AFRICAN DEVELOPMENT BANK

_________________________________________________

KINGDOM OF SWAZILAND

COUNTRY STRATEGY PAPER, 2009-2013

MID-TERM REVIEW

REGIONAL DEPARTMENT, SOUTH A (ORSA)

OCTOBER 2011

TABLE OF CONTENTS

ACRONYMNS AND ABBREVIATIONS ................................................................................... i

GENERAL MAP OF SWAZILAND .......................................................................................... ii

EXECUTIVE SUMMARY ......................................................................................................... iii

1. INTRODUCTION ..............................................................................................................1

2. COUNTRY CONTEXT, RECENT DEVELOPMENTS AND PROSPECTS .............1

2.1 Political and Governance Context .................................................................................... 1

2.2 Business Environment and Competitiveness ................................................................... 2

2.3 Recent Economic Developments ..................................................................................... 4

2.4 Regional Integration and International Trade Arrangements ........................................... 6

2.5 Social Developments ........................................................................................................ 7

3. GOVERNMENT DEVELOPMENT STRATEGY, CHALLENGES AND

OPPORTUNITIES .............................................................................................................9

3.1 Swaziland’s Development Strategy ................................................................................. 9

3.2 Challenges and Opportunities ........................................................................................ 10

4. BANK STRATEGY IMPLEMENTATION AND RESULTS 2009 - 11 .....................11

4.1 Bank’s Positioning in Swaziland ................................................................................... 11

4.2 Assessment of Results-Based Outcomes........................................................................ 11

4.3 Portfolio Performance Analysis ..................................................................................... 12

4.4 Aid Coordination/Harmonisation ................................................................................... 13

4.5 Lessons from the Implementation of the 2009 – 2013 CSP ........................................... 13

5. 2011 - 2013 BANK STRATEGY .....................................................................................14

5.1 Rationale for Bank Intervention for the Remainder of the CSP Period ......................... 14

5.2 Strategic Pillars for Bank Support .................................................................................. 15

5.3 Deliverables and Targets ................................................................................................ 16

5.4 Monitoring and Evaluation............................................................................................. 19

5.5 Potential Risks and Mitigation Measures ....................................................................... 19

5.6 Country Dialogue Issues ................................................................................................ 20

6. CONCLUSION AND RECOMMENDATIONS ...........................................................20

LIST OF FIGURES

Figure 1. Governance Performance for Selected Countries .............................................................3

Figure 2. Swaziland Ranking in the Global Competitiveness Report (2010-201) ......................... 3

Figure 3. Swaziland Selected Macroeconomic Indicators...............................................................5

Figure 5. Sectorial Distribution of Portfolio as at September 2011...............................................12

Figure 6. Portfolio Comparison .....................................................................................................12

LIST OF BOXES

Box 1: Regional Integration ............................................................................................................ 7

Box 2. Economic Recovery Strategy ............................................................................................ 10

Box 3. Developmental Impacts of On-going Bank Interventions................................................. 11

Box 4: Fiscal Adjustment Roadmap ............................................................................................. 13

LIST OF TABLES

Table 1. Social Sector Budget Allocation (percent of total)..........................................................18

Table 2. Indicative Pipeline, 2011 – 2013.....................................................................................18

LIST OF ANNEXES

Annex I: Swaziland CSP Result-Based Framework (2009 - 2013)

Annex II: Selected Macroeconomic Indicators

Annex III: Comparative Socio-Economic Indicators

Annex IV: Progress toward Achieving the Millennium Development Goals

Annex V: Matrix of Donor Support to Swaziland

Annex VI: Indicative Bank Program at the Start of the 2009 - 2013 CSP 2009 - 2013

Annex VII: Sectorial Distribution of Portfolio as at September2011

Annex VIII: Swaziland - Mo Ibrahim Governance Index 2011

Annex IX: Portfolio Performance Challenges

Annex X. Comparative Social Indices in SACU

CURRENCY EQUIVALENTS

(September 2011)

National Currency = Lilangeni (SZL)

UA 1.00 = USD 1.60

UA 1.00 = SZL 10.77

USD 1.00 = SZL 7.04

WEIGHTS AND MEASURES

Metric System

GOVERNMENT FISCAL YEAR

April 1- March 31

This CSP Mid-Term Review was prepared following a consultative mission to Swaziland held from 27 June – 6

July 2011. The review was prepared by a team led by Mr. Albert Mafusire, Senior Country Economist (ORSA);

and it included Mr. Boniface Aleobua, Principal Water Engineer (OWAS); Mr. Frank Boehane, Senior

Education Specialist (OSHD); Ms. Imen Chorfi, Consultant (ORSA); Mr. Joseph Coompson, Chief Agricultural

Economist (OSAN); Ms. Nana Beth Kgosidintsi, Senior Health Specialist (OHSD); Ms. Delenia McIver,

Principal Legal Counsel (GECL); Ms. Susan Mpande, Governance Officer (OSGE); Mr. Victor Ndisale, Chief

Governance Officer & Macroeconomist (OSGE) and Ms. Eva Ruganzu, Principal Country Program Officer and

Officer In-Charge (ZAFO). Questions on the document should be addressed to Mr. Ebrima Faal, Director

(ORSA).

ACRONYMNS AND ABBREVIATIONS

ADB African Development Bank

ADF African Development Fund

AIDS Acquired Immunity Deficiency Syndrome

ARVs Antiretroviral drugs

ASYCUDA Automated System for Customs Data

AWF African Water Facility

CIFA Country Institutional and Fiduciary Assessment

CMA Common Monetary Area

COMESA Common Market for Eastern and Southern Africa

CPIA Country Policy and Institutional Assessment

CPPR Country Portfolio Performance Report

CSP Country Strategy Paper

DPs Development Partners

EPA Economic Partnership Agreement

ERS Economic Recovery Strategy

ESW Economic and Sector Work

EVERS Enhanced Voluntary Early Retirement Scheme

EU European Union

FAR Fiscal Adjustment Roadmap

FDI Foreign Direct Investment

GDP Gross Domestic Product

GNI Gross National Income

GOS Government of Swaziland

HDI Human Development Index

HIV Human Immuno-deficiency Virus

ICT Information and Communication Technology

IMF International Monetary Fund

MDGs Millennium Development Goals

MIC(s) Middle Income Country (Countries)

MTR Medium Term Review

MTS Medium Term Strategy

NDS National Development Strategy

NEPAD New Partnership for Africa’s Development

NGOs Non-Governmental Organizations

PFM Public Financial Management

PPP Public-Private Partnership

RISP Regional Integration Strategy Paper

RMF Results Measurement Framework

SACU Southern African Customs Union

SADC Southern Africa Development Community

SMEs Small and Medium Enterprises

SMP Staff Monitored Program

SZL Swaziland Lilangeni (plural E - Emalangeni)

UNDP United Nations Development Program

USD United States Dollar

VAT Value Added Tax

WB World Bank

WTO World Trade Organization

ii

GENERAL MAP OF SWAZILAND

iii

EXECUTIVE SUMMARY

1. The CSP mid-term review is a product of extensive consultations between the Bank and

the government of Swaziland, as well as other stakeholders. Additional information was

obtained from various government and other publications. This report assesses progress made in

the implementation of the Bank’s Mid-Term Country Strategy Paper (2009 - 2013 CSP) for

Swaziland. It also provides the context for the proposed strategy for the remainder of the CSP

period and the expected outcomes. This strategy proposes a modification of Pillar I of the current

Bank strategy to focus on removing structural bottlenecks to competitiveness and improving

public financial management. Pillar II of Swaziland’s 2009 – 2013 CSP will continue to focus on

enhancing health delivery and skills development.

2. Swaziland is facing the worst fiscal crisis in decades, which is threatening the

achievement of its national development objectives as stated in the Vision 2022 document. The 2010/11 fiscal deficit reached 13.8 percent of GDP due to a 63 percent decline in Southern

Africa Customs Union (SACU) as well as historically high levels of expenditure. The

government has also not been able to raise sufficient financing for the previous and current fiscal

years.1 Continued to accumulation of payment arrears to local suppliers, which stood at about

E 1.5 billion (5.6 percent of GDP) at the end of September 2011 could reach E 2.5 billion

(8.5 percent of GDP) during the 2012/2013 fiscal year if no alternative financing is secured. The

country has also experienced lower growth, averaging 2 percent over a decade, which is almost

half that of its SACU peers. In spite of its lower middle income country status, Swaziland is

characteristically similar to Africa’s low-income countries, with 70 percent of its 1.2 million

people deriving their livelihood from agriculture and 63 percent of the population lives in

poverty and both output and trade are not diversified.

3. Additional economic challenges have emerged as a result of the impact of the global

financial crisis. Consultations during the CSP mid-term review mission revealed that medium-

to- long-term development challenges facing Swaziland were similar to those identified at the

beginning of the current Bank Strategy. However, the economic environment has changed

drastically. Both internal and external balances are under serious strain. The current fiscal crisis,

which has become an economic and social crisis, could also lead to a sovereign debt challenge.

As the Bank pursues its development strategy for Swaziland, there is an urgent need to halt

further deterioration in macroeconomic conditions, restore private sector confidence, and

safeguard the welfare of vulnerable population.

4. While long-term development challenges remain unchanged, the unstable

macroeconomic environment has complicated government’s response. Undertaking

economic and structural reforms, set out in the Fiscal Adjustment Roadmap and the 2011

Economic Recovery Strategy have become a top priority for government. A significant

challenge, however, is the country’s limited institutional, financial and technical capacity to

implement the proposed reform measures.

5. Swaziland did not borrow from the Bank during the current CSP period. As at July

2011, the Bank’s portfolio comprised 7 operations with a total commitment of UA 19.6 million.

1Fiscal year runs from 1

st April to 31

st March

iv

The Komati Downstream Development Project is the only on-going lending operation in the

country. The rest are non-lending water and sanitation, health, transport operations and multi-

sectorial grants accounting for 13.8 percent of the commitment value.

6. The proposed Bank strategy for the remaining CSP period aims to strengthen the

foundations for strong, sustainable and shared growth. To ensure selectivity and

development impact, the Bank’s interventions will focus on:

Building the government's capacity to use the budget as a development tool and better

manage public financial resources;

Investments in irrigation infrastructure to ensure greater participation of the rural poor

population in commercial and other value addition activities in the sector.

Improving the business environment to attract the investments needed for output

diversification and private sector development, including investments in human capital

development; and

7. The government needs support in implementing the necessary measures to ensure fiscal

sustainability and a return to higher economic growth. The Bank will continue to dialogue

with the government to enable it implement the reforms necessary to ensure macroeconomic

stability and higher growth. The Board is invited to approve this strategy that is expected to

enhance the developmental impact of Bank support to Swaziland.

