Lesotho is grappling with the fallout from the pandemic and a sharp drop in revenues for the Southern African Customs Union (SACU); The authorities and the mission team made significant progress in their discussions on policies that could be supported by the IMF as part of a financial arrangement.
A team from the International Monetary Fund (IMF), led by Mr. Aqib Aslam, conducted a series of virtual missions, most recently from September 7 to October 15, 2021, to discuss the economic and financial program of the authorities and their request for IMF financial aid.
The authorities and the mission team had productive discussions on policies that could be supported by the IMF as part of a financial arrangement. The program under discussion would aim to support a sustainable post-pandemic recovery, restore fiscal sustainability, strengthen public financial management and ensure the protection of the most vulnerable. Other key structural reforms to be implemented include strengthening governance and promoting private sector investments to boost inclusive growth and employment over the medium term.
At the end of the visit, Mr. Aslam made the following statement:
âLesotho has experienced a double economic shock resulting from the pandemic and a drop in revenues for the Southern African Customs Union (SACU) which have been shown to be very volatile. Public spending has increased as SACU incomes were sustained but did not adapt to their decline and to the limited growth of other sources of income. At the same time, the economy has been in recession since 2017. The resulting fiscal and external imbalances, if not corrected, would continue to put pressure on international reserves and lead to government payment arrears.
âThe discussions underscored the need to support a strong and inclusive post-pandemic recovery. To this end, the mission discussed with the authorities a number of options to contain the budget deficit to a sustainable and fully funded level. The team noted that the adjustment should focus on spending measures while increasing social poverty reduction spending to protect the most vulnerable. Complementary actions include efforts to expand financial access and inclusion; strengthen financial supervision; modernize the legal frameworks for bank lending, corporate bailouts and restructuring, and digitize payment systems.
âOn the fiscal front, efforts should focus on reducing the public sector wage bill, which is one of the largest in the world relative to the size of the economy; savings on the public sector and official allowances; better target education loans; rationalize the investment budget and initiate gender-sensitive budgeting. Discussions also focused on measures to modernize tax policy and improve domestic revenue mobilization. The mission noted the need to tackle long-standing issues GFP to ensure the provision of reliable tax data, the integrity of government systems and the proper use of public resources.
âSignificant progress was made during the visit, and 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 Board review.
“The IMF the team thanks the authorities for their hospitality and constructive discussions.
The IMF The mission met with Prime Minister Majoro, Finance Minister Sophonea, Central Bank Governor Matlanyane and other senior government officials. The team also met with representatives of the diplomatic community, the private sector, civil society and multilateral development partners.
Distributed by APO Group on behalf of the International Monetary Fund (IMF).
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