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Lesotho has been experiencing an economic shock resulting from a decline in revenues from the Southern African Customs Union (SACU).

The authorities and the mission made significant progress in their discussions on policies that could be supported by the IMF under a financial arrangement.

An International Monetary Fund (IMF) mission, led by Mr. Joseph Thornton, visited Maseru from August 23 to September 5, 2018 to discuss the authorities’ economic and financial program and possible financial support by the IMF.

The authorities and the mission had productive discussions on policies that could be supported by the IMF under a financial arrangement. The program would aim to support growth and employment, and buttress reserves by restoring fiscal sustainability and strengthening public financial management, while ensuring the protection of the most vulnerable.

Mr. Thornton made the following statement at the end of the visit:

“Lesotho has been experiencing an economic shock resulting from a decline in revenues from the Southern African Customs Union (SACU). Public expenditures increased rapidly while SACU revenues were buoyant but have not been reined in as SACU revenues fell after 2015, despite the lack of growth in other revenues sources. The resulting fiscal and external imbalances, if not addressed promptly, would put pressure on international reserves and result in the build-up of government payment arrears.

“The mission discussed with the authorities a number of options for containing the deficit to a level that can be fully financed. The mission noted that the adjustment should be focused on expenditure measures, including efforts to address the public sector wage bill, which is one of the largest in the world compared to the size of the economy, while making efforts to ensure that the most vulnerable are protected. The mission also discussed other possible areas for savings, including on government travel, foreign embassies, and procurement. Discussions also considered measures to modernize tax policy and improve the revenue system. The mission noted the need to address long-standing PFM issues to ensure the provision of reliable fiscal data and ensure sound use of public resources.

“The mission noted the need to accelerate structural reforms to support growth and enhance job creation. It welcomed efforts to review the licensing regime to reduce red tape, modernize the legal framework governing credit, and review the role of the government in the economy.

“Significant progress was made during the visit, and discussions will continue in the coming weeks. If agreement is reached on policy measures in support of the reform program, an arrangement to support Lesotho’s economic program could be proposed for the IMF Executive Board’s consideration.”

The IMF team met with Finance Minister Majoro, Minister of the Public Service Molapo, Governor of the Central Bank Matlanyane and other senior officials. The team also met with representatives of the diplomatic community, private sector, civil society, and multilateral development partners. The team thanks the authorities for their hospitality and constructive discussions.