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PARLIAMENT OF THE KINGDOM OF

LESOTHO

CONDUCIVE INVESTMENT CLIMATE ESSENTIAL FOR SUSTAINABLE ECONOMIC GROWTH, JOB CREATION AND POVERTY

REDUCTION

Budget Speech to Parliament for the 2007/2008 Fiscal Year

By

Honourable Timothy T. Thahane

Minister of Finance and Development Planning

Maseru Lesotho

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30 March 2007

Madam Speaker Allow me to pay my respects to: His Majesty King Letsie III and Head of State The Right Honourable the Prime Minister and Head of Government The Honourable Deputy Prime Minister and Leader of the House The Honourable President of the Senate My Colleagues, Honourable Ministers of His Majesty’s Government Honourable Members of both Houses of Parliament Excellencies Heads of Diplomatic Missions and International Organisations Distinguished Senior Government officials Distinguished members of the Media The entire Basotho nation across Lesotho and abroad Ladies and Gentlemen 1. It is a great honour for me to once again stand before the Joint

Session of the Houses of Parliament and before all Basotho, in and outside Lesotho, to present the 2007/08 Budget Address. I am grateful to His Majesty King Letsie III and to the Right Honourable Prime Minister for giving me this opportunity to continue to serve the people of Lesotho. I shall serve, as in the past, with integrity, professionalism and firm commitment to and application of the principles of transparency and accountability.

2. Lesotho is losing the global race for jobs, high, broad-based and

sustainable economic growth and poverty eradication to other countries in SACU, SADC, Africa and Asia. This is a sobering reality. My address today calls on us as a nation to realistically assess our role and long-term economic prospects; to seize the opportunities offered to us to-day to transform our economy; to strengthen and broaden our productive and trade capacity; and, thereby, to create jobs and secure a bright future for ourselves and our children. The address calls on us to heed the words of William Shakespeare, hundreds of years ago when he said:

“There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their

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life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures”.

3. Let us heed the clarion call by His Majesty King Letsie III, when he

said: “Let Vision 2020 be a band which strengthens our oneness, a catalyst that spurs us on to higher levels of performance and achievement”

Let us seize the tide while it flows. Let us chart our course. Let us embark on this demanding journey towards our Vision 2020 of “A stable democracy, a united and prosperous nation at peace with itself and its neighbours”, a vision of “a strong economy with a healthy and well developed human resource base”

Economic Performance during 40 Years of Independence 4. We celebrated 40 years of Independence last year. During this period

Lesotho’s economic performance has neither been high nor sustainable enough to reduce poverty meaningfully nor to create jobs in sufficient numbers to absorb annual entrants to the labour force. Even the social gains we made have begun to stall or reverse as a result of HIV and AIDS, famine and droughts, and of low food production. The Right Honourable Prime Minister summed up these deteriorating conditions in his Foreword to Lesotho Vision 2020 when he said:

“This unprecedented deterioration in the land and its people have ushered in a crisis in the social and moral fabric of our society. Unemployment is high, and poverty is deepening; stock theft and armed robbery have become the order of the day; corruption and nepotism are spreading like a cancer in our institutions; and there is no doubt that life is becoming harder by the day for an increasing number of our people. ”

5. Traditional sources of household incomes, agriculture and migrant

work, have been declining. Migrant labour has declined from 126,000 in 1987 to 52,000 at the end of 2006. Prospects for

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agriculture as a high yielding enterprise are threatened by drought and climate change. While we cannot do anything about migrant work, we can do something about agriculture. We can start an aggressive programme to survey irrigable areas throughout the country and plant high value cash crops. This budget provides resources to start on such a programme. In addition, every Mosotho must embrace hard work on the land and in the same way as any work in the factories or other non-farm activity.

6. We cannot do anything about migrant work. But, we can do

something about other aspects of our economy. We can respond aggressively and deliberately to some external threats or vulnerabilities by:

• Diversifying our export products and markets; • strengthening our productive base by removing investment

impediments, providing skills, investing in infrastructure and support services thereby creating what is known as a Minimum Infrastructure Platform (MIP) (for production and exports); and,

• Strengthening our capacity to trade and take advantage of trade

preferences offered to Lesotho as a Least Developed Low income country.

Quota-free and duty-Free Access to Global Market

7. Lesotho has done well in developing textile exports of around US$500 million to the U.S. market under American-Africa Growth and Opportunity Act. We have become number one African exporter of textiles under AGOA. But we can export more than textiles. There are over 3,000 product lines which are eligible for Quota free and Duty free access to the U.S. market. The only reason we are not doing so is because of Production and Trade Capacity Bottlenecks.

8. The same lack of export capacity and product diversification

prevents us from taking advantage of the markets of the European Union, Canada, China and Japan, all of which have granted

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Lesotho Duty-free, and Quota Free access to their markets for almost all products except Arms.

9. As Chair of SADC, Lesotho is driving a process of scaling up

regional economic integration. In less than one year, SADC will launch a Free-Trade Area (FTA) within which member states will trade with each other duty-free and quota-free. This will raise significantly the Intra-SADC trade which now stands around 25 percent. With a population of over 235 million, this will present Lesotho with a huge market that would drive its economic growth rate to a sustainable 7% per annum. But, alas, there is limited production and trade capacity to tap this new opportunity.

Madam Speaker

10. It is clear that Lesotho must respond and respond urgently to these

opportunities. It must respond by expanding its productive base and capacity to trade regionally and internationally.

11. Research has shown that high, broad-based and sustainable

economic growth is the only mechanism that increases a country’s standard of living. For such growth to be realized, high investment rates are required. But high investment alone is not sufficient to raise growth and create jobs. Five key pre-conditions are also necessary:

• Political and social stability; • Sound macro-economic management. • Conducive and enabling investment climate; • Public investment in complementary physical infrastructure and

support services; and, • Sound financial system

12. I need not say anything about the heavy costs of political instability and the slow difficult recovery. Macro-economic stability has to do with how we manage our economy, budgets and finances and how we supervise and regulate our financial system. Weak financial systems allow syndicates, money-launderers and pyramid schemes to operate and some have brought down Governments in other regions.

