Press Release: IMF Executive Board Approves US$61.4 Million Three-year ECF Arrangement for the Kingdom of Lesotho
IMF News, June 2, 2010
Source details
- Canonical URL
- Press Release: IMF Executive Board Approves US$61.4 Million Three-year ECF Arrangement for the Kingdom of Lesotho
Other formats
Bibliographic details
- Published: June 2, 2010
Overview and approval
- Press Release No. 10/224; June 2, 2010.
- The Executive Board approved an amount equivalent to SDR 41.88 million (about US$61.4 million) three-year arrangement for the Kingdom of Lesotho under the Extended Credit Facility (ECF).
- A sum of an amount equivalent to SDR 7.80 million (about US$11.4 million) is available for immediate disbursement.
- The three-year ECF arrangement represents 120 percent of Lesotho’s SDR 34.90 million IMF quota.
- Lesotho joined the Fund in July 1968.
Macroeconomic context and recent developments
- Lesotho achieved several years of macroeconomic stability prior to 2009, but economic performance deteriorated in 2009.
- Causes of the 2009 deterioration:
- Reduced demand for exports of textiles and diamonds.
- A significant decline in workers’ remittances from South Africa.
- Fiscal and external balances:
- The fiscal balance shifted into deficit in 2009/10 after five consecutive years of surpluses.
- The external current account shifted into deficit, reflecting lower export earnings and income receipts.
- SACU revenue shock:
- Revenues from the Southern African Customs Union (SACU) account for around 60 percent of the country’s tax revenue.
- SACU revenues are projected to decline by some 23 percent of GDP during 2010/11–2011/12, mainly due to lower imports by South Africa.
- SACU revenues are projected to recover somewhat but are expected to stabilize at levels well below trend.
- Downside risks: Fiscal and external balances will deteriorate significantly and remain vulnerable to downside risks.
Program objectives and policy focus (2010–13)
- Purpose of the ECF-supported program:
- Support the authorities’ medium-term adjustment program and help reduce balance of payments risks.
- Restore fiscal and external sustainability, promote sustainable growth, a stronger financial sector, and poverty reduction.
- Key reform objectives:
- Containing expenditures to levels consistent with sustainable revenue flows, while safeguarding social spending for the poor and vulnerable groups.
- Further strengthening of public expenditure and financial management.
- Improving the business climate to facilitate private sector development.
- Strengthening the regulatory framework for the financial sector and deepening financial intermediation.
Policy measures and recommendations highlighted by the IMF (quotes preserved)
- On the need for strong adjustment and reforms:
- “The global economic crisis has had an adverse impact on Lesotho. Demand for exports has fallen, economic growth has declined, and the projected sharp reduction in Southern African Customs Union (SACU) revenues is likely to result in a significant deterioration in both the fiscal and external deficits. Strong adjustment measures and an acceleration of structural reforms are needed to restore fiscal and external sustainability, and provide the foundation for sustained broad-based growth and poverty reduction. The ambitious economic program for 2010-13, supported by the Fund’s Extended Credit Facility, demonstrates the authorities’ commitment to tackling these challenges.”
- On fiscal policy and debt management:
- “The authorities’ medium-term economic program appropriately focuses on fiscal consolidation. The prudent fiscal stance of the 2010/11 budget is an important first step as it seeks to contain growth in recurrent expenditure, which has risen sharply in recent years, while protecting social spending on vulnerable groups. Spending efficiency will be enhanced by further strengthening of public financial management and improving the quality of capital spending, while tax administration reform will help mobilize more non-SACU revenues. A cautious external borrowing strategy that focuses on grants and concessional loans and a strengthening of debt management capacity will be critical for debt sustainability.”
- On structural reforms and private sector development:
- “The authorities have committed to accelerating structural reforms to support economic growth and underpin fiscal consolidation. These reforms are aimed at improving the business climate and boosting productivity and external competitiveness to stimulate private sector-led growth and foster economic diversification.”
- On the financial sector:
- “Lesotho’s financial sector has remained resilient to the global crisis, and planned regulatory reforms will strengthen the sector and facilitate financial deepening. Key measures include amending the Financial Institutions Act to strengthen the supervisory role of the central bank over non-bank financial institutions, and measures to deepen the securities market and increase access to financial services, especially in the rural areas,” Mr Shinohara added.
Key statistics and figures
- SDR 41.88 million = about US$61.4 million (three-year ECF arrangement).
- SDR 7.80 million = about US$11.4 million (immediate disbursement).
- Arrangement size = 120 percent of Lesotho’s SDR 34.90 million IMF quota.
- SACU revenues ≈ 60 percent of tax revenue.
- SACU revenues projected decline = some 23 percent of GDP during 2010/11–2011/12.
- Program horizon referenced: 2010-13.
Source: IMF Press Release No. 10/224, June 2, 2010.