Majoro’s maths headache

Majoro’s maths headache

MASERU – Finance Minister Dr Moeketsi Majoro has zeroed in on the wage bill as he tries to trim runaway government expenditure.
He said the wage bill which is eating up half of the budget has grown faster than the national output. This increase, the minister said, was funded by windfalls from SACU revenues or pinching money meant for goods and services.
“There is therefore an urgent need to adopt measures to reduce public spending as a percentage of GDP, including those aimed at curbing the growing wage bill,” Dr Majoro said.

“Due to inadequate revenues to finance future increases in the wage bill, the solution lies in either laying off civil servants or ensuring that the economy grows faster than the wage bill or a bit of both.”
He said to put the country on the path to reduce the wage bill there will be no salary increase for civil servants this year.

Dr Majoro said this year’s spending at been slashed by 2.2 percent of the national output, by trimming “every component of spending”. Capital spending will be allowed to go up by a marginal 0.05 percent.
He said although Lesotho’s financial challenges are well known there has been a dire lack of political will to implement the necessary changes.
He however said although this will be a rough year there are signs that the “worst is behind us”. “
“That said, this fiscal crisis should not be wasted. Lesotho must emerge stronger; its economy must be restructured to provide for more private activity and jobs.”

The minister said there are three options to consider as possible ways to balance its books:

  • Government must contain the impact of the volatility of SACU revenues by designating a fraction of annual SACU inflow that is consistent with permanent revenue and set up a rainy day fund from which annual shortfalls in SACU revenue can be augmented. This would require that Government runs budget surpluses during years of SACU windfalls; and this is where past governments have lacked will.
    Past decisions of raising wages from temporary revenues have been dangerous and have created the current untenable situation. In FY2019/20 the Ministry of Finance will propose the adoption of a fiscal rule which shall then be passed as law to regulate the volatility in SACU revenues.
  • The government must ensure that shared economic growth rises faster than the rise in wages. Practically, this means that private investment in sectors whose income is retained in Lesotho such as agri-business, tourism, and manufacturing, must rise much faster. This also means that annual growth rate of GDP must be on the order of 5-10 percent annually and consistently for many years. We know this has not been the case.
  • Government must reduce its workforce. In an economy with double digit (24 percent) unemployment this has been extremely difficult to contemplate and it has simply been easier to kick the can down the road. But with little progress on growing the economy and government investments limited by tight fiscal budgets, at some point government will have to confront this monster.

Staff Reporter

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