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Provisional Report on Public Deb

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					ECONOMIC JUSTICE NETWORK LESOTHO




       PUBLIC DEBT MANUAL




           October, 2008




                By

            Thabo Qhesi
                             TABLE OF CONTENTS
                                                          Page

Table of Contents                                         i

List of Acronyms                                          ii

Tables and Figures                                        iii

1.0   INTRODUCTION                                        1
      1.1   Purpose                                       1
      1.2   Layout of the manual                          2
PART 1
2.0   DEBT MANAGEMENT AND DATA IN LESOTHO                 3
      2.1   Public Debt Management Office                 3
      2.2   Public Debt Data of Lesotho                   3
            2.2.1 Debt Portfolio                          3
            2.2.2 Debt Flows                              4
      2.3   Impact of External Debt in Lesotho            6
3.0   TRANSPARENCY AND ACCOUNTABILITY                     9
      3.1   Transparency                                  9
      3.2   Accountability                                10
4.0   RISKS AND PITFALLS ENCOUNTERED IN DEBT MANAGEMENT   10
      4.1   Risks Encountered in Debt Management          10
      4.2   Pitfalls Encountered in Debt Management       12
5.0   INSTITUTIONAL AND RISK MANAGEMENT FRAMEWORK         15
      KEY REFERENCES                                      25

Appendix 1. Creditors’ List                               16
Appendix 2. Lesotho Debt Policy                           22
Appendix 3. Risk Management Tools                         24




                                                                 i
              ACRONYMS AND ABBREVIATIONS
AGOA      -    Africa Growth and Opportunities Act
ADB       -    African Development Bank
ABEDA     -    Arab Bank For Economic Development in Africa
BNP       -    Banque Nationale de Paris
CBL       -    Central Bank of Lesotho
CDC       -    Commonwealth Development Corporation
COMSEC    -    Commonwealth Secretariat
CS-DRMS   -    Commonwealth Secretariat Debt Recording Management System software
DDC       -    Duty Credit Certificate
EIB       -    European Investment Bank
GOL       -    Government of Lesotho
IDCO      -    Instituto De Credito Official
IFMIS     -    Integrated Financial Management Information System
IDA       -    International Development Association
IFAD      -    International Fund For Agricultural Development
IMF       -    International Monetary Fund
JBCC      -    Joint Bilateral Commission on Cooperation
KFAED     -    Kuwait Fund for Arab Econmic Development
LEJN      -    Lesotho Economic Justice Network
LRA       -    Lesotho Revenue Authority
MOET      -    Ministry of Education and Training
MOFDP     -    Ministry of Finance and Development Planning
MOHSW     -    Ministry of Health and Social Welfare
MOPWT     -    Ministry of Public Works and Transport
MTICM     -    Ministry of Trade and Industry, Cooperation and Marketing
MONR      -    Ministry of Natural Resource
NTF       -    Nigeria Trust Fund
PRC       -    People's Republic Of China
RSA       -    Republic of South Africa
SHB       -    Sevenska Handelsbanken
DBSA      -    The Development Bank of Southern Africa
OFID      -    The Opec Fund For International Development
WMB       -    West Merchant Bank Limited




                                                                                    ii
                          TABLES AND FIGURES


Table 1. Debt Portfolio of GOL as of 2003/04 – 2006/07 Maloti `000      3
Table 2. Debt Flows of GOL as of 2003/04 – 2006/07 Maloti `000          4
Table 3. Comparison of Foreign Debt and Social and Economic Services
       as of 2004 – 2007 Budget (percentage in shares)                  6


Figure 1. Debt Portfolio of GOL as of 2003/04 – 2006/07 Maloti `000     3
Figure 2. Debt Flows of GOL as of 2003/04 – 2006/07 Maloti `000         5
Figure 3. Comparison of Foreign Debt and Social and Economic Services
        as of 2004 – 2007 Budget (percentage in shares)                 6




                                                                            iii
1.0 INTRODUCTION
       The debt crisis of the 1980’s triggered interest of governments in
developing countries and international organizations to develop capacity in
debt management. Debtor developing countries failed to honour their
obligations to pay their creditors necessitating debt restruct uring including
rescheduling mainly through Paris Club, and other debt relief mechanisms.
       These debt reorganization operations required accurate and complete
debt data. Hence, Commonwealth Secretariat (COMSEC) started technical
cooperation activities by developing and making available Commonwealth
Secretariat   Debt    Recording    Management     System    software    (CS-DRMS)
respectively. Lesotho is using CS-DRM for public debt data recording.
       Good    governance      embraces   elements   such   broad   participation,
transparency and accountability. These elements will not be effective without
capacity building essential for everyone charged with the duty of monitoring
the public resources especially publicly guaranteed loans. Hence, there is need
to equip every citizen with skills in monitoring public debt.


1.1    Purpose
       The purpose of this manual therefore, is to provide practical guidelines
to members of Economic Justice Network Lesotho (EJNL) directly or indirectly
involved in the debt operations of Lesotho. The Public Debt Manual i s intended
to assist stakeholders to: -
      understand institutional and legal frameworks necessary for effective
       debt management offices;
      understand the relationship between a Public Debt Management Office
       and other government departments, and institutions;
      understand the impacts of External Debt in Lesotho;
      understand the risks and pitfalls that can be encountered in Debt
       management;




                                                                                 1
      assess the transparency and accountability the government shows to the
       public; and
      be in a position to monitor debt resources.


1.2    Layout of the manual
       This manual consists of two parts. The first part documents four sections
namely:   Debt    management     and   data   in     Lesotho,   transparency   and
accountability, risks and pitfalls encountered in debt management as well as
institutional and risk management framework.
       The second part documents seven modules which provide necessary tools
for monitoring debt tools. There are presented as follows: public debt and
expenditure information, advocacy and lobbying, formulation of government
budget, public debt management, developing indicators, monitoring and
evaluation.




                                                                                 2
PART 1
2.0     DEBT MANAGEMENT AND DATA IN LESOTHO


2.1     Public Debt Management Office
        In Lesotho, Public Debt Management office in the Ministry of Finance and
Development Planning (MOFDP) is responsible for monitoring and administration
of External debt. Compilation of external debt data is done in the ministry of
Finance and Development Planning in compliance with the Loans and
Guarantees Act No. 15 of 1967 as amended by Act No. 14 of 1975, Act No. 1 of
1976, and Order No. 25 of 1991 1.


2.2     Public Debt Data of Lesotho
        The Government of Lesotho (GOL) has been borrowing funds in four
categories namely: bilateral, multilateral, commercial loan, and export credit.
See Appendix 1.

2.2.1 Debt Portfolio

          Debt P ortfolio by Creditor Category as of 2003/04 – 2006/07 Maloti `000
        Table 1
                                                 2003/04    2004/05   2005/06      2006/07
        MULTILATERAL                              3429.9     3525.8     3394        4230.0
        BILATERAL                             475.4        373.6       308.5        288.3
        COMM ERCIAL BANK                      321.0        298.5       117.0         98.7
        EXPORT CREDIT                         106.5         78.5        72.5         64.7
        TOTAL                                4332.9       4276.5      3892.3       4681.8
        Source: Ministry of Finance and Development Planning

        Figure 1
                      De bt Portfolio by Cre ditor Cate gory as of 2003/04 -
                                       2006/07 M aloti `000

                     5,000                                             MULTILATERAL
                     4,000
             Value




                     3,000                                             BILATERAL
                     2,000
                     1,000
                                                                       COMMERCIAL BANK
                       -
                               2004       2005       2006   2007
                                                                       EXPORT CREDIT
                                               Year

        Source: Ministry of Finance and Development Planning



1
 See Ministry of Finance and Development Planning.
http://www.finance.gov.ls/divisions/d_debts.php


                                                                                             3
          According to MOFDP (2004), it is depicted that the GOL has been
borrowing more funds from multilateral institutions as indicated by Figure 1
above. The targeted sectors for borrowed funds are health, public works and
education.           The World Bank through International Development Association
(IDA) is the one which is offering more funds than other institutions.
Multilateral debt has gradually increased from 79% in 2003/04 to reach 90% in
2006/07. Meanwhile, the bilateral, commercial, and export credits debt have
continued to decline from 21% during fiscal year 2003/04 to achieve 10% by the
end of 2006/07. The decrease in these three debt categories is purely caused
by the full retirement, including prepayment of some expensive loans and
liabilities to foreign Governments and commercial banks.
          For instance, the prepayment of M156.1m was prepaid to the Public
Investment Commissioners which cost GOL M104.1m in prepayment penalties.
The financing was made for the construction of the postal services twin
buildings. This loan was attracting M25.4m per annum in interest payments only
and by the prepayment date of 30th September, 2005, it had already attracted
M199.6m in actual interest payments to the creditor. Also, the full repayment
of the Lesotho Highlands Water Project loans from the major commercial banks
in Europe and South Africa, such as the Dresner bank, Skandaniviska, ABN
AMBRO bank and the Development Bank of Southern Africa together cost the
Government M256.4 million during the five year period.

2.2.2 Debt Flows
Table 2              Debt Flows of GOL as of 2003/04 – 2006/07 Maloti `000
                         Year                    2003/04      2004/05     2005/06    2006/07
 Disbursed Outstanding Debt (DOD) + CUB           5,111.8     5,159.1     4,661.4    5,538.3
 Committed Undisbursed Balance (CUB)               778.9       882.6       769.1      856.5
 Disbursed Outstanding Debt                       4,332.9     4,276.5     3,892.3    4,681.8
 Disbursements                                     258.0       209.0       142.6      239.0
 Principal Repayments                              221.1       244.6       388.7      237.6
 Net Flows On Debt                                     36.5    ( 35.6)   ( 246.1)      1.4
 Interest Payments                                     99.6     91.8        73.6      273.9
 Of which: commitment charges                          1.10       2.2      105.6        1.2
 Net Transfers on Debt                             (63.1)      (127.4)     (319.7)    (272.6)
 Total Debt Service                                322.2       338.6       567.9      512.8
Source: Ministry of Finance and Development Planning


                                                                                                4
Figure 2
          Trends in Loan Disbursements and Debt Flows as of 2003/04 to 2006/07 in maloti `000



         400

       200
   Value
                                                                            Disbursements
         0
                  2004           2005          2006        2007             Net Flows On Debt
         -200                                                               Net Transfers on Debt

         -400
                                        Year

Source: Ministry of Finance and Development Planning


          The loan disbursements profile is an important element in debt
management since it does provide an indication of the absorptive capacity of a
country as well as the magnitude of actual foreign funds inflows into a country.
Nevertheless, the country will be in a position to find out any debt flows
mismatch in terms of net flows (Disbursements minus Principal Repayments)
and net transfers (Net Flows minus Interest Payments) on debt.
          Figure 2 shows that, the GOL realized positive net debt flows in 2003/04
and 2006/07. This can be attributed to high loan drawings from IDA projects
such as privatization and road construction projects. However, with a decline
in disbursements during 2005 and 2006 is due to slow implementation of most
loan funded project, hence the net debt flows became negative. The main
reasons for the slow and low disbursements are presented as follows:
         Lack of proper preparations for project implementation before signing;
         Failure    by    the    MOFDP        to   have   direct influence        into   quicker
          implementation of projects;
         Structural/engineering         designs       often   take    long    periods      within
          ministries/ agencies to finalise;
         Misunderstanding of Government procurement and financial regulations,
          and procedures by the new project staff;



                                                                                                5
         Inadequate             procurement    plans       which   often   guide     the   project
          implementation and progress; and
         Lack of physical monitoring and control on progress by MOFDP.
          The net debt transfers had been declining throughout the entire period.
There were various factors which contributed in this regard such as the sharp
depreciation of loti together with increasing debt maturities well as the
introduction of the tax compromise.


2.3       Impact of External Debt in Lesotho

Table 3
          Comparison of Foreign Debt and Social and Economic Services as of 2004 – 2007
                                    Budget (percentage in shares)
                                                     2004      2005    2006      2007
                    Foreign Debt                        2.2        1.8    2.7        4.2
                    Agriculture                         5.8        3.1    2.3        2.4
                    Trade and Industry                  2.3        1.3    1.2        1.0
                    Education                          29.9       21.4     20       17.8
                    Healt h                            13.8        8.1    8.2       11.4
                  Source: Ministry of Finance and Development Planning


Figure 3
        Comparison of Foreign Debt and Social and Economic Services as of 2004 – 2007
                                Budget (percentage in shares)

                          35
                          30
                                                                             Foreign Debt
                          25
             Percentage




                                                                             Agriculture
                          20
                                                                             Trade and Industry
                          15
                                                                             Education
                          10
                                                                             Health
                          5
                          0
                               2004    2005          2006      2007
                                              Year

          Source: Ministry of Finance and Development Planning


          The fact that an economy base of Lesotho is not sufficient enough to
cater the needs and wants of her nation, she is compelled to borrow funds from
outside. Figure 3 has, made the comparison between foreign debt vs. other
sectors such as agriculture, trade and industry, education, and health.


                                                                                                  6
2.3.1 Agriculture Sector
      Lesotho has for a long time been a net food importer for around 60% of
its annual cereal consumption. It is depicted that the servicing of foreign debt
has been more than the total budget of agricultural sector by 0.4% in 2006 and
by 1.8% in 2007. This implies that the external debt has contributed to the
under budgeting of agricultural sector. Nevertheless, it will be difficult to
address supply side constraints in order to reduce the percentage of being the
net food importer of cereal.


