TITLE:
A Fiscal Vulnerability Indicator for Lesotho
AUTHORS:
Moeti Damane
KEYWORDS:
Fiscal Policy, Budget Deficit, Fiscal Vulnerability, Public Debt, Lesotho
JOURNAL NAME:
Modern Economy,
Vol.13 No.3,
March
18,
2022
ABSTRACT: The
objective of this paper is to construct a fiscal vulnerability indicator for
Lesotho using annual fiscal and macroeconomic data from 1993 to 2017 and a
Dynamic Debt Equation for calculating Fiscal Vulnerability (DDE-FV) that
estimates a debt stabilising primary balance. A normal fiscal vulnerability
range of 2 to 4 percent of GDP and a severe fiscal vulnerability range of 8 to
10 percent of GDP were identified. Results show few periods of severe fiscal
vulnerability compared to normal fiscal vulnerability episodes from 1993 to
2017. The severe fiscal vulnerability was observed in two out of the 25 years.
The normal fiscal vulnerability was observed for 11 out of the 25 periods.
Lesotho’s fiscal policy was above the normal fiscal vulnerability threshold
between 1992 and 2001 before returning to levels largely within the tolerable
fiscal vulnerability level for the remainder of the 1993-2017 period.