector. Manufacturing activity and trade remain
weak globally, reflecting not only developments in China, but also subdued global
demand and investment, more broadly—notably a decline in investment in extractive
industries. The projected pickup in growth in the next two years—despite the ongoing
slowdown in China—primarily reflects forecasts of a gradual improvement of growth
rates in countries currently in economic distress, especially Brazil, Russia, and some
countries in the Middle East. Most of these economies are negatively affected by the
commodity price slump, especially oil.
Overall,
financial
conditions
within
advanced
economies
remained
very
accommodative during 2015. Prospects of a gradual increase in policy interest rates in
the United States as well as bouts of financial volatility amid concerns about emerging
market growth prospects have contributed to tighter external financial conditions,
declining capital flows, and further currency depreciations in many emerging market
economies.
Headline inflation has broadly moved sideways in most countries. However, renewed
declines in commodity prices and weakness in global manufacturing weighing on
prices of traded goods, inflation is likely to soften. Mixed inflation developments in
emerging market economies reflect the conflicting implications of weak domestic
demand and lower commodity prices versus marked currency depreciations during
2015. Global inflation is expected to increase moderately in 2016 as commodity prices
level off, but will remain low by historical standards.
The diverging monetary policy stances of major economies are expected to continue
in the short to medium term. Following a first hike in December 2015, the pace of
interest rate increases in the United States is expected to be gradual and notably
slower than in previous tightening cycles, reflecting in part low inflation expectations
and U.S. dollar appreciation and unintended effects of such a policy stance to
emerging and developing economies. Since the tightening cycle has been widely
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anticipated (and the market adequately informed), baseline projections assume a
benign impact on capital inflows to emerging and developing economies. It is
expected that other major central banks will continue their accommodative policies,
likely dampening the global impact of higher U.S. interest rates. With regards the
Euro Area and Japan; continued quantitative easing by the European Central Bank
(ECB) and the Bank of Japan should help shore up global liquidity. Negative interest
rates in Europe and increasing yield differentials with the United States could
contribute to a further appreciation of the U.S. dollar and have mixed effects for
developing countries. A continued strengthening of the U.S. dollar could contribute to
refinancing pressures in countries with significant dollar-denominated liabilities, more
so if local currencies depreciate significantly.
United States
For 2015 as a whole, US GDP advanced 2.5 percent compared to a 2.4 percent
increase in 2014. The 2015 GDP growth rate fell below the 3.2 projected by the IMF in
October 2015, mainly due to a loss of growth momentum in the last quarter of the
year. US real GDP growth is projected at 2.6 percent in 2016.
The U.S. Federal Reserve raised interest rates for the first time in nearly a decade in
December 2015. In a widely anticipated move, the Federal Open Market Committee
(FOMC) increased the target range of the federal funds rate by 25 basis points from a
range of between 0.0 percent and 0.25 percent to between 0.25 and 0.5 percent. The
FOMC policy statement emphasised that future interest rate increases would be
gradual and would depend on incoming data. The Federal Reserve left the target
range for its federal funds rate unchanged at 0.25 percent to 0.5 percent during its
FOMC meeting held in January 2016. Policymakers reinforced their expectation that
interest rates would be raised only gradually but said the FOMC was monitoring the
impacts of global economic and financial developments on the U.S. outlook. Tighter
U.S. monetary policy may affect the outlook for global borrowing costs. The
adjustment may be smooth, as rising U.S. policy rates have long been anticipated by
markets in the context of a robust recovery in the United States. At the same time,
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other major central banks will continue their very accommodative policies, likely
dampening the global impact of higher U.S. interest rates.
Annual average inflation in the US rose 0.8 percent in 2014 whilst it continued to
hover around 0 percent in the second half of 2015, with the renewed fall in oil prices
during the summer of 2015 and the strengthening dollar exerting downward pressures.
US unemployment rate was on a declining trend during 2015, falling from 5.6 percent
in January 2015 to 5.0 percent in December 2015. The unemployment rate is
projected to average 4.7 percent in the three subsequent years to 2018.
Eurozone
Eurozone Gross Domestic Product (GDP) expanded by 1.5 percent in 2015 compared to
0.9 percent growth in 2014. The economic recovery in the Eurozone during 2015 has
been supported by both strengthening domestic demand and exports. Pickups in
credit and intra-European trade growth point to a broadening but uneven recovery.
Eurozone GDP is projected to increase by 1.7 percent in 2016 and 2017 respectively.
During 2015, the European Central Bank (ECB) maintained its accommodative
monetary policy stance. At its December 2015 meeting, the ECB lowered the deposit
facility by 10 basis points (bps) to -0.3 percent and extended its €60 billion asset
purchase programme until at least March 2017. The ECB quantitative easing (QE)
policy instruments that have been activated since mid-2014 were found by the ECB
Governing Council to be working as intended during 2015. Since the start of the ECB
QE programme, credit conditions have improved and credit growth has resumed
following several years of contraction.
Eurozone annual average inflation was -0.2 percent in December 2014, compared to
0.2 percent estimated in December 2015. It is the biggest rate since October of 2014,
preliminary figures showed. Consumer prices in the Eurozone are expected to increase
0.4 percent year-on-year in January of 2016, higher than 0.2 percent in the previous
two months and in line with expectations. The seasonally-adjusted unemployment
rate in the Eurozone decreased slightly to 10.4 percent in December of 2015
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compared with 11.4 percent in December 2014. This was the lowest rate since
September 2011.
United Kingdom
UK GDP grew by 2.2 percent in 2015 lower than 2.9 percent in 2014. Growth in the
services sector slowed to 2.5 percent in 2015 from 3.3 percent in 2014. Industrial
production expanded at a slower 1.2 percent in 2015 against 1.3 percent in 2014. The
Bank of England’s (BOE) monetary policy remained accommodative throughout 2015,
the same policy stance adopted in 2014. The bank rate remained at its historical low
level of 0.5 percent and the stock of purchased assets financed by the issuance of
central bank reserves was constant at £375 billion during 2015.
Annual average Inflation for 2015 was 0 percent for the first time since records began
in 1950, well below the Bank of England's 2 percent target. The average inflation for
2014 was recorded at 1.5 percent. The low inflation rate in 2015 was mainly on
account of low commodity prices, in particular energy prices during the year. The UK
unemployment rate was on a declining trend during 2015, falling from 5.7 percent in
the three months to January 2015 to 5.1 percent in the three months to December
2015.
Japan
On an annualised basis, the Japanese economy grew by 0.6 percent in 2015, compared
to 0.0 percent in 2014. Japan experienced a soft growth patch in mid-2015,
confirming a weak underlying trend despite rising corporate profits and continued
policy stimulus. Private consumption contracted in 2015 and investment was stagnant,
which was only partially offset by positive but relatively subdued export growth.
Going forward, Japan’s growth is expected to recover to 1.3 percent in 2016; the
recovery remains fragile and dominated by downside risks.
For 2014 and 2015 the benchmark interest rate has been kept at 0.0 percent in Japan.
The Bank of Japan’s (BOJ) Policy Board maintained its pledge to increase the
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monetary base at an annual pace of about 80 trillion yen during 2015. In its December
2015 meeting, the BOJ indicated it would extend the average maturity of government
bonds it purchases from 7 to 12 and 10 years. Policymakers also established a new
programme of buying exchange traded funds (ETFs) at an annual pace of about 300
billion yen in addition to the current programme of around 3 trillion yen, starting
from April 2016. At its January 2016 meeting the BOJ pronounced a surprise decision
to introduce a negative interest rate of -0.1 percent, while maintaining the current
pace of its monetary base. The BOJ aims to achieve a price stability target of 2
percent, and maintaining that target in a stable manner.
