The Executive Board of the International Monetary Fund (IMF) has approved a disbursement under the Rapid Credit Facility (RCF) equivalent to US$16.5 million and a purchase under the Rapid Financing Instrument (RFI) equivalent to US$32.6 million, to a total amount of about US$49.1 million, to help Lesotho meet the urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic.
The pandemic comes at a time when Lesotho’s economy was already facing challenges. Growth has been subdued for several years, reflecting structural bottlenecks and a weak regional environment, while government finances have struggled to cope with the volatility of transfers from the Southern African Customs Union (SACU) that account for around half of total revenues.
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Even though the country’s relatively well-developed social assistance framework partially mitigates the high levels of poverty, unemployment remains high, and the population suffers from one of the highest rates of HIV infection in the world.
The authorities responded to the COVID-19 crisis through a mix of tax relief and increased spending.
To cushion the impact on the most vulnerable, the authorities expanded social assistance, supporting food production, and providing aid to small businesses through credit guarantees.
The IMF support through RCF/RFI financing would help reduce balance of payments pressures and catalyze other concessional financing, while allowing the authorities to fully mobilize their COVID mitigation strategy.
After the immediate crisis abates, the authorities intend to implement reforms to promote inclusive growth and ensure fiscal expenditures are brought into line with available resources.
Following the Executive Board’s discussion on Lesotho, Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:
“The COVID-19 pandemic is having a severe social and economic impact on Lesotho. Disruptions to supply chains for major industries and a national shutdown to contain the virus have led to a sharp drop in production.
“The economy is being further hit by declining external demand for textiles and diamonds, shrinking remittances, and delays to major construction projects.
“The authorities have been taking strong actions to mitigate the health and socio-economic impact of the pandemic. In collaboration with development partners, they are scaling up urgent health spending, and are introducing measures to mitigate the economic impact, including by boosting social safety nets and ensuring access to credit for affected businesses.
“The economic shock, as well as the additional required spending, has generated urgent balance-of-payments (BOP) financing needs. Emergency financing from the IMF under the Rapid Credit Facility and Rapid Financing Instrument will help meet these needs and create room for pandemic-related spending.
“The authorities’ commitment to transparently plan, use, monitor, and report all emergency funds is crucial to ensuring they reach their targeted objectives.
“Once COVID-19 subsides and in the context of a likely drop in SACU revenues, there is an urgent need to strengthen economic fundamentals and ensure debt sustainability by carrying out fiscal consolidation and implementing growth-enhancing structural reforms.
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“The COVID-19 crisis heightens the importance of a steadfast implementation of pro-growth reforms to ensure sustainable and inclusive medium-term growth.”