THE marginal 4, 4 percent increase in the number of persons employed in the textile sector had a direct impact on the otherwise modesty economic growth in the third quarter, the Central Bank of Lesotho (CBL) has said.
The apex bank’s Monetary Policy Committee (MPC) revealed this after its 74th meeting this week.
The committee considers international, regional and domestic economic developments and financial markets’ conditions to determine appropriate monetary policy action to maintain price stability.
Addressing a media briefing after the meeting, Governor Retšelisitsoe Matlanyane said there were positive signs of a moderate growth in economic activity during the third quarter which ended in September.
“On the domestic front, indications are that economic activity improved during the third quarter of 2018,” Dr Matlanyane said.
“Based on the CBL measure of economic activity, output increased by 0, 5 percent in the quarter ending September 2018, compared to a decrease of 0, 3 percent in the second quarter.
“The modest recovery was supported mainly by the manufacturing sector. In addition, employment by the LNDC-assisted firms grew by 4, 4 percent on an annual basis. In contrast, the number of Basotho migrant workers in the South African mining industry has maintained a downward trend.”
She further said money supply also improved driven by growth in both domestic claims and net foreign assets of the banking system during the quarter in question.
“The broad measure of money supply (M2) increased by 6, 9 percent during the third quarter of 2018, compared to a decline of 2, 4 percent in the previous quarter. The increase in M2 was driven by growth in both domestic claims and net foreign assets of the banking system. Private sector credit maintained a strong upward trend, underpinned by robust growth in credit to business enterprises, which grew by 5, 3 percent during the review period, following growth of 5, 9 percent in the quarter to June 2018. In contrast, credit extended to households slowed to 1, 7 percent, from 2, 1 percent in the previous quarter.”
Dr Matlanyane said the annual inflation rate, measured by the change in the consumer price index (CPI) for all items, increased from 5 percent in September to 5, 3 percent in October 2018.
“The main contributors to the increase were “housing, electricity, gas and other fuels” and “transport” on the back of increases in the international oil prices. However, the rate of inflation for the “food and non-alcoholic beverages”, which accounts for the largest weight in the consumer price basket, has remained unchanged at 4, 7 percent between September and October.
The external sector position deteriorated slightly, with the surplus on the overall balance of payments declining to 5, 7 percent of gross domestic product (GDP) in the review period, from 7 percent of GDP in the second quarter.
“However, gross international reserves were registered at 4, 3 months of import cover in the quarter ending in September, compared with 4, 2 months in June 2018, on account of a decline in imports.
“Preliminary indications are that the government budgetary operations have resulted in a fiscal deficit equivalent to 4, 1 percent of GDP during the quarter ending September 2018. This compared with a revised surplus estimated at 11, 7 percent of GDP in the previous quarter. The deficit was financed by a reduction in government deposits and issuance of a treasury bond. Given Lesotho’s fixed exchange rate system under the Common Monetary Area (CMA), a healthy fiscal position is essential to support maintenance of adequate international reserves that is necessary to bolster the exchange rate parity.”
Meanwhile, the CBL has increased the CBL rate from 6, 5 percent to 6, 75 percent per annum. The bank also kept the net international reserves (NIR) target floor unchanged at US$690 million.
“The committee noted that, while the global growth outlook remained favourable, downside risks have remained a concern. The committee further noted sluggish domestic economic activity, tight fiscal conditions, upward inflationary pressures and negative spill-overs from South African economic activity as major risks,” Dr Matlanyane said.