…urgent action required to halt economic decline
LESOTHO is in dire straits and the government must “bite the bullet” and implement painful decisions to avoid political and economic chaos befalling the country, Finance Minister Moeketsi Majoro has declared.
Dr Majoro made his unprecedented bold admission while unveiling an austere 2018/19 budget in Parliament yesterday.
He said the country is in a crisis underpinned by a high rate of poverty, hunger and joblessness ill health and a mismatch between the skills needed to grow the economy and those being produced by local educational institutions. Many young people on the job market had dropped out of school at the end of primary schooling when they were 12 years old or at Form E when were only 17 years of age, meaning they lacked the requisite skills to get gainful employment.
“The fiscal resources required to redress the situation are scarce and limit any meaningful participation by the government,” said Dr Majoro in a seemingly very frank assessment of the economic and political challenges bedeviling Lesotho.
The government was effectively broke and its programmes would have to be financed by more borrowing pushing the country further towards a fiscal cliff.
“Our government now has to bite the bullet and make decisions that would be painful but which if not taken would impose political and economic chaos on Lesotho,” declared Dr Majoro, vowing that the government would nonetheless remain committed to foster an environment to create jobs in the private sector.
Although Dr Majoro did not fully explain the painful decisions that he says required to be taken to avoid chaos, he outlined a number of expenditure cutting measures including curtailing foreign travel, improved procurement procedures, price caps on goods procured by the government, rationalization of the government fleet, improved management of the wage bill through the elimination of ghost workers, among other things.
Dr Majoro unveiled a M16.5 billion budget for the 2018/19 financial year whose major highlights include a 4 percent salary increase for civil servants and a one percent hike of VAT from 14 to 15 percent to mirror a similar increase in South Africa last week.
Old age pensioners will however not receive any increments as has been the norm over the years.
There is also little to celebrate for the general public in the budget which is more focused on cost-cutting to try and contain the increasing deficit.
There will be a phased increase in VAT on telecommunications and electricity.
Of the M16.5 billion budget, M10, 7 billion would be channeled towards recurrent expenditure while the rest would for the capital expenditure.
The government will also undertake capital projects including road and dam construction as well as a M60 million solar plant in the Mafeteng district to provide electricity.
“The Ministry of Local Government and Chieftainship plans to construct 198.4km of urban roads and 1102km of rural community roads adding to 281.7 km and 37.9 km respectively achieved in the 2017/18 financial year,” Dr Majoro said.
“Low-income housing of 60 housing units are already being built in Linakotseng, Maseru and Qacha’s Nek. Bus terminals will be constructed in Leribe, Mafeteng and Semonkong.”
Themed on Pursuing Job Creation and Restoring Fiscal Stability and Sustainability, Dr Majoro said the budget was prepared against the background of the tough fiscal situation where Lesotho’s South African Customs Union (SACU) revenue share for 2018/19 financial year was expected to decline by M616.1 million from the 2017/18 financial year.
The situation has been compounded by indications that the Lesotho Revenue Authority (LRA) will not meet its target for the second year running and it is expected that the deficit will be M684 million.
As part of measures to make up for the shortfall, VAT has been increased to 15 percent from 14 percent “to align with that of South Africa and to avoid smuggling”.
Dr Majoro also proposed to gradually increase VAT on telecommunications and electricity, which presently stand at 5 percent to align to the unitary rate of 15 percent. This coming financial year the VAT will be increased by 4 percent for telecommunications and 3 percent for electricity.
Civil servants will however, take comfort in the 4 percent across the board wage increase. This represents a marginal improvement from the 3 percent increase they were awarded in the 2017/18 financial year.
“At 4 percent across the board wage increase, the wage bill will remain high, but it will have to be complemented by additional austerity plans in the medium term,” Dr Majoro said.
However, the tax increases are likely to affect disposal real incomes as there will be increases on the general VAT and on VAT on telecommunications and electricity.
There was however, no joy for pensioners whose allowances have not been increased.
Speaking to the media after the budget presentation, Dr Majoro, said the austere budget and the failure to increase pension allowances owed to the fact government had to “bite the bullet” and make decisions that were “painful”.
He said the country was facing challenging times economically and an upward review of the pensions would only aggravate the situation.
“This budget is being prepared amid the tough fiscal position confronting the country. SACU revenue is significantly down in both nominal and real terms.
“Net International Reserves are below the target we set to maintain parity with the (South African) rand currency, government deposits have finally run out and any fiscal deficit will now have to be financed through new borrowing.
“These are new times. Our government now has to bite the bullet and make decisions that would be painful, but which if not taken would impose political and economic chaos on Lesotho,” Dr Majoro said.
So dire is the situation that Dr Majoro even proposed the introduction of a lottery as part of efforts to boost revenues. He said the government will modernise the Lotteries Act of 1975 to allow for the introduction of a government lottery.
Dr Majoro proposed to cushion vulnerable groups by ensuring that the Ministry of Social Development increases the coverage of the National Information System for Social Assistance (NISSA) to all community councils to cover at least 350 000 households.
“The Child Grants Programme and the Public Assistance Programme will target to increase the benefits to at least 25 percent of consumption needs,” he added.
He said given the unstable fiscal outlook, the government intended to implement a number of revenue mobilisation initiatives including the introduction of the Voluntary Disclosure Programme which is estimated to yield M225 million in additional revenue.
In terms of this programme, tax offenders would be allowed to regularise their tax affairs without incurring any penalties.
He further said the LRA would also enhance tax administration measures, targeting improved compliance by major tax contributors in a move that is expected to yield an additional M350 million.
The government will also study the introduction of levies on alcohol and tobacco and will consider their introduction in the not too distant future.
Turning to job creation, Dr Majoro said the government intends to venture into commercial agriculture where it will pay particular attention to increasing the production of meat, hides, wool and mohair.
“The government will also support the expansion of orchards and the development of a deciduous fruit industry as part of the strategy to create additional jobs.
The Ministry of Forestry and Land Reclamation, Trade and Industry, Small Business and Cooperatives and the Ministry of Agriculture and Food Security working with banks, insurance companies, buyers, and investors will lead the roll out of fruit orchards. Their efforts will build on the successful operation of the Likhothola Orchard in Mahobong, Leribe.”
On tourism, Dr Majoro said the government will bring into operation the Butha-Buthe Tourist Centre, Sehlabathebe National Park and the Bokong Nature Reserve Chalets.
He intimated that measures to stimulate economic growth would only succeed in a climate where government and all the stakeholders vigorously worked for the implementation of multi-sector reforms as recommended by the Southern African Development Community (SADC).
The reforms are aimed at creating lasting peace and stability in the country without which economic growth cannot be achieved.
“Peace and stability is desired by all Basotho. The political instability and insecurity we have experienced in recent years…was made possible by the loopholes in our constitutional and political framework.
“Our government is therefore committed to inclusive reforms in which all groups of society should feel free to participate. The recent dialogue by political dialogue facilitated by the Christian Council of Lesotho and witnessed by civil society is testimony to the commitment and openness to broad participation,” Dr Majoro said.
But Dr Majoro was also quick to caution that efforts to achieve stability would not be achieved quickly.
He warned that the task to unify society would take many years because of the “extreme polarization pursued by Lesotho politicians”.
He lamented the poor policy formulation and implementation by the government and the lack of coordination among its ministries. The rise of government ministries had been accompanied by fragmentation of government initiatives, he said.