Eswatini Seeks Fuel Levy Cut Amid Energy Crisis

Eswatini is confronting a critical energy supply shock. As geopolitical tensions between Israel and the United States escalate against Iran, global crude oil markets have tightened, triggering fuel shortages and price spikes across southern Africa. Business Eswatini, the nation's primary private-sector advocacy body, has called for **urgent government engagement to reduce fuel levies** before cascading inflation cripples food security and consumer purchasing power.

The underlying problem is structural. Eswatini imports nearly 100% of its refined petroleum products, primarily from South Africa. When international crude prices spike—as they have following recent Middle East escalations—the rand-denominated cost of fuel imports rises immediately. The government's fuel levy, designed as a revenue tool, amplifies the final pump price consumers and businesses face. For a landlocked, import-dependent economy, this creates a multiplier effect: higher transport costs → higher food production costs → higher retail prices → lower real wages.

## Why is fuel levy reduction critical for Eswatini right now?

The timing is acute. Food inflation in southern Africa is already elevated following regional drought cycles. A sustained fuel price shock, compounded by government levies, could push rural and urban poor households into acute food insecurity within 2–3 months. Small and medium enterprises (SMEs)—which employ 60% of Eswatini's formal workforce—operate on razor-thin margins; a 15–20% fuel cost increase directly erodes profitability and forces lay-offs or price increases that consumers cannot absorb.

## What are the government's fiscal constraints?

This is the policy tension. Eswatini's government relies on fuel levies (and VAT on fuel) as a significant revenue source—estimated at 8–12% of tax collections. Cutting levies without fiscal replacement (e.g., VAT reform, sin-tax reallocation, or development partner support) will widen the budget deficit and compress spending on health, education, and infrastructure. However, *not* cutting levies risks social unrest and deeper poverty.

## How have peer African nations responded?

South Africa, Kenya, and Ghana have deployed fuel-subsidy mechanisms or temporary levy suspensions during oil shocks, financed through central bank coordination or development finance. Egypt and Morocco have pursued targeted subsidies for transport and agriculture. These precedents suggest Eswatini has limited room but some options: a 60-day levy suspension (costing ~$12–15M in forgone revenue) paired with donor budget support, or a tiered levy structure that protects essential sectors (agriculture, health transport) while maintaining revenue from commercial/private users.

**Market implications:** If levies are cut without offsetting measures, the lilangeni will face depreciation pressure, widening import costs elsewhere. If levies persist, food inflation will accelerate, triggering wage demands, labor unrest, and potential sovereign credit stress. The sweet spot is a time-bound levy reduction (3–6 months) coupled with transparent fiscal adjustment and regional fuel-price stabilization dialogue with South Africa.

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