US embassy cable - 05MASERU571

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 
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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. 
 
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HIV/AIDS AND LESOTHO'S FUTURE 
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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 
 
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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.