MASERU – Lesotho should put more effort towards exporting more while importing less in order to maintain a healthy balance on its Net International Reserves (NIR), the Central Bank of Lesotho (CBL) has said.
This, the bank said on Tuesday during a one-day media training that was aimed at equipping journalists with the necessary skills to report on Monetary Policy Committee (MPC) issues.
NIR are all foreign assets held by a country outside the country in various instruments that could be in cash or fixed income.
The reserves, which can either be gold or a specific currency, such as the dollar or euro, remain acceptable form of payment among these banks.
Such reserves are any kind of reserve funds, which central banks can pass among themselves, internationally.
In their last Monetary Policy Statement, CBL reduced the Net International Reserves (NIR) target floor from US$765 million (about M10.7 billion) to US$755 million, while money supply as measured by M2 fell by 2.0 percent.
Both NIR target and money supply go together.
An increase in money supply means more international reserves are needed to back up the local currency. The 2.0 decline on money supply is therefore one of the reasons for reductions in NIR target in the previous quarter of the MPC.
The committee, however, also considers all domestic and other macro-economic variables that may have an impact on money supply before making decisions.
With the continuous decline in Southern African Customs Union (SACU) revenues, the country should level the playing field for more export opportunities as that will contribute to Lesotho’s foreign reserves.
“Too much imports affect Net International Reserves, so that means we have to produce more domestically and export more in order to stay balanced,” said Toka Sello from the CBL research department on Monday during the media training workshop.
While there are several factors that improve the level of foreign reserves, SACU remains the major contributor.
Other factors that contribute positively to the country’s foreign reserves include export earnings, bank inflows and royalties from water exports to neighbouring South Africa.
On the downward side, issues such as payments for imports, bank outflows and government spending may have chilling effects on reserves.
“SACU is the main contributor and it is important for us because it also talks to the government revenue but lately, collections in SACU have been minimal,” Sello said.
According to SACU’s annual report of 2018, the country’s intra-SACU imports increased to 16.2 billion in 2015/16 from 13.9 billion recorded in 2014/15.
Mineral fuels, mineral oils and electricity continued to be the leading products imported into Lesotho, accounting for 16.7 percent of the total intra-SACU imports followed by with a share of 6.7 percent.
South Africa remained the main source of commodities imported into Lesotho from the Common Customs Area in 2015/16, accounting for 99.6 percent of the total intra-SACU imports.
So, to overcome challenges that come with SACU declines, Sello emphasised that domestic revenues should be improved along with the country’s business environment.
He said SACU receipts mainly depend on economic activity in South Africa.
Similar sentiments were shared by Lerato Lits’esane from the same department who outlined that Basotho should participate more in different sectors of the economy to increase chances of exporting more products which would then have a positive impact on reserves.
It was clear from the presentations that were made that the moment money goes out of the country, it has a negative impact on reserves and to reduce that gap, imports should be kept minimal.
The CBL aims to achieve and maintain monetary and financial system stability to support balanced macroeconomic development of Lesotho.
So, when preparing the Monetary Policy Statement, the committee has to leave no stone unturned in terms of aligning with latest developments in global, regional and local economies.