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13. Establishment of an investor-friendly enabling investor climate and the creation of the a complimentary Minimum Infrastructure Platform (MIP) are what this budget is all about; namely,

- The start of the construction of Metolong Water Supply

Project and its access roads and clinics; - The 30 million US Dollar Telecommunications

investment in Telecom Lesotho, about to be concluded with China Exim Bank, for the expansion of the network throughout the whole country;

- Improvements in cross-border customs and immigration facilities;

- Expansion of electricity supply - Urban water reticulation and waste water systems; and, - Urban roads.

Over and above these MIP elements we need to focus on the speed of our transit trade with our neighbour infrastructure in order to improve supply and export chains from Lesotho. This is essential to ensure that our products get to the markets on time.

Good Investment Climate Drives Economic Growth 14. The Government recognizes that private sector – from farmers to

micro-entrepreneurs, from vendors to local manufacturing, transport and construction companies and to multinational enterprises – must be at the heart of Lesotho’s efforts to attain a high, broad-based and sustainable economic growth, job creation and poverty eradication. The Government accepts that its policies and performance shape the context within which private firms and individuals take their investment decisions. They compare investment climates, costs and risks across countries and regions in deciding on whether or not and where to invest. In doing this, they take account of the costs of Doing Business and perceived risks. Lesotho’s attractiveness as an “investment destination” depends on their assessment of the five key factors which I have just listed.

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Madam Speaker

15. The Government has decided to overhaul Lesotho’s laws, regulations and procedures in order to improve the investment climate and reduce the costs and risks of doing business which are high. The International Finance Corporation and the World Bank have ranked 175 countries in the world in terms of the ease of Doing Business. Lesotho is ranked 114 out of 175 countries compared to its SACU members, Botswana is ranked 48, Namibia 42, Swaziland 76, and South Africa 28. For example, it takes 73 days, 8 procedures and 40 percent of per capita GDP to start a business in our country compared to 2 days in Australia. To get a trading licence, it takes 265 days, 14 procedures and costs 128 percent of per capita GDP. These costs are not likely to encourage investors to come in droves to Lesotho unless it has a unique or strategic commodity in high demand globally, such as oil.

Madam Speaker 16. Government could not stand by and watch the country’s capacity

to create jobs undermined by inhospitable investment laws and regulations that “add no value”. It has therefore embarked on two initiatives, one starting in April and the other in October. The first is supported by the World Bank and seeks to reduce the risks, time and cost of registering and licensing companies; delays in immigration and issuing of passports; and, increase access to finance by small and medium enterprises (SMMEs). The second initiative, to be supported by the Millennium Challenge Corporation of the United States Government, will complement the first and focus on improving and streamlining registration of land titles and leases; developing a mortgage financing market; introduce small claims court; strengthen alternative dispute mechanism and improve civil and legal procedures. The Chief Justice himself is leading these reforms that will make resolution of commercial disputes fast and inexpensive. On the financial sector, the reforms will focus on the introduction of automatic cheque clearing system that will make the time a cheque takes before one gets his or her money shorter. Another initiative will also establish employee productivity improvement centres, at Maseru and at Maputsoe. These will be undertaken jointly with the Government sector.

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17. This World Bank supported project will also promote horticulture

and tourism sectors. We have spoken many times about diversification of agriculture, particularly into high-value cash crops. Since our soils are similar to those of South Africa, a horticulture out-grower pilot scheme will be implemented this fiscal year. It will give Lesotho fruit produce to South Africa, SADC, and UK markets which are growing at about 12 percent annually. In one pilot, farmers will set up a horticulture block farm of 21 hectares and run it as a single farm. They will be assisted by Alpha Farm provided Manager. In another pilot, farmers will operate as individual farmers in a block farm under the direction of a Foreman from Denmar Estates. The produce will initially be marketed in Lesotho, followed by South Africa, SADC and the UK as the quality of the produce and standards improve. The partnership with the South African producers seeks to tap and share their experience both in production and marketing and to join their supply chain. Successful practices will be rolled out to other farmers in Lesotho.

18. Although tourism contributes a tiny 1.5 percent of GDP compared

with a regional average of 7 percent, there is considerable potential for increasing its share in the economy. Lesotho’s tourism assets have not been developed and are therefore by-passed by the majority of tourist agencies that bring thousands and thousands of tourists to our neighbour. This budget will support the strengthening of tourism products, improve links with tourist agencies, improve our image and “Brand”, and strengthen the management of the sector. We will improve marketing channels for hotels and guesthouses by linking them to an on-line accommodation reservation platform through Worldhotel Link. We will also train tour operators and guides through the Lesotho Council of Tourism and the Lesotho Tourism Development Corporation. Commercial concessioning of certain key sites will be considered especially of Liphofung Cultural and Historical site, Tšehlanyane National Park, Sehlabathebe National Park, Bokong Nature Reserve and Semonkong. The Thaba-Bosiu Cultural Village is also to be completed this coming fiscal year.

Madam Speaker 19. Conducive and enabling investment climate alone is not sufficient

to increase investment flows. A package of hard and soft

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infrastructure is very necessary to reduce the competitive cost of transport, telecommunications, energy, water and waste water services.

20. Lesotho’s deficit in infrastructure is huge but its resources are

limited. It is critical therefore that infrastructure investments are prioritized and focused on those sectors that are likely to contribute maximally to economic growth. We also need to be innovative in using our financing models such as Private Public Partnership that is being used to replace the Queen Elizabeth II Hospital. We must tap into the private sector’s financing and project management skills while recognizing the complexity of such PPP Projects.