2.3.2 Education Sector
      Around 15% of education sector budget is from borrowed funds. Figure 3
indicates that, there has been marginal decline of budget in the education
sector from 2004 till 2007. However, the education system of Lesotho does not
provide employable skills.
      This is substantiated by Labour Force Survey of 1999 that out of total
170,000 employed youth in 1999, only 8,000 or 5 per cent were employed in
the formal sector, while 162,000 or 95 per cent were in the informal economy
of which 80 per cent in subsistence agriculture.


2.3.3 Health Sector
      In spite of huge loans injected under Lesotho Health Sector Reform from
Ministry of Health and Social Welfare, the healthcare system of Lesotho is not
in a position to provide expected services which meet minimum requirements.
Hence, the middle and high-income groups prefer to go to Republic of South
Africa for medical treatment.
      On the other hand, Lesotho is servicing the foreign debt on annual basis
for health sector which does not bear fruitful results to her nation. One of the
contributing factors to poor health services in Lesotho is the brain drain of the
qualified nurses who are leaving for green pastures particularly in Britain,
Australia and so forth.


                                                                               7
2.3.4 Trade and Industry Sector
      Trade has a vital role to play in helping developing countries and
transition economies to boost their economic growth and generate the
resources necessary for reducing poverty. Since 2005 till 2007, the foreign debt
has been more than the total budget of trade and industry sector by 0.5%,
1.5%, and 3.2% respectively. This implies that it will be difficult to notice any
improvement for private development without necessary infrastructure
amenities in other districts of Lesotho.


2.3.4 Conclusion
      The revenue sources of the GOL are not sufficient enough to meet the
demands of the nation. Hence, Lesotho has insisted on borrowing on
concessional terms, forcing her to mainly receive credits either from the IDA,
the AfDB and bilateral creditors. This is substantiated by the favourably terms
of repayments of the two banks, such as the long maturity period of 30 years,
long grace periods of 10 years and low service charges of 0.75%, yielding high
grant elements of over 35%.
      However, a serious concern emerges when the funds are borrowed for
particular need, but ultimately there are no tangible results. On the other
hand, the GOL ought to service debt on annual basis. Consequently, the
servicing of debt has compelled the GOL to cut the budget to other ministries
which can play a critical role in building productive capacities.
      Lack of tangible results from loan funded projects can be attributed to
slow and low disbursements in the implementation stage and the MOFDP does
not have direct influence into quicker implementation of projects as per laws
and regulations which govern loans and guarantees. Surprisingly, the National
Assembly does not seem to be in a position to take action though the Loans and
Guarantees Act as amended in 1976 provides an opportunity for it to take part.
       This necessitates the review of Loans and Guarantees Act in order to
make it to address the current demands. For instance, giving the MOFDP direct
control in the implementation of projects and the increment of ceilings.


                                                                                8
3.0        TRANSPARENCY AND ACCOUNTABILITY


3.1        Transparency
(i)        Objectives
           The objectives of debt management have been clearly defined and
publicly disclosed 2. These objectives are presented as follows:


              Ensure financing needs of the government are met;
              Minimise borrowing costs and other costs related to external
               borrowing and to the issue of domestic securities;
              Keep risks at an acceptable level;
              Develop a smooth maturity structure of Government debt; and
              Maintain an appropriate mix of government securities.

           Clear objectives are essential in order to reduce uncertainty as to the
government's willingness to trade off cost and risk as well as enhancing the
credibility of the debt management program.


(ii)       Roles and Responsibilities
           Lesotho   Public   Debt Policy has clearly      defined   the   roles and
responsibilities of the two role players in respect of debt management. These
two key players are as follows:


          Ministry of Finance and Development Planning: In terms of the Loan
           and Guarantees Order of 1991 as amended, the Minister of Finance has
           the power to negotiate terms and conditions of both external and local/
           credit and or enter into agreement with donors/creditors on behalf of
           the Lesotho Government; and
          Central Bank of Lesotho (CBL): According to Central Bank of Lesotho
           Act 2000, the bank may: -

2
    See http://www.finance.gov.ls/divisions/d_debts.php



                                                                                   9
           (a)       make advances on overdrafts and loans to GOL on such terms as
                     the Board may determine.

           (b)       acquire directly from the Government or any person, treasury bills
                     or securities representing obligations of the Government 3.

(iii)      Publicity
           The Public Debt Office and Central Bank of Lesotho have been providing
information on the past, current, and projected budgetary activity, including
its financing, and the consolidated financial position of the government in their
websites as well as publishing information on the stock and composition of its
debt and financial assets, including their currency, m aturity, and interest rate
structure.


3.2        Accountability
           All debt management activities are subject to audit in term of section
117 (2) (a) 4.


4.0        RISKS AND PITFALLS ENCOUNTERED IN DEBT MANAGEMENT


4.1        Risks Encountered in Debt Management5
4.1.1 Market Risk
           Market risk involves risks aligned with changes in market prices on the
cost of government’s debt servicing such as interest rates, exchange rates, and
commodity prices. Hence, it is highly risky for short- duration debt than long-
term debt as a result of fixed rate debt. However, the fixed rate debt can pose
a serious risk for long- term due to uncertainty of future financing
requirements.


3
  Central Bank of Lesotho Act No. 2 of 2000
http://www.centralbank.org.ls/legal/CBL_Act_2000.pdf

4
 Section 117 (2) (a) of Lesotho Constitution reads: “…it shall be the duty of the Auditor-General to satisfy himself that all
moneys that have been appropriated by Parliament and disbursed have been applied to the purposes to which they were
so appropriated and that the expenditure conforms to the authority that governs it …”

5
    Guidelines for Public Debt Management. IMF and World Bank. 2001


                                                                                                                          10
4.1.2 Rollover Risk
      Rollover risk is defined as a risk that debt will have to be rolled over at
an unusually high cost or, in extreme cases, cannot be rolled over at all. This
risk is limited to the risk that debt might have to be rolled over at higher
interest rates as well as changes in credit spreads. Due to inability to roll over
debt and/or exceptionally large increases in government funding costs can
aggravate a debt crisis and thereby cause real economic losses.


4.1.3 Liquidity Risk
      Liquidity risk is categorized into two parts. One refers to the cost or
penalty in which the investors may incur in trying to exit a position when the
number of transactors has markedly decreased or because of the lack of depth
of a particular market. This risk emerges where debt management includes the
management of liquid assets or the use of derivatives contracts. The other
form of liquidity risk, for a borrower, refers to a situation where the volume of
liquid assets can diminish quickly in the face of unanticipated cash flow
obligations and/or a possible difficulty in raising cash through borrowing in a
short period of time.


4.1.4 Settlement Risk
      Settlement risk relates to the potential loss that the government as
counterparty could suffer as a result of failure to settle, for whatever reason
other than default, by counterparty.


4.1.5 Operational Risk
      Operational risk entai ls a wide range of different types of including
transaction errors in the various stages of executing and recording transactions;
inadequacies or failures in internal controls, or in systems and services;
reputation risk; legal risk; security breaches; or natural disasters that affect
business activity.




                                                                               11
4.1.6 Credit Risk
       Credit risk is defined a risk of non performance by borrowers on loans or
other financial assets or by a counterparty on financial contracts. This risk
becomes apparent in cases where debt management includes the management
of liquid assets. It may also be relevant in the acceptance of bids in auctions of
securities issued by the government as well as in relation to contingent
liabilities, and in derivative contracts entered into by the debt manager.


4.2    Pitfalls Encountered in Debt Management
       According to IMF and World Bank (2001), there are some pitfalls which
can encountered in debt management. There are presented as follows:

4.2.1 Increasing the vulnerability of the government's financial position by
       increasing risk, even though it may lead to lower costs and a lower
       deficit in the short run.

       Debt managers should avoid exposing their portfolios to risks of large or
catastrophic losses, even with low probabilities, in an effort to capture
marginal cost savings that would appear to be relatively "low risk."


     Maturity structure: A government faces an intertemporal tradeoff
      between short-term and long-term costs that should be managed
      prudently. For example, excessive reliance on short-term or floating-rate
      paper to take advantage of lower short-term interest rates may leave a
      government vulnerable to volatile and possibly increasing debt service
      costs if interest rates increase, and the risk of default in the event that a
      government cannot roll over its debts at any cost. It could also affect the
      achievement of a central bank's monetary objectives.
     Debt with embedded put options: If poorly managed, these increase
      uncertainty to the issuer, effectively shortening the portfolio duration,
      and creating greater exposure to market/rollover risk.




                                                                                12
     Implicit   contingent    liabilities:   There   are   provided   to   financial
      institutions. If poorly managed, they tend to be associated with
      significant moral hazard.
     Excessive unhedged foreign exchange exposures: This can take many
      forms, but the predominant is directly issuing excessive amounts of
      foreign currency denominated debt and foreign exchange indexed debt.
      This practice may leave governments vulnerable to volatile and possibly
      increasing debt service costs if their exchange rates depreciate and the
      risk of default if they cannot roll over their debts.

4.2.2 Debt management practices that distort private vs. government
       decisions, as well as understate the true interest cost.


     Debt collateralized by shares of state-owned enterprises (SOE) or other
      assets. In addition to understating the underlying interest cost, they may
      distort decisions regarding asset management.
     Debt collateralized by specific sources of future tax revenue. If a future
      stream of revenue is committed for specific debt payments, a government
      may be less willing to undertake changes, which affect this revenue, even
      if the changes would improve the tax system.
     Tax-exempt or reduced tax debt. This practice is used to encourage the
      placement of government debt. The impact on the deficit is ambiguous,
      since it will depend upon the taxation of competing assets and whether
      the after-tax rate of return on taxable and tax-exempt government paper
      are equalized.

4.2.3 Misreporting of contingent or guaranteed debt liabilities. This may
       understate the actual level of the government's liabilities.


     Inadequate coordination or procedures with regard to borrowings by
      lower levels of government, which may be guaranteed by the central
      government, or by state-owned enterprises.


                                                                                  13
     Repeated debt forgiveness for lower levels of government or for state -
      owned enterprises.
     Guaranteeing loans, which have a high probability of being called
      (without appropriate budgetary provisions).

4.2.4 Use of non-market financing channels. In some cases the practice can
       be unambiguously distortionary.


     Special arrangements with the central bank for concessional credit,
      including zero/low interest overdrafts or special treasury bills.
     Forced borrowing from suppliers either through expenditure arrears or
      through   the   issuance   of   promissory    notes,   and   tied   borrowing
      arrangements. These practices tend to raise the price of government
      expenditures.
     Creating a captive market for government securities. For example, in
      some countries the government pension plan is required to buy
      government securities. In other cases, banks are required to acquire
      government debt against a certain percentage of their deposits. While
      some forms of liquid asset ratios can be a useful prudential tool for
      liquidity management, they can have distortionary effects on debt
      servicing costs, as well as on financial market development.

4.2.5 Improper oversight and/or recording of debt contracting and
       payment, and/or of debt holders. Government control over the tax
       base and/or the supply of outstanding debt is reduced.

     Failing to record implicit interest on zero-interest long-term debt. While
      helping the cash position of the government, if the implicit interest is not
      recorded, the true deficit is understated.
     Inadequate controls regarding the amount of debt outstanding. In some
      countries a breakdown in internal operations and poor documentation led
      to more debt being issued than had been officially authorized.


                                                                                 14
        Too broad an authority to incur debt. This can be due to the absence of
         parliamentary reporting requirements on debt incurred, or the absence of
         a borrowing limit or debt ceiling. However, the authority must ensure
         that existing debt service obligations are met.
        Onerous legal requirements with respect to certain forms of borrowing. In
         some countries, more onerous legal requirements with respect to long
         maturity borrowings (relative to short maturity borrowings) have led to
         disproportionate reliance on short-term borrowings, which compounds
         rollover risk.



5.0       INSTITUTIONAL AND RISK MANAGEMENT FRAMEWORK


5.1       Institutional Framework
          The legal and organizational framework for debt management have been
well specified and ensure mandates and roles are well articulated in terms of
Loans and Guarantees Act No. 15 of 1967 as amended by Act No. 14 of 1975,
Act No. 1 of 1976, Order No. 25 of 1991 and Lesotho Debt Policy. See Appendix
2.


5.2       Risk Management Framework
          With CS-DRMS, the debt managers are able to identify and manage the
trade-offs between expected cost and risk in the government debt portfolio as
well as conducting stress tests of the debt portfolio on the basis of the
economic and financial shocks to which the government --and the country more
generally—are potentially exposed. Appendix 3 summaries the indicators which
can be used to assess the country’s external vulnerability.




