June 2018

June 2018 (4)

EXCESSIVE ASSET price volatility, especially in real estate markets, has been associated with financial crises. The purpose of this study is to propose a house price index methodology that will be suitable in the case of Lesotho. The study explored several property indices and establishes that the proper methodology that can be adopted in Lesotho is the classified median price index. Data unavailability in Lesotho excluded other house price index methodologies identified in the literature. Therefore, the study recommends that the Central Bank of Lesotho should adopt the median price index methodology in its attempt to develop a house price index for Lesotho. This recommendation leverages on the following advantages of the median price index. First, this methodology reports the average or median price of houses sold in each time period and does not require characteristics on the house sold. Second, it is easy to compute and third, it uses readily available data from mortgage loans provided by the banking sector

THIS PAPER investigates the macroeconomic effects of fiscal policy shocks in Lesotho on output gap, consumer prices, private and public gross fixed capital formation and the interest rate spread under a structural vector autoregression (SVAR) framework using annual time series data from 1982 to 2015. The main results of the study show that a positive shock to government expenditure leads to a significant positive response in inflation. However, the effect on all other variables is insignificant. A positive shock to government revenue has no impact on the output gap and the interest rate spread but results in an increase in consumer prices, government expenditure as well as public and private gross fixed capital formation. It is recommended that government expenditure should be tilted towards the productive sectors of the economy. Government revenue should be increased by widening the revenue base and more efficient methods of revenue collection.

COMMERCIAL BANKS offer financial intermediation services including accepting deposits from and issuing loans to their clients. They then charge their clients fees for these services, in the form of interest levied on loans or paid to depositors or savers and non-interest charges, which comprise fees charged on fee-based bank services. The main objective of this study is to evaluate the costs of banking services in Lesotho through a comparative analysis of the banks in Lesotho with their peers in the SACU region. The prices of individual products and services and their averages per country showed mixed signals, with the SACU countries taking turns on the 5 fees levels. Further analysis showed that Lesotho is the most expensive in the FNB group and second cheapest in both the Nedbank and Standard Bank groups. Lesotho’s average prices are also above the SACU mean and median in a significant number of services categories. Thus policy measures for improving Lesotho’s business climate should continue with the objective of increasing competition in the banking industry. Enhanced effectiveness of the regulatory framework on price disclosure would also make it easier for clients to choose the best priced services supplier hence increase the use of prices in competing for clients. Direct controls such as caps on fees should be used as the last option.

THE WORLD economy is adopting economic integration as a tool to lead developing countries out of maladies such as poverty. The Southern African Development Community (SADC) is not an exemption, with a clear roadmap leading to a single Central Bank. However, the initiative does not have the same benefits for all Member States. The study, therefore, aimed to establish how Lesotho will be affected by the integration. It is revealed that Lesotho derives about 45 per cent of revenue from SACU inflows, and that the country exports minimally in the region. Furthermore, tax performance test results reveal that the elasticity of revenue to national income is more than unity. This implies that if the country loses fiscal revenue, there is a potential to recover it through other macroeconomic initiatives. This is supported by empirical literature, which confirmed that about 30 per cent of revenue is recovered after the reforms. It is therefore concluded that economic integration can ignite other dormant macroeconomic variables. Context.