IMF approves US$49 million loan to govt
THE International Monetary Fund (IMF) has approved a US$49, 1 million (about M800 million) loan to the cash-strapped Lesotho government to help it meet its “urgent balance of payment needs stemming from the outbreak of the Coronavirus (Covid-19) pandemic”.
In applying for the loan, the government had told the IMF that the economy would experience a severe contraction that would widen the balance of payments gap due to the Covid-19 induced slowdown in economic activity.
In a statement this week, the IMF noted that the Covid-19 pandemic came at a time when Lesotho’s economy was already facing severe challenges.
“Growth has been subdued for several years, reflecting structural bottlenecks…while government finances have struggled to cope with the volatility of transfers from the Southern African Customs Union (SACU) that account for around half of total revenues,” the IMF said.
“Even though the country’s relatively well-developed social assistance framework partially mitigates the high levels of poverty, unemployment remains high, and the population suffers from one of the highest rates of HIV infections in the world.
“The authorities responded to the COVID-19 crisis through a mix of tax relief and increased spending. To cushion the impact on the most vulnerable, the authorities expanded social assistance, supporting food production, and providing aid to small businesses through credit guarantees.”
The IMF said its loan would help the government reduce balance of payments pressures and catalyse other concessional financing, while allowing the authorities to fully mobilize their COVID-19 mitigation strategy. After the immediate crisis abates, the authorities intend to implement reforms to promote inclusive growth and ensure fiscal expenditures are brought into line with available resources.
The pandemic has so far infected 702 people and caused 14 deaths. It has stretched the healthcare system with the government revealing that it is struggling to secure enough medical equipment as well as pay health workers for their frontline work in combatting the spread of the virus.
The effects of the virus have also been felt on the economic front where it has either led to closures or reduced activity in mining, textiles and other key sectors of the economy.
Tao Zhang, the deputy managing director and acting IMF chair, this week said “the pandemic is having a severe social and economic impact on Lesotho”.
“Disruptions to supply chains for major industries and a national shutdown to contain the virus have led to a sharp drop in production. The economy is being further hit by declining external demand for textiles and diamonds, shrinking remittances, and delays to major construction projects.
“The (Lesotho) authorities have been taking strong actions to mitigate the health and socio-economic impact of the pandemic. In collaboration with development partners, they are scaling up urgent health spending, and are introducing measures to mitigate the economic impact, including by boosting social safety nets and ensuring access to credit for affected businesses.
“The economic shock, as well as the additional required spending, has generated urgent balance-of-payments (BOP) financing needs. Emergency financing from the IMF…will help meet these needs and create room for pandemic-related spending,” Mr Zhang said.
He emphasised the need for the government to implement structural reforms to “ensure debt sustainability” and stimulate sustainable economic growth.
Although he did not outline the reforms that Lesotho needs to carry out, the IMF has previously called on the government to reduce the high public wage bill by trimming what it says is a huge workforce.
It has also told the government to only award performance-based salary increments instead of awarding across the board increments as it currently does.
The Bretton Woods institution has also demanded the full implementation of the multi-sector reforms that were recommended by the Southern African Development Community (SADC) in 2016.