VZCZCXRO3247
RR RUEHBZ RUEHDU RUEHJO RUEHRN
DE RUEHMR #0549/01 2741213
ZNR UUUUU ZZH
R 011213Z OCT 07
FM AMEMBASSY MASERU
TO RUEHC/SECSTATE WASHDC 3361
INFO RUCNSAD/SADC COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0020
RUEHMR/AMEMBASSY MASERU 3760

UNCLAS SECTION 01 OF 03 MASERU 000549 
 
SIPDIS 
 
SIPDIS 
 
DEPT ALSO FOR AF/S, AF/EPS; 
PASS TO MILLENNIUM CHALLENGE CORPORATION 
 
E.O. 12958: N/A 
TAGS: ECON EINV EMIN EFIN PGOV CH LT
SUBJECT: LESOTHO SEPTEMBER 2007 ECONOMIC ROUNDUP: ARRESTS, ANALYSIS, 
AND ANOTHER BIG DIAMOND 
 
MASERU 00000549  001.2 OF 003 
 
 
¶1.  SUMMARY: 
 
 
 
- Fitch Puts Lesotho's Economy Under Microscope 
 
- Article IV Consultations: Good Numbers, No Poverty Impact 
 
- Principal Secretary of Justice Arrested 
 
- High-level Chinese Trade Delegation Visits Lesotho 
 
- "One Stop Shop" to Simplify Trade 
 
- Promise in the Mining Sector 
 
 
 
END SUMMARY. 
 
 
 
--------------------------------------------- 
 
Fitch Puts Lesotho's Economy Under Microscope 
 
--------------------------------------------- 
 
 
 
¶2.  In its recently released ratings of Lesotho, Fitch Ratings 
maintained the nation's sovereign credit scores: the nation's 
long-term foreign currency rating remained at "BB-", while the 
short-term foreign currency rating stayed unchanged at "B".  The 
local current long-term rating is at "BB" -- also unchanged. 
The long-term rating of "BB-" implies the possibility of a 
credit risk developing.  Fitch observed that Lesotho is 
vulnerable to near-term changes in financial and economic 
conditions. 
 
 
 
¶3.  Lesotho's credit rating falls in the same bracket as 
Georgia, Nigeria, Turkey, Sri Lanka, and Ukraine.  The country 
owes its credit strength to strong public finances due to SACU 
revenue windfalls.  In addition, Finch viewed the structural and 
institutional reforms to be funded by the Millennium Challenge 
Corporation (MCC) as a strength.  Also, the doubling of mining 
output spurred a GDP growth rate of 6.2% in 2006 -- the highest 
level in ten years.  Finch cited Lesotho's low level of 
development and weak business environment compared with its 
peers as a source of fundamental credit weakness.  Lesotho's per 
capita income in 2006 was US$925, compared a median of US$2,500 
among its "BB" peer group. 
 
 
 
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Article IV Consultations: Good Numbers, No Poverty Impact 
 
--------------------------------------------- ------------ 
 
 
 
¶4.  On August 31, an IMF/World Bank joint mission met with 
Lesotho's development partners as part of its Article IV 
Consultations in Lesotho.  The mission informed the group that 
Lesotho's macroeconomic performance has improved over the last 
two years.  They attributed this sound macroeconomic performance 
and strong external position to SACU revenue sharing, the 
recovery of the textile industry from its 2005 downturn, and 
increased output in the mining sector.  Lesotho maintained a 
fiscal surplus of 15% of GDP, while the current balance 
registered a surplus of 3.7% of GDP. 
 
 
 
¶5.  The delegation's greatest concern was that Lesotho had not 
been able to translate this good fiscal situation into 
broad-based sustainable economic growth reaching the population. 
 Good macro-level numbers have not led to poverty reduction. 
The development partners, including the U.S. Embassy, noted that 
the country does have robust access to donor resources, but must 
tackle a number of domestic problems including a lack of data to 
inform policy decisions, the GOL's low absorptive capacity of 
donor funds, and various human resources gaps.  The IMF/World 
Bank mission concluded that the GOL must develop sound policies 
 
MASERU 00000549  002.2 OF 003 
 
 
to facilitate broad-based sustainable growth and meet the goals 
outlined in Lesotho's Poverty Reduction Strategy (PRS).  They 
also noted the necessity of the GOL's development of a strategy 
to address the anticipated decline in SACU revenues in the 
medium to long-term. 
 
