Mixed signals on Eswatini’s recent economic developments

By Ncaba Ntshakala

The Central Bank of the Kingdom of Eswatini has released its report on the latest economic developments with mixed signals. 

The Recent Economic Developments (RED) for January/February 2024 expressed a mixed picture of the Kingdom’s economic health.

Inflation 

Eswatini’s annual consumer inflation climbed to 4.5% in January 2024, exceeding the 4.3% recorded in December 2023. This upward pressure stemmed primarily from the “services” component of the Consumer Price Index (CPI), which rose by 3.2% in January compared to 2.2% the prior month. The surge was fueled by price hikes in “restaurants & hotels” and “education” services within the domestic economy.

Hotel prices rise

After a prolonged period of muted growth due to Covid-19’s devastating impact on tourism, hotel accommodation prices witnessed a significant rise of 15.6% in January 2024. This development pushed the “restaurants & hotels” index up by 13.5% in the same month, compared to a meagre 1.0% increase in December 2023. Similarly, the “education” price index jumped by 1.5% in January, up from 0.1% in the previous month. 

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Notable increases were observed in “pre-primary & primary education” prices, climbing to 4.6% in January compared to no growth in the same period last year. Additionally, fees for “secondary education” rose by an average of 1.6% in surveyed institutions during the review period. 

Furthermore, premiums for insurance services and other miscellaneous services displayed a noticeable increase.

Food inflation 

On the contrary, the CPI for “goods” witnessed a decline of 0.5 percentage points, recording 5.3% in January 2024. Disinflationary pressures were evident across all “goods” categories, including durables, non-durables, and semi-durables, whose growth rates fell by 0.1, 0.4, and 0.9 percentage points, respectively. 

Notably, food inflation continued its downward trajectory, decreasing to 5.6% in January 2024 from a 7.1% growth rate in the previous month. Most food items exhibited a slower growth trend during the review period, with “meat products,” “fruits & vegetables,” “oils & fats,” and “other cereals excluding rice” experiencing the most significant slowdown.

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Prices of clothing, footwear, and household textiles within the semi-durable category also moderated their growth rate. Similarly, prices of household appliances decelerated within the durable goods category.

Core Inflation edges upward

Core inflation, excluding volatile items like food, auto-fuel, and energy, edged up by 0.5 percentage points to reach 3.7% in January 2024. On a month-on-month basis, core inflation rose by 0.6% during the review month, picking up from zero growth in December 2023.

Eswatini’s net foreign assets reached E10.0 billion at the end of January 2024, reflecting a growth of 20.1% month-on-month and 24.6% year-on-year. Both components of net foreign assets, namely those held by other depository corporations and the official sector, contributed to this increase.

Net foreign assets of other depository corporations surged by 27.4% over the month and a staggering 95.1% year-on-year to reach E3.3 billion at the end of January 2024. 

Net foreign assets rise

The month-on-month rise was primarily attributed to an increase in deposits held in foreign banks, particularly within the Common Monetary Area. Net foreign holdings of the official sector expanded by 16.9% from the previous month and 5.8% over the year to close at E6.7 billion at the end of January 2024.

This growth stemmed from the quarterly inflow of Southern African Customs Union (SACU) revenues received during the first week of January 2024.

Expressed in Special Drawing Rights (SDRs), net foreign assets stood at SDR399.4 million, up by 20.1% month-on-month and 17.0% year-on-year.

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Preliminary data suggests a 5.1% month-on-month decline in gross official reserves, reaching E9.3 billion at the end of February 2024. 

However, these reserves still represent a 16.9% year-on-year increase. The month-on-month fall in reserves is primarily due to a net outflow of Rands from trades with commercial banks. Consequently, import cover dropped from 2.9 months in January 2024

Lilangeni weakens

The Lilangeni (SZL) currency exhibited a mixed performance against major currencies in February 2024. The local currency weakened slightly against the US Dollar and the British Pound but remained relatively stable compared to the Euro.

Specifically, the Lilangeni depreciated by 1% against the US Dollar, averaging E18.99 to the USD throughout February. 

Similarly, it lost ground against the Pound Sterling, depreciating by 0.5% and trading at an average of E23.99. In contrast, the Lilangeni held steady against the Euro, averaging around E20.49.

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Experts attribute this mixed performance to a combination of internal and external factors. Concerns about South Africa’s economic outlook, including slow growth and budgetary challenges, weighed on investor confidence and led to capital outflows.

This, in turn, exerted downward pressure on the Rand (ZAR), which is directly linked to the Lilangeni. The negativity surrounding South Africa’s 2024 national budget further dampened investor sentiment.

On the global front, the Lilangeni’s stability against the Euro can be attributed to the strengthening US Dollar. The US Dollar gained ground against other major currencies due to rising expectations of interest rate hikes by the US Federal Reserve.