IMF urges govt to con­trol wage bill

Lesotho Times - - Business - Bereng Mpaki

THE In­ter­na­tional Mon­e­tary Fund (IMF) has warned that Le­sotho’s econ­omy is “speed­ing to­wards a fis­cal cliff”, adding that the Moun­tain King­dom still has time to make fun­da­men­tal im­prove­ments to en­sure it be­comes com­pet­i­tive.

In a pod­cast posted on the or­gan­i­sa­tion’s web­site last week, IMF mis­sion chief for Le­sotho, David Dunn, said the econ­omy’s growth rates had dropped ow­ing to the slow­down in the South African econ­omy to which it is closely tied.

“The area Le­sotho is most closely tied to South Africa is on the govern­ment rev­enue side with about half of its to­tal in­flows com­ing from the South­ern African Cus­toms Union (SACU),” he said.

“In re­cent years it has been about 30 per­cent of gross do­mes­tic prod­uct (GDP), and when South Africa’s econ­omy be­gins to slow down and im­ports and duty col­lec­tions ta­per off, it has se­ri­ous im­pli­ca­tions on Le­sotho’s econ­omy.

“In the 2016/17 fi­nan­cial year which be­gins in April, the govern­ment is al­ready fac­ing a very dif­fi­cult fis­cal sit­u­a­tion. This drop in rev­enue is likely to per­sist for some time to come.”

Mr Dunn said the coun­try’s stock of in­ter­na­tional re­serves bought the govern­ment some time to ad­dress the chal­lenges.

“On the pos­i­tive side, there is a healthy stock of in­ter­na­tional re­serves that have been built up over the years and that buys the coun­try some time,” he said.

“Un­for­tu­nately, the coun­try is speed­ing to­wards a fis­cal cliff where th­ese re­serves could be run down and jeop­ar­dise the loti-rand par­ity. But they do have time to steer away from that cliff.”

The IMF mis­sion chief said govern­ment ex­pen­di­tures were not sus­tain­able in the long run, with a wage bill of 23 per­cent of GDP - the high­est in sub-sa­ha­ran Africa.

“The gap be­tween govern­ment rev­enues and ex­pen­di­tures is too wide over a sus­tained pe­riod of time. We do not rec­om­mend shock ther­apy, but we do rec­om­mend steer­ing away from the cliff and tak­ing a few years to make this fis­cal ad­just­ment.”

Mr Dunn said there was room for im­prove­ment in the ad­min­is­tra­tion of the civil ser­vice.

“The govern­ment spends 30 per­cent of GDP in so­cial ser­vices such as health and education which is very high by in­ter­na­tional stan­dards. But they have not re­ally got­ten the re­sults,” he said.

“The govern­ment has been ne­go­ti­at­ing with the World Bank on a pro­ject to mod­ernise the ad­min­is­tra­tive sys­tems and use money more ef­fec­tively. In many coun­tries sim­i­lar to Le­sotho’s sit­u­a­tion, there is large num­ber of ir­reg­u­lar­i­ties in the civil ser­vice with the so­called ghost work­ers, where the names would be on the pay­roll while the peo­ple may no longer be serv­ing the civil ser­vice.”

Le­sotho, Mr Dunn said, risked los­ing its African Growth and Op­por­tu­nity Act (AGOA) com­pet­i­tive ad­van­tage if a trade agree­ment be­tween the United States and Pa­cific Rim coun­tries is con­sum­mated.

AGOA gives duty-free and quota-free ac­cess to the United States mar­ket to el­i­gi­ble Sub-sa­ha­ran African coun­tries in­clud­ing Le­sotho.

How­ever, if com­pleted, the Trans Pa­cific Part­ner­ship would re­duce tar­iffs and trade rules among the 12 coun­tries in­volved. It would also al­low very com­pet­i­tive economies such as Viet­nam, with a much more com­pet­i­tive ap­parel in­dus­try than any African coun­try, to do more busi­ness with the US un­der the same priv­i­leges AGOA ben­e­fi­cia­ries cur­rently re­ceive.

“It’s a mat­ter of time be­fore the Asian coun­tries have the same type of ac­cess to the US mar­ket, and that is go­ing to be very dif­fi­cult for Le­sotho and re­quire fun­da­men­tal im­prove­ments in com­pet­i­tive­ness,” he said.

On a pos­i­tive note, Mr Dunn said the re­cent es­tab­lish­ment of a credit in­for­ma­tion shar­ing plat­form would ad­dress the chal­lenge of ac­cess to fi­nance and in turn boost a pri­vate sec­tor-led growth.

“One of the ar­eas where there has been suc­cess is in the fi­nan­cial sec­tor de­vel­op­ment strat­egy which was de­vel­oped with tech­ni­cal as­sis­tance from the World Bank and IMF,” he said.

“There has ac­tu­ally been re­mark­able progress in deal­ing with some of the hur­dles in deal­ing with ac­cess to credit such as es­tab­lish­ing the credit ref­er­ence bureau, and now they are try­ing to have a registry for col­lat­eral which makes lend­ing to busi­nesses more ef­fi­cient.”

Mr Dunn added that Le­sotho needed to im­prove the largely un­de­vel­oped mi­cro-fi­nance sec­tor to en­sure in­clu­sive growth.

“Mi­cro-fi­nance is a chal­lenge ev­ery­where, but if we can make some strides in mi­cro-fi­nanc­ing for me I think that’s the big­gest bank for the buck for in­clu­sive growth,” he said.

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