This DSA updated the previous Joint DSA from July 2020 (IMF Country Report No 20/228). The DSA analysis reflects a debt carrying capacity of Medium considering Lesotho’s Composite Indicator Index of 2.91, based on the IMF’s April 2022 World Economic Outlook and the 2020 World Bank Country Policy and Institutional Assessment (CPIA).
The DSA does not include the central bank’s net liability to the IMF SDR department in line with the Guidance Note for Fund Staff on the Treatment and Use of SDR Allocations (July 28, 2021).
Arrears have been accumulating as Ministries, Departments, and Agencies (MDAs) continue to undertake spending outside of IFMIS. The government is not in arrears on any debt repayments.
The Public Officers Defined Contribution Pension Fund was established in 2008. According to the latest actuarial evaluation of pension liabilities obtained during the mission, the funding gap stands at LSL3.5 billion as of March 31, 2021. The authorities plan to increase contributions to gradually reduce unfunded liabilities.
Frazer Solar GmbH filed a global enforcement action to seize up to EUR50 million of Lesotho’s assets in contractual damages. Following a counter suit against the seizure order filed by the authorities, the South African High Court has temporarily postponed the case.
The fiscal year runs from April 1 to March 31.
Lesotho requested to benefit from the (final) extension of the DSSI. Potential savings have been estimated at US$13.5 million. The DSSI provides a time-bound suspension of official bilateral debt service payments to IDA-eligible and least developed countries.
Following both pandemic- and climate shock-related delays, construction is planned to resume in FY22/23 and wrap up by FY29/30. As the project is financed by capital transfers from South Africa and donor grants, it has no implications for public finances and debt (Annex IV of the Staff Report).
SACU transfers are determined two-years ahead based on regional trade and growth projections. The partial recovery of SACU transfers over the medium term is expected as regional activity picks up (see also Table 3.8 in the National Treasury of South Africa’s 2022 Budget Review). However, compare to historical levels, SACU transfers relative to GDP are still expected to remain muted. The improvement in primary balance is also expected to be driven by slower growth in wages and social spending relative to GDP.
The authorities recently updated compensation of employee inflows in the primary income account. The revision increased inflows by roughly LSL 2.5 billion per year (about 8 percent of GDP).
Under the standardized stress tests this is captured in other flows shock.