Kingdom of Lesotho: Selected Issues and Statistical Appendix

This Selected Issues paper on the Kingdom of Lesotho reviews the broad objectives and key institutional features of the Common Monetary Area (CMA) relating to currency arrangements. The CMA Agreement provides for the three small member countries to have access to South African capital and money markets, but only through prescribed investments or approved securities that can be held by financial institutions in South Africa. Lesotho’s exchange rate arrangement under the CMA shares certain characteristics of a currency board.

Abstract

This Selected Issues paper on the Kingdom of Lesotho reviews the broad objectives and key institutional features of the Common Monetary Area (CMA) relating to currency arrangements. The CMA Agreement provides for the three small member countries to have access to South African capital and money markets, but only through prescribed investments or approved securities that can be held by financial institutions in South Africa. Lesotho’s exchange rate arrangement under the CMA shares certain characteristics of a currency board.

III. The Management of HIV/AIDS in the Kingdom of Lesotho31

A. Background

1. Lesotho has the third highest HIV/AIDS prevalence rate in the world, estimated by UNAID/WHO to be in the range of 28.9–31 percent in 2003. Of the total population of 2.2 million, it is estimated that 320,000 people, including about 22,000 children up to the age of 14 years, have been infected with HIV/AIDS. Orphans and vulnerable children up to the age of 17 years are estimated to number 100,000.

2. The pandemic poses a serious challenge to the achievement of the government’s objectives of poverty reduction, economic diversification, and growth. Lesotho’s recently completed poverty reduction strategy paper declared that HIV/AIDS was a cause of poverty, and also that “poverty is a factor contributing to increased vulnerability to infection.” According to the paper, the workplace, the health care system, and schools are the three areas where the disease has had the greatest impact. Furthermore, the paper notes that the pandemic has weakened Lesotho’s economic performance through high absenteeism, lower productivity, and reduced savings. The government of Lesotho has formulated a strategic response to the epidemic, whose overriding goal is to reduce the prevalence rate by 15 percent by 2007.

3. The rest of this paper outlines the government’s strategy for addressing the incidence of HIV/AIDS32 and reviews its progress in implementing the strategy.

B. The Overall Strategy

4. In 2000, the government adopted the National Policy Framework for HIV/AIDS, which is premised on the judgment that HIV/AIDS is not just a health problem but also a multi-faceted development issue that has social, economic, and cultural implications. The National Policy Framework enlists the efforts of both government and non-government organizations to fight HIV/AIDS and also calls for integrating the core elements of the government’s HIV/AIDS-related polices into all other polices and programs.

5. Lesotho’s first National Strategic Plan for the period 2002/03–2004/05 was drawn from the HIV/AIDS policy framework. In October 2003, it was complemented by a working document entitled “Turning Crisis into an Opportunity: Strategies for Scaling Up the National Response to HIV/AIDS.” (Government of Lesotho, 2003). The document adopts the “Three Ones”, formulated by the WHO as guiding principles, namely that there should be one agreed HIV and AIDS action plan that provides the basis for coordinating the interventions of all stakeholders, one national AIDS coordinating authority with a broad-based multisectoral mandate, and one monitoring and evaluation system.

6. In light of the above principles, the institutions that were initially launched to manage and coordinate HIV and AIDS programs and activities are being reviewed by the newly established National AIDS Commission. Its mandate is to propose revisions to the National Strategic Plan and the existing institutional framework to bring these in line with the three principles mentioned above.

7. Along with the review of existing institutions, the government has decided to focus efforts on the activities and programs simultaneously on two broad fronts. First, it plans to intensify its efforts to arrest the spread of infection through education campaigns and aims to create an environment that is conducive to the prevention of HIV/AIDS. Second, it will scale up its efforts to mitigate the adverse impact on the infected individuals, as well as on their families and communities. As part of its efforts, the government will assist people living with HIV/AIDS and the growing number of orphans, and will expand the use of anti-retroviral drugs by making them more widely available.

C. Progress in implementing the strategy

8. The government has made progress in carrying out the planned improvements in the institutional environment. The bill establishing the National AIDS Commission was approved by the cabinet in June 2005 and was subsequently presented to parliament, with the expectation that it would be enacted by end-September. The bill stipulates that the commission’s mandate is to develop and coordinate strategies and programs for combating HIV/AIDS; facilitate the implementation, monitoring, and evaluation of programs; and provide policy for, and guidance over, the implementing structures. The commission has been launched with the appointment of a chief executive officer, and the design of its organization structure is being finalized. These new institutions are expected to be fully operational by the end of 2005.

