An International Monetary Fund (IMF) staff team, led by Joseph Thornton,
visited Maseru from January 29 – February 11, 2020, to conduct the 2019
Article IV Consultation discussions with the Kingdom of Lesotho.
At the conclusion of the visit, Mr. Thornton made the following statement:
“The economy remains sluggish, as policy uncertainty, weak regional growth,
and recurring drought continue to weigh on growth and depress investment
and job creation. While work on the Second Lesotho Highlands Water Project
is keeping growth positive, prospects for exports and remittances are
unpromising given continued subdued growth in South Africa and depressed
prices for key exports. Government finances have also eroded after several
years of relatively low inflows from the Southern African Customs Union,
with the government incurring new domestic arrears.
“The IMF mission discussed policy options with the government that could
reignite private sector investment and address Lesotho’s long-standing
challenges. Measures should focus on improving governance to ensure
transparency and accountability in the use of public funds, which should in
turn enhance the quality of public service delivery—both infrastructure and
services—to the population. A strengthened policy environment could be
attained through greater consultation with the private sector. The mission
welcomed the authorities’ efforts to improve the business environment
through streamlining regulations, including through on-line company
registration and licensing.
“Efforts to encourage greater financial inclusion and access to finance are
beginning to bear fruit, and the banking sector is stable, while its
regulatory framework continues to improve. The mission welcomed efforts to
increase deepen financial markets, including through greater use of
collateral and credit scoring. Further efforts are needed to enhance access
to finance, including to small and medium enterprises, if the private
sector is to play its necessary role as the engine of growth. Measures to
that end should focus on making it easier for lenders to assess risk and
use collateral, while ensuring that the private sector continues to play
the lead role in project selection.
“The mission discussed budgetary priorities with the authorities, noting
that while SACU revenues may show a brief uptick next year, over the long
term the trend is downward. Control of current spending will therefore be
essential to avoid a reoccurrence of government spending arrears. In this
context, IMF staff noted that the only sustainable basis for higher public
sector wages over the long run would be a stronger and more vibrant private
sector, which could provide the necessary tax base. Further increases in
wages and other perquisites of government workers – already among the
highest in the world compared to the size of the economy – risk crowding
out essential programs over the short term. Ensuring the ability to provide
an adequate response to protect the poorest in the event of drought, for
example, will require rebuilding adequate buffers, while avoiding the
incurrence of large liabilities with dubious benefits in terms of growth or
poverty alleviation.
“The team met with Minister of Finance, Dr. Majoro, Central Bank of Lesotho
Governor, Dr. Matlanyane, Minister of Public Service Hon. Au, other senior
officials, and financial market, business, and trade union representatives,
as well as multilateral development partners. The IMF mission wishes to
express its gratitude to the Basotho authorities for the constructive
discussions and warm hospitality during its visit to Lesotho. The mission
will prepare a report of the Article IV consultation which will be
discussed by the IMF’s Executive Board in the next quarter.”