1

1. INTRODUCTION

1.1 Swaziland is experiencing a crippling fiscal crisis, which is threatening to

undermine the Bank’s prospects of effectively implementing its current strategy. The Board

approved the Swaziland Country Strategy Paper (CSP) in February 2009. The pillars are:

Investing in infrastructure to increase productivity and competitiveness; and

Enhancing health delivery and skills development.

In its current form, the 2009 – 2013 CSP does not provide sufficient scope to respond to the

crisis facing the country. The crisis has exposed the country’s limited capacity to adequately

respond to its challenges without external assistance. Such assistance should be accompanied

with comprehensive policy and structural reforms to help support the recovery of the economy

and strengthen the foundations for future strong, sustained and shared growth.

1.2 The Medium-Term Review assesses the role the Bank could play to mitigate the

impacts of the fiscal crisis in the short-to-medium term, while providing strategic assistance

for long-term growth and development. It also assesses the Bank’s strategic priorities and

comparative advantage. The medium-term review of the 2009-2013 Swaziland CSP followed a

participatory approach to ensure extensive discussions and consultations with the government

and other major stakeholders, including Development Partners (DPs), private sector

organizations and civil society organizations Discussions with stakeholders focused on:

(i) The nature of Bank support to ensure fiscal sustainability in the short-to-medium term

period;

(ii) Swaziland’s current policy and development priorities;

(iii) The indicative project pipeline and its consistency with the proposed pillars;

(iv) Selectivity in relation to other DPs’ intervention areas during the remaining period

covered by the CSP; and

(v) The criteria for monitoring performance in the context of the Results Measurement

Framework.

2. COUNTRY CONTEXT, RECENT DEVELOPMENTS AND PROSPECTS

2.1 Political and Governance Context

Swaziland’s political tensions reflect the long standing contradictions associated with

juxtaposing a bi-cameral Westminster-type constitution on the traditional monarchy

system.2 The 2005 Constitution provides for the separation of powers between the executive,

made up of the King as Head of State, the legislature and judiciary. In practice, however, this

separation of power is blurred, with ambiguities and overlaps in the policy and decision-making

processes. There is also friction between a highly devolved tinkhundla3 system and a more

2 Political parties are banned although informal political parties such as the African United Democratic Party,

Imbokodvo National Movement, Ngwane National Liberatory and People’s United Democratic Movement are

known to exist. 3 Administrative sub-divisions (55 in total) based on a traditional governance system.

2

Centralized government system, hence the challenges faced in policy formulation, approval, and

implementation.

2.1.1 In spite of the prevailing peace, the complex political system inhibits political and

governance reforms. Trade union and civil society groups have become highly critical of the

suppression of political pluralism. Expressions of public discontent through demonstrations have

become more frequent since the beginning of 2011. Specifically, public discontent has arisen

from a perception that the lack of checks and balances in the governance system has supported

non-responsive and corrupt political elites. Indeed, during the presentation of the 2011-2012

budget, the Ministry of Finance estimated that corruption costs the government about 3.5 percent

of GDP annually. In this context, trade unions and civil society groups are exerting pressure for

political and governance reforms. Calls for reform are directed at making the government more

accountable and efficient in the use of resources.

2.1.2 Swaziland fares relatively well and ranks above most sub-Saharan African countries

on most of the governance indicators. In contrast, it does not do so well when compared to

other middle income countries in the region. Botswana and Mauritius are ranked higher on all

indicators (Figure 1).4 Swaziland’s worst performance is on voice and accountability, where

almost 87 percent of the countries covered in the World Bank's 2011 Worldwide Governance

Indicators survey are ranked higher than it. The Mo Ibrahim Governance Index ranks Swaziland

at 46th

out 53 countries in Africa on participation and human rights (Annex VIII). Also,

Swaziland’s political stability and regulatory quality in 2011 are worse than those in 2000.

2.1.3 In view of this poor standing, government acknowledges the urgency for reform as a

prerequisite for growth and sustainable development. Indeed, the government’s Vision 2022,

National Development Strategy and the Economic Recovery Strategy (ERS) of 2011 highlight

the importance of good governance. The ERS further states that weak institutional structures and

limited capacity to implement reforms is negatively affecting public service delivery and does

not bode well for stamping-out corruption. These weaknesses are also observed in the

government’s slow implementation of many of the international conventions it has signed. It has

taken eight years for the cabinet to ratify the African Charter on Human Rights and People’s

Rights of Women in Africa.

2.2 Business Environment and Competitiveness

2.2.1 Swaziland’s business environment has improved but weak governance has impeded

private sector development. Creating a conducive business environment is critical for

stimulating private sector investments. For foreign direct investment (FDI) location-specific

factors are important as they determine the level of risk and operational costs associated with an

investment project.5 The country’s ranking in the "2011 Ease of Doing Business Report" dropped

to 126 in 2011 from 123 in 2010. The current deterioration in macroeconomic conditions and

rising social tensions may reduce Swaziland’s relative attractiveness to FDI in the Southern

Africa Customs Union (SACU). Overall, the three most problematic factors for doing business

are the high levels of corruption, government bureaucracy, and limited access to finance. The

4 The World Bank categorizes these into six broad indicators: (i) Voice and accountability, (ii) Political stability, (iii)

Government effectiveness, (iv) Regulatory quality, (v) Rule of law, and (vi) Control of corruption. 5 These factors include both hard and soft infrastructure such as availability of human capital, rule of law, economic

and political stability, security, and quality of financial markets and trade policy.

3

2010 FinScope Survey revealed that only 9 percent of adults in Swaziland used banks or non-

bank financial institutions to access credit and only 45 percent of the Swazi population had

access to financial services.6 This has affected the nascent small and medium enterprises (SME)

that are liquidity constrained due to non-payments by government for services provided by them.

2.2.2 Swaziland’s ranking in the Global Competitiveness Index (GCI) has deteriorated,

falling from 128 out of 139 countries in the 2009/10 to 134 out of 142 countries in 2011/12

rankings. The country’s global competitiveness is being held back by weak institutions, a lack

of efficiency drivers, including a small domestic market, lack of technological readiness and

poor outcomes in tertiary education and skills training. The macroeconomic environment has

also deteriorated, while the innovation and sophistication factors are almost at the same level as

those for Lesotho.

2.2.3 The institutional and capacity weaknesses are also reflected in the government’s

ineffectiveness in fiscal and public financial management and a non-conducive private

sector environment. The Bank’s Country Policy and Institutional Assessment (CPIA) shows no

improvement between 2009 and 2010, with an overall rating of 3.67 (moderately weak). The

CPIA indicates the worst performance regarding measures on social protection. Likewise, the

World Bank’s Country Integrated Fiduciary Assessment (CIFA) of 2010 confirms the existence

of substantial fiduciary risk. This risk is mainly due to a lack of adequate expenditure controls, a

poor commitment system, weak oversight and accountability arrangements, inappropriate payroll

systems and fiscal planning framework, and inefficient tax institutions. The government is

slowly taking some steps to address these weaknesses: a new Public Financial Management

(PFM) Bill is being prepared and the Procurement Bill was passed by parliament and acceded to

by the King in August 2011. In addition, the Swaziland Revenue Authority was operationalized

at the beginning of 2011, and will be implementing a Value-Added Tax (VAT) system in 2012.

2.2.4 In response to the deteriorating business environment, the government has finalized

the ERS where reforms have been identified as critical for economic recovery. The ERS

6 FinScope is a FinMark Trust initiative that focuses on consumers’ perceptions of the financial services sector in a

country.

12.8

42.936.4

28.2

37.9

52.659.7

78.3

67.5 67.5 67.8

79.9

69.765.6

75.6 76.6 74.9 73.2

0

10

20

30

40

50

60

70

80

90

Swaziland Botswana Mauritius

Figure 1. Governance Performance for Selected

Countries

Source: Worldwide Governance Indicators

153

40156

46

120

52147

170

63

Starting a

Business

Dealing with

Construction

Permits

Registering

Property

Getting

Credit

Protecting

InvestorsPaying Taxes

Trading

Across

Borders

Enforcing

Contracts

Closing a

Business

Source: World Economic Forum: Global Competitiveness Index 2010-2011

Figure 2. Swaziland Ranking in the Global

Competitiveness Report (2010-2011)

4

aims to lift economic growth to 5 percent and create at least 30 thousand jobs by 2014. These

targets are by no means easy to achieve unless the government takes hard steps to implement the

necessary economic and structural reforms. These reforms are needed to enhance efficiency in

public resources allocation and utilization, as well as improve the business environment in

support of private sector development. The government made efforts to reduce the backlog of

legal instruments in parliament that would expedite implementation of the much-needed reforms.

The government acknowledges the risks of not taking corrective measures to reverse the

deteriorating economic conditions. Such measures include reductions in government

expenditures and enhancing resource mobilization, including external resources, which are

needed to close the fiscal financing gap.

2.3 Recent Economic Developments

2.3.1 Unlike its regional peers in Southern Africa, Swaziland has experienced sluggish

growth in the last two decades, averaging just over 2 percent per year. The global financial

and economic crisis cut Swaziland’s growth by halve to 1.2 percent in 2009 compared with 2.4

percent in 2008. Growth has remained subdued, only recovering to 2 percent in 2010. The

persistently low growth reflects a lack of competitiveness, due to an overvalued real exchange

rate; low investment, and high cost of doing business (see Section 2.2). Moreover, growth has

been driven largely by public consumption, raising questions about its sustainability in spite of

the relatively good performance of the agricultural sector. The government initially reduced its

expenditure in the 2011/12 budget compared with 2010/11 and presented a revised budget that

would cut expenditures by a further 2 percent. Despite signs of recovery in the export and

manufacturing sectors, real output is expected to increase by a mere 0.3 percent, reflecting lower

public consumption (Fig. 3). The nascent private sector has also scaled down its activities,

shedding about four thousand jobs due to government’s inability to pay for goods and services

provided by them.

2.3.2 Since the first quarter of 2010, inflation had been kept below 5 percent compared to

the recent peak of 12.6 percent recorded in 2008. This notwithstanding, and in sync with

regional trends, inflation edged upwards, rising from 5.5 percent in March to 7.1 percent in May

2011. Since then inflation has slowed down to 6.4 percent in June 2011 and is expected to end

the year within these levels which are higher than 2010 average. Inflation has been largely driven

by food and fuel prices (Figure 3). Despite the built-up of inflationary pressures, the policy

interest rate has been kept at 5.5 percent. Interest rates, however, could be raised in the near

future if inflationary pressures persist, despite the sluggish growth. The strong lilangeni, which is

pegged at par to the South African rand has also helped in moderating inflation.

