Policy response, structural reforms CMA’s best responses to global challenges

Central Bank of Eswatini Governor Dr Phil Mnisi sharing his opening remarks during the event.

By Silindzelwe Nxumalo

The South African Reserve Bank Deputy Governor Fundi Tshazibana says the best response for the Common Monetary Area (CMA) to global challenges and regional vulnerabilities includes policy response, structural reforms, controlling inflation, and close supervision of banks and non-banks. Tshazibana was speaking during the CMA Governor’s symposium under the theme ‘Global Spillover Effects into the CMA region’ held at the Happy Valley Hotel on November 17.

The deputy governor said the policymakers in the region, including central bankers, still had a lot of work to do. She said a credible fiscal path was not only necessary for fiscal sustainability but to bolster confidence and ensure financial stability to give some breathing room to monetary authorities high and volatile inflation discourages external capital inflows.

She stated that it also discourages domestic fixed investment, erodes the purchasing power of the more vulnerable in society, and generally leads to a sub-optimal allocation of resources. She said it made it essential for central banks to ensure that inflation returns swiftly to target, even when the causes of deviation are due to external factors, domestic supply shocks, or necessary exchange rate adjustments.

She explained that market-determined exchange rates supported foreign investment and enhanced the allocation of resources in the long run. “Within the CMA, the rand is able to play its role of ‘shock absorber’ in episodes of capital outflows, and this helps reduce the length and size of such episodes,” she said.
Tshazibana stated that in the near term, currency realignment was typically associated with an inflationary shock, and it was a central bank’s task to ensure that the shock did not become permanent.

She explained that credible monetary policy frameworks were required to help facilitate the eventual return to lower inflation rates. “Arguably, both the spillovers from global shocks and the policy response required to deal with the inflationary consequences can increase the vulnerability of a country’s financial institutions,” she said. She added that to avoid conflict between price and financial stability goals, central banks should act pre-emptively by monitoring the evolution of financial institutions’ balance sheets and take appropriate action in the case of excess risk concentration or growing forex or duration mismatches.

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She also stated that in the context of escalating public debt levels, heightened exposures of both banks and non-bank financial intermediaries to the sovereign required close supervision. Furthermore, the deputy governor said the fiscal policy could play a crucial role in limiting both price and financial stability risks, especially in those Sub-Saharan Area (SSA) countries that, like South Africa, had seen elevated deficits and rising debt ratios in recent years.

She said a credible fiscal consolidation path could boost investor confidence, stabilize the currency, and reduce the risk premia on government debt.
“Reforms that help in broadening the tax base, prioritizing productive public investment, and reducing wasteful expenditure, can all assist in fiscal consolidation, without causing significant real income losses,” she said.

She explained that generally, structural reforms that helped foster stronger and more inclusive growth would facilitate the task of both monetary and fiscal policymakers. She also added that these could include the deepening of domestic capital markets to reduce reliance on external funding at a time when the cost and availability thereof have become more challenging.

“They can also entail steps that facilitate the diversification of African economies, the broadening of their export base, and their stronger integration into global supply chains,” she explained. Tshazibana also explained that reforming network industries, fostering skills development and training, and reducing barriers to entrepreneurship would all assist in that diversification.

South African Reserve Bank Deputy Governor Fundi Tshazibana making her presentation during the symposium.


Eswatini and Lesotho are the only CMA members with public debt below the world threshold of 60 per cent and Eswatini also has a public debt below the SADC threshold of 45 per cent. Eswatini’s public debt is at 39 per cent of GDP and the Lesotho public debt is at 57 per cent of GDP. The South African Reserve Bank Deputy Governor Fundi Tshazibana said although the SSA region had displayed resilience to global shocks, these improvements were still fragile and insufficient to bolster the region’s attractiveness for external investment.

Tshazibana said firstly, the inflation remained too high in many SSA economies among the 10 largest economies in the region, six still had double-digit year-on-year inflation rates as of September. She stated that recent currency depreciation in many SSA countries (where a large part of the consumer goods basket is imported, and where inflation expectations are often poorly anchored) risks perpetuating high inflation, in terms of triggering additional foreign exchange losses.

“Many countries in the SSA region tend to suffer from ‘twin deficits’ (fiscal and external) which raise the cost of debt servicing and refinancing at a time when global investors are more risk-averse and more sensitive to deteriorating fiscal dynamics,” she said. She explained that according to the IMF, over half of the SSA countries were either at a high risk of debt distress or already in debt distress.

She said no country in the region had been issuing Eurobonds since April 2022, suggesting that the refinancing of external debt could be particularly challenging in the next few years. “Finally, economic performance in the SSA region remains uneven and generally falls short of the performance seen two decades ago, a period when investment in the region increased steadily,” she said.

The deputy governor stated that South Africa was one of the laggards in the region – the SARB only expects growth to accelerate to 1.0 per in 2024 amid continued constraints from insufficient electricity production and inefficient transport networks and other CMA countries also look set to fall short of the regional average. Tshazibana said the IMF noted a tendency for resource-intensive economies to underperform, highlighting the lingering problem of the SSA’s insufficient downstream integration into value chains.


The Central Bank of Eswatini (CBE) Governor Dr Phil Mnisi says Eswatini was not spared from the global spillovers as they had impacted the economy in diversified ways ranging from supply chain disruptions, volatility in oil prices and lower food production, all culminating in inflationary pressures. Minis said the Kingdom saw the economy contracting by 1.6 per cent in 2020 before rebounding to 10.7 per cent in 2021.

He stated that the overall inflation also began an upward trajectory as food and fuel prices rose sharply during this period. “Inflation is forecasted to reach 4.9 per cent in 2023 from 3.73 per cent (in 2021) and 4.8 per cent (in 2022),” he said. The governor said asset quality as indicated through NPLs also rose to over 7 per cent over the period.

He also stated that such spillovers could have both negative and positive impacts on the economy and some of the recent global spillover effects to Eswatini include the COVID-19 pandemic, global warming effects, and geopolitical tensions, especially the war in Ukraine. He said global spillover effects were precipitated by different policy paths and that it was important to mention that within the CMA, each central bank evaluates its policy direction as appropriate for its economy based on the assessment of their domestic, regional, and global factors, what they term “data-driven” decision-making whilst avoiding ‘significant’ policy deviations from the anchor economy.

Furthermore, Mnisi said the CMA had played a pivotal role in promoting regional economic integration, facilitating trade, and fostering price and financial stability.
He stated that the collective efforts of the central banks in the CMA had undoubtedly delivered a stable financial system and contributed to the growth and resilience of our economies.

“It is therefore imperative to continue building on that, hence the need to collectively deliberate on issues impacting the region to ensure agility and efficiency in policymaking. The need for sharing experiences in the region cannot be overemphasized,” he said. He also stated that recent macroeconomic developments had presented challenges for price stability and financial stability for central banks and hence monetary policymakers around the world continue to face difficult trade-offs in achieving these mandates.

He said the interconnectedness of the global economy had tremendously increased over the years and global spillovers affect all economies particularly emerging markets and developing economies (EMDEs), including the Common Monetary Area, especially given the economic stature of the anchor economy. We are gathered here today to discuss these spillover effects into the CMA region.

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