POVERTY: LESOTHO: Learning to do more with less

 Photo: ALAFA
Lesotho's textile industry has been hit by the recession in the US

MASERU, 18 February 2011 (IRIN) - The Lesotho government has warned its citizens to prepare for a difficult year ahead as the tiny, land-locked country absorbs the effects of the global economic slowdown, including a sharp decline in crucial revenue from the Southern African Customs Union (SACU).
For years, Lesotho has depended on receipts from SACU - a 100-year-old customs union made up of Botswana, Namibia, South Africa, Swaziland and Lesotho - for up to 60 percent of its budget.
The global economic crisis saw Lesotho's share of SACU revenue decline by about 50 percent in the 2010-11 financial year and while those revenues are expected to recover somewhat this financial year, the amount entering the national coffers will continue to decrease as the government repays a deficit owed to the Union.
“The scenario is bad because the country is dependent to a great extent on external sources like SACU which is not very healthy," said Alka Bhatia, an economic adviser with the UN Development Programme in Lesotho.
In a budget speech on 14 February, Finance Minister Timothy Thahane summarized Lesotho's dire financial situation. Not only have government revenues declined, he said, but "Lesotho’s economic growth has shrunk; unemployment, especially among the youth, has increased; our exports have contracted; and, Basotho mine workers in South Africa have been retrenched… This turmoil has placed Lesotho and its people between a rock and a hard place. We must make hard choices."
Analysts fear those choices may include cuts in social spending which would be particularly devastating for a country where about 60 percent of the population lives below the poverty line and 23 percent of adults are infected with HIV.
Speaking to IRIN just ahead of the budget speech, head of economic policy in the Ministry of Finance Motena Ts'olo said expenditure cuts would not include reductions in health and education budgets. Nor would public sector jobs be cut as they have in Swaziland, another country struggling to come to terms with its heavy reliance on SACU receipts.
"Obviously, when there's not enough revenue resources, you can't do things as quickly as you want to do them," said Ts'olo.
She added that significant damage to crops and infrastructure resulting from recent heavy rains is likely to compound the country's financial problems over the coming year. The Disaster Management Authority has estimated the cost of responding to the flood damage at US$68.5 million. In his budget speech, Thahane said the social protection budget would actually increase by 7 percent and public servants would receive a 5 percent salary increase, although there would be a freeze on all new public service posts.

Progress halted on MDGs
Thahane acknowledged that the lack of resources resulting from the global economic crisis had halted Lesotho's progress on some of the Millennium Development Goals, particularly those relating to reductions in child and maternal mortality, combating HIV and TB and eradicating extreme poverty and hunger.
Noting that this year's budget had been the most difficult the government had ever had to put together, he said: "The time has come when we must all learn to do more with less for the sake of our country."
Earlier this month, the government announced that it was about to begin the process of developing a National Strategic Development Plan that will come into effect in April 2012 and run for five years.
In part, the plan will aim to wake the country up from what Prime Minister Pakalitha Mosisili described as the "deep slumber" that SACU revenue had lulled it into.
"[We] need to move away from this dependency on the SACU revenue towards internally generated revenue," said Ts'olo.
She added that the country was also too dependent on the textile industry, which employed over 45,000 Basotho but had suffered significant losses in recent years due to the economic crisis and lowered demand from its sole market - the USA.
"We need to diversify away from textiles into other areas," she said, suggesting that tourism was one sector that could be expanded and the export of local products like sandstone was another.
http://www.irinnews.org/report.aspx?ReportID=91968

