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STATEMENT
BY HONOURABLE KELEBONE A. MAOPE, DEPUTY PRIME MINISTER AND MINISTER OF FINANCE
AND DEVELOPMENT PLANNING Maseru
Sun Cabanas, 19th September 2000 |
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| MASERU
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Invitations
for this meeting have been extended to representatives of countries with which
Lesotho has diplomatic relations, and to members of the Interim Political
Authority (IPA) and the Independent Electoral Commission (IEC). The United
Nations Development Programme is involved in the organisation of the meeting and
it is funding its activities. There
is among us this afternoon a special guest who will be taking part in the
proceedings of the meeting. He is Mr Danville Walker, who is the Director of
Elections in Jamaica. He arrived in Maseru last evening. I wish, on behalf of
all, to welcome him, and we look forward to hearing what he has to say and to
learn from him.
Economic Matters In
February this year, Lesotho agreed to a staff-monitored programme of financial
reforms with the International Monetary Fund (IMF). That programme comes to a
conclusion at the end of this month. In presenting my budget to Parliament
earlier this year and in my speech to development partners last April, I
outlined major economic problems facing the country and I indicated that we were
facing budgetary pressures which required careful monitoring of our fiscal
position on a regular basis. I now wish to report in general terms the
performance of the budget to date.
We
estimate that as at the end of September, which is midway through the fiscal
year, revenue will be less than half of the annual budgeted revenue. We note
however that tax collections in the last half of the year normally increase. We
are therefore looking at this position very carefully. I have instructed the
revenue offices to review their present methods of tax collection with the aim
of improving tax administration. The target for revenue collection according to
the IMF programme has, however, been exceeded to-date. In my April speech I
mentioned that value added tax is to replace the present sales tax. I am happy
to announce that the process of building capacity for the introduction of VAT
and improved tax administration has begun in earnest and is on schedule for the
introduction of VAT in October 2001. The VAT bill is due for discussion in
Parliament during October this year. It
is well known that we derive between 40 and 50 percent of our revenue from the
Southern African Customs Union common revenue pool. You will also recall that a
process of negotiating the revenue sharing formula, which began in 1994, has
only come closer to completion as of two weeks ago. The agreed formula will
allow Lesotho and its partners in SACU to share revenue in accordance with their
imports from the union. What remains to be firmed up is the percentage of total
excise revenue that must be earmarked for development purposes. Once agreed, this revenue will be shared in accordance with
members’ per capita gross domestic product. We are confident that this formula
will improve the share of customs revenue in overall government resources. Having
said this, I must recognise that the European Union-South Africa Trade,
Development and Cooperation Agreement will begin to reduce income into the
common pool. The severest impact of this agreement will be felt in the year
2006. We are exploring ways and means of avoiding adverse impacts on the fiscus
as a result of the agreement. Indeed our efforts in tax reform and tax
administration are some of the ways that we are addressing this imminent threat. On
the expenditure side, we observe that actual spending is failing to keep pace
with the budget. There have been some payments that we have had to make that
were not foreseen at the time we prepared the 2000/01 budget. These include: a)
12 million comprising income tax refund charged construction companies
working on Phase 1A of the Lesotho Highlands Water project when such tax should
not have been levied; b)
extra payments involved in the restructuring of the government
transportation system which involved purchase of insurance for motor vehicles. These
extra-budget payments will put pressure on the projected budget deficit of 3.5
percent of GNP, which I announced to you in my April speech. Consequently, I
have asked all government spending points to review their approved budgets with
the aim of identifying possible cuts in order to accommodate these
extra-budgetary payments. Spending
on the capital budget has been less than expectations to-date. Only 66 percent
of the programmed budget for the quarter had been spent by the end of the first
quarter. Although this is traditionally the case, I note that capital spending
is the most important component of the budget in terms of job creation and
poverty relief. In response to this trend, the government has established a
Cabinet sub-committee charged with the responsibility for monitoring the
performance of the capital budget. The members of sub-committee are the five
ministers responsible for Finance and Development Planning, Public Works and
Transport, Agriculture, Cooperatives and Land Reclamation, Education, and
Industry, Trade and Marketing. The
sub-committee has had its first two meetings in which general problems
contributing to poor performance of the capital budget were identified. These
include late approval of the annual budget by Parliament due to late submission
of budget proposals and delays in the implementation of projects. In subsequent
