## _cr06149 - Joint Staff Advisory Note on Lesotho’s Poverty Reduction Strategy (JSAN) — Executive Summary

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---

### Overview and purpose of the JSAN
- Government transmitted its completed Poverty Reduction Strategy (PRS) to Bank and Fund managements in March 2005.
- PRS prepared after a three-year countrywide consultation with civil society and subsequent costing and performance indicator development exercises.
- Delays in finalizing the PRS caused by capacity constraints and time required to secure buy-in from key policymakers and the cabinet.
- PRS builds on the I-PRSP, National Vision 2020, National Goals, and the Millennium Development Goals (MDGs).
- Vision 2020 sets aspirations for 2020; the MDGs set targets to be achieved by 2015; the PRS provides a three-year framework to make progress toward those goals and targets.
- JSAN provides staffs’ advice on strengthening and implementing the PRS and notes parts of the PRS (poverty data and fiscal framework) may be outdated; staffs recommend using data from a more recent household budget survey.
- Fiscal year is from April to March.

### Participatory process
- Extensive participatory appraisal techniques: focus group discussions, interviews, seasonality diagrams, wealth ranking, trend analysis.
- Two hundred community reports were aggregated and analyzed into the Voice of the People report.
- Sector working groups and thematic groups established at the central level to formulate policies and address cross-cutting issues.
- Private sector contributed significantly despite weak organizational capacity initially.
- Development partners provided technical and financial support.
- PRS reflects major issues raised during the participatory process.

### Poverty diagnosis
- Quantitative analysis relies on household budget surveys from 1986/87 and 1994/95; qualitative consultation data supplement analysis.
- Diagnosis indicates the number of poor and extremely poor people is growing, particularly among:
  - the one-third of the population living in the mountainous regions; and
  - the approximately one-third of households that are headed by females.
- Poverty-mapping exercises in 1990, 1993, and 1999 confirm the trend.
- Severe capacity constraints prevented use of data from the 2002/03 household budget survey.
- Lack of a standardized national framework for data analysis limited direct comparisons and prevented breakdown into operationally relevant administrative units.
- Staffs consider available data broadly adequate but recommend further work to strengthen poverty diagnosis, especially at disaggregated levels.
- Staffs recommend further analysis of households’ income sources and coping strategies to inform pro-poor strategies, including the role of the private sector.

### Alignment with the budget
- Government initiated phased introduction of a medium-term expenditure framework starting with the 2005/06 budget.
- Authorities identifying budget activities included in the PRS and other poverty-reducing activities not necessarily included in the PRS.
- Costing limitations exist; staffs believe ongoing exercises will support alignment of the budget to the PRS and advise completing these exercises and integrating them into monitoring and evaluation.

### Priority actions and critical challenges
- Main challenges identified by the PRS:
  - increase overall economic growth while maintaining macroeconomic stability and fiscal and external debt sustainability;
  - bring about a sizeable reduction in poverty, primarily through employment creation and human capital development;
  - address structural impediments to growth in tax administration, public expenditure management, financial intermediation, and private sector development;
  - implement a strong HIV/AIDS management program.
- Authorities identify lack of political will and weak governance as major risks and recognize resource constraints requiring hard choices.
- Staffs broadly agree with PRS goals and priorities but note further action needed to:
  - address external vulnerabilities more forcefully, notably erosion of trade preferences from the phasing out of quotas under the Agreement on Textiles and Clothing (ATC) affecting the garment sector (not taken into account in the PRS);
  - tackle competitiveness issues and other structural impediments to growth;
  - improve administrative and reform implementation capacity.
- Authorities have sought to promote private sector-led growth, evidenced by the Private Sector Development Forum.

