Lesotho unveils plan for M800-million IMF loan.
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By Nicole Tau
Lesotho will use the US$49.1-million (about M800-million) International Monetary Fund (IMF) loan to fund social and business grants program intended to mitigate COVID-19 effects and help resuscitate the economy.
In a report to the IMF requesting an Emergency Fund support, Lesotho said it will utilize the loan towards curbing negative post-pandemic economic and social impact.
KDNews has learned, Prime Minister Dr. Moeketsi Majoro’s administration has made COVID-19 related health and mitigation expenditure; a number one national budget priority.
“We have set aside M700 million, about 2 percent of GDP, for the National COVID-19 Integrated Plan 2020 [NACOSEC], which will cover health care personnel, purchase of critical good and services, logistics, security, and border management,” reads part of the country’s letter of intent to IMF dated July 16, cosigned by Minister of Finance, Thabo Sofonea and Central Bank Governor, Dr. Retšelisitsoe Matlanyane.
The letter of intent also states that funds will also be used to reduce poverty by further developing social programs and enhance general livelihood of Basotho.
Shale and Matlanyane also point in the letter of intent that the vulnerable will also be a top priority by generally supporting private, agricultural, and the country’s finance sector.
the letter of intent also highlights that implementing broader measures in social protection and monetary policy for the benefit of the people will be key.
“… the need for additional financing, are estimated to be M1.8 billion, including (i) M1.2 billion for food security and social protection, (ii)Revenue foregone due to tax exemptions and deferment, M75 million and (iii), additional support for SMEs totaling M500million,” reads the Letter of Intent.
Nthoateng Lebona, Ministry of Finance Principal Secretary, in a press conference earlier today, said there is already a Credit Guarantee Facility housed under the Lesotho National Development Corporation that holds M350 to M400-million that is availed for private sector.
Another M100 million in grants, Lebona said has been allocated towards commercial agriculture and a M900 million grant has been allocated for the old (60 and above) and the vulnerable.
Lebona says they are expecting more financial support for the elderly and vulnerable grants.
“Lesotho’s GDP is expected to fall by several percentage points this year due to lower external demand, a sharp fall in remittances, and a decline in textile manufacturing production and diamond mining.
“We expect a large overall tax loss of around M2.2 billion as a result of the economic crises..,” said Sofonea and Motlanyane in a letter of intent.
For over several years there has been a decline in the customs and excise transfers from the Southern African Customs Union account.
The textile industry which accounts for the tenth of Lesotho’s Gross Domestic Product and has had to cut its staff by fifty percent to curb the spread of COVID-19; has been severely affected with China having already reported disruption in supply.
The M800 million from the IMF–under Rapid Credit Facility and Rapid Financing Instrument– which was granted to Lesotho, will tackle the gap between imports and exports which when addressed will allow for pandemic-related spending.
“The Executive Board of the International Monetary Fund (IMF) today approved a disbursement under the Rapid Credit Facility (RFC)… to a total amount of about US$49.1 million [about M800 million], to help Lesotho meet the urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic,” said Gediminas Vilkas in a press release.
Vilkas said following Debt Sustainability Analysis by IMF, despite Lesotho facing substantial risks and having a fragile economy, Lesotho is considered to have a sufficient capacity to repay the Fund.
“They have committed to consistent reporting on budget implementation through a quarterly budget outturn document, including a full accounting of all COVID-related expenditure.
“Internal audits will be conducted of the spending on a quarterly basis, with an ex-post audit by the Auditor General which will be submitted by the Ministry of Finance and the Public Accounts Committee of Parliament,” said Vilkas.
“To ensure enhanced transparency and accountability of COVID-19 related spending, the government will also publish COVID-19 related procurement documentation (including tenders, bids, and names of awarded companies and their beneficial ownership) on their website,” said Vilkas.
Sofonea and Matlanyane’s letter of intent noted that Lesotho is expecting additional financial support from the World Bank, 5.5 million Euros from the European Union towards vulnerable households, and the government is said to be in talks with other partners for support.
The letter of intent, the government plans to ensure the repayment of the IMF loan through various means including the restructuring of the Foreign Mission Policy expenditure and the implementation of a new Public Service Employment Policy, which includes limiting of wage increase to 2.5 per year for four years.
The letter of intent further points that other post-pandemic crises measures to support the macroeconomic sustainability are to enforce the repayment of student loans and a review of the bursary model to ensure its efficiency and sustainability.
“We intend to continue implementing our National Strategic Development Plan, which envisages the private sector as the main driver of the economy, through further efforts to improve the business environment and tackling key bottlenecks to growth and job creation. To further reduce poverty, we intend to enhance social programs that are having the greatest impact,” the Letter of Intent reads.