’Marafaele Mohloboli
THE government is in the process of implementing measures to limit the amount of money that can be deducted from the salaries of civil servants to pay off their loans.
The move comes amid concerns that a large number of civil servants are impoverished as they are taking home less than half of their pay with the remainder being deducted at the source for debt and insurance payments.
As part of its measures to cushion civil servants, the government is introducing a Central Deduction Administration System (CDAS) and migrating from the previous model where the Ministry of Finance’s Treasury Department facilitated and managed payments of deductions to third parties and statutory deductions through its salary sections.
Under the new system, the take-home threshold of civil servants including those who are in debt, will be 30 percent of their salaries.
However, this will be implemented over a three-year period in which the first year take home threshold will be at 10 percent of civil servant’s salary. This will be increased to 20 percent in the second year and eventually to the desired 30 percent threshold in the third year.
The new system is set to be implemented with effect from this month.
A recent memo from the Treasury Department of the Ministry of Finance to third parties states that the take-home net salaries threshold should comply with Treasury Regulations-2014 Section 47 (2).
The relevant section of the Treasury Regulations states that, “The Accountant General shall not process a deduction for third parties if the net amount that will become due to the employees after that deduction is less than half of the gross salary of the employee”.
“Please be informed again that going forward, you are expected to undertake all activities related to capturing new deductions, cancelling existing deductions and modifying current deductions using CDAS.”
The memo further instructs that deductions that do not conform to the 10 percent take-home threshold approved by Treasury recently “which is intended to rehabilitate the over-indebted employees must be rejected”.
The Principal Secretary of Finance, Motena Tšolo, this week told the Lesotho Times that the new measures are “meant to help public servants to live within their means while companies (who have loaned money to civil servants) recover their monies as well”.
There have been reports of widespread indebtedness in Lesotho.
Early this year, the International Monetary Fund (IMF) expressed concern over the high levels of indebtedness of households in Lesotho, saying this could “affect the whole economy” by curtailing private sector spending and reducing tax revenue.
The IMF is also worried about the payroll data which indicates that in recent years more than 20 percent of civil servants have been taking home less than half of their salaries as the other half is being deducted for debt and insurance repayments.
The multi-lateral lending institution said these high levels of indebtedness are a clear indicator of the “significant financial vulnerability of households”.
It said in its report that the indebtedness which stemmed in part from the banks’ appetite to lend to private households rather than business enterprises left the banks “significantly exposed to the financial health of private households”.
“Payroll data indicates that in 2016 more than 20 percent of civil servants took home less than 50 percent of their pay, the remainder being deducted at the source for debt and insurance payments,” the IMF noted in its report titled ‘Kingdom of Lesotho- Selected Issues’.
“This indicates significant financial vulnerability of households. While banks may have significant buffers to face external and fiscal shocks, households do not. As a consequence, second-round effects of shocks affecting households could reverberate quite intensely through the financial system, the real sector and public finances.
“Since households have little buffers to withstand the shock, their financial predicament would reverberate across the whole economy, including the real sector.”
The IMF findings are consistent with those of the Central Bank of Lesotho whose Second Deputy Governor, ‘Mathabo Makenete, is on record saying that 40 percent of the incomes of Basotho were being channeled towards loan repayments.
