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Foreign reserves slashed

by Lesotho Times
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Bereng Mpaki

THE Central Bank (CBL) has freed up US$70 million (about M988 million), in Net International Reserves (NIR), bringing relief to the government’s acute fiscus pressure.

Presenting the latest monetary policy statement this week, the CBL governor Retšelisitsoe Matlanyane said the new NIR position would be sufficient to maintain the peg between the loti and the rand.

Dr Matlanyane who also chairs the Monetary Policy Committee (MPC) said the committee considered international, regional and domestic economic developments and financial market conditions to determine an appropriate monetary policy stance. The stance, she said, is necessary to maintain macroeconomic stability in the country.

“Having considered the above developments, the MPC decided to decrease the NIR target floor from US$870 million to US$800 million,” Dr Matlanyane said.

“At this level, the NIR position is sufficient to maintain the peg between the loti and the rand and to maintain the CBL rate unchanged at 6,5 percent per annum.”

She indicated that the government continued to be a net borrower in the last quarter of the 2017/18 financial year. She said government drew down on its deposits and also issued treasury bonds to finance the deficit.

“Government continued to be the net borrower in the last fiscal quarter of 2017/2018 as the total spending continued to outperform the total revenue. The deficit was financed by the issuance of Treasury Bonds and drawdown of deposits.”

The previous MPC statement showed that non-cumulative deficit in government budgetary operations rose sharply to 14,2 percent of the gross domestic product (GDP) in March 2018, which was the last quarter of the 2017/18 fiscal year.

The overall deficit for the 2017/18 fiscal year was estimated at 4,1 percent of the GDP against the projected 4,8 percent that was approved by Parliament.

However, Dr Matlanyane said Lesotho’s economic performance is estimated to remain sluggish during the first quarter of the 2018/19 financial.

“That said, the labour market developments showed mixed signals in the quarter, with both the number of migrant mineworkers and public-sector employees declining. On the other hand, the manufacturing sector added more jobs, as orders increased,” she said.

She further indicated that the inflation rate remained subdued since the beginning of 2018. The rate increased to 4 percent in June 2018 compared to 3,8 percent in May 2018.

“The subdued rate is attributable mainly to the food and non-alcoholic beverages’ component, which accounts for the largest share of the consumer price index basket. There are risks due to expected increases in administered prices and continuing exchange rate depreciation.”

Last month Finance minister Moeketsi Majoro said there were indications that the foreign reserves and cash collections would fall short of amounts needed to fully finance the approved 2018/19 budget.

As a result, Dr Majoro had said government was engaging the International Monetary Fund (IMF) to ease the foreign currency situation, with the hope to reach an agreement by end of August 2018.

However, Dr Matlanyane said her committee noted that despite the relatively benign global and domestic economic outlook, several risks remain.

“Inflationary pressures are to remain moderate, notwithstanding possible upside risks. In this context, the committee will continue to monitor the global developments and their likely impact on domestic macroeconomic conditions, especially the CBL net international reserves (NIR), with the aim of taking appropriate corrective action,” Dr Matlanyane said.

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