meetings the committee will consider Line Ministry projects currently under
implementation in order to address specific problems related to them. I
noted in my April speech that your contributions to this budget in terms of
grants and loans amounted to no less than 66 percent of the entire capital
budget. At this stage I want to assure you that we have implemented a process
that would ensure that the resources committed are used as intended and as
budgeted. Poverty
Reduction In
our last meeting in April I indicated that by the end of June 2000 we would have
a draft interim Poverty Reduction Strategy Paper in place. This document is
nearing completion and has been circulated in draft form for comments. We are
grateful that some of you have already submitted your comments. A final version
of the document will be submitted to the World Bank and IMF by the end of this
month. It is hoped to submit a full-fledged strategy paper on poverty reduction
by October 2001. IMF-Staff
Monitored Programme As
already stated, the government entered into a staff-monitored programme with IMF
in preparation, if successful, for a full-fledged programme. The programme
entails certain structural and quantitative benchmarks which must be attained
for its success. I wish to state the performance of government with regard to
some of these targets. Financial
Reforms.
Parliament enacted two pieces of legislation, namely, the Financial Institutions
Act 1999 and the Central Bank Act 2000, whose effect is to confer on the Central
Bank of Lesotho monetary policy functions while fiscal policy remains the
responsibility of the Minister of Finance. The Central Bank has already started
monitoring the operations of commercial banks, while rules for regulating other
financial activities, such as collective investment schemes, are due for
publication soon. The
Lesotho Agricultural Development Bank has had to be liquidated; the Lesotho Bank
has been restructured by separating commercial banking from other business, and
then forming a new bank in a new venture between the government and Standard
Bank of South Africa to carry on the commercial banking business, while the
non-commercial business is being liquidated. The building of the liquidated
Lesotho Agricultural Development Bank has been preserved for use by any
interested bank, which might wish to start business in Lesotho. I should mention
that it was a pleasant relief when the expected merger between Nedcor and
Stanbic did not take place. I
have already stated that the value added tax will be introduced next year to
replace the present sales tax. In addition, it is intended to form a unified
revenue authority to combine the functions of the present commissioners of sales
and income taxes, as well as those of the Director of Customs. Implementation of
VAT will be preceded by a vigorous educational campaign to the business
community. Negotiations
for concluding a treaty between Lesotho and South Africa on cooperation in the
collection of revenue at the common borders of the two countries are very
advanced. Reforms
of Utilities. One
area of structural reforms under the staff-monitored programme involves
telecommunications, electricity and water.
In the area of telephones, the Lesotho Telecommunications Corporation has
since been transformed into a private company.
Today, the Cabinet approved, subject to modifications, that 70% of the
shareholding must be transferred to Mountain Kingdom Communications for a fee of
17 million U.S. dollars. The
remaining 30% shareholding will be held by Government for disposal to nationals
of Lesotho. Mountain Kingdom Communications is a consortium comprising Eskom
Enterprises of South Africa, Mauritius Telecom, Econet Wireless Group of
Zimbabwe and Maloti Communications of Lesotho. The
privatised company undertakes to install 40,000 new telephone connections in the
first 12 months of its operations, and to continue that trend upwards, including
1,250 pay phones in the first five years. The company will have to cater for quality service and
Internet access capability in the main commercial centres of the country within
five years. An
independent telecommunication regulatory authority has been established and is
in operation. This body will serve
as a mediator amongst telecommunication operators in Lesotho and will act as a
watchdog of the public interest in this sector. The
government is also selling its stake in the only mobile phone company in
Lesotho. The intention is to remove
government’s involvement in this particular business in order to attract a
second mobile phone company to operate in Lesotho so as to increase competition
in the sector. In
the energy sector, the process of restructuring the Lesotho Electricity
Corporation is underway with financing from the World Bank, the African
Development Bank and the European Union. The process of reform will be preceded by an interim
management team which will manage the corporation for some 18 months starting
hopefully, in October this year. During
the 18 months, a strategic investor will be identified to purchase a stake in
LEC in a joint venture with government. Any
retrenched employees will be assisted to form companies for the distribution of
electricity to consumers. The
proposal is that the interim manager will address, as a matter of urgency, the
backlog of applications for electricity connection and will install prepaid
meters to customers who are already connected to electricity, in order to
improve the collection of electricity bills. Attention
is also being paid to the ‘Muela Hydropower generation station.
