Govt urged to cut spend­ing

Lesotho Times - - Business - Bereng Mpaki

THE gov­ern­ment will need to cur­tail its spend­ing for the 2017/18 fi­nan­cial year in light of the Le­sotho Rev­enue Author­ity’s (LRA) fail­ure to meet tax col­lec­tion tar­gets and the down­grad­ing of South Africa to junk sta­tus by global rat­ing agen­cies.

Ac­cord­ing to econ­o­mist and Le­sotho Coun­cil of Non-govern­men­tal Or­gan­i­sa­tions (LCN) Pro­grammes Man­ager, Kanono Tha­bane, it would be pru­dent for the gov­ern­ment to also come up with a medium-term fis­cal ad­just­ment plan to re­duce re­cur­rent ex­pen­di­ture.

For his part, Fi­nance Min­is­ter Tlo­hang Sekhamane told the Le­sotho Times this week there were no plans to cut back on ex­pen­di­ture, say­ing there was a con­tin­gency plan in light of the de­cline in rev­enue.

The LRA failed to meet the gov­ern­ment’s tar­get for tax col­lec­tion by 6.7 per­cent in the fi­nan­cial year which ended on 31 March 2017.

While the M5.9 bil­lion col­lected by the rev­enue col­lec­tion agency in the 2016/17 fi­nan­cial year was slightly more than the M5.8 bil­lion col­lected the pre­vi­ous year, it missed the M6.4 bil­lion tar­get by M430.8 mil­lion.

The LRA col­lected rev­enue through in­come tax, value added tax (VAT) as well as the Al­co­hol and To­bacco Levy which missed their set tar­gets by 7.3 per­cent, 4.3 per­cent and 100 per­cent re­spec­tively.

This was an­nounced last week by Mr Sekhamane who also ex­plained that the pre­vi­ous fi­nan­cial year’s in­come tax of M3.7 bil­lion was im­pacted by the poor per­for­mance of Com­pany In­come Tax (CIT).

CIT was ham­strung by the lack­lus­tre per­for­mance of the min­ing sec­tor which con­trib­utes up to 30 per­cent of its over­all col­lec­tions.

Also last week, Standard & Poor’s and Fitch rat­ing agen­cies down­graded South Africa’s for­eign and lo­cal cur­rency rat­ings to sub in­vest­ment grade, or junk sta­tus.

The agen­cies said the coun­try’s long-term rat­ings down­grade fol­lowed re­cent po­lit­i­cal events, in­clud­ing the Cab­i­net reshuf­fle, which Fitch be­lieves would weaken stan­dards of gov­er­nance and pub­lic fi­nances.

Mr Tha­bane said the gov­ern­ment would need to cut back on its spend­ing in or­der to stay in the black. He said the down­grad­ing of the South African econ­omy would also re­sult in fur­ther re­duc­tions of South­ern African Cus­toms Union (SACU) rev­enues.

SACU is the world’s old­est cus­toms union and con­sists of Botswana, Le­sotho, Namibia, South Africa, and Swazi­land.

“The de­cline in do­mes­tic rev­enue mo­bil­i­sa­tion means that the gov­ern­ment has to con­sider some cuts in spend­ing,” he said.

“The macroe­co­nomic im­pact of the fall in do­mes­tic rev­enue could be ex­ac­er­bated by de­clines in SACU rev­enues which con­sti­tute a larger per­cent­age of Le­sotho’s to­tal rev­enue.

“At the mo­ment, SACU faces a risk caused by the credit down­grad­ing of South Africa.”

Mr Tha­bane in­di­cated that a poor credit rat­ing re­sulted in dra­matic in­creases in the in­ter­est rates at which the gov­ern­ment and com­pa­nies bor­row funds.

“That also means in­ter­est rates will also rise for the man on the street,” he said.

“If South Africa reg­is­ters a low growth rate due to low in­vest­ment in­flow and high in­fla­tion, this will

trans­late into low SACU rev­enue col­lec­tions. In turn, this will af­fect the rev­enue al­lo­ca­tions due to mem­ber states such as Le­sotho. As a re­sult, Le­sotho will have to fi­nance the re­sul­tant bud­get deficit and in­cur higher bor­row­ing costs.”

On the re­me­dial av­enues the gov­ern­ment can take to man­age the ex­pected de­cline in SACU rev­enues, Mr Tha­bane said: “The gov­ern­ment should con­sider fis­cal con­sol­i­da­tion ef­forts over the medium-term, while pro­tect­ing spend­ing for crit­i­cal so­cial and de­vel­op­ment needs.

“Such a tight fis­cal pol­icy stance would help main­tain a suf­fi­cient in­ter­na­tional cur­rency re­serve buf­fer and main­tain mod­est debt dis­tress.”

He sug­gested a medium-term fis­cal ad­just­ment plan to ad­dress the de­cline in do­mes­tic rev­enue mo­bil­i­sa­tion in 2017.

“It is im­por­tant for Le­sotho to re­sus­ci­tate the Medium-term Fis­cal Frame­work which en­tails a three-year fis­cal con­sol­i­da­tion plan fo­cus­ing on re­duc­ing re­cur­rent ex­pen­di­ture and con­tain­ing cap­i­tal spend­ing growth,” added Mr Tha­bane.

For his part, Mr Sekhamane the gov­ern­ment would not un­der­take any ma­jor ex­pen­di­ture cuts in the short-term.

“We don’t an­tic­i­pate any­thing ma­jor in the gov­ern­ment’s bud­getary op­er­a­tions, but only mar­ginal tweak­ing of al­lo­ca­tions here and there,” the min­is­ter said.

“This is be­cause the bud­get es­ti­mates submitted by the Min­istry of Fi­nance are merely broad guide­lines that as­sist in the al­lo­ca­tion of funds. It does not mean we have to stick to them strictly.”

He added that the gov­ern­ment also had con­tin­gency plans to deal with the de­cline in rev­enue.

“We may al­lo­cate funds to projects that use up their al­lo­cated money faster. These funds may be taken from projects that are not yet us­ing their al­lo­cated money.”

Apart from do­mes­tic tax rev­enue and SACU re­ceipts, the gov­ern­ment of Le­sotho fi­nances its op­er­a­tions through donor grants and loans.

Fi­nance Min­is­ter Tlo­hang Sekhamane.

LCN Pro­grammes Man­ager Kanono Tha­bane.

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