- Lesotho will be pinning its hopes on the promising market prices for the next years while looking at alternative revenue creation to support the country's spending.
Minister of Finance and Development Planning, Tim Thahane, told Parliament today that government will have to continue to guard on its non-capital spending and increase its investments on human development.
"Lesotho will be well-advised to anchor its long-term expenditure planning on the long term growth of domestic revenue. SACU revenues should only be used to finance investment rather than expansion of recurrent budget, in particular wages and salaries. Most countries observe a similar principle," said Mr Thahane.
He noted that SACU revenue had increased from M1,422 million in 2003/4 to M4,900 million in 2008/9 and 2009/10, respectively, adding that in 2010/11 it is projected to decline by 60 percent to M2,162 million and to M1,695 million in 2011/12 before recovering to M3,725 million in 2012/13.
He said the fluctuation is due to a number of reasons, mentioning amongst others, that Customs Duties dominate the Revenue Pool and it is difficult to project accurately what the imports of the member states of SACU are likely to be in any one year since they depend on policy developments in member and non-member states.
"The level of imports affects the customs duties that go into the Revenue Pool, hence the members’ respective shares. Secondly, global trade tariffs have shown a declining trend over the years and may decline much more sharply after the present Round of WTO negotiations. This means the size of the pool will also be expected to decline, resulting in lower shares for members. Third, with an increasing trend towards formation of larger free trade areas, the revenue from customs duties will become less and less," he explained further.
MInister Thahane said it is expected that 2010/11 will see a productive mining sector whose contribution to GDP will increase from 7 percent to 9 percent. The sector, he said, is expected to contribute to Government’s revenues, while in turn the government will continue to support the companies and the adjoining communities with necessary infrastructure.
Looking at the Government Recurrent Expenditures from 2003/04 to 2009/10, he said one observes that they have increased by M4,878 million while domestic tax and non-tax revenues increased by only M2,273 million, and thus SACU revenues financed the extra two billion increase in recurrent costs.
He also mentioned that with the changing trends, the SACU Council of Ministers have recently reaffirmed the commitment of their countries to the objectives of SACU and agreed to work towards making SACU an anchor of the SADC Customs Union.
He added that the ministers further agreed to set a taskforce of senior officials to review how SACU can be modernised and made to contribute to the harmonisation of industrialisation and competition policies.
Speaking on the economic and fiscal performance of Lesotho in 2009/10, Mr Thahane said at the time of preparing the 2009/10 Budget, the global financial and economic crisis had already impacted negatively on Lesotho's economy.
"We had already seen a decline in the demand for our textile exports, reduction in our mining operations and in some cases, total closure of firms leading to worker lay-offs and deterioration in economic activity," he said.
He continued that as a result, government had to present a budget that was intended to counter the effects of the crisis, particularly to secure jobs and preserve the economy, hence, the unusually large budget deficit of around 10 percent of GDP.
He also said the preliminary estimate for growth in 2009 is 2.1 percent compared to 4.4 percent in 2008, which represents a decline of over 50 percent.
"In 2010 growth is projected to recover to 3.6 percent boosted by mining, manufacturing and telecommunications. Inflation on the other hand, has been generally subdued declining from around 10 percent a year ago to 4.2 percent at the end of 2009, largely due to a slowdown in food and fuel inflation," he said.
He also said during 2009, exports, especially of garments, suffered the brunt of a collapse in demand in the United States, which still remains Lesotho’s largest textile market, adding that exports to the US declined by over 30 percent during the two years between 2007 and 2009 and by about 20 percent between December 2008 and December 2009. He also said the market for diamonds has equally been battered by a decline in global prices of more than 50 percent during the same period.
Talking to the specifics of the budget, Mr Thahane said in 2009/10, Government had budgeted revenue of M9,942 million inclusive of grants of M1,079 million, but said however, the expected outturn amounted to M9,379 million, which is M563 million or 6 percent lower than budget.
He said the major contributors to the shortfall are the M390 million retained in the SACU pool to offset higher payments made in 2008/09 and M452 million in grant disbursements that were lower than budgeted. He however also asserted that other revenue sources, especially domestic taxes, are expected to perform above target, thus off-setting part of this shortfall.
Mr Thahane today presented budget estimates totaling M10,476 billion, of which government will be able to finance just over sixty percent.
He said the rest of the budget will be financed through grants and loans from development partners. “These expenditures will be financed through Government Revenue of M6,474 billion; Grants, inclusive of budget support, of M1,809 million from our development partners and M502 million from external soft loans from multilateral development institutions,” he explained.
The minister also explained that the government budget will be financed by making use of Government deposits and introduction of government Bonds.
With a deficit of 12 percent of GDP or M2,034 million, Mr Thahane said government will continue its drive to restrict the growth of the recurrent budget, saying for the coming year a 16 percent cut is being proposed, which means a cut of about M1.331 million from the recurrent budget.
However, he also proposed an increase of 3.5 percent into the capital budget which will see an increase of M119 million. For the year 2010/11 budget year, the government has proposed a recurrent budget of M6,906 billion and M3,570 billion for the capital expenditure.
He also reminded parliament that, in the past, he has expressed the Government’s concern on the low absorption rate for the Capital Budget, but quickly said preliminary estimates, indicate that during 2009/10 at least government may be able to utilise 73 percent of the capital appropriation of M3,450 million. "This is encouraging and we hope that Ministries will effectively implement development projects on time and within budgets because their benefits will touch the lives of the majority of Basotho, while at the same time promoting the growth required for poverty reduction," he said.
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