Maseru — The International Monetary Fund (IMF), yesterday announced an US$8.6 million (approximately M86.86 million) disbursement to Lesotho following completion and approval of Lesotho’s performance review under the Extended Credit Facility arrangement.
The sixth and final review described by the IMF resident representative Michael Tharkur as successful despite delays in structural benchmarks, is part of a three year Extended Credit Facility arrangement between Lesotho and the IMF.
Approved in June 2010, the arrangement saw the executive board approving a total access of approximately US$ 76.6 million to counteract the impact of the 2010-11 flood damage and high international commodity prices.
In a statement, the IMF Deputy Managing director and acting chair of the IMF Naoyuki Shinohara said: “Lesotho’s macro-economic policies, supported by the Extended Credit Facility (ECF) arrangement, have served to ensure macro-economic stability and secure robust growth.
Despite a series of adverse shocks, including the fall in Southern African Customs Union revenues in 2010–11 and weather-related shocks in 2011 and 2012, fiscal and external sustainability have been maintained,” read the statement.
Shinohara also said the economic growth has been robust for the last three years while inflation has subsided, reflecting moderation in international commodity prices.
Speaking at a press conference held in Maseru yesterday, Tharkur said Lesotho’s economy was doing surprisingly well given the weak global economic performance especially following the current crisis prevailing in neighbouring economy, South Africa.
He said despite earlier speculation, government recorded a surplus the past fiscal year and for the first time since 2008/09.
Lesotho’s projected economic growth by the IMF is at four percent of Growth Domestic Product (GDP) — the largest measure of economic growth for this year.
Expected growth is attributed to robust economic activity seen in increased productivity in mining production and increased investment in infrastructure and construction.
“Continued investment in infrastructural projects like the construction of Phase 2 of the Lesotho Highlands Water Project (LWHP), would provide the much needed boost to economic activity,” Tharkur said.
He said the IMF applauded the government’s commitment to rebuilding international reserves while maintaining social and infrastructure spending.
Figures show social spending in 2012/13 was at seven percent of GDP up from 5.6 percent in 2010/11.
Spending on infrastructure showed a 6.5 percent improvement at 16.5 percent of GDP from the 2010/11 figure of 10 percent.
In its statement the IMF further states that the authorities have made progress in improving the business climate and promoting private sector-led growth, with developing the national identification card system.
“The Central Bank of Lesotho continues to improve the regulatory frameworks for banks and nonbank financial institutions to promote financial sector developments with proper supervisory oversight.”
However, Tharkur said a few areas like year on year diamond production were still cause for concern.
“Diamond output figures as in June this year showed a drop in production compared to June, last year.”
This drop is attributed in part, to the low-value of Lesotho diamonds on international markets.
On the other hand, Tharkur challenged the government to address the high energy cost problem saying it was the main cause of contracting profit margins in the mining sector.
“High energy costs remain one of the major contributors to a drop in economic activity in the mining sector. This squeezes profit margins and contribute to a slowdown in economic growth,” he said.
He encouraged the government to work at attracting much needed foreign investment that could emanate from Lesotho’s low inflation and a calm industrial in the face of a depreciating Rand/Loti.
Tharkur said discussions between the IMF and government to discuss a successor program would be held next week.
The IMF in its statement also expressed its wish to collaborate with the World Bank and intensify technical assistance to Lesotho in the areas of review of the tax policy, mining taxation regime, financial services management reforms and the financial strategic development plans.