### Supporting economic growth and maintaining stability
- PRS medium-term targets:
  - medium-term real GDP growth rate of 7 percent by 2007;
  - reduction in the population living below the poverty line to 52 percent from 58 percent by 2006;
  - reduction in the Gini coefficient from 0.66 to 0.60 by 2006.
- Authorities intend macroeconomic and structural policies to:
  - ensure Lesotho continues to maintain macroeconomic stability;
  - encourage domestic savings and foreign capital inflows;
  - foster conditions conducive to high economic growth and job creation.
- PRS lacks a comprehensive macroeconomic framework except for some fiscal projections; without a medium-term macroeconomic framework, targets appear unanchored and sources of growth not clearly identified.
- Considering short-term risks to garment production and exports and medium-term structural challenges, staffs consider the targeted growth rate unrealistic.
- Fund staff stand ready to assist in developing a comprehensive macroeconomic framework.
- Staffs encourage identification of possible sources of growth (for example, export diversification), constraints to higher growth (for example, lack of competitiveness and skills, inadequate infrastructure), and analysis of links between growth and poverty reduction in key sectors.
- Fiscal framework seeks to keep the real value of expenditure growing at less than GDP growth while considering expected decline in the ratio of revenue-to-GDP.
- Aggregate incremental resource cost for the three years of the PRS is estimated to be approximately 12 percent of 2005 GDP.
- Government recognizes cost estimates are not comprehensive and a financing plan is not yet defined; staffs advise improved prioritization to accommodate high-priority spending within a declining overall budget resource and further work to integrate poverty-reduction expenditure projections into a medium-term framework.
- Government needs a comprehensive financing plan specifying donor commitments, projected resource flows, reallocations from nonpriority to priority activities, and addressing external financing and debt sustainability.
- Authorities plan to present the PRS to development partners at a roundtable later this year to harmonize donor support.

### Trade integration and competitiveness
- PRS integrates trade issues through the Diagnostic Trade Integration Study (DTIS) for Lesotho.
- Goal: lower cost of trading with South Africa and other Southern African Customs Union (SACU) partners and the rest of the world by removing barriers to trade and to movement of capital and labor.
- Priority actions are set out in the DTIS matrix and are mostly structural policies.
- Staffs note renewed urgency in implementing the strategy due to global trade developments and competition from lower-cost countries like China.
- Government needs to address weak competitiveness, weak institutions, and high costs of doing business urgently and execute DTIS-recommended reforms to improve competitiveness and diversify the export base.
- Staffs agree trade policies should be reoriented to leverage regional arrangements and regional markets.

### Strategic Pillars of the PRS
- Pillar I: Facilitating Employment and Income Generation Through Economic Growth
  - Government plan endorsed to create an environment for FDI, small and medium-size enterprises, and migrant labor for rapid employment creation.
  - Short-term efforts are at risk due to competitiveness problems.
  - To meet the MDG of halving the number of people in extreme poverty by 2015, the PRS must impact the 600,000 ultra-poor persons mainly in mountainous regions; this subgroup likely will not benefit significantly from urban FDI-induced employment due to lack of education and skills.
  - PRS proposes measures to support small and medium-size enterprises but does not address effective microcredit provision.
  - Staffs welcome the Private Sector Development Forum (April 2005) and encourage a clear program of actions with an ambitious but realistic timetable based on forum recommendations.
  - With high unemployment and erosion of trade preferences, Lesotho must explore how lack of cost competitiveness constrains private sector development and external sustainability over the medium term.
  - PRS proposes measures to improve food security — increase access to land and credit, promote locally developed farming practices — but lacks specifics on application and implementation (for example, block farming and incentive structures).
  - Staffs recommend formulation of a program and strengthening implementation capacity in the first year of PRS implementation.
  - Infrastructure sector objectives: provide relevant infrastructure (especially water) to new industrial estates with high wage employment potential and basic infrastructure to marginalized rural areas.
  - Staffs recommend future infrastructure work to:
    - prioritize actions based on sound technical analysis (notably water, sanitation, transport) given heavy investment costs;
    - ensure budgetary costs are consistent with overall fiscal resources;
    - increase institutional and human capacity through systematic training, professional development, and reinforced managerial skills;
    - seek public-private partnerships to ease fiscal and capacity constraints.
  - PRS links poverty and environmental degradation; soil erosion is identified as the most critical environmental issue but actions to address it need better definition (lead responsibility, resource requirements, targets).
  - Promotion of water harvesting and agro-forestry on homestead plots, linked to food security measures, could have pronounced effects but are not prioritized in PRS.
  - Government could strengthen the PRS by implementing the Environmental Act (2001).

