VZCZCXRO3188
PP RUEHBZ RUEHDU RUEHJO RUEHRN
DE RUEHMR #0204/01 0931540
ZNR UUUUU ZZH
P R 031540Z APR 07
FM AMEMBASSY MASERU
TO RUEHC/SECSTATE WASHDC PRIORITY 2840
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHMR/AMEMBASSY MASERU 3193

UNCLAS SECTION 01 OF 04 MASERU 000204 
 
SIPDIS 
 
SIPDIS 
 
FOR AF/S 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EFIN PGOV KHIV LT
SUBJECT: MINISTER OR FINANCE AND DEVELOPMENT PRESENTS PROPOSED BUDGET 
FOR FISCAL YEAR 2007/2008 
 
REF: MASERU 0F 008 
 
MASERU 00000204  001.2 OF 004 
 
 
¶1.    SUMMARY: The Minister of Finance and Development Planning 
Dr. Timothy Thahane presented the 2007/2008 National Budget to 
the Parliament on March 30 2007. The Minister's M7.5bn ($1.03bn) 
budget will focus on creating a conducive investment climate and 
Minimum Infrastructure Platform (MIP) hence, the theme: 
"Conducive Investment Climate Essential for Sustainable Economic 
Growth, Job Creation and Poverty Reduction". The budget  strives 
towards accelerating sustainable economic growth, creating a 
conducive climate for investment, Job creation and poverty 
reduction. Thahane argued that investment will remain central to 
strengthening sustainable economic expansion. However, he warned 
that investment alone cannot guarantee economic growth. He said 
it should be accompanied by political and social stability, 
sound macro-economic management, public investment in physical 
infrastructure and support services and sound financial systems. 
 The budget was drawn in line with the country's Vision 2020 and 
Poverty Reduction Strategy.  (Note:  Vision 2020 is the 
country's long term development plan.  End Note.) 
 
 ¶2.    Thahane raised his concerns about deteriorating economic 
and social conditions characterized by the high unemployment 
rate, deepening poverty, armed robbery corruption and nepotism 
in government's institutions. He argued that the country's 
economic performance since Independence had not been sustainable 
enough to adequately reduce poverty and create jobs to absorb 
the annual entrants into the labor market. Performance in the 
Agricultural Sector was another issue for concern. He mentioned 
that the sector's performance as a share of GDP had declined 
from 25% to 17% between 1980 and 2005. 
 
 ¶3.    On the External Sector, the Minister commended the 
country for having done well in the textile industry under the 
African Growth and Opportunity Act (AGOA) registering as the 
number one textile exporter to the USA under this initiative. 
However, Thahane argued that the country can export more given 
3000 product lines eligible for quota under AGOA and have duty 
free access to the USA. He thus urged for Production and Trade 
capacity building to enable the country to take full advantage 
of trade preferences under AGOA.  Thahane thanked donors for 
their assistance in the development sector.  Thahane announced 
the launching of a SADC Free Trade Area in 2008 which is 
expected to increase intra SADC Trade. He mentioned that 
Lesotho's share of trade in SADC is currently at 5% of GDP which 
falls below a regional average of 7%. He asserted that the trend 
is likely to continue given the existing   capacity gaps in 
production and trade. He also indicated that  the country faces 
the same challenge under the EU 'Everything but Arms" (EBA) FTA. 
It is for these reason therefore,  that the budget will support 
initiatives towards diversification of exports to lift and 
sustain the country's Trade/GDP ratio in the regional and global 
markets.  The Minister asserted that Agriculture will continue 
to play a pivotal role in the livelihoods of the rural 
communities (Note: In Lesotho about 90% of the population lives 
in rural areas.  End Note.) END SUMMARY 
 
 
 
 AREAS OF FOCUS FOR 2007/2008 
 
--------------------------------------------- -------------- 
------------------------------------------ 
 
Establishing Investor-friendly climate and Minimum 
Infrastructure Platform (MIP) 
 
--------------------------------------------- -------------- 
------------------------------------------- 
 
¶4.    The  Minister stressed that, the current budget is about 
creating  investor friendly climate and complimentary MIP to 
advance economic growth. Department of Immigration got attack on 
red tape regulations and procedures involved in starting a 
business and securing a trading license. The Minister maintained 
that it costs the country 128 per capita GDP to start a business 
while it costs 40% of GDP to obtain a trading license. The cost 
of starting a business in Lesotho is therefore considered  high. 
 He asserted that there is not really anything to make the 
country an attractive place to do business and arguably that is 
something that should start to drive a way towards reducing 
risks and time taken in starting a business in Lesotho.  To this 
effect the  Minister announced two initiatives aimed at 
resolving the situation. 
 
