Context. For several years, Lesotho achieved solid economic growth with only moderate inflation; however, this growth lacked inclusiveness and poverty has remained widespread. Most recently, growth has begun to slow, partly reflecting spillovers from South Africa, as well as uncertainty at home. Lesotho relies heavily on revenues from the Southern African Customs Union (SACU) to finance large government expenditures, but these revenues are highly volatile. Need for Fiscal Adjustment. SACU revenues will fall sharply in fiscal year 2016/17 (April-March), with much of this fall expected to be long-lasting. Although Lesotho has built substantial international reserves and fiscal buffers, a major fiscal adjustment over the next 2-3 years will be needed to maintain macroeconomic stability. Containing the government wage bill-which at 23 percent of GDP is the largest in sub-Saharan Africa-will be central to a successful adjustment. Progress on reforms to public service administration and public financial management is also critical. Better targeting of government transfers is necessary for social protection.
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|Size: ||2.9 MB|
|Publisher: ||INTERNATIONAL MONETARY FUND|
|Date published: || 2016|
|ISBN: ||9781498362979 (DRM-EPUB)|
|Read Aloud: ||not allowed|