Eswatini

Growth weakened by the trade war

Growth is expected to slow further in 2025, but less than in 2024. While the direct impact of the trade war on Eswatini’s growth remains limited — the US accounted for only 1.1% of its exports in 2024 and the tariffs imposed were just 10% — the indirect effects could be more severe. Eswatini’s economic dependence on South Africa, which is facing tariffs of 30%, exposes it to softer external demand, particularly in export-oriented sectors such as processed foods, binders for mold-making, clothing, and wood (sawn and pulp). The climate of uncertainty resulting from the trade war could also slow investment. In addition, the spread of foot-and-mouth disease that has affected livestock since May 2025 is likely to impact agricultural GDP. In this regard, the European Union and the United Kingdom have suspended imports of livestock and animal products from Eswatini, thereby affecting its export revenues. Household incomes may also be impacted, as 14% of the population was employed in the agricultural sector in 2023. However, agriculture’s economic contribution is relatively low (7.5% of GDP in 2023) and the government is already attempting to contain the disease through quarantine and vaccination measures.

Conversely, certain factors are expected to support growth, notably public investments such as the Lower Usuthu Smallholder Irrigation Project, which is financed by the African Development Bank and the European Investment Bank. The initiative is expected to improve access to water for agriculture and stimulate construction activity. The mining sector will also contribute positively on back of an increase in coal production. These factors, combined with the gradual containment of foot-and-mouth disease, should prompt a slight rebound in growth in 2026.

Aligned with the monetary cycle of the South African Reserve Bank (SARB), the Central Bank of Eswatini (CBE) decided to cut its policy rate by 25 basis points in May 2025 (to 6.75%), maintaining a slight negative differential with South African rates (50 basis points). To limit capital outflows and protect foreign exchange reserves, the CBE is unlikely to implement further rate cuts before the end of 2025. However, a rate cut could occur in 2026 in response to the expected decline in inflation, which would then stimulate investment and private consumption. Inflation is projected to remain within the central bank’s target range of 3–6% in both 2025 and 2026. In the short term, the rise in meat prices in the wake of the foot-and-mouth problem should be offset by falling prices of other food products, thanks to the recovery in agricultural production after the El Niño event in 2024. The decline in oil prices, which accounted for 30% of imports in 2024, will also contribute to easing price pressures. However, a depreciation of the South African rand against the US dollar in 2025 and 2026 will fuel imported inflation.

Declining SACU transfers and aid weigh on Eswatini’s public finances

Eswatini’s fiscal deficit, which is structural, is expected to widen slightly in the 2025 fiscal year. Revenues from the Southern African Customs Union (SACU), which accounted for 46% of total revenue, are projected to decline due to the anticipated slowdown in South African trade — the source of 98% of SACU receipts. The SACU revenue stabilisation fund will help cushion the drop. At the same time, reduced flows of official development assistance, particularly following the dismantling of the US agency USAID, will increase pressure on public spending. Moreover, the government is facing a continued struggle to reduce its recurrent expenditure. The goals of reducing the public wage bill and better targeting subsidies are unlikely to be met given public discontent. The wage bill (40% of recurrent budget expenditures in 2024–2025) is expected to rise following the resumption of hiring after the lifting of the recruitment freeze in January 2024. Spending in fiscal years 2025 and 2026 will also be driven by road network modernisation (estimated at a cumulative USD 69 million), as well as energy, rural development, and water management projects. However, the fiscal deficit is expected to narrow slightly in fiscal year 2026 thanks to improved tax collection, particularly as a result of digitisation progress. While external debt accounts for just under 50% of total public debt, the country plans to finance its deficit mainly through the issuance of domestic bonds. The debt ratio is expected to remain largely unchanged.

As for external accounts, Eswatini’s current account — structurally in surplus thanks to trade flows and secondary income from SACU transfers, remittances, and international aid — is expected to narrow in 2025 due to the decline in livestock and animal product exports caused by the foot-and-mouth disease outbreak. The surplus is projected to increase again in 2026 with the recovery of these exports, despite the 10% tariff imposed by the US. Foreign exchange reserves are expected to cover just over two months of imports.

Eswatini monarchy under pressure as democratic reforms stall

Africa’s only absolute monarchy, Eswatini’s political situation is expected to remain unstable in 2025 and 2026. Despite growing unpopularity, King Mswati III, who has ruled for 37 years and lives in opulence, is likely to stay in power. The political system remains tightly controlled: political parties are banned, protests are systematically repressed and the monarch keeps the reins over all security and institutional levers, including the power to dissolve Parliament and appoint or dismiss ministers. Moreover, most of the 59 Members of Parliament elected in the September 2023 legislative elections are loyal to the monarchy. However, poor socio-economic conditions — including high unemployment, weak public services, widespread poverty, excessive corruption and the lack of civil and political freedoms — continue to exacerbate public frustration. Social unrest is expected to intensify and could even include attempts at a coup.

Eswatini maintains close ties with South Africa, which accounts for 70% of its exports and 80% of its imports. Meanwhile, the lack of progress in introducing democratic reforms is a continued cause of concern for the Southern African Development Community (SADC), which, however, is unlikely to intervene unless a major crisis arises. Eswatini is the only African country that maintains diplomatic relations with Taiwan, despite pressure from Beijing. In June 2025, Eswatini signed a USD 300 million agreement with the Export-Import Bank of the Republic of China (Taiwan) to finance the construction of a strategic oil reserve. This follows a trade cooperation agreement signed in 2024 and a recent announcement of Taiwanese financial support for the tourism and health sectors.

Last updated:July 2025