POVERTY: SWAZILAND: Facing up to a financial crisis

MBABANE, 12 January 2011 (IRIN) - While Swaziland’s government considers recommendations from the International Monetary Fund (IMF) aimed at staving off economic disaster, the impacts of a growing financial crisis are already being felt by the country's poor. Thabsile Ndlovu, a widower in the mountainous northern Hhohho region has not been able to pay her children's school fees because she cannot travel to town to sell vegetables from her garden.
"The buses are not coming to my area because the roads are now so bad,” she said.
Recent heavy rains have made some roads impassable but the government announced this week that its fleet of road graders was inoperative because it lacked money to buy spare parts.
“At the start of the financial crisis government told us that education and health would not be affected, but we find there are many ways these can be affected,” said Stanley Dube, a financial consultant in the central commercial town of Manzini.
He noted that while government clinics may still be providing basic health services, many patients are finding it difficult to reach them.
Local humanitarian NGOs are also feeling the pinch following a government decision to cut financial support to such organizations by 14 percent.
“Just as prices are going up, government support is going down,” Thembi Nkambule, director of the Swaziland Network of People Living with HIV and AIDS (SWANEPHA), told IRIN.

SACU revenue down
Swaziland is among several smaller countries in the region that have benefitted from a boom in revenue payments from the Southern African Customs Union (SACU) in recent years.
SACU, which comprises Botswana, Lesotho, Namibia, South Africa and Swaziland, applies a common set of tariffs and disproportionately distributes the revenue to member states. It has provided an economic lifeline to Lesotho and Swaziland, in particular, which have small impoverished populations, large numbers of HIV-infected people, and few or no natural resources.
In 2009, SACU revenue accounted for about 20 percent of Swaziland's gross domestic product (GDP). However, the global economic crisis saw SACU revenue drop by about 70 percent in 2010 and further drops are expected over the next few years.
The IMF recently released a report proposing various fiscal adjustment strategies the governments of Botswana, Lesotho, Namibia and Swaziland should adopt in the face of lower SACU revenues.

Job cuts
One of the key recommendations for Swaziland was to dramatically reduce its disproportionately large public sector wage bill. The government has responded by announcing that 7,000 public service jobs will be cut in 2011, a move that may save money but is also likely to compromise public service delivery and further contribute to an unemployment rate that already stands at 40 percent.
Other fixes announced by the government have included the suspension of new hiring, cosmetic cutbacks like an end to the purchase of biscuits for bureaucrats’ afternoon teas, and short-term borrowing.
The IMF report predicts that if government does nothing to confront its economic problems public debt will jump from accounting for 19 percent of GDP in 2010 to 31 percent in 2011, eventually constituting 75 percent of GDP by 2015.
“That’s a doomsday scenario; no country can survive with such a debt load,” said an economist with the Swaziland branch of a South African bank who did not wish to be named.
However, he was unconvinced by IMF recommendations such as introducing value added tax (VAT) to raise revenue to replace lost SACU receipts.
“In a country where two-thirds of people live in absolute poverty... where are the consumers who can pay VAT?” he asked.
He was also skeptical that Swaziland's private sector would be able to attract enough investment to mitigate the effects of the financial crisis.
“While this would be ideal, private investment in Swaziland was on the decline even before SACU receipts were cut and the global recession occurred,” he said.
NGOs to seek more foreign aid
On 12 January, government officials were due to meet key industrial players to discuss ways to raise revenue. A corporate chief executive officer invited to the meeting told IRIN that a proposal to increase mining activity was on the agenda.
However, according to the IMF report, mining revenues, like SACU revenues, are on a declining trend even in countries like Namibia and Botswana which have considerably more mineral wealth than Swaziland. The authors urged governments to consider "measures to bring down the level of spending... before relying on measures to enhance revenue".
Several NGOs working to meet Swaziland’s considerable humanitarian needs, told IRIN they will be seeking more foreign assistance to address expected disruption to government services.
“We do have foreign donors who are sympathetic but because of the world economic situation they are cutting back. It’s a dilemma,” said SWANEPHA’s Nkambule.
http://www.irinnews.org/report.aspx?ReportID=91609

POVERTY: SWAZILAND: A poorer government means more poor people

  Photo: IRIN: A sugar cane cutter at work


Staff at Tikhuba Clinic in Lubumbo region of eastern Swaziland measure out a corn soya supplement that is given to poverty-stricken patients on ARV treatment


