- Eswatini’s Investment Boom Lifts Growth but Pushes Public Debt Towards 54% Of GDP — IMF
Eswatini’s public and private investment boom lifted economic growth to 4.9% in 2025, but the expansion has come with a sharp deterioration in public finances that could push government debt above 54% of GDP within two years, according to the International Monetary Fund.
Concluding its 2026 Article IV consultation, the IMF said growth was expected to slow to 3.7% in 2026 as elevated fuel prices and fiscal consolidation begin to weigh on economic activity.
The Fund’s assessment presents Eswatini with a difficult policy trade-off: the country needs sustained investment to reduce unemployment, poverty and skills shortages, but weak spending efficiency and rapidly rising debt leave little room for poorly selected projects or delayed reforms.
“Meeting substantial development needs while safeguarding macroeconomic sustainability is Eswatini’s central policy challenge,” the IMF Executive Board said.
The fiscal deficit widened from 1.1% of GDP in the 2024/25 financial year to 7.8% in 2025/26, driven by lower Southern African Customs Union receipts, increased capital expenditure, a large public-sector wage adjustment and higher non-wage current spending.
Public debt consequently rose from 40% to 44.8% of GDP and is projected to reach 52.4% in 2026/27 before peaking at 54.4% in 2027/28.
The government’s challenge is made more difficult by an effective interest rate that exceeds the pace of economic growth. That relationship means debt can continue rising relative to the economy unless Eswatini records stronger primary balances or substantially improves growth.
Eswatini’s recent growth acceleration reflects significant public and private investment projects. These have helped lift expansion above the country’s 20-year average of 2.9%.
The IMF expects growth to average approximately 3.3% over the medium term as the current investment cycle matures and project implementation slows.
This leaves the country facing an investment paradox.
Reducing capital spending too abruptly could weaken growth and employment. Continuing to borrow heavily for projects with limited economic returns, however, would increase debt-service costs without sufficiently expanding the revenue base required to repay that debt.
The answer therefore lies not simply in spending less but in spending better.
The IMF called for stronger public investment management, tighter project selection and greater use of lower-cost financing from international financial institutions. Any additional senior borrowing, it said, should be restricted to high-return investments.
Public-private partnerships could help finance infrastructure, but they would require careful oversight to ensure value for money and prevent hidden fiscal liabilities.
This warning is particularly important because PPPs can shift the immediate financing burden away from the budget while still leaving the government responsible for guarantees, availability payments or project losses in later years.
Eswatini’s authorities have adopted a medium-term fiscal consolidation plan intended to return debt to a declining path after 2027/28.
The overall deficit is projected to narrow from 7.8% of GDP in 2025/26 to 6% in 2026/27 and 4.8% in 2027/28. It is then expected to decline further before moving into a small surplus by 2030/31.
The primary balance is projected to improve from a deficit of 4.8% of GDP to a surplus of 3.8% by 2031.
That adjustment is ambitious. Its credibility will depend on whether the government can restrain recurrent expenditure while protecting investments and social programmes with the greatest economic value.
The IMF said civil-service and public-enterprise reforms would be essential to produce durable savings.
It also called for greater control over spending on goods and services, stronger tax administration and full implementation of an Integrated Financial Management Information System.
Public enterprises pose an additional risk because their debts, losses and guarantees can eventually migrate onto the central government’s balance sheet.
Off-budget spending and contingent liabilities could therefore undermine consolidation even if the formal budget deficit improves.
The Fund urged the authorities to strengthen oversight of public enterprises, prevent the accumulation of arrears and amend public-finance legislation to give the Ministry of Finance stronger control over debt, investment and expenditure.
Government revenue fell from 32.4% of GDP in 2024/25 to 28.9% in 2025/26, largely reflecting weaker transfers from the Southern African Customs Union.
SACU receipts declined from 14.5% to 11% of GDP during the period.
The size of that movement illustrates Eswatini’s fiscal exposure to a volatile source of external revenue. When SACU receipts decline, the government must either reduce spending, increase domestic revenue or borrow more.
A more durable fiscal model would require stronger domestic tax collection and expenditure plans that do not assume unusually high customs-union transfers will persist.
The IMF recommended reducing public debt towards the country’s 40% anchor over the longer term to rebuild its capacity to respond to shocks.
Even after the projected peak and subsequent consolidation, debt is forecast to remain at 48.2% of GDP in 2031 still above the stated anchor.
Average inflation declined to 3.1% in 2025 and remained at 2.5% through July 2026.
The IMF said inflation had been partly moderated by the Fuel Price Regulation Mechanism, financed through a fuel levy. However, the mechanism raised domestic fuel prices by 39% by September 2026.
Inflation is projected to average 2.9% in 2026 but rise during the second half as fuel-price increases reach the wider economy and drought conditions place pressure on food prices.
The fuel mechanism may smooth the timing of international price shocks, but it cannot permanently insulate households and businesses from their economic cost.
Higher transport and energy expenses could weaken household purchasing power, increase business operating costs and complicate the government’s effort to consolidate without harming growth.
Eswatini’s current-account surplus widened from 2.1% of GDP in 2024 to 2.4% in 2025, mainly because international companies repatriated less profit.
Gross international reserves increased to 80.5% of the IMF’s Assessing Reserve Adequacy benchmark at the end of 2025, but remained below the desirable level.
The Fund expects reserves to decline in the near term before recovering gradually, remaining below 100% of the adequacy benchmark.
Measured in import coverage, reserves rose from 2.2 months in 2024 to 2.5 months in 2025 and are projected to reach three months by 2031.
The IMF said fiscal consolidation and stronger monetary operations would be needed to rebuild reserves and protect the credibility of Eswatini’s exchange-rate peg.
It recommended closer alignment between the Central Bank of Eswatini’s policy rate and that of the South African Reserve Bank, together with improved liquidity forecasting, repo operations and a more functional interbank market.
Because the lilangeni is pegged to the South African rand, persistent differences in monetary conditions could generate capital-flow and reserve pressures.
The IMF identified digitalisation, artificial intelligence and electronic government services as potential sources of higher productivity and improved public administration.
Technology could reduce regulatory and transaction costs, improve transparency and widen access to information.
But the gains will depend on addressing skills shortages, strengthening digital capabilities and simplifying regulation.
AI cannot compensate for weak public investment selection, poor data or ineffective institutions. Its economic contribution will depend on whether businesses and government agencies have the skills, infrastructure and governance systems required to deploy it productively.
The IMF also called for clearer anti-corruption responsibilities, stronger beneficial-ownership transparency and effective implementation of anti-money-laundering and counter-terrorist-financing measures.
Eswatini’s immediate macroeconomic position is not one of crisis. Growth remains above its long-term average, inflation is moderate, the current account is in surplus and the IMF assesses systemic financial-sector risk as contained.
But the buffers protecting that stability are limited.
The country faces downside risks from incomplete fiscal reforms, tighter international financing conditions, prolonged conflict in the Middle East, foot-and-mouth disease and climate shocks, including El Niño.
The central policy test will be whether the investments driving today’s growth produce enough productivity, employment and government revenue to justify the debt incurred to finance them.
If the projects generate strong economic returns and consolidation is implemented, Eswatini could emerge with better infrastructure and a more productive private sector.
If spending remains inefficient and reforms are delayed, the investment boom could leave behind a higher debt burden just as growth begins to moderate.
That is the uncomfortable arithmetic beneath the IMF’s assessment: Eswatini is growing faster, but it is also running out of room for its investments to fail.