9. The strategy of reducing the prevalence rate by 2007 is being implemented through four main programs: the HIV/AIDS infection prevention program; the prevention of mother to child transmission program; the treatment, care, and support program; and the program on impact mitigation.33 Prevention, focusing primarily on youths, is designed to increase their access to condoms, reproductive health information, and health services in general. The prevention of mother-to-child transmission program, as its name implies, provides treatment for pregnant women to prevent the transmission of HIV at birth. The treatment, care, and support component focuses on strengthening hospital and home-based care for people living with AIDS with effective linkages to the community and referrals. In addition, hospital services for the diagnosis of HIV/AIDS and treatment of opportunistic infections will be strengthened in the facilities of both government and nongovernmental organizations. The impact mitigation program focuses on providing support for the dependents of victims of HIV/AIDS, mostly orphans and vulnerable children. Each of these programs is supported by a comprehensive set of goals, impact indicators, and targets, some of which are presented in Table III.1 below.34

Table III.1.:

HIV/AIDS Programs, Outcome Indicators and Targets; 2003-07

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Source: Government of Lesotho (2002)

The list of outcome indicators and targets is not exhaustive.

10. Efforts have been made to strengthen community-based organizations and networks, especially at the local levels, and to improve cooperation with domestic and international development partners. Moreover, steps are being taken to address the problems of red tape, lack of coordination, and weak implementation capacity, which have hitherto hindered the country’s implementation of HIV/AIDS-related programs.

11. To integrate HIV/AIDS prevention and impact mitigation programs with ministries’ recurrent budget allocations, about 2 percent of such allocations are being earmarked for HIV/AIDS-related programs. Over the past two years, about 60 million maloti has been spent annually for this purpose.

12. Lesotho has made progress toward the targets set for the programs. The national HIV prevention and voluntary counseling and testing program has been launched in stand-alone centers. The program for the prevention of mother-to-child transmission is being implemented. Through a universal counseling and testing service that covers, among other sites, line ministries, factories, private sector institutions, and some villages, more and more people are now able to learn their HIV status. HIV testing and counseling services are being provided on a routine basis within such integrated sites as tuberculosis clinics, antenatal clinics, and hospital out-patient departments. Patients in any of those clinics and in clinics in which sexually transmitted infections are treated are also routinely being provided with diagnostic testing. Moreover, the government has launched several behavioral change communications and education programs.

13. To mitigate the impact of HIV/AIDS in affected households, the government has taken a number of steps. It has opened 18 antiretroviral therapy sites in eight districts, where it provides highly subsidized antiretroviral drugs. It has begun to promote community-based support groups to care for infected people, as well as AIDS orphans and vulnerable children. The government is also promoting activities to generate income for orphans and vulnerable children and for support groups that provide home-based care in their communities.

14. Progress has also been made in mobilizing foreign assistance for HIV/AIDS-related programs. The Global Fund for HIV/AIDS has committed to providing grants totaling US$34 million in 2004–2008, of which $6 million has been disbursed. The UNDP, the Southern Africa Development Community, and other bilateral donors have also provided financial support. To ensure that these funds are used effectively, the World Bank has committed $5 million to Lesotho for technical assistance and capacity building.

15. However, key challenges remain. Although the government has made substantial progress, it could be difficult to meet annual program targets. For example, out of 28,000 patients targeted to receive antiretroviral therapy by end-2005, only 5,000 had been reached by mid-2005. Considering the generous funding available, the challenges are mainly human and physical capacity constraints, which contribute to overcrowding at clinics and poor follow-up. As a result of limitations in some of the programs, only about 60 percent of approved Global Fund financing for 2004-05 has been disbursed, implying a slower implementation rate than envisaged. As these constraints cannot be overcome in the short term, a clear action plan to mitigate the problem is called for.

Table 1.

Lesotho: GDP by Sector (at constant 2003 prices), 1998/99–2004/05 1/2/

(In millions of maloti)

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Sources: Lesotho Bureau of Statistics; Central Bank of Lesotho; Lesotho Highlands Development Authority; and IMF staff estimates.

Fiscal year begins April 1.

Fiscal year estimates based on sectoral calendar-year data.

Lesotho Highlands Water Project.

Table 2.

Lesotho: GDP by Sector (at current prices), 1998/99–2004/05 1/2/

(In millions of maloti)

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Sources: Lesotho Bureau of Statistics; Central Bank of Lesotho; Lesotho Highlands Development Authority; and IMF staff estimates.

