IMF warns of gloomy economic outlook
A VISITING International Monetary Fund (IMF) team has urged the government of Lesotho to reduce spending and diversify its economy to spur growth.
The IMF Article IV mission, which was in the country from 20 August until yesterday, had come to assess the state of the economy and engage with various stakeholders including government officials and the private sector.
Among others, the mission met with the ministers of Finance, Development Planning, Education and Training, Public Service and Health as well as representatives from the Central Bank of Lesotho, National University of Lesotho, church leaders, civil society and international development partners.
At the end of the visit yesterday, the mission chief, David Dunn, said while Lesotho had achieved solid economic growth in the preceding years, development needed to cascade to all Basotho.
“Real Gross Domestic Product (GDP) grew on-average by about 4½ percent a year over the past five years. Inflation averaged just below five percent a year during this period, largely tracking inflation in neighboring South Africa,” said Mr Dunn.
“Most recently, the sharp drop in international fuel prices led inflation to fall below 3 percent—the lowest rate since 2010.
“However, growth needs to be more inclusive. Poverty and unemployment have been major challenges over the past decade, especially in rural areas.”
He said Lesotho faced a challenging economic outlook, with growth for 2015 expected to slow to about 2½ percent.
“The economy depends heavily on government spending, financed largely by revenues from the Southern African Customs Union,” Mr Dunn said.
“But SACU revenues, which are highly volatile, have begun to slip and are expected to fall sharply in the next fiscal year, 2016/17 (to just over 15 percent of GDP, compared with almost 30 percent in 2014/15).”
He said the government would initiate a fiscal adjustment of several percentage points of GDP over the next three years, “mainly by reducing expenditures and increasing efficiency”.
“In particular, the government will review its wage bill, which has grown to 23 percent of GDP— the highest relative to GDP in subSaharan Africa — with a view toward finding savings, while improving service delivery,” said Mr Dunn. “Strengthening budget controls and management of the public service will be critical to achieve a successful fiscal adjustment.”
He said there was an urgent need to enable the private sector to become an engine for growth and job creation.
“The IMF mission was encouraged to learn that there are a number of productive initiatives that can be taken in the near term to boost employment.
“For example, the Lesotho National Development Corporation is committed to leasing factory shells on a commercial basis, which will open space to companies with the highest potential for creating new jobs,” Mr Dunn added.
“In line with the Financial Sector Development Strategy, the authorities are also addressing obstacles to credit, such as the recent start of a credit reference bureau, which will help to reduce spreads between deposit and lending interest rates.
“In addition, the mission encourages the authorities to kick start implementation of the 2012 National Strategic Development Plan.”
IMF mission head David Dunn