                                                                               15
                                                         Appendix 1
                              Creditors’ List
(1) Bilateral
Banque Nationale de Paris (BNP)
Natexis S.A.
Kuwait Fund for Arab Econmic Development (KFAED)
People's Republic Of China (PRC)
Republic of South Africa (RSA)
(2) Multilateral
African Development Bank (ADB)
Arab Bank For Economic Development in Africa (ABEDA)
Commonwealth Development Corporation (CDC)
European Investment Bank (EIB)
International Development Association (IDA)
International Fund For Agricultural Development (IFAD)
International Monetary Fund (IMF)
Nigeria Trust Fund (NTF)
The Opec Fund For International Development (OFID)
(3) Commercial Loan
The Development Bank of Southern Africa (DBSA)
ABN AMBRO Bank
Instituto De Credito Official (IDCO)
Sevenska Handelsbanken (SHB)
West Merchant Bank Limited (WMB)
(4) Export Credit
A/S EKSPORTFINANS
Dresdner Bank AG. Frankfurt
Nordbanken, Sweden




                                                                 16
Lesotho Government Debt Position
For the Financial year 2004/05 to 20006/07 in Thousands of Maloti
 CREDITOR and CREDITOR CATEGORY                   2004/05           2005/06         2005/06          2006/07
                                                      Actual        Actual          Forecast         Forecast
 BILATERAL

 Banque Nationale de Paris
 Disbursed Outstanding Debt                          32,228.00         30,741.00      21,339.00        10,670.00
 Disbursements                                               0                 0              0                0
 Principal Repayments                                10,742.00          1,246.00        9,402.00       10,670.00
 Interest Payments                                    3,409.00              215         1,891.00        1,371.00
 Total Debt Service                                  14,151.00          1,461.00      11,293.00        12,041.00

 Natexis S.A.
 Disbursed Outstanding Debt                         158,363.00        155,474.00     145,802.00       136,420.00
 Disbursements                                               0                 0               0                0
 Principal Repayments                                11,265.00          1,844.00        9,672.00         9,382.00
 Interest Payments                                    2,930.00              519        2,105.00         2,295.00
 Total Debt Service                                  14,195.00          2,362.00      11,777.00        11,677.00

 Kuwait Fund for Arab Econmic De velopment
 Disbursed Outstanding Debt                          65,348.00         72,148.00      66,226.00        70,216.00
 Disbursements                                               0                  0              0       10,593.00
 Principal Repayments                                 6,145.00                647       5,921.00        6,603.00
 Interest Payments                                    1,698.00                 40       1,720.00        1,709.00
 Total Debt Service                                   7,844.00                687       7,641.00        8,312.00

 People's Republic Of China
 Disbursed Outstanding Debt                          43,200.00         48,000.00      47,200.00        45,600.00
 Disbursements                                               0                 0              0                0
 Principal Repayments                                                                          800       1,600.00
 Interest Payments                                                                               0              0
 Total Debt Service                                                                            800       1,600.00

 Republic of South Africa
 Disbursed Outstanding                              169,379.00        115,642.00      76,121.00                 0
 Disbursements                                               0                 0              0                0
 Principal Repayments                                64,808.00         53,737.00      76,121.00        76,121.00
 Interest Payments                                    3,095.00          1,210.00                        1,761.00
 Total Debt Service                                  67,903.00         54,947.00      76,121.00        77,882.00

 BILATERAL TOTAL
 Disbursed Outstanding                              468,518.00        422,005.00     356,689.00       262,906.00
 Disbursements                                               0                 0              0        10,593.00
 Principal Repayments                                92,961.00         57,474.00     101,916.00       104,376.00
 Interest Payments                                   11,132.00          1,983.00       5,716.00         7,137.00
 Total Debt Service                                 104,093.00         59,457.00     107,632.00       111,512.00




                                                                                                       17
MULTILATERAL
African Development Bank
Disbursed Outstanding Debt                 24,796.00      20,122.00      16,768.00      10,061.00
Disbursements                                      0              0              0              0
Principal Repayments                       10,323.00       5,430.00       8,777.00       6,707.00
Interest Payments                           1,999.00           807            557            788
Total Debt Service                         12,350.00       6,237.00       9,335.00       7,496.00

African Development Fund

Disbursed Outstanding Debt               1,137,065.00   1,173,729.00   1,163,670.00   1,191,338.00
Disbursements                              68,400.00      2,518.00 -                    50,039.00
Principal Repayments                       17,725.00      10,112.00      21,162.00      22,370.00
Interest Payments                           8,046.00       4,080.00       4,439.00       8,685.00
Total Debt Service                         26,261.00      14,339.00      26,605.00      32,136.00

Arab Bank For Economic Development in
Africa
Disbursed Outstanding Debt                 36,347.00      34,955.00      27,704.00      45,146.00
Disbursements                                    355              0              0      25,657.00
Principal Repayments                       10,234.00       3,489.00       7,357.00       8,214.00
Interest Payments                           1,356.00           344            877        1,017.00
Total Debt Service                         11,590.00       3,833.00       8,336.00       9,423.00

Commonwealth Development Corporation
Disbursed Outstanding Debt                                      159            161              0
Disbursements                                      0              0              0              0
Principal Repayments                               0              0              0              0
Interest Payments                                  0              0              0              0
Total Debt Service                                 0              0              0              0

European Investment Bank
Disbursed Outstanding Debt                248,505.00     248,088.00     228,942.00     206,984.00
Disbursements                                      0              0              0              0
Principal Repayments                       20,300.00       2,536.00      19,147.00      21,958.00
Interest Payments                           3,687.00           379        3,067.00       3,060.00
Total Debt Service                         23,987.00       2,915.00      22,215.00      25,018.00

International De velopment Association

Disbursed Outstanding Debt               1,653,519.00   1,705,259.00   1,681,728.00   1,767,648.00
Disbursements                               76,204.00       4,621.00              -     122,680.00
Principal Repayments                       29,894.00       9,249.00      23,623.00      36,760.00
Interest Payments                          13,368.00       4,233.00       8,560.00      12,858.00
Total Debt Service                         43,262.00      13,483.00      32,909.00      50,941.00




                                                                                       18
International Fund For Agricultural
Development
Disbursed Outstanding Debt                 165,697.00     169,048.00     166,793.00     175,937.00
Disbursements                               24,540.00              0              0      12,975.00
Principal Repayments                          3,673.00       1,616.00       2,274.00       3,831.00
Interest Payments                             1,458.00           488        1,094.00       1,585.00
Total Debt Service                            5,132.00       2,105.00       3,368.00       5,416.00

International Monetary Fund
Disbursed Outstanding Debt                 197,778.00     203,637.00     237,577.00     227,395.00
Disbursements                                       0              0      33,940.00              0
Principal Repayments                                0              0              0      10,182.00
Interest Payments                                 970            591        1,009.00      1,171.00
Total Debt Service                                970            591        1,009.00     11,353.00

Nigeria Trust Fund
Disbursed Outstanding Debt                  19,102.00      20,337.00      16,348.00      12,954.00
Disbursements                                1,805.00              0              0       1,991.00
Principal Repayments                         4,354.00              0       3,989.00       5,386.00
Interest Payments                                 852              0            383            658
Total Debt Service                            5,266.00             0        4,406.00       6,107.00

The Opec Fund For International
Development
Disbursed Outstanding Debt                    6,675.00       6,845.00       4,891.00       9,256.00
Disbursements                                        0             0               0       6,580.00
Principal Repayments                          3,106.00           267        2,508.00       2,215.00
Interest Payments                                 241              2            174            242
Total Debt Service                            3,347.00           269        2,682.00       2,457.00

MULTILATERAL TOTAL

Disbursed Outstanding Debt                3,489,094.00   3,581,627.00   3,544,421.00   3,646,719.00
Disbursements                               171,304.00       7,138.00      33,940.00     219,922.00
Principal Repayments                        99,609.00      32,699.00      88,836.00     117,624.00
Interest Payments                           31,978.00      10,926.00      20,160.00      30,064.00
Total Debt Service                         132,165.00      43,771.00     110,863.00     150,348.00

COMMERCIAL BANK

The Development Bank of Southern Africa
Disbursed Outstanding Debt                  58,027.00      58,027.00      52,073.00      46,101.00
Disbursements                                       0              0              0           729
Principal Repayments                         3,962.00              0       6,360.00       6,701.00
Interest Payments                            6,479.00              0       6,848.00       5,729.00
Total Debt Service                          10,442.00              0      13,207.00      12,430.00

ABN AMBRO Bank
Disbursed Outstanding Debt                    8,583.00       7,618.00       6,530.00       4,353.00
Disbursements                                        0              0              0              0
Principal Repayments                          2,118.00       1,126.00       1,088.00       2,177.00
Interest Payments                                 743            330            276            434
Total Debt Service                            2,861.00       1,456.00       1,364.00       2,611.00


                                                                                         19
Instituto De Credito Official
Disbursed Outstanding Debt                      0                   0           0            0
Disbursements                                   0                   0           0            0
Principal Repayments                     1,848.00                   0           0            0
Interest Payments                              19                   0           0            0
Total Debt Service                       1,867.00                   0           0            0

The Public Investment Commissioners
Disbursed Outstanding Debt             208,970.00       208,970.00      52,878.00    52,878.00
Disbursements                                      0                0            0           0
Principal Repayments                               0                0   156,092.00           0
Interest Payments                       32,793.00         3,675.00       16,396.00     7,350.00
Total Debt Service                      32,793.00         3,675.00      172,488.00     7,350.00

Sevenska Handelsbanken
Disbursed Outstanding Debt              24,567.00        18,907.00      14,180.00      4,727.00
Disbursements                                   0                0               0           0
Principal Repayments                     9,545.00         4,943.00        4,727.00    9,453.00
Interest Payments                        1,413.00         1,035.00        1,673.00        879
Total Debt Service                      10,958.00         5,979.00        6,400.00   10,332.00

West Merchant Bank Limited
Disbursed Outstanding Debt              16,299.00        13,186.00        9,837.00     3,348.00
Disbursements                                                                              207
Principal Repayments                     6,515.00         3,464.00        3,348.00     6,696.00
Interest Payments                        1,459.00             591             445          558
Total Debt Service                       7,974.00         4,055.00        3,794.00     7,255.00

COMMERCIAL BANK TOTAL
Disbursed Outstanding Debt            316,445.00       306,707.00       135,498.00   111,407.00
Disbursements                                                                              937
Principal Repayments                  23,989.00        9,533.00         171,615.00   25,027.00
Interest Payments                     42,906.00        5,632.00          25,639.00   14,950.00
Total Debt Service                    66,894.00        15,165.00        197,254.00   39,978.00

EXPORT CREDIT
A/S EKSPORTFINANS
Disbursed Outstanding                 18,157.00        19,273.00        13,060.00      7,706.00
Disbursements                                      0                0           0             0
Principal Repayments                  6,125.00                      0     4,070.00     5,354.00
Interest Payments                     1,475.00                      0         692          762
Total Debt Service                    7,600.00                      0     4,762.00     6,117.00

Dresdner Bank AG. Frankfurt
Disbursed Outstanding Debt            23,822.00        20,280.00        16,900.00    12,348.00
Disbursements                                      0                0           0     2,208.00
Principal Repayments                  6,649.00         3,492.00          3,380.00     6,760.00
Interest Payments                     1,870.00         804                   575          915
Total Debt Service                    8,519.00         4,296.00           3,997.00     7,724.00




                                                                                     20
Nordbanken, Sweden
Disbursed Outstanding Debt   36,514.00       29,568.00         20,373.00     6,324.00
Disbursements                            0               0             0            0
Principal Repayments         16,074.00       6,842.00           9,195.00    14,049.00
Interest Payments            2,579.00        554                1,095.00         927
Total Debt Service           18,653.00       7,397.00          10,290.00    14,975.00

EXPORT CREDIT TOTAL
Disbursed Outstanding Debt   78,487.00       69,115.00         50,333.00    26,378.00
Disbursements                            0               0             0     2,208.00
Principal Repayments         28,849.00       10,334.00         16,645.00    26,163.00
Interest Payments            5,923.00        1,358.00           2,362.00     2,604.00
Total Debt Service           34,772.00       11,692.00         19,049.00    28,815.00

TOTAL DEBT STOCK

Disbursed Outstanding Debt   4,352,544.00    4,379,454.00    4,086,941.00   447,410.00
Disbursements                  171,304.00        7,138.00       33,940.00   233,659.00
Principal Repayments           245,407.00      110,040.00      379,012.00   273,190.00
Interest Payments              91,939.00       19,899.00       53,876.00     54,755.00
Total Debt Service            337,924.00      130,086.00      434,798.00    330,653.00




                                                                            21
                                                             Appendix 2
                        Lesotho Debt Policy
In terms of the Loans and Guarantees Act and its amendments

The Loans and Guarantees Act No. 15 of 1967 as amended by Act No.14 of
1975, Act No.1 of 1976 and the Local Loans Act no. 14 govern Debt
management policy. The Acts give the Minister of Finance the power to
negotiate the terms and conditions of both external and local/credit and to
enter into agreement with donors/creditors on behalf of the Lesotho
Government.

The Loans and Guarantees Act sets out ceilings on external and domestic public
debt. The ceilings are that the total external debt outstanding at any given
time shall not exceed the total revenue budget for the last three (3)
consecutive financial years as recorded in the latest available estimates of
revenue presented to the Assembly under section 5 of the Finance order 1988,
or the equivalent in the currency in which the loan or loans is raised calculated
at the rate of exchange in force at the time of raising a new loan and that
domestic debt should not exceed one third of the recurrent revenue for the
last audited and published three (3) successive financial years.

The loans and Guarantees Act was further amended by Order No. 25 of 1991,
which gives Lesotho Highlands Water Development Project exemption from the
ceilings described above. In terms of Loans (Statutory Bodies) Act no 22 of 1975
no Statutory Body shall raise a loan or bank overdraft in or outside Lesotho
without having obtained the prior approval of the Minister of Finance.

In terms of Central Bank of Lesotho Act 2000

1. The Central Bank may:-

      (a)    make advances on overdrafts and loans to GOL on such terms as
             the Board may determine.

      (b)    acquire directly from the Government or any person, treasury bills
             or securities representing obligations of the Government.

2. The total of such loans, advances and holdings of treasury bills and
government securities excluding any government securities held as part of the
share capital of the Bank less any credit balances in the account of Government
with the Central Bank of Lesotho shall not exceed 5% of the Government’s
actual revenue in the previous year’s budget.



                                                                              22
3. Treasury bills and government securities held by the bank against repurchase
agreements entered into with it by licensed institutions shall be excluded from
the total holdings of government securities of the bank where the repurchase is
required to be effected within 93 days from the date of the agreement.

