IMF urges Lesotho to woo investors

WASHINGTON – The International Monetary Fund on Thursday urged Lesotho to make itself more attractive to foreign investors as the tiny African kingdom tries to recover from losses to its textile industry.

“Economic growth is still low and much remains to be done to reduce poverty in view of Lesotho’s narrow resource and production base, susceptibility to shocks and high HIV-AIDS prevalence rates,” the IMF said in its annual health check of Lesotho’s economy. “To achieve higher growth and diversify the production base, the authorities need to press ahead with structural reforms aimed at improving Lesotho’s attractiveness as a location for private investment,” it added.The country, which has one of the world’s highest rates of HIV-AIDS, was hard hit by the removal in early 2005 of textile quotas by industrial countries, which led to the loss of about a quarter of the jobs in its once-vibrant garment industry.The manufacturing sector was also hit by the appreciation of Lesotho’s loti currency between 2002 and 2004.The IMF projected that Lesotho’s growth should rebound in fiscal 2006-07 to 2,5 per cent from 1,3 per cent in 2005-06.But it cautioned that the kingdom is still vulnerable to a further loss of trade preferences for the export sector and lower revenue from the South African Customs Union (Sacu).Sacu links regional economic powerhouse South Africa with neighbours Lesotho, Swaziland, Namibia and Botswana, allowing them to share customs revenues according to a formula.Lesotho’s territory is surrounded by South Africa.Fitch Ratings downgraded Lesotho’s local currency rating on September 18 by one notch to “BB” over concerns about the government’s ability to cope with the prospect of lower Sacu revenues.The IMF stressed that Lesotho needed to be prudent in its fiscal strategy, in view of the uncertainty around Sacu revenues.It urged the authorities to contain the wage bill and other recurring outlays.It said the government should offset a reduction in company income tax, which aims to attract investment, by improving its tax administration.The global lender said the country should try to get more support from international donors for help in its battle against HIV-AIDS and widespread poverty.Nampa-Reuters”To achieve higher growth and diversify the production base, the authorities need to press ahead with structural reforms aimed at improving Lesotho’s attractiveness as a location for private investment,” it added.The country, which has one of the world’s highest rates of HIV-AIDS, was hard hit by the removal in early 2005 of textile quotas by industrial countries, which led to the loss of about a quarter of the jobs in its once-vibrant garment industry.The manufacturing sector was also hit by the appreciation of Lesotho’s loti currency between 2002 and 2004.The IMF projected that Lesotho’s growth should rebound in fiscal 2006-07 to 2,5 per cent from 1,3 per cent in 2005-06.But it cautioned that the kingdom is still vulnerable to a further loss of trade preferences for the export sector and lower revenue from the South African Customs Union (Sacu).Sacu links regional economic powerhouse South Africa with neighbours Lesotho, Swaziland, Namibia and Botswana, allowing them to share customs revenues according to a formula.Lesotho’s territory is surrounded by South Africa.Fitch Ratings downgraded Lesotho’s local currency rating on September 18 by one notch to “BB” over concerns about the government’s ability to cope with the prospect of lower Sacu revenues.The IMF stressed that Lesotho needed to be prudent in its fiscal strategy, in view of the uncertainty around Sacu revenues.It urged the authorities to contain the wage bill and other recurring outlays.It said the government should offset a reduction in company income tax, which aims to attract investment, by improving its tax administration.The global lender said the country should try to get more support from international donors for help in its battle against HIV-AIDS and widespread poverty.Nampa-Reuters