2.3.3 Swaziland recorded fiscal surpluses in the period leading to the global financial

crisis due to windfalls in SACU revenue transfers. The fiscal balance has deteriorated over the

last two years following a sharp decline in SACU revenues, which account for about 60 percent

of total government revenue. The fiscal surplus of 6.4 percent in 2008/09 turned into a deficit of

7.1 percent of GDP in 2009/10. The fiscal deficit nearly doubled in 2010/11 to about 13.8

percent. Going forward, urgent measures that include expenditure cuts are required to avoid

further deterioration of the fiscal balance and ensure fiscal sustainability. Expenditure cuts are

required given the limited potential to enhance domestic revenue mobilization over the short-to

medium-term.

5

-7

-5-6

-3

9

6

-7

-14

-3-2

0

43

1

-7

-3-2

0

34

2 2

-5

-3

-15

-10

-5

0

5

10

2003 2004 2005 2006 2007 2008 2009 2010

%

Swaziland Southern Africa Africa

Fiscal deficit worsens as expenditure adjustments fall far

short of revenue decline

0.3

1.1

-2.5

-0.5

1.5

3.5

5.5

7.5

9.5

2003 2004 2005 2006 2007 2008 2009 2010 2011

%

Swaziland Southern AfricaAfrica IMF Projection

Swaziland's growth has averaged just over 2 percent

since 2000

0

2

4

6

8

10

12

14

Jan_09

Mar

-09

May

-11

Jul-

09

Sep

-09

Nov-0

9

Jan-1

0

Mar

-10

May

-10

Jul-

10

Sep

-10

Nov-1

0

Jan-1

1

Mar

-11

May

-11

Jul-

11

%

Swaziland South Africa Namibia

Inflation edges upwards, as food and fuel prices increase

0

5

10

15

20

25

30

35

40

45

2003 2004 2005 2006 2007 2008 2009 2010

%

Total Revenue (excl. grants) % GDP Grants %GDP

2.4

0.9 1.32.5 2.6

3.32.6

-4.6

-1.4

-6.7

-4.6

-2.8

-12.0

-16.6

-20

-15

-10

-5

0

5

2000 2005 2006 2007 2008 2009 2010 (e)

External Reserves months of imports

Current Account Balance % GDP

Government uses foreign reserves to finance fiscal deficit

17.917.1 17.3

18.116.9

13.6

18.9

25.3

3.9

1.7 1.9 2.02.8 2.5 2.8

0

5

10

15

20

25

30

2000 2005 2006 2007 2008 2009 2010 (e) 2011(f)

Public debt % GDP Debt Service % exports

Public sector debt rising and could threaten sustainability

Revenues decline sharply in 2010 and is expected to be

worse in 2011

Figure 3. Swaziland Selected Macroeconomic Indicators

Source: ADB Statistics Department Databases; World Bank: World Development Indicators; UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country

Reports.

6

2.3.4 The loss of confidence by the private sector is making it difficult for the government

to raise domestic financing. The financial sector has lost its appetite for long term government

paper and the government is now in a net paying position on short-term outstanding debt. On the

other hand, short term financing costs are rising. The government is engaged in negotiations with

bilateral and multilateral partners to secure the external resources needed to close its financing

gap of about E 3 billion (11.2 percent of GDP) in the 2011/12 budget. This includes a request for

budget support to the Bank and the 2.4 billion rand South African loan facility. Only about 10

percent of the financing gap is expected to be financed domestically. External debt could

therefore rise sharply from 12 percent of GDP in 2010 to about 26.5 percent in 2012.

Swaziland’s external debt level is still expected to remain below the debt distress threshold of 40

percent of GDP.

2.3.5 In the wake of the current fiscal crisis, the government of Swaziland has opened up

to and is engaged in intensive dialogue with Development Partners. Swaziland agreed to

implement the International Monetary Fund (IMF) Staff Monitored Program (SMP) in April

2011. Slow implementation of reforms led to the unsatisfactory performance under the first SMP

and negotiations for a new SMP are on-going. The main thrust of the SMP is to support the

implementation of the Fiscal Adjustment Roadmap (FAR). The FAR was developed with

technical assistance from the Bank. However, the risk of Swaziland’s failure to implement policy

and structural reforms remains. To mitigate this risk, the Bank approved a MIC grant for

technical assistance in public financial management reforms, which are also being supported by

other development partners.

2.3.6 A strong rand, to which the lilangeni is pegged at par, has reduced the

competitiveness of Swaziland’s non-SACU exports. The lilangeni appreciated by an average

12.7 percent year-on-year to June 2011 against the US dollar. As a result, imports grew much

faster than exports, widening the current account balance from 14 percent of GDP in 2009/10 to

18.5 percent in 2010/11. Some recovery in exports and projected lower imports in 2011 due to

slower growth in GDP and the recent depreciation of the lilangeni are expected to lead to an

improvement in the current account balance to 13.6 percent of GDP in 2011/12. Reflecting the

worsening external balance and the government’s recourse to financing deficits, foreign reserves

have fallen by 18.5 percent over the year to September 2011. Foreign reserves stood at 2.2

months of import cover in September 2011, compared with 4.7 months at the end of 2009

(Figure 3). Securing external financing, therefore, is critical for the maintenance of the lilangeni's

parity to the rand.

2.4 Regional Integration and International Trade Arrangements

2.4.1 To circumvent its land-locked nature, small domestic market and erosion in trade

preferences, Swaziland needs to develop a new strategy to increase exports. The country

benefits from the EU, the Africa Growth Opportunity Act (AGOA) and other regional

preferential trade arrangements. It is actively involved in the Common Monetary Area (CMA),

SACU, the Southern African Development Community (SADC) and the Common Market for

Southern and Eastern Africa (COMESA). Given the gradual liberalization in global trade,

preferences are being eroded. Swaziland needs to enhance its trade competiveness, diversify

exports and target markets if it is to increase its share in global trade. Both the end of the multi-

fiber protocol and the end of apartheid in 1994 resulted in foreign firms relocating to South

7

Africa and elsewhere leading to job losses and lower growth. The end of AGOA in 2015 could

have similar effects. The economy urgently needs to diversify its output, in addition to sugar and

wood products. Also, experience from the sugar industry has shown that expanding and moving

up the value chain and export market diversification are critical for developing competitive

advantages. This process could be supported by improvements in trade facilitation (Box 1).

2.4.2 Swaziland is among the top ten most open economies in the world and this presents

opportunities for growth, but also increases vulnerability to external shocks. The country’s

openness, calculated as a ratio of the sum of exports and imports to GDP stood at 194 percent in

2010. Trade concentration is a challenge, as over 90 percent of Swaziland’s imports emanate

from South Africa, which is the destination for about 70 percent of the country’s exports.

Therefore limited output and market diversification leaves the country vulnerable to external

shocks.

2.5 Social Context

2.5.1 Swaziland’s total population was estimated at 1.2 million in 2010 and has remained

almost unchanged in the last five years despite a high annual birth rate of 28.3 births per

1000 people. This outcome is due to high mortality rates (52 per 1000 births, 73 per 1000 for

under 5s and 7000 AIDS related deaths per year). About 40 percent of the population is under 15

years of age, resulting in a relatively high dependency ratio. Furthermore, 23 percent of the

country’s population comprises of orphans and vulnerable children. In the absence of a

comprehensive social security system and given the country's large number of orphans due to

HIV and AIDS, the government assumed the responsibility for providing grants for education

and basic health, in addition to elderly grants.

Poverty

2.5.2 In spite of Swaziland being classified as a lower middle income country, it is

characteristically similar to Africa’s low-income countries. About 70 percent of the

population depends on agriculture. As reported in the 2010 Swaziland Household Income and

Expenditure Survey, about 63 percent of the population lives in poverty, down from 69 percent

in 2000 (Figure 4). The fiscal crisis, however, could reverse these gains as social expenditures

have not been spared despite the government’s assurances to ring-fence such expenditures.

Swaziland’s Integrated Labor Force Survey of 2010 reports overall unemployment at 45.6

Box 1: Regional Integration

In response to Africa’s need for greater integration into the regional and global economies, the African

Development Bank (AfDB) is assisting African countries develop ‘National Aid for Trade Strategies’. The

strategy is aimed at identifying trade related investment priorities and activities to address trade-related

constraints. It will respond to the question: What priorities should be accorded to trade development in

Swaziland’s economic growth strategy?

One such priority is trade facilitation, as noted in the Southern Africa Regional Strategy Paper (RISP).

Arguably, the most binding constraint for the region is trade facilitation as demonstrated by various metrics.

According to the World Bank’s Trading Across Borders category of the 2011 Doing Business Report,

Swaziland is ranked 147th

, six points up from its 2010 ranking. On average, it takes 18 days for cargo exported

from the country and 27 days for cargo to be imported. In addition, it costs an average of US$1,754 to export

and US$1,849 to import a 20-foot container of non-sensitive goods, with an average of 9 documents being

required for exports and 10 for imports.

Source: Adapted from the Southern Africa RISP & Aid for Trade Strategies Concept Note, AfDB

8

percent. Also, growth during the last decade has not been pro-poor, as rural unemployment and

poverty rates are the highest.7 Income inequality remains high, with a Gini coefficient estimated

at 0.5.8 The high poverty incidence and widespread unemployment, especially among the youth,

in a situation of low economic growth pose serious policy challenges. Poor policy coordination

and lack of access to basic productive resources such as land, water and finance account for this

outcome. The absence of a formal legal framework to address the land issue continues to hamper

efforts to economically empower rural households, especially women.

Health

2.5.3 Swaziland's health system faces severe human resources constraints, which are

further exacerbated by the high burden of disease due to HIV and AIDS, poverty, migration

of skilled health workers and inefficient health management systems. The country’s health

sector is based on the concepts of primary health care and decentralization. Currently, there is no

functional referral system for the rationalization of service delivery at various levels. The

country's health management systems, including financial management and budgeting systems

are considered to be too centralized, inefficient and unresponsive to new needs. These factors

contribute to Swaziland having the highest proportion of government health spending dedicated to

curative services in all of sub-Saharan Africa. Given the fiscal challenges, possibilities for the

government to raise its budget allocation to the health sector to meet the 2001 Abuja target of 15

percent from the current level are limited (Table 1). The country has no health insurance system for

the majority of its citizens, including civil servants.

Education

2.5.4 Swaziland has one of the highest enrollment and literacy rates on the continent but

the quality of education and training remains poor despite government allocating the

largest share of its budget to this sector. The Orphaned and Vulnerable Children’s initiative

launched in 2002 and the State Funded Primary Education Program that started in 2009 had, by

2010, contributed to a 10 percent increase in primary school enrolments. Also, the net enrolment

ratio has gone up from 72 percent to 86 percent. Swaziland has also made impressive

achievements in overall literacy rates, recorded at close to 90 percent for all adults and that for

youths at more than 95 percent. Given the fiscal crisis, ensuring that these programs continue is a

challenge. Even more challenging is ensuring that primary school completion rates increase in

tandem with enrolment ratios.