4. Any advance made shall be repaid within 93 days from the end of the
Government’s financial year to which it relates and where any such advances
remain unpaid after the due date, the power of the bank to make further
advances in any subsequent financial year shall not be exercised unless the
amounts due in respect of outstanding debt have been repaid.

In terms of the GOL/IMF agreement

GOL is not supposed to borrow or guarantee any non-concessional external
debt.

Definition: The public sector comprises the central government, the Central
Bank of Lesotho and all enterprises with majority state ownership. A loan is
concessional if its grant element is at least 35 percent of the value of the loan;
calculated using a discount rate based on commercial interest reference rates
(CIRRS) reported by OECD. For loans of maturity greater than 15 years, the
grant element will be based on the ten-year average of OECD CIRRs. For loans
of maturity 15 years or less, the grant element will be based on the six-month
average of OECD CIRRs. Margins for differing repayment periods would be
added to the CIRRs: 0.75 percent for repayment periods of less than 5 years, 1
percent for repayment period of 15 to 19 years, 1.15 percent for repayment
period of 10 to 29 years and 1.25 percent for repayment period of 30 years or
more.

This performance criterion applies to all current external debt and also new
commitments contracted or guaranteed for which value has not been received.
Borrowing for the water transport operations of the Lesotho Highlands Water
Authority and loans under PRGF arrangement are excluded from this
performance criterion.




                                                                               23
                                                                                  Appendix 3

                          RISK MANAGEMENT TOOLS
 Indicators of Reserve                                                Description
 Adequacy
 Ratio of Reserves to Short-           Single most important indicator of reserve adequacy in
 Term External Debt                    countries with significant but uncertain access to capital
                                       markets. Should be based on measure of reserves
                                       consistent with the Balance of Payments Manual, Fifth
                                       Edition and operational guidelines for Special Data
                                       Dissemination Standard reserves template, and a
                                       comprehensive measure of short-term debt of the public
                                       and private sectors on a remaining maturity basis.

 Ratio of Reserves to Imports          Useful measure for reserve needs for countries with
                                       limited access to capital markets; effectively scales the
                                       level of reserves to the size and degree of openness of
                                       the economy.

 Ratio of Reserves to                  Measure of the potential impact of a loss of confidence
 Broad Money                           in the domestic currency, leading to capital flight by
                                       residents. Particularly useful if the banking sector is
                                       weak and/or credibility of the exchange rate regime
                                       remains to be established. T here are, however, other
                                       potential sources of capital flight as well.

 Debt-Related Indicators               Debt-related indicators should generally be used in
                                       conjunction with medium-term scenarios, which permit
                                       the analysis of debt sustainability over time, and under a
                                       variety of alternative assumptions.

 Ratio of External Debt                Useful indicator of trend in debt that is closely related to
 to Exports                            the repayment capacity of the country.
 Ratio of External Debt                Useful indicator of relating debt to resource base
 to GDP                                (reflecting the potential of shifting production to exports
                                       or import substitutes so as to enhance repayment
                                       capacity).
 Average Interest Rate                 Useful indicator of borrowing terms. In conjunction with
 On External Debt                      debt/GDP and debt/export ratios and growth outlook, a
                                       key indicator for assessing debt sustainability.
 Average Maturity                      Useful    for    homogeneous        categories    such    as
                                       nonconcessional public sector debt, to track shortening
                                       of maturities or efforts to limit future vulnerabilities.
 Share of Foreign Currency             Useful indicator of the impact of ex change rate changes
 External Debt in Total                on debt (balance sheet effect), especially in conjunction
 External Debt                         with information on derivatives that transform the
                                       effective currency composition.
Source: “Debt- and Reserve-Related Indicators of External Vulnerability” (SM/00/65), IMF, 2002




                                                                                                      24
KEY REFERENCES


1.   International Monetary Fund, and World Bank, 2001, Guidelines for Public Debt
     Management (Washington).

2.   IMF and World Bank. 2002. Guidelines for Public Debt Management: Accompanying
     Document and Selected Case Studies.Washington, DC: IMF and World Bank

3.   International Monetary Fund, and World Bank, 2003, Guidelines for Public Debt
     Management (Washington, revised ed.).

4.   Kingdom of Lesotho. 1992. Lesotho Constitution. Maseru.
     http://www.lesotho.gov.ls/documents/Lesotho_Constitution.pdf

5.   Kingdom of Lesotho. 2004. Lesotho Debt Policy. Maseru
     http://www.finance.gov.ls/divisions/d_debts.php

6.   Kingdom of Lesotho. 2004. Lesotho Debt Position. Maseru
     http://www.finance.gov.ls/divisions/d_debts.php




                                                                                     25
PART 2
PUBLIC DEBT MONITORING
         TOOLS
                       TABLE OF CONTENTS
                                                 Page
TABLE OF CONTENTS                                i
ACRONYMS AND ABBREVIATIONS                       ii
MODULE 1                                         1
1.0 PUBLIC DEBT AND EXPENDITURE INFORMATION      1
    1.1  Objective                               1
    1.2  Session                                 1
    1.3  Sources of Information                  1
    1.4  Picking Relevant Information            2
    1.5  Sources of Evidence                     2
    1.6  Units of Analysis                       3
    1.7  Sifting through Information             3

MODULE 2                                         4
2.0 ADVOCACY AND LOBBYING                        4
    2.1  Objective                               4
    2.2  Session                                 4
    2.3  Advocacy                                4
    2.4  Identify the Problem                    4
         2.4.1 Nature of the Problem             5
         2.4.2 Clarify your Purpose              5
         2.4.3 Know the Facts                    5
         2.4.4 Understand the System             6
         2.4.5 Timing                            7
         2.4.6 Know Your Target Audience         7
         2.4.7 Target Audiences                  7
         2.4.8 Develop and Deliver the Message   8
         2.4.9 Methods of communicating          8
         2.4.10 Advocacy Strategies              8
         2.4.11 Build and Maintain Support       9
    2.5. What is lobbying?                       9
         2.5.1 Types of Lobbying                 10
MODULE 3                                         11
3.0 FORMULATION OF GOVERNMENT BUDGET             11
    3.1  Objective                               11
    3.2  Session                                 11
    3.3  Definition of Government Budget         11
    3.4  The Importance of Budget                11
    3.5  Sources of Money                        12
    3.6  Budget Formulation                      12



                                                        i
MODULE 4                                                      14
4.0 PUBLIC DEBT MANAGEMENT                                    14
4.1 Objective                                                 14
4.2 Session                                                   14
4.3 Definition of Public Debt Management                      14
4.4 Public Debt Office                                        14
4.5 Debt Management Objectives                                15
4.6 Legal Framework                                           15
4.7 Roles and responsibilities of institutions/departments
    involved in debt management operations                    16
    4.7.1 Parliament                                          16
    4.7.2 Ministry of Finance                                 16
    4.7.3 Auditor General                                     17
    4.7.4 Attorney General                                    17
    4.7.5 Accountant General                                  18
    4.7.6 Department/Ministry responsible for Planning        18
    4.7.7 The Central Bank                                    18
    4.7.8 Line Ministries                                     19
    4.7.9 Parastatal/quasi-government agencies and private
           sector organizations with public loan guarantees   19
4.8 Coordination                                              20
4.9 Data Recording                                            20

MODULE 5                                                      22
5.0 DEVELOPING INDICATORS                                     22
5.1 Objective                                                 22
5.2 Session                                                   22
5.3 What is an indicator?                                     23
5.4 SMART Objectives                                          22

MODULE 6                                                      25
6.0 MONITORING                                                25
6.1 Objective                                                 25
6.2 Session                                                   25
6.3 What is monitoring?                                       25
6.4 Monitoring Framework                                      26
6.5 Identifying Areas for Monitoring                          26
6.6 Monitoring Tools                                          26
    6.6.1. Examples of Monitoring Tools                       27

MODULE 7                                                      30
7.0 EVALUATION                                                30


                                                                   ii
7.1   Objective                                               30
7.2   Session                                                 30
7.3   What is evaluation?                                     30
Debt Glossary                                                 32
References                                                    43



Table1.       GOL Debt Position For the Financial year        20
Table 2.      Current Projects Funded by World Bank in US$    21
             2004/05 to 2006/07 in Maloti `000
Table 3.     Indicators Levels                                23
Table 4.     Example of Areas to be Monitored                 24
Table 5.     Community Score Card                             27
Table 6.     Community Based Monitoring and Evaluation Tool   28
Table 7.     Trend Analysis                                   29
Table 8.     Debt Report Card                                 31




                                                                   iii
              ACRONYMS AND ABBREVIATIONS

CBL       -    Central Bank of Lesotho

CBOs      -    Communi ty Based Organisa tions

CS-DRMS   -    Commonwealth Secretaria t Debt Recording Management System

DRC       -    Debt Report Card

FBOs      -    Faith Based Organisa tions

IDA       -    Interna tional Development Association

IMF       -    Interna tional Monetary Fund

MOFDP     -    Ministry of Finance and Development Planning

NGOs      -    Non Governmental Organisa tions

PRS       -    Poverty Reduc tion Stra tegy

VAT       -    Value Added Tax

WB        -    World Bank




                                                                            iv
                                 MODULE 1

1.0   PUBLIC DEBT AND EXPENDITURE INFORMATION



1.1   Objective:    To familirise participants with official sources of

      information on public debt and expenditure.


1.2   At the end of the session, the participants must know:

             Sources of information in relation with public debt and

              expenditure; and

             How to extract information from the sources and make analysis.



1.3   Sources of Information



         Estimates of Revenues and Expenditures

         Budget Speech

         Government Gazettes (which contain all information about loans)

         Central Bank of Lesotho Quarterly Reports

         IMF, World Bank Sources and donor reports

         Bureau of Statistics Reports

         Audit Reports



      The above documents provide information on the available resources

      to Government to carry out development programmes/activities as

      spelt out in the national development plans.




                                                                            1
1.4   Picking Relevant Information


          Picking the relevant sections of the information sources, e.g.,

           where do I find information on public debt and expenditure?

          What are the amounts involved?

          How is the money disbursed?

          By whom? On what programmes and activities?

          How do I move from aggregate and national level to micro level?

          Who has this information at constituency level?

          At the district level?

          How can I access this information?


1.5   Sources of Evidence



      It is suggested that it is better to combine evidence from different

      sources to construct a powerful advocacy message. The sources can

      be divided into:



      a)      Primary sources: here you gather first hand information from

              the field which is not yet analyzed or interpreted. For instance,

              you can visit a school, a village or community and talk to the

              people affected by a particular problem and then you compile

              your information.



      b)      Secondary sources: the information is already edited, analyzed,

              or otherwise commented on, e.g., government reports.



                                                                              2
1.6   Units of Analysis



      Do you want to gather information about;

         Individuals?

         Households?

         Organisations?

         Government departments?

         Communities or villages?

         Services?



      These are called the units of analysis and you can formulate

      strategies of getting information depending on the unit of analysis you

      decide to investigate or compare.



1.7   Sifting through Information



      There are so many ways of extracting stories from the information

      that you have gathered from your source. One could employ the

      following tools of analysis in order to present the information: Trend

      analysis, Graphs, Pie charts, Histograms, Bar charts, Frequency tables,

      Percentages, ratios, variables, Descriptive stories but with facts, You

      could also use pictures/photos, e.g., of a broken down water well, run

      down school, vandalised market, etc.




                                                                            3
                                MODULE 2


2.0   ADVOCACY AND LOBBYING



2.1   Objective: To intimate the concepts of advocacy and lobbying to the

      participants.


2.2   At the end of the session, the participants must be able to:

         Understand the dynamics of advocacy and lobbying; and

         Apply appropriate strategies in advocacy and lobbying.



2.3   The information gathered through monitoring and evaluation is meant

      for advocacy and lobbying within the Economic Justice Network

      Lesotho. By advocacy is meant the following:

         Economic Justice Network Lesotho speaking up to draw a

          community or nation„s attention to an important issue, and directing

          decision makers towards a solution; and

         Economic Justice Network Lesotho putting a problem on the

          agenda, providing a solution to that problem and building support

          for acting on both the problem and the solution.


2.4   Identify the Problem



      What?

         What is the situation you would like to change?




                                                                             4
        What do you want to change it to?

        What is the end result you would like to see?



     Who?

        Whose interests will be represented if the problem is addressed?

        Who will benefit?

        Who are the role players?

        Who has the power and resources?



2.4.1 Nature of the Problem

        Is this an individual or community problem?

        Is the problem long-term, medium or short-term?

        Differentiate between the core problem and the effects of the

         problem.

        Do you have the capacity and resources to take up the issue?



2.4.2 Clarify your Purpose

        What are your goals in advocacy?

        Are these short-term, medium term or long-term advocacy goals?



2.4.3 Know the Facts

        Gathering and verifying information is central to advocacy and

         lobbying.

        Finding out what the facts are is essential step that is continuous

         throughout your campaign.




                                                                               5
          Avoid hearsay no matter how convincing it may appear to you as an

           advocacy activist.

          When gathering information you must ensure that the information

           is: - Relevant

           - Accurate

           - Specific

           - Up to date

           - Conclusive

           - Convincing

           - Be aware of biases



2.4.4 Understand the System

For the purpose of effectiveness and efficiency, it is important to know:

      How the government works

      Which government structures are responsible for what

      Who are the people involved and if possible their names and positions

      How decisions are made and who can influence a decision

      How policy and legislation are formulated

      When decisions are made or policy/legislation is formulated

      Who writes, edits and accepts/rejects policy and legislation

      What formal opportunities for engagement/participation exist

      How to create opportunities to influence a decision, policy or

       legislation




                                                                               6
2.4.5 Timing

Is the time favourable to put the issue on the agenda or in the public

domain? This is critical and will determine whether or not you are going to

succeed in your advocacy campaign.



