VZCZCXRO3121
RR RUEHBZ RUEHDU RUEHJO RUEHRN
DE RUEHMR #0076/01 0721910
ZNR UUUUU ZZH
R 121910Z MAR 08
FM AMEMBASSY MASERU
TO RUEHC/SECSTATE WASHDC 3603
RUCNSAD/SADC COLLECTIVE
INFO RUEHMR/AMEMBASSY MASERU 4018

UNCLAS SECTION 01 OF 02 MASERU 000076 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR AF/S, AF/EPS 
 
E.O. 12958: N/A 
TAGS: ECON ECIN EAID PGOV LT
SUBJECT: LESOTHO: EXPANDED BUDGET SUPPORTS INFRASTRUCTURE, CIVIL 
SERVICE 
 
 
MASERU 00000076  001.2 OF 002 
 
 
¶1.  SUMMARY:  In February, Minister of Finance and Development 
Planning Dr. Timothy Thahane presented a 2008/2009 budget to 
Lesotho's Parliament that towers 23% over last year's government 
expenditures.  Minister Thahane praised new government 
initiatives, such as increased spending on infrastructure, 
heath, education, and business development, and warned about 
threats to the economy such as declining transfer payments from 
the South African Customs Union (SACU) and turbulence in the 
fragile textile sector.  A 15%-30% increase in the wages of 
Lesotho's civil servants will make one of Africa's most 
expensive public payrolls per capita even pricier.  END SUMMARY. 
 
---------- 
The Budget 
---------- 
 
¶2.  On February 13, Minister of Finance and Development Planning 
Dr. Timothy Thahane presented the GOL's 2008/09 budget to 
Parliament.  The budget places the GOL's total expenditure and 
net lending at M9.1 billion (approximately $1.3 billion), of 
which 88% is financed by domestic revenue and the remainder is 
funded by grants and soft loans from multilateral banks and 
development institutions.  The budget is 23% larger than the 
previous year.  Total GOL revenues are projected to be M9.0 
billion, leaving a projected budget deficit of M399.4 million 
(approximately $57 million, or 2.9% of GDP).  These expenditures 
include a 15%-30% salary increase for civil servants, which is 
much greater than the previous year's 10% inflation salary 
adjustment.  The GOL's 2008/09 wage bill will account for 23% of 
the government's total expenditures. 
 
¶3. Minister Thahane stated that the non-wage budgetary increases 
were largely focused on the following areas: 1) building 
economic infrastructure including urban and rural roads, 
telecommunications, water, and electricity; 2) investing in 
health and education,; 3) "unleashing the energies of private 
sector" through reduction of red tape and the high bureaucratic 
costs of doing business; and 4) addressing the financing 
constraints for small, micro, and medium sized enterprise, 
particularly for women and youth, and diversifying export 
products and markets. 
 
-------------------- 
Risks and Challenges 
-------------------- 
 
¶4.  In his budget speech, Thahane discussed several challenges 
for the GOL regarding the implementation of the 2008/09 budget. 
First, he mentioned that AGOA preferences now do not fully 
shield Lesotho's textile sector from large, experienced, and 
aggressive competitors such as Vietnam, Cambodia, Bangladesh, 
China, and India.  Second, Thahane mentioned that Lesotho's 
dependence on customs transfer payments from SACU poses a 
challenge given the slowdown in the South African economy and 
global reductions in tariffs as a result of trade 
liberalization.  He asserted that these factors will negatively 
affect the SACU revenue pool, as well as Lesotho's share of it. 
Managing SACU revenues and building adequate reserves for the 
future are therefore critical for Lesotho, said Thahane. 
 
¶5.  According to Thahane, the Government of Lesotho is concerned 
about the exodus of its labor force to other countries, the low 
standard of living for its people, and that its weak economic 
growth is not sufficient to create jobs and reduce poverty.  In 
addition, the country is experiencing daunting challenges from 
global competition in the textile manufacturing sector, and an 
investment climate which should be improved.  The Minister 
stated, "Lesotho cannot afford to lose to other countries the 
race for jobs, the race for better life for its entire people, 
and the race for high sustainable and shared economic growth." 
 
--------------------------------------------- ---- 
An Expensive Civil Service, But Good Transparency 
--------------------------------------------- ---- 
 
¶6.  COMMENT: Following the budget speech, local newspapers 
primarily commented on the hike in civil servant salaries, which 
are poised to make one of Africa's most expensive public 
payrolls per capita even pricier.  While Minister Thahane 
appears fully cognizant of major problems for Lesotho's future 
revenue stream, such as trouble in the textile industry and 
declining SACU revenue sharing payments, the GOL still poured 
massive new spending into enlarging recurring expenses (i.e., 
government wages).  However, as the GOL has operated in the 
black for several consecutive years, such issues raise only 
passing concern. 
 
¶7.  Of greater interest than the actual figures, perhaps, is the 
transparency involved in this annual budget exercise.  Thahane's 
presentation to Parliament, observed by the diplomatic corps, 
 
MASERU 00000076  002.2 OF 002 
 
 
was one of the GOL's highest profile events of the season.  On 
the evening of the budget speech, Thahane addressed a question 
and answer session hosted by a local bank and attended by 
diplomats and a range of private sector representatives.  He 
subsequently returned to Parliament for subcommittee and general 
debate and scrutiny of the GOL's budget.  Although the governing 
party's majority assures eventual passage of the budget, the 
GOL's transparency has helped increase local confidence in the 
nation's fiscal endeavors.  END COMMENT. 
NOLAN