South Africa agrees to US$200 million bailout

The South African Cabinet has agreed in principle to grant Swaziland a R1,4-billion (US$202-million) - slightly higher than the R1,2-billion originally reported. It has not yet considered a detailed proposal - promoting Ministers, Finance's Pravin Gordhan and International Relations' Maite Nkoana-Mashabane, are awaiting a demonstration by Swaziland that it is willing to implement a fiscal austerity programme before they finalise the deal.

It is unlikely that the facility will be routed through the Southern African Customs Union, as originally planned. A Sacu arrangement would limit the risk of default - quarterly Sacu disbursements are handled by South Africa, enabling Pretoria to deduct repayments at source. But it has several disadvantages: South Africa it would register as a deficit on the books; for Swaziland it would necessarily be lent at near-commercial rates and may thus be unaffordable.

The alternative appears to be a loan to the Central Bank of Swaziland. This would allow Pretoria to set a softer interest rate than would be necessary on an advance on Sacu revenues. Pretoria could, however, still mitigate its risk by arranging to deduct repayments from Swaziland's Sacu allocations. As South Africa made clear when discussions started on the sidelines of the SADC Sandton Summit (11-12 June 2011), it is limiting its support to financing Swaziland's budgetary shortfall, and will administer the loan from Pretoria. (SAR)