MASERU — Finance Minister Timothy Thahane says 2011 will be yet another tough year for Lesotho as revenue from the Southern African Customs Union (Sacu) continues to decline.
Thahane was addressing media on the findings of a study that was conducted by the Central Bank of Lesotho (CBL) on the future of Sacu.
Lesotho’s share from Sacu is expected to plunge from M4.9 billion in 2009/10 to M1.7 billion in 2010/11.
This spells disaster for Lesotho which has traditionally relied on the Sacu revenues to fund 60 percent of its national budget.
Lesotho and Swaziland, the two smallest of the five-member countries in the 100-year-old customs union, have been hit hard by the slump in revenues.
But Namibia and Botswana, which rely less heavily on Sacu revenue, have not escaped unscathed.
South Africa, which experts say contributes about 90 percent of Sacu’s money, has been demanding that the union be reformed to align each member’s share to the contribution it makes to the pool of funds.
Thahane said the study had suggested ways that Lesotho could use to react to the problems in the Sacu.
The first possible scenario, Thahane said, is to maintain the status quo in the customs union.
“But it is clearly unsatisfactory. Lesotho would find it increasingly difficult if things remain the same,” he warned.
“We could reform the Sacu revenue sharing formula.
“Or we could leave the sharing formula but expand the development fund so that the least developed countries get more revenue until they are able to stand on their own.”
Thahane said the government “will have discussions on the scenarios to see which is the most appropriate for our country”.
“Sacu is important to Lesotho. We must find a way forward.”
He said while it is important for Sacu to be reformed it was high time the country started competing with other countries in the international markets.
“Lesotho industry should serve internationally. Transit arrangement with SA must receive priority. Collaboration with countries outside Sacu should make more meaning.”
“There should be industrial accumulation so that if, for example, South Africa produces cars we produce the seat covers. We should be able to produce car parts so that the end product is from our country.”
“It is easy for people to complain about Chinese factories but who knows about what goes into producing and transporting the goods? We have to diversify our skills in order to be able to do what the Chinese do,” he said.
A recent International Monetary Fund (IMF) working paper said Lesotho might have to increase taxes, fines and service charges if the government is to make up for the declining Sacu revenues.
A civil service salary freeze could also be used to rein in recurrent expenditure, the working paper suggested.
The paper warned that the decline in Sacu revenue is expected to continue in the next four years until it starts to pick up slightly in 2015.
“The impact of the import decline on Sacu revenue is expected to be larger for the smaller members of the union,” the IMF publication said.
“The decline in customs revenue implies a smaller common revenue pool to be shared across Sacu members,” it continues.
“This will affect the smaller Sacu members the most, given the importance Sacu transfers have in percent of total revenue and of GDP in the (Botswana, Lesotho, Namibia and Swaziland) countries, particularly Lesotho and Swaziland.”
Fees for taking finger prints, motor vehicle clearance as well as getting a police escort have also been increased.
Parliament is currently looking at amending the Traffic Offences Act to increase traffic fines which have remained unchanged since 1981.
Other ministries are likely to increase charges for their services as well.
The IMF paper also said Sacu governments should focus on curtailing non-priority expenditure to help them live within their means.