21. In the coming year Government will seek to build a Minimum

Infrastructure Platform (MIP) that will combine priority physical infrastructure investments that are linked or associated with specific set of investments that support facilities and enterprises. This approach to public investment and budget allocation will enable Government to improve:

• Business environment; • Trade facilities regulations and institutions; • Skills development and industrial linkages; • Financial services; and, • Infrastructure and support services such as logistics, customs

procedures and facilities, products certification and standards. Madam Speaker

22. This is a start of a long journey towards high, broad-based and sustainable economic growth, job creation and poverty eradication. The road may be winding and full of challenges but we have no choice but to walk it together and fast.

Economic and Budget Performance 23. I have indicated that the growth of our economy is not satisfactory.

The less spectacular rate of 3 percent in the last 5 years mirrors equally stagnant growth that characterized Lesotho’s 40 years of Independence. Yes, the Lesotho Highlands Water Project (LHWP) investments did push growth higher, and it peaked at 9 percent in 1996 before falling to a still strong 7.5 percent in 1997. This was,

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however, the last year of strong growth, as a recession set following the 1998 political upheavals.

24. In recent years Garments manufacturing has been the key driver of

growth, recording sharp growth of 53 percent in 2001 and maintaining strong pace until 2004, before stalling in 2005, as a result of strong competition from Asia and the appreciation of the Rand/Loti. In 2005, jobs fell from a peak of 55,000 to about 35,000 before recovering towards the end of the year.

25. Although the recession resulted from external factors, Government

took steps to counteract the loss of jobs. In particular, to improve the financial position of firms, a supportive tax regime was introduced in 2006/2007. Firm level training was also introduced to bolster employee productivity. Strong support was also received from US importers who have developed innovative programmes for improving production and reversing the effects of HIV and AIDS, and continuing imports from Lesotho producers. We recall the Multi-Fibre Forum and the visit of Bono and subsequent orders that followed his visit.

Madam Speaker

26. Additional efforts will be made to acquire factory shells in Maputsoe using already serviced sites and in Maseru (Ha Tikoe) where an industrial estate will be designed and developed. Financing arrangements for the Metolong Dam, which will provide needed water to the industry and 95,000 households in TY, Mazenod, Roma and Morija have been concluded with Kuwait Fund for M100 million for Metolong. The project includes a major water reticulation component to be operated by WASA. A wastewater project estimated to cost M257 million will also be launched to deal with liquid waste from industry and also to open more innovative production lines such as the Red label by Bono which requires sophisticated treatment of waste. The feasibility and detailed designs for the Tšoeneng Landfill are expected to be completed in May, paving the way for concluding financing arrangements and construction of the landfill which will replace the Tšosane facility.

Madam Speaker

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27. The Government’s policy strategy is clear: retain existing local

and foreign owned textile investors, support them through employee training; attract new investors and diversify the production base and markets by supporting them with infrastructure and support services.

Madam Speaker

28. Agriculture presents a very difficult problem. Its production has been declining over many years, yet it is the only sector which could potentially support food security. Its share in domestic economic activity has not kept pace with population growth or with other sectors of the economy. Its share has declined from 25 percent in 1980 to 17 percent in 2005. There cannot be any doubt that its role in the economy will gradually decline, in part because of the inability so far for the sector to transform and also due to external and volatile weather conditions which may be driven by climate change.

29. The most effective method for reducing poverty is to strengthen

the assets held by the poor - their land and their labour. Although landlessness is high and increasing, at least half of households do have access to land. This creates an opportunity for poverty eradication. To transform agriculture a number of interventions will have to be considered seriously:

• Reverse land degradation and increase its productivity through

irrigating suitable lands adjacent to water catchments, rivers and lakes.

• Change crop mix from the traditional crops with low cash values

towards high value commercial crops;

• Make agriculture a full time occupation.

• Complement reforms with efficiency gains from block farming which will tap the productive benefits of mechanization;

• Use modern business management skills including marketing in

farming.

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Madam Speaker

30. It is interesting to observe that much of the reduction in the role of agriculture is accounted for by a sharp reduction in crop farming compared to livestock which decreased only marginally in the last 26 years. Given its resilience therefore, support to the livestock sector presents the greatest opportunity for poverty eradication. At the minimum, the following interventions are required:

• Increase productivity of livestock through stronger reforms in

range management; • improve livestock management, feeding and culling. • Introduce reforms to commercialize the livestock sector

Madam Speaker

31. Money and supply of inputs alone are not the answer to increasing agricultural productivity and food security. Introduction of modern management systems, scientific skills, marketing and work disciplines are needed urgently if Lesotho is to feed its people. Partnership with our neighbours, who share the same soils, grasses, and weather with us, can provide demonstration models; but we must take the plunge.

Priorities and Allocations for 2007/2008

32. The Budget Estimates for 2007/2008 that I presented to Parliament

for approval consist of a total expenditure of M7,229.7 of which Recurrent Expenditures is M5,315.5 Million and capital expenditure of M1,924.2 Million.

33. These expenditures are to be financed by Government Revenue of

M6,393.1 million, Grants from Lesotho’s Development Partners and soft multilateral loans of M490 million and M330.7 million, respectively. This results in a budget deficit of M346.7 million.

34. When he opened this Seventh Parliament, His Majesty King Letsie

III set out the priorities of his Government which drive expenditures during this session of Parliament. The overall objective is to move

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towards the attainment of Lesotho’s Vision 2020 by promoting a high, broad-based and sustainable economic growth; creating jobs and reducing poverty. The 2007/2008 Budget provides allocations to implement these priorities and start on others that will be implemented in the next Budget or two.

35. Let me remind Honourable Members of these priorities which have

been broadly set out by His Majesty and which derive from the wide national consultative process that gave rise to the Poverty Reduction Strategy of the Government. They are:

• Combating HIV and AIDS through the promotion of “Know

Your Status (KYS) campaign and other methods; • Increasing agricultural productivity;

• Developing infrastructure;

• Improving access to and quality of Health care and education

particularly vocational and technical education;

• Managing the environment;

• Improving efficiency of delivery of services to the public;

• Deepening and consolidating democracy; and,

• Providing increased water, sanitation and other rural and urban roads.

