EU suspends budget support

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Bereng Mpaki

The European Union (EU) has decided not to disburse 26.85 million euros (about M460.65 million) meant to support Lesotho’s national budget.

The Union noted in a statement released yesterday that this decision was taken “after carefully assessing Lesotho’s compliance with the conditions for payment, leading to the conclusion that insufficient progress has been made in the implementation of the agreed policy reforms, especially in the area of Public Financial Management.”

However, the EU reaffirmed its commitment towards assisting Lesotho in making the necessary reforms and qualifying for support “at a later stage”.

The statement continued: “The EU remains committed to ensuring effective assistance to the government’s renewed reform efforts, and thus to its aim, to qualify at a later stage, for Budget Support. For this purpose, the EU has recently launched a large package of technical assistance in the area of Public Financial Management.

“The present decision will not impact the overall envelope of €142 million for EU development aid to Lesotho under the 11th European Development Fund (2014-2020), which includes support in the areas of governance, water and energy.”

The statement further indicated that Budget Support is “subject to the fulfillment of general eligibility criteria laid down in financing agreements between the Government of Lesotho and the EU”.

The eligibility criteria, the statement explained, is based on “satisfactory progress with the implementation of, notably: the National Strategic Development Plan (NSDP), the programme to improve Public Financial Management, transparency and oversight of the state budget, as well as the maintenance of a stability-oriented macroeconomic policy”.

In early 2015, the EU requested government to submit additional supporting documents “to demonstrate substantive progress” on eligibility for Budget Support for the period 2014 -2015.

“An initial analysis had concluded with a negative assessment concerning the eligibility conditions. In order to give the Government an opportunity to act, an additional five months were granted to demonstrate real progress in the implementation of reforms,” the EU statement explained.

“An evaluation of the documents submitted by the government to the EU has now concluded that the eligibility conditions for Budget Support have not been complied with due to the insufficient progress made in the implementation of reforms. The EU will therefore de-commit the funds relating to the ongoing Budget Support programmes.

“No new Budget Support programmes will be developed for the time being. However, the EU remains a committed development partner for Lesotho and will continue to ensure effective support to the Government’s efforts towards regaining eligibility for Budget Support.

“For this purpose, the EU has recently launched a large package of technical assistance to support Public Financial Management. The EU is confident that this support, together with the commitment initiated by the Government, will lead to a more positive environment for Budget Support in the future”.

Asked about the implications of the EU decision, Finance Minister Dr ‘Mamphono Khaketla told the Lesotho Times: “I am yet to fully understand the implications of the letter, but the most important thing is to note that the decision by the European Union will not have any impact on the current budget because we had not made any provisions for their funds in the budget.”

On the “insufficient progress” made on public finance management reforms, Dr Khaketla said she did not agree with what the EU said both in the press release and letters sent to her by the ambassador.

“It is something that I do not want to agree with, so we are yet to sit down with the European Union to discuss how they arrived at this conclusion,” Dr Khaketla said.

 

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