## 1. Recording of Subscription to International Organizations

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### Mission context, objectives, and main activities
- A GFS mission visited Maseru, Lesotho, during January 20–31, 2020, as the last of five consecutive TA missions under the United Kingdom’s Department for International Development (DFID) Enhanced Data Dissemination Initiative (EDDI) 2 project that started in 2015.
- Objective: foster compilation and dissemination of GFS and public sector debt statistics (PSDS) consistent with international methodological standards; key milestones included enhancement of classification of transactions and expansion of institutional coverage to include all significant general government units.
- Main purposes and activities:
  - Reviewed progress with implementation of recommendations from the January 2019 GFS TA mission on concepts and definitions, classification, coverage, and scope of GFS, and assisted with further improvements.
  - Reviewed and refined the public sector institutional table developed by the GFS technical working group (MOF, CBL, BOS).
  - Reviewed and refined the GFS compilation file (the SGO) to address inconsistencies above and below the line, and between transactions in financial assets and liabilities, and bank financing.
  - Initiated steps towards compilation of expenditure by Classification of Functions of Government (COFOG).
  - Identified source data for extrabudgetary units (EBUs) and initiated steps to compile GFS for EBUs.
  - Reviewed PSDS compilation for dissemination to the World Bank/IMF quarterly PSDS (QPSDS) database.
  - Updated the GFS and PSDS implementation work plan to guide near-term improvement priorities.

### Data dissemination outcomes and timeliness
- Revised series submitted to IMF STA for inclusion in the Government Finance Statistics Yearbook (GFSY): annual GFS for FY 2006/07 to FY 2018/19.
- NSDP dissemination resumed: monthly GFS for January 2000–March 2019 posted.
- Quarterly debt statistics for the budgetary central government (BCG) and public financial corporations (CBL and Lesotho Post Bank) compiled for 2018:Q3–2019:Q2 and submitted to the World Bank for the first time; debt statistics prior to 2018: Q3 will be compiled and disseminated.
- Annual data submission for the 2019 GFSY was late: submission came in November 2019, about eight months after the end of the fiscal year.

### Progress achieved and remaining gaps
- Improvements over the project period:
  - Classification of transactions and debt liabilities stock positions aligned with international guidelines.
  - Comprehensiveness expanded to include transactions not earlier included.
  - Accuracy improved through reduction of large statistical discrepancies between above and below the line transactions.
  - Coverage broadened through initial steps to include local governments.
- Remaining work:
  - Further improvement of comprehensiveness and coverage — not all transactions are yet included, leaving a lingering statistical discrepancy.
  - Not all budgetary institutional units are included in the coverage of fiscal statistics for the BCG.
- Workplan implementation status (from January 2019 workplan of 49 milestones/action items):
  - 12 completed
  - 11 partly completed
  - 26 not done

### Priority recommendations (selected)
- Immediate: Establish a working group comprised of the Accountant General’s Office, the Treasury, the Budget Department and the MOF’s Macroeconomic Policy and Management Department, the CBL’s Research Department, the BOS, and the Ministry of Local Government responsible for coordinating the implementation of the GFS work plan. Responsible: MOF, CBL, BOS.
- Immediate: Reduce the statistical discrepancy to less than 1 percent of GDP. Responsible: MOF.
- FY 2020/21: Start compiling functional expenditure (COFOG) classified according to the GFSM 2014 guidelines. Responsible: MOF.
- Follow-up TA modalities:
  - Follow-up TA available only upon express request and would be accommodated under STA’s Data for Decisions (D4D) Fund.
  - Follow-up in-country missions demand-driven and subject to sufficient evidence of progress.

### Public sector institutional table and sectorization
- Institutional table revised by GFS technical working group (MOF, CBL, BOS):
  - Deleted 10 entities that did not constitute institutional units.
  - Renamed one entity.
  - Reclassified 15 entities, mostly within general government.
  - Updated table now includes 101 institutional units, compared to 109 before.
- Recommended: Finalized institutional table to be used across macroeconomic statistics and reviewed regularly.
- Decision tree for sector classification summarized (see Appendix II).

### GFS compilation for the Budgetary Central Government (BCG) — SGO updates
- Revenue classification and reconciliation:
  - January 2018: CBL’s QCBS report data used instead of LRA data for tax revenues and other revenue; MOF reverted to using LRA data in April 2019.
  - Difference for FY 2018/19 on tax revenue categories and utilities sales combined amounted to LSL 230 million; SGO updated to include the difference as a financial asset (accounts receivable).
  - Recommended: Reconciliation between LRA and CBL data, and between LHDA and CBL, is of utmost importance.
- Road fund expenditure treatment:
  - Road fund receipts include road tolls/toll gate fees, road maintenance levy, and fines for traffic violation — lumped together and remitted to road fund.
  - Road fund is classified as an extrabudgetary unit (EBU); expenditures not included in IFMIS.
  - An expense item under grants to EBUs was included in the SGO equal to revenue to match receipts with spending.
  - Petroleum levy receipts directly transferred to the petroleum fund and do not have counterpart expense entries; for road fund receipts a grant expense to EBUs was included equal to revenue.
- IFMIS source data and automation:
  - Current practice: 41 Crystal reports downloaded monthly (status of funds) for each “head”; each report contains hundreds/thousands of entries summed and matched to SGO coding in a two-step process involving two Macro department staff — time consuming and not sustainable.
  - Interim automation: mission assisted Macro department staff to write an Excel formula to partly automate manual processing (documentation in Appendix III).
  - Sustainable automation desired (feasible Crystal report outputs discussed):
    - (i) aggregated “status of funds” report for all “heads”/ministries into a single report;
    - (ii) new “status of funds” report aggregating expenditure for all “heads”/ministries by recurrent and development expenditure, and by budget codes (six digits for economic classification);
    - (iii) new column in the “status of funds” report showing “commitments this month” to yield total expenditure and commitment during the month.
  - Recommended: Develop a customized Crystal report in IFMIS for timely and accurate data retrieval.

### Outstanding SGO issues and recommended actions
- Accounts payable measurement:
  - Current SGO accounts payable computed as difference between total expenditure from IFMIS (expenditure to date plus commitments to date) and total expenditure in CBL’s QCBS.
  - Concern: Not all debits in CBL’s QCBS are final expenditure; some are transfers to project accounts where funds may sit idle before being spent.
  - Recommended: Consider alternative measures for “true” payables; monitor and include the stock in the stock of debt liabilities.
- Budget classification misalignments (examples):
  - Subscription to international organizations recorded in the budget as acquisition of financial assets and acquisition of monetary gold and special drawing rights (see Box 1).
  - Grants to other levels of government recorded as subsidies to financial and nonfinancial corporations.
  - Use of goods and services (rentals) recorded as property expense (other expense).
  - Recommended: Validate budget items during budget preparation and reclassify transactions in the SGO as appropriate.

### Box 1 — GFSM 2014 guidance excerpts on subscriptions and IMF quotas (selected)
- Membership dues and subscription fees (GFSM 2014 § 6.42):
  - Record as an expense in use of goods and services (22) if there is an exchange of a payment for some form of service.
  - Exceptions:
    - May be recorded as acquisition of equity (32051) if possibility of repayment and entitlement to a share of assets on windup.
    - Record as transfers if unrequited: if recipient is an international organization, foreign government, or another general government unit, classify as grant (26), or otherwise as current transfers not elsewhere classified (2821).
- Recording of IMF quotas (GFSM 2014 A3.82):
  - Quota components:
    - Reserve asset component: 25 percent of the quota payable in SDRs or specified currencies; recorded as increase in external financial assets (reserve tranche position, debit) offset by equal reduction in existing external financial assets (credit).
    - Domestic currency component: Remaining 75 percent payable in the member’s own currency; domestic portion not recorded in public sector unit’s accounts because considered contingent in economic terms.
  - Periodic reviews of quotas use same recording treatment as initial payment.
  - Subscription to IMF quotas should not be confused with repayments from IMF borrowing.

### Statistical discrepancy — unresolved issues and findings
- Coverage discrepancy of transactions above and below the line:
  - CBL has initiated steps to distinguish government deposits between budgetary and extrabudgetary entities for internal analysis but has not institutionalized frequent collection from commercial banks.
  - Mission suggestion: elevate decision on additional data requests to MOF and CBL; interim suggestion: Accountant General and Treasury perform monthly bank reconciliations with short lag for SGO use.
- Revolving fund and trust monies counterpart transactions:
  - Scholarship payments included under expense, but repayments currently not included in the SGO; repayments show in currency and deposits but no counterpart recorded.
  - Inflows to trust monies accounts not included in the SGO.
  - Recommended recording:
    - Repayments of students’ scholarship ought to be recorded as transactions in financial assets (loans) if acquisition entry was made when payments made.
    - Interim recording: continue to record scholarship payments under expense as current transfers not elsewhere classified (GFS code 4821) and students’ repayments recorded under other revenue as current transfers not elsewhere classified (GFS code 1441).
  - Data limitation: no reliable information to record acquisition of financial claims on students when scholarship payments are made because expected repayment amount unknown.
- Actual capital grants revenue and associated expenditure:
  - Consolidated financial statements total grants revenue:
    - LSL 1.055 billion in FY 2016/17
    - LSL 605.8 million in FY 2017/18
  - Total grants revenue in the SGO:
    - LSL 861.5 million in FY 2016/17
    - LSL 793.4 million in FY 2017/18
  - Required action: identify alternative sources (treasury, line ministries) on actual disbursements and spending by type; interim: MOF to provide CBL with list of all known accounts for externally funded projects for tracking.
- Debt reorganization transactions:
  - Instances of debt assumption and debt payment on behalf of others not recorded in the SGO (examples: textile industry guarantee called and assumed by government; WASCO guarantee called and assumed by government where no effective claim acquired).
- Other economic flows on government deposits:
  - Suggest pragmatic approach: estimate share of foreign currency denominated deposits relative to total deposits and assess materiality before collecting data on holding gains/losses; indicative threshold discussed: more than 10 percent of total deposits as material.