2.4.6 Know Your Target Audience

Important to know:

         Your target audience is literate

         Do they listen to radio/read the newspaper or watch Television?

         What is their knowledge about the issue?

         What are their opinions, beliefs and attitudes?

         What are the issues your audience might care about which may be

          unrelated to your issue?



2.4.7 Target Audiences

         Politicians

         Trade Unions

         Community groups

         Traditional leaders

         Other NGOs,FBOs,CBOs,

         Professionals

         Political parties

         Media

         Academic institutions

         Government officials and policymakers

         Women„s and youth organisations


                                                                            7
2.4.8 Develop and Deliver the Message

(a)   Developing the Message

         Short and simple

         Use words and images that target audience is familiar with

         Give important points first

         Give issue a human and local face

         Emphasize the positive aspects and value of what you are doing



(b)   What is the Message?

      Write a brief and persuasive statement about your advocacy goal that

      captures what you want to achieve, why and how and what actions you

      would like the audience to take



2.4.9 Methods of communicating

         Letters

         Meetings

         Submissions

         Radio interviews

         Press releases (newspapers, magazine, bulletins, etc)

         Television



2.4.10 Advocacy Strategies

      Mass Media                                          Network

      - Radio                                             - Meeting

      - Television                                        - Reference Group

      - Newspaper                                         - Rally


                                                                            8
        - Newsletter                                       - Seminar

        - Pamphlet                                         - E-mail

        - Poster                                           - Research

                                                           - Picketing

2.4.11        Build and Maintain Support



Economic Justice Network Lesotho must strive to provide leadership by

staying focused and accountable to the general membership as well as

sharing victories and disappointments with the partners.



2.5. What is lobbying?



Lobbying is a systematic way whereby one persuades someone with more

decision making power than him or her, in a particular situation, to take a

decision that will serve his or her interests. Why should we lobby? Because

we believe that lobbying will get us and the people we represent what we

want.



Hence, it is advisable to lobby under the following circumstances:

       When you believe your point of view is correct;

       When the issue is controversial and timely;

       When opposing views exist;

       When you believe that if your views were known it would have a

        significant effect on decisions being made;

       When you believe that the elected official is not as well informed as

        you on a particular issue; and


                                                                            9
         When you believe that if the right decision is made, both you and the

          community will benefit.



Politicians, leaders and government in general expect to be lobbied as they

were elected to represent you and your community. It keeps them up-to-

date with what their constituents‟ views are on issues…it keeps them in

touch with reality.



2.5.1 Types of Lobbying



(a)       Direct lobbying—you approach an elected official or government

          personally, usually in a meeting, where you present your views.

          Examples of this could be meetings, telephone calls, emails, letters,

          etc.



(b)       Indirect Lobbying—you work with other support groups, allies or

          influential people to put forward your views. This can be done either

          directly to your politician or in some other public forum or community

          action. Examples of this are enlisting the mass media through planting

          stories, advertisements, radio phone-in programmes, letters to the

          editors, press releases, rallies, etc




                                                                              10
                               MODULE 3


3.0   FORMULATION OF GOVERNMENT BUDGET



3.1   Objective: To acquaint the participants with the concept of

      government budget by identifying processes involved.


3.2   At the end of the session, the participants must know:

         How to define the government budget;

         The importance of government budget;

         Sources of government funds; and

         Budget formulation process.



3.3   Definition of Government Budget



      A government budget is a legal document that is often passed by the

      legislature, and approved by the Prime Minister or President on how a

      government proposes to collect and spend money.



3.4   The Importance of Budget


      A well developed budget reflects the policy priorities of national

      government and the political will to implement its electoral promises.

      It also serves as a tool in the planning of debt management.




                                                                          11
      Furthermore, the budget analysis provides government performance.

      A government‟s budget performance is reflected in its budget inputs

      (resources), outputs ( services that are delivered) and outcomes (the

      well-being of the population).


3.5   Sources of Money


      The government gets money from various types of sources such as:


             (i)     Taxes: Income Tax, Value Added Tax (VAT), Duties, Oil

                     levy and so forth.

             (ii)    Non-Taxes: Water Royalty and so forth

             (iii)   Grants and Loans


3.6   Budget Formulation



      The steps taken in formulation of budget are presented as follows as:



      Step 1
            Budget Office through Principal Secretary of Ministry of

             Finance and Development Planning will issue a circular requesting

             all government ministries to submit their budgets ( Estimates of

             Revenue and Expenditure) in accordance with guidelines
             provided. Some of the provisions from guidelines are timetable

             for submission and ceilings.




                                                                           12
Step 2
     Line Ministries shall make their budgets based on national

      development plans such as Poverty Reduction Strategy (PRS)

      and Vision 2020. Once finished, submission will be made to

      Budget Office.



Step 3
     Once the Budget Office is convinced that all budgets have met

      its standards, it shall forward them through Minister of

      Finance and Development Planning to the Cabinet of Ministers

      (Executive) for approval.



Step 4

     Once approved by the Cabinet of Ministers, they shall be

      submitted to the Legislature for ratification. This is a platform

      whereby the elected members of parliament will be able to

      ensure the inclusion of electorates‟ promises.




                                                                    13
                                       MODULE 4


4.0      PUBLIC DEBT MANAGEMENT



4.1      Objective: To familirise the participants with the concept of public

         debt management by identifying processes involved.
4.2      At the end of the session, the participants must know:

            How to define the public debt management; and

            The objectives, roles and responsibilities of role players in debt

             management.



4.3      Definition of Public Debt Management



Public Debt Management is the sy stematic way of establishing and executing

a strategy for prudently managing the government‟s debt in order to attain

the government‟s risks and cost objectives, and to meet any other sovereign

debt management goals the government may have set (IMF, 2001).



4.4      Public Debt Office



In Lesotho, Public Debt Office in the Ministry of Finance and Development

Planning is responsible for monitoring and administration of external debt in

compliance with the Loans and Guarantees Act No. 15 of 1967 as amended by

Act No. 14 of 1975, Act No. 1 of 1976, and Order No. 25 of 1991 6.

6
    See: http://www.finance.gov.ls/divisions/d_debts.php



                                                                                  14
4.5   Debt Management Objectives


The objectives of debt management in Lesotho are as follows:


         Ensure financing needs of the government are met;

         Minimise borrowing costs and other costs related to external

          borrowing and to the issue of domestic securities;

         Keep risks at an acceptable level;

         Develop a smooth maturity structure of Government debt; and

         Maintain an appropriate mix of government securities.


4.6   Legal Framework



The Minister of Finance has the power to negotiate the terms and conditions

of both external and local/credit and to enter into agreement with

donors/creditors on behalf of the Lesotho Government, with cabinet

approval in terms of Loans and Guarantees Act.



The ceilings are that the total external debt outstanding at any given time

shall not exceed the total revenue budget for the last three (3) consecutive

financial years as recorded in the latest available estimates of revenue

presented to the Assembly under section 5 of the Finance order 1988, or

the equivalent in the currency in which the loan or loans is raised calculated

at the rate of exchange in force at the time of raising a new loan and that

domestic debt should not exceed one third of the recurrent revenue for the

last audited and published three (3) successive financial years.




                                                                            15
4.7    Roles and responsibilities of institutions/departments involved in

       debt management operations.



The functions and responsibilities of institutions and departments listed

below specifically relates to debt management.



4.7.1 Parliament



The parliament is the supreme legislative organ in the country. It is charged

with the responsibility of enacting legislation, which includes the legal

framework for debt management.



4.7.2 Ministry of Finance



      Supervises the finances of a country so as to ensure that a full

       account thereof is made to the National Assembly and that its

       financial control is maintained.

      Presents borrowing requirements to government and to parliament for

       authorization or approval as may be necessary in accordance with the

       law and regulations and policies in force.

      Spearheads in negotiation and re-negotiations of terms and conditions

       of external loans and credits

      Signs loan agreements, indemnity or security in respect of any

       financial commitment incurred or to be incurred by any board or body

       established by or under the law, bank, company or juristic person and

       other documents that involve committing the country.


                                                                            16
     Verifies that the project/loan presented by a state corporation or

      private entity for a government guarantee qualifies for such a

      guarantee and processes the application as necessary.

     Submits annual debt strategies (including public debt statement and

      gross funding plan), and quarterly debt reports to cabinet for

      information.

     Integrates debt variables into broad macroeconomic and financial

      aggregates.

     Participates in liquidity forecasting alongside other finance agencies.



4.7.3 Auditor General



     Verifies and authorizes debt service pay ments.

     Conducts audits to ensure compliance with set benchmarks of financial

      transactions in debt management.



4.7.4 Attorney General



     Gives legal opinion on behalf of Government on any instrument that

      may commit government.

     Drafts and scrutinizes legal documents related to borrowing, and

      lending transactions and guarantees.

     Participates in negotiations of external loans.

     Verifies that projects presented for loan guarantees qualify for such

      guarantees.




                                                                                17
4.7.5 Accountant General

     Prepares cash flow forecasts and manages liquidity of government.

     Processes debt service payments.

     Monitors and reporting on loan disbursements.

     Obtain details of all financial assets of government for the purpose of

      computing the country‟s net debt position.



4.7.6 Department/Ministry responsible for Planning



     Formulates national development plans, prioritizes projects in line with

      government‟s social-economic objectives and works with Ministry of

      Finance to identify ways and means of closing the budget deficit by

      borrowing either externally or domestically.



4.7.7 The Central Bank of Lesotho



     Facilitates settlement of debt service payments on instructions of the

      Debt Management Office.

     Provides advice on debt management in accordance with the Central

      Bank of Lesotho Act of 2000.

     Maintains a secure and efficient pay ment and settlement sy stem.

     Monitors and advises on Government‟s sovereign risks (financial assets

      and liabilities).

     Obtains details of all financial assets of government and quasi

      government from financial institutions and reports the same to the

      debt office and Ministry of Finance.


                                                                           18
      Prepares Cash flow forecasts and manages liquidity of government.



4.7.8 Line Ministries



      Prepare project proposals and submit them for approval to Ministry of

       Finance.

      Provide regular progress reports on all programmes/projects to

       Ministry of Finance.

      Prepare expected disbursements profiles.

      Submit loan disbursements claims approval to responsible offices.

      Confirm disbursements received to the debt and treasury offices.

      Make comments on draft loan agreement from the Ministry of

       Finance.

      Participate in all consultations and negotiations of all loan agreements

       for projects and programmes under their jurisdiction.

      Implement, monitor and evaluate, in close collaboration with the body

       responsible for National Planning, all projects and programmes within

       their jurisdiction.



4.7.9 Parastatal/quasi-government agencies and private sector

       organizations with public loan guarantees.



Over and above the functions performed by the line ministries, parastatals

are responsible for: -

      Ensuring prompt payments of their debts.




                                                                             19
         Submitting details of debt service to the Debt Office and Ministry of

          Finance.



4.8       Coordination



The Ministry of Finance and Development Planning through Public Debt

Office is obliged to coordinate the Debt managers, fiscal policy advisors,

and central bankers to share an understanding of the objectives of debt

management, fiscal, and monetary policies given the interdependencies

between their different policy instruments.



4.9       Data Recording



All the loans are entered into CS-DRMS, this system helps to capture all

debt data such as loan details, projections and actual transactions. See

Table 1 and Table 2. The different reports are printed using this sy stem.

On the 15th of every month, the reports are sent to Central Bank of Lesotho,

Research department as well as to the World Bank.

Table 1 GOL Debt Position For the Financial year 2004/05 to 2006/07 in Maloti `000

International Development Association         2004           2005              2006            2007
Disbursed Outstanding Debt                 1,653,519.00   1,705,259.00   1,681,728.00   1,767,648.00
Disbursements                                 76,204.00       4,621.00   -              122, 680.00
Principal Repayments                          29,894.00       9,249.00   23,623.00      36,760.00
Interest Payments                             13,368.00       4,233.00   8,560.00       12,858.00
Total Debt Service                           43,262.00      13,483.00    32,909.00      50,941.00
Source: Ministry of Finance and Development Planning




                                                                                                       20
Table2 Current Projects Funded by World Bank in US$ 7
                                                                                                          PROJECT
                                 PRODUCT           LENDING                  APPROVAL       CLOSING        COST
    PROJECT NAME                 LINE              INSTRU MENT              DATE           DATE           US$
    Lesotho Integrated                             Specific Investment
    Transport Project            IDA               Loan                       19-Oct-06     30-Jun-11     38,200,000
    Maloti-Drakensberg
    Transfrontier                Global
    Conservation and             Environment       Specific Investment
    Development Project          Project           Loan                       13-Sep-01    31-Dec-08       8,420,000
    Lesotho Wat er Sector                          Adaptable Program
     Improvement Project         IDA               Loan                      26-Oct-04     31-Dec-09       15,600,000
    Poverty Reduction Support                      Development Policy
    Credit                       IDA               Lending                   22-May-08     31-Mar-09       15,900,000
                                 Recipient
                                 Executed          Specific Investment
    Lesotho New Hospital PPP     Activities        Loan                        5-Nov-07    N/A             6,250,000
    Second Education Sector
     Development Project                           Adaptable Program
    (Phase 2)                    IDA               Loan                       17-Jul-03    31-Dec-08      27,200,000
    HIV and AIDS Capacity
    Building
     and Technical Assistance                      Technical Assistance
    Project                      IDA               Loan                        6-Jul-04    31-Dec-08       5,050,000
    Private Sector
    Competitiveness
    and Economic                                   Specific Investment
    Diversification              IDA               Loan                       21-Mar-07     30-Jun-12      10,100,000
    Lesotho: Health Sector                         Adaptable Program
    Refor m Project Phase 2      IDA               Loan                       13-Oct-05    31-Mar-09      33,500,000
Source: World Bank




    See: http://web.worldbank.org/external/t/main?menuPK=356061&pagePK=141155&K=141124&theSitePK=356029
7




                                                                                                      21
                                  MODULE 5


5.0      DEVELOPING INDICATORS



5.1      Objective: to acquaint participants with the concept of indicators and

         how to develop indicators.


