- Since February, Lesotho is in a state of emergency due to three years of drought, hunger and a dramatic increase in HIV/AIDS cases. On the other, surprising side, however, Lesotho is experiencing an economic growth well above the African average. For several years, the deepening of the country's humanitarian crisis has been paralleled by a strong GDP growth.
The latest review of Lesotho's economy by the International Monetary Fund (IMF), released today, is in stark contrast to the picture normally painted of the small Southern African kingdom. "Economic growth has been above the average for sub-Saharan Africa, macroeconomic stability has been largely achieved, and the public debt has declined," the IMF review's basic conclusion is.
In fact, the IMF says, "Lesotho has made commendable progress" during the last year. The extraordinary economic growth, whose figure the Fund does not state, was mostly driven by the textile and clothing industry, which "continues to be the key source for economic growth." Therefore, Lesotho was making progress in reaching its poverty reduction aims.
The IMF's broad conclusions on Lesotho are exactly those any African Finance Ministry wants to hear from the Fund. The IMF-prescribed Poverty Reduction and Growth programme is going smoothly, aims are met and Maseru authorities can now look forward to a US$ 5 million loan disbursement from the Fund. All is seemingly well in Lesotho; the economy grows and poverty decreases. Or not?
Even the Fund's review reveals there are problems in the Kingdom of Lesotho. Economic growth had come "despite the continuing drought and an unfavourable external environment." Further, the drought had indeed "worsened the humanitarian situation and a substantial part of the population might need food assistance in 2004/05." Between the lines, the IMF review thus admits that poverty might actually have spread despite the otherwise positive tendencies - due to external shock, of course.
According to the IMF's Deputy Chair, Takatoshi Kato, Lesotho is even bound to meet "substantial challenges" over the medium and long term. In Lesotho's "quest to raise economic growth, reduce poverty, and improve social conditions," the main challenges include increasing competition in the textile sector, a decline in miners' remittances from South Africa, the fragile food situation, and the HIV/AIDS pandemic, according to Mr Kato.
These challenges are already well known to the Basotho. Due to an ongoing drought that started in 2001, the following food security crisis and a dramatic increase in HIV/AIDS cases, the Maseru government in February this year declared a state of emergency. The Central Bank of Lesotho only last month warned that the HIV/AIDS pandemic could reverse most of the development in Lesotho since independence and drive the country into extreme poverty.
According to official figures, nearly one third of Basotho adults are infected with HIV. In 2001, life expectancy at birth was 39 years, almost half of what it was in 1990. This, according to the Basotho Bank, "directly affects the country's productive capacity" and would reverse government's poverty reduction efforts.
Also the fragile situation in the textile and clothing industry - Lesotho's "key source for economic growth," according to the IMF - is known to the Basotho. Foreign textile companies have settled in Lesotho's Export Processing Zones (EPZs) as Maseru authorities could offer favourable conditions luring them to resettle from other poor countries.
Conditions in Lesotho's EPZs include a no tax regime for these foreign giants, extremely low salaries for Basotho labour, no troublesome trade unions and no enforcement of Lesotho's labour regulations. As Basotho workers want their part of progress in increased salaries or improved conditions, the companies are quick to point to other countries where they could settle. What the IMF calls "increasing competition" in the textile sector thus for the Basotho workers means they must stay poor to have work.
According to the IMF's Mr Kato, the answer to Lesotho's increasing poverty problem is sticking to the pro-growth policy that "has made commendable progress." Maseru authorities were therefore expected to "implement an agenda of structural reform" as prescribed by the Fund.
- The objectives are to reinforce the investment climate to support economic growth and job creation, to empower the poor and vulnerable, and to raise the quality and efficiency of public sector service delivery, Mr Kato said.
Last year, the IMF in its review of Lesotho's economic performance made the same observations. Economy had grown tremendously while the humanitarian crisis had grown deeper. Maseru was advised to accelerate structural reforms. Next year - there is little doubt - the IMF will release a very similar review of Lesotho's economy.
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