The outbreak of the coronavirus (COVID-19) pandemic, and the measures taken to contain its spread, have a varied and deep socio-economic impact globally and in Eswatini. Local economic conditions have deteriorated rapidly with the disruption of supply chains and normal business operations. There has been a notable decline in both export and domestic demand for goods and services. In addition, the risk of job losses and business failure has escalated. Small businesses and individuals who earn their income in the informal sector were particularly hard hit.
The Central Bank of Eswatini has introduced several policy interventions in response to the coronavirus pandemic. The intervention included reduction of interest rates, liquidity requirements as well as cash reserve requirements. Others included relaxation of regulations to protect hard-hit households and businesses. All these policy initiatives were meant to stimulate economic growth, support credit extension and protect businesses from closure or liquidation. In discharging its responsibility to protect employees, the CBE appointed a COVID-19 Pandemic Task Team to put in place various measures to mitigate exposures due to the spread of the virus. Outlined below are some of the key interventions by the Bank.
As soon as the business continuity protocols were invoked, about 70 per cent of the Bank’s staff complement was allowed to work remotely, that is, work-from-home. The Bank provided the employees with internet connectivity resources and facilities. Further, employees have access to virtual private network (VPN) connection to the Bank’s systems so they could deliver on their key performance areas effectively and efficiently. As part of performance management, team leaders monitor and report on personnel performance on a weekly basis.
Monetary Policy Response
The Bank has a responsibility to ensure price and financial stability to promote economic growth. The economy was already experiencing relatively subdued inflationary pressures and thus the COVID-19 pandemic, combined with the subsequent lockdowns, imposed to curb its spread, forced the Bank to pursue a rapidly accommodative monetary policy stance during the first seven months of 2020.
In 2020/21, the Monetary Policy Consultative Committee (MPCC) held 7 meetings as opposed to the usual 6 meetings per year. The Committee held an extra ordinary meeting on 15 April 2020 in response to the COVID-19 pandemic effects on the economy. The discount rate was reduced by a cumulative 175 basis points. It was reduced from 5.50 per cent in March 2020 to 4.50 per cent in April 2020 before another cut to 4.0 per cent in May 2020 and further down to 3.75 per cent in July 2020, after which it was maintained until March 2021.
Throughout the financial year 2020/21, the Central Bank of Eswatini maintained a 25 basis points positive differential against the South African repo rate. For a more detailed monetary policy response, refer to our 2020/21 Annual Integrated Report, page 34.
Considering all relevant factors as well as the price and financial stability mandate, in January 2022 the Bank raised the discount rate from 3.75 per cent to 4.0 per cent. Click here to read our latest MPCC Statement.
Banking Sector Supervisory Initiatives
The Bank regularly assesses the performance of banks in the country in order to foster safety and soundness of the banking sector and the overall stability of the financial system. Eswatini Government effected a national lockdown in March 2020 to fight the rapid spread of the virus, however, this negatively impacted businesses.
To ease the effects of COVID-19 on the banking sector, the Bank introduced relief measures through Inspection Circular No.1 of 2020, which banks have implemented to assist their customers. Through the Inspection Circular No.1 of 2020 relief measures, more than 2,200 customers in aggregate with a total relief value of E1.13 billion benefitted through payment holidays which ranged between three to six months and were granted on a case-by-case basis. The intervention certainly provided significant and required relief to the borrowers who would have otherwise been troubled by the COVID-19 induced economic/financial distress.
Moreover, the reduction of the liquidity requirement and reserve requirement by 500 basis points and 100 basis points in March 2020, respectively, resulted in approximately E2 billion of liquidity released to help cushion the banks and allow them to continue lending amid the COVID-19 pandemic. Consequently, an increase of 9.57 per cent in gross loans and advances from E11.8 billion in March 2020 to E12.9 billion in December 2020 was observed. (Read press statement published by the Bank on Banking Sector’s commitment on the fight against COVID-19).
The Bank is currently finalizing an impact analysis of Inspection Circular No. 1 of 2020 to determine how effective it was as a policy intervention and possibly provide a scope for review of the same based on current and expected future economic dynamics. For a more detailed COVID-19 response on banking sector, refer to our 2020/21 Annual Integrated Report, page 48.
Corporate Social Investment
In reaffirming the commitment of supporting disaster relief programmes under the Corporate Social Investment Programme – COVID-19 Response, the Bank received four (4) proposals amounting to E2.1 million. Beneficiaries of this response included; the Ministry of Health, Royal Eswatini Police Service, His Majesty’s Correctional Services and the National Disaster Management Agency. (To read more, refer to page 60 of the 2020/21 Annual Integrated Report)
Anticipated Future Outlook and Action Plans
The Bank is on high alert to ensure that its staff remain safe and business operations remain resilient. Once the Bank staff have been vaccinated, at least to herd immunity level, the Bank intends to normalize its operations. This will entail an assessment of the various actions undertaken during the pandemic to inform decisions around actions that could be adopted as the future normal. The Bank is in the process of developing a plan on how to bring operations to normalcy and what shape that new normal would take.
Whilst this work is still being undertaken, the current business continuity management protocols, meant to contain the spread of Covid-19, will remain in place.