20111117
Reuters
JOHANNESBURG (Reuters) - A budget crunch in Swaziland, Africa's last absolute monarchy, has reached a "critical stage" with the government struggling to maintain spending on HIV/AIDS, education and the elderly, the International Monetary Fund said on Wednesday.

In a damning assessment of the landlocked southern African nation, the IMF said proposed spending cuts had been undermined by "overruns" in defence outlays, leading to a 2011/12 budget deficit projection of 10 percent of GDP.

Swaziland's original target had been 7.5 percent - still a massive gap, although it would have been a big improvement on the 14 percent seen a year ago when the fiscal crisis first hit with the drying up of receipts from a regional customs union.

So far, King Mswati III's appointed administration, which oversees what is officially Africa's most bloated bureaucracy, has kept its head above water by running through central bank reserves and delaying payment of bills, including state wages.

As of the end of September, those arrears stood at 1.5 billion rand, or 5.3 percent of GDP, the Washington-based IMF said.

"This is reducing private sector activity, with various enterprises dependent on government contracts having to lay off workers or shutting down," the IMF said, forecasting 2011 GDP growth of just 0.3 percent.

A leaked government memo sparked fury last week among Swaziland's 1.4 million people by suggesting civil servants would receive their November pay cheques two weeks late.

Countering the memo, the Times of Swaziland said the government had managed to scrape together an emergency loan from domestic "financial institutions and companies" to pay its monthly $64 million civil service wage bill.

Prior to the loan, whose backers were not named, the paper said the government had only $22 million in its salary account.

ROYAL MESS

The crisis has spurred unprecedented street protests and calls for the removal of the UK-educated Mswati, who has at least a dozen wives and a personal fortune estimated at $200 million.

Political upheaval in North Africa has emboldened the protesters and the moustachioed monarch is said to have been particularly upset at the death of Libya's Muammar Gaddafi, a close friend, at the hands of opposition gunmen last month.

The funding crunch has also hit HIV/AIDS treatment in a country with a 26 percent infection rate, the world's worst.

However, Mswati, who did not meet the IMF delegation because of a month-long religious retreat, has declined to accept a $340 million bailout from neighbouring South Africa due to demands from Pretoria for political reform.

The IMF, World Bank and African Development Bank have also made clear any assistance will carry political strings. Opposition groups are demanding the lifting of a ban on political parties and the release of five political prisoners.

The IMF also told the government to repay the money it has taken from the central bank "at the earliest opportunity" lest the borrowing undermine the currency's one-to-one peg with South Africa's rand.

It added that reserves rose to 4.3 billion rand this week from 3.7 billion at the end of June, an increase that should help to reduce pressure on the currency peg.