- Pillar II: Securing Basic Services
  - Government proposes to promote access to high-quality and essential health care, reduce malnutrition, and improve access to social welfare services to reverse declining health status attributed primarily to HIV/AIDS.
  - On malnutrition and social welfare interventions, authorities must articulate approaches for the most vulnerable groups; staffs recommend clarifying institutional arrangements and activities to help the extremely poor and other vulnerable groups.
  - Urgent need to speed up implementation of the National HIV/AIDS Strategic Plan.
  - In education, staffs see best prospects for direct poverty reduction outside the formal system: community-based early childhood education development centers and technical and vocational education in mountainous areas.
  - Large disparities exist in expenditure patterns between privileged students and pupils in non-formal education.
  - Staffs encourage PRS to include a specific government commitment to redress these disparities, include targets to reduce them, and establish targets for provision of nonformal education to the poor in mountainous areas.

- Pillar III: Improving Governance and Public Service Performance
  - Text on Pillar III begins but is not included in the supplied content.

### Public sector program and service delivery
- PRS envisages an ambitious public sector program to ensure public services are delivered in the most appropriate, effective, and efficient way.
- Program goals:
  - Improved public finance management.
  - Decentralization of service provision.
  - Civil service reform.
- Financial management objectives:
  - Maintain fiscal discipline.
  - Allocate resources more efficiently in line with government priorities.
  - Improve delivery of services.
- Administrative measures:
  - Strengthen the accounting system through computerization and further staff training.
  - Improve the office of the Auditor General by drafting new legislation to expand its independence and strengthen the functioning of the public accounts committee.
- Decentralization milestone:
  - Local government elections were held on April 30, 2005.

### Expenditure management, priorities, and fiscal challenges
- Staffs welcome the authorities’ commitment to improve expenditure management.
- Key aspects highlighted:
  - Prioritize spending and reallocate toward social priorities like HIV/AIDS, which are likely to create more spending pressure than earlier envisaged because of delays in implementation.
  - Ensure legislative, fiscal, and institutional frameworks are in place to carry out the provisions of the Local Government Act.
- Gaps identified:
  - PRS recognizes importance of measures but does not lay out an action plan and a timetable for implementing them.
  - PRS needs a time-bound action plan to reform the civil service and build capacity.
  - Authorities are encouraged to address the size of the public sector and its high wage bill.

### Monitoring, evaluation, and implementation capacity
- PRS recognizes the crucial importance of establishing a monitoring and evaluation system to report on progress and manage for results.
- Staffs’ recommended actions to monitor poverty-reduction measures:
  - Complete the analysis of the 2002/03 household budget survey to set the baseline for monitoring future progress in reducing poverty.
  - Establish a unit to coordinate the proposed poverty-monitoring function in the Ministry of Finance and Development Planning; the unit should have a strong mandate and include a system of incentives that reward staff learning efforts.
  - Provide financial and capacity-building support to the Bureau of Statistics, including by establishing the National Statistical Council and revamping the existing Bureau of Statistics’ strategic plan.
  - Lead harmonization and coordination of donor efforts to support a consistent strategy and action plan for an effective monitoring and evaluation system.
  - Introduce a standardized framework based on the country’s major ecological zones within established district boundaries.
- Resource implication:
  - These actions will require consistent and coordinated technical and financial support from Lesotho’s development partners.
- Capacity-building emphasis:
  - Assess institutional capacity constraints likely to undermine PRS implementation.
  - Identify individual capacity challenges related to specific results–at macro, sectoral, and cross-sectoral levels–in terms of incentives, organizational competencies, and individual skills.
  - Undertake the assessment with involvement of local learning and training entities.
  - Use the PRS to gain donor support for technical assistance for effective capacity building.
- Accountability and reporting gaps:
  - No current mechanism appears to assess the impact of the PRS in reducing poverty within the three-year timeframe unless a standardized national framework is adopted.
  - Targets for some goals are missing or poorly developed.
  - Core indicators do not distinguish between process, output, intermediate and impact indicators.
  - Targets for a reduction of poverty in monetary terms or an improvement of income distribution are not identified.
  - Monitoring could benefit from indicators for key public actions, such as promotion of foreign direct investment and measures to support small-and medium-size enterprises.
  - An annual progress report could provide an appropriate forum for addressing these issues.

