IMF paints bleak out­look for Le­sotho

Lesotho Times - - Business - Bereng Mpaki

THE In­ter­na­tional Mon­e­tary Fund (IMF) has fore­cast eco­nomic growth of only 2.5 - 3 per­cent for Le­sotho in 2016, which it said could be lower de­pend­ing on the sever­ity of the cur­rent drought.

The IMF pro­jected in­fla­tion to re­main mod­er­ate at around 5-6 per­cent, de­spite ris­ing food prices and the re­cent de­pre­ci­a­tion of the South African rand.

Un­der Ar­ti­cle IV of the IMF’S Ar­ti­cles of Agree­ment, the IMF holds bi­lat­eral dis­cus­sions with mem­bers usu­ally on a yearly ba­sis. A staff team vis­its a mem­ber coun­try, col­lects eco­nomic and fi­nan­cial in­for­ma­tion as well as dis­cussing with govern­ment. Upon re­turn­ing to the IMF head­quar­ters in Wash­ing­ton DC, the staff pre­pare a re­port which forms the ba­sis for dis­cus­sion by the Ex­ec­u­tive Board.

In a state­ment re­leased last Fri­day and head­lined “IMF Ex­ec­u­tive Board Con­cludes 2015 Ar­ti­cle IV Con­sul­ta­tion with the King­dom of Le­sotho”, the Fund ex­pressed con­cern with govern­ment ex­pen­di­tures which it said amounted to 60 per­cent of gross do­mes­tic prod­uct (GDP) and “in­creas­ingly slanted to­ward re­cur­rent ex­pen­di­tures”.

“The govern­ment wage bill rose to 21.5 per­cent of GDP in 2014/153 — the high­est in sub-sa­ha­ran Africa — and is bud­geted to in­crease to 23 per­cent of GDP in the cur­rent fis­cal year,” the Bret­ton Woods in­sti­tu­tion noted.

The Fund urged the govern­ment of Le­sotho to con­tain the “ex­traor­di­nar­ily large” wage bill.

“Re­forms to strengthen pub­lic ser­vice ad­min­is­tra­tion and pub­lic fi­nan­cial man­age­ment are ur­gently needed, not only for a suc­cess­ful fis­cal ad­just­ment, but to also im­prove the de­liv­ery of govern­ment ser­vices. A lack of ba­sic con­trols — such as the in­abil­ity to fully rec­on­cile govern­ment bank ac­counts on a reg­u­lar ba­sis — con­trib­utes to se­vere govern­ment in­ef­fi­cien­cies,” the IMF noted.

The IMF said Le­sotho’s “heavy re­liance” on volatile South­ern African Cus­toms Union (SACU) rev­enue for govern­ment fi­nanc­ing would also neg­a­tively af­fect the econ­omy as there were fore­cast to sig­nif­i­cantly drop.

“Af­ter slip­ping to R6.6 bil­lion (about 26 per­cent of GDP) this year, Le­sotho’s al­lo­ca­tion will drop sharply to R4.5 bil­lion (about 16 per­cent of GDP) in 2016/17, with much of this de­cline ex­pected to be long-last­ing,” read the state­ment.

“Le­sotho faces a chal­leng­ing eco­nomic out­look. The im­mi­nent sharp drop in SACU rev­enues could threaten macroe­co­nomic sta­bil­ity, un­less a ma­jor fis­cal ad­just­ment is im­ple­mented.

“While ex­ist­ing buf­fers pro­vide a cush­ion to al­low an or­derly ad­just­ment over the next 2–3 years, it is crit­i­cal that the au­thor­i­ties take a sub­stan­tial first step in the up­com­ing fis­cal year to en­sure cred­i­bil­ity.”

The Fund also ob­served that un­em­ploy­ment rates had re­mained high, es­pe­cially among the youth, “and the in­ci­dence of poverty is vir­tu­ally un­changed from a decade ago”.

“Most health, education, and so­cial in­di­ca­tors have shown lit­tle or no im­prove­ment, even with con­sid­er­able govern­ment spend­ing in th­ese ar­eas (about 30 per­cent of GDP a year),” it said.

This was com­pounded, the IMF stated, by a weak­ened busi­ness en­vi­ron­ment “partly be­cause of political dif­fi­cul­ties around the col­lapse of the coun­try’s first coali­tion govern­ment in 2014”.

“De­spite early elec­tions in Fe­bru­ary 2015 and a smooth tran­si­tion to a new coali­tion govern­ment, ten­sions have per­sisted. Im­ple­men­ta­tion of Le­sotho’s Na­tional Strate­gic De­vel­op­ment Plan (NSDP) has stalled in this en­vi­ron­ment and in­vest­ment has slowed. Also, some de­vel­op­ment part­ners have damp­ened their eco­nomic sup­port,” said the IMF.

“To achieve greater in­clu­sive­ness, the pri­vate sec­tor needs to step up job cre­ation. Im­ple­men­ta­tion of the NSDP, which pro­vides a vi­able ap­proach for tran­si­tion­ing from govern­ment de­pen­dence to pri­vate sec­tor led growth over the longer term — par­tic­u­larly in sec­tors with po­ten­tial for high em­ploy­ment — needs to be restarted.

“In the near term, to quickly stim­u­late job growth, mea­sures could be taken to elim­i­nate un­nec­es­sary ob­sta­cles and bot­tle­necks to do­ing busi­ness. Con­tin­ued im­ple- men­ta­tion of the Fi­nan­cial Sec­tor De­vel­op­ment Strat­egy would im­prove ac­cess to credit and fi­nan­cial ser­vices.”

In his anal­y­sis of the state­ment, for­mer De­vel­op­ment Plan­ning min­is­ter Dr Moeketsi Ma­joro said Le­sotho’s peren­nial political sta­bil­ity was the un­der­ly­ing rea­son be­hind the poor eco­nomic per­for­mance.

Dr Ma­joro, who is also a for­mer IMF ex­ec­u­tive di­rec­tor, said with­out political sta­bil­ity, which im­pacts on the in­vest­ment cli­mate and pur­chas­ing power, Le­sotho can­not im­prove its so­cial in­di­ca­tors.

“Due to the un­sta­ble na­ture of our gov­ern­ments, their main fo­cus is on en­sur­ing their own sur­vival rather than ad­dress­ing the eco­nomic and so­ci­etal needs,” he said.

“The govern­ment needs to ad­dress four fun­da­men­tal is­sues, namely the ail­ing health sys­tem of the na­tion which im­pacts on our abil­ity to be eco­nom­i­cally pro­duc­tive; education that equips learn­ers with the rel­e­vant skills; political will and aware­ness to ad­dress so­ci­etal is­sues; and in­fras­truc­tural de­vel­op­ment.”

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