Majoro unveils austerity budget
NEWLY appointed Finance Minister, Moeketsi Majoro has unveiled an austerity budget which seeks to restrain the government’s runaway expenditure to save resources for investment to foster expedited economic growth, development and job creation.
Dr Majoro, who took office only two weeks back, unveiled his maiden 2017/2018 budget worth M18, 7 billion against a backdrop of what he described as a very challenging global, regional and local economic environment that has impacted negatively on Lesotho’s economic prospects, especially employment prospects for the youth.
But more importantly, Dr Majoro announced a raft of new austerity measures to save money for investment. These will see a number of benefits enjoyed by politicians, including their access to luxury cars, first class travel and prolonged business trips abroad paid for by the taxpayers being curtailed.
Dr Majoro did not mince his words and warned that Lesotho’s internal dynamics characterised by perennial internal instability and the breakdown in the rule of law needed to be dealt with forthwith to attract investment and to improve prospects for economic growth.
“Closer home, mounting insecurity, political instability and the deterioration in the rule of law have dampened the prospects for our economy and unless these are reversed quickly, economic recovery is likely to be protracted,” said Dr Majoro, in a warning likely to find resonance across the Kingdom’s political spectrum.
Dr Majoro’s budget makes it crystal clear that his main mission is to create jobs and alleviate poverty by addressing multiple challenges including poor education, poor health, the poor investment climate and the breakdown in the rule of law.
He identifies the private sector’s critical role in boosting economic growth and he promises to relaunch dialogue with the sector to explore means and ways of accelerating investment, economic growth and job creation.
Dr Majoro called for the major restructuring of the government’s finances in light of the Lesotho economy’s inability to generate adequate domestic revenues, declining SACU income, and increasing recurrent expenditure fuelled by the ever-growing public sector wage wage-bill.
Unless the government restructured and consolidated its finances, Lesotho risked the risk of using its reserves to the extent of leaving the country with no money to pay for imports and to finance investments in job creation. Failure to tighten the government’s fiscal path would also jeopardise the parity between the local Loti currency and the South African Rand. Given Lesotho’s dependence on imports, a collapse in the peg between the Loti and the Rand would lead to fiscal and trade crises, Dr Majoro warned.
The M18,7 billion budget, entitled “Pursuing fiscal sustainability within the context of political instability and insecurity” did not incorporate expenditures to cover costs to implement all feasible promises made during the campaign period of the 3 June 2017 elections, Dr Majoro said, promising that would be done in next year’s budget.
The M18, 7 billion budgeted to be spent in the current fiscal year is a significant increase from the M12,8 billion original expenditure estimates of last year which nonetheless ended up soaring to nearly M15 billion, leaving a deficit of more than M2 billion. Dr Majoro projected a fiscal deficit of about M1, 5 billion or 4.8 percent of Gross Domestic Product (GDP), the total value of goods and services produced in the economy, in the 2017/2018 budget. This arises from the fact that the government only expects to raise about M16 billion to fund the projected M18, 7 billion expenditure for 2017/2018.
Of the M16 billion that the government hopes to raise to fund its 2017/18 expenditure, about M6,1 billion will come from Southern African Customs Union (SACU) receipts, while the Lesotho Revenue Authority (LRA) will be expected to raise about M7,6 billion from taxes with the remaining M1,2 billion coming from non-tax revenues.
The 4, 8 percent budget shortfall for 2017/2018 will be funded from budget support of about M400 million, domestic bonds expected to raise M450 million with the remainder coming from the drawdown of the government’s reserves. The drawing down from the government’s reserves means that Lesotho’s import cover will stand at four months in the 2017/2018 financial year. Import cover refers to the number of months of imports that money held in the government’s reserves can pay.
One common rule of thumb in economic parlance is that reserves that can cover three months of imports are adequate.
Dr Majoro also plans to arrest Lesotho’s reliance on SACU revenues, which account for nearly half of the Kingdom’s income, by boosting economic growth to generate more money internally.
In any event, Dr Majoro wants to completely stop the diversion of SACU revenues to fund recurrent expenditure like salaries and ensure that the money is used for infrastructure and other productive purposes to boost economic growth and improve job prospects. He wants only revenues generated internally to be deployed to fund recurrent expenses.
Dr Majoro lamented the inexorably high bill of paying salaries and wages for Lesotho’s bloated civil service. The state wage bill is way too high, making the need to relook at the entire civil service structure inevitable.
Lesotho’s civil service wage bill, as a proportion of national output, is the largest in the world, he said.
“It has grown from just over 10 percent of GDP two decades ago to the current 19 percent and its growth has been financed by the reduction in the share of goods and services, which has cumulatively reduced the labour productivity of the civil service,” said the Finance Minister.
He cited the need to reduce the state wage bill among the major challenges the government must confront. The burden of reducing the wage bill will be achieved through the proper management of the payroll and strengthening human resource and public financial management systems.
One of the wage bill management strategies which the government was already implementing was the amendment of the Teaching Service Regulations, he said. As of June 2016, teachers’ salaries are no longer being paid based on qualifications only but also performance and availability of vacant positions to which teachers are promoted. The government was also implementing biometric registration of civil servants to remove ghost workers from the payroll and to limit wage increases to below the increases in domestic revenues, said Dr Majoro.
The strategic objective of the government’s fiscal policy remained that of maintaining fiscal prudence to ensure long-term macro-economic stability and sustainability, he said. He said achieving this objective would require broadening and diversifying domestic revenue sources to sufficiently cover recurrent expenditures so that SACU revenues and donor funds are used to finance infrastructure and other capital expenditures and maintain sufficient reserves for financing forward capital spending commitments.
Dr Majoro said the government’s collaborative efforts with the private sector would define the specific roles to be played by the private sector, civil society, local government councils, and the central government in boosting economic growth.
“This type of dialogue which was launched in 2014 at the jobs summit process, will result in job creation actions for each of the participating partners,” he said.
He acknowledged the constraints faced by the private sector in getting access to finance and promised a number of interventions to address that challenge.
Dr Majoro warned that all of what he had planned in the 2017/18 budget would require all Basotho to pull together in one direction if better economic times were to be achieved.
“All of what is planned for 2017/18 can only be successful if we, as a collective, put our hands together in ensuring success…
“Macro-economic stability and sustainability can only be guaranteed in an atmosphere of political stability and security. More importantly, fiscal discipline and the rule of law will ensure that where transgressions have been committed, the perpetrators are brought to book and public funds recovered.”