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No IMF bailout anytime soon

by Lesotho Times
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Herbert Moyo

THE government has still not secured the financial rescue package from the International Money Fund (IMF), almost nine months after it first began negotiations with the Bretton Woods institution for the bailout.

The Lesotho Times learnt this in an exclusive interview with the head of the IMF mission to Lesotho, Joseph Thornton this week.

Mr Thornton is leading an IMF delegation which consists of four economists on an annual assessment of the economic situation in Lesotho. They have been in the country for two weeks and they met officials from the Ministry of Finance, the Central Bank, workers’ unions, the private sector and the trade associations “to get a sense of what’s going on in the economy”.

The government and the IMF have been in discussions since June 2018 for the bailout which will help to reduce the budget deficit and boost foreign currency reserves.

Finance Minister Moeketsi Majoro previously expressed confidence that an agreement would be reached by the end of last August but this has not been the case.

When it became apparent that a deal would not be reached in August 2018, Dr Majoro said in subsequent interviews that the negotiations were continuing and it would be premature to say when they would be concluded.

“The interaction with the IMF is continuing and it is premature to respond to any of your questions (about when the deal for the financial bailout will be reached),” Dr Majoro said in one of the interviews.

He said the discussions with the IMF and other partners were about “putting together a package of measures that would ease the current situation (of the budget deficit and the government’s failure to timeously pay service providers) while protecting the vulnerable segments of population”.

“The type of support we are seeking is called foreign currency reserve support. It differs with project support in that it supports the financing of (foreign currency) reserves build-up as well as the budget and deficit.”

Dr Majoro did not disclose how much the government had asked for, saying the size of the bailout package would be determined by both parties during the talks.

But nine months later, there is still no deal or indications as to when it will be agreed on. And this week, Mr Thornton did not give clear answers regarding when, if at all, the two parties would eventually agree on a package to enable Lesotho to meet its financial obligations and reduce its budget deficit.

Like Dr Majoro before him, Mr Thornton simply said that negotiations were on-going and the IMF team was “always willing to come back whenever the government wants to talk”.

“We are always willing to come back whenever the government wants to talk. We are very willing to come back.

“The issue is more about the process of achieving consensus within the government and that is something that is not within our control. The timeframe of that is up to the authorities in the country to achieve consensus among themselves concerning the recommendations that we have made,” Mr Thornton said.

Sources close to the talks recently told this publication that the two parties had still not reached a deal because the government had baulked at some of the conditions that the IMF wanted met before availing funds.

Among other things, the IMF has spoken of the need for the government to reduce the high public wage bill, undertake public financial management reform as well as implement the multi-sector reforms that were recommended by the Southern African Development Community (SADC).

The IMF has also advised the government to award performance-based salary increments. The IMF prescriptions are inimical to the civil servants and other workers’ demands for wholesale wage increments.

On Tuesday, Mr Thornton suggested that the ball was in the government’s court and there was need for consensus within government about implementing the measures they had discussed with the IMF before a bailout would be availed.

He however, did not say what those measures were. He alluded to the need to rein in on government spending after it was pointed out to him that the IMF has previously reported on the need for reduced spending and reduction of the civil service workforce.

He however, dismissed the notion that the IMF demands were inimical to the interests of civil servants and other workers. He said the workers should not focus on short-term gains in the form of salary increments but rather allow the implementation of measures which would ensure the growth of the economy as this would benefit them in the long-term.

“The question is what is in the best interest of the country as a whole and the civil servants, not just in the short term but in the long-term. The overall need is to create jobs, create prosperity and how best can that be achieved?

“In our view, continued expenditure by the government is going to be unsustainable. You can’t create jobs for everyone by giving everyone a public sector job because the government eventually runs out of money and it will run into financing and debt problems and ultimately people will be worse off as a consequence.

“In our view, the best way to ensure a strong economy is to have the private sector as the engine of growth and job creation. That is what we think should be done in Lesotho.

“So, I wouldn’t say that what we are proposing is inimical to the interests of the public sector. I would say it’s more about the long-term interests of the country because the more the country can develop, the richer it becomes and the more country can afford to increase the wages.

“If you increase the wages faster than the rate at which the economy is growing then it becomes unsustainable and you run into the kind of difficulties we are seeing here where wages as a percentage of the overall size of the economy is one of the highest in the world,” Mr Thornton said.

Asked if in their meetings with workers’ unions, the IMF had pointed out the challenges that would come with giving in to their demands for salary increments, Mr Thornton said, “we have been trying to make this point to the unions”.

“However, the issue is that different groups of workers have different demands going back several years. So, they feel they have some amounts that are owed to them and so when you have a situation like this where there are fiscal difficulties, it is very important that the government shows leadership and ensure that those who are most able to bear the cost of adjustment, bear the highest amount of the burden. So that’s something we have been trying to highlight in our discussions with the government as well.”

He said during the course of their visit they had “developed an analysis of the economy which we will then share with the government”.

“So, we are leaving behind a document which shares our views on what we think the government should do to support economic growth. We will turn that (document) into our report which we will be discussed by the executive board of the IMF and it will be available on our website probably at the end of April.”

He said that for now his team’s “main finding is that on the fiscal situation things are quite difficult in Lesotho”.

“The government is running into some difficulty in attaining sufficient financing.

“So, what that means is that there are some delays in making government payments and this is partly due to some long-standing issues. We have (Southern African Customs Union (SACU) revenues which have been falling and so the government needs to adjust its own expenditure in order to bring expenditures in line with revenues. That’s the main challenge for the government.

“We have suggested a number of ways the government could do that and those are ways that do not undermine growth. There must be ways that don’t hurt the poorest and, in that context, it is very important for the government to maintain those programmes like the child grants programme and the school feeding programme,” Mr Thornton said.

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