Press Release No. 04/191

Press Release: IMF Completes Sixth and Final Review Under Lesotho's PRGF Arrangement and Approves US$5 Million Disbursement

September 10, 2004

In completing the review, the Executive Board approved Lesotho's request for a waiver of nonobservance of the performance criterion on the stock of external payment arrears and of three structural performance criteria. The Board also concluded that progress on the development of Lesotho's full Poverty Reduction Strategy Paper (PRSP), as evidenced by the PRSP Preparation Status Report, is satisfactory and provided a sound basis for continued access to IMF concessional assistance.

In commenting on the Board's discussion of Lesotho, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, issued the following statement:

"Lesotho has made commendable progress under the current PRGF-supported program. Economic growth has been above the average for sub-Saharan Africa, macroeconomic stability has been largely achieved, and the public debt has declined. Macroeconomic performance has remained strong despite the continuing drought and an unfavorable external environment. The textile and clothing industry continues to be the key source for economic growth. The drought has worsened the humanitarian situation and a substantial part of the population might need food assistance in 2004/05.

"The authorities remain committed to pursue sound macroeconomic policies and to accelerate the implementation of reforms. This will be important to meet the substantial challenges Lesotho faces over the medium and long term in its quest to raise economic growth, reduce poverty, and improve social conditions. These challenges include increasing competition following the phasing out of export quotas on textiles and clothing, a decline in miners' remittances from South Africa, the fragile food situation, and the HIV/AIDS pandemic. Particular emphasis will need to be placed on maintaining fiscal discipline, which will require continued domestic revenue mobilization, expenditure re-prioritization, and effective public expenditure management. Tax administration has been modernized successfully, but further work is needed to improve the fiscal management system, and the process to develop a comprehensive agenda for civil service restructuring has been more protracted than expected.

"Lesotho's Poverty Reduction Strategy Paper (PRSP), which has been prepared through a broad-based participatory process, is expected to be finalized before the end of this year. The authorities intend to implement an agenda of structural reform based on recommendations in the PRSP. The objectives are to reinforce the investment climate to support economic growth and job creation, to empower the poor and vulnerable, and to raise the quality and efficiency of public sector service delivery," Mr. Kato said.

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.