MASERU — The global economic crisis that has ravaged other countries for the past 12 months has arrived in Lesotho and it is likely to stay here for the next three years, according to Finance Minister Timothy Thahane.
He issued the warning during Thursday’s parliament session.
Thahane said Lesotho will have to brace itself for some painful decisions because the economy is headed for stormy waters triggered by the global crisis.
“The message is simple and sombre,” said Thahane during his economic update in the august house.
“Mammoth challenges lie ahead. Dark clouds hang perilously over our future as a nation.”
He told parliament that over the next three years the government is likely to get substantially less money from taxes — its major source of money — because of the global financial crisis.
Over the next three years Lesotho’s share from the Southern African Customs Union (Sacu) is likely to plummet by about 65 percent, Thahane said.
That means between this year and 2011 Lesotho will lose a whopping M3 billion in revenue.
The results might be disastrous as Sacu revenues make up 60 percent of Lesotho’s annual budget.
The main reason is that the union — which includes South Africa, Namibia, Lesotho, Botswana and Swaziland — has seen a massive dip in its revenues.
For instance, this year alone collections in the union are estimated to drop by a massive M11 billion from the initially expected M49 billion.
“For Lesotho this means a decline in our share from M4.918 million in 2009/10 to M1.733 million in 2011/12 or 65 percent decrease over three years,” Thahane said.
He added that the impact will be worse because VAT collections will also “decline sharply”.
VAT is tax that you pay on every product that you buy.
For instance, if you go into a shop today to do groceries the government will get 14 cents on every loti that you spend on the products.
“The (financial and economic) crisis was transmitted through four channels,” Thahane said.
“The first transmission channel of the crisis into Lesotho was through trade.
“The demand for Lesotho’s textile and clothing exports virtually closed.
“The Asian Banks that used to provide trade finance to the parent companies of those in Lesotho ceased to do so.”
Thahane said the crisis caused textile product buyers to take a long time before paying.
Lesotho’s textile industry, he said, was heavily reliant on the United States market which has been hit hard by the crisis.
This, according to him, resulted in the local firms experiencing cash liquidity problems.
“Buyers took longer to pay and local firms experienced severe cash liquidity as banks stopped giving credit,” he said.
“Layoffs of workers in the textiles occurred and smaller companies folded.”
Thahane said the international market price for diamonds also collapsed, forcing Lesotho’s biggest mine to cut jobs.
This also showed a direct impact of the global financial and economic crisis to Lesotho.
“The price of diamonds internationally collapsed, falling from about $2 000 (about M15 080) to less than $900 (about M6 786.18) per carat,” he said.
“Two diamond mines closed and our biggest gem exporter, Letséng (Diamond) Mine, cut operations and reduced staff.
“Revenues which government received from diamonds were drastically cut with resultant negative impact on government budget.
“The situation is bad. We are facing a difficult year ahead.”
Thahane said the situation meant that Lesotho’s budget might be affected.
He said it further meant that the unemployment rate — currently at 45 percent — might increase.
“The impact of this global financial and economic impact of Lesotho as transmitted through the above channels means a huge financing gap in our budget for the foreseeable future,” Thahane said.
“It means potentially increasing the loss of jobs for most of our people.”
About 1 235 Basotho have lost their jobs in the manufacturing sector, while 650 Basotho were also retrenched from South African mines as a result of the global financial and economic crisis by the end of June.
“This has undermined the remittances from income of the mineworkers,” he said.
Thahane said the government has given M50 million to the Lesotho National Development Corporation (LNDC) to enable manufacturing firms to continue operating.
“Faced with this bleak situation the government’s immediate goal is to preserve jobs by putting in place support systems that will enable our manufacturing firms to retain their productive capacity and to look for alternative markets,” he said.
“In the trade sector, this has meant giving LNDC M50 million to inject cash into those companies that have their headquarters in Lesotho by taking equity and a seat on the board.”
Thahane said the government will consider cutting its expenditure.
“The government will consider reducing costs where necessary,” he said.
He said due to the declining revenues “it is extremely important that there are hard decisions to limit expenditure to levels that the country is able to finance”.
A reduction in revenues means the government might be forced to cut on other crucial social expenditures.
For instance, the government might decide to reduce or narrow the scope of subsidies to the health and education sectors.
The government might also decide to introduce new taxes or increase the current ones.
All these measures are likely to affect the poor, who make up the majority of Lesotho’s 1.8 million people.
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