### Recommended action (statistical discrepancy)
- The MOF should engage data producing stakeholders (CBL, Ministry of Planning, Line Ministries, and the National Manpower Development Secretariat (NMDS)) to devise plans to address unresolved data issues.

### COFOG and functional expenditure compilation
- Mapping of COA cost and sub-cost centers to COFOG completed; expectation that mapping be applied to IFMIS to generate COFOG expenditure.
- IFMIS staff indicated possibility to embed mapping and develop a COFOG report, conditional on Macro department requesting the report type from system provider.
- Interim measure until new COA (including COFOG segment) operational in Centralized Budget Management System (CBMS) and uploaded into IFMIS (EPICOR).

### GFS and PSDS dissemination: progress and issues
- NSDP monthly GFS resumed: new upload file used to disseminate monthly GFS for January 2000 to March 2019 — file slightly less detailed but aligned to GFS classifications and the GFS high frequency database used for IFS.
- Quarterly public sector debt statistics (QPSDS):
  - MOF submitted data/metadata to World Bank and IMF QPSDS database for first time covering 2018: Q3 to 2019: Q2 for BCG and public financial corporations.
  - Debt statistics prior to 2018: Q3 expected to be disseminated.
  - Importance: regularity, timeliness, and broadened institutional/instrument coverage.

### Tsepong PPP recording: assessment and implications
- GFSM 2014 principle: PPP treatment depends on which party bears majority of risks/reaps majority of rewards.
- Mission assessment: government appears to bear majority of risks associated with the Tsepong PPP, implying recording of PPP assets and associated liabilities on the government balance sheet.
- Key project and contract factual points (Box 2):
  - PPP operator: Tsepong Limited (consortium led by Netcare; members include Excel Health (Pty) Ltd, Afri’nnai, Women Investment Company and D10 Investment).
  - Scope: design, build, partially finance, and fully operate Queen Mamohato Memorial Hospital (QMMH) for eighteen years; refurbish three filter clinics and construct two new filter clinics; 425-bed hospital (35 beds private patient unit).
  - Operational dates: QMMH opened in October 2011; three filter clinics opened in May 2010.
  - Contracted capacity per year: up to 20,000 inpatients and 310,000 outpatients; observed 2015 service levels: more than 27,000 inpatients and nearly 350,000 outpatients.
  - Government pays an annual unitary fee estimated at US$ 25 million (including VAT) and US$ 22 million (excluding VAT) annually for 18 years.
  - Fee adjustments: only for inflation (Lesotho CPI index) and medical inflation measured by the South African Composite Med Index.
  - Charges for patients served in excess of contract maximum (at 2007 prices and excluding VAT and annual inflation):
    - US$4.72 per outpatient
    - US$786 per inpatient
- Recording implications:
  - If “lender’s direct agreement” clause interpreted as government guarantee and government bears majority financing risks, PPP would be recorded on government balance sheet.
  - Recording would require revising data back to 2010/11 to include acquisition of the asset and an imputed loan equivalent to the loan contracted from nonresident private bank (ABSA), if nothing was recorded before.
  - Subsequent unitary payments would need to be split between servicing the loan (interest and principal) and use of goods and services (service charges, including extra charges).

### Cannabis revenue — tax versus fee classification and Schedule 2 classifications
- GFSM 2014 distinction criteria (paragraph 5.73):
  - Payment recorded as a tax (1422) when license/permit automatically granted as mandatory condition with little/no government work and payment out of proportion to cost of producing service.
  - Payment recorded as sale of a service (administrative fee, 1145) when issuing license/permit involves regulatory function with checks, payment proportional to costs and borne by beneficiaries.
- Suggested recording of cannabis license receipts under Drugs of Abuse (Cannabis) Regulations, 2018 (operational since May 2018):
  - Three license types: Operator’s license, Independent laboratory license, Transport license.
  - Features indicating tax treatment:
    - Fees not commensurate with control function costs; license automatically granted; little government work.
    - Classification: Taxes on use of goods and on permission to use goods or perform activities [1145].
  - Features indicating administrative fee treatment:
    - Fees commensurate with control function costs; payment proportional to costs and borne by beneficiaries.
    - Classification: Administrative Fees [1422].
- Schedule 2 specific classifications (selected):
  - License fees and renewal fees for cultivation, manufacturing, testing, and operator licenses: considered taxes under “other taxes on use of goods and on permission to use goods or perform activities” (GFS code 11452).
  - Import, export, transit and supply levy of 1.5 percent of consignment value: recorded as “tax on international trade” (GFS code 115), further classified as:
    - “import duty” (GFS code 1151) for imports
    - “tax on exports” (GFS code 1152) for exports
  - Nonrefundable application fee for all licenses; permits for medical and scientific programs and seed bank; annual inspection fee; change of location fee; change of information (amendment) fee: considered fees and recorded under other revenue, sales of goods and services, as “administrative fees” (GFS code 1422).
- Caveat: Without detailed information on costs of the control function, classification for some licenses (research, transportation, storage, supply) is not straightforward and should be based on whether amounts levied are commensurate with the regulatory function.

### GFS compilation for local governments, EBUs, general government, and public corporations
- Local governments:
  - No data available for fiscal year ending March 2019, except Thaba Tseka for FY 2018/19.
  - January 2019 mission compiled data for 10 district councils using FY 2017/18 audited financial statements.
  - Preliminary aggregated revenue of local governments (10 district councils and Maseru City Council) were less than 1 percent of GDP in FY 2017/18; aggregated expenditure also less than 1 percent of GDP.
  - Recommended: Collect data for FY 2018/19 and compile GFS for local governments; pragmatism advised given insignificance relative to BCG.
- Extrabudgetary units (EBUs):
  - No GFS currently compiled.
  - Financial statements for 15 public entities collected and should be used to compile GFS for EBUs first and later for public corporations.
  - Recommended: Regularly collect financial statements for most significant entities and compile GFS.
- General government consolidation:
  - Next step when BCG, EBUs and local governments GFS available: compile consolidated general government GFS, eliminating reciprocal transactions.
  - Recommended: Attempt consolidation when data available for representative sample of EBUs, local governments, and BCG.
- Public corporations:
  - No GFS currently compiled for public corporations.
  - Recommended: At minimum, compile data on debt liabilities of public corporations to broaden institutional scope of stock of debt liabilities compiled and disseminated.

### Workplan overview, objectives, and key targets (selected)
- Workplan developed during January 2019 mission contained a total of 49 milestones/action items.
- Implementation status as of January 2020: 12 completed (of which 2 continuous), 11 partly completed, 26 not done.
- Objective: Strengthen compilation and dissemination of GFS and PSDS according to internationally accepted statistical standards; develop/improve statistical infrastructure, source data, serviceability and metadata.
- Selected target actions and Target Completion Dates (verbatim):
  - PFMAA revisions to incorporate data provisions — Target Completion Date: 2020H2; Responsible: MOF: Lead (legal department), budget, macro, treasury, IFMIS.
  - Establish working group — Target Completion Date: 2020H1; Responsible: MOF: Lead (Macro), budget, treasury, IFMIS; CBL; BOS; Local Government.
  - Compile GFS for the budgetary central government following GFSM 2014 — Target Completion Date: 2020H1; Responsible: MOF: Lead (Macro), Treasury, IFMIS, CBL.
  - Compile debt statistics for the budgetary central government following PSDSG 2013 — Target Completion Date: 2020H1.
  - Compile debt statistics for extrabudgetary units and local government — Target Completion Date: 2020H2.
  - Compile debt statistics for general government — Target Completion Date: 2020Q3.
  - Integrate all local governments financial data in new IFMIS — Target Completion Date: 2020Q1.
  - Collect and compile debt statistics for public financial and public nonfinancial corporations — Target Completion Date: 2020H2.
  - Reduce the statistical discrepancy to less than 1 percent of GDP — Target Completion Date: 2020H1.
  - Resume timely dissemination of monthly GFS to NSDP within two months after end of reference period — Frequency/Target: Monthly.
  - Resume timely dissemination of annual GFS for the GFSY within 1 quarter after end of reference period — Frequency/Target: Annually.
  - Disseminate quarterly central government debt to World Bank QPSDS within one quarter after end of reference period — Frequency/Target: Quarterly.

