Identifier
Created
Classification
Origin
05MASERU571
2005-11-04 10:51:00
UNCLASSIFIED
Embassy Maseru
Cable title:  

DONOR MEETING: MINISTER OF FINANCE'S PLAN FOR POVERTY

Tags:  ECON EINV EFIN PREL LT MCC 
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UNCLAS SECTION 01 OF 02 MASERU 000571 

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EFIN PREL LT MCC
SUBJECT: DONOR MEETING: MINISTER OF FINANCE'S PLAN FOR POVERTY
REDUCTION


UNCLAS SECTION 01 OF 02 MASERU 000571

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EFIN PREL LT MCC
SUBJECT: DONOR MEETING: MINISTER OF FINANCE'S PLAN FOR POVERTY
REDUCTION



1. SUMMARY. At a recent meeting with donor and diplomatic
community representatives, Minister of Finance and Development
Planning Tim Thahane outlined his approach to boosting economic
development and reducing poverty in Lesotho. The Minister
advocated allocating more resources to productive sectors,
improving the investment climate, and upgrading infrastructure.
He warned that government revenues would likely not increase at
the same rate as expenditures in the medium term, requiring
exceptional budget discipline. Civil service reform would be
incremental, starting with financial management reform, and, to
ensure success, require donors to support training for
government employees. The Minister noted the Millennium
Challenge Corporation's (MCC) work with the GOL on investment
climate issues and related legal reform, an area of especially
strong interest within the donor community. A Roundtable event
is planned for May 2006 to examine financing of Lesotho's
Poverty Reduction Strategy (PRS). Underscoring the impact of
HIV/AIDS on the economic climate, Minister of Health Phoko also
made a presentation on the pandemic's status. END SUMMARY.

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OVERVIEW FROM MINISTER OF FINANCE
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--------------


2. At the October 26 meeting (Ambassador and DCM attended),
Thahane stressed that the overall goal of sustainable poverty
reduction can only be achieved by reaching and maintaining an
annual economic growth rate or 6 percent or higher. In
contrast, Lesotho's growth for 2005 will likely be around 3
percent, a modest decrease from 2004. To reach the desired
level of economic expansion, more investment in "productive"
sectors is required:manufacturing; agriculture; and natural
resources and minerals. Tied to this would be improving the
investment climate and infrastructure. The former would include
legal reforms regarding land tenure and titling, women's access
to credit, and creation of a mortgage market, to name a few.
Thahane acknowledged the MCC's assistance to the GOL in some of
those areas. (MCC has funded studies to develop reform
proposals.) Infrastructure should be understood, he said, to

encompass not only physical assets, but also education, skills
training, and health. This approach would be consistent with
Lesotho's PRS. Thahane also announced that the GOL, with
assistance from UNDP, would host a Government - Donor Roundtable
in May 2006 to discuss and examine financing of the PRS. The
upcoming holiday season, preparations for the budget
presentation in February, and the ensuring debate in Parliament
precluded holding the event any sooner.


3. In addition, Thahane stressed that economic growth would
have to be led by the private sector, as the GOL's resources
would be severely stretched, especially in the near-term. Due
to only modest, if any, increases in SACU income, the downturn
in the garment industry, and a small tax base, revenues are
projected to increase by only 12 percent over the next three
years; in contrast, necessary expenditures will grow 22 percent.


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DONOR ISSUES/GOL RESPONSE
-------------- --------------


4. In their questions, donor representatives focused on certain
aspects of the Minister's plan. Ambassador Perry emphasized the
importance of passing the pending marriage equality legislation
which would, among other things, grant all women equal financial
rights to those of men, and the necessity of economic
diversification for long-term growth. Other representatives
noted the need for civil service reform, improved food security,
streamlining of customs and visa procedures, and better
implementation, in general, of existing regulations and laws.


5. In response, Thahane reiterated his support for land tenure
reform, increased financial rights for women, and greater use of
market access offered by the U.S. and EU. Civil service reform
was needed, he agreed, but could only be effective if
implemented gradually. The GOL's approach was to start with
improving financial management, which, it is hoped, will
eventually lead to more direct budget support, rather than
project-based assistance, from donors. For such reforms to be
successful, donors must support training of civil servants,
Thahane asserted.

-------------- --------------
HIV/AIDS AND LESOTHO'S FUTURE
-------------- --------------


6. Health Minister Phooko summarized the crisis Lesotho faces in
service delivery across the Mountain Kingdom. Reaching both
pediatric and adult patients continues to strain GOL resources.
Dr. Phooko thanked donors, including the USG, for specific
support in equipment (e.g., CD 4 count machines) and human
resource training. He pointed out the need for more caregivers
and physicians and anticipated the December 1 opening of Baylor

MASERU 00000571 002 OF 002


College of Medicine's Center of Excellence for family health
care in Lesotho. Donors agreed that developing a health work
force would be essential to Lesotho's economic growth.


7. COMMENT: The principles behind Minister Thahane's approach
and his general plan of action seem appropriate. Increased,
sustainable economic growth, the only way to significantly
reduce poverty, must come from the private sector. The GOL
should make investment and doing business in general easier in
Lesotho. However, the number of issues to be addressed, the
capacity constraints involved, and a mid level bureaucratic
resistance to change within some parts of the government make
implementing reforms a challenging task for committed GOL
leaders. END COMMENT.