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Manufacturing, mining, lead economic downturn

Bereng Mpaki

THE Central Bank of Lesotho (CBL) has projected a 5.7 percent contraction of the economy this year due to the Coronavirus (Covid-19) pandemic.

CBL governor, Retšelisitsoe Matlanyane, on Tuesday attributed the expected contraction to a 25.4 percent decline in the textile and clothing industry, a 20.9 percent decline in the construction industry and a 27.6 percent decline in mining.

“The domestic economy is projected to contract by 5.7 percent in 2020 due to the economic fallout of the Covid-19 pandemic,” Dr Matlanyane said.

“The output contraction is expected to be led by a decline in economic activity in the textiles and clothing industry (25.4 percent), construction industry (20.9 percent) and mining industry (27.6 percent).”

She however, said the economic growth is expected to gradually improve over the next two years but will remain hinged on Covid-19 controls.

“In the medium-term, the economy is projected to recover gradually and grow at an average growth rate of 5.1 per cent over the period 2021 – 2022.

“The expected recovery is likely to come largely on the back of a strong rebound in the mining and construction industries, as well as a broad-based recovery as the Covid-19 containment measures are gradually lifted. The domestic policy responses to the Ccovid-19 pandemic are also expected to boost the recovery,” she said.

Dr Matlanyane said there were mixed signals in the labour market.

There was an increase in employment in both government and manufacturing in the first quarter of 2020. The increase is consistent with the period before widespread global lockdowns took effect, while employment of migrant mine workers continued on a downward trajectory in the same period.

The inflation rate increased from 4 percent in May 2020 to 4.9 percent in June 2020 due to an increase in the prices of food and non-alcoholic beverages, clothing and footwear, furnishings, household equipment and routine maintenance of the house, recreation and culture, education and alcohol and tobacco.

Government budgetary operations were estimated to have realised a fiscal deficit of 9.1 percent of GDP in May 2020 relative to a revised surplus of 20.4 percent of gross domestic product (GDP) in the previous month.

Meanwhile, the CBL has increased the net international reserve (NIR) target floor from US$530 million to US$550 million. It has also decreased the CBL rate from 3.75 percent per annum to 3.5 percent per annum.

“Having considered the (NIR) developments and outlook, regional inflation and interest rate outlook, domestic economic conditions and the global economic outlook, the MPC decided to increase the NIR target floor from US$530 million to US$550 million.

“The NIR target remains consistent with the maintenance of the exchange rate peg between the loti and the South African rand.

“The MPC has decreased the CBL rate from 3.75 percent per annum to 3.50 percent per annum. The rate will ensure that the domestic cost of borrowing and lending remain aligned with the cost of funds elsewhere in the region,” Dr Matlanyane said.

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