Fitch Ratings-London-19 November 2008: Fitch Ratings has today affirmed the Kingdom of Lesotho's Long-term Foreign Currency Issuer Default Rating (IDR) of 'BB-' (BB minus), its Short-term Foreign Currency IDR of 'B' and Long-term Local Currency IDR of 'BB'. The Outlook on Lesotho's IDRs is Stable. At the same time, Fitch affirmed Lesotho's Country Ceiling of 'A', supported by its membership of the Common Monetary Area.
"Lesotho's ratings are supported by the strength of its government and external balance sheets, which are underpinned by revenues from the Southern African Customs Union (SACU). However, a significant decline in currently large SACU inflows would mean that Lesotho's low level of development, structural economic constraints and weak regulatory environment would weigh more heavily on its creditworthiness," said David Heslam, Director in Fitch's sovereign group.
The government has recorded budget surpluses since 2003 and these grew to double digits relative to GDP in 2006 and 2007, reflecting strengthened domestic revenue collection and a new SACU revenue sharing formula, which has added over 10 percentage points of GDP to government revenues since 2006. Strong budget surpluses have been used to pay down the government's debt and build up domestic deposits. The government debt ratio stood at 49% of GDP in fiscal year 2007/08 (FY07/08, ending 31 March 2008), compared with a high of 111% in FY01/02. Lesotho's government debt level has therefore fallen towards the 34% of GDP median for sovereigns rated in the 'BB' range. Adjusting for deposits, net government debt stood at 12.5% of GDP in FY07/08. Fitch is forecasting continued government surpluses in FY08/09 through FY10/11, which will support a continued decline in the government debt ratio.
Lesotho's balance of payments and monetary policy framework are credit strengths. Lesotho is a member of the Common Monetary Area, supporting the Country Ceiling of 'A'. Maintenance of the loti's (LSL) peg to the South African Rand (ZAR) is supported by the Central Bank of Lesotho's target to maintain minimum net international reserves at USD450m-500m. Net international reserves stood at USD958mn in September 2008. Gross external debt ratios have been on a downward trend since 2000 and are in line with the peer group median. External debt maturities are low and Lesotho's external liquidity position is very strong. Lesotho has been an overall net external creditor since 2005, with the sovereign attaining net external creditor status in 2006.
SACU revenues - which were equivalent to 29.5% of GDP in 2007 - have helped to compensate for Lesotho's large structural trade deficit and the current account has been in surplus since 2006. Over the medium term, declining SACU revenues, which will fall in reflection of slower import growth in South Africa and potentially the implementation of a new revenue sharing formula after 2010, will require improvements in Lesotho's export performance (or lower imports) and higher domestic tax generation (or lower spending) in order to avoid a significant deterioration in fiscal and external balances.
The strengthening of the pace of economic growth in 2006 and 2007 is promising. However, a sustained period of strong growth is required to lessen Lesotho's income gap with 'BB' range peers. Fitch is forecasting average annual GDP growth of 5.5% in 2009 and 2010, supported by an expansion of the diamond sector, prospects for which are promising for sustaining a relatively strong growth outlook over the medium term. Nevertheless, income per head remains the second lowest of the 20 sovereigns rated in the 'BB' group by Fitch. The weak regulatory environment is exemplified by the collapse of the MKM/Star Alliance financial group in 2007. High levels of unemployment and income inequality underlay the potential for economic frustrations to spill over into political protest. The political situation is stable, but remains vulnerable to shocks, with disagreement between the government and opposition over the outcome of the 2007 general elections unresolved.
Contact: David Heslam, London, Tel: +44 (0)20 7417 4384; Veronica Kalema: +44 (0)20 7417 6340.
Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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(END) Dow Jones Newswires
November 19, 2008 10:42 ET (15:42 GMT)

Publié le 19 novembre 2008 Copyright © 2008 Dowjones