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Kingdom of Lesotho: Staff Report for the 2014 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund. African Dept.
Published Date:
July 2014
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Relations with the Fund

(As of March 31, 2014)

Membership status: Joined 07/25/1968; accepted the obligations of Article VIII, Sections 2, 3, and 4: 03/05/1997.

General resources account:

SDR MillionPercent Quota
Quota34.90100.00
Fund holdings of currency31.1389.19
Reserve position in Fund3.8110.91

SDR Department:

SDR MillionPercent Allocation
Net cumulative allocation32.88100.00
Holdings34.82142.41

Outstanding purchases and loans:

SDR MillionPercent Quota
ECF1 arrangements50.96146.00

Financial arrangements:

ApprovalExpirationAmount ApprovedAmount Drawn
TypeDateDate(SDR Million)(SDR Million)
ECF06/02/201009/17/201350.6150.61
ECF103/09/200110/31/200424.5024.50
Stand-By09/23/19969/22/19977.170.0

Projected obligations to fund (SDR million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20142015201620172018
Principal0.350.782.134.708.42
Charges/Interest0.000.130.120.12010
Total0.350.912.254.828.52

Safeguards Assessment

An update safeguards assessment of the Central Bank of Lesotho was completed in November 2012 in connection with the augmentation of access under the ECF arrangement approved in April 2012. The assessments confirmed that the CBL has taken steps to strengthen safeguards since the 2010 assessment, but also that risks remain. In 2010, Deloitte (South Africa) was appointed as the CBL’s external auditor. The firm has since completed the audits of financial years 2010, 2011, and 2012 within the three-month statutory deadline and issued an unqualified audit opinion following each audit. Since the 2012 assessment, aspects of the monetary data reporting process have been strengthened with IMF technical assistance.

Exchange arrangement:

Lesotho is a member of the Common Monetary Area (CMA) and the Lesotho loti is both de facto and de jure pegged at par to the South African Rand, which is also legal tender in the country. Lesotho has accepted the obligations of Article VIII, Sections 2, 3, and 4, of the Articles of Agreement and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions. Staff is currently assessing whether certain exchange measures maintained by Lesotho and recently identified by LEG are consistent with Article VIII of the IMF’s Articles of Agreement. As of March 31, 2014, the maloti rate per U.S. dollar was M10.2.

Article IV consultation:

The 2012 Article IV consultation was concluded by the Executive Board on April 19, 2012. Lesotho is on the standard 12-month Article IV consultation cycle.

Technical assistance

The Fund has been providing Lesotho with technical assistance and training to help authorities strengthen their capacity to design and implement effective policies. Technical assistance covers wide range of areas in macroeconomic, fiscal, and monetary. Specific technical assistance projects since 2008 are the following:

Fiscal Affairs Department
Improving Revenue administration fundamentalsShort-term2014
Resources and non-mining taxationShort-term2013
tax policy and mining fiscal regimesShort-term2013
Developing cash managementShort-term2013
Large taxpayersShort-term2012
Develop the post control audit function in customsShort-term2012
Develop risk management functionShort-term2012
Public financial managementShort-term2011
Revenue administrationShort-term2011
Strengthening arrears management and expenditure centralShort-term2011
Public financial managementShort-term2010
Legal Department
Banking laws and regulationShort-term2008
Financial sector regulationsShort-term2008
Monetary and Capital Markets Department
Financial stabilityShort-term2014
Risk management frameworkShort-term2014
Payment system modernizationShort-term2014
Enhancing banking supervisionShort-term2014
Payment systems oversightShort-term2014
Strengthening insurance supervisionShort-term2014
Financial soundness indicatorsShort-term2014
Strengthening liquidity management and capacity building forShort-term2013
financial stability analysis and reporting
Establishment of a risk management functionShort-term2012
Assessing Banking system stabilityShort-term2012
Financial statisticsShort-term2013
Risk management frameworkShort-term2013
Monetary and financial statisticsShort-term2013
Financial stability assessmentShort-term2012
Liquidity management frameworkShort-term2012
National payment systemsShort-term2012
Money market development and capacity building for financialShort-term2012
stability analysis and reporting
Strengthening Insurance supervisionShort-term2012
Banking system stabilityShort-term2012
Financial supervisionShort-term2012
Monetary and Financial StatisticsShort-term2011
Monetary and financial statisticsShort-term2011
Financial sector supervisionShort-term2011
Money marketsShort-term2009
Money marketsShort-term2008
Payment systems modernizationShort-term2008
Bank supervisionShort-term2008
Payment systemsShort-term2008
Payment systemsShort-term2008
Nonbank supervisionShort-term2008
Bank supervisionShort-term2008
Monetary operations/Bank supervisionShort-term2008
Statistics Department
External sector statisticsShort-term2014
External sector statisticsShort-term2013
National accounts statistics-follow upShort-term2013
External sector statisticsShort-term2012
National accounts statisticsShort-term2011
SRF data developmentShort-term2011
Balance of paymentsShort-term2010
Monetary and financial statisticsShort-term2009
Balance of paymentShort-term2008
Government Finance Statistics: GDDS Project for AnglophoneShort-term2008
African Countries