The average inflation for Japan was recorded at 0.2 percent in 2015 compared to a
higher inflation average of 2.7 in 2014. Lower prices of energy, transportation and
housing dragged the inflation down during 2015. Japan's seasonally adjusted
unemployment declined marginally to 3.3 percent in December 2015 compared to 3.4
percent reported in the same month in 2014.
Emerging Markets
China
In 2015, the Chinese economy grew by 6.9 percent, lower than 7.3 percent recorded
in 2014. This was the weakest level of growth in 25 years. The government targeted
the economy to expand at around 7.0 percent for the year. The slowdown in growth
for the Chinese economy has been most noticeable among enterprises operating in the
manufacturing and real estate sectors. The deceleration reflects an ongoing
correction in the property sector, weakness in industrial activity, and slower growth
in non-traditional credit. Sectoral rebalancing in China became more pronounced in
2015. GDP growth forecasts for 2016 and 2017 have been lowered to 6.3 and 6.0
respectively.
During 2015 the People’s Bank of China (PBOC) continued to lower benchmark interest
rates and required reserve ratios, while implementing new collateral policies to
facilitate refinancing for commercial banks. Policies became more supportive
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throughout the course of 2015, in order to counter slowing economic activity. In
December 2014, the People's Bank of China cut the reserve requirement ratio by 0.5
percentage point, taking the level to 21 percent for major banks, the first such cut
since December 2008. The move was aimed to free up around 390 billion yuan, (about
$61 billion) in funds for the banks to lend. As at December 2015, the reserve
requirement stood at 18.5 percent.
The one-year lending rate, the Bank’s main policy tool was lowered to a record low of
4.35 percent in December 2015 compared to a largely higher rate of 6 percent that
the Bank maintained for the whole of 2014. The Bank’s accommodative monetary
policy stance aims at bolstering the slowing Chinese economy.
For 2015, Chinese consumer prices (CPI) rose 1.4 percent, well within the
government's target of keeping inflation below 3.0 percent for the year. In 2014, the
average inflation was 2.0 percent. The unemployment rate in China averaged 4.1
percent.
In 2015, Russian GDP contracted 3.7 percent compared to 0.9 percent in 2014. In India
growth remained flat at 7.3 percent in 2015, whilst in Brazil, the economy contracted
by -3.8 percent in 2015 from 0.1 percent growth recorded in 2014. Consumer prices
(CPI) in emerging market and developing economies was recorded at 5.1 percent in
2014, and is estimated at 5.5 percent in 2015. For 2016 and 2017, CPI projections
indicate increases of 5.6 percent and 5.9 percent respectively.
South Africa
According to the IMF’s World Economic Outlook (WEO) for April 2016, the South African
economy is projected to grow by 0.6 percent and 1.2 percent in 2016 and 2017 respectively.
Against these modest forecasts by the IMF, the South African Reserve Bank (SARB) expects
GDP growth forecasts to be slightly firmer at 0.8 percent and 1.4 percent in 2016 and 2017
respectively but lower than previous forecasts of 0.9 percent and 1.6 percent. The economic
growth prospects remain fragile following a fairly broad-based weakening in the final quarter
of last year. Policymakers remain concerned about the weak SA growth outlook, negative
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business and consumer confidence amid uncertain global economic prospects.
The SARB raised its benchmark repo rate by 25bps to 7 percent on March 17 (effective 18
March), its third straight hike, as policymakers voiced concern about growing inflation
pressure despite a worsening growth outlook. Credit conditions remain weak in line with
subdued economic activity. The Reserve Bank faces a policy dilemma of balancing weak
growth and fighting rising inflation pressures. Previous rate hikes have not prevented a rise in
inflation, which in February 2016 reached a high of 7.3 percent before sliding back to 6.3% in
March on the back of falling petrol prices.
The Reserve Bank expects inflation to average 6.6 percent and 6.4 percent in 2016 and 2017
respectively. Headline inflation has exceeded the upper end of the target range (6%) as
pressures from higher food prices in particular have intensified. Although the longer-term
inflation outlook has improved somewhat, inflation is still expected to remain outside the
target range for an extended period, and upside risks remain.
The South African Purchasing Managers’ Index (PMI) moved back into expansion territory at
50.5 index points, the first time above 50 index points since mid-2015. Contributing to the
expansion is growth in new sales orders which reached 53.1 index points. Overall business
activity remains in contraction at 47.7 index points. Mining production in South Africa
decreased by 4.5 percent year-on-year in January 2016 following an upwardly revised 1.2
percent drop in the previous month and was below market expectations of 0.1 percent
increase. On a monthly basis, mining output declined by 4.9 percent.
The RMB/BER Business Confidence Index in South Africa came in at 36 in the first quarter of
2016, staying at the lowest since second quarter of 2010 for the second consecutive period.
While sentiment recovered in four of the five sectors during the quarter, improvements were
small, reflecting an overall dissatisfaction with the outlook for the economy.
The unemployment rate in South Africa decreased to 24.5 percent in the fourth quarter of
2015 from 25.5 percent in the previous period and below market expectations of 25.5
percent. It was the lowest reading since the last quarter of 2014, as the number of
unemployed went down by 4.2 percent to 5.2 million while employment went up at a slower
1.2 percent to 16 million.
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©2016 Central Bank of Swaziland
December 2015
SEPT 2015
JUNE 2015
MARCH 2015
December 2014
SEPT 2014
JUNE 2014
MARCH 2014
December 2013
SEPT 2013
JUNE 2013
MAR 2013
December 2012
SEPT 2012
JUNE 2012
MAR 2012
December 2011
% growth q-o-q
December 2015
SEPT 2015
JUNE 2015
MARCH 2015
December 2014
SEPT 2014
JUNE 2014
MARCH 2014
December 2013
SEPT 2013
JUNE 2013
MAR 2013
December 2012
SEPT 2012
JUNE 2012
MAR 2012
December 2011
% growth q-o-q
ANNUAL MONETARY POLICY STATEMENT 2016
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Figure 2: Advanced Economies GDP growth for 2011 to 2015 (q-o-q)
6
5
4
3
2
1
USA
0
UK
-1
JAPAN
-2
Euro Area
-3
Figure 3: Emerging market Economies GDP growth : 2011 to 2015 (q-o-q)
8
6
4
2
SA
0
CHINA
BRAZIL
-2
Russia
India
-4
Source: IMF World Economic Outlook, April 2016
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CENTRAL BANK OF SWAZILAND
DOMESTIC ECONOMIC DEVELOPMENTS
3.1
ANNUAL REAL GDP DEVELOPMENTS
Preliminary estimates reflect that real GDP growth slowed to 1.7 percent in 2015
compared to a revised provisional estimate of 2.7 percent in 2014. The slowdown in
economic growth can be attributed to slower growth in the secondary and tertiary
sectors.
The real output for the secondary sector slowed to 1.4 percent in 2015 compared to
3.7 percent recorded the previous year. The manufacturing sector is estimated to
have expanded at a slower pace of 1.8 percent in 2015 compared to a 2.9 percent
expansion recorded the previous year. This was mainly as a result of poor
performance of key export market destinations, notably South Africa and the
Eurozone, affected export demand coupled with high inventory levels. This was
further compounded by loss of access to the US market following the country’s loss of
eligibility status to trade under the African Growth and Opportunity Act (AGOA)
arrangement. This affected mainly the textile, curios and parts of food manufacturing
subsectors which previously benefited from AGOA preferential access to the US
market. As a result, nominal exports only grew by 6.8 percent in 2015 compared to
12.9 percent the previous year.