### Conclusions, risks, and priorities for action
- Overall assessment:
  - PRS is an important step toward sustained growth and poverty reduction in Lesotho; it is based on broad consultations, outlines priorities, provides a program of actions, and develops cost matrices and performance indicators.
  - Despite weaknesses, World Bank and IMF staffs believe it represents a comprehensive strategy to guide authorities’ economic policies.
- Key limitations and risks:
  - Operationalization weaknesses.
  - Possible further shocks to the economy.
  - Weak governance.
  - Lack of political will.
  - Need to translate objectives and goals into actual work plans (examples: supporting medium-term macroeconomic framework; addressing external vulnerability and competitiveness concerns).
  - Fiscal framework requires significant spending restraint in nonpriority areas (such as civil service costs), many of which have not been identified.
  - Need to improve monitoring and evaluation framework and identify capacity constraints in the public sector.
- Staffs’ priority recommendations:
  - Give priority to developing and implementing a comprehensive medium-term macroeconomic framework and an action plan for growth that addresses current external vulnerabilities and competitiveness concerns.
  - Staffs stand ready to assist authorities in developing such a framework that could guide a possible successor PRGF-supported program.
- Other critical areas identified by staffs:
  - (i) Design an action plan to improve the allocation of resources and public expenditure management and to undertake civil service reform.
  - (ii) Develop an action plan to address the HIV/AIDS pandemic more vigorously.
  - (iii) Strengthen the monitoring and evaluation framework.
  - Given administrative and institutional capacity constraints, the PRS could clearly spell out Lesotho’s technical assistance needs.

*IMF/World Bank staffs’ assessment and recommendations as presented in the PRS review.*

### 1. The government of the Kingdom of Lesotho transmitted its completed

### _cr06149 - 1. The government of the Kingdom of Lesotho transmitted its completed

### Overview and purpose of the JSAN
- The government transmitted its completed Poverty Reduction Strategy (PRS) to the managements of the Bank and the Fund in March 2005.
- The PRS was prepared after a three-year countrywide consultation with civil society and subsequent detailed exercises on costing and development of performance indicators.
- Delays in finalizing the PRS were caused by capacity constraints and the time required to secure buy-in and support from key policymakers and the cabinet.
- The PRS builds on the I-PRSP, National Vision 2020, National Goals, and the Millennium Development Goals (MDGs).
- Vision 2020 sets aspirations for 2020; the MDGs set targets to be achieved by 2015; the PRS provides a three-year framework to make progress toward those goals and targets.
- The Joint Staff Advisory Note (JSAN) provides staffs’ advice on strengthening and implementing the PRS and notes that parts of the PRS (poverty data and fiscal framework) may be outdated; staffs recommend using data from a more recent household budget survey.

### Participatory process (Section II.A)
- Extensive participatory appraisal techniques used: focus group discussions, interviews, seasonality diagrams, wealth ranking, and trend analysis.
- Two hundred community reports were aggregated and analyzed into the Voice of the People report.
- Sector working groups and thematic groups were established at the central level to formulate policies and deal with cross-cutting issues.
- The private sector contributed significantly despite weak organizational capacity initially.
- Development partners provided technical and financial support.
- The PRS reflects major issues raised during the participatory process.

### Poverty diagnosis (Section II.B)
- Quantitative analysis uses household budget surveys from 1986/87 and 1994/95 to analyze trends; qualitative data from consultations supplement the analysis.
- Diagnosis indicates the number of poor and extremely poor people is growing, particularly among:
  - the one-third of the population living in the mountainous regions; and
  - the approximately one-third of households that are headed by females.
- Poverty-mapping exercises in 1990, 1993, and 1999 confirm the trend.
- Severe capacity constraints prevented use of data from the 2002/03 household budget survey.
- Lack of a standardized national framework for data analysis limited direct comparisons and prevented breakdown into operationally relevant administrative units.
- Staffs consider the available data broadly adequate for analysis but recommend further work to strengthen poverty diagnosis, especially at the disaggregated level.
- Staffs recommend further analysis of households’ sources of income and coping strategies to inform pro-poor strategies, including the role of the private sector.

