In its latest bid to help Lesotho shed its reputation for corruption, the International Monetary Fund (IMF) has urged the government to ensure that plans to establish an independent and well-resourced anti-corruption body are completed as soon as possible.
“Strengthening the rule of law and promoting good governance can help restore confidence and trust,” the IMF team that held meetings in Maseru with the government authorities and other counterparts from the public and private sectors and civil society from May 8 to 19, said in a concluding statement.
The IMF team was led by Mr. Aqib Aslam.
“Plans to establish an independent, well-resourced anti-corruption body, with powers clearly specified in anti-corruption legislation and backed by specialized courts should be completed as soon as possible,” the statement read.
“The government can also undertake a governance diagnostic to provide a comprehensive analysis of key corruption vulnerabilities and governance weaknesses, identify reforms to address them and establish a strategic plan,” it added.
The fund also stressed that underpinning fiscal consolidation with robust public financial management would help ensure oversight and accountability and reduce corruption.
It mentioned that capacity development has helped develop core public financial management functions which it said were yet to be implemented.
“Improving budget processes, procurement, and treasury operations in the Ministry of Finance and Development Planning is critical to strengthening fiscal governance,” it said.
“Robust expenditure control, a transparent and well-coordinated budget process, strong monitoring of state-owned enterprises, and accurate cash management through centralized government accounts would limit spending overruns and arrears and instances of fraud,” it added.
Lesotho has an institution, the Directorate on Corruption and Economic Offences (DCEO), that is supposed to deal with corruption.
However, public trust in the DCEO is dwindling and corruption is a constant theme in the country’s political debate.
Transparency International’s 2022 Corruption Perceptions Index (CPI) released in January this year, revealed that Lesotho, along with many other countries in the world, is failing to stop corruption.
The CPI, the leading global indicator of public sector corruption, ranks 180 countries and territories by their perceived levels of public sector corruption on a scale of zero (highly corrupt) to 100 (very clean).
A review of Lesotho’s standing on the CPI since 2020 demonstrates a woeful regression in the global index over the past three years.
In 2020, Lesotho scored 41, ranking 83 out of 180 countries that were assessed. The following year it scored 38 and was ranked 96 out of 180 countries.
In the latest index (2022) released in January, Lesotho scored a dismal 37 and dropped three places in rank to 99 out of the 180 countries, the worst rank since 2005 when the country was first included in the index.
The highest score the country has ever achieved was 49 in both 2013 and 2014 and was ranked 55 out of 180 countries in both years.
at a dismal Fast forward to 2021, and the country sits at a dismal 44, the same as last year, dropping one place in rank to 70 out of the now 180 countries. The highest score over the past decade was 45 on the 2016 CPI, while the lowest score was 42 on the 2013 index.
In its latest Country Reports on Human Rights Practices published in March this year, the United States of America said the law in Lesotho provides criminal penalties for conviction of corruption by officials but indicated that the government did not implement the law effectively.
“There were numerous reports of government corruption, and some officials engaged in corrupt practices with impunity,” the report read.
The IMF team did not only urge the government to establish an independent anti-corruption body but also stated that an independent Central Bank of Lesotho (CBL) “is paramount for macroeconomic stability”.
“As a small open economy with a large foreign-owned banking sector and a pegged exchange rate, macroeconomic policy objectives should be well-articulated and aligned to ensure that fiscal and exchange rate policies are not in conflict,” the team said in a statement.
It further mentioned that government expenditure and cash management must be consistent with debt sustainability and an adequate level of international reserves to support the peg.
At the operational level, it said, policy coordination and information sharing could be embedded through regular cross-institutional working group meetings.
“The institutional independence of the central bank must also be preserved through the finalization of legislation,” it said.
Public sector wage bill
IMF also stated in its concluding statement that Lesotho’s structural challenges and capacity constraints have reasserted themselves as severe obstacles to growth.
These structural challenges and capacity constraints, according to the IMF, include large, volatile external transfers and persistent weaknesses in public financial management and the size and reach of the public sector.
It said: “Large, volatile external transfers and persistent weaknesses in public financial management have fostered high and rigid public expenditure (50 percent of GDP).
“This includes one of the largest public sector wage bills in the region, averaging over 15 percent of GDP and 75 percent of tax revenue since FY11/12.
“Despite such high public expenditure, the economy has stagnated since 2016 with both real activity and per capita income shrinking by 10 percent—well below the country’s target of 5 percent annual growth to meet national development goals.
IMF further stated that the size and reach of the public sector had distorted incentives in the economy. It said years of fiscal expansion and the prevalence of public enterprises meant that the government was expected to initiate activity and bear the risk of investment.
High credit and setup costs, skills shortages, poor infrastructure, and gaps in legal frameworks also continued to inhibit business development and limit the country’s capacity to attract foreign investment, it said.
Due to these, the space for private sector participation has reduced such that the economy was largely characterised by low productivity, declining private investment, diminishing competitiveness, and high informality.
“As a result, the formal private sector remains small, undiversified, and takes its lead from the government with most micro-, small-, and medium-sized enterprises locked out of financing.
“Instead, bank and nonbank lending are largely concentrated in salaried professionals linked to the public sector, which has also driven increasing household indebtedness,” IMF said.
It said the authorities had consented to the publication of the statement.