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Luis-Felipe Zanna, Olivier Basdevant, Ms. Susan S. Yang, Ms. Genevieve Verdier, Mr. Joannes Mongardini, and Dalmacio Benicio
Botswana, Lesotho, Namibia, and Swaziland face the serious challenge of adjusting not only to lower Southern Africa Customs Union (SACU) transfers because of the global economic crisis, but also to a potential further decline over the medium term. This paper assesses options for the design of the needed fiscal consolidation. The choice among these options should be driven by (i) the impact on growth and (ii) the specificities of each country. Overall, a focus on government consumption cuts appears to minimize the negative impact on growth, and would be appropriate given the relatively large size of the public sector in each country.
Mr. Alfredo Cuevas

Botswana, Lesotho, Namibia, and Swaziland (BLNS) receive significant government revenues in transfers from the Southern African Customs Union (SACU). As a percentage of GDP and total revenues, these transfers were very large and rising during 2007–09. In Lesotho and Swaziland, SACU transfers exceeded a third and a quarter of GDP, respectively, in 2008/09 ( Figure 3.1 ). 1 The magnitude of these transfers makes public finances in BLNS highly dependent on their evolution. The very high volatility of SACU transfers significantly complicates BLNS’s public

Olivier Basdevant

Following the onset of the global economic crisis in 2008, Southern African Customs Union (SACU) member countries experienced a significant growth slowdown and deterioration of their fiscal balances. This deterioration came from two sources. First was a considerable reduction in SACU transfers, which account for a large share of total revenue for Botswana, Lesotho, Namibia, and Swaziland (BLNS), 1 owing, in part, to the global crisis, which reduced the SACU revenue pool, but also to the procyclicality of the revenue-sharing formula, which aggravated the

International Monetary Fund. African Dept.

Addressing Fiscal Pressures 1 A. Introduction 1. The fiscal outlook remains challenging and absent upfront consolidation the external position will continue to deteriorate. SACU transfers shrunk by a third in FY21/22 and though they are projected to rebound in the short run, the outlook remains subdued and characterized by uncertainty. With the upward drift in spending over time, COVID-induced spending trade-offs are likely to persist if the pandemic lingers. In the absence of consolidation, the government would be forced to either (i) cut spending

Luis-Felipe Zanna, Olivier Basdevant, Ms. Susan S. Yang, Ms. Genevieve Verdier, Mr. Joannes Mongardini, and Dalmacio Benicio

) the creation of the Southern African Development Community (SADC) customs union. Quantifying with precision these risks is a daunting task, but under the preliminary parameters under discussion on the revenue sharing formula, and the impact on trade liberalization, the baseline estimate of the fall in SACU transfers ranges, for BLNS, from 5 percent of GDP to 15 percent ( Table 1 ). From these parameters it is possible to define options for a fiscal adjustment, which is the purpose of this paper. Although the specific magnitude of each shock is yet unknown, the

International Monetary Fund. African Dept.

is calculated using 2021 data. 5. The exchange rate peg provides a nominal anchor and occasional constraint on government spending . Exchange rate and monetary policy cycles are driven by South Africa. In the absence of a formal fiscal anchor, enforcement of the net international reserves (NIR) target acts as a spending brake when SACU transfers dip. This has frequently led to tensions in fiscal-monetary policy coordination between the Ministry of Finance and the Central Bank of Lesotho (CBL). Changes In SACU Revenues, Government Deposits, and IMIR