By Thoboloko Ntšonyane
MASERU- The Central Bank of Lesotho (CBL) has said Lesotho is better off as a productive economy than a consumer-based economy.
The CBL’s Monetary Policy Committee (MPC) said at the back of its 103rd meeting held on Monday this week.
The Central Bank of Lesotho’s (CBL) Governor, Dr Maluke Letete stated that economic prospects would enhance if the country was to prioritize production. He said moving to a production based economy will have prices going down as opposed to when the economy is largely consumer based and largely import at higher prices.
“We need jobs, we need structural challenges addressed,” he stressed.
While the Committee had noted that the economy has generally stabilized, it is concerned that it is not growing.
He also emphasized the need for ongoing discussions by many stakeholders over this issue with a view of finding a remedy.
The CBL’s Deputy Governor, Lehlomela Mohapi also echoed the Chairperson’s sentiments saying the “external sector position fiscal indicators; the inflation- all those things they paint a picture of a relatively stable economy.
“We have attained stability despite all those challenges but the Committee feels that growth is another problem where as a country we can do much better.”
Also, the member of the Committee, Mohapi stressed that the economy is stable but there is a caveat, “it is not growing as it should ”. This he said is an overall observation of the Committee also suggesting dialogue around this issue.
Previously, experts had cautioned that the country’s private sector, which is one of the significant drivers of the economy, was relatively small and lacked the capacity to make a substantial economic impact.
Also, recently, there has been a noticeable increase in the closure and downsizing of factories, due to reported challenges of shrinking markets for their textile products in the United States.
Sharing the Committee’s findings, Dr Letete who also doubles as its Chairperson said, they noted that global economic activity continued to recover gradually from the effects of the COVID-19 pandemic and Russia’s invasion of Ukraine. He noted that however, there are some lingering challenges that are expected to slow down the global economy. These challenges include high inflation rates, policy tightening by central banks, high debt levels, deepening geo-economic fragmentation and rising climate change risks.
He added: “The Committee had deliberated on global, regional, and domestic economic developments, as well as the latest trends in financial markets.”
The MPC reported that the global economic growth is projected to slow down to 3.0 percent both in 2023 and 2024 from 3.5 percent in 2022.
“Economic activity increased across selected advanced and emerging market economies, except in the euro area, where growth slowed down in the second quarter of 2023. Consumer demand, investment and government spending supported growth in the US and India. Economic activity in Japan, the UK, China and South Africa was supported by growth in the manufacturing sector. South Africa’s economic upturn was underpinned by reduced power outages, positively affecting key sectors such as mining and manufacturing. On the contrary, the deceleration in the euro area was attributable to subdued consumer spending, due to high interest rates.
“The labour markets for the selected economies exhibited mixed trends from June 2023 to August 2023. Unemployment rates increased in most advanced economies but remained unchanged in the euro area. In the US, the rise in unemployment rate was attributed to job losses in the transport sector, while the uptick in unemployment in the UK was due to a reduction in the number of self-employed workers. In contrast, unemployment rates in China and South Africa declined. Notably, China’s recent introduction of loan subsidies to firms has boosted youth employment,” said the Committee.
It reported that inflation rates generally fell in the selected advanced and emerging market economies, and this was attributable to decreasing food and fuel prices. Most central banks are also said to have kept their policy rates unchanged since inflation remained elevated.
Dr Letete said short-term yields rose in most advanced economies, except for the euro area, driven mostly by monetary policy direction in respective central banks. In South Africa, he showed that the short-term yields declined while long-term yields rose.
The Chairperson added: “Domestic economic activity experienced an uptick in July 2023, building on modest growth from the preceding month. The expansion was driven by growth in the construction and services sectors, particularly from the transport and financial services. However, this growth was moderated by persistent weakness in manufacturing and subdued demand.
“Looking ahead, the LHWP Phase II project and its associated spillover effects are projected to serve as drivers of growth in the medium term. The continued poor performance of the manufacturing sector, driven by slowing global trade and demand, could negatively affect the economy.”
He said domestic inflation rate fell to 4.5 percent in July 2023 from 5.6 percent in June 2023. This he said was owing to a declining food, fuel, and clothing prices.
Also, the recent moderation in inflation, he noted it continued “weaker” Loti and the risk of El Niño present upside risks to the medium-term inflation outlook.
He also mentioned that the government operations registered a surplus equivalent to 20.6 percent of GDP (gross domestic product) between June and July 2023 due to SACU receipts. During the same period, the Committee observed that the stock of public debt decreased to 55.1 percent of GDP mainly due to currency fluctuations and the redemption of treasury bills.
The Bank has revised downwards Net International Reserves (NIR) from US$820 million about M15, 4 billion to US$710 million approximately M13, 3 billion and this is expected to maintain one-to-one exchange rate peg between Loti and Rand.
Meanwhile, the CBL’s rate remains unchanged at 7.75 percent per annum.
Committee continued: “…global economic prospects for 2023 remained weak, despite some resilience as reflected in the first quarter’s improved economic activity. The domestic economic activity expanded in July 2023 and is projected to improve in the medium-term.
“Inflation moderated substantially but the risks are tilted to the upside due to weak loti and prospects of adverse weather conditions in the near-term.”