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SARFED APPLAUDS GOVTâ€™S FISCAL ADJUSTMENT STRATEGY

By Majaha Nkonyane | 2019-01-16

SOUTHERN African research Foundation for Economic Development (SARFED) has hailed the government for improving its fiscal challenges from E5 billion to E2.3 billion in three months.

SARFED Regional Coordinator George Choongwa applauded the government having taken a bold stance on improving its fiscal challenges, by having a successful adjustment by half from E5 billion to E2.3 billion within a short period of three months.

“However, it is relevant that government took prudent measures in ensuring that while fiscal improvements manifested, a growth friendly fiscal structure was maintained by ensuring that remedial measures were put in place to cushion disarrays in aggregate demand caused by the labour force,” he said

growth

Fiscal policy, according to Choongwa, plays an important role in supporting strong, lasting and equitable growth. Many African countries, including South Africa, have faced a decline in their fiscal performance in the past five years due to the collapse of external markets, most of them suffered much slowdowns in economic performance like Eswatini.

Choongwa said restoring robust growth is essential for addressing the fiscal challenges, both present and ahead as it would be the only way to remain sustainable. This has a strong effect on the entire economic performance as it can make an important contribution to lifting potential growth.

“The fact that the improvements in the government of Eswatini’s consumption spending seem to have improved, while causing a constraint on the aggregate demand of goods and services as indicated by the zero increase in the wage bill, the government can also find alternative measures of cushioning the impact. This would make what can be termed as establishing a growth-friendly fiscal policy,” he said.

In addition, Choongwa said the effectiveness of growth-friendly fiscal policy is enhanced when reforms reinforce each other and are accompanied by complementary structural reforms. Combining fiscal reforms, which include scaling up infrastructure investment, improving the public investment process increases their effectiveness.

Complementary reforms such as liberalising trade, labour and product markets can magnify the impact of fiscal reforms by promoting savings, stimulating investment, and unlocking productivity gains at the same time. Choongwa further noted that while fiscal policy is an effective tool for supporting economic growth, it is also a challenge to disentangle the impact of fiscal reforms from other factors and to determine causality with certainty.

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