The attainment of these goals will be realized, among others, by creating an enabling investment climate for private sector; expanding tourism and tourism services; and, improving delivery of public services to the people on time and within budget.

36. Regarding HIV and AIDS, the Government is to intensify the Know-Your-Status Campaign and to provide Anti Retro Viral treatment to infected persons. For this purpose, the Government has allocated a total of M109 Million. This

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amount includes an allocation of M46 Million for the National Aids Commission, which coordinates HIV/AIDS related activities in the country. In addition, Government will provide assistance to AIDS orphans through financing of basic needs in education. An amount of M39.2 Million has been allocated for this purpose.

38. The HIV and AIDS Pandemic has further created a burden on

health facilities due to the increasing demand for services. For this reason, the Government has made an allocation of M246 Million to finance the rehabilitation of health facilities around the country. This amount includes an allocation of M175 Million for the construction of a referral hospital to replace the existing Queen Elizabeth II Hospital.

39. One of the key Millennium Development Goals is education for all

by 2015. Government has since 2000 financed free primary education programme, which saw the first cohort graduate at the end of 2006. As a continuation to the improvement of education at all levels, this budget proposes an allocation of M88.4 million to finance activities in the education sector, including provision of infrastructure.

40. To be able to support meaningful job creation and income generation,

it is necessary to create an enabling environment for private sector investment, through favourable legal and institutional reforms, including complementary infrastructure. To this end, the estimates propose M25.9 million to finance industrial infrastructure and private sector competitiveness and economic diversification. A further M668.9 million is proposed for provision of urban and rural roads, urban and rural water supply, electricity and construction of roads and foot bridges.

41. Even with the hard patch that the textiles industry went through in the

last two years, the industry still remains important to our economy, particularly with respect to its contribution to employment presently at 46,424. To expand this employment level, a provision of M60 million for the construction of access infrastructure for Metolong Dam has been set aside. In addition to Kuwait Fund, the Arab Funds of BADEA, SAUDI Fund and OPEC Fund for International Development have committed themselves to financing the engineering design and construction of the Dam. The MCC is appraising the financing of the

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downstream user. The total cost is expected to be around M1.0 billion.

42. As I noted, Agriculture continues to play an important role in the

livelihoods of rural communities. To support the sector, the budget proposes an allocation of M59 million to finance agriculture projects, including irrigated crop production to offset the negative impact of repeatedly increasing droughts.

43. Lesotho has a high potential for tourism, although more has to be

done for its development. The Government has identified a number of key activities that will be implemented to promote tourism, including the development of infrastructure in the tourism areas of the country. For 2007/2008, the Government will focus on completion of the development of the Cultural Heritage Centre in Thaba-Bosiu as well as the development of the Highlands area for tourism. A total of M39 million has been proposed for the development of tourism in 2007/2008. The World Bank will, in addition, finance a programme for tourism promotion that will enhance the marketing capacity of local hotels, guest houses and other tourism businesses by building an online reservation platform to facilitate worldwide hotel reservations. To complement this allocation, the proposed budget for the development of road infrastructure, particularly the Literapeng-Tšehlanyane road will also serve the tourism sector.

44. Public sector service delivery remains the most critical area in the

development of our country. Government will scale up the Public Sector Reform and Improvement Programme aimed at improving the efficiency of service delivery in the public sector. This includes among others improvements in public financial management, which are a necessary prerequisite in ensuring efficient resource allocation and prudent utilisation of the same resources. Government’s plans are well advanced to replace the current financial information system in the Treasury with an updated and more efficient computer system in 2008. This will also support decentralisation of selected services such as procurement, which was launched in January 2007. Furthermore, the programme provides for capacity building in macro-economic policy formulation and management. The proposed budget allocation for Public Sector Reform is M58.2 million.

Tax reforms

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45. In the last budget address, the Government provided tax incentives

for the development of the private sector, especially export sectors. I am pleased to announce that these reforms have borne positive fruits and our preliminary growth rate rebounded to 6.2 percent for 2006. While it was expected that the incentives would have resulted in a reduction in tax revenue collection, expectations are that the revenue outcome for 2006/2007 will exceed target by around 14 percent. This is an indication that lower corporate taxes do not necessarily result in reduced revenue collection. I must however, also recognize that LRA has also been efficient in its collection. There has also been higher Income tax, Customs and VAT. For this I want to thank everybody. This has enabled Government to provide the services that I outlined above.

46. This year a major review of our tax regime will be undertaken in order

to render it fair, simple and equitable. In addition, the Government has decided to give back something to the Taxpayers. The tax credit of M2911 will be increased to M3,500 thereby resulting in M589 that Government will not take from the taxpaying public. This will benefit the low income groups more. In addition, the threshold where people start paying taxes will be raised from M11,643 per annum to M14,000. All these will result in a 20% gain to the Tax payer.

47. There are two other groups in our society who should never be

forgotten. Their heroism in coping with the daily challenges of life should be a source of inspiration to all of us. Here I speak of those of our fellow men and women who have to cope with lack of or poor eyesight, hearing, speech or just walking. During the fiscal year, the Government will pay special attention on how they could be assisted more to live normal, independent and productive lives. My colleague, the Honourable Minister of Labour and Employment hopes to lead this initiative.

48. The second group is the elderly men and women who can no longer

help themselves as they used to but who still possess a lot of wisdom and insights. The Government values them greatly for without them some of us would not be here. To assist them, Government has decided to increase their monthly pensions from M150 per month to M200 per month. The Government will also review how the facilities at Pay-Points can be improved.