Resident Representatives:

The IMF maintains the Office of Resident Representative in Lesotho. Mr. Michael Tharkur was appointed the Fund’s Resident Representative to Lesotho in April 2012.

The JMAP Bank-Fund Matrix

(As of March 31, 2013)

TitleProductsProvisional Timing of missionsExpected Delivery date
A. Mutual information on relevant work programs
Bank work program in next 12 months
  • Second Growth and Competitiveness DPO

  • Ongoing regular missions

  • November 2014

  • Second Private Sector competitiveness and Economic Diversification project

  • Ongoing regular missions

  • Implementation ongoing

  • Water Sector Improvement Project Phase 2

  • Ongoing regular missions

  • June 2014 (closing date)

  • Smallholder Agriculture project

  • Ongoing regular missions

  • Implementation ongoing

  • Maternal and Newborn Health PBF

  • Ongoing regular missions

  • Implementation ongoing

  • Public Financial Management Reform Project

  • Ongoing regular missions

  • Implementation starts in a few months

  • Integrated Transport Project

  • Ongoing regular missions

  • Implementation ongoing.

IMF work program in next 12 monthsMacroeconomic policy analysis and advice and IMF program
  • Program discussion and negotiations missions

  • June; September, 2014

  • May 2015

Technical assistance
  • Evaluation of off-site supervision

  • January 2014

  • Ongoing

  • Monetary statistics

  • February 2014

  • Ongoing

  • Revenue Administration

  • February 2014

  • Ongoing

  • Risk Management Framework

  • February 2014

  • Ongoing

  • Financial Stability

  • February 2014

  • Ongoing

  • Payment system

  • March 2014

  • Ongoing

  • Balance of payments statistics

  • April 2014

  • Ongoing

  • Risk-based supervision

  • April 2014

  • Ongoing

  • PFM reform

  • Missions in 2014

  • Ongoing

  • Financial Soundness Indicators

  • April 2014

  • Ongoing

  • Review of debt legislation

  • Mid-2013

  • Ongoing

  • Review of mining taxation code

  • Mid-2013

  • Ongoing

B. Requests for work program inputs
Fund request to Bank
  • Periodic updates on the business climate; private sector development; the review of civil service; and capacity building in project appraisal.

Ongoing
  • Periodic updates on budget support.

  • Ongoing

Bank request to Fund
  • Periodic updates on macroeconomic framework; the status of Fund relations with Lesotho, and a follow-up program

  • Ongoing

C. Agreements on joint products and missions
Joint products in next 12 months
  • Debt sustainability analysis

  • Ongoing

  • June 2014

Lesotho—Statistical Issues Appendix as of end-April 2014

Assessment of Data Adequacy for Surveillance

General: Data provision is broadly adequate for surveillance with some key data shortcomings in fiscal and external sector statistics.

National Accounts: Bureau of Statistics (BOS) compiles and reports national accounts statistics on an annual basis. Statistical methods used to derive GDP have improved and new sources of data were developed, although serious challenges remain. National accounts were revised and rebased in 2008 and 2009. New sources of data, including VAT records, the 2008 labor force survey, 2010-11 household budget survey, household consumption surveys, and ongoing economic census (business survey) have improved the quality of the national accounts. Annual GDP estimates in current prices and volume terms from the production, expenditure, and income sides are currently produced and published by the BLS. Other macroeconomic indicators, such as high-frequency industrial production/trade indices, are used to monitor developments during the year. The source data needs to be improved by developing high quality data on intermediate consumption for key economic activities, intra-SACU exports and imports, and gross fixed capital formation in machinery and equipment, and formal and informal construction activities. Private consumption and gross fixed capital formation are now estimated within the framework of a supply and use table, although a discrepancy between supply and use leads to a discrepancy between GDP by activity and expenditure. BOS, with the help of Fund’s TA, intends to begin compiling quarterly national account series.

