By Poloko Mokhele
Lesotho’s public expenditures have been increasing despite a sharp decline in revenues from the Southern African Customs Union (SACU) that have proved to be volatile due to the covid-19 pandemic, this was revealed by the International Monetary Fund (IMF) after its recent virtual mission in the country.
A team led by the deputy division chief of the regional studies division in the IMF’s African department, Aqib Aslam conducted a series of virtual missions from September 7 to October 15, “to discuss Lesotho government’s economic and financial program and its request for IMF financial support.”
In his brief report, Aslam indicated that the country has been experiencing twin economic shocks resulting from the pandemic and a decline in revenues from the Southern African Customs Union (SACU) that have proved to be highly volatile. “Public expenditures have been increasing while SACU revenues were buoyant but have not adapted to their decline and the limited growth in other revenue sources. At the same time, the economy has been in recession since 2017.”
The resulting fiscal and external imbalances, if left unaddressed IMF warned that “would continue to put pressure on international reserves and lead to government payment arrears.”
On the fiscal front, IMF stated that “efforts should focus on addressing the public sector wage bill, which is one of the largest in the world compared to the size of the economy; saving on public sector and official allowances; better targeting education loans; streamlining the capital budget and initiating gender responsive budgeting.
The mission said it has noted the need to address long standing personal finance management issues to ensure the provision of reliable fiscal data, the integrity of government systems, and the sound use of public resources.
The mission reported that, “the government and the mission team had productive discussions on policies that could be supported by the IMF under a financial arrangement. The program under discussion would aim to support a durable post-pandemic recovery, restore fiscal sustainability, strengthen public financial management and ensure protection of the most vulnerable.”
Other key structural reforms to be implemented include strengthening governance and fostering private sector investment to spur inclusive growth and employment over the medium term.
The discussions also emphasized the need to support a robust and inclusive post-pandemic recovery. To this end, the mission indicated that it had discussed with the government a number of options for containing the fiscal deficit to a level that is sustainable and can be fully financed. The team noted that the adjustment should be focused on expenditure measures while boosting poverty-reducing social spending to protect the most vulnerable.
“Significant progress was made during the visit, and the discussions will continue in the coming weeks. If agreement is reached on policy measures in support of the reform program, an arrangement to support Lesotho’s economic program would be proposed for the IMF executive board’s consideration,” Aslam said.
The IMF mission met with Prime Minister Moeketsi Majoro, minister of finance Thabo Sophonea, Central Bank governor Retšelisitsoe Matlanyane and other senior government officials. The team also met with representatives of the diplomatic community, private sector, civil society and multilateral development partners.