### Alignment with the budget (Section II.C)
- Government initiated a phased introduction of a medium-term expenditure framework starting with the 2005/06 budget.1
- Authorities are identifying budget activities included in the PRS and other poverty-reducing activities not necessarily included in the PRS.
- Costing limitations exist; staffs believe ongoing exercises will support alignment of the budget to the PRS and advise completing these exercises and integrating them into monitoring and evaluation.

1 Fiscal year is from April to March.

### Priority actions and critical challenges (Section III.A)
- Main challenges identified by the PRS:
  - increase overall economic growth while maintaining macroeconomic stability and fiscal and external debt sustainability;
  - bring about a sizeable reduction in poverty, primarily through employment creation and human capital development;
  - address structural impediments to growth in tax administration, public expenditure management, financial intermediation, and private sector development;
  - implement a strong HIV/AIDS management program.
- Authorities identify lack of political will and weak governance as major risks to PRS implementation and recognize resource constraints requiring hard choices.
- Staffs broadly agree with PRS goals and priorities but note areas needing further action:
  - address external vulnerabilities more forcefully, notably erosion of trade preferences from the phasing out of quotas under the Agreement on Textiles and Clothing (ATC) affecting the garment sector (not taken into account in the PRS);
  - tackle competitiveness issues and other structural impediments to growth;
  - improve administrative and reform implementation capacity.
- Since PRS completion, authorities have sought to promote private sector-led growth, evidenced by the Private Sector Development Forum (see paragraph 16).

### Supporting economic growth and maintaining stability (Section III.B)
- PRS targets:
  - medium-term real GDP growth rate of 7 percent by 2007;
  - reduction in the population living below the poverty line to 52 percent from 58 percent by 2006;
  - reduction in the Gini coefficient from 0.66 to 0.60 by 2006.
- Authorities intend macroeconomic and structural policies to:
  - ensure Lesotho continues to maintain macroeconomic stability;
  - encourage domestic savings and foreign capital inflows;
  - foster conditions conducive to high economic growth and job creation.
- PRS lacks a comprehensive macroeconomic framework except for some fiscal projections; in absence of a medium-term macroeconomic framework, the targets do not appear properly anchored and sources of growth are not clearly identified.
- Considering short-term risks to garment production and exports and medium-term structural challenges, staffs consider the targeted growth rate unrealistic.
- Fund staff stand ready to assist in developing a comprehensive macroeconomic framework.
- Staffs encourage identification of possible sources of growth (e.g., export diversification), constraints to higher growth (e.g., lack of competitiveness and skills, inadequate infrastructure), and analysis of links between growth and poverty reduction in key sectors.
- Fiscal framework seeks to keep the real value of expenditure growing at less than GDP growth while considering expected decline in the ratio of revenue-to-GDP.
- Aggregate incremental resource cost for the three years of the PRS is estimated to be approximately 12 percent of 2005 GDP.
- Government recognizes cost estimates are not comprehensive and a financing plan is not yet defined; staffs advise improved prioritization to accommodate high-priority spending within a declining overall budget resource and further work to integrate poverty-reduction expenditure projections into a medium-term framework.
- Government needs a comprehensive financing plan specifying donor commitments, projected resource flows, reallocations from nonpriority to priority activities, and addressing external financing and debt sustainability.
- Authorities plan to present the PRS to development partners at a roundtable later this year to harmonize donor support.

### Trade integration and competitiveness (Section III.B continued)
- PRS integrates trade issues through the Diagnostic Trade Integration Study (DTIS) for Lesotho.
- Goal: lower cost of trading with South Africa and other Southern African Customs Union (SACU) partners and the rest of the world by removing barriers to trade and to movement of capital and labor.
- Priority actions are set out in the DTIS matrix and are mostly structural policies.
- Staffs note renewed urgency in implementing the strategy due to global trade developments and competition from lower-cost countries like China.
- Government needs to address weak competitiveness, weak institutions, and high costs of doing business urgently and execute DTIS-recommended reforms to improve competitiveness and diversify the export base.
- Staffs agree trade policies should be reoriented to leverage regional arrangements and regional markets.

