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Capital projects continue to suffer 10 years on

KANANELO BOLOETSE

MASERU – Ten years ago, government set aside about M6.9 billion, or 65.92 percent of the total budget, for recurrent expenditure leaving a paltry 34.08 percent (M3.5 billion) for capital projects. Today, only M6.3 billion, or a meagre 28.77 percent of the total budget, is set aside for capital projects. The largest chunk of the government budget, 71.69 percent, or M15.7 billion, goes towards paying government employees and subsidies which include social grants and good and services.

“The Budget proposes a total expenditure of M10 476 million. M6 906 million of which is Recurrent Expenditure, while M3 570 million is Capital Expenditure,” the then Minister of Finance Dr Timothy Thahane said in February 2010 when presenting his budget speech for the financial year 2010/2011. Thahane indicated at the time that the bulk of the expenditures continued to go towards wages, salaries, goods and services.

He said the two components, wages and salaries, and goods and services, accounted for 66 percent of all recurrent expenditures. “The accelerated growth of these expenditure items seen in the last five years undermines the much-needed growth of the development expenditures,” he said.

He further indicated that in light of resource constraints, government would have to adopt strategies which give priority to and redirect resources towards capital expenditure or investment.

“Specifically, Government should keep recurrent expenditures relatively constant and capital expenditures growing until the two are somewhat balanced,” Thahane said. Ten years later, it seems, little has changed.

While government spending has more than doubled since 2010, the capital expenditure as a percentage of total budget has decreased and recurrent expenditure increased to unprecedented heights.

On Wednesday, Finance Minister Dr Moeketsi Majoro, told parliament that the total expenditure proposal for 2020/21 amounts to M21.9 billion, of which M15.7 billion accounts for recurrent expenditure and M6.3 billion accounts for capital expenditure.

The analysis of the 2010 and 2020 figures shows that government spending has grown by about 109 percent from M10.4 billion in the 2010/2011 financial year to M21.9 billion in 2020. Of the M15.7 billion budgeted for recurrent expenditure in the 2020/2021 financial year, wages and salaries is still by far the biggest expense.

“Against the forecast in revenues we expect total expenditure to increase to 58.1 percent of Gross Domestic Product (GDP) or M22 billion. Once again, we expect the general Government wage bill to drive total spending,” Majoro said on Wednesday.

The International Monetary Fund (IMF) team that was in the country earlier this month, advised that 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 programmes over the short term.

The IMF team also indicated that high government spending should be curbed. Despite this, Majoro this week proposed to parliament that the 2020/21 salaries and wages be adjusted by five percent across the board. This, he said, should be done to offset the projected inflation rate. If anything, this shows that government is failing to put its mouth where its money is.

In 2019, Majoro told parliament that compared to annual national output, government spending was high, equivalent to 47 percent of national output.

He indicated that compared with the private sector, the government sector was disproportionately large and likely to crowd out private investment, which he said explained in part the fragility of private business in the country. “This must change, and very quickly,” he said and emphasised that government “must actively seek investment” and create a conducive business climate.

He seemed to understand that higher government spending could complicate efforts to implement pro-growth and undermine economic growth.

While there are some people who believe increases in government spending can bolster economic growth by putting money into people’s pockets, a growing body of research, however, indicates that a large and growing government is not conducive to better economic performance. Research indicates that reducing the size of government would lead to higher incomes and improve the nation’s competitiveness.

Tebello Tjapela, a Masters Degree student at the National University of Lesotho (NUL) told Public Eye this week after presentation of the budget speech that “stimulating the private sector is the only sustainable alternative for job creation”.

“That should be a priority,” Tjapela said.

He indicated that government was reckless to have allowed recurrent expenditure to increase over the years while capital expenditure decreased.

“We are expecting to see recurrent expenditure going down and capital expenditure going up, especially because you will find that most of the recurrent expenditure goes towards paying the wage bill, which is peculiar,” Tjapela said.

According an economist, Moeketsi Moletsane, government spending can be used to help stimulate the macro-economy at times of negative growth by increasing the level of aggregate demand in the economy.

Moletsane said if the spending is on capital items, then infrastructure can be developed, which can help improve competitiveness and economic growth.

“Public spending should be targeted, this can help to achieve a wide range of specific economic objectives such as reducing unemployment, action against poverty. But ours just goes towards paying government workers’ salaries,” he said.

In 2010, Thahane warned that Southern African Customs Union (SACU) revenues should only be used to finance investment rather than expansion of the recurrent budget, in particular wages and salaries.

He said most countries observe a similar principle.

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