IMF warns of gloomy eco­nomic out­look

Lesotho Times - - Business - Retha­bile Pitso

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

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