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49. Lastly, the public servants have been waiting to see what

Government will give them as Salary Adjustment this year. The Government is ready, and willing to provide salary increases provided these are matched by high and cheerful service delivery to the public whose taxes pay our salaries. However, taking everything into account the Government has decided to grant a 10% salary increase across the board and as I have already, indicated raise the tax threshold by inflation. This means that an employee who was paying tax from M11,643 will only pay tax when his or her salary reaches M14,000 per annum.

Appreciations

50. On behalf of the Government I wish to thank all our Development Partners for their generous financial and intellectual support. Your support has been a source of encouragement and solidarity.

51. My sincere thanks go to my colleagues in the Cabinet Budget

Committee for having shaped the proposed budget for 2007/2008 and to the Cabinet for the guidance and direction given during the preparation of this Budget. I also wish to thank Government officials whose joint efforts in the last few weeks have led to the finalization of this Budget and speech. In particular, I wish to thank the Finance Budget Team, many of whom are now in the districts to discuss and explain the messages of this Budget to the people.

Conclusion Madam Speaker 52. Let me conclude by reminding the Honourable members and all those

who are listening to these proceedings, that our future as a nation in this inter-dependent and competitive world lies in developing a vibrant economy – an economy that will generate high broad-based and sustainable economic growth: an economy that will create lasting jobs for many of our people: and, an economy that will reduce poverty as well as care for its vulnerable children.

Khotso! Pula! Nala!

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Annex 1

Budget ItemBudget 06/07

Projected outturn 06/07

Proposed budget 07/08

Projected outrun 06/07


Budget 06/07



Budget 06/07



Budget 06/07



Revenue and Grants 5782.6 6676.8 6883.1 15.5 19.0 57.7 66.6 57.1 46.9 51.1 47.4 100.0 100.0 100.0Revenue 5352.8 6461.8 6393.1 20.7 19.4 53.4 64.4 53.0 43.4 49.5 44.0 92.6 96.8 92.9

Tax Revenue 4794.5 5804.7 5817.1 21.1 21.3 47.8 57.9 48.3 38.9 44.4 40.1 82.9 86.9 84.5Customs 3087.8 3945.0 3836.3 27.8 24.2 30.8 39.3 31.8 25.0 30.2 26.4 53.4 59.1 55.7Income Tax 892.8 972.0 1042.5 8.9 16.8 8.9 9.7 8.7 7.2 7.4 7.2 15.4 14.6 15.1VAT 692.8 719.1 804.5 3.8 16.1 6.9 7.2 6.7 5.6 5.5 5.5 12.0 10.8 11.7Oil Levy - GOLFIS 86.5 72.2 83.9 -16.5 -3.0 0.9 0.7 0.7 0.7 0.6 0.6 1.5 1.1 1.2Other Tax 34.7 96.4 49.9 178.1 43.9 0.3 1.0 0.4 0.3 0.7 0.3 0.6 1.4 0.7

Non-Tax Revenue 558.3 657.1 575.9 17.7 3.2 5.6 6.6 4.8 4.5 5.0 4.0 9.7 9.8 8.4Water Royalty 250.0 261.5 272.3 4.6 8.9 2.5 2.6 2.3 2.0 2.0 1.9 4.3 3.9 4.0Other Non-Tax 308.3 395.5 303.6 28.3 -1.5 3.1 3.9 2.5 2.5 3.0 2.1 5.3 5.9 4.4

Grants 429.8 215.0 490.0 -50.0 14.0 4.3 2.1 4.1 3.5 1.6 3.4 7.4 3.2 7.1Project grants 429.8 215.0 490.0 -50.0 14.0 4.3 2.1 4.1 3.5 1.6 3.4 7.4 3.2 7.1

Expenditure & Net lending 5722.5 5116.3 7229.7 -10.6 26.3 57.1 51.0 60.0 46.4 39.2 49.8 100.0 100.0 100.0Recurrent Expenditure 4388.2 4203.7 5315.5 -4.2 21.1 43.8 41.9 44.1 35.6 32.2 36.6 76.7 82.2 73.5

Wages and Salaries 1443.4 1377.6 1745.8 -4.6 21.0 14.4 13.7 14.5 11.7 10.5 12.0 25.2 26.9 24.1Goods & Services 1514.1 1297.8 1733.6 -14.3 14.5 15.1 12.9 14.4 12.3 9.9 11.9 26.5 25.4 24.0Transfers and Subsidies 1225.0 1221.9 1469.5 -0.3 20.0 12.2 12.2 12.2 9.9 9.4 10.1 21.4 23.9 20.3Interest Payments 205.7 306.4 366.6 48.9 78.2 2.1 3.1 3.0 1.7 2.3 2.5 3.6 6.0 5.1

Foreign Debt 151.8 265.2 304.3 74.7 100.4 1.5 2.6 2.5 1.2 2.0 2.1 2.7 5.2 4.2Domestic Debt 53.9 41.1 62.3 -23.6 15.6 0.5 0.4 0.5 0.4 0.3 0.4 0.9 0.8 0.9

Capital Expenditure 1343.5 918.3 1924.2 -31.6 43.2 13.4 9.2 16.0 10.9 7.0 13.3 23.5 17.9 26.6GOL funded - GOLFIS 616.8 553.6 1103.5 -10.3 78.9 6.2 5.5 9.2 5.0 4.2 7.6 10.8 10.8 15.3Loan Funded = loan drawings 296.9 149.7 330.7 -49.6 11.4 3.0 1.5 2.7 2.4 1.1 2.3 5.2 2.9 4.6Grant Funded 429.8 215.0 490.0 -50.0 14.0 4.3 2.1 4.1 3.5 1.6 3.4 7.5 4.2 6.8

0.0 0.0Net Lending -9.1 -5.7 -10.0 -37.2 9.3 -0.1 -0.1 -0.1 -0.1 0.0 -0.1 -0.2 -0.1 -0.1

