… IMF loan last resort
MASERU – The government of Lesotho is effectively broke and there are 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 that stabilise both the fiscal and foreign currency reserves positions of the government.
The only immediate intervention for the unfolding economic meltdown appears to be the International Monetary Fund (IMF) bailout – in the form of balance of payments support.
The IMF assists countries in restoring economic stability by helping to devise programs of corrective policies and providing loans to support them.
IMF lending aims to give countries breathing room 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 yesterday at a press conference.
To ease the foreign currency situation, he said government had held preliminary discussions with the IMF and “hope to reach an agreement by the end of August.
“The 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.
Dr Majoro however said he was not in a position to say how much government intended to borrow from the IMF.
“That will be determined at a later stage. The good thing about IMF loan is that it is repaid in a period of 20 years. There is five-year grace period. That means we will start repaying the loan from the sixth year on to the 20th year,” he said.
Dr Majoro also indicated that “the weakness in our economy that we have inherited in June 2017”, has persisted to this day on account of the downturn in the construction industry which then negatively impacted the banking and insurance industries.
He also said the sluggish South African economy has for three financial years reduced Southern African Customs Union (SACU) revenues and therefore the amount government could spend.
“The SACU revenue decreased from M6.2 billion to M5.5 billion. That means what we got from SACU this year is M700 million less than what we received the previous year,” he said.
The difficult macroeconomic conditions were also exacerbated by the extraordinarily large fiscal deficit that occurred in the 2017/2017 financial year brought by government fleet cost (Bidvest Contract), unplanned June 3 last year elections, and unbudgeted for expenses in the health ministry, according to Majoro.
This deficit also reduced government reserves to near the minimum required to sustain normal government operations.
“It should be recalled that Lesotho must maintain a minimum amount of foreign currency reserves in order to protect the 1-to-1 parity between Loti and the Rand, as well as to facilitate Lesotho’s procurement of goods and services from South Africa.
“Since coming to power, the government has introduced austerity measures that have borne fruit. At the end of fiscal year 2017/18, government managed to reduce the fiscal deficit to 1.2 percent of national output,” he also noted.
Last week Public Eye reported that the Ministry of Public Works and Transport was grappling with a serious financial crunch owing to unpaid debts amounting to over M400 million, a debt which is hobbling the ministry’s ongoing projects.
This paper also revealed that businesses supplying a variety of the services to the ministry were being made to wait prolonged periods for payments.
The principal secretary in the ministry Mothabahe Hlalele said the largest single unpaid bill topped M200 million, which amounts to half of the ministry’s approved capital budget for the 2018/2019 fiscal year.
In 2007, in an article titled Why South Africa Shouldn’t Turn to the IMF for Help, published in the South Africa’s Mail and Guardian, Misheck Mutize indicated that IMF did not have a good historical record.
Mutize stated that a view of the many countries which have subjected themselves to the IMF did not inspire confidence.
Instead of bailing out countries, he said IMF had created a list of countries suffering from debt dependency.
He further noted that of all the countries across the world that have been bailed out by the IMF:
- 11 have gone on to rely on IMF aid for at least 30 years
- 32 countries had been borrowers for between 20 and 29 years, and
- 41 countries have been using IMF credit for between 10 and 19 years.
“This shows that it’s nearly impossible to wean an economy from the IMF debt programmes. Debt dependency undermines a country’s sovereignty and integrity of domestic policy formulation.
The debt conditions usually restrict pro-growth economic policies making it difficult for countries to come out of recession,” Mutize stated.
He said IMF’s poor record was partly influenced by the policy choices that it imposes on countries it funds.
He said the IMF policy choices for developing countries, known as a structural adjustment programme, have been widely-condemned.
“The main reason is that they insist on austerity measures which include; cutting government borrowing and spending, lowering taxes and import tariffs, raising interest rates and allowing failing firms to go bankrupt,” he said.
These he added are normally accompanied by a call to privatise state owned enterprises and to deregulate key industries.