Performance in the secondary sector was further dampened by drought conditions
which affected hydro-power generation and water supply subsectors. Construction
activity on the other hand remained positive although at slower rates following the
completion of some major projects the previous year. Construction indicators reflect
increased activity in this sector. In 2015, quarried stone production grew by 27.5
percent while the number of building plans approved by all municipal councils rose by
23.3 percent. The implementation of the public infrastructure programme is expected
to keep this sector vibrant in the medium term.
The tertiary sector grew at a slower rate of 1.2 percent in 2015 compared to 2.4
percent the previous year. The most affected tertiary sub-sectors were transport and
tourism. The transport sector was negatively affected by the closure of the iron ore
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mine in the second half of 2014 which supported both rail and road transportation.
The tourism sector, on the other hand, was affected by the introduction of restrictive
immigration laws which came into effect in June 2015. Consequently, the number of
tourist arrivals fell by about 5 percent in 2015. However, the weakening of the
exchange rate particularly in the second half of the year provided a positive incentive
for the tourism sector.
Notable increases were observed in the output of government services and real estate
sub-sectors. The government services sub-sector grew by 4.5 percent in 2015,
compared to 2.1 percent in 2014, broadly in line with increased employment levels in
the public sector. On the other hand, real estate output grew by 4.8 percent in 2015
compared to 1.1 percent the previous year mainly benefitting from increased
investments, notably by pension funds.
The primary sector grew by 6.5 percent in 2015 recovering from a 3.2 percent
contraction in 2014. The rebound mainly benefitted from increased output in crop
production under irrigated farms, livestock and forestry subsectors. Crop production
under Swazi Nation Land (SNL), notably maize and cotton, decreased significantly
mainly due to unfavorable weather conditions.
Figure 4: GDP Developments by Sector for 2010-2015
25
20
GROWTH (%)
15
10
5
0
2010
2011
2012
2013
2014
2015
-5
-10
Primary Sector
Secondary Sector
Tertiary Sector
Overall GDP
Source: Central Statistics Office (CSO), Central Bank of Swaziland/Ministry of Economic Planning & Development.
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Economic growth is projected to remain subdued (below 2 percent) in the medium
term due to the persistent drought conditions and anticipated fiscal challenges. The
drought will mainly affect the agricultural output and electricity & water supply and
through strong forward and backward linkages, manufacturing and services sectors.
Economic growth will also be negatively affected mainly by the significant fall in SACU
revenues in the short-to-medium term, which is expected to affect government
sector-reliant projects. With government being the main driver of the economy’s
aggregate demand and a major player in some sectors such as construction, any
shocks in revenue would have a negative impact on growth prospects.
3.2
PRICE DEVELOPMENTS
Consumer inflation remained on an upward trend in March 2016 rising to 7.8 percent
from 7.3 percent in February. Food inflation, which is reflecting price pressures
exerted by the food shortages as a result of the persistent drought conditions,
remained the main driver for increases in overall prices.
Swaziland’s headline consumer inflation decelerated from an average of 5.7 percent
in 2014 to 5.0 percent in 2015. The slowdown in overall consumer inflation benefited
from favourable developments in food and transport inflation over the year.
Consumer goods inflation averaged 4.6 percent in 2015 down from 6.3 percent the
previous year. Services inflation on the other hand ticked up slightly to 5.3 percent in
2015 from 5.2 percent the previous year.
year-on-year % change
Figure 5: Consumer Price Inflation for January 2014 to March 2016
11.0
9.0
7.0
5.0
3.0
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
CPI Services
Apr-15
Mar-15
Feb-15
Jan-15
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Feb-14
Jan-14
CPI Goods
Overall CPI
Source: Central Statistics Office (CSO)
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Food inflation moderated to 4.3 percent in 2015 from 6.3 percent the previous year
largely benefiting from lower increases in the prices of meat, fruits, vegetables and
oils & fats. Transport inflation fell from 8.8 percent in 2014 to 3.9 percent in 2015
due to a combination of base effects and relatively lower fuel prices. A significant
decrease in international oil prices that surpassed the depreciation of the Lilangeni to
U.S. Dollar resulted in relatively lower fuel prices in the period under review.
Domestic fuel price increases (of about 110 cents/litre) experienced in 2014 were
fully reversed in 2015. A further slowdown was observed in the price indices of health
and education.
Inflationary pressures were noted in the price indices for ‘housing and utilities’,
‘restaurants and hotels’ and ‘miscellaneous goods and services’. The housing and
utilities index grew by 4.7 percent in 2015 compared to 3.5 percent in the previous
year mainly propelled by increases in prices for ‘actual rentals’ and administered
utility tariffs. Electricity tariffs were hiked by 11.7 percent whilst water tariffs were
hiked by 7.2 percent in the period. These increases were notably higher than those of
the previous year where electricity and water tariffs were hiked by 9.5 and 4.6
percent respectively. On the other hand, significant increases were noted in the price
indices for ‘restaurant and hotels’ and ‘miscellaneous goods and services’. The index
for hotels and restaurants grew by 9.0 percent in 2015 compared to 4.3 percent the
previous year while the index for miscellaneous goods and services quickened by 9.8
percent from 4.1 percent.
Food inflation rose by 13.4 percent in March compared to 10.5 percent in February
mainly driven by increases in the price of rice, maize products & other cereal
products, fruits and vegetables. Transport inflation remained on double digits
recording 12.2 percent in March compared to 11.9 percent the previous month mainly
backed by a combination of base effects and high transport services costs. Further
increases were noted in the price indices for ‘clothing and footwear’ and ‘furnishing
and household equipment’.
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Figure 6: Inflation Trends for January 2014 to March 2016
year-on-year % change
15.00
10.00
5.00
0.00
-5.00
Food
Transport
Overall
Other
Source: Central Statistics Office
Core inflation measures depicted a downward trend in 2015 particularly in the first
half of 2015. The CPI, excluding volatile components such as food & non-alcoholic
beverages, auto-fuel & energy; averaged 5.1 percent in 2015 compared to 5.5 percent
the previous year. On the other hand CPI, excluding administered prices, slowed to
5.3 percent in 2015 compared to 5.7 percent the previous year.
Figure 7: Headline versus core Inflation Measures
year-on-year % change
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
CPI Excluding Administered prices
CPI excl. FNAB auto-fuel and energy
Feb-16
Mar-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
Apr-15
May-15
Mar-15
Jan-15
Feb-15
Dec-14
Oct-14
Nov-14
Sep-14
Jul-14
Aug-14
Jun-14
Apr-14
May-14
Mar-14
Jan-14
Feb-14
-
Overall CPI
Source: Central Statistics Office
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ANNUAL MONETARY POLICY STATEMENT 2016
3.3
CENTRAL BANK OF SWAZILAND
FISCAL SECTOR
The Minister of Finance presented the 2016/17 National Budget to Parliament under very
difficult fiscal times. The Budget delivered on 4th March 2016 was in line with His Majesty’s
Speech from the Throne when opening the 3rd Session of the 10th Parliament, hence the
2016/17 Budget theme is: “Growth for all with all through optimizing, innovating, boosting
domestic revenue and spending efficiently”. The “Inclusive Growth” theme demonstrates
Government’s desire to allow people to contribute to and benefit from economic growth.
The 2016/17 National Budget Strategy as presented by the Minister put more emphasis on the
following:
 Drought mitigation;
 Enhancing Human Capital;
 Strategic infrastructure expansion and synergizing with the private sector;
 Strengthening all key sectors for economic growth;
 Efficiency and optimization of resource utilization; and
 Combating corruption.
3.3.1 Budget Review
The actual outturn for 2014/15 shows a budget deficit of E823 million or 1.4 percent of GDP.
