MASERU – The International Monetary Fund (IMF) has given the thumbs down to government’s controversial plan to borrow a staggering M2.4 billion to finance infrastructure for the 9th African Union Sport Council (AUSC) region 5 games scheduled for December next year.
To host these games, the Government has to construct a number of major infrastructure namely; a multi-purpose indoor sports centre to accommodate all sports codes and a 20,000-seater stadium that will host football and athletics at Lepereng in Maseru.
It also has to build accommodation facilities to house athletes during the games at the National University of Lesotho (NUL), which has been earmarked as the games village.
On September 10, Finance Minister Dr Moeketsi Majoro recommended that cabinet approves negotiations of the loan agreements and guarantee agreements between the government and an international company Property 2000 (PTY) LTD for a M2.45 billion loan, to finance construction of these facilities.
Public Eye can report that an IMF team led by Joseph Thornton and IMF Mission Chief for Lesotho has poured cold water on the idea.
The IMF team visited Maseru between November 6 and 13, 2019 to discuss recent developments and the economic outlook in the context of its regular surveillance activities.
The team found that while government’s efforts to maintain economic stability had ensured that international reserves remain at adequate levels, “Lesotho continues to face challenges in adjusting to a context of lower Southern African Customs Union (SACU) revenues”.
With sluggish growth limiting the potential for domestic tax receipts, it said an improved outlook for government finances required strong policy action on spending.
In this context, the IMF team indicated that effective expenditure controls, including careful vetting of new projects and their financing, would be important now “more 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,” Thornton said.
When he recommended that cabinet approves negotiations of the loan agreements, Majoro also invited cabinet to note that, while he supported the initiative to host the 2020 AUSC Region 5 games, it was worth noting that “there are huge risks involved in the acquisition of the proposed infrastructure”.
He indicated that this was due to the approach used in the infrastructure financing model and the timing of the construction of the infrastructure in which a number of key assessment tools, procedures and strategies were flawed.
He said given the size and magnitude of the proposed infrastructure and the complexity of the coordinating multiple stakeholders and the long-term nature of this project, a feasibility study should have been conducted as it could have served a critical function of independently evaluating and assessing the viability of the project.
Therefore, Majoro added, “the non-existence of a feasibility study has compromised the ability of the Ministry of Finance to determine the affordability, viability, value for money, proper risk assessment, proper project cost, financing model assumptions, the maintenance and sustainability of the infrastructure”.
He told cabinet that procurement and sourcing procedures had been undermined and explained that expression of interest rather than the issuance of requests for proposals was used in sourcing the developers and contractors.
Majoro also expressed concern over the project’s implementation and timeliness.
“Given the remaining time to December 2020 and the massive infrastructure being proposed, the time left for construction of this infrastructure brings into doubt the quality and professionalism of works that will be done and achieved,” he said.
He further showed that the magnitude of debt to be incurred for the project “pushes the debt stock towards upper limits of sustainability”.
This, he said, would limit the government’s ability to acquire debt for fiscal operations in future.
“Deferring the construction of 20,000-seater stadium and hosting the games with the existing and refurbished Setsoto Stadium would exert less pressure on the prevailing Government fiscal position,” he said.
“All the above concerns immediately render this project risky,” Majoro warned.
His concerns seemed to have been informed by an August 8, 2019 memo from his ministry’s legal department to the Principal Secretary (PS).
Among other serious reservations, the memo categorically detailed the flaws and discrepancies in the grand projects and advised of “catastrophic consequences” to the fiscus should the plan proceed.
Finance ministry experts warned that “the project is flawed with procedural discrepancies, with threatening fiscal, legal and regulatory implications”.
Despite Majoro and his ministry’s stern warnings, cabinet went ahead and approved negotiations for the loan agreements.
The IMF team also advised that 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”.
In 2016, the government wage bill rose to 23 percent of Gross Domestic Product (GDP) – the largest in sub-Saharan Africa.
Government has tried in vain in the past years to contain the wage bill but the IMF team said some savings may be generated by eliminating ghost workers.
It said other current expenditures, such as travel and foreign embassies, should be reviewed with the aim to “eliminating waste”.
Thornton said: “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.”
Last month, the Chairman of the parliament’s Public Accounts Committee (PAC), Selibe Mochoboroane, reportedly said the committee’s preliminary investigations revealed that government has spent M200 million on international travel in the past eight months alone.