2.5.5 At the tertiary level, there is a mismatch between labor market requirements and

the skills generated. Swaziland, however, has the potential to reap the demographic dividend of

a young and productive workforce. Almost 52 percent of its population is under 20 years, but

more than half of these are neither formally employment nor adequately equipped to engage in

productive activities in the informal sector. In addition, without improvements in the quality of

skills development, the planned implementation of the Enhanced Voluntary Early Retirement

Scheme (EVERS) could throw thousands of people, most of whom are women, into poverty.

2.5.6 Progress towards MDGs: The country is on track to meet five out of the eight

Millennium Development Goals (MDGs).The three MDGs that may not potentially be attained

7 Source: 2009/2010 Swaziland Household Income and Expenditure Survey (SHIES), February 2011.

8The Gini coefficient ranges between 0 (complete equality) and 1 (complete inequality).

9

by 2015 are: (i) Goal 1 (Eradicate extreme poverty and hunger); (ii) Goal 6 (Combat HIV/AIDS,

Malaria and other diseases) and (iii) Goal 7 (Ensure environmental sustainability). The Human

Development Index (HDI) stood at about 0.5 in 2010, ranking the country at 121st out of 169

countries, and average life expectancy, at 47.0 years, is one of the lowest in the world.9Also, in

spite of the commitment and progress made towards gender equality and respect for human

rights thus far, lack of progress in implementing the 2005 Swaziland Constitution is likely to

pose challenges given the strong patriarchal traditions in the country (Annex III & X).

3. GOVERNMENT DEVELOPMENT STRATEGY, CHALLENGES AND

OPPORTUNITIES

3.1 Swaziland’s Development Strategy

3.1.1 The country’s development agenda is set out in its long-term Vision 2022, the

National Development Strategy (NDS) whose implementation has been carried out through

medium-term oriented action programs. Since the launch of the NDS in 1997, three such

programs have been implemented:

(i) The Millennium Action Program of 2002 focused on poverty alleviation, with emphasis

on rural development, employment creation, HIV/AIDS, efficiency and cost-

effectiveness in the public service;

(ii) The Smart Program on Economic Empowerment and Development, which began in 2004

aimed at achieving a sustainable economy, regional development, public service reforms,

human capital development and poverty reduction; and

(iii)The 2007 Poverty Reduction Strategy and Action Plan that was designed to focus on

measures to reduce poverty.

The government has recently developed the Economic Recovery Strategy, which is a medium-

term response to the macroeconomic challenges facing the country (Box 2).

3.2 Challenges and Opportunities

Challenges

3.2.1 The government is facing macroeconomic instability and a contracting economy, in

addition to the development challenges that existed prior to the current fiscal crisis. Economic growth has been low, which could be explained by the low investment levels,

declining productivity in the face of the HIV/AIDS impact as well as policy and institutional

weaknesses. Also, Swaziland risks reversing some of its past social gains. A large proportion of

the Swazi population is not participating in the mainstream economy. Economic growth is not

pro-poor; unemployment remains high and restrictions on land ownership in rural areas limits

inclusiveness of government policies, especially women. Therefore, development-oriented

institutions need further strengthening to ensure sustainable long-term progress. A framework for

closer donor coordination will help in this process.

9 Since the first case of HIV was diagnosed in the country in 1986, prevalence increased sharply from 3.9 percent in

1992 to an all-time high of 42.9 percent in 2004. As at end 2007, adult HIV prevalence declined to an estimated 26.3

percent. Nonetheless, approximately 190,000 people in Swaziland are HIV positive, including 15,000 children under

the age of 15. Of these affected, 69,000 are on ARV treatment.

10

3.2.2 The slow pace of reform implementation threatens fiscal and debt sustainability and

poses serious challenges to the structural and economic transformation of Swaziland. These

challenges may further weaken the country's growth prospects. The country has, over the last

decade, experienced low growth relative to its peers in the region. The lack of a conducive

business environment also continues to constrain private sector development. In addition, the

government faces serious capacity constraints due to the high turnover of experienced staff and

outdated curricula in educational and training institutions. Budget outlays, especially for

education and health, should be made more efficient and effective. There is also a need for

improvements in governance and fiduciary areas, as proposed in the FAR.

3.2.3 Limited economic diversification, the country’s geographical location, trade

dependence on South Africa, and volatility in SACU revenue transfers present additional

challenges. The economy relies on sugar, cotton and pulp as major exports. Internal revenue

sources are limited due to constraints on private sector development while SACU revenues are

volatile. These factors, including institutional weaknesses, make the achievement of

development objectives less likely.

Opportunities

3.2.4 The government has engaged development partners in its efforts to respond to

emerging challenges despite the slow reform implementation. It has started implementing

some of the reforms proposed in the FAR:

The Swaziland Revenue Authority became operational at the beginning of 2011;

The 2010 Public Procurement Bill into law in August 2011;

A new Companies Act was passed in 2010, and

The Investor Roadmap was reviewed.

More effort, however, is required to improve the business environment and to attract private

sector investments in existing and new projects. Opportunities for Bank financing of private

sector entities or through public-private partnership arrangements are likely to emerge as the

Box 2. Economic Recovery Strategy

The prevailing economic and fiscal situation has compelled Government and the nation at large to embark on the

Economic Recovery Strategy. The strategy is produced out of Government’s desire to implement decisive reforms

against the backdrop of the serious socio-economic challenges that the country faces. The development of the ERS

will pave the way for a shared, equitable and participatory approach to sustainable development, social and

economic growth by addressing the current challenges and constraints taking into account, existing and potential

opportunities and improving prospects for the socio-economic prosperity of future generations.

The overall objective of the ERS is to achieve a growth rate of 5 percent and create at least 30, 000 jobs by 2014. It

seeks to set a clear direction on the actions and measures to be taken to restore macroeconomic stability and shared

economic growth for poverty reduction and sustained economic development.

This ERS further articulates how the global financial crisis has impacted on Swaziland, what major setbacks have

resulted and what could be done to counter adverse effects. The main thrust of the recovery program is to

strengthen macroeconomic management, restore investor and consumer confidence, undertake structural reforms,

infrastructure development (increasing pro-poor and pro-growth investment), invest in human capital and empower

the poor to generate income. The Government is expected to design and implement appropriate fiscal policy as well

as adopt relevant monetary policy instruments that provide an enabling environment for the private sector to thrive.

Source: Extracts from the Economic Recovery Strategy, GoS 2011.

11

business climate improves. The Bank could play a critical role to ensure implementation of the

reform program through Policy-Based Operations (PBOs), especially given Swaziland’s

relatively low debt levels.

4. BANK STRATEGY IMPLEMENTATION AND RESULTS 2009 - 2011

4.1 Bank’s Positioning in Swaziland

4.1.1 Bank support during the first half of the CSP has been aligned to the country's

national development objectives as specified in the country’s long term Vision 2022 and the

Poverty Reduction Strategy and Action Program. The 2009-13 CSP aimed to address some of

the development challenges facing the country by exploiting opportunities where the Bank has

comparative advantages. It identified two main intervention pillars: Pillar I – Investing in

Infrastructure to Increase Productivity and Competitiveness, and Pillar II – Enhancing Health

Delivery and Skills Development. These pillars reflected the views of all stakeholders and took

into consideration the Bank’s 2008-2012 Medium Term Strategy and the Framework for

Enhancing Bank Operations in MICs.

4.2 Assessment of Results-Based Outcomes

4.2.1 Swaziland has not borrowed from the Bank over the last three years, reflecting in

part, the buoyant SACU revenue inflows in the three years to 2008.10 Nonetheless, three

MIC grants for studies worth UA 1.84 million were approved. The impact of the MIC grant

financed projects cannot be assessed as there has been little progress in their implementation. An

assessment of outcomes from recently completed or projects carried over from the previous CSP

demonstrate the developmental impact of Bank interventions in the country (Box 3).

10

The situation has since changed, with Swazi authorities requesting for budget support from the Bank at the end of

2009. The approval of the request has been put on hold pending satisfactory progress on structural and economic

reforms.

Box 3. Developmental Impacts of On-going Bank Interventions

The Komati Downstream Development has contributed to reducing poverty through increased household

income, enhanced food security, and improved access to social and health infrastructure. The project has so far

cultivated 4,475 ha out of the total of 5,200 ha envisaged at appraisal. This brings the level of implementation to

86 percent. While sugar is the dominant crop, occupying 90 percent of the cultivated land, food crops

production has also increased. In addition, beneficiaries under this project now have access to electricity;

34.5 km of gravel roads together with five river crossings have also been constructed. By March 2011, the

number of homesteads with clean drinking water in the project area stood at 2,262, which translates to 15,834

people who have access to clean drinking water. Furthermore, 2,816 homesteads have benefited from improved

sanitation facilities, up by 554 homesteads between November 2010 and March 2011.

Through MIC grants the Bank has supported the establishment of the Swaziland Revenue Authority, which

became operational in January 2011 and is expected to enhance revenue collection. The Bank’s support for the

development of a Geospatial Information System (GIS) has also enabled the National Emergency Response

Council on HIV/AIDS (NERCHA) to improve the analysis of information and enhanced decision making with

regards to HIV/AIDS interventions.

Source: Adapted from AfDB, SAP Project Summary, September 2011

12

4.3 Portfolio Performance Analysis

4.3.1 As at July 2011, the Bank’s portfolio comprised 7 operations with a total

commitment of UA 19.59 million (Annex VII and Figure 4). The Komati Downstream

Development Project (KDDP) is the only on-going lending operation in the country and

accounts for 86.2 percent of the approved total portfolio amount, with the rest being non-lending

operations. These include one Africa Water Facility grant, three MIC grants in the health,

transport, and water and sanitation sectors, and two multi-sector MIC grants.

4.3.2 While comparison of the portfolio performance in Swaziland to the Bank-wide

situation is less informative, it is characterized by slow implementation. The following

observations were made:

Average project age of the portfolio is 3.5 years,

The KDDP is 8.64 years and the oldest project; it suffered disbursement suspension due to

non-compliance with the Bank’s financial management guidelines; has an implementation

progress and a developmental impact ratings of 2.2 and 3.0, respectively;

Overall portfolio disbursement rate is 51.4 percent; and

Two MIC grants have not disbursed due to signature, effectiveness and procurement

delays and two non-lending projects were cancelled due to unsatisfactory implementation.

Agriculture

91

Health

1

Water and Sanitation

2

Transport

2Multi-sector

4

Figure 4. Sectoral Distribution of Portfolio as at September 2011

(percent)

Source: SAP Project Summary, AfDB September 2011

13

An assessment of the portfolio performance revealed several weaknesses that would require

remedial actions to be taken by both the Bank and the government (Figure 4 & 5 and Annex IX).

