Lesotho: IMF Executive Board Completes Fifth Review Under ECF Arrangement, and Approves US$8.6 Million Disbursement and Extension of Arrangement

The Executive Board of the International Monetary Fund (IMF) has completed the fifth review of the Kingdom of Lesotho's economic performance under a program supported by the Extended Credit Facility (ECF) arrangement. The Executive Board’s decision was taken on a lapse of time basis.¹ In completing the review, the Board also approved the extension of the ECF arrangement to September 30, 2013 to ensure sufficient time to complete the sixth and final review. The Board's decision will enable an immediate disbursement of an amount equivalent to SDR 5.68 million (US$[8.6] million), bringing total disbursements under the arrangement to an amount equivalent to SDR 44.925 million (US$67.9 million).

In the fiscal year 2012/13 (April to March), the Lesotho economy grew by 3½ percent, with growth negatively affected by a drought. The drought severely affected agricultural production, but the authorities’ adjustment efforts and financial aid by Lesotho’s international partners helped mitigate the impact on fiscal and external balances. Looking forward, it will be important to promote deeper and broader private sector development in order to sustain the favorable growth trend over the long term, as rightly identified in the National Strategic Development Plan (NSDP).

The authorities’ fiscal consolidation efforts are welcome, helping to strengthen international reserves, despite the drought and weak diamond prices. A stronger-than-projected fiscal balance, thanks to spending cuts and enhanced tax collection, has resulted in faster-than-programmed rebuilding of the international reserves cushion. Strong responses from international partners have also helped Lesotho stay on a macroeconomic adjustment path, while sufficiently addressing immediate drought-related needs. For 2013/14, as currently planned under the current fiscal framework, it is important to maintain fiscal consolidation efforts, while safeguarding priority social and growth-promoting capital spending.

The ECF-supported program remains broadly on track. All end-September 2012 quantitative performance criteria were met. Three out of six structural benchmarks through March 2013 were implemented, namely: the submission of the Industrial Licensing Bill and the Insurance Bill to Parliament and the creation of a full-service Large Taxpayers Unit, while the other structural benchmarks have been delayed, partly owing to administrative setbacks.

The three-year ECF arrangement for the Kingdom of Lesotho in an amount of SDR 41.88 million (120 percent of Lesotho’s quota in the IMF) was approved by the IMF’s Executive Board on June 2, 2010 (see Press Release No. 10/224). On April 9, 2012, the Executive Board approved an augmentation of access equal to 25 percent of quota, which has led to a total access of SDR 50.605 million (145 percent of quota) in order to cushion the impact of the 2010–11 flood damage and high international commodity prices (see Press Release No. 12/126).

¹ The Executive Board takes decisions under its lapse of time procedures when it is agreed by the Board that a proposal can be considered without convening formal discussions.