Press Release: IMF Approves Stand-By Credit for Lesotho

September 24, 1996

The International Monetary Fund (IMF) approved a 12-month stand-by credit for Lesotho equivalent to SDR 7 million (about US$10 million) to support the Government's 1996/97 economic program.


Since 1992/93, Lesotho has achieved strong GNP growth, while reducing the external current account deficit from 3.4 percent of GNP in 1992/93 to 2.0 percent in 1995/96. In the process, it has expanded exports, diversified production, increased savings, and accumulated substantial foreign exchange reserves. Structurally, Lesotho initiated a broad program by starting to dismantle inefficient agricultural regulations, and reforming taxation, public expenditure, and the civil service. However, these structural reforms must be accelerated to deal effectively with likely future shocks stemming from the risk of loss of manufacturing competitiveness and from the prospective decline of miners' remittances from South Africa, as well as for reducing unemployment and poverty.

The 1996/97 Program

In order to support Lesotho's continued growth, external adjustment, and structural reform, the authorities' strategy will utilize the fiscal surplus to accumulate international reserves, while promoting further investment in the manufacturing sector in order to reduce unemployment and poverty. Consistent with this strategy, the program for 1996/97 aims at achieving a real GNP growth rate of 10.2 percent; limiting the increase in the consumer price index to no more than 10.0 percent; and reducing the external current account deficit to 1.8 percent of GNP from 2.0 percent in 1995/96.

To these ends, the program provides for a fiscal surplus of 1.3 percent of GNP in 1996/97 by improving the sales tax yield, and by increasing customs and noncustoms revenues and grants. Recurrent expenditure will be held at 20.3 percent of GNP through restraining government wages, in order to keep the wage bill below 10 percent of GNP, while capital expenditure will be little changed at about 11 percent of GNP. Within the context of a restrained credit policy, provision is made for a decline in total domestic credit, while allowing for a reasonable expansion in lending to the parastatal and private sectors.

Structural Reforms

The program envisages major structural reforms to achieve sustained economic growth. The authorities will deregulate agricultural markets, take measures to promote further expansion in manufacturing, and move decisively to reform the operations of the principal state-owned public utilities. The Government also plans to take decisive steps toward the privatization of several large enterprises. In addition, it will improve the management of public investment, implement a value-added tax, and undertake necessary reforms to ensure that the judiciary disposes promptly of commercial court cases, and that court's judgements are effectively enforced.

Social Issues

The Government's strategy for poverty reduction under the program contains efforts to sharpen priorities in education and health, and to increase the efficiency of the social safety net through administrative improvements. Spending on education will increase in real terms and will focus on improving primary and secondary education. Support for health care will also be increased, emphasizing primary care and the prevention of serious diseases.

The Challenge Ahead

Miners' remittances, which presently account for a quarter of GNP, may decline significantly as a result of retrenchment in South Africa and potential emigration to the latter country of many Basotho miners and their families who have been granted permanent resident status in South Africa. Domestic wage pressures, which partially reflect the close integration of Lesotho's labor markets with those in South Africa , threaten to erode competitiveness and impede the reduction of unemployment. This underscores the need for measures to increase growth, improve the function of labor markets and the financial sector, and otherwise increase economic efficiency.

Lesotho joined the IMF on July 25, 1968. Its quota 1 is SDR 23.9 million (about US$35 million), and its outstanding use of IMF credit currently totals SDR 24 million (about US$35 million).

Lesotho: Selected Economic Indicators

1993/94 1994/95 1995/96* 1996/97**

(percent change)
Real GNP growth 5.5 8.2 10.1 10.2

Consumer price index (end of period) 7.0 9.9 9.2 10.0
(percent of GDP)
Central government balance (surplus) 3.7 3.2 2.0 1.3

External current account balance (deficit-) -2.7 -2.1 -2.0 -1.8
(Months of imports)
Net official reserves 4.6 5.7 6.3 6.5



1. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.

Sources: Lesotho authorities; and IMF staff estimates and projections.


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