 
 
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Principal Secretary of Justice Arrested 
 
--------------------------------------- 
 
 
 
¶6.  Principal Secretary of Justice, Human Rights, Correctional 
Services, Law, and Constitutional Affairs Ponts'o Lebotsa 
appeared before the Maseru Magistrate Court on September 2007 
charged with two counts of abusing her position.  She is alleged 
to have misused public funds between December 2006 and June 2007 
in connection with an information technology procurement from 
Lesotho Telecom.  Magistrate Mojela Mothebe ordered her released 
on bail. 
 
 
 
¶7.  In an interview on the case, Director of Public Education 
and Corruption Prevention for the Directorate on Corruption of 
Economic Offences (DCEO) Mr. Litelu Ramokhoro stated that 
individuals suspected by his Directorate of crimes are generally 
arrested before trial only if they are not cooperative. 
 
 
 
--------------------------------------------- ----- 
 
High-level Chinese Trade Delegation Visits Lesotho 
 
--------------------------------------------- ----- 
 
 
 
¶8.  As a follow on to the 2006 Beijing Summit of the 
China-Africa Cooperation Forum, a high-level delegation from the 
People's Republic of China (PRC) led by the Assistant Minister 
of Trade (the Ministry responsible for Chinese overseas 
development assistance) visited Lesotho from September 20-22. 
The stated purpose of Assistant Minister Fu Ziying's visit was 
to sign three agreements between the Government of Lesotho and 
the PRC regarding: 1) a grant of 19 million maluti (US$2.8 
million); 2) forgiveness of 44 million maluti ($6.4 million) in 
debt incurred by Lesotho during the PRC's construction of the 
National Convention Center in Maseru; and 3) the construction of 
two rural schools funded by a M10 million PRC grant ($1.4 
million) signed in 2006. 
 
 
 
¶9.  During the signing ceremony, Lesotho's Minister of Finance 
and Development Planning, Timothy Thahane, lauded the expanding 
relationship between the two countries and noted that the PRC 
has provided 255 million maluti ($36.4 million) to the GOL 
through grants and loans.  Major projects supported by China in 
Lesotho include an industrial park in Butha Buthe District, 
Lesotho's National Library, the expansion of state television 
and radio coverage (to be completed October 2007), on going 
assistance for a new Parliament building, food aid, office 
equipment, and farm supplies including tractors. 
 
 
 
--------------------------------- 
 
"One Stop Shop" to Simplify Trade 
 
--------------------------------- 
 
 
 
¶10.  In recognition of the importance of private sector 
development and the growth of the export sector due to the 
African Growth and Opportunity Act (AGOA), the Ministry of Trade 
and Industry and the Lesotho Revenue Authority (LRA) launched a 
"one stop shop" facility on September 18 to cut down on the red 
tape necessary to trade across Lesotho's borders.  In his 
remarks during the launch ceremony, Minister for Trade and 
Industry Popane Lebesa said the new organization will improve 
 
MASERU 00000549  003.2 OF 003 
 
 
the country's international ranking on the ease and cost of 
doing business.  [COMMENT: According to the International 
Finance Corporation, Lesotho is number 114 out of 175 countries 
in terms of the cost and ease of doing business.  It takes 
roughly 92 days to complete the 11 procedures necessary to start 
a business in Lesotho, and it takes an average of 285 days to 
complete the 49 steps necessary to enforce a contract.  END 
COMMENT.]  The facility will provide integrated services to 
businesses including export and import coordination and a new 
simplified and computerized licensing regime. 
 
 
 
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Promise in the Mining Sector 
 
---------------------------- 
 
 
 
¶11.  A 494-carat stone, believed to be the world's 18th largest 
uncut diamond, was unearthed at Letseng Diamond mine in August. 
The diamond will be sold at auction in Europe in the coming 
months.  Recent developments in the mining sector, particularly 
at Letseng mine, show a great deal of promise -- promise which 
is greatly needed in light of the nation's minimal industrial 
diversity.  In the last financial year, diamonds from Letseng 
generated revenues of 750 million maluti ($107 million), of 
which Letseng mines paid 57 million maluti ($8.1 million) as 
royalties to the GOL and 80 million maluti ($11.4 million) as 
income tax to the Lesotho Revenue Authority.  [COMMENT: The 
Letseng mine is 30% owned by the GOL and 70% owned by South 
Africa-based private corporation Gem Diamonds.  END COMMENT.] 
NOLAN