Overall balance before grants -369.7 1345.5 -836.7 -464.0 126.3 -3.7 13.4 -6.9 -3.0 10.3 -5.8 - - -Overall balance after grants 60.1 1560.6 -346.7 2496.9 -676.9 0.6 15.6 -2.9 0.5 11.9 -2.4 - - -Current balance (gov saving) 964.7 2258.1 1077.5 134.1 11.7 9.6 22.5 8.9 7.8 17.3 7.4 - - -Primary balance 265.8 1866.9 20.0 602.4 -92.5 2.7 18.6 0.2 2.2 14.3 0.1 - - -

0.0 - - -Total Financing -60.1 -1560.5 346.7 2496.8 -676.9 -0.6 -15.6 2.9 -0.5 -11.9 2.4 - - -

Foreign Financing -29.0 -65.2 61.8 124.6 -312.9 -0.3 -0.7 0.5 -0.2 -0.5 0.4 - - -Loan Drawings 296.9 149.7 330.7 -49.6 11.4 3.0 1.5 2.7 2.4 1.1 2.3 - - -Amortization -325.9 -214.9 -268.9 -34.1 -17.5 -3.3 -2.1 -2.2 -2.6 -1.6 -1.9 - - -

Domestic Financing -31.1 -1495.3 284.9 4713.7 -1017.1 -0.3 -14.9 2.4 -0.3 -11.4 2.0 - - -Bank - - - - - - - - - - - -Nonbank - - - - - - - - - - - -

- - - - - - - - -Deficit % of GDP 0.6 15.6 -3.5 2496.9 -676.9 - - - - - - - - -

GDP at market prices 10027 10705 12052 0.1 0.1GNI at market prices 12331 13062 14516 0.1 0.1

Economic classification Economic classification (% of GDP) Economic classification (% of GNI)Budget lines as a percentage of

revenue / expenditurePercentage differences from

06/07 budget

19

Annex 2AFunctional Classification of Total Expenditure (million Maloti, current prices)

Budget 06/07 Budget 07/08Budget 06/07

(% GDP)Budget 07/08

(% GDP)

Budget 07/08, percentage change

over 06/07Percentage of 07/08 budget

General Public Services, Public Order, Safety and Defence 1881.0 2384.9 17.6 19.8 26.8 32.9

General Public Services 1020.5 1490.9 9.5 12.4 46.1 20.6Defence 272.2 292.4 2.5 2.4 7.4 4.0Public Order, Safety, and Defence 588.2 601.6 5.5 5.0 2.3 8.3

0.0 0.0Social Services 2312.8 2918.3 21.6 24.2 26.2 40.3

Public Health Affairs and Services 471.6 838.1 4.4 7.0 77.7 11.6Social security and Welfare Affairs 401.3 503.5 3.7 4.2 25.5 7.0Education, Culture and Recreation 1440.0 1576.7 13.5 13.1 9.5 21.8

Of Which Education 1319.7 1464.2 12.3 12.1 10.9 20.20.0 0.0

Housing and Community Amenity 377.7 476.2 3.5 4.0 26.1 6.6

Economic Services 836.7 947.3 7.8 7.9 13.2 13.1Agriculture 153.9 176.9 1.4 1.5 15.0 2.4Forestry and Land Reclamation 40.3 51.3 0.4 0.4 27.5 0.7Natural Resources 71.7 52.6 0.7 0.4 -26.7 0.7Trade and Industry 58.8 70.8 0.5 0.6 20.5 1.0Tourism: Admin 26.6 26.1 0.2 0.2 -2.1 0.4Other Economic Affairs 485.4 569.5 4.5 4.7 17.3 7.9

Unallocable and other purposes 350.2 511.6 3.3 4.2 46.1 7.1

Total 5758.4 7238.2 53.8 60.1 25.7 100.0GDP at market prices 10705 12052GNI at market prices 13062 14516

20

Annex 2BFunctional Classification of Recurrent Expenditure (million Maloti, current prices)


(% GDP)Budget 07/08

(% GDP)




General Public Services 769.8 934.1 7.2 7.8 21.3 17.6Defence 272.2 292.4 2.5 2.4 7.4 5.5Public Order, Safety, and Defence 540.1 592.6 5.0 4.9 9.7 11.2

0.0 0.0Social Services 2027.5 2479.9 18.9 20.6 22.3 46.7

Public Health Affairs and Services 389.8 530.1 3.6 4.4 36.0 10.0Social security and Welfare Affairs 357.3 503.5 3.3 4.2 40.9 9.5Education, Culture and Recreation 1280.4 1446.3 12.0 12.0 13.0 27.2

Of Which Education 1214.7 1365.7 11.3 11.3 12.4 25.70.0 0.0


Economic Services 472.7 405.5 4.4 3.4 -14.2 7.6Agriculture 106.1 141.1 1.0 1.2 33.1 2.7Forestry and Land Reclamation 31.3 41.4 0.3 0.3 32.1 0.8Natural Resources 21.3 23.8 0.2 0.2 12.1 0.4Trade and Industry 38.8 50.3 0.4 0.4 29.7 0.9Tourism: Admin 26.6 26.1 0.2 0.2 -2.1 0.5Other Economic Affairs 248.5 122.7 2.3 1.0 -50.6 2.3

Unallocable and other purposes 350.2 511.6 3.3 4.2 46.1 9.6


21

Annex 2CFunctional Classification of Capital Expenditure (million Maloti, current prices)


(% GDP)Budget 07/08

(% GDP)




General Public Services 250.7 556.8 2.3 4.6 122.1 28.9Defence - -Public Order, Safety, and Defence 48.2 9.0 0.4 0.1 -81.3 0.5

Social Services 285.3 438.3 2.7 3.6 53.6 22.8Public Health Affairs and Services 81.8 308.0 0.8 2.6 276.6 16.0Social security and Welfare Affairs 44.0 0.0 0.4 0.0 -100.0 0.0Education, Culture and Recreation 159.6 130.3 1.5 1.1 -18.3 6.8

