News Brief No. 02/22

News Brief: IMF Completes Second Review Under Lesotho's PRGF Arrangement and Approves US$4 Million Disbursement

March 18, 2002

The Executive Board of the International Monetary Fund (IMF) completed the second review of Lesotho's performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement.¹ As a result, Lesotho will be able to draw up to SDR 3.5 million (about US$4 million) under the arrangement immediately.

Lesotho's PRGF arrangement was approved on March 9, 2001 (see Press Release 01/8) for SDR 24.5 million (about US$31 million). So far, Lesotho has drawn SDR 7 million (about US$9 million).

After the Executive Board's discussion on Lesotho, Mr. Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, stated:

"The Lesotho authorities remain committed to the three-year economic program supported by the PRGF. The program remains broadly on track as all quantitative performance criteria for end-September 2001 were observed. The authorities have put in place plans for the completion of one structural performance criterion, the establishment of the Lesotho Revenue Authority (LRA) by end-December 2002; and one benchmark, the completion and submission to the Auditor General of the 2000/01 public accounts, which did not meet the original timetable set in 2001. Key economic indicators are performing as expected: the overall fiscal stance continued to improve, economic growth picked up, and inflation remained stable.

"Strengthening financial management remains a priority for the authorities. The government is devising a plan to clear the backlog of unaudited public accounts and build capacity in the Accountant General's office through staff training and the filling of the Accountant General position. The timely presentation to parliament of the 2002/03 budget is also welcomed.

"The government is now elaborating a prudent and practical new timetable to make the Lesotho Revenue Authority operational by end-December 2002. The replacement of sales tax with a VAT remains linked to the creation of the new revenue authority. This change is expected to significantly improve the efficiency of the tax system.

"The Central Bank of Lesotho successfully introduced in September 2001 a treasury bill auction for monetary policy purposes, and in the months ahead will finalize the move to indirect monetary policy instruments. The central bank is now developing an integrated strategy for the strengthening of Lesotho's financial markets. The overall objectives remain the development of private sector credit and the safeguarding of bank soundness.

"There has been significant progress towards a full Poverty Reduction Strategy Paper (PRSP), undertaken in a broad-based participatory process. The report is expected to be submitted to the cabinet in the third quarter of 2002," Mr. Sugisaki said.

¹ 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 each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. The government of Lesotho has prepared an interim PRSP, and a full PRSP is expected to be submitted to the cabinet in the third quarter of 2002. 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.