4.4 Aid Coordination/Harmonization

4.4.1 In spite of the large presence of donors active in Swaziland, there is no formal

coordination mechanism among donors and between them and the government (Annex V).

Information asymmetries on activities by development partners in the country make it difficult

for government to plan and budget, on the one hand, and for donors to harmonize their

interventions, on the other hand. Swaziland’s recent economic experiences and the resultant

fiscal crisis, requires increased donor coordination to avoid further deterioration of the economic

and social conditions. Cooperation among donors is increasing; it has to be formalized to

enhance strategic support to government’s development efforts. The government has shown its

intention to collaborate with the donor community and has initiated annual meetings (Donors’

Retreat). Further actions such as adoption of similar monitoring and evaluation systems,

reporting requirements and use of country systems as the fiduciary environment improves are

needed.

4.5 Lessons from the Implementation of the 2009 – 2013 CSP

4.5.1 While Swaziland has not borrowed from the Bank during the last three years, the

constant engagement with the government was instrumental to kick-start dialogue on

reforms. Following the decline in SACU revenues in 2009, the Bank provided technical

assistance to the Government of Swaziland to design the FAR, which has been backed by other

donors (Box 4).

Box 4: Fiscal Adjustment Roadmap The Fiscal Adjustment Roadmap (FAR) is produced out of Government’s desire to implement decisive

immediate measures and reforms over the medium-term to deal with the challenges of the global financial

crisis, most notably, the sharp deterioration in the fiscal outlook elaborated in this year’s budget. One of the

fundamentals of this document is to bring the fiscal position to sustainable levels through revenue enhancement

and better expenditure control, particularly the relatively large wage bill, and create space for the Government’s

commitment to increase spending in the health and education sectors. The roadmap also focuses on efforts to

promote a robust private sector to complement the envisaged more efficient public sector in mobilizing

domestic and foreign investment, diversify the economy, and accelerate employment creation.

In order to address the challenges of the current fiscal situation, Government has to introduce immediate

measures to improve the fiscal balances, while pursuing complementary structural reforms to foster a more

robust economy. In the medium-term, fiscal consolidation and structural reforms should help improve the

business climate and promote private sector growth and employment. To support fiscal consolidation the PFM

system should be strengthened to ensure that resources are used efficiently and for the purposes they are

intended. The following strategies will be adopted to achieve this:

Introduce fiscal reforms to broaden the tax base and tax collection whilst reducing the tax burden on the poor

and impediment to economic activity;

Restructure, right-size, and improve the efficiency of the public expenditure and services;

Improve governance so as to build investor confidence and allow for greater transparency and accountability;

Improve the export base and facilitate increased participation of the SME sector in the international trade; and

Attract FDI and provide support for the development and the involvement of domestic investors in the

manufacturing and other businesses.

Source: Adapted from Government of Swaziland, 2010

14

4.5.2 Project implementation has been slow reflecting in part the country's institutional

weaknesses. Delays in signing loan agreements, frequent movements of government task

managers and weak compliance with procurement and disbursement procedures are the main

causes for the slow implementation of projects. Slow implementation in some projects has also

been caused by the lack of government counterpart funding due to the fiscal crisis. In addition to

challenges in retaining experienced staff, the frequent intra-government movements of task

managers imply that training provided at the launch of the projects is not sufficient to ensure

satisfactory portfolio performance. It is therefore proposed that a programmatic approach be

adopted for MIC grants to ensure regular supervision and cost-effectiveness.

5. 2011 - 2013 BANK STRATEGY

5.1 Rationale for Bank Interventions for the Remainder of the CSP Period

5.1.1 Swaziland faces additional economic challenges as a result of the impact of the

global financial crisis. Consultations during the CSP mid-term review mission revealed that the

medium to long term development challenges facing Swaziland were similar to those identified

at the beginning of the current Bank Strategy. However, the economic environment has changed

drastically and likewise government priorities have changed. Swaziland faces an unstable

macroeconomic environment and a severe liquidity crisis. Both internal and external balances are

under serious strain. The current fiscal crisis could also lead to a sovereign debt challenge. As the

Bank pursues its development strategy for Swaziland, there is an urgent need to halt further

deterioration in macroeconomic conditions, restore private sector confidence, and support the

rural-poor to increase their participation in commercial agricultural activities.

5.1.2 The government needs to sustain the implementation of reforms, a process that

needs to be supported to build the momentum for quick and lasting impact. Political will to

implement the necessary reforms, especially public financial management reforms, is critical.

Government intentions in this regard are reflected in the ERS. It has signaled its desire for fiscal

consolidation, which will be achieved through cuts in expenditure and enhanced revenue

mobilization. The government has, however, avoided unpopular short-term measures such as

cutting the civil service wages, which is necessary for fiscal stability. This is one of main causes

of non-satisfactory performance of the SMP, reflecting some of the downside risks. The Bank

and other development partners could support Swaziland’s reform efforts by providing financing

resources that would simultaneously address the macroeconomic imbalances and allow

continuous monitoring of progress on agreed reforms. Domestic efforts, including the

privatization of SwaziBank and the issuing of a second mobile telecommunications license could

provide financing resources for the budget while increasing private sector participation in the

economy if they were to be pursued to finality.

5.1.3 Institutional capacity and skills constraints could adversely impact the extent and

speed of the reform process. In the short-term, technical assistance to the government is needed

and this should include institutional capacity building and the development of critical skills

required during the reform period and beyond. Overall, skills development has to be made more

relevant and dynamic to meet the country's manpower needs. In the short-term, addressing

technical and managerial skills shortages in the agriculture sector to ensure increased

productivity and viability is critical. Such skills will support recent government investments in

the sector and enhance incomes of the rural-poor population.

15

5.2 Strategic Pillars for Bank Support

5.2.1 The selection of the pillars for the remainder of the CSP period is based on the:

Urgency to respond to the current challenges facing Swaziland in relation to its medium-

to-long term development objectives;

Need to leverage and complement support by other development partners;

Overall Bank strategic framework as specified in the Medium-Term Strategy (MTS 2008-

2012), the targeted strategic frameworks for enhancing support to MICs and the Southern

Africa RISP (2011-2015); and

Lessons learned from implementing the current Bank strategy for Swaziland.

5.2.2 As a result of the crisis, the Bank has to adjust its strategic engagement to respond

to the drastic changes in government priorities. As noted in Sections 2.1.4 and 4.1, the

country’s long-term development goals are expressed in the National Development Strategy.

However, the medium-term goals were developed within the context of the medium-term action

programs and more recently as specified in the Fiscal Adjustment Roadmap and Economic

Recovery Strategy. The government’s primary focus is to implement economic and structural

reforms to strengthen the foundations for future development and safeguard the development

gains so far. Similarly, the Bank has to refocus its strategic support so that it aligns with

government priorities (Table 2). Also, timely and appropriately targeted instruments need to be

adopted in its implementation.

5.2.3 In its support to government priority areas, the Bank should remain selective,

relevant, and flexible and aligned to the 2008 – 2012 Medium-Term Strategy. The CSP mid-

term review proposes the modification of both pillars of the Bank strategy in Swaziland. The

modification to Pillar I seeks to explicitly refocus the Bank’s interventions in support of the

reforms process and the possibility of future policy-based operations. In Pillar II, the Bank would

focus on developing skills needed in the modernization of the agriculture sector. As a result of

these modifications, the proposed new pillars are as follows:

Pillar I: Improving Public Financial Management, and

Pillar II: Enhancing Agriculture Development.

5.2.4 The proposed pillars for the remainder of the Bank’s strategy for Swaziland are

central to the country’s development agenda. They aim to address factors that have impeded

growth and diversification and also promote inclusiveness in the socio-economic sphere.

Through these pillars, Swaziland will be able to build economic resilience, which is critical for

sustainable development. Also, the Bank will be able to refocus its attention towards government

priority areas without diverting its focus from long-term development support to Swaziland.

Pillar I: Improving Public Financial Management

5.2.5 Swaziland's Authorities acknowledge that economic and structural reforms are

critical to addressing development challenges facing the country; growth and productivity

continue to be low, unemployment is high and there is food insecurity. Limited skills in

critical areas, poverty and low investment also contribute to the poor performance of the

economy. The HIV/AIDS pandemic, however, remains a major challenge. In response, the

16

government has made an undertaking to implement structural reforms to improve efficiency in

public resource allocation and utilization, improve the business environment, and protect the

vulnerable population. Government actions in this regard, include:

Designing a PFM reform program, to be supported by development partners;

Making efforts to enhance domestic revenue mobilization through the establishment of the

Swaziland Revenue Authority;

Finalizing the investment policy and private sector development strategy; and

On-going measures to commercialize and privatize some of the public enterprises.

5.2.6 To ensure the efficiency and effectiveness of government development measures, the

PFM framework requires significant reform. The Government of Swaziland’s request for

technical and financial support in this area has been granted. The Bank’s support, however, is

limited. In this context, the Bank will benefit from leveraging its support and complement efforts by

other development partners committed to supporting the government, financially and technically.

Through this pillar, the Bank’s interventions will focus on measures to improve public expenditure

control and domestic resource mobilization. It will also encourage the development of a conducive

business environment for private sector development.

Pillar II: Enhancing Agriculture Development

5.2.7 The government acknowledges the importance of investing in agriculture and

infrastructure as a poverty reduction action. Agriculture investments have the potential to

stimulate short term growth and positively contribute to poverty reduction. Irrigation infrastructure,

in particular, would increase productivity and support diversification of crop production, which will

improve food security. The rural population is the poorest and constitutes about 70 percent of the

country's total population. Improving the welfare of this population, especially that of rural women,

would have a big impact on poverty reduction. In addition, good nutrition and better health

outcomes positively impact productivity. Also, agriculture is increasingly becoming an important

sector in the generation of renewable energy, with two independent power producers having started

bar gas fired operation in 2011. The sector, therefore, has the potential to attract private sector

investments and thus improve economic dynamism.

5.2.8 Agricultural skills development is an important element of inclusive and sustainable

development. Whereas public sector skills development in support of the reforms are catered for

under Pillar I, technical and managerial skills needed to ensure increased productivity and the

viability of the agriculture sector are not readily available. Therefore, agriculture related skills

development under Pillar II aims to increase the efficiency of recent and potential future

investments within the context of the on-going modernization and commercialization of the sector.

Civil servants made redundant under Enhanced Voluntary Early Retirement Scheme could also

benefit from the re-skilling thereby ensuring the successful transition to alternative income earning

activities. Through these interventions, the Bank will provide the Swazis with an escape route from

the poverty trap.

