MASERU – The government of Lesotho could be forced to resort to tough austerity measures if they are to address the high expenditure bill, currently equivalent to 47 percent of annual national output.
Due to inadequate revenue to finance future increases in the wage bill, the solution, according to Minister of Finance Dr Moeketsi Majoro, lies in either laying off civil servants or ensuring that the economy grows faster than the wage bill or a bit of both.
Majoro noted that in an economy with a 24 percent unemployment rate, the decision to reduce the workforce has been extremely difficult to contemplate and it has simply been easier to kick the can down the road.
“But with the little progress on growing the economy and with government investments limited by a tight fiscal budget, at some point government will have to confront this monster.
“If you cannot pay them you definitely cannot keep them, but if the economy is growing faster it generates enough revenue to pay public servants,” Majoro said in an interview with Public Eye shortly after delivering the budget estimates for the 2019/20 financial year on Tuesday this week.
Skeptics, however, believe that it is impossible for the government to adhere to all the austerity measures tabled, dismissing the ideas as mere lip service on the part of government.
Besides the reduction in the workforce, government will reduce ministerial international travel and eliminate all supplemental subsistence allowances including quota rates.
Except for the office of His Majesty, members of the parliament and statutory officers, all public servants will be mandated to travel economy class.
Furthermore, Majoro is also proposing a reduction in government fleet costs as well elimination of all international training except that which is fully funded. Ministers’ gross salaries will also be reduced by five percent.
These are just some of the few austerity measures proposed by the government in a move to cut government spending.
According to Motlalentoa Letsosa who is a member of the main opposition party Democratic Congress (DC) and the party’s MP for Qalabane constituency, government has presented an empty budget which does not speak to the needs of Basotho.
“This budget is silent and holds no promise to the nation. The minister is talking about things which they have been talking about for many years but have not delivered on. Even today he is talking about the same issues, that is why I am saying he is just paying lip service to these ideas,” Letsosa said in an interview with Public Eye on Tuesday.
He added that it does not make sense that government is considering reducing its workforce, labelling the decision impossible.
“How do you do that; we are talking about people that are already in the system here. It would be interesting to see how they are going to do it,” Letsosa added.
In the financial year 2018/19, revenue collection is expected to average M15. 6 billion, registering a small decrease of 0.2 percent of GDP in real terms over the financial year 2017/18.
Against revenues and grants of M15.6 billion for the past year, spending increased to M18.0 billion resulting in a fiscal deficit of M2.4 billion. Spending fell short of budget by M600 million.
Of the total spending, M6.1 billion or 34 percent of total spending was on compensation of employees while M3.3 billion was spend on goods and services. Up to M1.8 billion was spend on social welfare benefits and M4.6 billion on acquisition of public assets or capital spending.
With the population of Lesotho standing at two million, the bill for only 47, 000 employees is larger than the individual contributions of many important sectors of the economy including mining, agriculture and construction sectors, Majoro said.
In essence the Lesotho wage bill has grown faster than the national output and this increase was funded by a windfall in SACU revenues or hallowing out the share of the budget that used to fund goods and services, which has fallen to below half of the wage bill since 2002.
“Things must change and very quickly,” Majoro added.
In the proposed budget, the wage bill drops from 16.8 percent of GDP to 16.1 percent and this has been possible because government proposes to freeze any wage increases this year.
In addition, the real total spending is deliberately curtailed by 2.2 percent of national output accounted for by a reduction in every component of spending. Only capital spending has been allowed to record a modest increase of one and-a-half percentage point.
Former Minister of Finance Dr. Timothy Thahane congratulated the minister saying he has succeeded where he previously failed in terms of bringing the issue of the wage bill to the front.
“The wage bill is important, I looked at the speech and the figures are very interesting. You put compensation and wages on something like 6.6 billion and you have capital expenditure projected to be 5.1 billion so you have a whole billion that is just consumption but when we come to the operating costs there is only about 7 billion so if you are going to increase the wage bill you are going to either have to take it from the operating cost and hence not pay the private sector or you are going to take it from the investment account.
“And I think this is the gut of the problem we have in Lesotho. We tend to think more in terms of our own interests as business rather than the collective as country. Unless we can address systematically some of these problems over a longer term, I think we are heading for trouble,” Thahane explained during the post-budget speech on Tuesday.
He emphasised that the private sector has a lot to contribute because they have capital, technology and management skills required globally.
“When you look around the world the private sector has capital and that is why we are running around looking for investors. It has the technology; it has the management skills but it is also the same sector that as a country we find our attitudes are mixed,” he added citing further that the sector needs to analyse opportunities that the minister has been throwing around and try to make them operational because it is not the government that creates jobs.
The private sector is responsible for creating wealth while government is there to level the playing field and set up infrastructure, according to Thahane.