THE Central Bank of Lesotho (CBL) has painted a bleak picture of the domestic economy, which is expected to deteriorate further amid weaker global growth prospects and elevated inflation pressures.
Feb. 1, 2023
2 min read
CBL paints bleak picture on domestic economy
CBL Governor, Dr Maluke Letete
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Economic activity was estimated to have contracted by 2.0 percent in November 2022 following a decline of 0.8 percent in the preceding month, indicating weakened production and aggregate demand.
In terms of the outlook, the economy is expected to improve, driven largely by construction projects.
The CBL said on Tuesday during its quarterly announcement of the statement of the Monetary Policy Committee (MPC) that the economy, among others, continues to underperform on account of structural rigidities and policy uncertainty.
“Domestic inflation continued to moderate due to the decline in the non-food component. The inflation rate declined from 8.1 percent in November to 8.0 percent in December 2022.
“Despite the slowdown observed in recent months, inflation is expected to remain high in the medium term due to, among others, high food inflation and protracted supply chain disruptions,” CBL Governor, Dr Maluke Letete said on Tuesday.
Having considered the NIR developments and outlook, regional inflation and interest rate outlook, domestic economic conditions, and the global economic outlook, the MPC decided to revise downwards the current NIR target floor of US$650 million to US$640 million.
The bank further increased the CBL rate from 7.00 percent per annum to 7.25 percent per annum.
“At this level, the NIR target will be sufficient to maintain a one-to-one exchange rate peg between the loti and the South African rand,” Letete said.
The level of CBL’s net international reserves (NIR) improved between November 2022 and January 2023.
It remained above the target floor of US$650 million set by the MPC in its meeting in November 2022 and adequate to support the loti-rand exchange rate peg. During the first quarter of 2023, the NIR is expected to decrease before recovering markedly in the second quarter of 2023 due to the anticipated recovery in SACU revenue.
The current account balance improved in the third quarter of 2022, driven by growth in exports.
It registered a smaller deficit equivalent to 0.2 percent of GDP compared to 10.8 percent in the quarter to June 2022.
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Exports were boosted by textile and clothing exports to South Africa and the United States, coupled with an increase in diamond exports.
Government budgetary operations recorded a surplus equivalent to 4.7 percent of GDP in the fourth quarter of 2022 compared to a revised deficit of 6.0 percent of GDP in the previous quarter.
This reflected a significant decline in government expenditure against a slight increase in total revenue.
The stock of public debt was estimated at 61.7 percent of GDP, compared to a revised 62.2 percent in the quarter ending in September 2022.