THE government must come up with concrete steps to manage its expenditure and live within its means to contain the high national debt level currently sitting at M18,9 billion, analysts have said.
Of this amount, M15,5 is borrowed externally while M3,4 billion is local debt. The huge interest payments on this debt had a detrimental effect on the economy as the government was left with little money to invest in the productive sector to create jobs and wealth for citizens.
The analysts commented after Finance Minister Thabo Sophonea released the 2022/23 budget estimates last week.
Mr Sophonea said his M24, 8 billion budget had been prepared under challenging circumstances particularly due to the effects of the Covid-19 pandemic on the global and local economy.
He said the budget would be financed by tax revenues and grants to the tune of M19, 1 billion, borrowings of M3, 3 billion as well as M1,3 billion in treasury bills and bonds.
Of the M24, 8 billion, M18, 1 billion is dedicated to recurrent expenditure while M6, 8 billion is for capital expenditure, a situation analysts said was unhelpful for the economy which needed more expenditure on capital investments to create jobs and wealth.
The analysts said the government could not expect improvements in the economy if it continued to expend more resources on recurrent expenditure to the detriment of the productive sector.
Economic analyst Leonard Nyambuya, from Katleho Securities, said Mr Sophonea continued to preach fiscal prudence and consolidation without practicing it.
“The budget manages to highlight all the problems facing this economy but falls short in terms of coming up with solutions to address them,” Mr Nyambuya said.
“I was expecting the minister to come with measures to address the problems, which include living beyond our means. Living within your means is the first step towards fiscal consolidation.
“When you talk of fiscal consolidation you are basically saying you need a balanced budget. But our revenues fall short of our expenditure.”
Mr Nyambuya said the government should only borrow funds for capital expenditure and not recurrent expenditure to close the fiscal deficit.
The government’s total debt stands at M18, 9 billion. This is made up of an external debt of M15, 5 billion and a domestic debt of M3, 4 billion, as of February 2022, according to Mr Sophonea’s budget speech.
And Mr Nyambuya said the government must start borrowing only for investment so that it increases its fiscal capacity.
“Fiscal deficit means the government has not been generating enough revenue to meet its expenses, while current account deficit means that the country is importing more than it is exporting.
“Compounding that challenge is the consistent decrease in Southern African Customs Union (SACU) revenues. So, I expected the minister to come up with a plan on how to diversify the economy to cover these deficits. Our old sources of revenue that we used to rely on are drying up. We need more innovation to generate new wealth ….”
SACU revenues are forecast to further decline to M5, 4 billion during the 2022/23 financial year from the current financial year’s M6 billion.
Mr Nyambuya further questioned the government’s M725 million loan funding for small businesses. He said there was no clear plan on how the funding would be rolled out and to which type of enterprises.
He is also not convinced by the feasibility of implementing the tobacco and alcohol levy during the 2022/23 financial year.
In his budget speech, Mr Sophonea proposed to finally implement the sin tax which will see the introduction of alcohol and tobacco levies pegged at 15 and 30 percent respectively in the upcoming financial year.
Last October, parliament recommended that the taxes be implemented incrementally at three and five percent respectively annually for the next five years to avoid shocks like job losses that will be induced by once off big hikes.
However, Mr Sophonea said the 2022/23 budget could only be fully realized if parliament passed bills including the Tobacco and Alcohol Products Levy Bill, 2020, which stipulate the 15 and 30 percent hikes.
Other bills that could also raise income to the fiscus included the Value Added Tax (VAT) (Amendment) Bill; Income Tax (Amendment) Bill; Tax Administration Bill and the Lesotho Revenue Authority (LRA) Amendment Bill. But analysts are not convinced.
Remarked Mr Nyambuya: “The minister is using the old tools that failed to deliver last time to solve today’s problems. The levy has failed to take off before, so unless a miracle happens this time around, I do not see it materialising, especially given that we are now in a worse financial state than before.”
Failure to implement the tobacco and alcohol levy this year could result in the widening of the budget deficit, which would in turn force the government into more borrowing.
“What the country needs right now are real austerity measures and that means we should start living within our means. We need to have a clear roadmap to say doing this will take us here, and these are the milestones we should be checking on along the way,” My Nyambuya said.
Private Sector Foundation chief executive officer (CEO), Thabo Qhesi, supported Mr Nyambuya saying the budget did not demonstrate the government’s willingness to cut down its expenditure as previously recommended by the International Monetary Fund (IMF) which has exhorted the government to rein in its high wage bill.
“For example, the IMF recommended that the government revises its per diem system to be equivalent to that of the United Nations to reduce the international travel costs of officials, but the government has not done it.
“I believe part of the reason why Lesotho is failing to get financial assistance from the IMF is due to its reluctance to implement the IMF’s cost reduction recommendations,” Mr Qhesi said.
Mr Sophonea had also failed to provide feedback on the performance of the 2021/22 budget, he said.
“This makes it impossible for the public to have a clear picture on how government used the finances. During the current 2021/22 financial year, many government services were not available due to lack of resources.
“One would have thought such issues would be highlighted in the budget speech, but they were not there.”
Ideally, Mr Sophonea should have broken down the performances of each ministry based on the funds that it was allocated. That way, he would have demonstrated the government’s willingness to address its high expenditures, he said.
“The government embarked on a campaign to verify existing public workers to get rid of ghost workers during the 2021/22 financial year. We were therefore, expecting a detailed report on this exercise and the measures taken on them (ghost workers).”
Mr Qhesi said the government’s proposal to hike civil servants’ wages by five percent could have been caused by the recent demands by public sector unions for a wholesale 25 percent wage hike.
“The five percent increase may have been influenced by the public servants’ petition to the government for a 25 percent hike. I think this pressured the government into action because it initially did not intend to increase salaries given its unstable financial position,” Mr Qhesi said.
Pesha Shale, the managing director of Shale Investment Industries, said the government must start borrowing domestically instead of externally to try and curb its borrowing costs.
“We must change our debt structure so that we have more domestic debt than external debt. Doing this will ensure that locally available funding is used instead of just remaining idle.
“Domestic debt is normally raised through the Central Bank of Lesotho’s (CBL’s) treasury bills and treasury bonds. These financial instruments have more attractive interest rates than those of external lenders.
“Also, external debt is based in foreign currency which makes it expensive due to the volatile exchange rates. This means we pay more due to changes in exchange rates over time.”
Mr Shale said the government must optimise use of its bilateral trade agreements with partners to address job creation challenges.
“For instance, the African Growth and Opportunity Act (AGOA) has so many product lines through which Lesotho can participate in the US market, but we have been focusing on textiles only as though we are not aware of the other product lines.
“I therefore, believe the government must do more to sensitize the private sector on the available opportunities within the AGOA which can be exploited more to contribute towards job creation,” Mr Shale said.