LESOTHO is in the process of signing a loan agreement with the International Development Association (IDA) and Global Risk Financing Facility to the tune of M725 million to support private sector investment.
March 12, 2022
2 min read
M725 million to support business investment
Street vendors trading along Kingway Road in Maseru
- Money will be used to increase access to business services and products targeted at small businesses
- Before Covid-19, small businesses used to contribute significantly to employment
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This is despite the fact that the country is already deep in debts and with limited borrowing options.
The money will be used to increase access to business services and financial products targeted at small businesses. Of this amount, M435 million has been earmarked for scaling support for women and youth entrepreneurship.
Minister of Finance, Thabo Sofonea said prior to the advent of Covid-19, small businesses used to contribute significantly to employment and in sustaining livelihoods of many people.
However, he said the sector had been hit hard by the pandemic and continued to face enormous challenges that inhibit their impact on growth.
“This facility is targeted at enhancing the government to business digital services, building private sector resilience and scaling support for entrepreneurship and MSMEs,” Mr Sofonea said when presenting budget estimates for the financial year 2022/23.
This, he said would be attained through establishing an Entrepreneurship Hub and Seed Financing Facility, scaling the Lesotho Enterprise Assistance Program (LEAP) for MSMEs and expanding MSMEs participation in High Potential Value Chains.
The SEED Financing Facility will provide competitive matching grants for entrepreneurs with milestones for monitoring progress to the tune of M75 000 for new small start-up businesses and M750 000 for large investments in start-ups that demonstrate traction.
Government is making these efforts despite already being in a vulnerable state of debt position.
As of February this year, total government debt stands at M18.9 billion made up of external debt of M15.5 billion and domestic debt of M3.4 billion.
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The main drivers of the increase in external debt, according to Mr Sofonea are movements in major currency exchange rates such as the US Dollar, the Euro and other basket of currencies against Loti, while the domestic debt is mainly driven by the persistent high budget deficits.
“As a result, the country remains at the moderate level of debt distress with a limited borrowing space,” he said.
To deepen and continue a path of building a functionally vibrant domestic debt market and to finance the government financing gap estimated at M1.4 billion, he said a combination of treasury bonds estimated at M1 billion and Treasury-Bills amounting to M400 million would be auctioned to plug the financing gap to a total of M1.4 billion.