‘Don’t borrow money without legislative approval’
MASERU – The parliament’s portfolio committee on the economic and development cluster has expressed worry over the escalating national debt which reached M19.6 billion this year, and warned that government should not borrow more without parliament’s approval.
Government borrows money for all kinds of reasons, but mostly it borrows to finance a budget deficit which results when government spending exceeds revenue.
When presenting the budget speech for the year 2021/2022 in February, finance minister Thabo Sofonea, indicated that developments in revenue and expenditure will result in the overall fiscal deficit ballooning to 13.1 percent in 2021/2022.
Sofonea said the fiscal imbalances were unsustainable and exerted a considerable pressure on the country’s international reserves which he said needed to be maintained at an adequate level to preserve the peg.
They further said they also imposed downside risks to the public debt “which is currently moderate and may result in distasteful debt distress”.
On Tuesday this week, the parliament’s portfolio committee said with all the measures and policies to be put in place in order to increase the collection of revenue and limit expenditure, ministry of finance might need the budget support from the World Bank in order to finance deficit that Lesotho is facing.
“The Committee is very concerned about the issue of escalating public debt and recommends that parliament needs to be consulted prior to the country getting into any public debt,” reads the committee’s report.
The consolidated report on the annual budget and estimates of revenue and expenditure for the financial year 2021/2022 was presented to parliament by the portfolio committee on Tuesday.
Public Eye reported on March 19 this year that, according to the report of the auditor general on the consolidated financial statements of the government for the year ended March 31 2019, the country’s outstanding debt amounted to over M15 billion as at March 2019.
External debt accounted for most of the total debt, 79.78 percent, and was largely owed to multilateral creditors.
“External debt stock amounted to M12.662 billion as at March 31, 2019, after taking into consideration exchange rates as of that date,” Monica Besetsa, acting auditor general, stated in the report which was published last month.
Besetsa said the outstanding domestic debt as at March 31, 2019, was M3.209 billion.
The total public debt has since escalated by about M3.729 billion from M15.871 billion in 2019 to M19.6 billion this year.
“Mr Speaker, the total public and publicly guaranteed debt stood at M19.6 billion at the end of January 2021, with the external debt reaching M15.1 billion and domestic debt standing at M4.5 billion,” Sophonea told parliament in February.
He said the Debt Sustainability Assessment (DSA) had highlighted the rapid increase in the country’s debt levels over the past three years, particularly on the domestic side driven mainly by the persistent budgets deficits.
He said the main driver of debt on the external side had been the consistent depreciation of the local currency, loti, against the major external currencies in Lesotho’s debt portfolio such as the US dollar, the British pound sterling and the euro including the basket of currencies such as the Special Drawing Rights.
“Therefore, the recent DSA assesses Lesotho’s risk of overall and external debt distress at moderate level despite the impact of COVID-19 shock but risks to debt sustainability have risen,” he said.
He indicated that these results point to the importance of building economic buffers to mitigate external shocks and maintaining a conservative approach to new borrowing.
“Controlling the current expenditure and hence curbing the budget deficits in the short to medium-term remains essential to reduce pressure to expand domestic borrowing, restore the external balance and mitigate vulnerabilities,” he said.
He added that: “Carefully appraising and vetting new investment projects is recommended to ensure that new borrowing is directed to combatting the spread of COVID-19 while the acquisition of the virus vaccine is prioritized and secondly, to stimulate the economic recovery from the effects of COVID-19.”
Economists have argued that rising sovereign debt is not a problem, as long as the money is used productively.
In response to the COVID-19 crisis, the world’s governments have borrowed on a massive scale from last year triggering a warning by the International Monetary Fund (IMF), that global public debt would hit its highest level in recorded history, greater even than the peak after the Second World War.
In July 2020, the Institute for International Finance (IIF) said in a report that global debt surged to a record $258 trillion in the first quarter of 2020 as economies around the world shut down to contain the Coronavirus pandemic.
IIF represents global banks and financial institutions.
In February this year, IIF said world debt reached an all-time high of $281 trillion at the end of 2020, or more than 355 percent of global GDP.
In emerging markets, South Africa and India had the biggest increases in government debt ratios last years, IIF data showed.