On the other hand, the estimated outturn for 2015/16 indicates a budget deficit of E3 billion,
an equivalent of 6.8 percent of GDP. This is a worsening position from the original budget of
E1.3 billion or 3 percent of GDP presented in February 2015.
Figure 8: National Budget Surplus/Deficit for 2013/14 to 2016/17
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ANNUAL MONETARY POLICY STATEMENT 2016
2016/17
2015/16
2014/15
2013/14
2
0
-2
-4
-6
-8
-10
-12
-14
-16
CENTRAL BANK OF SWAZILAND
Source: Ministry of Finance.
Estimates for 2016/17 indicate that Government will run a deficit of E6.5 billion,
corresponding to 13.7 percent of GDP. Total revenue and grants to be collected in 2016/17
are projected to decline by 2.7 percent from E14.6 billion the previous fiscal year to E14.2
billion. SACU receipts, the major source of Government revenue are estimated at E5.3 billion
from E6.9 billion the previous fiscal year. This source of revenue accounts for 37 percent of
total revenue and grants. Domestic revenue is set to increase by 12 percent as a result of an
improvement in domestic revenue collection, courtesy of the Swaziland Revenue Authority’s
continued efficiency in tax collection and administration.
Figure 9: Government Revenue – Major Components for 2015/16 and 2016/17
2015/16 Revised Budget
Company
tax
10%
Other
5%
Grants
2%
Fuel tax
5%
2016/17 Budget Estimate
VAT
15%
PAYE
15%
SACU
48%
Other
8%
Grants
6%
Fuel tax
5%
Company
tax
12%
VAT
16%
PAYE
16%
SACU
37%
Source: Ministry of Finance
VAT is projected to increase from E2.2 billion the previous year to reach E2.3 billion in
2016/17 accounting for 16 percent of total revenue. Corporate tax and PAYE are also
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ANNUAL MONETARY POLICY STATEMENT 2016
CENTRAL BANK OF SWAZILAND
projected to increase by 13.3 percent and 4.8 percent to E1.7 billion and E2.2 billion,
respectively.
Total expenditure is estimated to increase to E20.7 billion in 2016/17 from the revised figure
of E17.6 billion the previous fiscal year. Recurrent expenditure will account for 74 percent
(E15.3 billion including statutory expenditure) of total spending leaving little fiscal space for
capital spending.
Capital expenditure is expected to increase to E5.4 billion, an increase of 36 percent from the
previous year. Key projects earmarked under the public investment programme include the
completion of Sicunusa-Nhlangano Road, completion of Sikhuphe-Hlane Road, completion of
resettlement and commencement of construction and upgrading of Manzini-Mbadlane Road
and commencement of Bulembu-Magoga Road, Lukhula-Big-Bend Road and construction of
National Referral Hospital amongst Government priority projects.
3.3.2 Deficit Financing
The budget recognized that in times of a crisis, a deficit may be the appropriate action – but
only with a plan to return to balance, and accompanied by fiscal discipline through the
curtailing of wasteful spending. A combination of an increase in expenditure and decline in
revenues he resultant budget deficit for 2016/17 fiscal year is projected to increase to 13.7
percent of GDP compared to 6.8 percent estimated for 2015/16. Over the medium to long
term, Government’s aim is to bring the deficit back to single digit levels, in line with SADC
Macroeconomic Convergence targets, supported by improved revenue collection.
The Minister indicated that to avoid an increase in relatively expensive external borrowing
and reduce the fiscal burden of debt payments over the medium term, a larger share of the
fiscal deficit will be financed through domestic borrowing. External borrowing will be
considered only for the financing of highly productive fixed capital investments.
During the 2010/11 fiscal crisis, the country drew down its reserves to ameliorate the
crisis to levels just above 2 months of import cover. The Bank had to assure markets
and the business community that the peg was safe. Government has indicated that
during the challenging fiscal situation in 2016/17, the priority would be to maintain
the reserve position above the recommended 3 months of imports to shore up
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ANNUAL MONETARY POLICY STATEMENT 2016
CENTRAL BANK OF SWAZILAND
business and consumer confidence on the currency.
3.3.3 Public debt
Total public debt remains low at E7.44 billion or 14.4 percent of GDP at end of March 2016.
This marks an increase of 11.8 percent from the E6.65 billion recorded in March 2015. The
increase was mainly driven by external debt and is attributed to the continued depreciation
of the local currency against the US Dollar and other currencies in which the country’s
external liabilities are denominated as well as drawdowns on foreign project loans.
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CENTRAL BANK OF SWAZILAND
Figure 10: Public Debt as at 31 March 2016.
7.44
8
E' Billion
6
3.24
4
4.20
2
0
Domestic Debt
(6.3%)
External Debt
(8.1%)
Total Public Debt
(14.4%)
Source: Ministry of Finance
3.3.4 Domestic debt market developments in 2015/16
Government Bonds Issuances during the 2015/16 fiscal year have not been very successful. In
the fiscal year 2015/16, E700 million was offered at four (4) different auctions for papers of
varying maturities (3, 5, and 7 years, including a re-opening on the 5-year paper). Allotments
made amounted to E548 million indicating that only 78 percent of the amount sought was
successfully raised. This indicates that the programme has not met expectations.
When presenting the Budget for 2015/16 last year, the Minister had indicated that about E1
billion will be sourced from the domestic debt market. The original plan was to issue E250
million on a quarterly basis. The Auction Committee had to reduce the amounts after investor
feedback indicated lack of appetite for Government papers.
The poor market response indicates little scope to significantly increase the issuance of
Government securities in the 2016/17 fiscal year. The Minister of Finance announced that in
2016, the Financial Services Regulatory Authority will determine the classes and types of local
investment vehicles that qualify as part of the 30 percent local asset requirement in an effort
to ensure that savings generated in Swaziland are used to develop business and in turn bring
about growth in the economy. The main reason is that funds are placed with commercial
banks and channelled back to the South African financial sector at the expense of
development of the local economy. The Bank, in collaboration with Government and other
stakeholders will continue its efforts to stimulate activity in the domestic debt market.
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ANNUAL MONETARY POLICY STATEMENT 2016
CENTRAL BANK OF SWAZILAND
Treasury Bills (T-bills) Issuances continued in 2015/16 and were mainly used to finance
Government cash shortfalls. The 91-days paper remains the most popular paper amongst
investors accounting for 50.1 percent of total T-bills outstanding at end of March 2016.
3.4
EXTERNAL SECTOR
3.4.1 Overview
Preliminary data indicate that Swaziland’s Balance of Payments registered a surplus
of E298.7 million in 2015 from a E246.0 million surplus in 2014. The surplus in 2015 is
equivalent to 0.6 percent of GDP, a narrow increase from 0.5 percent in the previous
year. The improvement in the BOP overall surplus was mainly attributable to surpluses
recorded in both the trade and current transfers accounts of the current account.
Data in 2015 reflect a significant widening of the current account surplus to E5.768
billion from E1.548 billion in the previous year. At this level the current account
surplus is equal to 11.0 percent of GDP from 3.2 percent in 2014. The impressive
growth in the current account surplus in 2015 is explained by a widening trade surplus
during the year.
Figure 11: Current Account Components, 2011-2015
CURRENT ACCOUNT COMPONENTS
Balance on Goods
Balance on Services
Net Current Transfers
Net Income
CURRENT ACCOUNT
10000
E'Millions
5000
0
-5000
-10000
2011
2012
2013
2014
2015
Source: Central Bank of Swaziland
A major development in the country’s trade account was a 3.3 percent decline in
merchandise imports to E17.739 billion in 2015, a turnaround from the 12.2 percent
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ANNUAL MONETARY POLICY STATEMENT 2016
CENTRAL BANK OF SWAZILAND
increase in 2014. This resulted to an 88 percent year-on-year widening of the surplus
recorded in the trade account to E4.336 billion. The import bill eased mainly as a
result of lower international commodity prices, especially oil prices during 2015.