### Strategic Pillars of the PRS (Section III.C)

- Pillar I: Facilitating Employment and Income Generation Through Economic Growth
  - Government plan endorsed to create an environment for FDI, small and medium-size enterprises, and migrant labor for rapid employment creation.
  - Short-term efforts are at risk due to competitiveness problems.
  - To meet the MDG of halving the number of people in extreme poverty by 2015, the PRS must impact the 600,000 ultra-poor persons mainly in mountainous regions; this subgroup likely will not benefit significantly from urban FDI-induced employment due to lack of education and skills.
  - PRS proposes measures to support small and medium-size enterprises but does not address effective microcredit provision.
  - Staffs welcome the Private Sector Development Forum (April 2005) and encourage a clear program of actions with an ambitious but realistic timetable based on forum recommendations.
  - With high unemployment and erosion of trade preferences, Lesotho must explore how lack of cost competitiveness constrains private sector development and external sustainability over the medium term.
  - PRS proposes measures to improve food security—increase access to land and credit, promote locally developed farming practices—but lacks specifics on application and implementation (e.g., block farming and incentive structures).
  - Staffs recommend formulation of a program and strengthening implementation capacity in the first year of PRS implementation.
  - Infrastructure sector objectives identified: provide relevant infrastructure (especially water) to new industrial estates with high wage employment potential and basic infrastructure to marginalized rural areas.
  - Staffs recommend future infrastructure work to:
    - prioritize actions based on sound technical analysis (notably water, sanitation, transport) given heavy investment costs;
    - ensure budgetary costs are consistent with overall fiscal resources;
    - increase institutional and human capacity through systematic training, professional development, and reinforced managerial skills;
    - seek public-private partnerships to ease fiscal and capacity constraints.
  - PRS links poverty and environmental degradation; soil erosion is identified as the most critical environmental issue but actions to address it need better definition (lead responsibility, resource requirements, targets).
  - Promotion of water harvesting and agro-forestry on homestead plots, linked to food security measures, could have pronounced effects but are not prioritized in PRS.
  - Government could strengthen the PRS by implementing the Environmental Act (2001).

- Pillar II: Securing Basic Services
  - Government proposes to promote access to high-quality and essential health care, reduce malnutrition, and improve access to social welfare services to reverse declining health status attributed primarily to HIV/AIDS.
  - On malnutrition and social welfare interventions, authorities must articulate approaches for the most vulnerable groups; staffs recommend clarifying institutional arrangements and activities to help the extremely poor and other vulnerable groups.
  - Urgent need to speed up implementation of the National HIV/AIDS Strategic Plan.
  - In education, staffs see best prospects for direct poverty reduction outside the formal system: community-based early childhood education development centers and technical and vocational education in mountainous areas.
  - Large disparities exist in expenditure patterns between privileged students and pupils in non-formal education.
  - Staffs encourage PRS to include a specific government commitment to redress these disparities, include targets to reduce them, and establish targets for provision of nonformal education to the poor in mountainous areas.

- Pillar III: Improving Governance and Public Service Performance
  - (Text on Pillar III begins but is not included in the supplied content.)

*Source: Joint Staff Advisory Note on Lesotho’s Poverty Reduction Strategy (text as provided in the supplied content).*

### 23. The PRS recognizes, and the staffs agree, that enhancing the effectiveness of

### _cr06149 - 23. The PRS recognizes, and the staffs agree, that enhancing the effectiveness of

### Public sector program and service delivery
- The PRS envisages an ambitious public sector program during the PRS’s implementation period to ensure public services are delivered in the most appropriate, effective, and efficient way.
- Program goals:
  - Improved public finance management.
  - Decentralization of service provision.
  - Civil service reform.
- Financial management objectives:
  - Maintain fiscal discipline.
  - Allocate resources more efficiently in line with government priorities.
  - Improve delivery of services.
- Administrative measures:
  - Strengthen the accounting system through computerization and further staff training.
  - Improve the office of the Auditor General by drafting new legislation to expand its independence and strengthen the functioning of the public accounts committee.
- Decentralization milestone:
  - Local government elections were held on April 30, 2005.

