Eswatini Faces Growing Debt Crisis as Electricity Sector Risks Climb to 13.9 Percent of GDP

An IMF study warns that Eswatini’s electricity crisis could expose the government to fiscal risks of up to 13.9% of GDP by 2031/32, driven by rising import costs, mounting debt and inadequate tariffs. The report urges tariff reforms, renewable energy investment and stronger financial oversight to protect consumers, stabilize electricity supply and safeguard economic growth.

Eswatini's electricity sector faces mounting financial pressures that could threaten government finances, energy security, private investment, and economic growth, according to an October 2026 study by the International Monetary Fund (IMF), prepared by researchers Hannah Brown, Thomas Dowling, and Ann-Alice Tichá from its African Department. The report, Fiscal Risks from Electricity Sector Policy in Eswatini, warns that rising electricity import costs, inadequate tariff adjustments, drought-related disruptions and declining revenues from industrial customers could expose the government to financial risks equivalent to 4.4 percent of GDP under normal conditions and as much as 13.9 percent under severe economic stress by fiscal year 2031/32.

Eswatini imports nearly 80 percent of its electricity from South Africa's Eskom and Mozambique's Electricidade de Moçambique, while domestic production supplies the remaining 20 percent. Approximately half of domestic generation comes from hydropower, making electricity supply vulnerable to droughts and changing rainfall patterns. The state-owned Eswatini Electricity Company (EEC), responsible for electricity generation, procurement, transmission and distribution, plays a central role in maintaining reliable electricity services. However, its worsening financial condition is creating challenges for businesses, consumers and government policymakers.

Rising Electricity Costs Push State Utility Into Financial Crisis

EEC's financial performance has deteriorated sharply after nearly a decade of profitability. Operating profits turned negative in FY2023/24, followed by an operating loss of approximately 250 million emalangeni in FY2024/25. The decline reflects rising electricity import costs, reduced hydropower generation, weaker electricity sales and the growing shift of major industrial customers toward generating their own power.

A major financial challenge emerged when EEC's previous long-term electricity supply agreement with Eskom expired and was replaced by a more expensive contract. To recover higher costs, the company requested an electricity tariff increase of approximately 25 percent for FY2025/26.

Although the energy regulator initially approved increases of around 14–15 percent in FY2025/26 and 11 percent in FY2026/27, the government postponed the adjustments over concerns about household affordability and business costs. It subsequently approved a single 11.7 percent increase for FY2026/27.

The IMF warns that keeping electricity tariffs below supply costs creates financial losses that eventually threaten public finances. These pressures have already forced EEC to delay infrastructure projects, postpone maintenance and borrow money to meet wage obligations.

Growing Debt Could Become a Major Burden on Government Finances

EEC's outstanding debt approached one billion emalangeni by the end of 2025, equivalent to approximately 1 percent of GDP. The government is considering annual subsidies of 100 million emalangeni for FY2026/27 and FY2027/28, although this assistance would not fully cover the utility's operating losses.

Additional financial exposure comes from an 848 million emalangeni World Bank-supported rural electrification financing package, approximately 90 percent of which involves government debt on-lent to EEC.

These developments are particularly concerning because Eswatini's public debt reached nearly 45 percent of GDP in FY2025/26. Rising government expenditure, interest payments and unpredictable customs revenues have limited the country's ability to absorb additional financial pressures.

The IMF also highlights the wider economic consequences of unreliable electricity. More than half of businesses surveyed in Eswatini identified electricity as an obstacle to their operations in 2024. Frequent power interruptions increase production costs, discourage private investment and weaken business competitiveness.

IMF Warns Financial Risks Could Reach 13.9 Percent of GDP

Using financial stress tests, IMF researchers assessed how EEC's financial position could develop through FY2031/32 under three economic scenarios.

Under the baseline scenario, annual losses could reach 420 million emalangeni, while outstanding debt could increase to 5.61 billion emalangeni. The government's potential fiscal exposure would reach approximately 4.4 percent of GDP.

Under moderate economic stress, annual losses could exceed 1.06 billion emalangeni, with debt rising to 9.87 billion emalangeni. Total fiscal risks would increase to 9 percent of GDP.

The severe scenario presents an even more troubling outlook. Annual losses could approach 1.91 billion emalangeni, debt could reach 12.56 billion emalangeni and the government could face recapitalization requirements of approximately 1.9 billion emalangeni. Total fiscal exposure could reach 13.9 percent of GDP.

These figures represent potential financial risks under different assumptions rather than confirmed government spending obligations.

The report draws lessons from Morocco, Rwanda, Namibia and South Africa, demonstrating how delayed electricity reforms can increase government liabilities and undermine economic stability.

Renewable Energy and Tariff Reforms Offer a Path to Recovery

The IMF recommends gradually adjusting electricity tariffs to reflect actual supply costs while protecting low-income households through targeted financial assistance. It also calls for transparent government compensation when electricity prices are deliberately kept below cost-recovery levels.

Improving electricity billing, strengthening payment collection, reducing operational losses and negotiating more efficient power-purchase arrangements could help restore EEC's financial stability.

Expanding domestic solar, hydropower and biomass generation could reduce dependence on expensive electricity imports and strengthen energy security. Better debt monitoring, disciplined infrastructure investment and stronger government oversight would further reduce financial risks.

The study concludes that early reforms are essential to prevent electricity-sector losses from becoming a larger public debt problem. For Eswatini, restoring EEC's financial sustainability is critical not only for maintaining affordable and reliable electricity but also for protecting taxpayers, encouraging private investment, supporting businesses and strengthening long-term economic growth.