### Implementation status summary (Appendix I, implementation status as of January 2020)
- Migration plan and management endorsement: Incomplete — Senior management has not endorsed the workplan.
- Coverage and source data improvements: Multiple items incomplete or partial, including regular collection for parastatals, student scholarship data, project account stocks, local governments in IFMIS, and public corporations’ debt data.
- Classification and reclassification: SGO reclassifications to GFSM 2014 completed; many other classification tasks incomplete.
- Dissemination and timeliness:
  - Monthly NSDP dissemination: Completed — new data series January 2000 to March 2019 disseminated.
  - Annual GFS submission: Completed — annual GFS submitted in November 2019 and resubmitted in January 2020 following amendments.
  - QPSDS first submission for 2018: Q3 to 2019: Q2 made in January 2020 (Implementation Status: Completed).
- Internal consistency and statistical discrepancy:
  - Preliminary SGO data indicate statistical discrepancy for FY 2018/19 of about 1.7 percent of GDP (Implementation Status: Partial).
  - Target: reduce discrepancy to less than 1 percent of GDP.

### Next steps and conditionality for future TA
- Work remains on improving data quality for policy making; addressing accuracy, classification, coverage and comprehensiveness issues requires management engagement and coordination.
- Future TA missions conditional on demonstrable progress with implementation of the GFS and PSDS workplan.
- Remote assistance from STA remains; follow-up in-country missions only by express request to IMF through African Department during Article IV review missions, or Annual and Spring meetings, and subject to sufficient evidence of progress.

### Officials met (selected)
- MOF: Ms. Motena Tšolo (Principal Secretary); Ms. Libako Leisanyane (Macroeconomic Policy & Management); Ms. Mabakubung (Accountant General’s Office); and additional Macro, Public Debt, and IFMIS staff.
- BOS: Ms. Lerato Makana; Mr. Potsane Matsoso; Mr. Khetsi Mokone (National accounts).
- Lesotho Revenue Authority: Mr. Makhale Mkhalanyane (Research and Development).
- CBL: Ms. Marethabile Hlaahla; Ms. Kamohelo Dooda; Mr. Katleho Thokoa; Mr. Mathanzima Moeti; Mr. Toka Sello (Research and Statistics).

*Source: IMF mission report (January 20–31, 2020)*

### 1. Recording of Subscription to International Organizations _____________________________________ 10

### 1. Recording of Subscription to International Organizations

### Summary of mission outcomes and priority recommendations
- Mission context and objectives
  - A GFS mission visited Maseru, Lesotho, during January 20–31, 2020, as the last of five consecutive technical assistance (TA) missions under the United Kingdom’s Department for International Development (DFID) Enhanced Data Dissemination Initiative (EDDI) 2 project that started in 2015.
  - Objective: foster compilation and dissemination of GFS and public sector debt statistics (PSDS) consistent with international methodological standards; key milestones included enhancement of classification of transactions and expansion of institutional coverage to include all significant general government units.
- Main purposes and activities of the mission
  - (i) Reviewed progress with implementation of recommendations from the January 2019 GFS TA mission on concepts and definitions, classification, coverage, and scope of GFS, and assisted with further improvements.
  - (ii) Reviewed and refined the public sector institutional table developed by the GFS technical working group (MOF, CBL, BOS).
  - (iii) Reviewed and refined the GFS compilation file (the SGO) to address inconsistencies above and below the line, and between transactions in financial assets and liabilities, and bank financing.
  - (iv) Initiated steps towards compilation of expenditure by Classification of Functions of Government (COFOG).
  - (v) Identified source data for extrabudgetary units (EBUs) and initiated steps to compile GFS for EBUs.
  - (vi) Reviewed PSDS compilation for dissemination to the World Bank/IMF quarterly PSDS (QPSDS) database.
  - (vii) Updated the GFS and PSDS implementation work plan to guide near-term improvement priorities.
- Data dissemination outcomes
  - Revised series on fiscal statistics were submitted to the IMF’s Statistics Department (STA) for inclusion in the Government Finance Statistics Yearbook (GFSY): annual GFS for FY 2006/07 to FY 2018/19.
  - Data dissemination on the National Summary Data Page (NSDP) resumed and updated series were posted: monthly GFS for January 2000–March 2019.
  - Quarterly debt statistics for the budgetary central government (BCG) and public financial corporations including CBL and the Lesotho Post Bank were compiled for 2018:Q3–2019:Q2 and submitted to the World Bank for the first time. Debt statistics prior to 2018: Q3 will be compiled and also disseminated.
- Progress achieved and remaining gaps
  - Improvements over the project period were made to:
    - classification of transactions and debt liabilities stock positions consistent with international guidelines;
    - comprehensiveness to include transactions not earlier included in fiscal statistics;
    - accuracy through reduction of large statistical discrepancies between above and below the line transactions; and
    - coverage through initial steps to broaden institutional coverage to include local governments.
  - Remaining work: further improvement of comprehensiveness and coverage as not all transactions are yet included in fiscal accounts, explaining a lingering statistical discrepancy; not all budgetary institutional units are included in the coverage of fiscal statistics for the BCG.
- Modalities for future TA
  - Follow-up TA remains available only upon express request and would be accommodated under STA’s multi donor capacity development vehicle, the Data for Decisions (D4D) Fund.
  - Follow-up in-country missions will be demand driven and subject to sufficient evidence of progress in addressing issues identified by current and previous TA missions.

- Priority recommendations (excerpted)
  - Immediate: Establish a working group comprised of the Accountant General’s Office, the Treasury, the Budget Department and the MOF’s Macroeconomic Policy and Management Department, the CBL’s Research Department, the BOS, and the Ministry of Local Government responsible for coordinating the implementation of the GFS work plan. Responsible: MOF, CBL, BOS.
  - Immediate: Reduce the statistical discrepancy to less than 1 percent of GDP. Responsible: MOF.
  - FY 2020/21: Start compiling functional expenditure (COFOG) classified according to the GFSM 2014 guidelines. Responsible: MOF.
  - Further details on priority recommendations and related actions/milestones are in the action plan under Detailed Technical Assessment and Recommendations.

*Source: IMF mission report (January 20–31, 2020)*

### Status of GFS and PSDS compilation and dissemination
- Progress with implementation of the GFS and PSDS workplan
  - Workplan developed during January 2019 mission contained a total of 49 milestones/action items.
  - Out of 49 milestones/action items: 12 were completed, 11 were partly completed, and 26 were not done (see Appendix I).
  - Recommended action: Following through with implementation of the GFS and PSDS workplan remains important to improve quality of compiled and disseminated data.

- Public sector institutional table
  - A GFS technical working group (MOF, CBL, BOS) reviewed and updated the institutional table.
  - Changes made:
    - Deleted 10 entities that did not constitute institutional units.
    - Renamed one entity.
    - Reclassified 15 entities, mostly within general government.
    - Updated table now includes 101 institutional units, compared to 109 before.
  - Recommended action: Finalized public sector institutional table should be used for compilation of all macroeconomic statistics and reviewed regularly.
  - Note: Decision tree for sector classification summarized in Appendix II.

### GFS compilation for the Budgetary Central Government (BCG)
- Updates to the Statement of Government Operations (SGO) file
  - Revenue classification changes:
    - In January 2018 an earlier change had used CBL’s QCBS report data instead of LRA data for tax revenues and other revenue (utility sales proceeds); MOF reverted to using LRA data in April 2019.
    - Due to substantial differences between CBL and LRA data (the difference for FY 2018/19 on tax revenue categories and utilities sales combined amounted to LSL 230 million), the SGO was updated to include the difference as a financial asset in the form of accounts receivable.
    - Recommended: Reconciliation between LRA and CBL data, and between LHDA and CBL, is of utmost importance to ensure revenue recorded in CBL matches records in LRA and LHDA.
  - Road fund expenditure treatment:
    - Road fund receipts include: (i) road tolls/toll gate fees, (ii) the road maintenance levy, and (iii) fines for traffic violation — all lumped together and meant to be remitted to the road fund.
    - Road fund is classified as an extrabudgetary unit (EBU); its expenditures are therefore not included in IFMIS.
    - An expense item under grants to EBUs was included in the SGO equal to the amount under revenue to match receipts with spending.
    - Petroleum levy receipts are directly transferred to the petroleum fund and do not have counterpart expense entries; for road fund receipts a grant expense to EBUs was included equal to revenue.
  - Recommended action: More regular data reconciliation between MOF, LRA and CBL and allocation of staff resources to that specific task.

- IFMIS source data for the SGO and compilation timeliness
  - Current practice:
    - Data is downloaded monthly from IFMIS using Crystal reports on the “status of funds” which contains approved estimates, funds allocated to date, expenditure in the month, expenditure to date, and commitment to date.
    - Data is disaggregated by recurrent and development expenditures, sub-cost centers and items.
    - A total of 41 reports are downloaded, for each of the “heads”; each report contains hundreds, sometimes thousands of entries that are summed and matched to SGO coding in a two-step process involving two Macro department staff.
    - This approach is time consuming and not sustainable.
  - Interim automation:
    - The mission assisted Macro department staff to write an Excel formula to partly automate manual processing (documentation included in Appendix III).
    - This is an interim measure; a sustainable solution requires reconfiguring Crystal reports.
  - Sustainable automation desired:
    - Feasible outputs discussed with IFMIS unit include:
      - (i) an aggregated “status of funds” report for all “heads”/ministries into a single report;
      - (ii) a new “status of funds” report aggregating expenditure for all “heads”/ministries by recurrent and development expenditure, and by budget codes (six digits for economic classification);
      - (iii) a new column in the “status of funds” report showing “commitments this month” that when added to expenditure this month would yield total expenditure and commitment during the month.
  - Recommended action: Develop a customized Crystal report in IFMIS to allow more timely and accurate data retrieval for SGO compilation.

