JOHANNESBURG - Policy uncertainty and a weak regional environment have depressed growth in Lesotho below the levels needed to reduce poverty and unemployment, the International Monetary Fund said on Wednesday.
In a statement after an IMF staff team led by Joseph Thornton visited the capital Maseru, the fund said high government spending should be refocused on areas that could have the biggest impact on delivering vital services, protecting the vulnerable and supporting private sector growth in the mountain kingdom.
“The economy remains sluggish, as policy uncertainty, weak regional growth, and recurring drought continue to weigh on growth and depress investment and job creation," Thornton said.
"While work on the second Lesotho Highlands Water Project is keeping growth positive, prospects for exports and remittances are unpromising given continued subdued growth in South Africa and depressed prices for key exports."
He said government finances had been eroded after several years of relatively low inflows from the Southern African Customs Union (SACU), with the government incurring new domestic arrears.
A strengthened policy environment could be attained through greater consultation with the private sector. The mission welcomed the authorities’ efforts to improve the business environment through streamlining regulations, including through on-line company registration and licensing, Thornton added.
"The mission discussed budgetary priorities with the authorities, noting that while SACU revenues may show a brief uptick next year, over the long term the trend is downward," the IMF team leader said. Control of current spending would therefore be essential to avoid a reoccurrence of government spending arrears, he said.
The Washington, DC-based institution said further increases in wages and other perquisites of government workers – already among the highest in the world compared to the size of the economy – risked crowding out essential programmes over the short term.
"Ensuring the ability to provide an adequate response to protect the poorest in the event of drought, for example, will require rebuilding adequate buffers, while avoiding the incurrence of large liabilities with dubious benefits in terms of growth or poverty alleviation," it said.
The IMF expects the economy in Lesotho, which has a population of just over two million, to contract by 0.2 percent in 2020. The private sector has singled out corruption as a major obstacle for doing business in the country.
Recent reports said the finance ministry had cancelled irregular government guarantees securing R2.45 billion in loans for the construction of a stadium, an indoor sports arena and athletes village as Lesotho prepares to host the African Union Sports Council Games later this year.
Unemployment stands at around 25 percent and over half of the population lives under the $1.90 poverty line in a country with one of the highest rates of HIV infection in the world.