- Eswatini Faces Slower Growth, High Unemployment and Rising Debt — IMF
Eswatini’s economic growth is expected to lose momentum in 2026 while public debt climbs toward 50% of GDP, as higher fuel costs, weaker global demand, tighter financing conditions and slowing investment test the resilience of the southern African economy, according to the International Monetary Fund.
An IMF mission led by Xiangming Li, which visited Mbabane from July 23 to August 5 for the country’s 2026 Article IV Consultation, said Eswatini entered the year from a relatively strong growth position but faces mounting fiscal and external vulnerabilities.
Real GDP growth accelerated to 4.90% in 2025, supported by large public and private investment projects. Yet the expansion has done little to resolve the country’s severe labour-market challenge, with unemployment remaining at 33.50%.
“Despite the strong growth, unemployment remains high at 33.50%,” Li said.
Growth is expected to moderate this year as higher fuel costs, weaker global demand, adverse weather, tighter financing conditions and reduced investment activity weigh on output.
That combination illustrates the central challenge facing Eswatini: recent investment-led growth has strengthened economic activity, but the country remains vulnerable to external energy shocks while rising government expenditure is pushing public debt higher.
The IMF said price pressures moderated during 2025 and continued declining through early 2026 before inflation edged up to 2.60% in June. Higher fuel prices are nevertheless expected to lift average inflation over the year.
Eswatini’s current account surplus widened modestly to 2.40% of GDP in 2025 from 2.10% a year earlier, largely because of an improvement in the primary income balance.
But gross international reserves stood at only 2.5 months of imports at the end of 2025.
The IMF expects the current account surplus to narrow as higher fuel costs combine with strong investment-related imports, while reserve coverage is projected to weaken further over the medium term.
The outlook is also exposed to geopolitical and climate risks. “A prolonged conflict in the Middle East could further increase fuel and fertilizer prices, weaken external demand, and heighten fiscal pressures,” Li said.
Drought and erratic rainfall represent additional risks because they could reduce agricultural output, increase food prices and deepen poverty.
The government deficit widened sharply to 6.10% of GDP in FY2025/26 from 1.10% the previous year, driven principally by higher public-sector wages and increased public investment.
The deterioration pushed public debt to 44.70% of GDP from 40.00% a year earlier.
For FY2026/27, the budget deficit is expected to narrow only marginally to 5.90% of GDP, as higher Southern African Customs Union revenues and reductions in some expenditure are offset by increased wage and interest costs.
Public debt is consequently projected to rise to 50.00% of GDP by the end of the fiscal year.
The government’s Medium-Term Fiscal Framework envisages a more substantial adjustment later.
Cabinet has approved cumulative structural primary consolidation equivalent to 6.20 percentage points of GDP through FY2031/32, excluding SACU revenue.
Under that framework, public debt is projected to peak above 52.00% of GDP before falling to around 45.00% by the end of FY2031/32.
The IMF said Eswatini’s growing use of concessional external financing should help reduce borrowing costs but recommended additional restraint in recurrent expenditure.
“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 Fund said.
That recommendation reflects the tension between fiscal consolidation and maintaining productive investment.
The IMF is not calling for indiscriminate cuts. Rather, it wants recurrent spending controlled sufficiently to protect capital expenditure capable of supporting longer-term growth.
Public financial management reforms will therefore be critical.
Priorities include fuller implementation of the 2017 Public Financial Management Act, stronger debt and public investment management, faster rollout of the Integrated Financial Management Information System and greater use of e-procurement.
The IMF also urged Eswatini to rationalise public-sector employment and strengthen financial discipline at state-owned enterprises.
The Central Bank of Eswatini has maintained its policy rate at 6.75% since May 2025, leaving it 25 basis points below the South African Reserve Bank’s rate.
The central bank has nevertheless kept its overnight deposit rate aligned with South African money-market conditions, helping limit capital outflows.
Private-sector credit growth remained strong at 10.60% year-on-year at the end of May, while the banking system remained liquid and well capitalised, although performance varied across institutions.
Given Eswatini’s exchange-rate peg and South Africa’s transition toward a lower inflation target, the IMF urged the central bank to monitor policy alignment carefully and stand ready to act if needed to protect the peg.
Beyond near-term stabilisation, the Fund sees structural reform as central to improving Eswatini’s growth potential.
It highlighted digitalisation, reduced regulatory barriers and the responsible adoption of artificial intelligence as areas capable of improving productivity and public service delivery.
“Structural reforms remain essential to support economic diversification and create jobs,” Li said.
The country needs to contain rising debt and rebuild external buffers without choking off productive investment, while simultaneously addressing unemployment that remains above 33.00% despite relatively strong recent growth.
The IMF’s preliminary assessment suggests fiscal consolidation can eventually stabilise debt, but sustainable progress will depend on whether Eswatini can convert structural reform, digitalisation and investment into a broader, job-generating growth model.
