Eswatini - Economic Recovery Development Policy Financing I

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This program document presents a first US40 million dollars Economic Recovery Development Policy Loan to the Kingdom of Eswatini. This is the first in a programmatic series of two operations to support the Government of Eswatini’s economic reform program. The operation supports the Government’s post-COVID-192 economic recovery program and its efforts to implement critical structural reforms to address binding constraints to the country’s development. The policy actions are anchored in the World Bank Group Country Partnership Strategy (CPS) for the Kingdom of Eswatini for 2015-18, and the Systematic Country Diagnostic (SCD), which has been completed in 2020. The CPS was initially extended by the Performance and Learning Review to 2020 and was further extended to 2021 due to the COVID-19 pandemic. This operation is expected to generate positive social impacts and some environmental benefits. The Poverty and Social Impact Analysis of this operation (Annex 4) confirms that most reforms supported by this operation will benefit the poor and vulnerable. The prior actions aim to alleviate the adverse impacts of the COVID-19 pandemic on households and firms in the short term, safeguard rural livelihoods and affordability in the medium term, and improve access to finance and government revenues in the longer term. Furthermore, Eswatini is vulnerable to climate change, given that the main economic growth and development contributing sectors such as agriculture and water resources are climate sensitive. In line with Eswatini’s Nationally Determined Contributions (NDC) commitments, this project supports climate mitigation and adaptation strategies as per the World Bank Africa Climate Business Plan 2020. While this operation has a focus on macroeconomic stability and selected areas of competitiveness, and as such does not lend itself to direct climate co-benefits, it will nonetheless strengthen climate resilience, enhancing climate co-benefits in the medium term. The Development Policy Financing (DPF) has been jointly prepared by the World Bank and International Finance Corporation (IFC) and is part of a broader engagement of international financial institutions, namely the International Monetary Fund (IMF) and the African Development Bank (AfDB). In response to the COVID-19 crisis, the IMF Executive Board agreed in July 2020 to a US110 million dollars disbursement to Eswatini through its Rapid Financing Instrument (RFI). The (AfDB agreed to provide co-financing of US40 million dollars in parallel to this World Bank operation to maintain medium-term support to the reform program. IFC already has a strong ongoing engagement in Eswatini, which this operation is leveraging, especially to improve the business environment.