- Outstanding and unresolved issues with the SGO
  - Accounts payable measurement issues
    - January 2019 mission suggested bridging timing differences between accrual expenditure and cash payments by including “other accounts payable” in the SGO.
    - Accounts payable in the SGO have been computed as the difference between total expenditure from IFMIS (expenditure to date plus commitments to date) and total expenditure in CBL’s QCBS from the consolidated funds account.
    - Concern: Not all debits in CBL’s QCBS are final expenditure; some are transfers to project accounts where funds may sit idle before being spent.
    - Recommended: Consider alternative approaches to measure “true” payables; monitor and include the stock in the stock of debt liabilities.
  - Budget classification of expense transactions
    - Budget economic classifications broadly align to GFSM 2001 guidelines, but some budget items may be misclassified during budget preparation causing misclassification in fiscal reporting and the SGO.
    - Examples:
      - (i) Subscription to international organizations recorded in the budget as acquisition of financial assets and acquisition of monetary gold and special drawing rights (see Box 1).
      - (ii) Grants to other levels of government recorded as subsidies to financial and nonfinancial corporations.
      - (iii) Use of goods and services (rentals) recorded as property expense (other expense).
    - Recommended: Validate budget items during budget preparation to ensure proper recording and reclassify transactions in the SGO as appropriate.

### Box 1 — Recording of Subscription to International Organizations (GFSM 2014 guidance excerpts)
- Membership dues and subscription fees (GFSM 2014 § 6.42)
  - Record as an expense in use of goods and services (22) if there is an exchange of a payment for some form of service (including payments by public corporations to market NPIs serving businesses).
  - Exceptions:
    - Membership dues/subscriptions payable to international organizations may be recorded as acquisition of equity (32051) if there is a possibility—even if unlikely—of repayment of the full amount and entitlement to a share of assets on windup.
    - Membership dues/subscriptions are recorded as transfers if the transaction is unrequited; if the recipient is an international organization, foreign government, or another general government unit, classify as grant (26), or otherwise as current transfers not elsewhere classified (2821).
- Recording of IMF quotas (GFSM 2014 A3.82)
  - Quota components:
    - Reserve asset component: 25 percent of the quota payable in SDRs or specified currencies; recorded in the public sector unit’s accounts as an increase in external financial assets in the form of currency and deposits (the reserve tranche position, debit) offset by an equal reduction in existing external financial assets (credit).
    - Domestic currency component: Remaining 75 percent payable in the member’s own currency at the designated depository; the domestic portion is not recorded in the public sector unit’s accounts because it is considered contingent in economic terms.
  - Periodic reviews of quotas use the same recording treatment as initial payment.
  - Subscription to IMF quotas should not be confused with repayments from IMF borrowing, which are treated as any other borrowing.

*Source: IMF mission report (January 20–31, 2020)*

### 14. The January 2019 mission identified a number of issues that contributed to the

### 14. The January 2019 mission identified a number of issues that contributed to the statistical discrepancy that are yet to be resolved.

### Statistical discrepancy: unresolved issues and findings
- Coverage discrepancy of transactions above and below the line
  - CBL has initiated steps to distinguish deposits of the government between budgetary and extrabudgetary entities for internal analytical requirements but has not institutionalized collection from commercial banks on a frequent basis because such data do not constitute a requirement for compilation of monetary and financial statistics (MFS).
  - CBL conveyed concerns from its supervision department on additional data requests from commercial banks.
  - Mission suggestion: elevate the issue to decision makers at the MOF and at CBL to weigh costs and benefits of making additional data requests to commercial banks.
  - Alternative interim suggestion: if Accountant General department and Treasury can do bank reconciliations on a monthly basis, with a very short lag, changes in cash and cash equivalents from such reconciliations could be used for SGO purposes instead.
- Counterpart transactions on expense and transactions in nonfinancial assets pertaining to the revolving fund and trust monies
  - Transactions on payment of scholarships to students are included under expense, but repayments are currently not included in the SGO.
  - Accounts to which repayments are made are government accounts; movements show in currency and deposits of the government in the SGO but no counterpart is recorded for repayments.
  - Inflows to trust monies accounts are not included in the SGO.
  - Required action: identify these transactions and include them in the SGO in the relevant expenditure, or where relevant, revenue or transaction in financial asset or liability category.
  - Repayments of students’ scholarship ought to be recorded as a transaction in financial assets in the form of loans, provided a similar entry was made when scholarship payments are made.
  - Current data limitation: no reliable information to record acquisition of financial claims on students when scholarship payments are made because expected repayment amount is unknown at the time scholarships are provided.
  - Repayments are based on contractual arrangements setting percentage of amount received to be repaid depending on study location and subsequent employment sector/location.
  - Interim recording recommendation: continue to record scholarship payments under expense as current transfers not elsewhere classified (GFS code 4821) and students’ repayments recorded under other revenue as current transfers not elsewhere classified (GFS code 1441).
- Actual capital grants revenue and associated expenditure
  - SGO still uses budget estimates apportioned during the year with the same amount recorded in revenue and transaction in nonfinancial assets; actual grant receipts in consolidated financial statements differ.
  - Total grants revenue (from foreign governments and international organizations) in consolidated financial statements:
    - LSL 1.055 billion in FY 2016/17
    - LSL 605.8 million in FY 2017/18
  - Total grants revenue in the SGO:
    - LSL 861.5 million in FY 2016/17
    - LSL 793.4 million in FY 2017/18
  - Required action: identify alternative sources of information, including from treasury and line ministries, on actual disbursements and corresponding spending by type of spending.
  - Interim measure: MOF to provide CBL with list of all known accounts for externally funded projects so CBL can track balances on the accounts each month and adjust SGO expenditure with changes in deposits of externally funded projects at CBL and in commercial banks.
- Debt reorganization transactions
  - Debt reorganization instances (debt assumptions, debt payment on behalf of others) have not been recorded in the SGO.
  - Two discussed cases:
    - Guarantee to textile industries called, debt assumed by government; government acquired an effective financial claim on the industries, which have now repaid government.
    - WASCO: guarantee called and debt assumed by government; government did not acquire an effective financial claim.
  - None of these transactions were recorded in the SGO.
- Other economic flows (holding gains/losses—revaluation and volume change) on government deposits
  - CBL indicated attempts to distinguish transactions from other economic flows for external sector statistics compilation.
  - Pragmatic approach suggested: first estimate relative size of foreign currency denominated deposits out of total deposits (Rand denominated deposits would not be considered foreign currency deposits) and assess materiality before allocating resources to collect data on other economic flows.
  - Indicative threshold discussed: more than 10 percent of total deposits as constituting material size to require disaggregation of transactions and other economic flows.

### Recommended action (statistical discrepancy)
- The MOF should engage data producing stakeholders (CBL, Ministry of Planning, Line Ministries, and the National Manpower Development Secretariat (NMDS)) to devise plans to address the unresolved data issues.

### Expenditure classification by Functions of Government (COFOG)
- Existing classification in the chart of accounts (COA) on cost and sub-cost centers were mapped to COFOG classifications.
- Expectation: mapping to be applied to IFMIS data to generate expenditure in the COFOG classification for inclusion in existing fiscal reporting (to date limited to economic classification).
- IFMIS staff indicated it is possible to embed the mapping in IFMIS and develop a COFOG report, but the Macro department must include the required report type in the list of reports to be submitted to the system provider for development.
- Interim measure until new COA (including a COFOG classification segment) becomes operational for budgeting in Centralized Budget Management System (CBMS) and is uploaded onto IFMIS (EPICOR) for execution.

### GFS and PSDS dissemination: progress and issues
- GFS dissemination has resumed after a hiatus.
  - MOF had been compiling and disseminating GFS on a timely basis, including monthly data dissemination on the national summary data page (NSDP), and annual submissions for the GFSY.
  - Data dissemination on the NSDP was delayed due to technical misunderstanding on required data upload file.
  - A new data upload file was developed and used to disseminate monthly GFS for the period from January 2000 to March 2019.
  - The upload file is slightly less detailed than before but aligned to GFS classifications and follows the same presentation as the GFS high frequency database used for the International Financial Statistics (IFS).
  - Data upload to the NSDP is expected to be more regular going forward.
  - Annual data submission for the 2019 GFSY was late: submission came in November 2019, about eight months after the end of the fiscal year, owing mainly to challenges in compiling data for the fiscal year ending March 2019.
- Quarterly public sector debt statistics (QPSDS)
  - The MOF submitted data and metadata to the World Bank and IMF QPSDS database for the first time.
  - Data submitted covered four quarters starting in 2018: Q3 and covered the budgetary central government and public financial corporations (CBL and Lesotho Post Bank).
  - Debt statistics prior to 2018: Q3 are expected to be disseminated.
  - Importance noted: dissemination should be regular and timely, and efforts should broaden institutional and instrument coverage of debt statistics disseminated.

