‘IMF loan to enable more Covid-19 borrowing’
FINANCE Minister Thabo Sophonea says the M800 million loan approved last week by the International Monetary Fund (IMF) will allow the government to seek more external financial assistance to respond to the Covid-19 pandemic financial needs.
The IMF last week approved the loan to help Lesotho meet its urgent balance of payment needs stemming from the outbreak of the Covid-19 pandemic.
The funding which totals US$49.1 million (about M800 million) is from the IMF’s Rapid Credit Facility (RCF) (US$16.5 million), and the Rapid Financing Instrument (US$ 32.6 million).
Mr Sophonea on Monday told journalists that the government’s spending towards essential Covid-19 health care and mitigation efforts had stretched the country’s foreign currency reserves.
He said this had worsened the country’s economic situation as it is already reeling from lower Lesotho Revenue Authority’s (LRA) revenue collections on the back of reduced Southern African Customs Unions (SACU) revenue.
“These measures will exert tremendous pressure on the budgetary resources,” Mr Sophonea said.
“The increased fiscal deficit will put pressure on the country’s foreign exchange reserves, which are critical in maintaining the exchange rate parity between the loti and the South African rand.
“The IMF support through RCF/RFI financing will help reduce the balance of payments pressure, as government spending on Covid-19 related measures increases.
“In addition, the IMF support will catalyse other concessional financing and enable the government to secure funding from other development partner such as the World Bank and the European Union… this will allow the government to fully mobilise its Covid-19 mitigation strategy.”
Also speaking at the briefing, Central Bank of Lesotho (CBL) governor Retšelisitsoe Matlanyane said Lesotho had requested M800 million from the IMF, which is what the country qualified for.
The amount is however, M1 billion short of what the government needed to respond to the socio-economic challenges in its application letter to the IMF.
In their 16 July 2020 application to the IMF, Mr Sophonea and Dr Matlanyane said the government would require at least M1.8 billion assistance to meet the government’s obligations.
M1.2 billion of this amount is needed to ensure food security and social protection for the most vulnerable segments of the population.
“The total related costs, including the scaling up of transfers to the most vulnerable groups, are estimated to be M1.8 billion.
“The costs include M1.2 billion for food security and social protection, M75 million which is revenue foregone due to tax exemptions and deferment and M500 million in additional support for SMEs.
“To buttress our reserves in the face of the economic volatility, we request emergency financing from the IMF… We are confident that IMF assistance to Lesotho in coping with this global pandemic will be a catalyst in securing additional support from other international financial institutions and bilateral donors.
“We are also seeking other external support. We are discussing budgetary support from the World Bank. The European Union is providing €5.5 million to support social transfers to vulnerable households affected by the crisis, and we are actively engaging with other partners for support.
“We intend to use the IMF disbursement to help fill the projected balance of payments financing gap and strengthen the reserve position,” Dr Matlanyane said.
Mr Sophonea and Dr Matlanyane also promised the IMF that the government would undertake the following measures to ensure a sustainable macroeconomic outlook:
- institute Covid-19 related mitigation measures to protect the poor, vulnerable and affected sections of society while we allow economic activity to continue with caution and within safe margins with clear protocols and guidelines for safety.
- review and adopt a new public service employment policy that aims to maintain a sufficiently lean, largely professional and highly efficient civil service while addressing the high wage-to-GDP ratio.
- the maintenance of a sufficiently lean and efficient administration by reducing and merging some ministries while improving governance of the public service.
- review and rationalise the foreign mission policy with the intention to reduce foreign representation costs.
- enhance collection of student loans and review the model for granting educational loans to ensure efficiency and sustainability.
- legislation of fiscal rules that will ensure sustainability of the fiscus.
“The government is committed to strengthening macroeconomic stability and lay the ground for sustainable and inclusive growth. We intend to continue implementing our National Strategic Development Plan, which envisages the private sector as the main driver of the economy, through further efforts to improve the business environment and tackling key bottlenecks to growth and job creation.
“In the short-term, we are carefully managing cash by releasing warrants on a monthly basis to ensure that expenditure aligns with available financing and to avoid incurring new expenditure arrears.
“We will ensure that international reserves are maintained at a level judged by the CBL to be sufficient to maintain macroeconomic stability and safeguard the peg of the Loti to the Rand,” Mr Sophonea said.