The economy of the Kingdom of Lesotho, an enclaved country within the border of South Africa with about 2.2 million people, is in need of strong reforms, the International Monetary Fund said in a statement on Wednesday.
IMF said the small southern African kingdom “continues to face challenges in adjusting to lower Southern African Customs Union (SACU) revenue”, and suggested that “restraining current spending and effective expenditure controls will be essential to maintain a sustainable fiscal position”.
In addition, the Washington D.C.-based institution said “public investment should be carefully vetted and ensure progress in key development priorities”.
The suggestions were made after an IMF team, led by Mr. Joseph Thornton, IMF Mission Chief for Lesotho, visited Maseru during November 6-13, 2019 to discuss recent developments and the economic outlook in the context of its regular surveillance activities.
“While the authorities’ efforts to maintain economic stability have ensured that international reserves remain at adequate levels, Lesotho continues to face challenges in adjusting to a context of lower SACU revenues. With sluggish growth limiting the potential for domestic tax receipts, an improved outlook for government finances will require strong policy actions on spending,” Mr. Thornton said in an statement.
He added: “In this context, effective expenditure controls, including careful vetting of new projects and their financing, will be more important than ever. This particularly applies to large projects, such as the proposed new sports facilities, which have major implications for the country’s debt burden and fiscal sustainability. Investment should support the achievement of key development objectives, including growth, job creation, and poverty reduction.
“The constrained environment for government finances implies a need to keep public sector wages in check until such time as efforts to increase the size of the economy through private-sector driven growth can bear fruit. Some savings may be generated by eliminating ghost workers. Other current expenditures, such as on travel and foreign embassies, should be reviewed with the aim of eliminating waste. At the same time, greater efforts should be made to ensure that budgetary allocations are sufficient to protect the most vulnerable, including from the effects of recent poor harvests”.
He said discussions with the former British Crown Colony of Basutoland, which declared independence from the United Kingdom on 4 October 1966, were also focused on “recent economic developments, budget execution and planning, and prospects for enhancing private sector investment. The latter could be supported with further actions to strengthen governance and policy certainty, improving the provision of infrastructure and skills to meet the needs of the private sector, and enhancing the business environment”.