CBL warns over forex reserves
THE Central Bank of Lesotho (CBL) has warned the country’s foreign currency reserves could soon run out if the productive base is not expanded.
Addressing members of the business community during a Business Sector Forum held in Maseru this week, CBL Governor Dr Retšelisitsoe Matlanyane said although currently sound, Lesotho’s net international reserves (NIRs) could soon run out if there was no revenue generation from the economy.
The CBL in July increased the NIRs from US$690 million to US$710 million to ensure macroeconomic stability. NIRs are assets held by a central bank and denominated in foreign currency or gold for the purpose of intervening in the exchange market to influence or peg the exchange rate.
In Lesotho, the NIRs are used to ensure the value of one loti is equal to one rand since it is pegged to the South African currency.
Dr Matlanyane said only the mining and manufacturing sectors were contributing to the generation of NIRs. She said even those sectors were experiencing demand challenges due to the sluggish performance of global markets.
The CBL boss called on the private sector to reduce the import bill by producing goods that are eroding the NIRs.
She said the apex bank also recently held a similar discussion with the government of Lesotho to raise awareness on the impact of the seven party coalition’s decisions on the economy.
“Is it possible that we can produce some things locally so we don’t have to import so much?” Dr Matlanyane asked the business community.
“We need to build our productive capacity to beat the uncertainties we are facing due to the global economy’s poor performance.”
She said agricultural products such as cabbages, tomatoes, milk and meat could be produced locally instead of being imported from South Africa.
“There are many things we can do to help our economy. It is time we do things by ourselves and not wait to be bailed out by somebody else.”
Lesotho, Dr Matlanyane said, had depended on NIRs during tough economic times over the years. However, with the ever decreasing South African Customs Union (SACU) revenues, there was a high possibility of the reserves getting depleted.
During her national budget presentation in February this year, Finance Minister Dr ‘Mamphono Khaketla revealed SACU revenues to the fiscus would decline from 23 percent to 17 percent of gross domestic product in the 2016/17 financial year.
Dr Matlanyane said private sector-led growth was the way to go for the country to address the problem of youth unemployment; a situation she described as ticking time bomb.
The CBL governor said partnerships between the private sector and the government were critical to ensure the former plays a meaningful role.
Also speaking at the forum, CBL Director of Research Lehlomela Mohapi, indicated the years 2015 and 2016 were tough as far as the global economy was concerned as growth estimates had been revised downwards.
He said while the economic outlook pointed to some recovery influenced by mining, construction and the services sector over the medium-term, the economy needed contributions from other sectors.
“We are still a project-based economy. What we need is a broad-based economy that does not depend on a few sectors,” said Mr Mohapi.
Afri Expo Textiles founder Teboho Kobeli said there was a need to support Basotho-owned businesses for the private sector to be vibrant.
He said Basotho had a bad tendency of looking down, instead of supporting, each other.
“We could produce and export various goods to help this country’s economic situation. However, it is difficult because we don’t support one another as Basotho,” Mr Kobeli said.
Dr Timothy Thamae, a lecturer at the National University of Lesotho, said as academia they faced the challenge of lack of finance while they had many business ideas that were backed by research.
He said the way out of Lesotho’s sticky economic situation would be research and development of new product ideas. However, Dr Thamae noted this was being hampered by lack of funding for research and incubation activities at tertiary institutions.
“Research and incubation is a combination that results in innovation,” he said.
For her part Letšeng Diamonds Chief Executive Officer Mazvi Maharasoa said short-termism was one of the downfalls of the local business community. She said most entrepreneurs only targeted certain markets and then quickly exited when the going got tough.
“Smaller enterprises need to genuinely partner with one another to increase their capacity and give themselves a chance at bigger contracts,” she said.