Sophonea tables another static austerity budget
FINANCE Minister Thabo Sophonea yesterday presented yet another static M23, 8 billion budget which reiterated his predecessor and current Prime Minister Moeketsi Majoro’s calls for reduced government expenditure to save money to fund investment and job creation initiatives.
Mr Sophonea said the 2021/22 budget, whose theme is “Navigating the New Norm towards Transformation and Economic Recovery”, has been developed with the aim of changing the country’s economic history for the better.
To achieve economic recovery, Mr Sophonea proposes a host of austerity measures including salary freezes for the country’s restive civil servants. Last year they were awarded five percent increments which they said were not enough. Teachers, nurses and magistrates went on strike demanding higher wages.
Mr Sophonea said future salary increments would be performance-based instead of the current system where everyone gets a raise regardless of whether or not they have performed well.
Civil servants are not the only ones to be affected by the austerity measures. Even pensioners will not be getting any increments. Last year they were awarded a modest M50 increase in their old age pensions from M750 to M800 for each pensioner per month.
In addition, there will be no tax relief for taxpayers whose incomes have been undermined by inflation and the Covid-19 induced slowdown in local and global business activity ever since the pandemic broke out at the beginning of last year.
Instead, the minister has proposed to introduce a raft of new taxes to boost revenue generation.
These include the implementation of the much-delayed alcohol and tobacco levy increments of 15 and 30 percent respectively. If implemented, Mr Sophonea said this will yield an extra M286, 6 million to the fiscus.
The minister also proposed a one percent increase on the Value Added Tax (VAT) on electricity. This will raise an additional M93, 5 million, he said.
Mr Sophonea proposed to tax mining royalties in a move expected to rake in an additional M232 million.
Mr Sophonea said although the proposed budget had been prepared at a “challenging” time due to Covid-19 and other challenges, “it still presents an opportunity to introduce fundamental reforms to restructure our economy”.
“COVID-19 will be with us for some time and we, therefore, need to navigate the new norm towards transformation and economic recovery.
“The government of Lesotho’s total expenditure is proposed at M23, 8 billion of which the recurrent budget is M18 billion and the capital budget is M5,8 billion.
“The recurrent expenditure has decreased by one percent (from last year) while capital expenditure has increased by two percent. The increase in capital budget is attributed to the increasing donor financing,” Mr Sophonea said.
He said the 2021/22 budget will be financed through revenue of M17, 3 billion, broken down into M7, 3 billion from tax revenues; M1, 6 billion from grants, M2, 3 billion from non-tax revenues and M6 billion from Lesotho’s share of the Southern African Customs Union (SACU) revenues.
Mr Sophonea also outlined plans for economic recovery beyond the Covid-19 pandemic.
“As we are battling the debilitating effects of both the health and the economic crises, it is also incumbent upon us to think about economic recovery and restoration of the lives of our people. The lasting recovery of the economy is largely dependent on the extent to which the health crisis is resolved. Thus, resolving the health crises remains a paramount priority to limit the negative impacts on the economy, and our response must be exceptional in speed, scale, and selectivity.
“The government announced fairly early at the start of the pandemic a host of measures that were meant to assist the nation to cope with the impending crisis. But we now need to look ahead. At the outset, it is important to note that our economy has not been performing well for a number of years and COVID-19 has brought to the fore our deep-seated structural problems which require us to rethink, re-strategise and re-draw economic development policy regime that is agile and robust enough to mitigate these challenges.”
He said while the recovery plan is still under preparation, the government’s drive towards a sustainable economic recovery path is encored on dealing effectively with Covid-19 to limit the rate of infections and deaths to protect and preserve the country’s human capital base.
“This is a prerequisite to any meaningful attempt or policy aimed at rebuilding our economy,” Mr Sophonea said.
He also talked up mining as a key sector in aiding economic recovery and growth. He said they expected more investors in the sector.
“The sector is improving and there are eight companies holding mining leases for diamonds, even though due to impact of COVID-19, only four are operational.
“There are also 22 companies with mining leases for dolerite quarries, eight for sandstone quarries and one mining clay. As much as the restriction in movement in the world’s largest diamond trading centres resulted in fewer diamond buyers being able to engage in trade and some of our mines suspending operations, diamond mining is still viewed as the mainstay and an enabler of Lesotho’s economic development,” Mr Sophonea said.
He also said the government would continue to promote the commercialisation and diversification of agricultural production to achieve food security and boost revenue generation. To this end, he said the government will continue to subsidise agricultural inputs such as fertilisers for farmers.
With regard to attracting and retaining foreign direct investment (FDI) Mr Sophonea said “Lesotho has developed and launched the AGOA Response Strategy and Action Plan”.
“The strategy provides a comprehensive plan to increase exports from Lesotho to the United States (US) and to attract more US investment into Lesotho. The programme is aimed at increasing exports to the US, promote a free-market system and expand US-Africa trade and investment.
“This trade initiative offers access to the US market consisting of over 300 million people. The suggested priority potential export products for Lesotho to the US under AGOA are textiles, apparel, and footwear, organic products, bottled water, canned food, handicrafts, leather and leather accessories.
“In an effort to increase number of jobs generated in the manufacturing sector, nine new large-scale manufacturing licenses were granted.”
Mr Sophonea said Lesotho had also ratified SACU countries and Mozambique’s Economic Partnership Agreement with the United Kingdom (SACUM-UK EPA).
The EPA seeks to avoid any disruption in trade as a result of Brexit. The agreement came into force in January 2021. The financing agreement between Lesotho and the EU has been signed by the Ministry of Finance and the EU Delegation.
“The agreement allows for the implementation of the EPA Action Document with the €6 million funding. This will be used to assist Basotho to set up businesses and participate in the value chains and this will aid in creating employment.
“Lesotho has also ratified the African Continental Free Trade Area (AfCFTA) which provides a large market for Lesotho’s 22 goods and services. The trade in goods under this agreement began trading from January 2021.
Mr Sophonea has also outlined a list of policy measures to curb waste and control expenditure. They include the following:
- Secondment regulations will be revisited and amended accordingly to avoid double-dipping in salaries whenever civil servants are seconded to another government department.
- Parastatals salaries will be reviewed with a purpose of standardising them.
- Government employment policy will be revised to reduce the high wage bill.
- Rationalisation of foreign missions will be finalised in 2021/22 fiscal year.
- Performance-based salary increments will be implemented in 2022/23 fiscal year to replace automatic notching.
- Government will review on-going projects and projects in the pipeline with a view to create fiscal space for new investment projects that will boost economic growth and reduce unemployment.
- Sectoral planning and budgeting will be instituted in preparation of 2022/23 budget to enhance economic development.
- Government will gradually adopt a cashless system for both revenue collection and retail trading.