5.3 Deliverables and Targets

5.3.1 Given Swaziland’s categorization as a middle income country, it has no access to the

concessional window of the Bank’s resources. The proposed pipeline is determined by the

17

sustainable lending limit available from the non-concessional window. The current limit of the

resource envelope available to Swaziland, up to the end of the current CSP, is UA133 million,

translating into about UA44 million per year.11

Depending on the financing needs of the country,

the available resources could be front-loaded.

5.3.2 Public financial management reforms are a top priority for the Swaziland government

to ensure fiscal consolidation, in the short-to-medium term, as specified in the Fiscal

Adjustment Roadmap and the Economic Recovery Strategy. The FAR focuses on improving

public sector efficiency in order to enhance revenue mobilization, enhance expenditure control, and

promote budget planning, reporting and transparency. It also aims to enhance fiscal accountability

as a basis for economic development and poverty reduction. During the CSP Mid-term review

mission, the government re-confirmed its commitment to implementing PFM reforms.

5.3.3 Given the limited capacity to implement the reforms, the Bank has approved technical

assistance for public financial management to ensure the implementation of comprehensive

reforms, which will be supported by other DPs. The Bank will assist in developing critical

capacity and skills in key economic ministries, including the Ministry of Finance. Expected

outcomes under PFM, which potentially opens the possibility for future policy-based operations in

the regional member country include:

Strengthened capacity to undertake medium term budget planning through the re-introduction

of a Medium Term Expenditure Framework (MTEF);

Improved transparency and accountability of the budget process;

Enhanced oversight role of the Auditor General’s Office; and

Strengthened procurement framework and the Parliamentary Budget sub-Committee.

5.3.4 The 2005 Agricultural Sector Policy’s thrust to enhance sustainable agricultural

development and its contribution to economic growth, poverty alleviation, food security and

sustainable natural resource management has been partially met. Over the last seven years the

sector’s contribution to GDP has fallen by about 2 percent to about 8 percent in 2010. The World

Food Program estimated that about one-quarter of the population was in need of food aid in 2010.

Given that about 70 percent of Swazi households depend on agriculture for their livelihoods, the

medium term contribution of the sector to poverty reduction has been minimal.

5.3.5 The non-availability of resources needed to accelerate agricultural diversification and

commercialization as proposed in the 2011 Cabinet Paper of the Ministry of Agriculture poses

a serious challenge. This is especially true for the small-holder farmers who constitute the bulk of

farmers. Small-holder farmers could play an important role in ensuring the sustainability of

commodity supplies. Key among the requirements is adequate agriculture infrastructure to expand

irrigable land area. Water shortage is a serious impediment to the intensification and diversification

effort. Increasing area under irrigation, particularly on Swazi national land, has been difficult.

Investments in water for irrigation and climate change mitigation are therefore considered important

in this regard.

5.3.6 The Bank is currently financing a feasibility study to replicate the positive

development outcomes under Phase I of the LUSIP project which has transformed rural

livelihoods (Box 3). Access to irrigation water by rural communities enables them to grow crops all

11

The sustainable lending limit is periodically reviewed on the basis of the country risk assessment.

18

year round thereby increasing their productivity and incomes. Communities will also have access to

clean and safe drinking water. In this context, the Bank is expected to contribute to efforts at

reducing water-borne diseases and make it possible to invest in modern sanitation facilities, leading

to better health outcomes. Financing for this project is expected in the final year of the current CSP.

5.3.7 The social sectors are expected to benefit from improved budgeting as a tool for

development planning to ensure full participation of the Swazi population in economic activities. Social sector budget allocations have, to date, been highly volatile (Table 1). Education and health

budget allocation trends are not consistent with the requirements, in view of the increasing demands for

government support. The 2011/12 budget was supposed to ring-fence expenditures in education and

health, yet the vulnerable Swazi population has not been spared from the brunt of the fiscal crisis. The

Bank is expected to play a critical role in this area by targeting its interventions in skills development.

Table 1. Social Sector Budget Allocation (% of total) Social Sector 2007 2008 2009 2010

Education and Training 20.3 21.4 16.7 15.6

Health 7.9 8.6 7.3 10.0

Social Protection 2.8 2.4 6.8 7.6

Housing and Amenities 1.6 1.8 1.3 2.0

Source: Budget Estimates 2010, Ministry of Finance, Swaziland

5.3.8 Swaziland needs to provide appropriate skills needed in a modernizing agriculture

sector to enhance opportunities for employment or to engage in productive activities in the

informal sector. Technical and managerial skills required in the agriculture sector could also be

applied in other areas of economic activity. It is expected that Swaziland’s economy will experience

significant structural transformation, as reforms become rooted. Effectiveness and efficiency in

resource use requires that the skills development responds to the new labor market demands, with

particular focus on agriculture skills. The Bank will assist, under the higher education and science

and technology pillar, to enhance agriculture related skills development. The private sector could

also play an increasing role in this areas compared to the current situation.

5.3.9 Overall, the Bank strategy for Swaziland during the remainder of the CSP period will

be implemented through various instruments, supporting carefully designed and appropriate

programs to ensure maximum impact and the attainment of stated objectives. By improving

the business operating environment, developing skills and mitigating the impact of the current fiscal

Project Sector

Indicative Amount

(Within Swaziland

Sustainable Lending

Limit, UA million)

Co-financingIndicative

Year

ECAP Development Budget Support Loan Multi-sector 93 million … 2011

Lower Usuthu Smallholder Irrigation Project Phase II Agriculture TBD EU 2013

Human Capital for Sustainable Development Higher Education 15 million … 2013

Skills for Employability Study Higher Education TBD … 2012

Small and Medium-Scale Dams for Irrigation Master Plan Agriculture TBD … 2012

Statistical Capacity Building for MDGs Multi-sector TBD … 2011

Technical Assistance to the Ministry of Finance Multi-sector TBD IMF, World Bank, EU 2011

Source: AfDB

Lending Program

Non-lending Programs (MIC Grants)

Table 2. Indicative Pipeline, 2011 – 2013

19

crisis. Bank interventions will strengthen growth drivers, including economic diversification. The

interventions will also help bring social and economic inclusiveness. Bank lending operations will

be guided by Economic and Sector Work in the various areas of intervention. Potential studies to be

carried out from 2011 to 2013 are presented in Table 2. In addition, operations in Swaziland will be

complemented by regional projects, especially those focusing on deepening regional integration.

5.4 Monitoring and Evaluation

5.4.1 The monitoring framework will depend on several information and data gathering

systems, including the MDGs monitoring system and complemented by other national data

gathering systems (Annex I). The framework focuses on sector and national outcomes where Bank

interventions are expected. In addition, the Statistical Capacity Building program will help improve

data and information systems and strengthen the monitoring and evaluation framework. The Bank’s

annual Portfolio Performance Reviews (CPPR) and project completion reports will also be useful in

tracking progress towards the objectives of all interventions in the country. The establishment of the

Pretoria Regional Resource Centre will make it easier to monitor implementation of the strategy.

5.5 Potential Risks and Mitigation Measures

5.5.1 While the government has started addressing some of the risks identified at the beginning of

the current CSP, new risks have also emerged. These risks include, among other factors, an unstable

macroeconomic environment, including a severe liquidity crisis. Mitigation measures in place and

those that will be considered during the implementation of the strategy are detailed below.

5.5.2 Failure to fully implement the reform agenda: Swaziland has a poor track record in

implementing reforms. In addition to limited institutional capacity to implement reforms, political

reforms are also required. In the context of the division of labor, a stronger donors’ cooperation and

coordination framework to ensure effective monitoring of reforms has been put into place. Four

institutions “The Quartet”, which includes the African Development Bank, IMF, South African

Treasury and the World Bank, will monitor different components of the reform process. This will

enable the Bank to focus on economic and structural reforms while allowing the other partners,

especially the South African government, to leverage its position and existing agreements with

Swaziland to promote political reforms. The government’s willingness to engage with development

partners also provides a forum for dialogue on the reform agenda. Finally, under the ERS, an inter-

ministerial technical task force has been set-up to monitor reforms and assess progress.

5.5.3 Inadequate institutional capacity to implement reforms: The government has started

implementing the reform agenda, but there is evidence that it lacks sufficient capacity to push

through a comprehensive and challenging reform program and has been forthright in admitting this

potential risk. In view of this constraint, the Swaziland government has requested technical

assistance in the areas of public financial management, tax administration and the preparation of

legal instruments, such as the Public Financial Management Bill, that will help in the

implementation of the reforms. The Bank is processing its support in the form of a long term

resident advisor to the Minister of Finance.

5.5.4 Vulnerability to external shocks: Swaziland is a small, highly open and landlocked

economy. Its high dependence on a limited number of exports and undiversified markets present

further risks. Swaziland’s membership in CMA and SACU has provided relative stability. The

pegging of the lilangeni to the rand has, in particular, been an important cushion to the country’s

financial sector. Support from the international community will provide further confidence in the

20

economy. The Bank is currently supporting a study on Economic Diversification, leading to a

strategy to build economic resilience and increased private sector activity.

5.5.5 Debt and fiscal sustainability: The depth of the fiscal crisis in Swaziland will inevitably

lead to a rise in the country’s debt position. This risk has been recognized by the government. In

this context, a debt management unit has been proposed to ensure that this risk is well managed.

The Bank is also undertaking a study on fiscal sustainability that would inform government on

policy options to avoid a debt crisis.

5.6 Country Dialogue Issues

5.6.1 Dialogue in the country will be centered on three main issues, namely; economic and

structural reforms, including good governance; donor coordination; and regional integration.

Finally, the likelihood of increased Bank operations in Swaziland requires that portfolio

performance issues are addressed.

5.6.2 Reforms: The reform agenda to which the government has committed itself is critical for

achieving the objectives of the FAR and has been widened to include political reforms as agreed to

within the context of the South African loan to Swaziland. The momentum gained to date needs to

be supported through consistent dialogue. This will, in turn, assist in the successful implementation

of the Bank’s strategy and promote better governance and prospects for the success of government

programs as well.

5.6.3 Donor coordination: The current informal coordination among donors needs to be

formalized to ensure systematic engagement with the government. The DPs and government need to

build on work that has started in this direction. This process will enable individual donors to focus

on areas of their comparative advantage and therefore improve the effectiveness and impact of their

programs.

5.6.4 Regional Integration: Efforts towards deeper regional integration are being intensified.

Given its economic context and geographical location, Swaziland will benefit from the development

of a strategic trade policy that enhances the competitiveness of its current and potential exports. The

outcomes of the Economic Diversification Study and the country’s Aid-for-Trade Strategy that are

being supported by the Bank will be used to anchor dialogue in this area.

