The International Monetary Fund (IMF) has warned that Eswatini's public debt position is coming under increasing pressure due to rising borrowing costs. According to the IMF's 2026 Article IV Consultation report, the country's effective interest rate has risen, exacerbating unfavourable debt dynamics. This is because the effective interest rate on government debt is now higher than nominal economic growth. As a result, without sufficient fiscal adjustment or stronger growth, the government's debt stock can grow faster than the economy's capacity to support it.
Eswatini's public debt increased sharply during the 2025/26 financial year, with the debt-to-GDP ratio rising from 40.0 per cent in FY2024/25 to 44.8 per cent in FY2025/26. The IMF attributed this deterioration largely to the widening fiscal deficit, which increased from 1.1 per cent of GDP to 7.8 per cent over the same period. This was due to lower Southern African Customs Union (SACU) receipts, higher public investment, increased public wages, and higher non-wage spending.
The IMF's debt sustainability analysis shows that the effective interest rate is projected at 8.7 per cent in 2026, compared with nominal GDP growth of 6.8 per cent. This creates a gap of almost two percentage points, highlighting the challenges facing Eswatini's debt dynamics. The effective interest rate is calculated by dividing total interest payments by the debt stock at the end of the previous year.
The IMF has expressed concern that high borrowing costs are occurring alongside rising debt levels. According to the fund, Eswatini's effective interest rate on its debt has exceeded its nominal GDP growth in recent years, worsening debt dynamics. This trend is likely to continue, increasing the public debt stock faster than output if the efficiency of public spending remains at levels similar to those observed over the past decade.
To stabilise the debt-to-GDP ratio, the IMF says the government will need to run a primary surplus. This will require a significant fiscal adjustment, which could be challenging given the current economic conditions. The IMF's warning highlights the need for Eswatini to carefully manage its debt and implement policies to promote economic growth and fiscal sustainability.
The IMF's concerns about Eswatini's debt dynamics are shared by other stakeholders, including investors and rating agencies. A deterioration in the country's debt profile could have significant implications for its credit rating and access to international capital markets. Therefore, it is essential for the government to take proactive steps to address the challenges facing its debt dynamics.
The Times of Eswatini reported that the Central Bank of Eswatini raised E1.877 billion through government bonds on October 6, 2026. This could be a step towards addressing the country's debt challenges, but the IMF's warning suggests that more needs to be done to promote fiscal sustainability and stabilise the debt-to-GDP ratio.
Key points
- Eswatini's effective interest rate on government debt is now higher than nominal economic growth, worsening debt dynamics.
- The country's debt-to-GDP ratio rose from 40.0 per cent in FY2024/25 to 44.8 per cent in FY2025/26.
- The IMF projects the effective interest rate at 8.7 per cent in 2026, compared with nominal GDP growth of 6.8 per cent.
