Press Release: IMF Approves Stand-by Credit for Lesotho

September 1, 1995

The International Monetary Fund (IMF) today approved a 12-month stand-by credit for Lesotho totaling the equivalent of SDR 7.17 million (about $11 million) to support the Government's 1995/96 economic reform program.


Since 1988 Lesotho has been pursuing reform efforts that have improved its economic and financial performance. During this period, the budget has moved into a surplus, the balance of payments has improved markedly, the rate of inflation has decelerated, and relatively high real growth rates of GNP have been achieved, despite an adverse internal and external environment. Notwithstanding the slow pace of structural reform, due to political instability and lack of implementation capacity, a substantial restructuring of the economy has taken place.

The Program for 1995/96

The macroeconomic objectives under the 1995/96 economic program supported by the stand-by credit are to (i) achieve a growth rate of 7.4 percent; (ii) reduce the rate of inflation to 7.8 percent; and (iii) further reduce the external current account deficit to 1.6 percent of GNP.

To achieve these objectives, and given the expected fall in revenues from the Southern African Customs Union, fiscal policy will focus on achieving an overall budget surplus of 2 percent of GNP in 1995/96, through broadening the tax base and completing reforms of sales taxes, to maintain total revenues at about 29 percent of GNP. Monetary policy will be geared to encouraging the use of newly introduced central bank securities and providing adequate credit to the private sector consistent with a further buildup in the Government's net creditor position with the banking system. External policies are aimed at increasing net official foreign exchange reserves to about 5.8 months of imports at end-1995/96, partly through export growth.

Structural Reforms

Structural reforms will focus on a few key areas, aiming to accelerate the pace of privatization and of parastatal reform to provide the right signals for private investors and facilitate economic diversification; reform the civil service to increase efficiency and make the provision of public services more cost effective; and diversify agricultural output toward high-value export crops, liberalize marketing, and encourage land practices that are environmentally sustainable.

Addressing Social Costs

The Government's policies for poverty alleviation will continue to be carried out through higher budgetary allocation for social services. While the share of the budget devoted to education and health has already risen significantly in recent years, outlays for education and health will continue to rise in real terms. The Government has already allocated substantial resources to vocational and job training programs, and to the social safety net established to mitigate the adverse impact of adjustment on the most vulnerable groups. The Government will also continue to fund a large number of small projects, with the support of nongovernmental organizations.

The Challenge Ahead

Attaining the objectives of the program is dependent on the rapid implementation of structural measures and on devising a comprehensive wage policy to maintain Lesotho's external competitiveness and macroeconomic stability over the medium term.

Lesotho joined the IMF on July 25, 1968 and its quota1 is SDR 23.9 million (about $37 million). Its outstanding use of IMF credit currently totals SDR 26 million (about $40 million).

Lesotho: Selected Economic Indicators

  1992/93* 1993/94* 1994/95** 1995/96***


(percent change)

GNP at constant prices –1.0 8.8 7.7 5.3
Consumer price index 13 7 9.5 7.8

(percent of GDP)

Overall fiscal balance (deficit –) 2.2 3.6 3.2 2.0
External current account
    balance (deficit –)
–2.6 –2.0 –1.8 –1.6

Sources: Lesotho's authorities; and IMF estimates. *Actual.
1. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.


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