### Recording of Tsepong PPP transactions: methodological guidance and implications
- GFSM 2014 guidance: treatment of a PPP depends on which party bears majority of risks or reaps majority of rewards.
- Mission assessment: government appears to be bearing majority of risks associated with the Tsepong PPP, tilting recording of PPP assets and associated liabilities on the government balance sheet.
- Risk and reward indicators discussed:
  - Financing risks
    - Government financed up to 35 percent of the total project cost upfront.
    - Remaining 65 percent split into equity (a very small amount) and the bulk through a loan from a nonresident private bank for which repayment is made through government’s primary payment obligations of a unitary price.
  - Design and construction risks
    - Private entity responsible for all costs and time overruns from design and construction risks.
  - Supply and availability risks
    - Ministry of Health set a fee schedule for the private entity; service delivery price guaranteed for users and cost of service delivery embedded in unitary price paid to the private entity.
    - Key performance indicators established with provisions for penalties for noncompliance.
    - Private entity responsible for maintenance; contract provides for a “dilapidation survey” during the contract period.
  - Demand risks
    - Government appears to bear demand risks: demand thresholds in the contract have been surpassed and government is required to make payments above the unitary price for excess demand, which led to substantial upwards revision of the unitary price and delayed payments that attracted late payment fees increasing payables.
    - Excess service charges are based upon service delivered (outpatient or inpatient) as agreed in contract.
  - Compensation and insurance risks
    - Contract provides for “compensation clauses” by government to private entity under specific circumstances (not disclosed).
    - Private entity responsible for insurance (general and medical malpractice).
  - Rewards
    - Upfront government payments intended to ensure timely completion and to reduce future unitary payments.
    - No operational profits are shared with government (government retains fees charged for service delivery included under revenue as incidental sales by nonmarket establishments).
    - No expected gains from transfer of asset at the end of the contract; government decides post-contract disposition.
- Recording implications and historical revisions
  - If “lender’s direct agreement” clause is interpreted as a guarantee from government and majority of financing risks are with government, the PPP would be recorded on the government balance sheet.
  - Recording the PPP assets and associated liabilities on the government balance sheet would require revising data back to 2010/11 to include acquisition of the asset and an imputed loan equivalent to the loan contracted from the nonresident private bank (ABSA), if nothing was recorded before.
  - Subsequent unitary payments would need to be split between amounts paid for servicing the loan (interest and principal payment) and use of goods and services (service charges, including extra charges).

### Box 2 — Tsepong PPP: project features and contract terms (selected facts)
- PPP operator: Tsepong Limited (consortium led by Netcare; other members: Excel Health (Pty) Ltd, Afri’nnai, Women Investment Company and D10 Investment).
- Contract scope
  - Design, build, partially finance, and fully operate the new referral hospital, Queen Mamohato Memorial Hospital (QMMH), for a period of eighteen years, refurbish three filter clinics and construct two new filter clinics.
  - New hospital: 425-bed hospital (35 beds to be run separately as a private patient unit).
  - Tsepong to employ its own health workers and provide clinical services on behalf of government for the 18-year contract period.
  - On contract completion, hospital and clinics transferred to government.
- Operational dates and activity
  - QMMH opened in October 2011; three filter clinics opened in May 2010.
  - Contracted capacity per year: up to 20,000 inpatients and 310,000 outpatients.
  - Observed 2015 service levels: more than 27,000 inpatients and nearly 350,000 outpatients.
- Fees and unitary payment
  - Patients pay same user fees as in any public facility; fees charged by Tsepong are set by Government and constitute revenues to the Government of Lesotho.
  - Government pays an annual unitary fee estimated at US$ 25 million (including VAT) and US$ 22 million (excluding VAT) annually for the entire duration of the concession (18 years).
  - Fee adjustments: only for inflation (Lesotho CPI index) and medical inflation measured by the South African Composite Med Index (Lesotho does not have a medical inflation indicator), or if additional services beyond contract are agreed.
  - Charges for patients served in excess of contract maximum (at 2007 prices and excluding VAT and annual inflation):
    - US$4.72 per outpatient
    - US$786 per inpatient

### Recording taxes versus fees — cannabis revenue: methodological guidance and suggested recording
- GFSM 2014 distinction
  - Taxes: compulsory, unrequited amounts receivable by government units from other institutional units.
  - Administrative fees: include fees for compulsory licenses and other administrative fees that are sales of services.
  - Paragraph 5.73 guidance highlights criteria to decide tax (1422) versus administrative fee (1145):
    - Payment recorded as a tax when a license or permit is automatically granted as a mandatory condition to perform an activity or acquire an asset with little or no government work beyond minimum legal capacity checks; payment recorded as a tax if out of proportion to the costs of producing the services.
    - Payment recorded as sale of a service when issuing the license or permit involves a proper regulatory function with checks on competence or qualifications; payment proportional to costs of producing the service and borne by beneficiaries.
- Suggested recording of cannabis revenue
  - New regulation: Drugs of Abuse (Cannabis) Regulations, 2018 operational since May 2018 for controlling, managing and regulating the cannabis industry.
  - Three types of licenses:
    - Operator’s license: cultivation, manufacturing, supply or distribution, storage, export, import or transit within Lesotho, of a cannabis plant for medical purposes or scientific use or any other lawful use.
    - Independent laboratory license: operating an independent testing laboratory.
    - Transport license: transporting cannabis plant or cannabis resin.
  - Features indicating tax treatment
    - Fees levied for issuance of license/permit that are not commensurate with the cost of governments’ control function.
    - License/permit is automatically granted as mandatory condition to perform an activity or acquire an asset.
    - No or little government work (e.g., basic legal compliance check).
    - Classification: Taxes on use of goods and on permission to use goods or perform activities [1145].
  - Features indicating administrative fee treatment
    - Fees levied commensurate with cost of governments’ control function.
    - Payment borne by those who benefit from the regulatory “service”.
    - Classification: Administrative Fees [1422].

*INTERNATIONAL MONETARY FUND*

### 23. Schedule 2 of the regulations provide for amounts payable for application for

### 1lsoea2020003 - 23. Schedule 2 of the regulations provide for amounts payable for application for

### Classification of fees and taxes (Schedule 2)
- Determination of whether each type of fee or license levied/issued is a tax or a fee depends on whether the control function exercised by the Ministry of Health (or any other government entity enforcing the regulation) is commensurate with the amount levied.
- Specific classifications provided:
  - License fees and renewal fees for cultivation, manufacturing, testing, and operator licenses would be considered taxes and recorded under taxes on use of goods and on permission to use goods or perform activities, as “other taxes on use of goods and on permission to use goods or perform activities” (GFS code 11452).
  - The import, export, transit and supply levy of 1.5 percent of the consignment value would be recorded as a “tax on international trade” (GFS code 115) and classified as:
    - “import duty” (GFS code 1151) for imports, and
    - “tax on exports” (GFS code 1152) for exports.
  - The nonrefundable application fee for all licenses; permits in relation to medical and scientific programs and seed bank; annual inspection fee; change of location fee; and change of information (amendment) fee would be considered fees and recorded under other revenue, sales of goods and services, as “administrative fees” (GFS code 1422).
- Caveat: Without sufficiently detailed information on the costs associated with exercising the control and regulatory function of the Ministry of Health (or any other government entity performing the regulatory function of the industry), it is not straightforward to determine whether amounts levied for some licenses are commensurate with the costs of the government’s control function.
- Decision on classification for licenses such as research, transportation, storage, and supply should be based on whether amounts levied are commensurate with the regulatory function exercised.

### GFS compilation for local governments
- Data availability:
  - There were no data on local governments for the fiscal year ending March 2019.
  - The January 2019 mission assisted with compilation of data for 10 district councils using financial statements for FY 2017/18 and a template created during the previous mission.
  - No data were available for FY 2018/19, except for only one district council (Thaba Tseka) to compile GFS for local governments for the year.
- Materiality and rationale:
  - Local government operations are relatively insignificant compared with the budgetary central government.
  - Preliminary aggregated revenue of local governments, including all 10 district councils and Maseru City Councils were less than 1 percent of GDP in FY 2017/18, and so were aggregated total expenditure.
  - All district councils rely entirely on grants from the budget, except Maseru City Council that also collects some taxes and fees.
  - Amounts allocated to local governments from the parent Ministry would be considered transfers (grants to other levels of government) and recorded as such; those transfers are then used by local governments to pay salaries, purchase goods and services, and acquire nonfinancial assets.
  - Compiling GFS for local governments is important to identify the economic nature of transactions (compensation of employees, purchase of goods and services, acquisition of nonfinancial assets) rather than having local government expenditure lumped under grants to other levels of government.
  - Given the relative insignificance of local government operations, pragmatism should guide resource allocations for collecting and compiling data for local governments.
- Recommended Action:
  - Data for local governments would need to be collected for FY 2018/19 and GFS compiled for the year.

### GFS compilation for extrabudgetary units (EBUs)
- Current status:
  - No GFS is currently compiled for EBUs.
  - The mission illustrated GFS compilation for an entity using available annual audited financial statements to enable MOF staff to replicate the approach for EBUs.
  - Appendix IV of the January 2019 GFS TA report includes a description of compilation of GFS from financial statements.
  - Financial statements for a total of 15 public entities (including budgetary and extrabudgetary entities as well as public corporations) were collected from publicly available sources and should be used to compile GFS for EBUs first, and later for public corporations.
- Recommended Action:
  - Additional financial statements would need to be collected on a regular basis, for the most significant entities, and compile GFS for those, using the same approach from the illustration during the mission.

