Determinants of foreign exchange reserves in Eswatini: An ARDL approach

Using the autoregressive distributed lag (ARDL) bounds testing cointegration method, the paper models the behaviour of Eswatini's foreign exchange reserves over the period 1990-2014. An augmented buffer stock model is applied and the results indicate that foreign exchange reserves in Eswatini are driven by GDP per capita, developments in the current account, government expenditure and movements in the exchange rate. With the growth in Eswatini's foreign exchange reserves lagging behind the growth rates observed in other emerging economies, the findings from the study imply that monetary authorities should increase efforts to build reserves in order to boost confidence in the currency peg to the South African rand and enhance financial stability in Eswatini.