In December last year the government reduced the magnitude of the
commercial loans in respect of this project by making payments of up to 263
million maloti to the local commercial banks.
A study is soon to be undertaken to determine how the generation station
might be operated along commercial lines. Legislation
is being prepared to establish an independent electricity regulatory authority,
which will mediate amongst various distributors of electricity. A
study to assess the potential for electricity generation through wind power is
taking place through Nordic assistance. In
addition there will be another study to determine the potential for further
hydropower generation to be funded by the World Bank. The long-term objective is to export electricity to the SADC
region. The
rise of oil prices is a matter of concern all over the world.
It is a matter, which is outside our control. In
the water sub-sector, there are long-term plans to develop the water resources
of Lesotho, and I prefer not to dwell on this matter at this meeting. Quantitative
Reforms.
Concerning quantitative targets, the performance under the staff
monitored programme has not been good in respect of the areas of government
deposits in the banking system, foreign reserves and recurrent budget
expenditures. Concerning
the poor performance of the recurrent budget, measures were taken three weeks
ago to reduce the rapid expenditure within the recurrent budget.
That exercise will most probably result in overall reduction of the
recurrent budget to make it more realistic.
As stated earlier, revenue targets have been attained, but there is scope
for increased tax collection which potential is being taken advantage of by
improved tax collection. We
are hoping to commence negotiations with the IMF probably during the third or
final week of October. Most targets
we set ourselves in terms of the staff-monitored programme have been fulfilled
except for the important benchmarks of government deposits in the banking sector
and reduced recurrent budget expenditures which I said we are trying to address.
We hope for the best.
The
Concerning
the political process, the focus is on the state of preparations for the
expected general elections. This is the area where I will invite some discussion
before the meeting comes to a close.
The
first issue is that of the electoral model. There is still no agreement on this
matter. The Interim Political Authority (IPA) drafted an electoral model, which
was presented to Parliament as a Bill. The National Assembly amended that Bill.
In Senate, that Bill was restored to its original form. There was, therefore as
impasses between the two Chambers of Parliament. The
impasse could have been resolved in one of three ways: firstly, by abandoning
the Bill and leaving matters as they are at present; secondly, by referring the
matter to a referendum of the voters; and thirdly, by commencing the exercise of
passing a modified Bill. At
that juncture, political leaders requested the government to give negotiations
over the matter a chance. Government agreed and talks under the leadership of
Bishop Khoarai of the Catholic Church were conducted. These talks were
inconclusive and the matter was referred to the IPA for decision on a model for
elections. In
the meantime the ruling Lesotho Congress for Democracy (LCD) abandoned its
original position on the matter, namely the issue of democratisation of the
Senate and the so-called parallel mixed member model. The
IPA has now decided on a model called mixed member proportional representation
where there will be 80 members of the National Assembly drawn from
first-past-the-post system, and 50 members selected according to proportional
representation. The
LCD prefers 40 instead of 50 PR members. Parliament will have to determine the
issue. Concerning
the registration of voters, the IPA decided several months ago that finger-print
technology should be used in the registration of voters. Outstanding issues
about the technology are as follows: -
Will the procedure adequately address the cause of the complaints in the
previous elections? -
What will be the cost involved, and if the cost is unduly high, will
Lesotho obtain the necessary support to pay for this technology? -
Will this technology work in Lesotho? I
would wish that these issues be discussed at this meeting so that a clear answer
can emerge. The economic and financial situation of Lesotho is not so good, as I
attempted to show in my statement. There will be continued need for careful
monitoring of the economic situation. The role of international assistance will
continue to be necessary. I
thank you for your attention. Ministry
of Finance and Development Planning Tuesday,
19 September 2000 |