Covid-19 stalls economic activity

Covid-19 stalls economic activity

MASERU-THE Central Bank of Lesotho (CBL) says “economic performance in the second quarter of 2020 has generally been weak” as a direct result of the Covid-19 pandemic.

In a monetary policy committee statement yesterday, the Governor of CBL Dr Retšelisitsoe Matlanyane said the pandemic is continuing to devastate communities while disrupting economic activities.
Dr Matlanyane said output had declined by 1.2 percent in May, relative to a 1.3 percent decrease in April.

“Although the decline reflected restricted domestic and international economic activity due to lockdowns, it was moderate given the partial lifting of the lockdown during the review month,” she said.
The CBL said Lesotho’s economy is likely to contract by 5.7 percent this year as a direct result of the Covid-19 pandemic.

“The output contraction is expected to be led by a decline in economic activity in the textiles and clothing industry (-25.4 percent), construction industry (-20.9 percent) and mining industry (-27.6 percent),” the bank said.
Dr Matlanyane said in the medium term, Lesotho’s economy is projected to recover gradually and grow at an average growth rate of 5.1 percent during 2020-2022.

She however said the growth recovery will be conditional on measures that would be put in place to contain the Covid-19 pandemic.
“However, the expected recovery is likely to come largely at the back of a strong rebound in the mining and construction industries, as well as a broad-based recovery as the Covid-19 containment measures are gradually lifted,” she said.

“The domestic policy responses to the Covid-19 pandemic are also expected to boost the recovery,” Dr Matlanyane said.
The bank said there were mixed signals across three sectors in the labour market.
It said there was an increase in employment in both the government and manufacturing in the first quarter of 2020 while employment of migrant workers continued to decline.

Dr Matlanyane also noted that the rate of inflation had increased from 4.0 percent in May to 4.9 percent in June.
This was mainly due to an increase in the prices of the following categories in the basket – food and non-alcoholic beverages, clothing and footwear, furnishings, household equipment, routine maintenance of the house, recreation, education, alcohol and tobacco.

“In terms of outlook, the annual inflation rate is projected to register 4.2 percent in 2020 before increasing to 4.7 percent and 5.2 percent in 2021 and 2022, respectively,” Dr Matlanyane said.
So far Dr Matlanyane stated that the CBL acted timeously to contain the effects of the Covid-19 shock and maintain macroeconomic stability.
The CBL, she said, has continued to emphasise that preserving adequate reserves to guarantee the peg is of paramount importance, given the fixed exchange rate’s role as the key anchor of macroeconomic stability.

She said within the constraints of the exchange rate peg, the Bank had taken various measures to support the economy.
“These include cutting its policy rate from 6.25 percent in March to 3.75 percent in May 2020,” she said.

“The Bank also postponed the implementation of Basel II.5 to avoid associated rise in capital requirements, and to allow banks to strengthen their balance sheets.”

Commercial banks have been directed to consider relief measures, including payment holidays of up to three months, for previously performing borrowers affected by the Covid-19 crisis.
Insurance companies have also been directed to offer three-month premium holidays, continue claims processing, and allow three-month delays in policy renewals.

“The CBL has also encouraged the use of mobile money, including negotiating fee reductions with mobile network operators and raising prudential limits on transactions,” Dr Matlanyane said.
She said while Lesotho was the last country on the continent to register Covid-19 cases, the number of cases was rising significantly putting pressure on the healthcare system.

“Sadly, fatalities have also started picking up,” she said.
“Indications are that the worst of the pandemic is still ahead.”

Lemohang Rakotsoane

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