Further underpinning the decline in imports was the general slowdown in economic
activity in the country during 2015. A weakening Lilangeni against major world
currencies, on the other hand, supported the country’s exports earnings. In 2015,
export receipts increased by 6.9 percent, year-on-year to E22.076 billion. However,
this was slower growth compared to the 12.6 percent rise in exports in 2014. Data
show that 66.2 percent of the country’s exports were destined to the South African
market.
The services account, in 2015, shows that Swaziland continues to be a net importer of
services, with over 70 percent of services imported from South African service
providers. The services account recorded a deficit of E4.928 billion in 2015, a 0.4
percent rise from the deficit recorded in 2014. The marginal growth in the deficit is
due to the persistent increase in both services inflows and outflows.
During 2015 the current transfers account posted an increase of 3.3 percent in net
inflows, rising from a net inflow of E8.657 billion in 2014 to E8.944 billion in the
review year. The country’s SACU revenue share amounted to E7.329 billion accounting
for 66 percent of the transfers’ total inflow during 2015.
Figure 12.
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ANNUAL MONETARY POLICY STATEMENT 2016
CENTRAL BANK OF SWAZILAND
Current Account, Financial Account and FDI
8000
6000
E'Millions
4000
2000
0
-2000
2011
2012
2013
2014
2015
-4000
-6000
-8000
Net FDI
Financial Account
Current Account
Source: Central Bank of Swaziland
Despite the heightened volatility in cross-border financial flows, since the onset of
the global financial crisis, Swaziland managed to record net inflows in the Foreign
Direct Investment (FDI) component of the financial account. FDI posted a net inflow
of E844.7 million, an improvement from the net outflow of E310.3 million in the
previous year. The year-on-year improvement in the net position of FDI was
influenced by net inflows of E1.337 billion in reinvested earnings from a net inflow of
E710.5 million posted in the previous year. This move reflects the confidence by
existing foreign direct investors in the Swazi economy as they plough back their
profits for expansion purposes.
3.5
MONETARY SECTOR
Over the year ended March 2016, monetary policy was mixed as it was unchanged in
March and April but tightened gradually from May 2015 and was more aggressive in
the first quarter of 2016. The main objective of monetary policy was to curtail
inflation while providing impetus for enhanced economic growth. Consequently, in
May & July 2015 and February & March 2016, as inflationary pressures mounted, the
bank rate increased by a cumulative 125 basis points to 6.5 percent. In addition, the
Bank maintained lower interest rates (50 basis points) than in South Africa.
Subsequently, the local banks’ prime lending rate increased by a similar 125 basis
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ANNUAL MONETARY POLICY STATEMENT 2016
CENTRAL BANK OF SWAZILAND
points to 10 percent while the South African prime rate was higher at 10.5 percent.
The differential gives an opportunity for banks to provide cheaper credit for their
customers thus stimulating borrowing that can translate to growth of the economy.
SD Bank Rate
SD Prime Rate
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
11.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Mar-15
Percent
Figure 13: Interest Rates Trends
RSA Repo Rate
Source: Central Bank of Swaziland and Commercial Banks
In the short to medium-term, monetary policy remains uncertain but likely to tighten
further given the notable deterioration in the inflation outlook. The upward pressure
on inflation is expected to be largely fuelled by surging food prices as a result of the
severe drought situation domestically and within the region coupled with anticipated
increases in utility prices (water and electricity) as well as the weaker rand/lilangeni
exchange rate. However, some improvement in the inflation outlook may arise from
lower international oil prices combined with a notable recovery of the rand/lilangeni
exchange rate. The Bank will thus continue to monitor the developments and
endeavour to strike a balance between conserving price stability and supporting the
sluggish economic growth momentum.
As shown in the figure below, year-on-year bank credit extended to the private sector
grew by 9.3 percent in March 2016 and was slightly higher than the 9.0 percent
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ANNUAL MONETARY POLICY STATEMENT 2016
CENTRAL BANK OF SWAZILAND
growth recorded the previous year. This was a result of increased demand for credit
within the household sector while credit to the business sector declined. Notably,
annual credit to businesses declined by 8.0 percent compared to growth of 4.0
percent recorded the previous year. The fall in credit to businesses was mainly
discernible in the Mining & Quarrying, Construction, Agriculture & Forestry (mainly
sugar cane, citrus and livestock & Dairying) and the Manufacturing (mainly alcoholic
beverages & tobacco, soft drinks, pulp products, textiles and meat processing)
sectors.
Figure 14: Private Sector Credit: Annual Changes
25.0
20.0
10.0
5.0
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Jul-15
Jun-15
Aug-15
-10.0
May-15
-5.0
Apr-15
0.0
Mar-15
Percent
15.0
-15.0
Credit to Households
Credit to Businesses
PSCR
Source: Central Bank of Swaziland and Commercial Banks
On the contrary, annual credit to the household sector accelerated by 20.4 percent in
March 2016 compared to 13.0 percent registered the previous year. Within the
household sector, other personal loans (mainly unsecured loans) recorded the highest
rise of 46.1 percent in March 2016 compared to a negligible rise of 0.02 percent
recorded the previous year. The second highest increase of 26.4 percent was
registered in credit extended for the acquisition of motor vehicles compared to 24.7
percent recorded the previous year. Credit for housing purposes on the other hand
grew by 8.6 percent in March 2016 and was slightly lower than 13.7 percent growth
registered the previous year.
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ANNUAL MONETARY POLICY STATEMENT 2016
©2016 Central Bank of Swaziland
CENTRAL BANK OF SWAZILAND
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ANNUAL MONETARY POLICY STATEMENT 2016
CENTRAL BANK OF SWAZILAND
Motor Vehicle
Other
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Mar-15
Percent
Figure 15: Household Credit by Product: Annual Changes
Housing
Source: Central Bank of Swaziland and Commercial Banks
Short to medium term outlook for private sector credit is predicted to slow down,
exacerbated by the dire drought conditions particularly affecting the agricultural and
manufacturing sectors as major borrowers. Moreover, further upward increases in
interest rates are expected to discourage borrowing.
The country’s gross official reserves grew by 4.6 percent over the year ended March
2016 to reach E8.5 billion. The increase was mainly ascribed to revaluation gains
accumulated from the notable depreciation of the rand/lilangeni exchange rate over
the year. Consequently, the import cover of the reserves picked up from 3.5 months
in March 2015 to 3.9 months at the end of March 2016. At this level, the import cover
remained above the internationally acceptable level of 3 months.
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ANNUAL MONETARY POLICY STATEMENT 2016
CENTRAL BANK OF SWAZILAND
Figure 16: Gross Official Reserves and Import Cover
12
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
E'Billions
10
8
6
4
2
0
Import Cover
Gross Official Reserves
Source: Central Bank of Swaziland
The short to medium-term prospects for the country’s reserves remain challenging as
SACU revenue is anticipated to fall substantially in the coming years. Efforts should
therefore be directed at restraining government expenditure as well as broadening
the revenue base. The Bank will thus continue to monitor and provide appropriate
advice to government to ensure that the reserves are sustained at a healthy position.
This would go a long way in safeguarding the market’s confidence in the country’s
ability to meet its external obligations and to withstand external shocks.
Despite the lower growth in external assets and private sector credit extension,
annual broad money supply (M2) accelerated by 15.7 percent in March 2016 compared
to 1.8 percent registered the previous year. A notable upward trend was reflected in
quasi money supply; in line with the upward trend in deposit interest rates. Notably,
quasi money (interest earning deposits) rose by 25.4 percent in March 2016 compared
to a fall of 1.2 percent recorded the previous year. However, narrow money supply
(M1) decreased slightly by 0.6 percent compared to growth of 7.1 percent recorded
the previous year.