 ¶5.    The first initiative will be supported by World Bank and 
aims at reducing risks, time and cost of registering and 
licensing companies. This will be achieved  by overhauling 
Lesotho's laws, regulations and procedures. The process will 
include reducing delays in issuance of passports and increasing 
access to financing small and medium enterprises (SMMEs). The 
 
MASERU 00000204  002.2 OF 004 
 
 
second initiative will focus on improving and streamlining 
registration of land titles and leases, developing a mortgage 
financing market and introducing small claims courts as another 
alternative to dispute resolution mechanism. This will be a 
joint initiative with US Government through the Millennium 
Challenge Corporation (MCC).  (Note:  The MCC is currently 
appraising the country's approx. USD 362 Development Compact. 
End Note) 
 
--------------------------------------------- ---------------- 
 
Minimum Infrastructure Platform (MIP) 
 
--------------------------------------------- ---------------- 
 
¶6.    Under the MIP the Minister mentioned the following 
components: 
 
--The start of construction of Metolong dam and its access roads 
and clinics. 
 
(Note:  GOL is expecting $ USD 45 000 from MCC for this project. 
 End Note.) 
 
-$USD 30m Telecommunications investment in Telecom Lesotho to be 
concluded with, China's Exim Bank for the   expansion of network 
throughout the country. 
 
--Expansion of electricity supply, urban water reticulation and 
waste water system and Urban roads. 
 
--Introduction of  automatic check clearing system to shorten 
the time taken before individuals get their checks 
 
--Establishment of employee productivity improvement centers in 
the main Industrial areas. 
 
 -------------------------------------------- 
 
Tourism 
 
------------------------------------------- 
 
¶7.    The Minister indicated that Lesotho's share of tourism to 
GDP is 1.5% which is below the regional average of 7%. He 
mentioned that the budget will support strengthening of tourism 
products and management of the sector by marketing products on 
line through World hotel link. The budget will also consider 
commercial concessioning of key tourist sites . 
 
 ------------------------------------- 
 
Agriculture 
 
------------------------------------ 
 
¶8.    In addressing poor performance in the agricultural sector, 
 which is attributed to unpredictable weather conditions, the 
Minister cautioned that agriculture will continue to play a 
pivotal role in the livelihoods of the rural communities ( Note: 
In Lesotho about 90% of the population live in rural areas.  End 
Note.)  He announced the following  interventions aiming at 
transforming the sector: 
 
-Increasing productivity through irrigating suitable lands 
adjacent to water catchments, rivers and lakes 
 
-Changing crop mix from traditional crops with low cash value to 
high value commercial crops 
 
-Make agriculture full time occupation 
 
-introducing modern agricultural management and scientific 
 
PRIORITY ALLOCATIONS FOR  2007/2008 
 
¶9.    The total expenditure budget of M7bn (USD 1,033) will be 
financed through tax revenue of M6.4bn 
 
(USD 913m) and external grants and loans of M490 (USD 70) and 
loans of M330.7m (USD 47,200) respectively. Government Spending 
will be driven along the Vision 2020 and Poverty Reduction 
Strategy priorities. Therefore, the Minister identified the 
following areas of priority in allocating the 2007/2008 budget. 
 
