GDP has grown but challenges lay ahead, IMF

Despite severe weather conditions and regional food shortages, Lesotho's economy performed well in the 2002/03 fiscal year, concluded a recent International Monetary Fund (IMF) review. The economy grew by almost four percent, from less than three-and-a-half percent in the previous year. Much of the improvement was attributed to strong textile exports to the United States under the African Growth and Opportunity Act (AGOA). Lesotho received preferential access to US markets under AGOA in 2000, including an exception from AGOA rules of origin until 2004 attracting investment from Asian-owned textile factories keen to export to the United States. Since it joined the programme, the country has experienced a considerable boom in the garment sector, with increased employment opportunities. However, the Fund cautioned that if the current exception from the AGOA rules of origin was not extended beyond 2004, the current rate of economic growth would not be sustainable. The rules of origin state that fabric used by the textile factory must originate from the US or a qualifying African country. At the moment the bulk is from Asian-states. Despite marginal growth, the small landlocked country faced daunting medium-term problems, said the IMF, and one of the key causes of concern was the fall in agricultural production in recent years. Lesotho is facing yet another year of severe food shortages - some 57,000 mt of food is needed to feed between 600,000 and 700,000 people until the end of the 2004-05 harvest, and Prime Minister Pakalitha Mosisili was forced to declare a countrywide food emergency this week. While poor weather had jeopardised crop production during the last two years, gradual soil degradation had worsened the situation. According to the World Food Programme (WFP), in the mid-1970s the average maize and sorghum yields were about 1,400 kg/hectare, but they now average 450-550 kg/ha. The UN agency warned that unless the country took steps to reverse soil erosion, agricultural production could cease altogether. The HIV/AIDS epidemic was also seen as major risk to Lesotho's medium-term prosperity. Almost one-third of the adult population is living with HIV. "Increasing morbidity, combined with declining land quality, is likely to lower productivity in agriculture," the IMF report noted. The spiralling HIV infection rate was also expected to place an enormous strain on the country's meagre financial resources. The government had not sufficiently curbed overspending, and the IMF called for reform of the public management system. "The monitoring of the fiscal performance needs to be accurate, swift and timely, in order to give ministries sufficient information to correct deviations from the budget at an early stage," the Fund suggested. It also encouraged the authorities to work towards removing "major impediments" to economic growth, such as the lack of an adequate physical infrastructure and insufficient access to bank credit.