6 CONCLUSION AND RECOMMENDATIONS

6.1 The government’s reform effort provides an excellent opportunity for Swaziland to build the

foundations for economic competitiveness and long term growth and development. Yet, there is a

possible risk- the political will to forge ahead with reforms could wane. Timely support from

development partners is needed to ensure that the reform momentum is maintained. This strategy

acknowledges government efforts to date, but also notes that more still needs to be done for the

achievement of national development objectives.

6.2 This strategy aims to enhance the economy’s growth drivers, which would help move

Swaziland to a higher growth trajectory. It proposes a refocusing of the Bank’s strategy towards

those areas that enhance productivity. Also, it addresses weaknesses in public financial

management, especially using the budgeting process as a development tool. In addition, the

proposed structural reforms will help improve the business climate and the attractiveness of the

country as an investment destination.

21

6.3 In this context, the Board of Directors is requested to consider and approve the modification in

the pillars as proposed for the remainder of the 2009 - 13 strategy for Swaziland.

Annex I: Swaziland CSP Result-Based Framework (2009 - 2013) Country

Development

Goals

Constraints

on achieving

desired

outcomes

Final

outcomes by

2013

Final outputs by

2013

Mid-term

outcomes by

2011

Mid-term

outputs by

2011

Bank deliverables

during the

remainder of the

CSP period (on-

going and proposed)

Pillar I: Improving Public Financial Management

Improving the

business

operating

environment,

public

financial

management

and growth

Poor

institutional

performance

and an

unattractive

business

climate.

Increased

private sector

investment

Improved

revenue

mobilization

Improved

MDGs

monitoring

Improved

business

climate and

budget

processes

Enhanced GDP

growth

Safeguard

social

expenditures

Private sector

investment

increase by >5

percent

Ratio of tax to

GDP increases by

1 percent

Data available for

MDGs monitoring

CPIA rating for

business

regulatory

environment rises

to 4

Strategy for

economic

diversification

GDP growth 2.5

percent

Maintain budget

allocations to

social sectors at

2010 level

Enhanced

institutional

efficiency and

growth

SRA

operational

Ratio of tax to

GDP 13.8

percent

Approval of

Bank support

for statistical

capacity

building

CPIA Business

regulatory

environment

rated 3.0

Study launched

GDP growth -

1.9 percent

Social sector

allocation 35

percent of total

budget

ECAP

Development

Budget Support

Loan

Statistical Capacity

Building for MDGs

PFM Technical

Assistance to the

Ministry of

Finance

Economic

Diversification

Study

Pillar II: Enhancing Agriculture Development

Reducing

food

insecurity

Lack of access

to irrigation

water

Enhanced

productivity

and food

security in

project area

Project launch,

(Land under

irrigation in

LUSIP II

increase by 46

percent at end of

project)

Detailed project

design.

New designs for

the irrigation

project

completed

Project Designs of

LUSIP Phase II in

2011/12

Proposed LUSIP

Phase II Project

starts Food

insecurity

Increased food

security

Reduce food

population to <15

percent of total

Food insecure

population 20

percent of total

23

Improving the

efficiency of

education and

skills training

Inconsistent

budgetary

allocations for

human capital

development.

High levels of

poverty, and

income

inequalities

Increased

employment

levels

Reduced

poverty

Skills needs

identified

Reduce poverty

by 1 percent

Studies completed

Reduced poverty

40 percent

Unemployment

Poverty rate 63

percent

Skills for

Employability

Study

Annex II: Selected Macroeconomic Indicators

Indicators Unit 2000 2005 2006 2007 2008 2 009 2010(e)

National Accounts

GNI at Current Prices Million US $ 1523.8 2702.3 2683.7 2990.9 2832.6 2874.4 …

GNI per Capita US$ 1550.0 2260.0 2360.0 2540.0 2560.0 2470.0 …

GDP at Current Prices Million US $ 1489.7 2523.8 2947.9 3053.8 3019.8 3161.3 3894.1

GDP at 2000 Constant prices Million US $ 1489.7 1653.4 1708.0 1767.8 1809.5 1831.2 1868.8

Real GDP Growth Rate percent 10.2 2.5 2.9 3.5 2.4 1.2 2.1

Real per Capita GDP Growth

Rate percent 8.4 1.6 2.2 2.2 0.9 -0.3 0.6

Gross Domestic Investment percent GDP 18.5 15.4 12.8 12.3 11.0 10.3 10.0

Public Investment percent GDP 5.7 8.1 6.8 6.5 5.8 5.5 5.7

Private Investment percent GDP 12.8 7.3 6.1 5.8 5.2 4.8 4.3

Gross National Savings percent GDP 13.8 11.8 7.2 14.7 11.2 9.7 2.3

Prices and Money

Inflation (CPI) percent 12.2 4.8 5.3 8.1 12.7 7.5 4.5

Exchange Rate (Annual Average) local

currency/US$ 6.9 6.4 6.8 7.0 8.3 8.5 7.3

Monetary Growth (M2) percent -6.6 9.6 25.3 21.5 15.4 19.0 …

Money and Quasi Money as

percent of GDP percent 20.1 21.6 21.7 24.5 24.4 27.0 …

Government Finance

Total Revenue and Grants percent GDP 27.5 32.1 32.3 39.4 36.1 37.9 34.2

Total Expenditure and Net

Lending percent GDP 28.9 37.7 35.7 30.6 33.4 38.1 40.9

Overall Deficit (-) / Surplus (+) percent GDP -1.4 -5.5 -3.4 8.8 6.4 -7.1 -13.7

External Sector

Exports Volume Growth (Goods) percent -6.8 -17.4 -4.0 -4.0 -21.1 9.4 0.2

Imports Volume Growth (Goods) percent -3.4 9.7 0.6 -4.7 -15.0 2.4 2.4

Terms of Trade Growth percent 2.6 8.6 1.9 8.1 13.2 -13.1 1.3

Current Account Balance Million US $ -68.2 -34.4 -196.6 -139.7 -85.0 -380.1 -647.6

Current Account Balance percent GDP -4.6 -1.4 -6.7 -4.6 -2.8 -12.0 -16.6

External Reserves months of

imports 2.4 0.9 1.3 2.5 2.6 3.3 2.6

Debt and Financial Flows

Debt Service percent

exports 3.9 1.7 1.9 2.0 2.8 2.5 2.8

External Debt percent GDP 21.1 17.2 15.0 16.6 14.9 16.8 14.6

Net Total Financial Flows Million US $ 35.5 50.9 37.9 54.6 53.7 40.0 …

Net Official Development

Assistance Million US $ 13.1 46.7 34.8 50.7 69.9 58.0 …

Net Foreign Direct Investment Million US $ 105.8 -45.9 121.0 37.5 105.7 65.7 …

Source : ADB Statistics Department; IMF: World Economic Outlook, October 2010 and International Financial Statistics, April

2011;

ADB Statistics Department: Development Data Platform Database, April 2011. United Nations: OECD, Reporting System Division.

25

Note: ... : Not Available, (e) Estimations

Annex III: Comparative Socio-Economic Indicators

Year Swaziland AfricaDeveloping

Countries

Developed

Countries

Basic Indicators

Area ( '000 Km²) 17.4 30322.6 80976.0 54658.4Total Population (millions) 2010 1.2 1031.5 5658.7 1116.6Urban Population (% of Total) 2010 25.5 39.9 45.1 77.3

Population Density (per Km²) 2010 69.2 34.0 69.9 20.4

GNI per Capita (US $) 2009 2470.0 1525.4 2967.6 37989.9

Labor Force Participation - Total (%) 2010 39.1 40.1 61.8 60.7Labor Force Participation - Female (%) 2010 43.6 41.0 49.1 52.2Gender -Related Development Index Value 2007 0.6 0.4 0.7 0.9Human Develop. Index (Rank among 169 countries) 2010 121.0 ... ... ...

Popul. Living Below $ 1 a Day (% of Population) 2005-08 … 42.3 25.2 …

Demographic Indicators

Population Growth Rate - Total (%) 2010 1.4 2.3 1.3 0.6Population Growth Rate - Urban (%) 2010 2.7 3.4 2.4 1.0Population < 15 years (%) 2010 38.8 40.3 29.0 17.5Population >= 65 years (%) 2010 3.8 3.8 6.0 15.4Dependency Ratio (%) 2010 73.0 77.6 55.4 49.2Sex Ratio (per 100 female) 2010 95.9 99.5 93.5 94.8Female Population 15-49 years (% of total population) 2010 25.8 24.4 49.4 50.6Life Expectancy at Birth - Total (years) 2010 47.0 56.0 67.1 79.8Life Expectancy at Birth - Female (years) 2010 46.0 57.1 69.1 82.7Crude Birth Rate (per 1,000) 2010 29.4 34.2 21.4 11.8Crude Death Rate (per 1,000) 2010 15.1 12.6 8.2 8.4Infant Mortality Rate (per 1,000) 2010 58.9 78.6 46.9 5.8Child Mortality Rate (per 1,000) 2010 88.1 127.2 66.5 6.9Total Fertility Rate (per woman) 2010 3.4 4.4 2.7 1.7Maternal Mortality Rate (per 100,000) 2008 420.0 530.2 290.0 15.2Women Using Contraception (%) 2005-08 … … 61.0 …Health & Nutrition IndicatorsPhysicians (per 100,000 people) 2004-09 16.0 58.3 109.5 286.0Nurses (per 100,000 people)* 2004-09 411.7 113.3 204.0 786.5Births attended by Trained Health Personnel (%) 2007 69.0 50.2 64.1 …Access to Safe Water (% of Population) 2008 69.0 64.5 84.3 99.6Access to Health Services (% of Population) 2005-08 … 65.4 80.0 100.0Access to Sanitation (% of Population) 2008 55.0 41.0 53.6 99.5Percent. of Adults (aged 15-49) Living with HIV/AIDS 2007 26.1 4.9 0.9 0.3Incidence of Tuberculosis (per 100,000) 2009 1257.0 294.9 161.0 14.0Child Immunization Against Tuberculosis (%) 2009 57.0 79.9 81.0 95.1

Child Immunization Against Measles (%) 2009 72.0 71.1 80.7 93.0

Underweight Children (% of children under 5 years) 2007 6.1 30.9 22.4 …

Daily Calorie Supply per Capita 2007 2292.3 2465.5 2675.2 3284.7

Public Expenditure on Health (as % of GDP) 2008 5.9 5.7 2.9 7.4

Education Indicators

Gross Enrolment Ratio (%) Primary School - Total 2007 107.9 102.7 107.2 101.3 Primary School - Female 2007 103.8 99.0 109.2 101.1 Secondary School - Total 2007 53.3 37.8 62.9 100.1 Secondary School - Female 2007 50.5 33.8 61.3 99.6Primary School Female Teaching Staff (% of Total) 2007 70.5 47.0 60.5 81.4Adult literacy Rate - Total (%) 2008 86.5 64.8 80.3 98.4Adult literacy Rate - Male (%) 2008 87.4 74.0 86.0 98.7Adult literacy Rate - Female (%) 2008 85.6 55.9 74.8 98.1Percentage of GDP Spent on Education 2008 7.8 4.6 3.8 5.0

Environmental Indicators

Land Use (Arable Land as % of Total Land Area) 2008 10.3 7.8 10.6 10.9Annual Rate of Deforestation (%) 2005-09 … 0.7 0.4 -0.2Annual Rate of Reforestation (%) 2005-09 … 10.9 … …Per Capita CO2 Emissions (metric tons) 2009 1.2 1.1 2.9 12.5

Sources : ADB Statistics Department Databases; World Bank: World Development Indicators; UNAIDS; UNSD; WHO,

UNICEF, WRI, UNDP; Country Reports. Note : .... : Not Applicable and/or Data Not Available.

