The economic consequences of the COVID-19 pandemic in Lesotho have been severe, with a weak global and regional environment reducing exports and remittances. The southern African enclave has seen its vital manufacturing sector hit particularly hard by the crisis.
The IMF yesterday approved $49.1 million emergency support under the Rapid Credit Facility and the Rapid Financing Instrument to help Lesotho meet urgent balance of payments needs stemming from the COVID-19 pandemic. This will help Lesotho meet its urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic.
The pandemic comes at a time when Lesotho's economy was already facing challenges. Growth has been subdued for several years, reflecting structural bottlenecks and a weak regional environment, 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. 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 infection 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 support would help reduce balance of payments pressures and catalyse other concessional financing, while allowing the authorities to fully mobilise their COVID 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.
Following the Executive Board's discussion on Lesotho, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:
“The COVID-19 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 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 under the Rapid Credit Facility and Rapid Financing Instrument will help meet these needs and create room for pandemic-related spending. The authorities' commitment to transparently plan, use, monitor, and report all emergency funds is crucial to ensuring they reach their targeted objectives.
“Once COVID-19 subsides and in the context of a likely drop in SACU revenues, there is an urgent need to strengthen economic fundamentals and ensure debt sustainability by carrying out fiscal consolidation and implementing growth-enhancing structural reforms. The COVID-19 crisis heightens the importance of a steadfast implementation of pro-growth reforms to ensure sustainable and inclusive medium-term growth.”
While the authorities' immediate priority is to respond to the pandemic through emergency health and economic mitigation measures, fiscal consolidation and structural reforms will be required to restore external balance, preserve debt sustainability, and stimulate inclusive growth over the medium-term.
Other organisations are also providing economic support and humanitarian relief. The British High Commission Maseru recently invited NGOs and community based organisations to bid for small grant funding for COVID-19 projects in the country for projects that start by the 15th of August. These grants range up to M100,000 per project.BLOG COMMENTS POWERED BY DISQUS