The cashstrapped government which is mulling approaching the International Monetary Fund (IMF) for relief is missing out on drawing nearly half a billion maloti from the European Union (EU) annually in budgetary support because of a weak financial management system. The 28-member organisation is keen to see Lesotho plug loopholes in its financial system through which crucial development funds could be siphoned out of the national till.
Head of the EU delegation to Lesotho Ambassador Christian Manahl yesterday called on the Lesotho government to tighten its internal financial mechanisms to attain fiscal discipline and regain EU confidence for the mission to commit to budgetary support for Lesotho. In an exclusive interview with Public Eye yesterday from the EU Headquarters in Maseru, Manahl told this publication that since suspending their financial aid to Lesotho in 2016, the EU had not yet lifted the sanction though they were open to resume it “provided necessary prerequisites are met”.
The EU in March 2016 halted US$29.47m (about M420 million) in budget support payments to Lesotho on grounds of noncompliance with agreed reforms surrounding public financial management. This amount is almost enough to pay the country’s civil servants for a month or to cover a significant fraction of government’s annual payments to Tsepong, the country’s premier referral hospital.
“Budget support at the time was discontinued because the criteria linked to the EU budget support were not met. Criteria as mentioned, in terms of transparency and fiscal discipline. So, while we discontinued budget support, we have continued however with the programme support,” Manahl said. He added: “We have also mentioned to the government that in principle the EU is willing to reconsider resuming budget support provided that the necessary prerequisites are met.”
Resumption of this support would bring some relief to the government which is effectively broke amidst indications that its foreign currency reserves and cash collections will fall short of amounts needed to fully finance the approved budget for the current financial year. As a result, cabinet has mandated the Minister of Finance Dr Moeketsi Majoro to prepare a list of corrective actions meant to stabilise both the fiscal and foreign currency reserves positions of the government.
The only immediate intervention for the unfolding economic meltdown appears to be an IMF bailout – in the form of balance of payments support. The IMF assists countries in restoring economic stability by helping to devise programmes of corrective policies and providing loans to support them.
IMF lending aims to give countries breathing space to implement adjustment policies and reforms to restore conditions for strong and sustainable growth. “The Ministry of Finance is presently studying appropriate revenue and spending measures that it will propose to government for implementation in future,” Dr Majoro said last month.
ßTo ease the foreign currency situation, he said government had held preliminary discussions with the IMF and “hopes to reach an agreement by the end of August”. “The (finance) ministry wishes to confirm that despite the outlined difficult conditions, government is in a position to service its liabilities including salaries and suppliers. However, it will be necessary to take additional measures,” he said.Default Basic Success warning Info Danger Primary