By Kefiloe Kajane
The minister of finance Thabo Sofonea this week said Lesotho continues to receive its greater share of its revenues from Southern African Customs Unions (SACU), but warned that SACU receipts are unstable and are expected to decline over the medium term.
Sofonea said the government has over time adopted expansionary expenditure policy despite a restrained envelope. The fiscal position deteriorated since 2015/2016 and the distress is projected to continue throughout the medium term.
He further said that reliance on SACU receipts makes fiscal policy to be vulnerable to external shocks. He said these also had a procyclical effects on the annual budgets as expenditure increases in periods of high receipts and vice versa.
“The fiscal imbalances put pressure on international reserves, which is a threat to the Loti/Rand peg that has effects on macroeconomic stability and fiscal sustainability. The revenue collections are expected to be lower than budgeted estimates in the fiscal year.
“Tax revenues, mainly Corporate Income Tax and VAT are correlated to the level of economic activity and are therefore expected to decline, reflecting a deteriorating economic performance. The slowdown in mining activities has had a dire impact on royalties receivable. SACU revenues remain immutable as they are shared ex-ante.
“Overall, total revenue is expected to decline by 14 percent against the budget estimates in the current fiscal year. In the medium-term, all components of revenue are expected to improve, with exception of SACU.
“This stems from an inevitable negative adjustment anticipated in 2022/23 which will halt the forecasted improvement in other revenue components. Total revenue will decline from 52.0 percent of GDP in 2020/201 to 42.5 percent of GDP in 2022/23,” he warned.
He said it is estimated that the recurrent expenditure will decline by nine percent against the budget estimated. He explained that all current items are expected to decline with exception of subsidies due to Covid-19 related mitigation measures.
Also, Sofonea explained that the lower expected budget outturn on compensation of employees is on account of the current performance which portrays that the budgeted amount will not be fully expended.
He indicated that the mid-year revenue collection recorded M8.0billion which is lower than the anticipated M8.5billion. Major revenue collections are from SACU receipts and tax revenue.