Why Lesotho wage bill is projected to decline by over M1 billion

Bereng Mpaki

The closure of Lesotho’s High Commission in Malaysia is among cost-cutting adjustments projected to save the government of up to M1.2 billion in wages during the current 2022/23 financial year.

Other implemented cost-cutting measures include the unpopular restricted filling of vacant positions in public institutions.

This was revealed by the Ministry of Finance and Development Planning in an interview with Newsday this week.

Finance and Development Planning Minister Dr Retšelisitsoe Matlanyane in her mid-term budget review to parliament last month said government wage bill would shrink by M1.2 billion.

Lesotho’s public sector wage bill is notorious for being among the highest in the world compared to the size of the economy.

The International Monetary Fund (IMF) has constantly urged Lesotho to rein in the out of control wage bill, which it estimated at 23 percent of its gross domestic product (GDP) in 2016.

“The government wage bill is projected to decrease by M1.2 billion against the budget estimate of M7.9 billion,” said Dr Matlanyane in her mid-term budget speech.

A further M20.6 million is expected to be saved in related goods and services expenditure.

The mid- term budget review serves to foster accountability in public financial management by articulating the mid-year performance of the economy and budget, as well as adjustments that were made in response to emerging challenges.

It also underscores adjustments to the proposed revenue and spending estimates for the remaining part of the year, while also providing an update on how the government perceives the present economic conditions.

The Ministry of Finance has since explained to Newsday that the government’s absorptive capacity on the wages budget has been lower than anticipated during the first half of the 2022/23 financial year.

“For 2022/23 budget, compensation of employees was estimated at M7.9 billion including youth internship program of M300 million, which is then not spend under wages and salaries but rather under transfers.

“Following removal of M300 million from compensation of employees, the budget is then revised downwards to M7.6 billion. After considering the budget performance of six months (April – September 2022), the projected 12 months’ outturn is set at M6.7 billion following downward revision of absorptive capacity from 90 percent (five-year average) to 88 percent.”

The ministry further said Lesotho’s High Commission in Malaysia was closed down during the current fiscal year. 

“The revision comes at the back of among others; closure of other foreign missions during the current financial year like Malaysia, which affected allowance and restricted filling of vacant positions.

“Therefore, based on the six-month expenditure on compensation of employees, the projected outturn was estimated at M6.7 billion. It is important to note that the actual outturn at the end of the year for the compensation of employees could deviate from the projections made at mid-term.”

Meanwhile, Lesotho’s economy is projected to grow by an average 2.3 percent by the end of 2022/23 financial year.

The positive outlook is expected to be supported by continued activities of the Lesotho Highlands Water Project (LHWP) II dam construction together with sizable investments in climate smart agriculture by the Millennium Challenge Corporation (MCC) II and the Smallholder Agriculture Development Project (SADP) II.