rapid assessment of the impact of the fiscal crisis in swaziland - IRIN

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rapid assessment of the impact of the fiscal crisis in swaziland - IRIN

• Firstly, it works through transmission channels such as the government budget, labor

markets and credit markets. In the public finance area, some budgeted activities

(school fees, OVC grants, elderly grants) were financed only partially in 2011. The

social service delivery fell behind the targets, due to both lower volumes and weaker

delivery mechanisms. Labor incomes have been declining due to job losses, wage cuts

and/or lower revenues of small and medium enterprises (SMEs). The arrears that the

government has accumulated to SMEs have hampered the private sector activities.

• Secondly, households have mitigated the impact of the fiscal crisis on welfare with

coping mechanisms. These responses can work through one of the channels: (i) labor

markets (e.g., getting a second job, participating in the informal economy); (ii) credit

markets (borrowing is a rational response when the crisis shock is temporary); and

(iii) the public finance channel (requesting transfers from the government).

• Thirdly, the combinations of the initial conditions, the size of the crisis shock,

household exposure to it, and responses from households, firms and government

influence the welfare at the micro/ household level. Among households such changes

in welfare have take the following form: eating less or less nutritious food, dropping –

even temporarily -- children from schools; saving on medical expenses; and others.

Figure 4. Fiscal crisis: transmission, responses and impacts 11

Fiscal Crisis (falling tax revenues, especially SACU revenues; high expenditures; reduced

access to domestic and external borrowing)

Social Transfers (cash,

in-kind) /Social Service

Delivery (cut

expenditures, weakened

delivery systems)

Labor Markets

(lower wages, job

losses, enterprise

closures, increased

uncertainty)

Credit Markets

(reduced access to

credit by households

and SMEs, higher

interest)

TRANSMISSION

CHANNELS

Reduced Household Income/Loss of Services

Household Coping Strategies

(borrowing, eating less, working more,

social assistance)

Government Policies (cash and food

transfers; subsidies)

RESPONSES

Welfare Impacts (reduced food consumption; withdrawing children from school / child

labor, reduced access to medical care)

IMPACTS

Source: Adapted from World Bank, UNICEF and Tepav (2010).

11 Figure 3 reflects that macroeconomic shocks have two components: (i) an economic shock and (ii) social

services shocks. Similarly, households can suffer from two types of vulnerability: (i) policy-induced and (ii)

market-induced (Glewwe and Hall, 1998). This report focuses mostly on the second type of vulnerability.

14

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