Economy to shrink 5.7 percent: Central Bank

’MASENTLE MAKARA

Maseru – The Central Bank’s Monetary Policy Committee (MPC) has said the domestic economy is projected to contract by 5.7 percent in 2020 as a result of the COVID-19 pandemic. “The output contraction is expected to be led by a decline in economic activity in the textiles and clothing industry (-25.4 percent), construction industry (-20.9 percent) and mining industry (-27.6 percent)”, said MPC in a statement.

In the medium-term, the economy is projected to recover gradually and grow at an average growth rate of 5.1 percent over the period 2021-2022. “The growth recovery is conditional on developments related to COVID-19 containment,” the Bank said. MPC said since their May 22 meeting they have observed that the outbreak of COVID-19 keeps on devastating communities, disrupting economic activities in many counties of the world, especially in major and developing economies.

MPC said although Lesotho was the last country to register a confirmed cases on the continent, the numbers of infections are rising exponentially and threatening to put pressure on the health system. “Sadly, fatalities have also started to pick up. Indications are that the worst of the pandemic is still ahead”. Although there is an economic decline in the domestic economy, the CBL acted timeously to contain the effects of the COVID-19 shock and maintain macroeconomic stability.

“The CBL has continued to emphasize that preserving adequate reserves to guarantee the peg is of paramount importance, given the fixed exchange rate’s role as the key anchor of macroeconomic stability.” Within the constraints of the exchange rate peg, the Bank has taken various measures to support the economy. These include cutting its policy rate from 6.25 percent in March to 3.75 percent in May 2020. On the other hand, the Bank also postponed the implementation of Basel II.5 to avoid associated rise in capital requirements, and to allow banks to strengthen their balance sheets.

Again, commercial banks have been directed to consider relief measures, including payment holidays of up to three months, for previously under performing borrowers affected by the COVID-19 crisis. Also, insurance companies have been directed to offer three-month premium holidays, continue claims processing, and allow three-month delay in policy renewals. The CBL has also encouraged the use of mobile money, including negotiating fee reductions with mobile network operators and raising prudential limits on transactions.

According to MPC, general consensus is that a strong global economic recovery will partly depend on how soon a vaccine for the virus can be found and made widely available and how quickly and safely countries are able to resume economic activity.