IMF says country should reduce spending

Grappling with sluggish growth and high levels of poverty and unemployment, Lesotho should try to curb spending, notably by containing wage increases, AFP quoted the IMF as saying on Monday. IMF managing directors, according to a summary of their recent assessment of Lesotho, said that while growth had recovered from a sharp downturn in 1998-1999 and was now above two percent, the country was facing several constraints on economic activity.

The directors in particular pointed to the winding down of a big water project and a decline in mining employment for Lesotho workers in South Africa. Real gross domestic product was projected to expand 2.8 percent this year following 2.4 percent in 2000 and 2.1 percent in 1999. But the IMF described poverty in the country - surrounded by South Africa - as “widespread” and cited a jobless rate of more than 40 percent and a serious HIV/AIDS problem. The IMF commended authorities for their steps to reform the tax administration and to privatise state-owned businesses, including two loss-making banks.

But it also stressed the importance of the government’s commitment to reducing budget deficits, “to be achieved through a compression in current expenditure and an increase in non-customs tax revenue.” The directors cited a need “to contain the growth of the wage bill, while preserving priority social and capital investment expenditures.” The fund stressed that Lesotho needed to take advantage of its close economic ties with South Africa to attract foreign investment and broaden its production base.