Of Which Education 105.0 98.5 1.0 0.8 -6.2 5.1


Economic Services 464.1 541.8 4.3 4.5 16.7 28.2Agriculture 47.8 35.8 0.4 0.3 -25.1 1.9Forestry and Land Reclamation 8.9 9.9 0.1 0.1 11.1 0.5Natural Resources 50.4 28.7 0.5 0.2 -43.1 1.5Trade and Industry 20.0 20.5 0.2 0.2 2.5 1.1Tourism: Admin 0.0 0.0 0.0 0.0 - 0.0Other Economic Affairs 336.9 446.8 3.1 3.7 32.6 23.2


22

Annex 2D: Functional Classification of 2007/2008 Budget (Percentage Shares)

Social Services40%

Housing and Community Amenity

7%

Economic Services13%

Unallocable and other purposes7% General Public Services, Public

Order, Safety and Defence33%

23

Annex 3A: Recurrent and Development Budget for Fiscal Year 2007/2008, Ministerial Allocations (Million Maloti)

Recurrent Budget

Capital Budget

Capital Buget financed by

GOL

Capital budget financed by

loans and grants

Total Budget

Total budget financed by

GOL

Recurrent Budget

Capital Budget


GOL

Capital budget financed by loans and

grants

Total Budget Total budget financed by

GOL

Ministry/Cost Centre1 Agriculture & Food Security 106.1 47.8 4.5 43.4 153.9 110.6 141.1 35.8 10.0 25.8 176.9 151.12 Health & Social Welfare 386.5 79.8 13.3 66.5 466.3 399.8 530.1 308.0 190.7 117.3 838.1 720.83 Education & Training 927.4 105.0 49.1 56.0 1,032.4 976.5 1,077.0 98.5 50.4 48.1 1,175.5 1,127.54 Finance & Devt. Planning 558.1 190.8 81.9 108.9 748.9 640.0 578.6 481.0 282.1 198.9 1,059.6 860.75 Trade & Industry 38.8 20.0 20.0 0.0 58.8 58.8 50.3 20.5 10.5 10.0 70.8 60.87 Justice 131.3 4.4 4.4 0.0 135.7 135.7 157.8 5.0 5.0 0.0 162.8 162.88 Home Affairs 211.4 4.5 4.5 0.0 215.9 215.9 247.3 4.0 4.0 0.0 251.3 251.39 Prime Minister's Office 84.4 85.3 10.0 75.3 169.7 94.4 115.6 0.0 0.0 0.0 115.6 115.6

10 Communications, Science & Tech. 47.4 28.0 28.0 0.0 75.4 75.4 58.7 5.0 5.0 0.0 63.7 63.711 Law & Constitutional Affairs 43.1 0 0 0.0 43.1 43.1 49.1 0.0 0.0 0.0 49.1 49.112 Foreign Affairs 161.1 0 0 0.0 161.1 161.1 204.2 0.0 0.0 0.0 204.2 204.213 Public Works & Transport 144.5 266.0 157.2 108.8 410.5 301.7 168.2 369.4 262.3 107.2 537.6 430.514 Forestry & Land Reclamation 31.3 8.9 8.1 0.8 40.2 39.4 41.4 9.9 9.1 0.8 51.3 50.515 Natural Resources 50.6 254.0 65.0 189.0 304.6 115.6 63.7 313.3 95.2 218.0 377.0 159.016 Employment & Labour 23.4 0 0 0.0 23.4 23.4 35.4 0.0 0.0 0.0 35.4 35.417 Tourism, Environment & Culture 40.1 27.8 12.8 15.0 67.9 52.9 49.3 30.0 15.0 15.0 79.3 64.318 Auditor General 11.6 0 0 0.0 11.6 11.6 13.3 0.0 0.0 0.0 13.3 13.319 His Majesty's Office 7.4 2.0 2.0 0.0 9.4 9.4 7.9 2.0 2.0 0.0 9.9 9.920 Public Service Commission 3.8 0.0 0.0 0.0 3.8 3.8 3.6 0.0 0.0 0.0 3.6 3.6

22 Interest Charges 205.7 0.0 0.0 0.0 205.7 205.7 366.6 0.0 0.0 0.0 366.6 366.623 Pensions and Gratuities 295.8 0.0 0.0 0.0 295.8 295.8 411.2 0.0 0.0 0.0 411.2 411.224 Statutory Salaries and Allowances 13.0 0.0 0.0 0.0 13.0 13.0 13.1 0.0 0.0 0.0 13.1 13.125 Subscriptions to International Institutions 16.4 0.0 0.0 0.0 16.4 16.4 16.9 0.0 0.0 0.0 16.9 16.926 Refunds on erroneous receipts 2.5 0.0 0.0 0.0 2.5 2.5 3.0 0.0 0.0 0.0 3.0 3.0

34 Highlands 0.0 110.2 89.0 21.2 110.2 89.0 114.6 88.0 26.6 114.6 88.037 Defence 272.2 0.0 0.0 0.0 272.2 272.2 292.4 0.0 0.0 0.0 292.4 292.438 National Assembly 42.1 0.0 0.0 0.0 42.1 42.1 52.2 0.0 0.0 0.0 52.2 52.239 Senate 17.3 0.0 0.0 0.0 17.3 17.3 13.8 0.0 0.0 0.0 13.8 13.840 Ombudsman 3.9 0.0 0.0 0.0 3.9 3.9 4.4 0.0 0.0 0.0 4.4 4.441 Independent Electoral Commission 67.1 0.0 0.0 0.0 67.1 67.1 21.5 0.0 0.0 0.0 21.5 21.542 Local Government 274.1 91.2 59.6 31.7 365.3 333.7 368.7 112.4 64.6 47.8 481.1 433.343 Gender, Youth, Sports & Recreation 31.5 17.7 7.6 10.1 49.2 39.1 43.3 14.9 9.6 5.3 58.2 52.944 Public Service 15.7 0 0 0.0 15.7 15.7 19.4 0.0 0.0 0.0 19.4 19.4