Mbabane, 7 December 2010 (IRIN) - Swaziland's declining revenue and a refusal to shelve prestige projects in the face of growing unemployment is exerting pressure on public health services and food production.
The government recently conceded that unemployment was running at 40 percent, despite doggedly maintaining for many years that it was 26 percent, but economists expect this to rise, pushing up already high poverty levels - about two-thirds of Swazis live in chronic poverty.
Subsistence farmers on communal Swazi Nation Land, where about 80 percent of the country's one million population reside, use government tractors for ploughing, but government fuel depots have run dry and the machines are standing idle.
"This is planting season. It is December now, and for six weeks we have not been able to get seeds in the ground," Joshua Mnisi, a farmer in the central Manzini region, told IRIN.
Renting a government tractor costs about US$19 an hour, but private contractors charge twice as much. The extent of the impact on food production will only be known once a food assessment survey is undertaken in 2011.
Swaziland has the world's highest HIV prevalence rate - 26.1 percent – so one in four Swazis between the ages of 15 and 49 is living with the virus, and about half of those infected, or 110 000, are on antiretroviral (ARV) drugs, which can prolong a person’s life.
Prime Minister Sibusiso Dlamini told the National Emergency Response Committee (NERCHA) that the budget for HIV/AIDS would be cut by 10 percent in 2011, just as efforts to intensify the roll-out of ARVs gets underway.
"The ARV rollout is a big budget expense, and the focus of our efforts. What happens now that government has less money to spend on life-saving measures?" said AIDS activist Vusi Kunene.
Public worker retrenchments
A spate of company closures from timber plantations to garment factories resulted in widespread retrenchments in 2010. The government is the country's largest employer, but a drop in revenue from sources such as the Southern African Customs Union (SACU) of about 70 percent compared to 2009, led Prime Minister Sibusiso Dlamini to warn that the financial squeeze could lead to public workers’ salaries not being paid.
SACU - the world's oldest customs union, comprising Botswana, Lesotho, Namibia, South Africa and Swaziland - applies a common set of tariffs and disproportionately distributes the revenue to member states and has provided an economic lifeline to both Swaziland and Lesotho.
The International Monetary Fund (IMF) recommended that the government cut its workforce by a third, or 10,000 employees, because the number of workers on the payroll was disproportionate to the country's size. Political opposition groups have blamed patronage and nepotism for the inflated payrolls.
Government has announced a reduction of 7,000 public service jobs in 2011.
As more business shut and public sector workers are laid off, it is inevitable that more people will join the ranks of the poor
The lay-off of public workers is expected to be cushioned by retirement packages, but the impact of such a substantial number of people being retrenched will have a ripple effect throughout the economy.
"This will result in the consumption rate of our goods and services falling due to less demand, and we will be affected one way or the other," said Fikile Nkosi, managing director of a major bank.
According to the government's Central Statistics Office, one employed person supports, on average, 10 others.
"The customary method of integrating former civil servants into private life is for them to use their government retirement pensions to open small businesses," said Amos Ndwandwe, an economist at a bank in the capital, Mbabane. "It takes years to make a successful business and many fail under normal circumstances, but it is complicated now because higher unemployment means fewer customers."
Numbers of poor increasing
However, government spending on non-essential programmes has not been cut. A recent request by the finance minister for an additional $50 million towards the building of an international airport was approved by parliament and the airport's final cost is expected to be in the region of $1 billion.
Cabinet officials have also awarded themselves substantial pay rises, and have extended retirement benefits to former government officials, contrary to IMF recommendations that public sector wage raises be curtailed. Swaziland is ruled by sub-Saharan Africa's last absolute monarch, King Mswati III.
"For decades government has paid lip service to poverty eradication while concentrating on investment in capital projects. The result is that while a Swazi middle class has expanded, this is just inertia brought on by population growth, because the number of poor has expanded also,” Ndwandwe said.
"In terms of proportion, the numbers are the same as what the UNDP [UN Development Programme] reported in the 1990s - about two-thirds of the people live on one dollar a day - there has not been a dent really in those who live in chronic poverty,” he noted
"All indications are that the percentage is going to change - as more business shut and public sector workers are laid off, it is inevitable that more people will join the ranks of the poor."
http://www.irinnews.org/report.aspx?ReportID=91311