LESOTHO: APRIL 2007 ECONOMIC ROUNDUP

UNCLAS SECTION 01 OF 02 MASERU 000227

SIPDIS

SIPDIS

DEPT ALSO FOR AF/S

E.O. 12958: N/A
TAGS: ECON EIND EINV EMIN PGOV LT
SUBJECT: LESOTHO: APRIL 2007 ECONOMIC ROUNDUP

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1. SUMMARY:



- SADC Council of Finance Ministers Convened in Maseru

- World Bank Considers Lesotho for Non-Concessional Loans

- UNFPA Presents 5th Five-Year Country Program

- New Diamond Mining Areas Explored. END SUMMARY.



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SADC COUNCIL OF FINANCE MINISTERS

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2. On March 22-23, the SADC Council of Ministers convened in
Maseru to assess Lesotho's progress towards launching the SADC
Free Trade Agreement (FTA) in 2008, to be followed by a Customs
Union in 2010 and a Monetary Union in 2016. The chair of the
meeting, Lesotho's Minister of Finance and Development Planning
Dr. Timothy Thahane, stated during a press briefing that an
audit of SADC member states' tariff reduction schedules was
begun in February 2007 and will conclude at the end of April.
He also noted that in February 2007, SADC's member states began
to update the organization's 2004 inventory report on non-tariff
barriers. Concerning the planned Customs Union, Thahane said
that SADC will study various customs union models as well as the
compatibility of states' national trade policies while the
customs union roadmap is being finalized.




3. The SADC Council of Ministers reviewed the tax and revenue
laws of various member states as well as possible alternative
mechanisms for compensating the revenue lost by some member
states due to the customs integration measures. A comprehensive
study of these issues will be available in June 2007. The
Council also highlighted two other problems: 1) member states'
overlapping multiple membership in other regional organizations
pursuing a similar economic integration agenda; and 2) a lack of
political will to cede national sovereignty on tariff and
industrial policies to SADC. [NOTE: All SADC member states
except Mozambique have dual or multiple memberships in the
Southern African Customs Union (SACU),the Common Market for
East and Southern Africa (COMESA),and the East African
Community (EAC). END NOTE.] The resolution of these two issues
will prove crucial to implementing of SADC's economic agenda.



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World Bank Considers Lesotho for Loans

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4. On March 29, the World Bank met with experts from Lesotho to
consider the nation's creditworthiness for International Bank
for Reconstruction and Development (IBRD) loans. Lesotho's
external debt composition is currently 87.8% of the total public
debt, of which 83% is concessional. Lesotho's foreign debt as a
percentage of GDP is presently 40%, which is considered
sustainable. (NOTE: The debt sustainability threshold is 60% of
GDP for Highly Indebted Poor Countries. Lesotho's long-term
foreign currency credit rating BB-. END NOTE.) Lesotho's
capacity for continued loan repayments is viewed as dependent on
a continued favorable economic environment. Lesotho's current
rating is in the same bracket as Nigeria, Indonesia, Turkey and
Ukraine. The GOL's stated policy is to borrow on concessional
terms in order to moderate the country's future debt burden.



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UNFPA/GOL's Fifth Country Program

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5. The United Nations Population Fund (UNFPA),in collaboration

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with the Government of Lesotho, organized a workshop from March
22-26, to develop a five-year population program of assistance.
This is the fifth Lesotho/UNFPA country program, and is to be
implemented between 2008 and 2012. Lesotho's Director of the
Bureau of Statistics, Mrs. Lefosa, officially opened the
workshop, stating that Lesotho is faced with challenges
including high unemployment, drought, and HIV/AIDS. Mrs. Lefosa
said the past four UNFPA/GOL programs had not addressed these
issues, and urged that they be included in the fifth program.
The UNFPA Director acknowledged USAID assistance in the struggle
against HIV/AIDS, however, he urged USAID to concentrate on
poverty reduction strategies in order to have the greatest
impact on the crisis.



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New Diamond Mining Areas Explored

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6. Following major diamond finds in 2006 and early 2007, four
companies -- European Diamonds, Thabex/Angel Diamonds, Motapa
Diamonds, and Lesotho Diamonds Corporation -- have begun
exploring or building mines in Lesotho. European Diamonds has
applied for prospecting rights on a 2000 square kilometer area.
Angel Diamonds, which is 80% South Africa-owned, is exploring
the Kolo pipe (Mafeteng region) which potentially offers large
rough diamonds but at a high capital cost. In March 2007,
Motapa Diamonds began an $8 million sampling program to evaluate
the economic potential of the Mothae area, about 6.5 kilometers
northwest of Letseng. The Government of Lesotho levies an eight
percent royalty on diamonds mined the country, with proceeds
channeled directly into the national treasury. The
participation of local mining companies in all mining projects
is required by law. Also, unskilled mine workers are required
to be hired locally and Basotho skilled workers are legally
given preference in the mining sector. The GOL has recently
modernized its mining legislation to make foreign investment
more attractive.
PERRY