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Working Paper 176 - Medium-Term Sustainability of Fiscal Policy in Lesotho
This paper is designed to analyze the sustainability of Lesotho’s fiscal policy in the short to mediumterm which includes the period covered by the vision 2020. The recent global economic recession and its impact on international trade poses significant challenges to small developing economies such as Lesotho, which are already grappling with a number of issues including poverty in their pursuit of sustainable development. The post crisis is clouded with uncertainties with regard to the future recovery in the Southern African Customs Union (SACU) receipts to pre-crisis levels. These receipts are dependent on the increased international trade between the SACU and the rest of the World, which was affected post crisis. SACU receipts are the main source of budgetary resources which finances close to 50 % of the country’s recurrent budget and yet dropped by close to a half post crisis. In addition, the post crisis is clouded with uncertainties on the donors’ willingness to give not only concessional but also non-concessional resources-a vulnerable financing situation. In an open economy like Lesotho, a vulnerable public sector has potential damaging effect on the external sector.