Statement by the IMF Staff Representative

Lesotho is a small, landlocked, low-income country, with limited natural resources and a narrow production and export base. In recent Article IV consultations, IMF staff has emphasized the importance of ensuring that increases in outlays for poverty reduction are consistent with fiscal sustainability and absorptive capacity. However, economic activity has remained sluggish, reflecting the adverse impact of exogenous shocks. Fiscal management is becoming more challenging. The authorities are making efforts to implement their poverty reduction strategy. The political situation is relatively stable.

Abstract

Lesotho is a small, landlocked, low-income country, with limited natural resources and a narrow production and export base. In recent Article IV consultations, IMF staff has emphasized the importance of ensuring that increases in outlays for poverty reduction are consistent with fiscal sustainability and absorptive capacity. However, economic activity has remained sluggish, reflecting the adverse impact of exogenous shocks. Fiscal management is becoming more challenging. The authorities are making efforts to implement their poverty reduction strategy. The political situation is relatively stable.

This statement provides an update on economic developments since the issuance of the staff report. These developments do not change the thrust of the staff appraisal.

  • The Southern African Customs Union (SACU) Council has indicated its intention to distribute additional windfall SACU revenue during fiscal year 2006/07. The magnitude and timing of the receipts are expected to be determined in October 2006. The authorities stated that they plan to pursue a prudent fiscal policy and resist pressures to spend.

  • The exchange rate of the loti against the US dollar moved from M7.0 at the end of July 2006 to M7.6 at end-September 2006, in line with the weakening of the South African rand/US dollar exchange rate.

  • Gross international reserves rose from US$564 million, representing about 5 months coverage of import of goods and nonfactor services at end-March, to US$604 million at end-September 2006, representing 5.2 months of coverage.