Broke govt struggles to pay M1, 1 billion debts

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more cost cutting measures planned

Bereng Mpaki

THE government is broke and struggling to pay debts to its suppliers which have ballooned to M1, 1 billion since July last year, Finance Minister Moeketsi Majoro has revealed.

He said this at a press conference in Maseru on Tuesday.

M700 million of the M1, 1 billion debt is from the 2017/18 financial year while the remaining M400 million is from the current financial year.

So dire is the financial situation that, according to Dr Majoro, the prolonged accumulation of payment arrears could have a “devastating impact on businesses and bank balance sheets as suppliers fail to service their loans and retain employees and their businesses”.

He said the government was effectively broke and its programmes would have to be financed by more borrowing pushing the country further towards a fiscal cliff.

Speaking in Tuesday, Dr Majoro chronicled how the government found itself in its current predicament, saying when they came to power in June last year, the financial situation was already precarious due to dwindling Southern African Customs Union (SACU) revenues and the profligacy of the previous regime that was headed by Pakalitha Mosisili.

“The government began its tenure under very challenging financial and economic conditions due to dwindling SACU revenues and the depletion of domestic and international reserves by the previous government following an unprecedented and unchecked fiscal deficit in 2016 of nearly 10 percent of national output,” Dr Majoro said.

“The last 17 months have seen the situation continue to deteriorate with reserves at minimum levels and cash barely adequate to pay off suppliers. In addition, the austerity measures implemented in 2017 and 2018 have not been adequate and have been undermined by weak government controls. Collection of revenues for the fiscal year 2018/19 and borrowing by the government have fallen short of requirements due to a weakening economy and low participation by financial markets in government borrowing instruments.

“Due to lack of adequate cash, government has accumulated payment arrears amounting to M1, 1 billion which includes payments going back to April 2018. The prolonged accumulation of arrears could have a devastating impact on businesses and bank balance sheets as suppliers fail to service their loans and retain employees and their businesses.”

Dr Majoro said in the interim, the Ministry of Finance had been authorised by the cabinet to raise additional loan financing “and as a result and in anticipation, we began paying suppliers last Thursday and we should pay off all arrears by the end of next week”.

The government has given itself a deadline of next week to have cleared all the arrears which will be done by issuing treasury bills and government bonds to the private sector.

Dr Majoro also said that beyond the stop gap measures, the government would have to implement an urgent fiscal adjustment programme which would entail painful cost cutting measures on the part of the government.

Among other things, Dr Majoro proposes reducing the spending on international trips.

He said that ambassadors should attend events on behalf of ministers and in countries where Lesotho has no embassies, the ministers will travel with one official.

“No per diem (daily allowances) will be issued for any fully funded programmes by the host and attendance will be limited to only statutory meetings…

“Exceptions to these rules will be limited and will be granted only by the budget subcommittee to which all requests for travel by ministers will be tabled for scrutiny. Except for judges, ministers and specified officers, every civil servant will from now travel economy class. The government intends to stop paying excessive commissions above the prices charged by the airlines. All government officials including all state-owned entities should travel economy class regardless of the distance.”

This is not the first time that Dr Majoro has attempted to rein in on costly international trips. Announcing his maiden 2017/18 budget speech in July last year, Dr Majoro said that cabinet ministers will have to cut back on foreign trips, drastically reduce their bloated delegations and forego first class travel.

“Ministers and equivalent ranks would no longer fly first class. Ministers will no longer travel for more than seven days without express permission of the Prime Minister based on elaborate justification,” Dr Majoro said at the time.

However, the directive appears to have repeatedly fallen on deaf ears as a document which was leaked early this year on social media showed that some ministers and other government officials flew first and business class to the September 2017 United Nations General Assembly in New York. The document showed that at least M250 000 in air fares could have been saved from just that one trip had the government delegation flown in the economy class.

And in announcing the new austerity measures, Dr Majoro said they would only work if there was “strong ownership, political commitment and candid communication by government”.

Dr Majoro also proposed reducing the costs of maintaining the government vehicle fleet. To achieve this, the minister said that all government vehicles should be parked by 4:30 pm and during weekends. Dr Majoro even proposed the drastic option of instructing the police to “impound vehicles that are found to be wandering after hours”.

“Principal secretaries will apply for release of impounded vehicles on proper explanation of the violation and demonstrable corrective action; all government vehicles will forthwith carry the red government number plates (red numbers) and should also carry identifiable markings.

“Only principal secretaries should be assigned vehicles which they can use for personal use. Other officials below this level are not entitled to personal cars and have to return them to the ministerial pool.”

Dr Majoro also revealed that talks were ongoing with the International Monetary Fund (IMF) and other development partners for financial rescue package to help stabilise the economy.

“The government is currently in negotiations with the IMF to provide balance of payments support and to catalyse contributions from other partners. We are also in talks with the World Bank, the European Union, and the African Development Bank for additional support,” Dr Majoro said.

The government-IMF talks have been going on since June this year.

Dr Majoro previously said that an agreement would be reached by the end of August but this has not been the case and it is not clear whether or not a deal will be reached.

On its part, the IMF which sent a delegation to Lesotho from 23 August to 5 September for talks with Dr Majoro and other government representatives, has ruled out a quick deal.

Instead the Bretton Woods Institution has predicated the granting of a bailout package on the government’s ability to craft and implement prudent policy measures.

“Significant progress was made during the visit and discussions will continue in the coming weeks,” the IMF said after its September visit.

“If agreement is reached on policy measures…an arrangement to support Lesotho’s economic programme could be proposed for the IMF Executive Board’s consideration.”

The IMF-prescribed policy measures are expected to result in among other things, the reduction of Lesotho’s huge public wage bill, described by the IMF as “one of the largest in the world compared to the size of the economy”.

The IMF has also demanded that the government embarks on cost-cutting initiatives that will enable savings from the reduction on trips by government officials as well as reforms to ensure efficient public finance management.

The IMF demands are however, inimical to the interests of the country’s restive civil servants who are demanding the government to unconditionally award them salary increments to cushion them against the price increases for most goods and services including food, transport, water and electricity tariffs.

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