BANKING AND INSURANCE:
Supported by a comprehensive reform programme designed to ensure fiscal balance through improved revenue collection, expenditure cuts and public sectors reforms, Lesotho 's macroeconomic policy environment has been generally conducive for growth. The country has a strong fiscal reserve relative to its peers, modest external debt and strong foreign currency reserves.
Economic and financial cooperation are important elements in maintaining macroeconomic stability, and Lesotho participates in the activities of a number of regional and international organizations, including the Common Monetary Area (CMA), south African Customs Union (SACU), Southern African Development Community (SADC), African Rural and Agricultural Credit Association (AFRICA), All African Central Banks (AACB), International Monetary Fund (IMF) and the World Bank (WB).
The country's fiscal and monetary policies operate within the context of its membership of the CMA, which includes Namibia , Swaziland and South Africa . In terms of the CMA agreement, national currency, the loti, is fixed at par to South African rand, which is also legal tender in Lesotho . While the country receives various benefits from the CMA agreement-such as easy availability of rands to Basotho, the elimination of exchange rate risk between Lesotho and South Africa , and macro economic stability – the agreement nevertheless raises a number of challenges for Lesotho , particularly with regard to synchronizing fiscal and monetary policies.
Furthering the aims of macroeconomic convergence in SADC, a memorandum of understanding (MOU) has been established signed to establish a macroeconomic stability coordination framework in the region. Additionally, the protocol on finance and investment, which focuses on the establishment of a regional common market where there would be free movement of capital, labour and services has been finalised
In line with the objectives of the new partnership for Africa's Developmental aims, Lesotho 's government is working to improve the country's financial management while decentralizing power and stepping up the efficiency of the public sector in order to enhance service delivery. The Ministry of finance and Development Planning is responsible for budget planning and implementation and all related financial transactions, while the parastatals Lesotho National Development cooperation (LNDC) operates as a development finance institution, encouraging the development of industry and commerce.
The upgrading of Lesotho 's sovereign rating to BB- by independent rating agency Fitch reflects the progress achieved I fiscal consolidation following reforms in tax administration and decreased risk associated with investment in the country.
The country's competitive tax rates comprise a company tax of 15 percent on profits earned by manufacturing companies and normal tax of 35 percent. There is no withholding tax on dividends distributed by manufacturing companies to local or foreign shareholders. Double taxation agreements have been concluded with the Federal Republic of Germany, Republic of South Africa , Mauritius and the United Kingdom .
The establishment of the Lesotho Revenue Authority (which includes a Tax Advice Centre), the introduction of VAT at 14 percent, and improvements to the revenue collection system have helped to broaden the tax base. However, revenues form SACU still amount to 54.7 percent of the country's total tax receipts (M1057.8 million) - more than income tax and value added tax combined. Along with tightening of revenue collection and reviewing of tax policies and administration, Lesotho 's income tax scales are being reviewed and the tax threshold rose from 880 to 924 per month, thus helping low income earners.
In addition to the developments mentioned above, legal, financial and management innovations are taking place under the public sector improvement and reform programme, which is aimed at streamlining processes for service delivery and for prompt payment of bills for services performed for the government, as well as depending on expenditure control and management through the Medium Term Expenditure Framework (MTEF)
Part of the drive to create a business and investor-friendly environment to promote a private sector led growth; other planned reforms include modernizing the Public Finance Act and Regulations, which would streamline and speed up procedures such as the registration of companies. Furthermore, the updating and modernizing of various financial services laws relating to insurance, pensions, hire purchase agreements and motor vehicle compensation is being looked at.
CENTRAL BANK OF LESOTHO
The Central Bank of Lesotho (CBL) was first established as the Lesotho Monetary Authority in 1978, and started its operations on 2 January 1980 . In 1982 its name was changed through an act of parliament to the central Bank of Lesotho (CBL) and it was given additional functions and responsibilities. The Central Bank of Lesotho Act 2000 conferred considerable autonomy to Central Bank of Lesotho
A parastatal institution, the CBL's principal objective is to achieve and maintain price stability through appropriate monetary policy which fosters liquidity, solvency and proper functioning of a stable market-based financial system. To attain this goal, the bank performs a number of functions in accordance with modern central bank practice. The monetary Policy Committee (MPC) was established in 2004 to replace the Monetary and Exchange Policy Technical Committee (MEPTC) in order to enhance accountability and transparency in matters related to the formulation of monetary policy in Lesotho . The broad responsibilities of the MPC are
FOREIGN TRADE AND INVESTMENT
With the increasingly liberalized investment regime, which embraces FDI in the most sectors of economy through the development of attractive incentives as well as a stable political environment, Lesotho has already taken the advantage of past opportunities, specifically with regard to its textiles industry. However, international trade liberalization and the resultant lowering of trade barriers coupled with the introduction of enhanced technology and operating procedures has served to intensify market competition.
FDI brings with it established international trade links and superior technological and managerial expertise, which are urgently needed to increase the capacity of local producers. In order to retain and expand on existing levels of such investment, the government of Lesotho hosts dialogues with investors. This is in order to find ways of making the country's business environment more conducive to private sector growth and to identify methods of heightening the country's competitiveness in the manufacturing sector, a major source of employment creation. Efforts are afoot to develop other sectors which have the potential to bring in labour- intensive FDI and adequately address obstacles faced by existing foreign affiliates to upstream investments in the garment industry.
REGIONAL COOPERATION
Africa is undergoing an important transformation, which is bringing about continent-wide political and economic integration within the framework of the new partnership for Africa 's development (NEPAD). Top of the agenda are issues such as human rights, democracy and sound economic strategies, with substantial progress having been made in number of areas.
A solid basis for regional integration has been created through bodies such as the southern African customs union (SACU), the common monetary area (CMA), and the southern African Development Community (SADC). Membership of these groups puts Lesotho in a better position to exploit the opportunities inherent in the globalization process. Furthermore, as a land locked country, Lesotho is forging additional bonds with South Africa , its economically advanced neighbour, to help strengthen the development process. South African and Lesotho have already established the joint bilateral commission of cooperation to provide an appropriate institutional force point.
