THE governor of the Central Bank of Lesotho, Retšelisitsoe Matlanyane says pressure on government budgetary operations remains a major threat to macroeconomic stability.
Addressing a media briefing on this week as part of monetary policy committee’s (MPC) statement, Dr Matlanyane said government budgetary operations were estimated to have resulted in a fiscal deficit of 6, 9 percent of the gross domestic product (GDP) in November 2018, following a surplus of 4, 1 percent of GDP in September 2018.
“The deterioration in the fiscal position was on the back of an increase in spending that was accompanied by a decline in revenue,” Dr Matlanyane said.
“The decline was financed by a reduction in government deposits and issuances of a treasury bond.
“Given Lesotho’s fixed exchange rate system under the Common Monetary Area of Southern Africa (CMA), a healthy fiscal position is essential to support maintenance of adequate international reserve that is necessary to bolster the exchange rate parity.”
In December 2018, Finance Minister Moeketsi Majoro indicated that the government would have to borrow funds from the private sector to pay off its supplier debts going as far back as the 2017/2018 financial year.
Dr Majoro indicated that the current government inherited challenging financial and economic conditions from the previous government mainly due to declining Southern Africa Customs Union (SACU) and the depletion of domestic and international reserves by the previous government.
He said the last 17 months since they came to power, had not done much to change the situation with reserves at minimum levels and cash barely adequate to pay off suppliers.
“Due to lack of adequate cash, the government has accumulated payment arrears amount to M1, 1 billion, which included payments going back to April 2018. The prolonged accumulation of payment of arrears could have a devastating impact in business and bank balance sheets as suppliers fail to service their loans and retain employees and their businesses.
“As an interim measure, the ministry of finance has, as of today, been authorised by cabinet to raise additional loan financing and as a result and in anticipation, we began paying suppliers last Thursday, and should pay off all areas by the end of the week.”
The governor also indicated that the domestic economy has weakened assisted by weak performance of the manufacturing sector.
“Concerning the domestic economy, activity weakened in November 2018 relative to the previous month. As indicated by the CBL measure of economic activity, output increased at a lower rate of 0, 3 percent in November, compared with an increase of 0, 7 percent in October.
“This was on the back of weaker performance by the manufacturing sector. In the labour market, employment by the Lesotho National Development corporation (LNDC)-assisted firms grew by 4, 4 percent on an annual basis, in the third quarter of 2018. In contrast, the number of Basotho migrant workers in the South African mining industry continued to fall.”
Meanwhile, the CBL resolved to increase the net international reserves (NIR) target floor from US$690 million to US$745 million and maintain the CBL rate at 6, 75 percent per annum.
“In conclusion, the committee noted that global growth momentum has softened, with risks titled to the downside. In the domestic economy, activity remained weak, while inflationary pressures eased, consistent with global developments. Pressure on government budgetary operations remain a major concern for macroeconomic stability,” Dr Matlanyane said.