Price Statistics: The official monthly consumer price index (CPI), a composite of urban and rural price data, is available on a timely basis. The index has been re-referenced to March 2010=100, using 2002/03 Household Budget Survey. The work on developing producer and export price indices is ongoing. In the meantime, the national accounts rely on South Africa’s producer price index and import price indices, used as deflators for imports from SACU- and non-SACU countries, respectively.

Government Finance Statistics (GFS): The compilation of GFS is consistent with GFSM 2001, although the quality, timelines, and periodicity of data have shortcomings. GFS are not provided on a regular basis and the quality of data remains poor, as indicated by significant discrepancies between transactions above and below the line. GFS are compiled from the Integrated Financial Management Information System (IFMIS), supplemented with data from the Lesotho Revenue Authority (LRA), other government departments and units and the banking system. Teething problems experienced with phasing in the IFMIS and in the absence of monthly reconciliation of all Treasury accounts, the coverage of revenue and expenditure data could be incomplete The authorities have been working with international partners, including the EU, the World Bank, and FAD on improving the functionality of the IFMIS and launching monthly reconciliation of all Treasury accounts. GFS is compiled for central government and general government statistics are not available.

Monetary and Financial Statistics (MFS): The Central Bank of Lesotho (CBL) reports monetary data on a regular basis based on Standardized Report Forms (SRFs), with monthly data disseminated through the IFS. Improved data sources helped improve classification and sectorization of accounts. The institutional coverage of MFS needs to be expanded to include other depository and other financial corporations.

Financial sector surveillance: The CBL has begun the process of compiling FSIs on a consistent basis and started by recreating consistent FSIs since 2006. FSIs on depository corporations are reported on a quarterly basis with a lag. However, FSIs on non-financial corporations, households, and real estate markets are not available. A recent mission visited Maseru during April 7–April 11, 2014 to assist CBL staff in the compilation of FSIs according to the FSIs Compilation Guide and work with CBL staff to disseminate the FSI data and metadata on the IMF’s FSI website.

External Sector statistics: Lesotho benefited from technical assistance provided by STA on the compilation of external sector statistics. Until recently, the CBL compiled and disseminated detailed quarterly balance of payments data in accordance with BPM5. The April 2014 technical assistance mission assisted the CBL in converting the quarterly balance of payments and international investment position (IIP) to the BPM6 framework, which eliminated a number of errors and inconsistencies in data. From the subsequent release, data will be published under BPM6 format. External debt database includes outstanding and contracted loans, their currency composition, debt service and amortization, as well as scheduled future disbursements and debt servicing. The centralized database for external grants has not been regularly updated.

Data Standards and Quality

Lesotho is a GDDS participant. GDDS metadata have been posted on the Fund’s Dissemination Standards Bulletin Board since August 2003. Pending metadata updates in GDDS include those referring to recent/prospective revisions of the national accounts, government finance, and balance of payments statistics.

Lesotho: Table of Common Indicators Required for Surveillance

As of April 30, 2014

Date of Latest ObservationDate ReceivedFrequency of Data1Frequency of Reporting1Frequency of Publication1Memo Items:
Data Quality–Methodological Soundness8Data Quality–Accuracy and Reliability9
Exchange RatesApr-16-2014Apr-16-2014DDI
International Reserve Assets and Reserve Liabilities of the Monetary Authorities2Apr-16-2014Apr-16-2014DDQ
Reserve/Base MoneyApr-16-2014Apr-16-2014DDQ
Broad MoneyFeb-28-2014Apr-11-2014MMQ
Central Bank Balance SheetApr-16-2014Apr-16-2014DDQ
Consolidated Balance Sheet of the Banking SystemFeb-28-2014Apr-11-2014MMQ
Interest Rates3Feb-28-2014Apr-11-2014MMQ
Consumer Price IndexFeb-28-2014Apr-11-2014MMM
Revenue, Expenditure, Balance and Composition of Financing4—General Government (GG)5N.A.N.A.N.A.N.A.N.A.
Revenue, Expenditure, Balance and Composition of Financing4–Central GovernmentDec-31-2013Apr-2014AIA
Stocks of Central Government and Central Government-Guaranteed Debt6Dec-31-2013Jan-16-2014MIA
External Current Account BalanceDec-31-2013Mar-7-2014QQQ
Exports and Imports of Goods and ServicesDec-31-2013Mar-7-2014QQQ
GDP/GNPAAA
Gross External DebtDec-31-2013Jan-16-2014MIA
International Investment Position7Dec-31-2013Mar-7-2014QQQ
Sources: Lesotho authorities and IMF staff estimates and projections.

Formerly PRGF.

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