Total 4,265.6 1,343.4 616.8 726.7 5,609.0 4,882.4 5,219.4 1,924.2 1,103.5 820.7 7,143.6 6,322.9

21 Principal Repayments 433.2 0.0 0.0 0.0 433.2 433.2 268.9 0.0 0.0 0.0 268.9 268.9Contingencies 115.0 0.0 0.0 0.0 115.0 115.0 90.0 0.0 0.0 0.0 90.0 90.0

Grand Total 4,813.8 0.0 0.0 0.0 6,157.2 5,430.6 5,578.3 0.0 0.0 0.0 7,502.5 6,681.8

2006/2007 Budget (approved) 2007/2008 Budget (approved)

24

Annex 3B: Recurrent and Development Budget for Fiscal Year 2007/2008, Ministerial Allocations (percent of column)

Recurrent Budget

Capital Budget Capital Buget financed by

GOL

Capital budget

financed by loans and

grants

Total Budget


GOL

Recurrent Budget

Capital Budget


GOL

Capital budget financed by loans and

grants

Total Budget


GOL

Ministry/Cost Centre1 Agriculture & Food Security 2.5 3.6 0.7 6.0 2.7 2.3 2.7 1.9 0.9 3.1 2.5 2.42 Health & Social Welfare 9.1 5.9 2.1 9.2 8.3 8.2 10.2 16.0 17.3 14.3 11.7 11.43 Education & Training 21.7 7.8 8.0 7.7 18.4 20.0 20.6 5.1 4.6 5.9 16.5 17.84 Finance & Devt. Planning 13.1 14.2 13.3 15.0 13.4 13.1 11.1 25.0 25.6 24.2 14.8 13.65 Trade & Industry 0.9 1.5 3.2 0.0 1.0 1.2 1.0 1.1 1.0 1.2 1.0 1.07 Justice 3.1 0.3 0.7 0.0 2.4 2.8 3.0 0.3 0.5 0.0 2.3 2.68 Home Affairs 5.0 0.3 0.7 0.0 3.8 4.4 4.7 0.2 0.4 0.0 3.5 4.09 Prime Minister's Office 2.0 6.3 1.6 10.4 3.0 1.9 2.2 0.0 0.0 0.0 1.6 1.810 Communications, Science & Tech. 1.1 2.1 4.5 0.0 1.3 1.5 1.1 0.3 0.5 0.0 0.9 1.011 Law & Constitutional Affairs 1.0 0.0 0.0 0.0 0.8 0.9 0.9 0.0 0.0 0.0 0.7 0.812 Foreign Affairs 3.8 0.0 0.0 0.0 2.9 3.3 3.9 0.0 0.0 0.0 2.9 3.213 Public Works & Transport 3.4 19.8 25.5 15.0 7.3 6.2 3.2 19.2 23.8 13.1 7.5 6.814 Forestry & Land Reclamation 0.7 0.7 1.3 0.1 0.7 0.8 0.8 0.5 0.8 0.1 0.7 0.815 Natural Resources 1.2 18.9 10.5 26.0 5.4 2.4 1.2 16.3 8.6 26.6 5.3 2.516 Employment & Labour 0.5 0.0 0.0 0.0 0.4 0.5 0.7 0.0 0.0 0.0 0.5 0.617 Tourism, Environment & Culture 0.9 2.1 2.1 2.1 1.2 1.1 0.9 1.6 1.4 1.8 1.1 1.018 Auditor General 0.3 0.0 0.0 0.0 0.2 0.2 0.3 0.0 0.0 0.0 0.2 0.219 His Majesty's Office 0.2 0.1 0.3 0.0 0.2 0.2 0.2 0.1 0.2 0.0 0.1 0.220 Public Service Commission 0.1 0.0 0.0 0.0 0.1 0.1 0.1 0.0 0.0 0.0 0.1 0.1

22 Interest Charges 4.8 0.0 0.0 0.0 3.7 4.2 7.0 0.0 0.0 0.0 5.1 5.823 Pensions and Gratuities 6.9 0.0 0.0 0.0 5.3 6.1 7.9 0.0 0.0 0.0 5.8 6.524 Statutory Salaries and Allowances 0.3 0.0 0.0 0.0 0.2 0.3 0.3 0.0 0.0 0.0 0.2 0.225 Subscriptions to International Institutions 0.4 0.0 0.0 0.0 0.3 0.3 0.3 0.0 0.0 0.0 0.2 0.326 Refunds on erroneous receipts 0.1 0.0 0.0 0.0 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0

34 Highlands 0.0 8.2 14.4 2.9 2.0 1.8 0.0 6.0 8.0 3.2 1.6 1.437 Defence 6.4 0.0 0.0 0.0 4.9 5.6 5.6 0.0 0.0 0.0 4.1 4.638 National Assembly 1.0 0.0 0.0 0.0 0.8 0.9 1.0 0.0 0.0 0.0 0.7 0.839 Senate 0.4 0.0 0.0 0.0 0.3 0.4 0.3 0.0 0.0 0.0 0.2 0.240 Ombudsman 0.1 0.0 0.0 0.0 0.1 0.1 0.1 0.0 0.0 0.0 0.1 0.141 Independent Electoral Commission 1.6 0.0 0.0 0.0 1.2 1.4 0.4 0.0 0.0 0.0 0.3 0.342 Local Government 6.4 6.8 9.7 4.4 6.5 6.8 7.1 5.8 5.9 5.8 6.7 6.943 Gender, Youth, Sports & Recreation 0.7 1.3 1.2 1.4 0.9 0.8 0.8 0.8 0.9 0.6 0.8 0.844 Public Service 0.4 0.0 0.0 0.0 0.3 0.3 0.4 0.0 0.0 0.0 0.3 0.3

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

2006/2007 Budget (approved) 2007/2008 Budget (approved)

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