### GFS compilation for the general government (consolidation)
- Next steps:
  - When GFS for BCG, EBUs and local governments is available, compile consolidated general government GFS.
  - Consolidation involves elimination of reciprocal transactions between the different levels of governments to present data for all levels as if they constituted a single unit.
  - Appendix V describes the process followed to present consolidated statistics for the general government.
- Recommended Action:
  - Attempt compilation of consolidated GFS for the general government, when data becomes available for a representative sample of EBUs, the local governments, and BCG.

### GFS compilation for public corporations
- Current status:
  - No GFS is currently compiled for public corporations.
  - While data is available for public corporations, both financial and nonfinancial, no attempt has yet been made at compiling GFS for those.
  - A similar approach to that used for EBUs may be considered in compiling GFS for public corporations, from available financial statements.
- Recommended Action:
  - As a minimum, data should be compiled for debt liabilities of public corporations, to broaden the institutional scope of the stock of debt liabilities currently compiled and disseminated.

*KINGDOM OF LESOTHO — INTERNATIONAL MONETARY FUND*

### 30. A workplan was developed to guide improvements to GFS and PSDS compilation.

### 30. A workplan was developed to guide improvements to GFS and PSDS compilation.

### Workplan overview and implementation progress
- The workplan was developed upon request from the MOF to streamline recommendations from previous TA missions and organize them in a monitoring framework.
- Of the 49 actions/milestones included in the workplan during the January 2019 mission, 12 were completed, of which 2 are continuous.
- Remaining actions/milestones have target completion dates spread between the first and second half of 2020.

### Objective
- Strengthen compilation and dissemination of data on government finance statistics (GFS) and public sector debt statistics (PSDS) for decision making according to the relevant internationally accepted statistical standard, including developing/improving statistical infrastructure, source data, serviceability and/or metadata.

### Key outcomes and priority actions (selected highlights from the workplan)
- Institutional and legal framework
  - H The MOF should ensure that planned revisions to the PFMAA guarantees the framework to gather, consolidate, and disseminate fiscal data for general government as well as the public sector of Lesotho.
    - Verifiable indicator: The PFMAA incorporates articles addressing data provisions for the compilation of broader coverage of GFS.
    - Target Completion Date: 2020H2
    - Responsible entity: MOF: Lead (legal department), budget, macro, treasury, IFMIS.
  - H Establish a working group comprising key stakeholders (Accountant General’s Office, Treasury, Budget Department, MOF Macroeconomic Policy and Management, CBL Research, BOS, Ministry of Local Government).
    - Verifiable indicator: A working group comprising of all stakeholders involved with GFS source data is established.
    - Target Completion Date: 2020H1
    - Responsible entity: MOF: Lead (Macro), budget, treasury, IFMIS; CBL; BOS; Local Government.
  - M Coordinate the GFSM 2014 Migration Plan with the national implementation of IPSAS.
    - Verifiable indicator: The GFSM 2014 migration plan implementation is coordinated with that of the IPSAS.
    - Target Completion Date: Continuous

- Compilation standards and coverage
  - H Compile GFS for the budgetary central government following the GFSM 2014 framework, concepts and definitions.
    - Verifiable indicator: GFS is compiled in line with the GFSM 2014 for the budgetary central government.
    - Target Completion Date: 2020H1
    - Responsible entity: MOF: Lead (Macro), Treasury, IFMIS, CBL.
  - M Compile GFS for extrabudgetary central government units following GFSM 2014.
    - Target Completion Date: 2020H1
  - M Compile GFS for the general government following GFSM 2014.
    - Target Completion Date: 2020H2
  - H Compile debt statistics for the budgetary central government following the PSDSG 2013 framework.
    - Target Completion Date: 2020H1
  - M Compile debt statistics for extrabudgetary units, local government, and general government following PSDSG 2013.
    - Target Completion Dates: 2020H2 (extrabudgetary units); 2020H2 (local government); 2020Q3 (general government)

- Migration planning and senior management endorsement
  - H Develop a migration path and timetable to adopt the GFSM 2014 guidelines and seek senior management endorsement.
    - Verifiable indicator: A migration plan is developed and endorsed by senior management.
    - Target Completion Date: 2020H1

- Source data collection and reducing statistical discrepancies
  - H Start collecting on a more regular basis data on transactions for all parastatals and agencies classified as BCG entities and incorporate the data into the BCG statement of operations.
    - Target Completion Date: 2020H1
  - H Identify transactions not currently included or partially included in the BCG statement of operations (including debt assumptions and debt payment on behalf of members of Parliament, on-lending) and incorporate them, adjusting data historically to reduce the statistical discrepancy.
    - Target Completion Date: 2020H1
  - H Collect data on students' scholarships payments and repayments and reclassify transactions accordingly in the budgetary central government GFS.
    - Target Completion Date: 2020H1
  - H Identify counterpart transactions on expense and transactions in nonfinancial assets pertaining to the revolving fund and trust monies and incorporate those transactions in the GFS.
    - Target Completion Date: 2020H1
  - M Collect data on a regular basis for compilation of GFS for extrabudgetary units.
    - Target Completion Date: 2020H1
  - M Integrate all local governments financial data in the new IFMIS.
    - Verifiable indicator: Data on local government transactions can be retrieved through the IFMIS.
    - Target Completion Date: 2020Q1
  - M Collect data on a regular basis for compilation of GFS for local governments.
    - Target Completion Date: 2020H1
  - M Obtain detailed data on recurrent expense of district councils from IFMIS and local governments to classify grants and consolidate transfers for general government.
    - Target Completion Date: 2020H1
  - M Collect detailed data on investment expense of district councils from foreign aid projects to classify economic expense categories.
    - Target Completion Date: 2020H2
  - M Collect data and compile a financial balance sheet for the budgetary central government.
    - Target Completion Date: 2020H1
  - H Collect and compile debt statistics for public financial and public nonfinancial corporations.
    - Target Completion Date: 2020H2
  - M Source data for “other accounts payable”, “guarantees” and “pensions” should be obtained and organized into a dataset to improve compilation, validation, and dissemination of public sector debt data.
    - Target Completion Date: 2020H1

- Classification, recording basis, and statistical techniques
  - H Start to adjust transactions in nonfinancial assets with the change in the stock positions of accounts of government projects at the CBL funded with external capital grants and/or loans.
    - Target Completion Date: 2020H1
  - H Obtain information on types of activities subject to withholding tax and allocate withholding taxes to relevant categories; as an interim measure, total withholding taxes should be allocated using proportions provided by the LRA.
    - Target Completion Date: 2020H1
  - H Start collecting data on government equity participation/withdrawal in/from public and private corporations.
    - Target Completion Date: 2020H1
  - H Start collecting data on actual capital grants revenue and recording associated expenditure on transactions in nonfinancial assets.
    - Target Completion Date: 2020H1
  - M Start collecting data on other economic flows (holding gains/losses – revaluation, and volume change) on government deposits.
    - Target Completion Date: 2020H1
  - M Start compiling functional expenditure (COFOG) classified according to GFSM 2014 guidelines.
    - Target Completion Date: 2020H2
  - H Implement GFS TA recommendations for required changes on the economic and functional classifications of the COA for consistency with GFSM 2014.
    - Target Completion Date: 2020H1
  - L Introduce the new chart of accounts in financial reporting of local governments (district councils and Maseru City Council).
    - Target Completion Date: 2020H2
  - H Review and update the institutional table on a regular basis to incorporate new entities and/or remove defunct ones.
    - Verifiable indicator: Institutional sectors are defined in accordance with GFSM 2014 guidelines.
    - Target Completion Date: Annually
  - H Start to regularly reconcile revenue data from bank accounts and revenue data from LRA.
    - Verifiable indicator: Transactions in the Statement of Government Operations account on revenue are recorded on cash basis.
    - Target Completion Date: 2020H1
  - M Start documenting GFS compilation procedures.
    - Verifiable indicator: Compilation procedures are well documented and updated periodically.
    - Target Completion Date: 2020H1

- Dissemination and timeliness
  - H Resume timely dissemination of monthly GFS to the National Summary Data Page (NSDP).
    - Verifiable indicator: Monthly GFS for budgetary central government operations are disseminated within two months after the end of the reference period.
    - Frequency/Target: Monthly
  - H Resume timely dissemination of annual GFS for the GFSY.
    - Verifiable indicator: Annual GFS for the budgetary central government are disseminated within 1 quarter after the end of the reference period.
    - Frequency/Target: Annually
  - M Disseminate quarterly central government debt on a timely basis to the World Bank QPSDS database.
    - Verifiable indicator: Quarterly central government debt data are disseminated within one quarter after the end of the reference period.
    - Frequency/Target: Quarterly

- Internal consistency and cross-institution coordination
  - H Reduce the statistical discrepancy to less than 1 percent of GDP.
    - Verifiable indicator: Discrepancies between flows and stocks are regularly investigated, identified, and corrected as needed.
    - Target Completion Date: 2020H1
  - M The MOF, the CBL, and the BOS should share the same databases and data sources to guarantee consistency among distinct macroeconomic statistical systems, optimize resources, and avoid duplication of efforts.
    - Verifiable indicator: Datasets for GFS compilation and fiscal analysis at the MOF and the CBL are consistent.
    - Target Completion Date: 2020H1

### B. Next steps
- Work remains on improving the quality of data available for policy making.
- Addressing accuracy, classification, coverage and comprehensiveness issues in GFS compilation and dissemination requires dedicated engagement and continued support from management to overcome coordination and data collection challenges.
- Future TA missions will be conditional on demonstrable progress with implementation of the GFS and PSDS workplan.
- Remote assistance from STA remains; follow-up in-country missions will only be possible if express requests are made to the IMF through the African Department during Article IV review missions, or during Annual and Spring meetings, and will be subject to sufficient evidence of progress in addressing issues identified by current and previous TA missions.

