It could be difficult for us to borrow- CBL

Seabata Mahao

Lesotho may soon be unable to borrow more money to meet its financial obligations due to its high public debt.

This is according to the Central Bank of Lesotho’s (CBL) governor, Dr Maluke Letete, who said the public debt has reached 60 percent of gross domestic product (GDP).

At this level, the public debt is considered critical as it could prove too hard for Lesotho to settle.

Letete was addressing journalists during a briefing by the CBL’s monetary policy committee on Wednesday last week.

“The public debt has increased to 60 percent of GDP, which is the threshold that shows that a country has borrowed quite substantially, and means it could be difficult for us to make more future borrowings,” Dr Maluke Letete said.  

He further indicated that the committee has increased the Net International Reserves (NIR) target floor from US$690 million to US$820 million.

He said at that level, the NIR target floor will be sufficient to maintain a one-to-one exchange rate peg between Loti and the Rand.

The apex has for a change, left the CBL rate unchanged at 7.75 percent per annum, after consecutive increments for close to a year.

“Domestic economic activity rebounded in May 2023 after contracting in the preceding month. The stronger growth was mainly underpinned by robust demand and the improved performance of the transport and construction subsectors.”

He however said the manufacturing sector showed a moderated growth during the period under review.

“In the near term, the domestic economy is expected to grow mainly due to construction activities related to LHWP Phase II project and positive spillover effects into the services sector. Nonetheless, poor performance of the manufacturing sector is expected to adversely affect the economy.”

Letete further indicated that inflation moderated substantially although there were risks from currency weakening and dry weather conditions expected ahead.

“Domestic inflation fell to 5.6 percent in June 2023 from 6.9 percent in May 2023, mainly due to declining fuel and food prices. Despite the recent decline, domestic food prices remained elevated due to persistently high imported inflation emanating from the weaker rand, hence Loti.”

He said the domestic economic activity rebounded in May 2023 from a decline recorded in the preceding month.

“The stronger growth was mainly underpinned by robust demand and the improved performance of the transport and construction subsectors,” Maluke explained.