5.2      At the end of the session, participants should be able to understand

         the concept of indicators and how to use them in their work.



5.3      What is an indicator?



An indicator is a tool used to measure or assess implementation progress and

eventual achievement of an objective or goal. A good indicator does provide a

sufficient to help you understand where you are, which way you are going and

how far or near you are from where you want to be. It should be designed in

such a way that it can provide consistent information about some important

area that you want to measure.



5.4      SMART Objectives



Thus a good indicator must conform to the ―SMART objectives, i.e., it must

be:

     Specific: What do you want to change? Who will make the change?

     Measurable: By how much do you want to change the situation?




                                                                                22
   Achievable: Can your efforts change the situation the way you want to?

   Realistic: You need to ensure that you only bite‟ what you can swallow

    otherwise you will be setting up yourself to fail!

   Time bound: By when do you want to see the change?



Monitoring can be easy if and only if indicators are developed in such a way

that we can manage only what we can measure. Put differently, an indicator

is another way of saying “how much” or “how many” or “to what extent” or

“what size”. Monitoring takes place at four stages namely input, output,

outcomes and impact levels. So where do you want to operate and why? Table

3 below provides definition of what we mean by the various indicator levels.


Table 3. Indicators Levels
Units    Term      Definition                                     Examples


1        Input     Direct investments into progra mmes or         Money, ti me, labour
                   projects. These include financial and other
                   resources

2        Output    Direct good s and services genera ted,         Houses buil t, water
                   arising from inputs invested in an             wells sunk, roads
                   intervention                                   rehabili ta ted

3        Outcome   Level and ex tent of utilization of goods      Improved living
                   and services by the target group.              conditions
                   Outcomes are not predetermined; they
                   can be posi tive or nega tive


4        Impact    Overall quanti ta tive and qualita tive        Health and fa mily
                   benefits of intervention, tha t lead to a
                   change in the welfare of the popula tion.
                   Generally such benefits accrue a t na tional
                   level. Impacts are not predetermined;
                   they may be nega tive or posi tive. Impac ts
                   could be attributed to the progra mme.




                                                                                         23
Below in Table 4, examples of areas to be monitored have provided and the
use of indicators at four levels namely input, output, outcome and impact
stages.

   Table 4 Example of Areas to be Monitored
    Sectors       Input                output                   outcome           Impact

    Prima ry      Finance,             Availability of          Quality of        Disease burden
    Healthcare    doctors,             essential drugs Less     heal th ca re     declines A
                  nurses, ti me        ti me spent on queues    improves More     heal thy and
                                                                people seek       producti ve
                                                                heal th ca re     nation

    Universal     Finance, labour,     School is built          Improved          Literacy level s
    Prima ry      ti me, ma terials,   Availability of tex t    learning          rise Improved
    Education     sta tionery          books Number of          environment       communi ty life
                                       teachers -Availability   through
                                       of desks and chairs      moti va ted
                                       Availability of          teachers and
                                       chalk                    pupils More
                                                                pupils are
                                                                enrolling
                                                                Attendance
                                                                levels ri se
                                                                More pupils
                                                                pass exa ms
                                                                Pupil-teacher
                                                                ra tio is
                                                                good

    Fertilizer    Money, delivery      Fertilizer delivered     Fields planted    Food securi ty
    Support       vehicles, fuel,      on ti me to the          on ti me High     improves Hunger
    Proga mme     drivers,             farmers                  yields recorded   and malnutri tion
                  extension                                                       reduced
                  officers

    Wa ter and    Money, ti me,        No. of boreholes sunk    Clean water       Diarrhoea
    sanita tion   labour               Distance to wa ter       readily           diseases
                                       source reduced           available Less    reduced More
                                                                ti me spent       ti me spent on
                                                                looking for       producti ve work
                                                                water




                                                                                              24
                                    MODULE 6


6.0   MONITORING



6.1   Objective:    to notify the participants about the concepts of

      monitoring by identifying various forms of monitoring.


6.2   At the end of the session, the participants must be able to:

         Understand the concepts of monitoring; and

         Identify strategies involved in the monitoring process.



6.3   What is monitoring?



Monitoring is a fundamental way undertaken by managers to assess the

progress in meeting the objectives of an organization continuous basis with

purpose of taking corrective measures in time.



For monitoring to be effective there must be consultation with stakeholders

or an agency, e.g., the Government Ministries, private companies, farmers,

etc. Don„t ambush an institution or people but always make known your

intentions well in advance and explain how you think your efforts will lead to

an improvement in the quality of service or life in the community. That way

you will be able to win the support of the community. Constructive

engagement with the agency or stakeholders facilitates positive actions on

the findings and recommendations.




                                                                            25
6.4    Monitoring Framework



Lesotho Economic Justice Network should ensure that it adopts a multi -

stakeholder approach in its monitoring strategy so that the process is

community owned rather than be seen as a parachute of ideas from the

Maseru Secretariat. The secret to a successful monitoring strategy is to

―keep it simple but effective.



6.5    Identifying Areas for Monitoring



The areas to be monitored in a particular area must be determined by the

stakeholders themselves depending on the level of needs to be addressed.

Some of the areas could be:

      Healthcare

      Universal Primary Education Primary

      Roads

      Water and Sanitation



6.6    Monitoring Tools



Developing monitoring tools can take the form of:

      Community score cards

      Research Focus

      Group discussions

      Interviews

      Site visits


                                                                      26
One should feel free to pick a tool it is comfortable with and the one that

yields the most needed information. At times it may be necessary to use a

blend of tools in order to capture all aspects of information on a particular

issue.



6.6.1. Examples of Monitoring Tools


With the below tools in Table 5 and Table 6, one will be able to measure the
level of satisfaction or dissatisfaction on a particular service being offered
by the authorities.

Table 5 Community Score Card
 Performance indicator             Score                        Brief Explanation
 Quality of service: Wha t is      A=Best
 your assessment of the quali ty   B=Better
 of service?                       C=Good
                                   D= Poor

 Quanti ty of Service: Do you      A=Sufficient
 think the service is sufficient   B=Not sufficient
 for the communi ty?               C=Barely sufficient
                                   D= I don„t know

 Access to service: How easy is    A=Very ea sy
 access to the services?           B=Easy
                                   C=Not easy
                                   D = I don„t know

 Transparency: Do you think        A=Yes
 there is transpa rency in the     B=No
 delivery of thi s service?        C=Partly yes and partly no
                                   D= I don„t know

 Accountability: Do you think      A=Yes
 there is accountability in the    B=No
 provision of this service?        C=Partly yes and partly no
                                   D=I don„t know




                                                                                    27
Table 6 Community Based Monitoring and Evaluation Tool

District:
Township/village/city:
Da te:
Sector:
Indicator:
Type of Project:
Person responsible:
1) Successes



2) Setbacks

3) Wha t was the si tua tion like before? (Two years ago?)




4) Wha t change i s there now?



5) Wha t/who is responsible for this c hange?



6) Wha t can be done about this issue?




7) When should action be ta ken about this issue?



8) Who ha s to take action on this i ssue?




9) Who else should know about this?




10) Wha t is your role as a person/communi ty in this projec t?



________________________________________________________




                                                                  28
Table 7 Trend Analysis
 Sectors            2004                   2005                   2006                   2007
             Allocation    % of     Allocation    % of     Allocation    % of     Allocation    % of
               Maloti       Total     Maloti       Total     Maloti       Total     Maloti       Total
                `000       Budget      `000       Budget      `000       Budget      `000       Budget


 Health        321.8       7.4%       372.7        8.1%      399.8       8.2%       720.8       11.4%

 Education     952.6       22.0%      967.5       21.4%      975.6        20%      1,127.5      17.8%


Government of Lesotho: Estimates of Revenue and Expenditure


Table 7 above, one can see that there was a substantial percentage increase

in the health sector while there was a marginal percentage decline in the

education sector. An increase in say health means that government‟s focus

and priority is now on that particular sector. It is important to note that

Government„s budgets are normally presented in nominal figures. When

analysing statistical data it is usually advisable to work with real figures as

opposed to nominal figures. This is so because of the impact of inflation on

nominal amounts.



You can then use this information to seek explanations from Government or

the authorities. At the village level people may not be able to use the

quantitative trends analysis but can be asked to draw a map of the

community with all the necessary features, e.g. water wells, a school, a clinic,

a community hall, etc. A year or two later they can be asked to draw a map

of their community again, highlighting the trends in features they have

noted, e.g., has the school been painted? This process can then be

augmented by focused group discussions to gather all the fine details about

the changes or lack of changes noted during the period under review.



                                                                                               29
                                   MODULE 7
7.0   EVALUATION



7.1   Objective:   to acquaint the participants about the concepts of
      evaluation by identifying various forms evaluation.


7.2   At the end of the session, the participants must be able to

      understand the concepts of evaluation and apply it.



7.3   What is evaluation?



Evaluation is systematic way of determining significance or worth, usually by

careful appraisal and study. It is the analysis and comparison of actual

progress versus prior plans, oriented toward improving plans for future

implementation. Evaluation draws on data collected during monitoring,

supplementing it with necessary data on project impact and reviewing the

combined information over an extended period to judge project/programme

achievement. Table 3, 4, and 6 are tools used in the monitoring process.



For instance, a Economic Justice Network Lesotho team in all ten (10)

districts may want to evaluate the construction of road from Semonkong and

Seforong as well as the road from Oxbow to Mokhotlong. The main

indicators for evaluation are set at the outcome and impact levels

respectively. Evaluation is also aimed at revealing whether the money spent

under various government policies had their intended outcomes or not.




                                                                           30
Table 8 depicts a Debt Report Card (DRC) which outlines the full details of a

project whereby the GOL has borrowed funds from World Bank (IDA) in

order to construct new roads. Therefore, the DRC will assist one to track

the servicing of the debt in relation to a loan project.


Table 8 Debt Report Card
Project Name         Lesotho Integrated Transport Project

Product Line         IBRD/IDA
Approval Date        19-Oct-06

Closing Date         30-Jun-11

Project Cost         38,200,000

Year                               2006      2007      2008   2009
Disbursed Outstanding Debt
Disbursements
Principal Repayments
Interest Payments
Total Debt Service




                                                                           31
                                                  Debt Glossary

                                                           A
ACP countries: the group of former colonies eligible for preferential treatment under various EEC arrangements, such
as Stabex, the Common Agricultural Policy and trade restrictions. (ACP is an abbreviation for Africa, Caribbean and
Pacific.)
Adjustment: a general change in the orientation of economic policies, intended to improve long-ter m economic
perfor mance or to respond to changes in the international economic environment facing a country. Adjustment may
comprise macroeconomic adjustment and/or structural adjustment. The IMF generally uses the ter m 'adjustment' to
refer to the for mer, and the World Bank to the latter.
Article IV consultation: the regular consultation which the IMF hold w ith each of its member countries, to discuss the
country's economic and financial policies. The consultation itself is conducted by the IMF staff, whose repor t is then
discussed by the Executive Board. Such consultations take place under Ar ticle IV of the IMF's Ar ticles of Agreement.
                                                           B
Balance of payments: a country's receipts and expenditure in international transactions.
Balance of trade: the difference between a country's merchandise expor ts and imports; that is, its net receipts of
foreign exchange from international trade in goods.
'Basket case': a phrase used mainly in the Paris Club to denote a country which is totally insolvent (see solvency) and,
based on current expectations, has no possibility of ever servicing its debts in full.
Bilateral Debt:
1. (of debt): owed by one government to another, usually resulting from aid loans or guaranteed export credits on which
the guarantees have been called.
2. In the Paris Club, a round of negotiations between a debtor government and one of its official creditor s to implement
an agreed minute; or the rescheduling agreement between the two countries which results from such negotiations.
Bond: a form of debt which is transferable between creditors, and bear s interest at a fixed or floating rate. (A special
case is the zero-coupon bond used in some debt reduction packages under the Brady Initi ative.) Bonds are generally
repaid in a single instalment, and are often bought by individuals or by other financial institutions rather than by
commercial banks, who have historically tended to prefer other forms of lending, such as syndicated loans.
Bretton Woods: the conference, held in 19944, at which the International Monetary Fund, the World Bank and the
General Agreement on Tariffs and trade (GATT) were established, to provide a basis for the functioning of the world
economy in the post-war period, and in particular to avoid a repetition of the Depression of the 1930s.
Bretton Woods Institutions: the International Monetary Fund and the World Bank. The ter m derives from the origins
of these institutions at the Bretton Woods Conference of 1944.
Burden-sharing: the distribution between official and commercial creditors of net lending to debt problem countries.
This has become a source of increasing concern to some creditor governments (especially the UK), as commercial
lending has dried up, leaving the official creditors as the only substantial net contributor s to capital flows to debt
problem countries. It also represents a major obstacle to adequate financial suppor t for adjustment programmes, as it
means that official creditors are more inclined to respond to inadequate commercial financing by cutting their own
contribution rather than by filling the gap.