### C. Officials met during the mission (selected)
- MOF: Ms. Motena Tšolo (Principal Secretary); Ms. Libako Leisanyane (Macroeconomic Policy & Management); Ms. Mabakubung (Accountant General’s Office); Ms. Seriti Mohobela (Macroeconomic Policy & Management); Mr. Khalane Malie (Macroeconomic Policy & Management); Mr. Moeketsi Ntoi (Macroeconomic Policy & Management); Mr. Molefi Mokheti (Macroeconomic Policy & Management); Mr. Motseki Khiba (Macroeconomic Policy & Management); Ms. Mafatima Moshoeshoe (Macroeconomic Policy & Management); Ms. Mamosi Bulane (Macroeconomic Policy & Management); Ms. Keletso Matšela (Public Debt); Ms. Mapoloko Seitlheko (Public Debt); Ms. Neo Tau (Macroeconomic Policy & Management); Ms. Nthabiseng Tarumbiswa (Macroeconomic Policy & Management); Ms. Senate Mokobocho (Macroeconomic Policy & Management); Ms. Maphantsi Sekhesa (IFMIS); Ms. Relebohile Ralitsie (IFMIS); Ms. Thabo Moerane (Treasury); Ms. Mthabo Seoli (Treasury).
- BOS: Ms. Lerato Makana (National accounts); Mr. Potsane Matsoso (National accounts); Mr. Khetsi Mokone (National accounts).
- Lesotho Revenue Authority: Mr. Makhale Mkhalanyane (Research and Development).
- CBL: Ms. Marethabile Hlaahla (Research); Ms. Kamohelo Dooda (Research); Mr. Katleho Thokoa (Statistics); Mr. Mathanzima Moeti (Statistics); Mr. Toka Sello (Research).

*Source: 1lsoea2020003 - 30. A workplan was developed to guide improvements to GFS and PSDS compilation.*

### Appendix I. Progress with Implementation of the GFS and PSDS

### Appendix I. Progress with Implementation of the GFS and PSDS

### Workplan objective
- Objective: Strengthen compilation and dissemination of data on government finance statistics and public sector debt statistics for decision making according to the relevant internationally accepted statistical standard, including developing/improving statistical infrastructure, source data, serviceability and/or metadata.

### Legal and institutional environment (Outcome)
- Priority: The MOF should ensure that planned revisions to the PFMAA guarantees the framework to gather, consolidate, and disseminate fiscal data for general government as well as the public sector of Lesotho.
  - Verifiable indicator: The PFMAA incorporates articles addressing data provisions for the compilation of broader coverage of GFS.
  - Implementation Status as of January 2020: Incomplete — Check provisions of the PFMAA to ascertain coverage of government institutional units is general government (includes EBUs and Local Government).
- Priority: Establish a working group comprising relevant stakeholders (Accountant General’s Office, Treasury, Budget Department, MOF Macroeconomic Policy and Management Department, CBL Research Department, BOS, Ministry of Local Government).
  - Verifiable indicator: A working group comprising of all stakeholders involved with GFS source data is established.
  - Implementation Status: Partial — No formal establishment of a technical working group; interactions have taken place informally on the public sector institutional table.
- Priority: Assign responsibilities for following up on TA recommendations.
  - Verifiable indicator: A responsible person is designated to follow up on implementation of GFS TA recommendation.
  - Implementation Status: Completed — A person was assigned to follow up on implementation of TA recommendations.
- Priority: Coordinate the GFSM 2014 Migration Plan with the national implementation of IPSAS.
  - Verifiable indicator: The GFSM 2014 migration plan implementation is coordinated with that of the IPSAS.
  - Implementation Status: Incomplete — Workstreams for IPSAS migration and GFS migration have not been coordinated.

### Compilation using GFSM 2014 and PSDSG 2013 concepts and definitions (Outcome)
- Budgetary central government GFS:
  - Action: Compile GFS for the budgetary central government following the GFSM 2014 framework.
  - Verifiable indicator: GFS is compiled in line with the GFSM 2014 for the budgetary central government.
  - Implementation Status: Partial — Reclassifications were performed to the SGO to align it to the GFSM 2014. Work remains to address institutional coverage of transactions above and below the line and including counterpart transactions for the revolving fund.
- Extrabudgetary units GFS:
  - Action: Compile GFS for extrabudgetary central government units.
  - Verifiable indicator: GFS is compiled in line with the GFSM 2014 for the extrabudgetary central government.
  - Implementation Status: Incomplete — Some data was collected for extrabudgetary units but not compiled.
- Local government GFS:
  - Action: Compile GFS for local government units.
  - Verifiable indicator: GFS is compiled in line with the GFSM 2014 for the local government.
  - Implementation Status: Completed — Data for 10 district councils and Maseru City Council was compiled for the last three fiscal years.
- General government GFS:
  - Action: Compile GFS for the general government.
  - Verifiable indicator: GFS is compiled in line with the GFSM 2014 for the general government.
  - Implementation Status: Incomplete — No consolidation has been performed with available data of BCG and Local Governments.
- Debt statistics for budgetary central government (PSDSG 2013):
  - Verifiable indicator: Debt statistics are compiled in line with the PSDSG 2013 for the budgetary central government.
  - Implementation Status: Partial — Data is available by instrument, residency, and currency for only two debt instruments: debt securities and loans. No data is currently compiled for other accounts payable.
- Debt statistics for extrabudgetary units, local government, and general government:
  - Verifiable indicators: Debt statistics are compiled in line with the PSDSG 2013 for the extrabudgetary units; local government; general government.
  - Implementation Status: Incomplete — No data is compiled for EBUs; No data is compiled for Local governments; No data is compiled for the general government.

### Migration plan and management endorsement
- Priority: Develop a migration path and timetable to adopt the GFSM 2014 guidelines and seek senior management endorsement.
  - Verifiable indicator: A migration plan is developed and endorsed by senior management.
  - Implementation Status: Incomplete — Senior management has not endorsed the workplan developed.

### Coverage and source data improvements (Outcome)
- Start collecting on a more regular basis data on transactions for all parastatals and agencies classified as BCG entities and incorporate the data into the BCG statement of operations.
  - Verifiable indicator: The scope of stocks and flows includes all transactions of budgetary central government units.
  - Implementation Status: Incomplete — No data has been compiled for BCG entities not currently included in the statement of operations.
- Identify transactions not currently included or partially included in the SGO (examples: debt assumptions, debt payment on behalf of MPs, on-lending) and incorporate them; adjust data historically to reduce statistical discrepancy.
  - Verifiable indicator: The scope of flows of the budgetary central government includes all items currently missing.
  - Implementation Status: Partial — On lending and debt payment on behalf of MPs have now been included in the SGO; debt assumptions (textile company) were not.
- Collect data on students' scholarships payments and repayments and reclassify transactions accordingly.
  - Implementation Status: Incomplete — No data were collected, and nothing was recorded in the SGO.
- Identify counterpart transactions for the revolving fund and trust monies and incorporate those transactions.
  - Implementation Status: Incomplete — No data were collected, and nothing was recorded in the SGO.
- Regularly collect data for compilation of GFS for extrabudgetary units.
  - Implementation Status: Incomplete — Financial statements for a few EBUs were collected, but no EBUs GFS was compiled.
- Integrate all local governments financial data in the new IFMIS.
  - Verifiable indicator: Data on local government transactions can be retrieved through the IFMIS.
  - Implementation Status: Incomplete — Local governments are not yet in the IFMIS.
- Collect regular data for local governments; status of recent years:
  - Partial: Data prior to FY18/19 is available for the previous 3 fiscal years, but no data is available for FY18/19 except for Thaba Tseka.
- Obtain detailed data on recurrent expense of district councils to classify grants and consolidate transfers.
  - Implementation Status: Partial — No data is yet available on local governments in IFMIS, but the SGO has a breakdown of grants by different levels of government.
- Collect detailed data on investment expense of district councils from foreign aid projects.
  - Implementation Status: Incomplete — There is currently no data to allow that classification.
- Collect and compile a financial balance sheet for the budgetary central government.
  - Verifiable indicator: The scope of stocks includes all financial assets and liabilities of the budgetary central government units.
  - Implementation Status: Partial — No financial balance sheet is yet compiled. The debt department, however, compiles data on debt liabilities of the BCG.
- Collect and compile debt statistics for public financial and public nonfinancial corporations.
  - Implementation Status: Incomplete — This has not yet been done; coverage is limited to the budgetary central government.
- Obtain source data for “other accounts payable”, “guarantees” and “pensions” and organize into a dataset for public sector debt compilation.
  - Verifiable indicator: The scope of debt liabilities includes all financial instruments of the public sector.
  - Implementation Status: Incomplete — No data is currently included in the stock of debt for the public sector on guaranteed debt (of public corporation), pension liabilities, and other accounts payable.

