THE government is nowhere near securing a financial rescue package from the International Money Fund (IMF), almost 18 months after it first began negotiations with the Bretton Woods institution for the bailout.
Instead an IMF delegation which was recently in the country for talks “on the economic outlook in the context of its regular surveillance activities” wants the government to rein in on its high expenditure on large projects, salaries of civil servants and to cut down on foreign trips.
The Joseph Thornton-led IMF team visited Lesotho from 6 to 13 November 2019.
A statement issued after the visit by Mr Thornton did not say anything about Lesotho’s request for a financial bailout. The statement only focused on the IMF demands which it expects the government to implement to “maintain a sustainable fiscal position”. If at all an agreement on a financial rescue package will be reached between the two parties, it can only be in early 2020 when the IMF delegation visits Lesotho again.
The government and the IMF have been in discussions since June 2018 for the bailout which Finance Minister Moeketsi Majoro says will help to reduce the budget deficit and boost foreign currency reserves.
Dr Majoro previously expressed confidence that an agreement would be reached by the end of August 2018 but this has not been the case.
When it became apparent that a deal would not be reached in August 2018, Dr Majoro said in subsequent interviews that the negotiations were continuing and it would be premature to say when they would be concluded.
“The interaction with the IMF is continuing and it is premature to respond to any of your questions (about when the deal for the financial bailout will be reached),” Dr Majoro said in one of the interviews.
He said the discussions with the IMF and other development partners were about “putting together a package of measures that would ease the current situation (of the budget deficit and the government’s failure to timeously pay service providers) while protecting the vulnerable segments of population”.
“The type of support we are seeking is called foreign currency reserve support. It differs with project support in that it supports the financing of (foreign currency) reserves build-up as well as the budget and deficit.”
Dr Majoro did not disclose how much the government had asked for, saying the size of the bailout package would be determined by both parties during the talks.
Last time the IMF visited the country in February 2019, Mr Thornton refused to commit to any specific timeframe by which the IMF would have given Lesotho the rescue package. Instead, Mr Thornton merely told the Lesotho Times in an exclusive interview that negotiations between the parties were on-going and the IMF team was “always willing to come back whenever the government wants to talk”.
But almost 18 months after the two sides began talking, there is still no deal. Even after the latest visit by Mr Thornton and his team a week ago, there are still no indications as to when a deal will be agreed on if at all.
Rather, a statement issued by Mr Thornton after the 6 to 13 November 2019 visit to Lesotho, shows that the IMF is unlikely to release any funds as it is still worried about the government’s failure to meet its prescriptions which include reining in on high expenditure on the civil servants’ wage bill and “large projects which have major implications for the country’s debt burden and fiscal sustainability”.
The IMF has even come up with additional demands for the government to eliminate ghost workers from its payroll as well as to cut down on spending on foreign embassies and foreign trips by government officials.
“While the authorities’ efforts to maintain economic stability have ensured that international reserves remain at adequate levels, Lesotho continues to face challenges in adjusting to a context of lower Southern African Customs Union (SACU) revenues. With sluggish growth limiting the potential for domestic tax receipts, an improved outlook for government finances will require strong policy actions on spending.
“In this context, effective expenditure controls, including careful vetting of new projects and their financing, will be more important than ever. This particularly applies to large projects which have major implications for the country’s debt burden and fiscal sustainability. Investment should support the achievement of key development objectives, including growth, job creation, and poverty reduction.
“The constrained environment for government finances implies a need to keep public sector wages in check until such time as efforts to increase the size of the economy through private-sector driven growth can bear fruit. Some savings may be generated by eliminating ghost workers.
“Other current expenditures, such as on travel and foreign embassies, should be reviewed with the aim of eliminating waste. At the same time, greater efforts should be made to ensure that budgetary allocations are sufficient to protect the most vulnerable, including from the effects of recent poor harvests,” Mr Thornton.
The IMF however, promised to return in “early 2020 for the annual consultation for IMF member countries” meaning that a deal for the rescue package cannot agreed before then.