Annex IV: Progress toward Achieving the Millennium Development Goals

Goal 1: Eradicate extreme poverty and hunger 19901

20002

20103

Employment to population ratio, 15+, total (%) 54.2 51.6 50.4

Malnutrition prevalence, weight for age (% of children under 5) … 9.1 6.1

Poverty headcount ratio at $1,25 a day (PPP) (% of population) 78.6 62.9 …

Prevalence of undernourishment (% of population) 12.0 22.0 …

Goal 2: Achieve universal primary education

Literacy rate, youth female (% of females ages 15-24) … 92.9 94.7

Literacy rate, adult total (% of people ages 15 and above) … 81.7 86.5

Primary completion rate, total (% of relevant age group) 62.0 60.7 72.0

Total enrollment, primary (% net) 74.3 73.6 82.8

Goal 3: Promote gender equality and empower women

Proportion of seats held by women in national parliaments (%) 4.0 11.0 13.6

Ratio of female to male primary enrollment 99.5 92.8 92.0

Ratio of female to male secondary enrollment … 96.3 89.0

Goal 4: Reduce child mortality

Immunization, measles (% of children ages 12-23 months) 85.0 70.0 72.0

Mortality rate, infant (per 1,000 live births) 68.0 78.3 58.9

Mortality rate, under-5 (per 1,000) 98.7 121.3 88.1

Goal 5: Improve maternal health

Births attended by skilled health staff (% of total) 56.0 74.0 69.0

Contraceptive prevalence (% of women ages 15-49) … 27.7 …

Maternal mortality ratio (modeled estimate, per 100,000 live births) 260.0 220.0 420.0

Goal 6: Combat HIV/AIDS, malaria, and other diseases

Incidence of tuberculosis (per 100,000 people) 267.0 1127.0 1257.0

Prevalence of HIV, female (% ages 15-24) … … 22.6

Prevalence of HIV, male (% ages 15-24) … … 5.8

Prevalence of HIV, total (% of population ages 15-49) … 38.8 26.1

Goal 7: Ensure environmental sustainability

CO2 emissions (kg per PPP $ of GDP) 0.7 0.9 0.8

Improved sanitation facilities (% of population with access) 36.0 48.0 55.0

Improved water source (% of population with access) 43.0 62.0 69.0

Goal 8: Develop a global partnership for development

Net total ODA/OA per capita (current US$) 62.0 22.3 48.9

Internet users (per 1000 people) 0.0 32.3 76.0

Mobile cellular subscriptions (per 1000 people) … 130.0 553.6

Telephone lines (per 1000 people) 15.7 39.9 37.1

Sources : ADB Statistics Department Databases; World Bank: World Development Indicators; UNAIDS; UNSD; WHO, UNICEF,

WRI, UNDP; Country Reports, Note : … : Data Not Available and or Not Applicable 1

Latest year available in the period 1990-1995; 2

Latest year available in the period 2000-2004; 3

Latest year available in the period 2005-2010

Source: European Union and AfDB

Annex V: Matrix of Donor Support to Swaziland

Ed

uca

tion

&

Tra

inin

g

Go

ver

nan

ce,

Po

licy

&

Man

agem

ent

Po

ver

ty

Red

uct

ion

Hea

lth

So

cial

Ser

vic

es

Wel

fare

Wat

er &

San

itat

ion

Ag

ricu

ltu

re &

Fo

rest

ry

En

vir

on

me

nt

Co

mm

un

ity

Dev

elo

pm

ent

Infr

astr

uct

u

re

Pri

vat

e S

ecto

r

Sweden X X

UK X

Italy X X

European Investment Bank X X X

Japan X X X X X

Taiwan X X X X X X X X X X

DBSA X X

Kuwait X

CFTC X X

UNDP X X X X X

UNICEF X X

WHO X X

UNAIDS X

AfDB X X X X

BADEA X

World Bank X

EU X X X X X

IFAD X

Annex VI: Indicative Bank Program at the Start of the 2009 - 2013 CSP 2009 - 2013 Program Planned Board

Approval

Indicative Amount

(UA million)

Area(s) Covered

Lending Operations

Transport

Manzini by-pass Project 2010 60.0 Manzini Region

Rural Feeder Roads (240km) 2010 15.0 National

Water and Sanitation

Lavumisa-Matsanjeni-Nsalitje Water Supply

and Sanitation Project 2009 25.0 Lubombo and

Shiselwenu Regions

Agriculture

Lower Usuthu Smallholder Irrigation Project II 2011 13.0 Lower Usuthu Basin

Agricultural Sector Development Project 2011 20.0 South Eastern region

Sugar Cane Mini-Mill Project 2012 To be determined Lower Usuthu Basin

Social Sector

Support to the Health Sector Strategic Plan –

(Health II Project) 2009 15.0

National

Education II Project 2010 10.0 National

Youth Employment Creation Project 2009 5.0 National

Non-Lending Assistance

Diversification and Competitiveness Study 2009 0.5 National

Transportation Sector Master Plan Study 2010 0.3 National

Water Resources Management Studies To be determined To be determined National

National Monitoring and Evaluation System for

the NDS, PRSAP and MDGs To be determined To be determined

National

Institutional Capacity Building for gender

Mainstreaming To be determined To be determined

National

Sugar Cane mini-Mill Feasibility Study 2010 MIC Grant National Source: Swaziland CSP (2009-2013); AfDB

Annex VII: Sectorial Distribution of Portfolio as at September 2011

Sectors

Approved Amount

(UA million)

percent

of

Portfolio

Cumulative percent

Disbursement.

Lending operations

Agriculture

Komati Down Stream Development Project.

11.94 (ADB)

4.95 (NTF)

86.2

91.2

B. Non-lending operations

Agriculture

Lower Usuthu Smallholder Irrigation Study.

0.89 (AWF)

13.8

55.1

Health

MIC Grant to Map HIV/AIDS Interventions 0.3 (MIC) 97.6

Water and Sanitation

WSS Study on Lavumisa-Nsalitje Corridor

0.46 (MIC)

28.7

Transport

National Transportation Master Plan

0.35 (MIC)

0.0

Multi-sector

Economic Diversification Study

Support to establish the Swaziland Revenue

Authority.

0.21 (MIC)

0.49 (MIC)

0.0

87.2

TOTAL/AVERAGE 19.59 51.4

Source: SAP Project Summary, AfDB September 2011

Annex VIII: Swaziland - Mo Ibrahim Governance Index 2011

Rank (of 53) Category/sub-category Country Score

(out of 100) African Average

Score (out of 100)

16th Safety and Rule of Law 62 53

13th Rule of Law 63 48

10th Accountability 59 43

33rd Personal Safety 40 44

21st National Security 85 78

46th Participation and Human Rights 28 45

49th Participation 10 42

44th Rights 26 43

30th Gender 47 51

26th Sustainable Economic Opportunity 50 47

31st Public Management 55 56

19th Business Environment 59 50

13th Infrastructure 40 31

34th Rural sector 45 54

14th Human Development 66 56

21st Welfare 57 52

16th Education 59 51

10th Health 84 66

26th Overall 51 50 Source: Swaziland Country Summary 2011, Mo Ibrahim Foundation.

Annex IX: Portfolio Performance Challenges and Proposed Remedial Actions

Challenge Causes Proposed Remedial Action

1. Ageing portfolio a. Lack of institutional capacity of the

Borrowers

b. No country presence of the Bank

a. Decentralization and field

presence. Regional Resource

Centers to play a more active

role

b. Plug communication gaps

between the Bank and member

countries. 2. Delays in

disbursement

and procurement

a. Inadequate financial management

systems

b. Limited comprehension of the

Bank’s disbursement and

procurement procedures by

borrowers

a. Capacity building training to

PIUs to provide regular

technical support.

b. Task Managers to identify

implementation constraints and

pro-actively recommend

remedial action

3. Lack of a formal

Procedural

manual

a. Outdated Bank Operations Manual,

the version available is dated in

1999 - New and relevant issues

regarding the project cycle are not

mentioned (for example, the rules

around disbursement deadline

extension)

a. Update the operations Manual to

reflect new changes

4. Delegation of

Authority and

review process

a. Cumbersome review process, with

too many layers a. Simplify review process

b. Implement delegation of

authority strictly 5. Lack of country

ownership a. Commitment is limited and

inexperienced/junior staff are

assigned

b. Unclear TORs, and there is no

motivation

a. For large projects a dedicated

PIU tends to do better

b. MIC Grants –Senior Officers

should be designated as Project

Managers. c. Agree with client on TORs for

Project Manager

6. Cost

effectiveness a. Irregular supervision a. Adopt a programmatic approach

to implementing MIC grant

projects (but some of the studies

are supposed to help design the

country program)

0.60 0.65 0.70 0.75 0.80

Lesotho

S. Africa

Botswana

Namibia

Swaziland

0.79

0.74

0.73

0.73

0.67

Gender equality

0.00 0.20 0.40 0.60 0.80

Botswana

Namibia

S. Africa

Swaziland

Lesotho

0.63

0.61

0.60

0.50

0.43

HDI

Annex X: Comparative Social Indices in SACU

Source: International Institute of Social Studies and UNDP, Oxford Poverty & Human Development Initiative and the UNDP and AIDSinfo

Online Data 2011; Note: the size of the bubbles indicates total expenditure on HIV-Treatment.

0 20 40 60 80

Lesotho

Namibia

Swaziland

South Africa

65

63

62

28

Multidimensional Poverty Index (MPI) 2010 For

Selected Countries- Country Rankings

Botswana

Lesotho

SwazilandAngola

Mozambique

0

50

100

150

200

0 100 200 300 400 500Num

ber

of

Co

ver

ed p

erso

ns

(00

0)

Spending/person US$

HIV/AIDS Treatment and Care