Swaziland's Finance Minister: Majozi Sithole

" 'No clause that South Africa will unilaterally cancel the loan'

But the nation's failure to implement a raft of measures recommended by the IMF has raised questions over whether the loan will be withdrawn.

One of the conditions of the R2.4-billion loan from SA's Treasury, announced last August, was that Swaziland implement fiscal and technical reforms required by the IMF.

Treasury spokesperson Bulelwa Boqwana said Mbabane had not yet agreed to the conditions of the loan, but had not withdrawn its request for it either.

"The loan to Swaziland is still available, and remains subject to all the stipulated procedures and conditions," she said.

When pressed to explain why the loan was still available, despite Swaziland's failure to implement the required conditions, Boqwana said: "There is no clause that says South Africa will unilaterally cancel the loan, and hence we emphasise that the loan is subject to fulfilling the stipulated conditions."

The IMF's country report, released this week after bilateral discussions with Swaziland last month, revealed the Southern African kingdom has failed to implement all but one of the IMF's recommend-ations to get its finances back on track.

Swaziland slashed wages for political appointees and parliamentarians by 10% as part of its agreement to reduce its public sector wage bill, but more cuts were still necessary, said the IMF.

The country's failure to initiate the rest of the measures has seen the fiscal crisis worsening, even spilling over to the corporate and financial sectors. This saw real GDP growth slowing to an estimated 0.3% in 2011, compared with 2% the previous year, while inflation ticked up to 7.8% year on year in December.

The IMF said the Swazi government had to withdraw E283-million from its central bank to pay salaries, reducing official reserves to a paltry E4-billion. Quarterly revenue of E720-million received from the Southern African Customs Union last month eased the cash situation.

The arrears have created constraints on private businesses, leading to a reduction in their activity.

Swazi banks are facing liquidity pressures as 10% to 30% of their assets were directly exposed to government securities.

The banks are also indirectly exposed through loans given to government suppliers and civil servants.

"Expenditure overruns, notably on defence, travel allowances and public investment, led to a significant accumulation of domestic arrears and worsened the quality of spending," the IMF said.

Access to financing has dried up, as commercial banks reduced their exposure to the nation, while the African Development Bank and the World Bank were unable to provide funding because of Mbabane's failure to put the staff-monitored programme, approved by the IMF last April, into action.