Fiscal year begins April 1.

Fiscal year estimates based on sectoral calendar-year data.

Lesotho Highlands Water Project.

Table 3.

Lesotho: GDP by Expenditure, 1998/99–2004/05 1/

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Sources: Lesotho authorities; and IMF staff estimates.

Fiscal year beginning in April. Fiscal-year estimates based on calendar-year estimates.

GNP plus unrequited transfers.

Gross national disposable income less consumption.

Government revenues plus grants less government current expenditures (excluding interest payments).

Estimated as a residual.

Lesotho Highlands Water Project.

Equivalent to the external current account balance.

Table 4.

Lesotho: Consumer Price Indices, April 1998 - April 2005 1/

(April 1997 = 100, unless otherwise indicated)

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Source: Lesotho Bureau of Statistics.

Covers all households in six lowland towns, including Maseru.

Based on 2000 Household Survey. CPI for preceding years was revised accordingly.

Start of new series based on revised classification system.

Since January 1994, rent has been excluded from CPI calculations because of data collection problems.

Table 5.

Lesotho: Basic Monthly Minimum Wages, 1997–2004 1/2/

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Source: Ministry of Labor.

Based on legal notices issued in September 1997, December 1998, October 1999, October 2000, September 2001, October 2002, October 2003, and September 2004. The schedule of minimum wages by occupational category was revised in September 2004.

The data for 2004 are not directly comparable with that of 1997–2003 because a new classification system for occupational categories was introduced.

Rate of increase for all categories unless specified as exception.

Table 5.

Lesotho: Basic Monthly Minimum Wages, 1997–2004 1/, 2/

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Source: Ministry of Labor.

Based on legal notices issued in September 1997, December 1998, October 1999, October 2000, September 2001, October 2002, October 2003, and September 2004. The schedule of minimum wages by occupational category was revised in September 2004.

The data for 2004 are not directly comparable with that of 1997–2003 because a new classification system for occupational categories was introduced.

Table 6.

Lesotho: Public Service Employment, 1997/98–2004/05 1/

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Source: Ministry of Public Service.

Fiscal year is April-March.

The established civil service posts exclude teachers, members of the armed forces, and workers paid daily, but include chiefs, parliamentarians, senators, and statutory workers.

Applies from 2002/03 onward.

Table 7.

Lesotho: Central Government Operations, 1998/99–2004/05 1/

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Sources: Ministry of Finance; and IMF staff estimates.

Fiscal year is April-March.

Table 8.

Lesotho: Government Revenue and Grants, 1998/99–2004/05 1/

(In millions of maloti)

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Sources: Ministry of Finance; and IMF staff estimates.

Fiscal year is April-March.

Table 9.

Lesotho: Southern African Customs Union (SACU) Operations, 1998/99–2004/05

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Sources: Department of Customs and Excise; and IMF staff estimates.

Fiscal year (April-March) in which indicated revenue payments are received.

Fiscal year of data on which calculations are based (rates and dutiable base).

Customs and excise revenues as percent of dutiable base (imports and excisable production, and duties) for SACU as a whole (data year).

Basic rate multiplied by 1.42, as initial compensation for disadvantages to smaller members.

One-half of difference between 20 percent and revenue (compensation) rate.

Revenue (compensation) rate plus stabilization factor.

At least 17.0 percent and no more than 23.0 percent; the calculated stabilized rate applies if it falls between 17 percent and 23 percent. In recent years, the lower limit of 17.0 percent has been the operative rate applied to the dutiable base.

Lesotho’s imports (c.i.f. and duty paid, adjusted to include electricity, estimated border shopping, etc.), excisable goods produced and consumed, and duties collected in the data year.

Stabilized rate (actual) times dutiable base. Referred to as “accrued receipts” of data year.

Stabilized rate (actual) times increase in dutiable base from two years earlier (as allowance for growth in dutiable base to revenue year).

Minor adjustments made to account for revisions in base data, usually of previous data year. Calculated here as a residual.

As reported in government revenue data.

Table 10.

Lesotho: Economic Classification of Government Expenditure, 1998/99–2004/05 1/

(In millions of maloti)

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Sources: Ministry of Finance; and IMF staff estimates.

Fiscal year is April-March.

Table 11.

Lesotho: Functional Classification of Government Expenditure, 1998/99–2004/05 1/

(In millions of maloti)

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Sources: Ministry of Finance; and IMF staff estimates.

Fiscal year is April-March.

Calculated as a residual.