…Lesotho given a negative credit rating amid fears of renewed tension and instability
Herbert Moyo
FITCH Ratings has given Lesotho a negative credit rating and painted a bleak picture of the country’s economic growth prospects.
Fitch Ratings is one of the big three credit ratings agencies in the US and on the globe along with Moody’s Investors Service and Standard & Poor’s Financial Services.
Credit ratings are an opinion on the ability of a government or an entity to meet financial commitments such as repayment of principal loans, interest payments, dividends and insurance claims.
Credit ratings are used by investors as indications of the likelihood of receiving the money owed to them in accordance with the terms on which they invested.
Fitch Ratings gave its gloomy verdict for Lesotho on the back of concerns about political instability, declining revenues from the Southern African Customs Union (SACU) and high government expenditure particularly on salaries for civil servants.
In a recent statement, Fitch Ratings said that its negative rating for Lesotho “reflects pressure on public and external finances resulting from the drop in Lesotho’s receipts from the SACU and a policy response that reflects political and administrative capacity constraints”.
Fitch said that Lesotho’s economic growth prospects have deteriorated significantly to a point where the “expected average annual growth from 2018 to 2020 will be just 1, 5 percent as consolidation efforts by the dominant public sector will weigh on private sector activity”.
“In addition, diamond mines are struggling with low world market prices, rising production challenges and community discontent.”
Fitch Ratings said although the country had enjoyed a semblance of stability since the deployment of the Southern African Development Community (SADC) troops in 2017, there was however, a likelihood of tension and instability affecting the country once again.
Fitch warned that the tension and instability could be triggered by among other things, the commencement of the trial of former army commander, Lt-Gen Tlali Kamoli.
Fitch also said that more instability could come from within the coalition government as the four governing parties focus on internal consolidation “at the expense of the cohesion of the coalition”. In recent months, there have been public statements from the leaders of some of the governing parties including Prime Minister Thomas Thabane suggesting that they were working towards consolidating and strengthening their parties with the view to ensuring they govern alone in the future.
“The political situation has stabilised following the murder of the Lesotho Defence Force (LDF) chief (Lieutenant General Khoantle Motšomotšo) in September 2017 and earlier tensions that peaked in 2014, helped by the presence of a SADC peacekeeping mission called in by the government.
“However, new flare-ups of tensions remain possible, triggered, for example, by the pending trial of a former LDF chief. Coalition instability could also weigh on the government’s ability to pass fiscal reforms in a timely manner, particularly as consolidation efforts could reduce coalition cohesion,” Fitch states in its recent report on Lesotho.
Lt-Gen Kamoli has been in remand prison since October 2017 on murder and attempted murder charges.
High Court judge Justice Thamsanqa Nomngcongo set 9 to 12 October this year as the dates when Lt-Gen Kamoli will stand trial for the murder of Police Sub-Inspector Mokheseng Ramahloko at the Police Headquarters in Maseru during the attempted coup against the first government of Prime Minister Thomas Thabane on 30 August 2014.
Lt-Gen Kamoli is charged alongside Captain Litekanyo Nyakane, Lance Corporal Motloheloa Ntsane and Lance Corporal Leutsoa Motsieloa.
In the second case, the former army chief faces 14 counts of attempted murder in connection with the 27 January 2014 simultaneous bombings of the Moshoeshoe II homes of First Lady Maesaiah Thabane and the Ha Abia residence of former police commissioner, Khothatso Tšooana.
The attempted murder case has been set for 16 to 19 October this year.
In this case, Lt-Gen Kamoli is charged alongside Major Pitso Ramoepane, Captain Litekanyo Nyakane, Sergeant Heqoa Malefane and Corporal Mohlalefi Seitlheko.
Fitch acknowledged the government’s efforts in managing government spending, saying this had had helped stop a drain on international reserves and government deposits. It said that the government efforts had helped reduce the fiscal deficit to 1, 2 percent of the gross domestic product (GDP) in the 2017/18 financial year from 8 percent in 2016/17 financial year.
“However…an expected renewed fall in SACU receipts will contribute to further financing pressures. While net official international reserves are still above the target of the Central Bank of Lesotho, in the absence of strong fiscal consolidation they would gradually fall to levels that could jeopardise the sustainability of the exchange rate peg to the rand.
“A further large decline in deposits would threaten net international reserve levels and the government will rely more heavily on debt funding. As a result, debt (including debt to the International Monetary Fund) is expected to rise substantially to 40 percent at the end of March 2021, from 30, 2 percent of GDP at end-March 2018.”
Fitch also expressed doubts about the government’s capacity to reduce the numbers of its employees, contain salary increases and reduce expenditure on salaries which are seen as very high at 17 percent of the GDP.
“Its (government’s) ability to contain staff numbers and salary increases to reduce payroll spending from a very high level of around 17 percent of GDP is uncertain,” Fitch states.
Fitch’s observations reflect similar concerns by the IMF.
In March this year, the IMF recommended tough fiscal measures including the reduction of the high public wage bill. It also recommended public financial management reforms as well as the implementation of the multi-sector reforms that were recommended by SADC.
It said the multi-sector reforms were necessary to achieve macroeconomic stability in the country.