 -Intensifying HIV and AIDS programs including "Know your 
Status" and Introduction ARV's to infected persons.- M109m (USD 
15.6m) 
 
-Basic Education -M88.4m (USD 12.6m) 
 
MASERU 00000204  003.2 OF 004 
 
 
 
-Industrial Infrastructure and Private Sector Competitiveness 
-M25.9m (USD 15.6m) 
 
-Provision of roads rural water supply electricity and 
construction of foot bridges 
 
-Construction of Metolong Dam M668m (USD 95m) 
 
-Agriculture- horticulture pilot projects on high cash crops and 
irrigated crop production -M59 million (USD 8.4m) 
 
-Tourism- M39 million (USD 5.6 m) 
 
-Public Sector Reform- Financial Management and Procurement 
Reforms- M58.2 million (USD 8.3m) 
 
Budget Economic  Breakdown 
 
Total Expenditure             M7.2 bn 
 
    Recurrent                    M5.3 bn 
 
    Capita                         M1.9bn 
 
Tax Revenue                    M5.8bn 
 
Non Tax Revenue    -        M0.6bn 
 
(non-tax includes water 
 
Royalties and grants) 
 
Adjusted fiscal deficit     M 0.3bn  (3% of GDP) 
 
The speech provided the following Ministerial Allocation 
breakdown (in million maloti) and USD$m) 
 
                                              Maloti 
        USD$ 
 
Agriculture and food security    176.9 
25.3 
 
Health and Social Welfare        838.1 
119.7 
 
Education and Training            1175.1 
167.9 
 
Finance and Planning              1059.6 
151.4 
 
Trade and Industry                      70.8 
  10.1 
 
Justice                                     162.8 
       23.3 
 
Home Affairs                            251.3 
    35.9 
 
Communications & Tech             63.7 
9.1 
 
Prime Minister's Office              115.6 
 16.5 
 
Law & constitutional Affairs          49.1 
  7.0 
 
Foreign Affairs                           204.2 
     29.2 
 
Public Works and Transport        537.6                76.8 
 
Forestry and Land Reclamation     51.3                 7.3 
 
Natural Resources                      377.0 
53.9 
 
Employment and Labour              35.4                    5.1 
 
Tourism, Environment & Cul           79.3                   11.9 
 
Auditor General                            13.3 
  1.9 
 
His Majesty's Office                       9.9 
  1.4 
 
MASERU 00000204  004.2 OF 004 
 
 
 
Public Service Commission            3.6 
0.5 
 
 ¶10. In addition Thahane mentioned that the budget will also 
support two needy groups in the society namely the disabled and 
the elderly. He said the current budget will assist the disabled 
members of the society to live more normal, independent and 
productive lives.  He also recognized the drain of HIV/AIDS 
widespread presence among Basotho citizens.  The Minister did 
not give the details of how the budget would achieve this goal. 
The extra money for the elderly via a monthly increase of M50 
from M150-M200 was welcomed. The low income group received an 
uplift of tax threshold from M11,643 (USD1,663) to M14 000 (USD 
2000) per annum. The Minister further announced a 10% across the 
board salary increase for civil servants. 
 
¶11.  Following the Finance Minister's speech, Parliament was 
adjourned by the Speaker of the House with questions to begin 
April 2. 
 
¶12. Comment: The 2007/2008 presented a positive outlook of the 
economy with a host of programs aimed at creating private sector 
competiveness in the economy and creating Minimum Infrastructure 
Platform for investment.These programs could pay significant 
dividends to the economy upon delivery.  However, in  most 
cases, details did not forth on how these broad goals would be 
implemented. It is then anticipated that  many will reserve 
judgment/evaluation until they see real delivery on the ground. 
Concerns have already been made that the budget does not have 
much to offer for the people on the ground.  Although the 
Minister did not comment on the previous year's budget 
performance,there is a significant increase of 26% in spending 
from last year's budget while most of spending programs remain 
the same from last year's budget. This is a clear indication 
that the government failed to deliver on the same  programs 
outlined in 2006/2007 budget. This could pose a greater 
challenge to the Minister given the fact that his budget was not 
able to  bring the expected results previously, hence the carry 
over to the current budget.  The Minister's emphasis on 
diversification and sustainable economic growth (in the face of 
limited agricultural resources and the AIDS pandemic) was well 
received by development partners.  At the same time, it 
demonstrated the need for both government and donor vigilance, 
accountability and creativity.  End Comment. 
PERRY