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Basotho already feeling the pinch of the Russia-Ukraine war


Mohloai Mpesi/Nthatuoa Koeshe

Beyond the suffering and humanitarian crisis emanating from Russia’s invasion of Ukraine, the entire global economy is starting to feel the effects of slow growth and faster inflation and Lesotho is no exception, analysts have said.

This was projected by the International Monetary Fund (IMF) this week in Washington DC during the 2022 Spring Meeting spearheaded by IMF Managing Director Kristalina Georgieva and World Bank Group President David Malpas which showed that the world economy is yet to experience a distasteful tremor owing to the on-going war between Russia and Ukraine.

For the past few months, the public has seen prices for commodities such as food and energy go higher thus pushing up the inflation in turn eroding the value of incomes and weighing on the level of demands.

This month people felt the real pinch with capricious fuel prices spiking where petrol93 accrued with M2.10 from M17.15 to M20.50 per litre, petrol95 rising with M2.25 from M17.30 to M20.80 per litre while diesel skyrocketed with M4.10 from M17.65 to M22.95 with illuminating paraffin accumulating with M3.00 from 13.10 to make M16.90 a litre at wholesale markets on April 8, 2022, causing citizens to dig deeper into their pockets.

As if that was not enough, more woes piled when cooking oil prices hit the roof to cost a minimum of around M80 per 2litre, thus hurting the pockets of the poor and vulnerable Basotho whose monthly pay has remained almost stationary.        

According to Lehlohonolo Mantsi, an Economist and lecturer at the National University of Lesotho (NUL), the war between Russia and Ukraine has affected the whole world but in the case of Lesotho the impact can come in two ways.

He said the impact has led to the increase in the transport sector citing that itself has a lot of implications for Basotho in general. Evident to this is the public transport operators move to have transport fares hiked by 30% amounting to M12 from the current M9 for a taxi (4+1) for short trips in the radius of 10km.

“People who use public transport are mostly people who work in the informal sector and that means if the cost of living is high for them, this has implications on the consumption which will eventually inflict poverty because most of them are from rural areas,” he said

He said Russia is part of the countries under BRICS, a consortium of countries that includes Brazil, India, China and South Africa.

Mantsi said these are countries migrating into being developed economies united to shield themselves against the already developed economies by having a number of economic and political agreements.

 â€œThe issue is that there is a lot of trade taking place between Russia and South Africa which is also part of the Southern African Customs Union (SACU) which Lesotho forms a part of (with Namibia, Eswatini and Botswana).

The revenue raised from SACU is shared between the members emanating from the trade between SACU members with external members and that means trade between Russia and South Africa in that regard plays a very big part.

Mantsi said if one looks at the budget, SACU revenues are a very integral part of our revenue pool because in value, they come after taxes.

He said Russia is an oil giant which supplies energy products including petrol, oil, paraffin, diesel and other commodities to other countries saying the war has cost lots of supply disruptions adding to the disruption which was already caused by the Covid-19 pandemic.

“When this happens, supply declines but the demand is rising thus shooting up the prices. That is why prices are spiralling up and resultantly having fuel prices skyrocketing,” he said.

He said if operational costs go high, that will also affect educational outcomes because there are also people who are taking their children to schools.

“This war has a lot of economic implications for Basotho and the global economy will definitely contract,” he said.

According to the World Economic outlook, the war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution while at the same time, economic damage from the conflict will contribute to a significant slowdown in the global growth in 2022 and add to inflation. Fuel and food prices have increased rapidly, hitting vulnerable populations in low-income countries such as Lesotho the hardest.

Global growth is expected to slow from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. This is 0.8 and 0.2% lower for 2022 and 2023 than projected in January.

Beyond 2023, global growth is forecast to decline to about 3.3% over the medium term. War-induced commodity price increases and broadening price pressure have led to 2022 inflation projects of 5.7% in advanced economies and 8.7% in emerging markets and developing economies, 1.8 and 2.8% points higher than projected last January.

Multilateral efforts to respond to the humanitarian crisis, prevent further economic fragmentation, maintain global liquidity, manage debt distress, tackle climate change, and end the pandemic are essential.

During the presentation of this year’s budget speech, Ministry of Finance’s Principal Secretary Nthoateng Lebona said the fiscal strategy on the mobilisation and financing as well as on the expenditure policies tried to accommodate whatever risks that would arise.

“We decided to reduce our deficit so that we may not close the opportunities to have another loan in times of unexpected disasters. The small space will enable us to borrow money when there are risks or we can also cut-off some of the items in the budget when the situation dictates.

She said when Covid-19 surfaced; they had to cut-off or suspend some items in the budget so that the expenditure would not go above par.

“We have to look at those two sides so that the situation may not go out of hand, lest we find ourselves in economic crises because if things get out of control it might be expensive to borrow.”

She said they were in talks with investors to create a fund called Disaster Risk Management Fund “…so that we keep on injecting the money there”.

She continued that the similar feat can best be demonstrated in projects where one will have to save the money for times of catastrophe, which will have to reduce the productivity of the project and some items in the project may not be utilised to accommodate the incumbent crises.

She said they were also working with IMF and the World Bank that there should be a facility of catastrophes that will aid during the time of catastrophe to alleviate the problems.

“Those are our kind of medium plans that we are going to implement with the necessary terms of where the policies should change until the facility is well established. But we first have to start at home to make sure that the government has the necessary cushions instead of running out to seek for help,” she said.

Similarly, the Minister of Finance Thabo Sophonea had said this matter of living a space behind enables them to go back and take a loan.

“For example, if the limit of borrowing a bank loan or overdraft is M200 there be a gap of M150 in case of unforeseen predicament arises.

“But if the situation goes out of hand more than the gap of borrowing we will be forced to cut some of the things in the budget in order to accommodate the risk.”

Because of the invasion’s aftermaths, organizations such as the United Nations have invested heavily in resilience-building programmes and has committed to providing more than M161-billion over the next five years to address food security and nutrition needs worldwide – including Africa and Lesotho.

On the other hand, Afreximbank is also preparing to implement a new “boost” to the economy. This time, it seeks to combat the economic consequences associated with the war in Ukraine.

On March 31, the bank’s board of directors approved the launch of a trade finance programme designed “to assist African countries’ adjustment”, called “UKAFPA”, for Ukraine Crisis Trade Financing Programme for Africa. This programme which has been endowed with a sum of $4bn aims to set-up lines of credit for African economies and companies.

Attempts to get an updated comment from Sophonea failed as he said he was in the United States (US) and could not talk because the call would prove too costly for his airtime expenses.

“I can’t talk on the phone right now because I am in America and this call is going to consume a lot of my airtime,” he said before abruptly ending the call. 

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