### Debt reporting and dissemination
- Regularly fill the QPSDS reporting template with debt data for central government, general government, and public sector.
  - Verifiable indicator: Debt statistics are made publicly available on a quarterly basis.
  - Implementation Status: Completed — The first submission for 2018: Q3 to 2019: Q2 was made to the World Bank in January 2020.
- Start disseminating debt statistics on a quarterly basis to the World Bank PSDS database.
  - Implementation Status: Completed — Data submission expected to continue as soon as data becomes available.
- Disseminate quarterly central government debt to the World Bank QPSDS database in a timely basis.
  - Verifiable indicator: Quarterly central government debt data are disseminated within one quarter after the end of the reference period.
  - Implementation Status: Partial — QPSDS for end June 2019 were submitted in January 2020 (6 months lag).

### Classification and reclassification (Outcome)
- Continue reclassifying transactions in the budgetary central government GFS to comply with GFSM 2014 guidelines (specific reclassifications listed).
  - Verifiable indicator: All required reclassifications to the budgetary central government GFS are completed.
  - Implementation Status: Completed — The SGO has been updated to reflect reclassifications in line with the GFSM 2014.
- Adjust transactions in nonfinancial assets with changes in project account stocks at the CBL funded with external capital grants/loans.
  - Implementation Status: Incomplete — No data is currently collected on projects accounts in the banking system.
- Obtain information on types of activities subject to withholding tax and allocate taxes to relevant categories; interim allocation using LRA proportions.
  - Implementation Status: Partial — LRA provided data disaggregated by dividends, contractors, services, management fees, royalties, interest and general withholding.
- Collect data on government equity participation/withdrawal in/from public and private corporations.
  - Implementation Status: Incomplete — No data is currently compiled on equity investment to be included in the SGO.
- Collect data on actual capital grants revenue and record associated expenditure on transactions in nonfinancial assets.
  - Implementation Status: Incomplete — Proportions are still currently being used for revenue and expenditure associated with external resources. Activities to start collecting actual expenditure is expected to start in 2021/22.
- Start collecting data on other economic flows (holding gains/losses—revaluation, and volume change) on government deposits.
  - Implementation Status: Incomplete — No data are yet collected on other economic flows.
- Start compiling functional expenditure (COFOG) according to GFSM 2014 guidelines.
  - Verifiable indicator: Functional expenditure transactions are classified according to the GFSM 2014 guidelines [Classification of Outlays by Functions of Government (COFOG)].
  - Implementation Status: Incomplete — There is no COFOG expenditure currently compiled.
- Implement GFS TA recommendations for changes to economic and functional classifications of the COA to be consistent with GFSM 2014.
  - Implementation Status: Incomplete — Need to look at the new chart of accounts to confirm recommendations were implemented.
- Introduce the new chart of accounts in financial reporting of local governments.
  - Verifiable indicator: Classification of flows and stocks for the local governments are consistent with the guidelines of the GFSM 2014.
  - Implementation Status: Incomplete — Local governments have not yet reported data since the launch of the new chart of accounts.

### Sectorization and institutional table (Outcome)
- Review, finalize, adopt and disseminate the institutional table of the public sector for consistent use across macroeconomic statistics.
  - Verifiable indicator: Institutional sectors are defined in accordance with GFSM 2014 guidelines.
  - Implementation Status: Completed — The public sector institutional table was reviewed and finalized, but not disseminated.
- Review and update the institutional table regularly to incorporate new entities or remove defunct ones.
  - Implementation Status: Partial — No updates have been made since the last update in September 2019.

### Basis of recording (Outcome)
- Move towards recording transactions on a modified accrual basis and start recording expenditure transactions on “commitment” basis.
  - Verifiable indicator: Transactions in the Statement of Government Operations account for the timing difference between expenditure and actual cash payments.
  - Implementation Status: Completed — The status of funds report includes expenditures to date and commitments to date (that represents commitment basis).
- Start recording transactions below the line on accounts payable as the difference between commitment and payment transactions in IFMIS.
  - Implementation Status: Completed — The SGO records a line on other accounts payable computed as the difference between expenditure in IFMIS and at CBL.
- Start to regularly reconcile revenue data from bank accounts and revenue data from LRA.
  - Verifiable indicator: Transactions in the Statement of Government Operations account on revenue are recorded on cash basis.
  - Implementation Status: Incomplete — No reconciliation is currently done. The SGO has resorted to using LRA data again instead of the QCBS data.

### Compilation procedures, timeliness, and dissemination (Outcome)
- Start documenting GFS compilation procedures.
  - Verifiable indicator: Compilation procedures are well documented and updated periodically.
  - Implementation Status: Incomplete — No documentation has been done on how the SGO is compiled.
- Resume timely dissemination of monthly GFS to the National Summary Data Page (NSDP).
  - Verifiable indicator: Monthly GFS for budgetary central government operations are disseminated within two months after the end of the reference period.
  - Implementation Status: Completed — New data series from January 2000 to March 2019 have been disseminated on the NSDP.
- Resume timely dissemination of annual GFS for the GFSY.
  - Verifiable indicator: Annual GFS for the budgetary central government are disseminated within 1 quarter after the end of the reference period.
  - Implementation Status: Completed — Annual GFS was submitted in November 2019 and resubmitted in January 2020 following amendments.

### Internal consistency and time series (Outcomes)
- Reduce the statistical discrepancy to less than 1 percent of GDP.
  - Verifiable indicator: Discrepancies between flows and stocks are regularly investigated, identified, and corrected as needed.
  - Implementation Status: Partial — Preliminary data from the SGO indicate a statistical discrepancy for FY 2018/19 of about 1.7 percent of GDP.
- Ensure consistency between “MF_SGO_DB” and “MF_MTFF_DB” files (now FPP).
  - Verifiable indicator: Datasets for GFS compilation and fiscal analysis and forecasting are internally consistent.
  - Implementation Status: Completed — The MTFF has been replaced by FPP file and is consistent with the SGO for the in-year.
- Share databases and data sources among MOF, CBL, and BOS where possible to guarantee consistency.
  - Implementation Status: Incomplete — Not yet done.
- Update historical series for the budgetary central government consistent with GFSM 2014 guidelines.
  - Verifiable indicator: Consistent annual and sub-annual GFS are available historically.
  - Implementation Status: Completed — Historical data updated back to 1992.

*Source: Appendix I. Progress with Implementation of the GFS and PSDS (implementation status as of January 2020).*

### Appendix II. Decision Tree for Sector Classification of the Public

### Appendix II. Decision Tree for Sector Classification of the Public Sector

### Overview
- Using the concepts of residence, institutional unit, control, and market versus nonmarket producers, the decision tree presented in Figure 2 facilitates the appropriate delineation of the public sector.
- The decision tree is used to determine which entities belong to the general government sector and which to the public corporations subsector by following sequential questions.

### Sequential decision questions (follow in order)
- Is the entity a resident or a nonresident? Data for nonresident entities are recorded in data for the rest of the world (see GFSM 2014 paragraph 2.7).
- Is the entity an institutional unit? If it is resident but not an institutional unit, it is treated as an integral part of the institutional unit that controls it. If it satisfies the criteria to be an institutional unit, move on to the next decision point (see GFSM 2014 paragraph 2.22).
- Is the institutional unit controlled by government or another public corporation? The answer to this question will place the institutional unit in the public or private sector (see GFSM 2014 Boxes 2.1 and 2.2).
- Is the institutional unit a market or nonmarket producer? The answer to this question will place the institutional unit in the general government sector or the public corporations subsector (see GFSM 2014 paragraphs 2.65–2.75).
- If the institutional unit is in the general government sector, could any market establishments that satisfy the criteria to be an institutional unit be identified within the general government unit? Such market establishments should be classified as quasi-corporations in the public corporations subsector (see GFSM 2014 paragraphs 2.33–2.34).
- Is the institutional unit providing financial auxiliary services, such as supervisory authorities of financial intermediaries and financial markets? A positive answer to this question will place the institutional unit in the public financial corporations subsector (see GFSM 2014 paragraph 2.54).

### References within the decision logic
- GFSM 2014 paragraph 2.7 — residency treatment (rest of the world).
- GFSM 2014 paragraph 2.22 — criteria for institutional units.
- GFSM 2014 Boxes 2.1 and 2.2 — control and public/private sector classification.
- GFSM 2014 paragraphs 2.65–2.75 — market versus nonmarket producer classification (general government vs public corporations).
- GFSM 2014 paragraphs 2.33–2.34 — identification and classification of quasi-corporations within general government units.
- GFSM 2014 paragraph 2.54 — classification of public financial corporations.
- 3 GFSM 2014 § 2.124

*Appendix II. Decision Tree for Sector Classification of the Public Sector — extracted from the provided content.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1lsoea2020003.pdf_