                                                           C
Cancellation: the legal cancellation of a loan agreement by a creditor. This has been done mainly for aid debts to low -
income countries.
Collateral: an asset used to guarantee payment of a loan or the interest on it. If the payment is not made, the
ownership of the asset is transferred from the debtor tot he creditor. Collateral is used as one for m of enhancement to
the value of debts reduced under the Brady Initiative.




                                                                                                                     32
Commercial creditors: creditors in the private sector, primar ily commercial banks.
Commercial debt: debt which is owed to private sector creditors. (Also used in a narrower sense of debt owed to
commercial banks.)
Commercial interest rate: an interest rate corresponding to that charged on commercial transactions (e.g. LIBOR or
prime, with or w ithout a spread), as opposed to concessional rates (see concessionality). Commercial r isk: the risk that
a loan to a private sector company will not be serviced in full because of a deterioration in the borrower's financial
position (as opposed to foreign exchange risk).
Concerted lending: the approach to new money loans from commercial banks adopted in the early stages of the debt
crisis immediately after 1982, whereby loans were collectively negotiated by a steering group representing all the
banks with exposure to a par ticular country. The IMF was active in promoting this approach, and provided advice on
the appropriate amount of such loan s. Concer ted lending is also referred to as involuntary lending.
Concessionality: the extent to which the ter ms of a loan or rescheduling are more favourable to the borrower (in ter ms
of the total cost of debt- service over the long ter m) than a loan on which a commercial interest rate is charged. If the
interest rate is below the market rate, then the maturity of the loan also affects the degree of concessionality, as a
longer maturity enables the borrower to benefit from the lower interest rate for longer . The concessionality of a loan or
rescheduling can be measured by its grant element.
Conditionality: the principle that access to new loans, rescheduling, debt reduction, etc, should be conditional on
certain criteria being met. This is central to IMF programmes, where drawings are conditional on certain policy
measures being taken and on quantitative per for mance criteria being met; and to World Bank policy -based lending,
which is subject only to policy conditions. In most other cases (eg rescheduling, debt reduction and commercial new
money loans), conditionality is based on continued compliance with IMF programmes and in come cases World Bank
policy-based lending rather than directly on economic policies or per formance. See also cross-conditionality.
Consolidation period: in a Paris Club rescheduling, the period during which pay ments due are rescheduled. The
consolidation period generally lasts between one and three years, the duration being deter mined largely by the length
of the IMF programme on which the rescheduling is conditional.
Country risk: the risk of non-payment entailed in lending to a par ticular country, irrespective of they type of lending
involved. The main component of country risk is foreign exchange risk, although it also covers more ge neral risks to
economic per for mance.
Cover: the availability of guarantees for export credits to a par ticular country from an expor t credit guarantee agency
(see guaranteed export credits).
Coverage: under a rescheduling agreement, the debt-service pay ments which are to be included in the rescheduling.
This generally takes the for m of a stated percentage of each of: arrears of principal; arrears of interest; current principal
repayments; and current interest payments.
Creditworthiness: the expected ability of a borrower to service its debts on time and in full. This depends both on the
borrower's solvency, and on its liquidity at the time debt-service pay ments are due.
Current account: in the balance of pay ments, the difference between receipts for expor ts of goods and services and
expenditure on impor ts of goods and services (including pay ments of interest and profits), plus net official transfers and
private transfer s (essentially aid grants and workers’ remittances). The current account deficit represents the amount of
net foreign exchange inflows needed on the capital account, to avoid a reduction in the international reserves. Given
the limited availability of foreign exchange inflows, the current account represents a major constraint on economic
policy.
Cut-off Date: in a Paris Club rescheduling agreement, the date before which loans must have been signed to be
included in the rescheduling. The cut-off date generally remains the same from one rescheduling to the nex t, so as to
avoid discouraging Paris Club creditor s from making new loans after the first rescheduling. However, this also means
that the proportion of bilateral official debt eligible for rescheduling is progressively reduced over time.
                                                              D
Debt buy-back: an arrangement whereby a debtor government buys part of its debt from its creditor s for cash (in
foreign exchange) at a discount to its face value. To do this, it must first secure from all its commercial bank creditors
waivers of the negative pledge clauses and sharing clauses in their loan agreements.


                                                                                                                          33
Debt-equity swap: an arrangement whereby a commercial debt is, in effect, conver ted into an investment in the debtor
country. Essentially, the holder of the debt (either the original lender or a potential investor who has bought it on the
secondary market) sells the debt back to the debtor government for local currency, usually at a discount to its face
value; and the local currency is then used either to buy a share in an existing company (e.g. a public enterprise which
is being privatised), or to buy property or productive capital (e.g. a factory) in the debtor country. Debt-equity swaps
have been used ex tensively by some Latin American countries, most notably Chile.
Debt/GNP ratio: a country's external debt expressed as a percentage of its gross national product, widely used as a
measure of its solvency. In practice, this ratio has some limitations, since it takes no account of the rate of interest
charged on the debt: a country with a debt/GNP ratio of 100 per cent, with an average interes t rate of 1 per cent on its
debt has a much stronger solvency position than a country with an identical debt/GNP ratio but an average interest rate
of 10 per cent.
Debt Indicators EDT/XGS is the total external debt to expor ts of goods and services ( including workers' remittances)
EDT/GNP is the total external debt to gross national product
TDS/XGS is also called the debt service ratio, is total debt service compared to revenues from the exports of goods
and services ( including worker s' remittances)
INT/XGS is also called the interest service ratio, is total interest payments compared to revenues from the exports of
goods and services (including workers' remittances)
INT/GNP is the total interest pay ments compared to gross national product
RES/EDT is international reserves compared to total external debt
RES/MGS is international reserves compared to imports of goods and services.
Short-Term/EDT is shor t- ter m debt as a proportion of total ex ternal debt.
Concessional EDT is concessional debt as a propor tion of total external debt.
Multilateral/EDT is the propor tion of multilateral debt to total external debt.
Debt overhang: the excess of a country's external debt over its long-ter m capacity to pay, which acts as a
discouragement to adjustment and investment. This disincentive arises because any increase in the country's net
foreign exchange receipts over the long ter m will have to be devoted to servicing the debt, in effect imposing a 100 per
cent tax on additional foreign exchange earnings; and because producers expect higher future tax rates to repay the
debt, reducing the expected post-tax rate of return on their investments.
Debt reduction: a transaction which involves a reduction in the face value of an outstanding debt, either through a
debt buy-back or through its conversion into a new debt instrument, still denominated in hard currency, such as an exit
bond. (The ter m debt reduction is not generally used to refer to a debt swap.) See also Brady Initiative, debt- service
reduction.
Debt relief: a somewhat ambiguous term used variously to refer to rescheduling and refinancing; debt reduction and
debt-service reduction; or both. In view of this ambiguity, it is generally better to avoid the ter m. Debt restructur ing: a
general term for debt rescheduling and debt refinancing.
Debt-service: the total amount a country spends (or is scheduled to spend) on its debts, consisting of interest
payments and repayments of principal.
Debt-service ratio: the most commonly used measure of a country's debt situation, calculated as total interest
payments plus repay ments of principal on medium- and long ter m debt, as a percentage of exports of goods and non-
factor services (that is, exports of goods and services excluding interest and profits on loans and investment abroad
and workers' remittances). The debt-service ratio is essentially a measure of a country's liquidity, although it does not
fully capture its vulnerability to short- ter m credit lines drying up.
Debt-service reduction: a transaction which involves a reduction in the interest rate of an outstanding debt, through
its conversion into a new debt instrument, still denominated in hard currency. See also Brady Initiative, debt reduction.




                                                                                                                         34
Default: failure by a debtor to fulfil any of its obligations under a loan or rescheduling agreement. The ter m is often
used more specifically to refer to failure to make interest or principal payments when due. There is an important
distinction between de facto default (when a country actually contravenes the conditions of its loans), and de jure
default when a cour t w ith jur isdiction over a loan makes a legal ruling that a default has taken place. De facto default is
fairly commonplace, and not in itself very serious; de jure default is much rarer, and has much more serious
consequences - in par ticular it triggers cross-default clauses and allows attachment of assets.
Deflation: reduction of the level of demand in an economy through the use of monetary policy and/or fiscal policy, with
the objective of strengthening the balance of payments and/or reducing the rate of inflation. The opposite of deflation is
reflation.
Deregulation: removal or reduction of government regulations and restrictions which affect the operation of a par ticular
market or the economy as a whole. Deregulation generally for ms par t of the process of structural adjustment, at least
for some sectors of the economy.
Disbursement: the pay ment to a borrower of all or par t of the sum borrowed under a loan.
Dollarisation: a shift towards the use of dollars (or any other hard currency) as a substitute for local currency, usually
as a response of to high rates of inflation, low real interest rates and/or the expectation of a major devaluation of the
exchange rate.
Domestic debt: debt owed to creditors resident in the same country as the debtor, and denominated in local currency
as opposed to external debt, which is denominated in foreign currency and owed to foreign creditors.


                                                              E
Executive Board: the main decision-making body of the IMF and World Bank. Each Board comprises 22 Executive
Directors (EDs), each representing either a single member country (in the cases of the US, the UK, Germany, Japan,
France, Saudi Arabia and China), or a constituency comprising a number of member countries. Three Directors ( those
representing the UK, France, and the constituency led by Belgium) are members of both Executive Boards. The
Executive Boards meet regularly (generally twice a week in the Bank and three times a week in the Fund), and take
decisions on Fund and Bank policie s and their implementation, and on requests for loans and programmes. The IMF
Executive Board also discusses the Fund's Ar ticle IV consultations w ith its members.
Exports of goods and services (XGS):the total value of revenues from goods and services exported as well as
income and worker remittances received from foreign workers.
Exposure: the amount of debt which a creditor or group of creditors is owed by a particular country or group of
countries, or on which they bear the risk. (For example, in the case of an officially guaranteed export credit, it is the
guarantor which has the exposure rather than the lender, as it is the for mer which bears the risk of non-payment.)
External debt: debt denomination in foreign currency and owed to foreign creditors, as opposed to internal or domestic
debt, which is owed to creditors resident in the same country as the debtor and denominated in local currency.
External shock: a sharp deterioration in the external economic environment facing a country — for example, a large
increase in the price of a major import ( for example the oil price increases of 1973 and 1979); a sharp fall in the price of
one or more major exports; an increase in the interest rate on external debts; loss of access to, or a sharp decline in
demand from, a major export market; or loss of a major source of remittance from overseas workers due to political or
economic changes in the host country.


                                                              F
Face value of debt: the notional value of a debt, corresponding to the total amount of principal repay ments scheduled
to be made on the debt by the borrower. In most cases this also corresponds to the amount originally lent to the
borrower, but this is not always the case: for example, in the case of zero-coupon bonds there is a very considerable
difference, reflecting the absence of interest pay ments on the debt, and the need to offer lender s a large capital gain
instead.
Floating exchange rate: an exchange rate that is deter mined by market forces rather than being set by government
policy.


                                                                                                                          35
Foreign direct investment (FDI): investment made by an individual or company resident in one country in productive
capacity in another country. For example, the purchase or construction of a factory or the purchase or a complete
company. Foreign direct investment does not include the purchase of shares in a company, which is classified as
portfolio investment. Foreign direct investment is seen by many creditor governments as an important potential sour ce
of financing for debt problem countries. Its advantages are seen by being that its cost to the debtor (in ter m of profit
remittances) is directly linked to the perfor mance of the investment, unlike interest payments on foreign debt. This
means that pay ments are made only if the resources are there with which to make the m; and that it is the investor
rather than the recipient country which bears the risk of the investment being unviable. This has led to strong pressure
to include refor m of foreign investment codes, to allow more favourable ter ms to investor s, as part of s tructural
adjustment programmes. It is also seen as a means of transferring technology from developed to developing countries.
However, direct investment also has substantial drawbacks which tend to be under -estimated in this view. In par ticular:

         the average rate of return on direct investment (and thus the cost to the recipient country) is higher than that
          for foreign lending, to compensate for the higher risk (since the investor bears the commercial risk as well as
          the foreign exchange risk), while profits are remitted only if the resources are available to the company to
          make them, investments do not necessarily generate additional foreign exchange earnings, so that there may
          be a substantial net outflow of foreign exchange from the investment;
         transfer pricing may considerably reduce the benefits to the recipient country of the investment;
         the transfer of technology resulting from FDI is generally relatively limited in practice;
         and the urgent need of many developing countries for investment and foreign exchange is leading them to
          compete for direct investment by offering ter ms ever more favourable to investors and less favourable to
          themselves.

                                                            G
G3: the three largest developed countries: the US, Japan and Ger many. Unlike the G5, G7, etc., the G3 ha s no for mal
status or institutional framework.
G5: the five largest developed countr ies: the U S, Japan, Ger many, France and the UK. This group for ms the basis for
much infor mal consultation on international economic and financial policy issues.
G7: the seven largest developed countries: the US, Japan, Ger many, France, the UK, Italy and Canada. The G7 is the
most important and influential of the grouping of developed countries in ter ms of its role in the international financial
system. The main forum for G7 discussion is its annual Economic Summit.
G10: the ten largest developed countries: the US, Japan, Ger many, France, the U K, Italy, Canada, Sweden, Spain and
Australia. The influence of the G10 is relatively limited as compared with the G7 or the G5.
GATT: the General Agreement on Tariffs and Trade: the framework, established in 1948, within which member
countries’ international trade policies are co-ordinated. The GATT’s objectives are to promote free international trade
through the reduction of trade restrictions and production subsidies designed to discourage imports. It does this
through periodic rounds of multilateral trade negotiations (MTNs) between its members. The current rounds of MTNs
are called the Uruguay Round (since the agenda was finally agreed at Punta del Este in Uruguay, in 1986). The
Uruguay Round is likely to entail an ex tension of the GATT to cover trade in services (as well as goods); intellectual
property rights (international protection of patents, technologies, etc.); and restrictions on international investment
which have implications for international trade.
GDP: gross domestic product — one of the two commonly used measures of the total output (or income) of an
economy, the other being GNP. The difference is that GDP excludes net factor income from abroad ( that is, interest
and profits from overseas loans and investments, less payments on foreign debts and investments in the country; and
net receipts of workers' remittances).
GNP: gross national product — one of the two commonly used measures of the total output (or income) of an
economy, the other being GDP. The difference is that GNP includes net factor income from abroad (that is, interest and
profits from overseas loans and investments, less payments on foreign debts and inv estments in the country; and net
receipts of workers' remittances).




