Growth forecasts revised downwards as Covid batters economy
FINANCE Minister Thabo Sophonea yesterday presented his mid-term budget review indicating tough times ahead for the country as the economy continues feel the effects of the Coronavirus (Covid-19) induced slowdown on global business activity.
Presenting the budget review in parliament yesterday, Mr Sophonea said the Covid induced decline in economic activities such as diamond mining and textiles production had resulted in lower than anticipated revenue collection which would lead to a 14 percent decline in economic growth in the current fiscal year.
As a result, the government had revised downwards its projected revenue collections from M19,3 billion to M17,1 billion, the minister said.
He said the revision had been prompted by lower than expected collections of taxes and royalties due to the effects of the pandemic.
He said the decline in revenue collections is expected to continue in the next fiscal year as the major revenue sources like the Southern African Customs Union (SACU) continue on the recovery path.
“The mid-year revenue collection was M8,0 billion which is lower than the anticipated M8,5 billion, Mr Sophonea said.
“Revenue collections are expected to be lower than the budgeted estimates in the fiscal year. Tax revenues, mainly corporate income tax and value added tax (VAT) are correlated to the level of economic activity and are therefore expected to decline, reflecting a deteriorating economic performance. The slowdown in mining activities has had a dire impact on royalties.
“Overall, total revenue is expected to decline by 14 percent against the budget estimates in the current fiscal year. In the medium-term, all components of revenue are expected to improve with the exception of SACU. This stems from an inevitable negative adjustment anticipated in 2022/23 which will halt the forecasted improvement in other revenue components. Total revenue will decline from 52 percent of GDP in 2020/21 to 42,5 percent of GDP in 2022/23,” Mr Sophonea said.
He said the impact of Covid-19 pandemic has been revised down from 2 percent to –3.4 percent, mainly reflecting weaker domestic demand and total investment, exports and global growth.
“The pandemic is expected to have a negative impact on the balance of payments in 2020/21. The trade deficit will deteriorate reflecting a slowdown in exports. Although the income account will continue to register a surplus due to robust SACU receipts, remittances from mine workers will remain subdued,” Mr Sophonea said.
He said food insecurity was also a huge challenge to the government with an estimated 179 000 urban areas population and a further 720 000 rural dwellers in need of food aid since March 2020.
Mr Sophonea said that government has set aside M100 million for agricultural subsidies to increase food production.
“Distribution of food parcels is ongoing though there is an increase in the level of vulnerability. This means if emergency relief is not provided on time more people will fall into poverty trap,” he said.
The finance minister also said political instability seen in the constant changes of government had contributed to policy inconsistency in addressing the country’s socio-economic challenges.
“As a constitutional kingdom, Lesotho is governed by a legislative democracy. However, over the past two decades, the country’s democracy has been marked by episodes of political instability which were trailed by a series of general elections resulting in the formation of different coalition governments. Changes in the composition of these coalition governments have created a position where policy consistency within government is fading,” Mr Sophonea said.