The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of the Kingdom of Lesotho’s economic performance under a program supported by the Extended Credit Facility (ECF) arrangement. In completing the review, the Board also approved a waiver for the missed continuous cumulative quantitative performance criterion on new nonconcessional external debt contracted or guaranteed by the public sector. The Board’s decision will enable an immediate disbursement of an amount equivalent to SDR 5.68 million (US$8.7 million), bringing total disbursements under the arrangement to an amount equivalent to SDR 39.245 million (US$60.2).
The three-year ECF arrangement for the Kingdom of Lesotho in an amount of SDR 41.9 million (120 percent of quota) was approved by the IMF’s Executive Board on June 2, 2010 (see Press Release No. 10/224). On April 9 2012, the Board approved an augmentation of access equal to 25 percent of quota, which has led to a total access of SDR 50.605 million (145 percent of quota) in order to cushion the impact of the 2010–11 flood damage and high international commodity prices.
Following the Executive Board’s discussion on Lesotho, Mr. Min Zhu, Deputy Managing Director and Acting Chair, issued the following statement:
“Lesotho has maintained robust growth despite adverse weather shocks while inflation continues to moderate, partly reflecting easing in international commodity prices. Though international reserves fell as a result of adverse exogenous shocks, strong fiscal adjustment efforts have been made to restore fiscal and external sustainability. Additional donor assistance is being sought to address the weather-related shocks and cushion their impact on the balance of payments.
“The 2012/13 budget is appropriately targeted at further increasing the surplus, largely through enhanced tax collection. Further efforts are needed to improve public financial management, while safeguarding critical social and development spending. Considering downside risks associated with the global and regional economic outlook, and given the desirability of maintaining the exchange rate peg, the fiscal consolidation path should be maintained to rebuild international reserves.
“The authorities have made further progress in implementing structural reforms to support’ private sector–led growth and economic diversification, through enacting the new Companies Act and finalizing the Industrial Licensing Bill. These reforms will help to further improve the business climate and boost external competitiveness.
“Steps are being taken to develop a sound financial sector. Key measures include adopting regulations for the new Financial Institutions Act, reinforcing the supervisory role of the central bank, and broadening access to financial services. With technical assistance from the Fund and the World Bank, the Central Bank of Lesotho plans to formulate a financial sector development strategy.
“Inaccurate data on public sector new nonconcessional external debt, provided for the previous reviews under the ECF arrangement, resulted in noncomplying disbursements. In view of the authorities’ corrective actions taken and planned to strengthen debt management and monitoring, the Board decided to waive the nonobservance of the performance criterion that gave rise to the noncomplying disbursements,” Mr. Zhu added.