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CENTRAL BANK OF SWAZILAND
Figure 17: Money Supply – Annual Changes
30.0
25.0
percent
20.0
15.0
10.0
5.0
M1
Quasi Money
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
-5.0
Mar-15
0.0
M2
Source: Central Bank of Swaziland and Commercial Banks
4.0
CENTRAL BANK OF SWAZILAND MONETARY POLICY RATIONALE
During the year 2015 and the first quarter of 2016, monetary policy was mixed as it
was unchanged in the first quarter but tightened gradually from May 2015 and was
more aggressive in the first quarter of 2016. The main objective of monetary policy
was to curtail inflation and inflationary pressures emanating from the early signs of
the drought on prices and the negative pressures on the exchange rate while providing
impetus for enhanced economic growth. Consequently, in May and July 2015 and
February 2016, as inflationary pressures mounted and anticipation of a FED rate hike
increased, the bank rate increased by a cumulative 100 basis points to 6.25 percent
and in the process harmonising the domestic discount rate with those of South Africa.
In addition, the Bank maintained lower interest rates (50 basis points) than in South
Africa. Subsequently, the local banks’ prime lending rate increased by a similar 100
basis points to 9.75 percent while the South African prime rate was higher at 10.25
percent. The crawling discount rate differential maintained in the spirit of
harmonising discount rates in the region is exploited by the monetary authorities to
gives an opportunity for banks to provide cheaper credit for their customers thus
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ANNUAL MONETARY POLICY STATEMENT 2016
CENTRAL BANK OF SWAZILAND
stimulating lending that can translate to growth of the economy. The Central Bank of
Swaziland in March 2016 increased the repo rate by 25 basis points to reach 6.50
percent following the increase in the discount rate by the Reserve Bank of South
Africa by 25 basis points to reach 7 percent with both the aim of controlling inflation
and harmonising regional interest rates so as to stabilise capital outflows.
Figure 18: Interest Rates Trends
5.0
INFLATION AND MONETARY POLICY OUTLOOK
In the short to medium-term, monetary policy remains uncertain but likely to tighten
further given the notable deterioration in the inflation outlook which unfortunately
coincides with weak economic recovery. The upward pressure on inflation is expected
to be largely fuelled by surging food prices as a result of the severe drought situation
domestically and within the region coupled with hikes in utility prices (water and
electricity) as well as the sharp weakening of the rand/lilangeni exchange rate and a
25 percent increase was effected for transport in January 2016. The inflation for the
year 2016 is therefore projected to average 7.06 percent rising from an average of 5.0
percent recorded in 2015 and has a high possibility of averaging above 7 percent in
2016 as shown by fan-chart analysis. The Reserve Bank of South Africa has projected a
gloomy inflation outlook and a tightening monetary policy cycle in their 2016
monetary policy review. However, some improvement in the inflation outlook may
arise from lower international oil prices combined with a notable recovery of the rand
and lilangeni exchange rate and ample importation of maize by the National Maize
Corporation. This would lead to an improvement in the inflation outlook for the
medium term. The Bank will therefore continue to monitor the developments and
endeavour to strike a balance between conserving price stability and supporting the
sluggish economic growth momentum.
The Central Bank is cautious of the fiscal pressures besetting government and the
fiscal stimulus that could be delivered by the 13.7 percent deficit projected for the
fiscal year 2016/17. The Central Bank will ensure financial and price stability through
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ANNUAL MONETARY POLICY STATEMENT 2016
CENTRAL BANK OF SWAZILAND
responsible financing of the fiscal deficit. The fiscal stimulus is expected to help
resuscitate credit to business in a time when the Central Bank’s monetary policy
would likely be more biased towards controlling the hiking inflation to benefit longterm economic growth.
Figure 19 Inflation Projections 2016 Fan-Chart.
9
8
7.63
7
7.35
6.98
7.27
7.09
6.68
6.58
7.62
7.52 7.54
6.89
6
5.70
5.60
5.55
5.40
5
5.00
4.70
4.90
4.90 4.80
4.90
4.50 4.60 4.50
Source: Central Bank of Swaziland
6.0
FOSTERING FINANCIAL STABILITY
6.1
BANK SUPERVISION DIVISION
A stable and efficient financial system is vital if the goal of sustained economic
growth is to be achieved. It is on this regard that the Central Bank’s Bank Supervision
Division (BSD) continues to explore for ways to increase banking sector stability as
mandated through the Central Bank’s mission as reflected in the Central Bank Order
of 1974 and the Financial Institutions Act of 2005. In order to achieve this goal, the
main
approach
has
been
through
effective
monitoring
and
assurance
of
implementation of prescribed prudential and regulatory standards. BSD activities have
thus been focused on improving institutional soundness and strengthening of
©2016 Central Bank of Swaziland
35
Dec-16
Nov-16
Oct-16
Sep-16
Aug-16
Jul-16
Jun-16
May-…
Apr-16
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
Apr-15
Mar-15
Feb-15
Jan-15
3
May-…
4
ANNUAL MONETARY POLICY STATEMENT 2016
CENTRAL BANK OF SWAZILAND
regulatory and supervisory processes in pursuit of international best practices.
a) Banking Sector Condition and Performance
All the banks remain compliant to set prudential and regulatory requirements in terms
of capital adequacy, liquidity and reserve ratios.
Despite the slow growth in the Swaziland economy, the banking sector has continued
to grow and remained profitable over the last year. Total assets for the banking
sector were valued at E15.4 billion as at 31 December 2015 compared to E13.4 billion
in December 2014, which is an increase of 14.3 percent. This growth was fuelled by
positive growth in customer deposits which translated to growth in loans and
advances. During the same period, it is noted that the quality of assets slightly
deteriorated from 6.6 percent to 6.8 percent. In light of the prevailing harsh
economic conditions, a worse performance had been expected. Hence, these figures
are an indication of robust credit risk management systems within the banking sector.
Total profits for the banking sector amounted to E485.9 million in December 2015
compared to E366.1 million in 2014. This 32.7 percent increase was attributable to
improved cost efficiency by banks as revenues before tax increased by 18.1 percent
whereas total costs only increased by 9.6 percent. The return-on-assets increased
from 3.8 percent in December 2014 to 4.4 percent in December 2015. Total banking
sector deposits increased by 15.9 percent to reach E11.65 billion in December 2015
from E10.05 billion a year earlier.
b) Legal Reforms
In line with the Bank’s current Strategic Plan under Project Reform, the Bank has
undertaken a process to review the legal and regulatory framework to strengthen
efficient oversight of the banking system and hormonise it with SADC model law.
Accordingly, amendments to the Financial Institutions Act of 2005 and CBS Order of
1974, will be made, after consultations with relevant stakeholders. This will ensure
that gaps that exist in current legislation and regulations are addressed and
enhancements effected on the applicable policies and processes.
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In 2015, the Bank transferred the regulatory oversight of the three non-bank
institutions, previously licenced through the FIA to the Financial Services Regulatory
Authority (FSRA) in line with the provisions of the FSRA Act of 2010. This position will
further strengthen the overall synergies and regulatory oversight of the financial
sector and eliminate possibilities for regulatory arbitrage among supervised
institutions.
c) Supervisory and Regulatory Reforms
With the ever-increasing sophistication of banking products and processes, the BSD is
continuously enhancing the robustness of its supervisory processes to ensure effective
risk monitoring and mitigation within the banking system. Early-warning signals on
individual banks and or collectively are monitored so that supervisory intervention can
be effected timeously to avoid an unwanted rocking of the banking system.