### Expenditure management, priorities, and fiscal challenges
- Staffs welcome the authorities’ commitment to improve expenditure management.
- Key aspects highlighted:
  - Prioritize spending and reallocate toward social priorities like HIV/AIDS, which are likely to create more spending pressure than earlier envisaged because of delays in implementation.
  - Ensure legislative, fiscal, and institutional frameworks are in place to carry out the provisions of the Local Government Act.
- Gaps identified:
  - The PRS recognizes importance of measures but does not lay out an action plan and a timetable for implementing them.
  - The PRS needs a time-bound action plan to reform the civil service and build capacity.
  - Authorities are encouraged to address the size of the public sector and its high wage bill.

### Monitoring, evaluation, and implementation capacity
- The PRS recognizes the crucial importance of establishing a monitoring and evaluation system to report on progress and manage for results.
- Staffs’ recommended actions to monitor poverty-reduction measures:
  - Complete the analysis of the 2002/03 household budget survey to set the baseline for monitoring future progress in reducing poverty.
  - Establish a unit to coordinate the proposed poverty-monitoring function in the Ministry of Finance and Development Planning; the unit should have a strong mandate and include a system of incentives that reward staff learning efforts.
  - Provide financial and capacity-building support to the Bureau of Statistics, including by establishing the National Statistical Council and revamping the existing Bureau of Statistics’ strategic plan.
  - Lead harmonization and coordination of donor efforts to support a consistent strategy and action plan for an effective monitoring and evaluation system.
  - Introduce a standardized framework based on the country’s major ecological zones within established district boundaries.
- Resource implication:
  - These actions will require consistent and coordinated technical and financial support from Lesotho’s development partners.
- Capacity-building emphasis:
  - Assess institutional capacity constraints likely to undermine PRS implementation.
  - Identify individual capacity challenges related to specific results–at macro, sectoral, and cross-sectoral levels–in terms of incentives, organizational competencies, and individual skills.
  - Undertake the assessment with involvement of local learning and training entities.
  - Use the PRS to gain donor support for technical assistance for effective capacity building.
- Accountability and reporting gaps:
  - No current mechanism appears to assess the impact of the PRS in reducing poverty within the three-year timeframe unless a standardized national framework is adopted.
  - Targets for some goals are missing or poorly developed.
  - Core indicators do not distinguish between process, output, intermediate and impact indicators.
  - Targets for a reduction of poverty in monetary terms or an improvement of income distribution are not identified.
  - Monitoring could benefit from indicators for key public actions, such as promotion of foreign direct investment and measures to support small-and medium-size enterprises.
  - An annual progress report could provide an appropriate forum for addressing these issues.

### Conclusions, risks, and priorities for action
- Overall assessment:
  - The PRS is an important step toward sustained growth and poverty reduction in Lesotho; it is based on broad consultations, outlines priorities, provides a program of actions, and develops cost matrices and performance indicators.
  - Despite weaknesses, World Bank and IMF staffs believe it represents a comprehensive strategy to guide authorities’ economic policies.
- Key limitations and risks:
  - Operationalization weaknesses.
  - Possible further shocks to the economy.
  - Weak governance.
  - Lack of political will.
  - Need to translate objectives and goals into actual work plans (examples: supporting medium-term macroeconomic framework; addressing external vulnerability and competitiveness concerns).
  - Fiscal framework requires significant spending restraint in nonpriority areas (such as civil service costs), many of which have not been identified.
  - Need to improve monitoring and evaluation framework and identify capacity constraints in the public sector.
- Staffs’ priority recommendations:
  - Give priority to developing and implementing a comprehensive medium-term macroeconomic framework and an action plan for growth that addresses current external vulnerabilities and competitiveness concerns.
  - Staffs stand ready to assist authorities in developing such a framework that could guide a possible successor PRGF-supported program.
- Other critical areas identified by staffs:
  - (i) Design an action plan to improve the allocation of resources and public expenditure management and to undertake civil service reform.
  - (ii) Develop an action plan to address the HIV/AIDS pandemic more vigorously.
  - (iii) Strengthen the monitoring and evaluation framework.
  - Given administrative and institutional capacity constraints, the PRS could clearly spell out Lesotho’s technical assistance needs.

*IMF/World Bank staffs’ assessment and recommendations as presented in the PRS review.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06149.pdf_