Press Release No. 03/87

Press Release: IMF Completes Review Under Lesotho's PRGF Arrangement and Approves US$4.98 Million Disbursement

June 17, 2003

The Executive Board of the International Monetary Fund (IMF) has completed the fourth review of Lesotho's economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. As a result, Lesotho will be able to draw up to SDR 3.5 million (about US$4.98 million) under the arrangement immediately.

The Board also granted a waiver of nonobservance of the end-September 2002 performance criteria on the domestic financing requirement of the central bank and the end-December 2002 structural performance criterion on the construction of the government's balance sheet as of March 31, 2002.

Lesotho's three-year PRGF arrangement was approved on March 9, 2001 (see Press Release No. 01/8) in an amount equivalent to SDR 24.5 million (about US$34.87 million). So far, Lesotho has drawn SDR 14.0 (about US$19.93 million).

The PRGF is the IMF's most concessional facility for low income countries. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.

In commenting on the Board's discussion on Lesotho, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chair, stated:

"The economy of Lesotho continues to perform well under the PRGF-supported program, despite the stresses caused by a serious drought. Economic growth last year was stronger than expected, and inflation has fallen back. The foreign reserve position is sound, competitiveness has been maintained, and exports, in particular textile exports, are strong. The strong and quick response of the authorities, hand in hand with considerable assistance from bilateral and multilateral donors, helped avert development of a full-blown food crisis in Lesotho last year.

"Lesotho's economic program has been generally on track, but fiscal slippages emerged in the first quarter of 2003, partly as a result of agricultural support spending related to the drought. Corrective measures are being taken to bring the budget back to a sustainable basis. Accordingly, the Fund grants the authorities' request for a waiver of performance criteria related to domestic financing of the government, as well as that for construction of the government balance sheet. The authorities are firmly committed to securing a sound medium-term fiscal position, through increased revenues and a disciplined and targeted approach to expenditures. In that vein, the authorities aim to make rapid progress in bolstering spending systems so that budget items can be better matched with policy objectives, with a strong focus on social and poverty reduction programs.

"Considerable progress has been made in the area of tax administration. Establishment of the Lesotho Revenue Authority and the upcoming introduction of a value-added tax will bolster the efficiency and transparency of revenue collections and help to address budget pressures. In the period ahead, administration of the Treasury is to be strengthened.

"The preparation of the full PRSP for Lesotho is proceeding well, although with some delays caused by the extra time needed to coordinate carefully the planning processes that seek to improve living standards—including the government's National Vision program—so that resulting policy recommendations are fully harmonized. The progress made so far in finalizing the PRSP provides a sound basis for support for Lesotho's poverty reduction and social development efforts by the international community," Mr. Sugisaki said.