Bank Supervision Division (BSD) places great emphasis on utilising up-to-date off-site
analysis models to enable efficiency in supervisory processes and optimum use of
resources within the Division. The Division has embarked on an exercise to revise the
Off-site Monitoring Framework, an exercise that will improve the analysis of financial
data of each of the banking institutions to ensure the soundness of their financial
positions and the monitoring of phenomena or trends whose emergence calls for
issuing relevant recommendations and or remedial actions.
The BSD is also in the process of developing a Stress Testing Framework and guideline
which will be issued to the industry. Stress testing has become an integral part of a
bank’s risk management system and is used to evaluate its potential vulnerability to
certain unlikely but plausible events or movements in financial variables. The
vulnerabilities are usually measured with reference to the bank’s profitability,
liquidity and/or capital adequacy. Stress testing provides guidance to manage risks on
the basis of normal business conditions and emphasizes the importance of robust risk
management systems which factor in a forward looking element and recognise the
need to manage risks over the economic cycle.
Lastly, the Central Bank has approved the migration to Basel II/III, a process that has
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CENTRAL BANK OF SWAZILAND
commenced internally and stakeholders shall be engaged in due course. This
migration process has a number of prerequisites that must be fulfilled to ensure a
successful implementation. These include among other things, a self-assessment of
our supervisory processes’ compliance to Basel Core Principles for effective
supervision. This exercise has been completed and is informing the legislative and
regulatory review processes. It is anticipated that a phased-in implementation of the
accord will commence during the 2017/18 financial year.
d) Bank Charges
Bank charges continue to be a contentious issue to the public and the Central Bank is
closely monitoring the behaviour of the banking institutions in this regard. A visible
and meaningful response from the banks to this public outcry as it impedes, the
financial inclusion agenda and limit monetary policy transmission through credit
extension increases resulting from higher levels of willingness and ability to save with
the banking institutions. Fatigue to save resulting from high banking charges deprive
the economy of much needed saving and investment funds and encourages a culture
of consumption. Government’s investment drive is expected to spear head the
recovery in business confidence with the excess liquidity in the banking sector being
mopped to useful long term investment. An exercise to analyse current practices
with regards to bank charges and pricing in general in the country was conducted and
comparison made with our regional counterparts. Consultations with local banks were
made and from this exercise, it became apparent that there is indeed room for
improvement in as far as cost of banking is concerned. In this regard, it appears that,
in line with provisions of the law, certain measures need to be applied to build public
confidence and market discipline in the banking system as well as ensuring that the
goal of financial inclusion is attained.
6.2
NATIONAL PAYMENTS SYSTEMS
The Central Bank of Swaziland (CBS) continues to focus on enhanced safety and
efficiency of the national payment systems to foster and support financial sector
stability in the country. The Bank supports financial sector stability through
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promotion, regulation and supervision of designated national payment systems, digital
financial services and remittances.
The CBS continues to support the Swaziland Government Programme on Financial
Inclusion coordinated at the Ministry of Finance. The financial inclusion programme is
receiving support from emerging players in digital financial services such as the
partnership of First National Bank and Swazi MTN and lately the partnership of
Standard Bank and Shoprite Stores.
Innovation surrounding mobile money activities by Mobile Network Operators (MNO) is
increasing in leaps and bounds within and across jurisdictions and the Central Bank of
Swaziland is currently intensifying monitoring and oversight of these activities. As a
matter of policy, the CBS continues to support innovation that addresses the needs of
the public and monitors distractors with keen vigilance such as activities related to
money-laundering. In this way the country will continue to benefit from innovation
through redress of user needs and to grow economic activity.
Following the phase-out of cheques in cross-border payments, recorded activity of the
4 commercial banks and the Central Bank of Swaziland in the SADC Integrated
Regional and Electronic Settlement System (SIRESS) continued to grow in the last 12
months. While this regional system has created a safe and efficient payment system
that supports intra-regional trade, this payment channel has enhanced risk mitigation
in cross-border payments in the SADC region. While other member states are
preparing to come on board, the number of SIRESS participant banks has grown to 73
from 9 member states. Recorded activity shows that peak value settled in September
2015 hit R98.9 billion and highest recorded volume hit 24,960 transactions in the
following month, that is, October 2015. This shows growing uptake and support of this
regional initiative.
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6.3

CENTRAL BANK OF SWAZILAND
OPERATIONS.
Issuing and Redeeming of Currency
During the year ended 31st March 2016 notes issued amounted to E4.9 billion
compared to E4.4 billion issued the previous year, whilst coins issued over the year to
March 2016 amounted to E25.8 million, up from E18.5 million the previous year.
Currency in circulation increased from E780.6 million in March 2015 to E844.8 million
in March 2016.

New Coins Series
As part of its mandate, in February 2016, the bank rolled out a new series of coins.
Some of the key considerations in evaluating the choice of coin series included
whether these were: economical; aesthetically pleasing; secure against coins from
neighbouring countries and secure against counterfeiting. The series was designed in
such a way that the coins increase in a logical way in both size and mass as their face
value increases per class of denomination and also includes features for the visually
impaired.
The Bank has sent out notices to the Public and commercial banks stipulating that the
old coin series (dated 2013 backwards) of the 10c, 20c, 50c, E1, E2 and E5
denominations shall cease to be used as a medium of exchange effective 1 st
September 2016 as these have been replaced by the new series of the same
denominations dated 2015. The 5c coin will continue in circulation. Effective 1 st
September 2016, the old coins from the indicated series shall only be exchanged for
face value at the Central Bank of Swaziland Banking Hall situated at Umtsholi Building
in Mbabane up to a period of five years.

New Notes
As reported in the previous monetary policy statement, the Bank has finally printed
the new series of E10 note to deal with the challenges faced by the public arising out
of the similarity of the current E10 note to the R100 note. The note is ready for
issuance into circulation during the current financial year. The Bank is also currently
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working on new designs for the E100 and E200. The main driver for the release of a
new series of E100 and E200 is mainly to upgrade the security features of the note
and also improve on the aesthetic of each denomination.
6.4
EXCHANGE CONTROLS (LIBERALISATION)
The Central Bank of Swaziland continues to align itself with Common Monetary Area
countries as well as the Southern African Development Community countries through
constant relaxation/review of Exchange Controls.
This alignment is not done in isolation as the bank takes cognisance of the country’s
economic situation. In this regard, the Bank has extended the licencing of Authorized
Dealers with Limited Authority (ADLA) to incorporate remittances as opposed to mere
over the counter sales and purchases of foreign currency.
This will increase the
number of market players in the country and eliminate the prevalence of black
market operations on the sales and purchase of foreign currency. It is also worth
mentioning that more legislative reforms will be introduced to encourage use of the
formal sector through easing of prerequisites of foreign exchange transactions.
Regional integration is aligning with strategic regional initiatives; Swaziland is
participating in the Exchange Control Liberalisation Index (ECLI) exercise as pioneered
by SADC. This is a tool issued to measure each member country’s position in terms of
exchange controls restrictiveness. The ECLI aims to achieve the following;
i.
Monitor and document progress on the current and capital account
liberalisation;
ii.
Evaluate the extent to which remaining exchange controls impedes the flow of
goods and services in SADC region;
iii.
Examine the costs and benefits of the liberalisation process;
iv.
Propose policy options and a model framework for speeding up exchange
control liberalisation; and lastly,
v.
Make recommendations on the sequencing and coordination of exchange
control liberalisation.
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a) Exchange Control Relaxations
For the year 2015, no relaxations were instituted by the Bank on current and
capital accounts transactions save for realigning the facility on advance payment
for capital goods which stands at E10 million or up to 50% of the ex-factory cost
of the goods to be imported or whichever is greater.
Focus was put on rewriting and re-issuing the Exchange Control Rulings in order
to clarify ambiguities that previously existed in preparation for further refining it
to accommodate the licencing of Authorized Dealers with Limited Authority as
well as remittances by same.
b) Stakeholder Engagement
Optimum implementation of legislation can only happen with effective
stakeholder collaboration/engagement.
There has been a significant increase in collaboration between the bank and
Swaziland Revenue Authority (SRA) given the various areas of overlap in the
operations of both institutions. These include monitoring the declaration of
exports as well as receipt of export proceeds emanating therefrom.
The Central Bank looks forward to automating the receipt of data on exports
from SRA following the recent successful launch of the ASYCUDA declaration
system.
This will lead to a more effective reconciliation of export proceeds as received
from the banking sector against exported goods and will no doubt improve the
country’s economy.
On the anti-money laundering (AML) front, stakeholder collaboration was
evident in the recently conducted border entry/exit point road shows.
Participating stakeholders were Central Bank Swaziland, Swaziland Financial
Intelligence Unit, Swaziland Revenue Authority and Royal Swaziland Police.
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The aim of the exercise was to effectively enforce implementation of the
AML/CFT Act on the required threshold of E15 000 as well as foreign currency
movement in line with the Customs and Excise Act of 1971.
c) Anti-Money Laundering (AML) Issues
The Central Bank continuously strives to ensure financial integrity. The Bank is in
the process of conducting on-site inspections on all financial institutions to
ensure that they not only have internal controls in place to detect and deter
money laundering and terrorist financing but also ascertain that these are
effective.
This is in line with the 40 Financial Action Task Force (FATF) Recommendations
which now emphasize on effectiveness as opposed to mere availability of
policies. In this regard the Bank has issued Guidelines to financial institutions to
simplify and thus operationalize the Money Laundering and Financing Terrorist
(Prevention) Act of 2011. Caution is taken to balance financial integrity with
financial inclusion.
Swaziland is scheduled to undergo the Mutual Evaluation Exercise in 2017, the
purpose of which is to assess Swaziland’s compliance with the 40 FATF
Recommendations. This assessment is conducted by the Eastern and Southern
Africa Anti Money Laundering Group.
The implementation of the 40 FATF Standards is not without challenges as it
comes with the need to tailor make the requirements to suit our economy whilst
ensuring that the essence of the standards are not compromised.
6.5
FINANCIAL SECTOR STABILITY
Internationally, the regulatory and supervision focus has turned towards financial
stability and resiliency of the financial system as a whole. From the increasing the
amount of capital that financial institutions are required to hold, to more supervision
of systemically risky large complex financial institutions and country-wide stress
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testing, financial stability units face an expanding set of sectors, macro-prudential
tools, financial soundness indicators and risks.
It is in this vein that the Central Bank of Swaziland (CBS) intends to fully benefit from
the Memorandum of Understanding (MOU) signed with the Financial Services
Regulatory Authority, Ministry of Finance, Ministry of Commerce Industry and Trade,
and the Commissioner of Co-operative Development in terms of information sharing,
analysis and monitoring of the financial system in Swaziland.
The Financial Stability Committee (FSC) has established a sub-committee called the
Financial Stability Technical Committee (FSTC) whose terms of reference are to
complement the work of the FSC. The FSC’s mandate is to co-ordinate the work of the
national financial authorities and the mandate of the Central Bank of Swaziland in
order to develop and promote the implementation of effective regulatory, supervisory
and other financial sector policies. The
Financial
Stability
Committee
(FSC)
complements the price stability objective of the Bank through formulation and
implementation of appropriate macro-prudential policy measures to limit the cost
of system wide distress in the financial system.
Since Financial Stability and Macro-prudential Surveillance are new concepts, there
are still a number of challenges in respect of skills development. It is on that note
that the Financial Stability Unit of the Central Bank Swaziland received technical
assistance from the Bank of Uganda, the International Monetary Fund (IMF) and
Macroeconomic and Financial Management Institute of Eastern and Southern Africa
(MEFMI). The technical expert assisted the CBS in terms of:

Financial Stability Mapping: Risk Reporting;

Stress Testing Framework; and

Customization of the Financial Stability Index.
It is the intention of Central Bank Swaziland to publish its first Financial Stability
Report during the First Quarter of the financial year. The Bank is cognizant of the fact
that this report will be utilized as a medium of communicating financial stability
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issues to the relevant stakeholders about the health of the financial sector and its
ability to mitigate risks and absorb shocks, thereby building public confidence on the
Swaziland financial system.
The Bank will continue to work with the Ministry of Finance in pursuing the financial
inclusion agenda as it aims to include the unbanked population of Swaziland and to
help alleviate poverty, ensure the delivery of financial services and products to all
segments of the society at affordable prices so as to contribute to sustainable
economic development and equitable growth.
6.6
FINANCIAL SECTOR STRATEGY FOR SWAZILAND
During the third quarter of 2014 Government in collaboration with the Central Bank
and the Financial Services Regulatory Authority (FSRA) embarked on the process of
developing a Financial Sector Development Plan. This is a three year plan, with
implementation expected to begin in the current year. The development of the plan
has been participative, including all the parties I have just mentioned and the private
sector. The plan has been completed. The structures to ensure its implementation
have also been established. The Plan is yet to be launched and its implementation will
begin in the short term and the Bank will host the secretariat. The World Bank and
IMF have been the major partners in the development of the Plan.
6.7
GOVERNMENT CASH FLOW MANAGEMENT
The Swaziland Revenue Authority (SRA) now participates in the Cash Flow
Management Committee on invitation by the Ministry of Finance. It is worth noting
that the committee facilitated the signing of the MoU between the Ministry of Finance
and Central Bank of Swaziland on Public Debt Management. The committee is
expected to help ameliorate cash-flow problems that are highly likely to occur given
the high fiscal deficit. The elimination of arrears on the Government side helps boost
business confidence and obviates full blown defaults that would not auger well for
financial stability. The cash-flow is encouraged to meet regularly and be pro-active
in mapping strategies that may mitigate the fiscal challenges the country is faced
with rather than await the onset of crisis situation.
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The Bank faces a policy dilemma. To boost economic activity and fight inflation. This
presents an opportunity for the bank to innovate: The threat faced is that of
persistent increases in inflation over the years and continued slow growth.
It is however important to note that, the Bank’s mandates of price stability and
financial sector stability will be the main drivers of monetary policy. The Bank’s
monetary policy framework is being documented. Upon completion it will be loaded
to the Bank’s website.
7.0
CONCLUSION
An eminent threat and opportunity faced is maintaining financial sector stability in
the light of a high fiscal deficit and weak economic recovery. As pointed out in the
introductory part of the policy statement, the establishment of a financial sector
stability unit is very relevant, the financing of the fiscal deficit poses the opportunity
to develop a vibrant financial market and also poses a threat to destabilise the
financial market. With the financial sector stability unit and the implementation of
the recommendations of the financial sector study, the Bank expects an improvement
in the participation of economic agents, both small and large, in the government debt
programme and debt programmes at large to develop the financial markets and
stimulate the economy with financial and price stability as the cornerstone.
The Central Bank remains committed to its constitutional mandate of defending the
value of the Lilangeni through the pursuit of financial and price stability and will not
hesitate to act accordingly if the value of the local unit is threatened. And further
work is still to be undertaken to properly map the monetary policy transmission
mechanism to enhance monetary policy decision making and communication.
Psalm 23; 4 “Yeah, though I walk through the value of the shadow of death, I will
fear no evil: for thou art with me; thy rod and thy staff they comfort me.
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