                                                                                                                      36
Grace period: under a loan or rescheduling agreement, the period during which no principal pay ments are made —
that is, from disbursement (or the end of the consolidation period) to the beginning of the repay ment period. In general,
interest is payable during the grace per iod.
Grant element: a measure of the concessionality of a loan or rescheduling agreement. In effect, a concessional loan is
considered as if it were made up of a loan of similar maturity on commercial ter ms, and a grant, such that the total of
the two is equal to the amount of the concessional loan, and the net present value of debt-service payments under the
two arrangements is the same. The grant element is then the value of the notional grant as a percentage of the value
of the concessional loan.
"Growing out of debt": the idea that a country will ultimately be able to service its debts, provided that its economic
growth rate is faster than the real growth rate of its external debt. This for med par t of the basis of the idea of "floating
off".
Guarantee export credit: a loan to finance an expor t contract, usually made by the exporting company or a
commercial bank, on which par t or all of the repayments are guaranteed against foreign exchange risk by the
government of the exporting country. Such guarantees are issued by the export credit guarantee agencies. In the UK,
this is the Export Credit Guarantee Depar tment (ECGD).


                                                              H
Hard currency: a general ter m for any currency which is widely enough accepted internationally to be used in
international transactions. In practice, this means the currencies of the developed countries. The ter m "hard currency"
is more or less interchangeable with "foreign exchange". (The converse, soft currency, is not generally used, except for
the convertible rouble, for merly used by the members of the Council for Mutual Economic Assistance (CMEA —
essentially the Easter Bloc) for their mutual trade.)
Human capital: essentially is the productive capacity of an individual as a producer. It is determined by the individual's
health status, education and marketable or productive skills (including, for example, entrepreneurial ability, home
management skills, etc).


                                                              I
Inflation: increase in the overall level of prices in an economy. Inflation is caused essentially by excess of demand in
the economy and/or by rising production costs. Interest Pay ments are amounts paid by the borrower during the year.
Interests in arrears on long term debt is defined as interest pay ment due but not paid, on a cumulative basis.
International financial system: the institutional system governing international transfers of resources, whether in the
for m of loans, investments, pay ments for goods and services, interest pay ments, profit remittances, etc. The centre of
the international financial system is the IMF, which has the mandate to ensure its smooth functioning.
International Monetary Fund (IMF): the international agency responsible for the operation of the international financial
system. The IMF was established along w ith the World Bank, by the Bretton Woods conference in 1944, as par t of the
United Nations system, and at the time of writing has 151 members. In principle, its highest decision - making body is
the Board of Governors; but in practice operational decisions are taken by the Executive Board. The Fund's
Management is headed by a Managing Director, traditionally a European. The IMF's main operational roles are the
general supervision of the policies of its member countries on international pay ments; and, in effect, a lender of last
resort for the world economy. The latter role is fulfilled through a number of facilities under which it makes its resources
available to its members when they need them for balance of payments suppor t. Rather than lending, the IMF allows a
member to use its resources, which involves the member exchanging its own currency for SDR's from the Fund (see
purchase). The member is then obliged to buy back its own currency (see repurchase) within a specified time, and to
pay charges (the equivalent of interest) on the outstanding amount until it does so. The amount which can be made
available to each member, and its voting strength within the Fund, are determined by its quota (see quota) The IMF
has played a central part in the debt strategy since 1982, primarily through its cataly tic role (see catalysis) and the
conditionality of external financing from other sources on compliance with the ter ms of IMF programmes.




                                                                                                                          37
International reserve: a government's holdings of foreign exchange, usually held by the Central Bank. International
reserves represent a cushion against adverse external developments, such as lower export volumes or prices, higher
international interest rates, or lower foreign lending than expected, allowing the country to maintain imports at a higher
level than would otherwise be possible, on a temporary basis. In assessing the level of international reserves, the
number of months of impor ts they would pay for is the most commonly used criterion.
                                                            L
Liquidity: the ability of a country to meet its immediate foreign exchange obligations (for impor ts and debt- service
payments) from its receipts ( from exports and new borrowing) as opposed to its solvency.
Loans from Multilateral Organizations are loans and credits from the World Bank, regional development banks, e.g.
the African Development Bank, the Asia Development Bank, and other multilateral and inter -governmental agencies.
Excluded are loans from funds administered by an international organisation on behalf of a single donor government;
these are classified as loans from governments. Multilateral organizations are those that are "owned" by more than one
government, e.g. the World Band and the IMF.
London Club: a general ter m for rescheduling negotiations on commercial bank debts. The ter m "London Club"
originated by analogy with the Paris Club, since bank negotiations at that time took place mainly in London (although
the main centre is not New York). In fact the analogy is somewhat misleading: unlike the Paris Club, the London Club
has no fixed member ship, and no per manent secretariat. In effect, the London Club is a concept rather than an
institution.
Low-income country: a country whose GNP per capita is below a cer tain level. The actual threshold between low-
and middle income countries varies somewhat over time (largely reflecting the effects of inflation and exchange rate
changes). The categorisation of countries between income groups varies somewhat between institutions due to
differences in estimates of GNP per capita. The most commonly used categorisation is that of the World Bank, whose
definition at the time of writing is a country with GNP per capita of $580 or less in 1989.
Long term external debt: is defined as debt that has an original or extended maturity of more than one year and that
is owed to nonresidents and repayable in foreign currency, goods, or services.


                                                            M
Marshall Plan: a massive programme of financial aid from the US and Canada to Europe, star ted in 1946, to re lieve
the extreme shortage of foreign exchange in Europe following the Second World War. The Marshall Plan is frequently
referred to as a precedent for proposals of large-scale financial assistance to developing countries in response to the
debt crisis.
Maturity: the total length of time between disbursement of a loan and the final scheduled pay ment on it. The maturity
of a loan is generally divided between a grace period and a repayment period.
Moderately indebted: a category of countries used by the World Bank, with a debt burden which is consider to be
substantial, but less serious than for the severely indebted countries. A country is considered to be moderately
indebted if it meets three of the following four criter ia:

         its debt/GNP ratio is between 30% and 50% ;
         the ratio of its external debt to its expor ts of goods and services is between 165% and 275% ;
         its debt-service ratio is between 18% and 30% ; and
         the ratio of its interest payments to its expor ts of goods and services is between 12% and 20% .

Multilateral: (of debt) owed to an international/multilateral agency, "owned" by many "shareholder" governments,
including the International Monetary Fund (IMF), the World Bank ( WB) and the Regional Development Banks.


                                                            N
Net flows on debts (or net lending or net disbur sement) are disbursement on new loans minus principal.




                                                                                                                      38
Net international reserves: a country’s international reserves less its arrears to foreign creditors. In effect, net
international reserves represent the hypothetical level of a country ’s reserves if it had serviced all of its debts in full.
Where a country has significant arrears, net reserves are often negative.
Net lending: the disbursements received by a country (or group of countries) minus the repayments of principal it
makes or is scheduled to make in par ticular year. Net lending represents the transfer of resources to a country from its
creditors, excluding its pay ments of interest.
Net present value (NPV): a measure of the overall value of a stream of payments over time. In effect, the NPV
represents the amount which would need to be invested at a commercial interest rate at the beginning of the period of
the payments, such that, with accumulated interest, it would be just adequate to meet all the pay ments as they fell due.
Thus the NPV of the interest and pr incipal repay ments on a loan at a commercial interest rate is equal to its face value,
while that for a concessional loan is less than its face value. Net resource transfer (NRT): the overall transfer of
resources between a country and its creditors (and sometimes foreign investors and aid donors), used as a measure of
the extent to which they are making a contribution to, or represent a drain on, the national economy. The most
commonly used definition relates to creditors only. In this case, the net resource transfer is the disbur sements made by
a country (or group of countries) minus the repayments of principal and interest payments is makes or is scheduled to
make in a particular year. The broader definition adds on receipts of foreign direct investment and aid grants, and
subtracts profit remittances. Since 1982 the net resource transfer for most middle-income debt problem countries has
been consistently negative, reflecting a large net flow of resources from debtor s to cred itors. New money loan: a loan
made collectively by commer cial banks, usually in connection with a rescheduling agreement. In practice, most new
money loans in effect finance par t of the interest pay ments due to the banks.
Net resource transfer (NRT): the overall transfer of resources between a country and its creditors (and sometimes
foreign investors and aid donor s), used as a measure of the extent to which they are making a contribution to, or
represent a drain on, the national economy. The most commonly used definition relates to creditors only. In this case,
the net resource transfer is the disbursements made by a country (or group of countr ies) minus the repayments of
principal and interest payments it makes or is scheduled to make in a par ticular year . The broader definition adds on
receipts of foreign direct investment and aid grants, and subtracts profit remittances. Since 1982 the net resour ce
transfer for most middle-income debt problem countr ies has been consistently negative, reflecting a large net flow of
resources from debtors to creditors.
New money loan: a loan made collectively by commercial banks, usually in connection with a rescheduling
agreement. In practice, most new money loans in effect finance part of the interest pay ments due to the banks.
Net transfers on debt are net flows minus interest pay ments (or disbursements minus total debt service payments)
Official debt: debt which is owed to public sector lenders.


                                                             O
OECD: the Organisation for Economic Co-operation and Development. OECD is often used as a country classification,
broadly representing the Western developed countries. (It should be noted that the OECD also includes Greece,
Portugal and Turkey, which are generally classified as developing countries. When the OECD is used as a country
classification, however, it may exclude these countr ies.) Overseas development assistance (ODA): the more for mal
expression for aid, grants or concessional loans from developed country governments or international agencies to
finance development projects or relief programmes, or for balance of payments suppor t. The latter is generally referred
to as programme aid.
Official creditors: creditors in the public sector — that is, creditor governments and multilateral agencies such as the
IMF and the World Bank.
Overdue obligations: arrears on payments due to the IMF. The existence of overdue obligations prevents the Fund
from making any fur ther resources available to the member in question. As it has become increasingly impossible for
developing countries to secure new loans from other sources in the absence of an IMF programme, this has caused
serious problems for countries which have accumulated large volumes of overdue obligations.
Overseas development assistance (ODA): the more for mal expression for aid — grants or concessional loans from
developed country governments or international agencies to finance development projects or relief programmes, or for
balance of payment suppor ts. The latter is generally referred to as programme aid.



                                                                                                                         39
                                                              P
Paris Club: the forum in which creditor governments meet to negotiate the rescheduling of the debts owed to them —
manly aid loans and guaranteed export credits. The Paris Club originated in 1956 as an ad hoc group to discuss
rescheduling for Argentina, and remained a very informal arrangement until the late 1970s, with rescheduling ter ms
decided on an ad hoc basis for each individual case, on the basis of the debtor country's need and the precedents
established by previous cases. Since then, however, as rescheduling has become more frequent, the Paris Club's
meetings have become more regular and its procedures and ter ms more standardised — although it retains the original
principle of always reaching its decisions by consensus rather than by voting. The Paris Club agrees the basic ter ms of
the rescheduling — the consolidation period, the cut-off date, the grace per iod, the repay ment period and the coverage
of the agreement — which are set out in the agreed minute. However, the agreed minute has no legal status, and the
rescheduling is actually put into effect by a series of bilateral agreements negotiated separately by each individual
creditors some time after the Paris Club agreement. The bilateral agreements also set the interest rate on the
rescheduling for the deb ts owed to each individual creditor: the agreed minute only states that a commercial interest
rate should be charged.
Performance criteria: perfor mance targets under IMF programmes, for ming the basis of their conditionality.
Perfor mance criteria are set when the programme is first approved, and at subsequent reviews. They are of two types:
quantitative per for mance criteria, covering various statistical indicators of fiscal policy, monetary policy and the balance
of payments; and non-quantitative criteria, covering specific policy actions which cannot be measured statistically. If all
the per for mance criteria for a particular ly drawing under a programme are not met, then the drawing cannot be made
unless and until the IMF's Executive Board approves a waiver of those which have been missed.
Private debt: debt owed by private sector borrowers. (This should not be confused with commercial debt, which is
owed to pr ivate sector creditors.)
Private nonguaranteed external debt is an external obligation of a private debtor that is not guaranteed for
repayment by a public entity, i.e. by the government of the country in which the private debtor lives.
Principal in Arrears on long ter m debt is defined as principal repay ment due but not paid, on a cumulative basis.
Principal Repayments: are the amounts of principal (amortization) paid in foreign currency, goods, or services in the
year specified.
Public debt: debt owed by public sector borrowers. (This should not be confused with official debt, which is owed to
public sector creditors.)
Publicly guaranteed debt: debt originating from loans made to state-owned enterprises or private companies, the
servicing of which has been guaranteed by the government of the debtor country.
Purchase: in the IMF, a transaction in wh ich a member country uses its own currency to purchase SDRs from the
Fund under one of its facilities. This is the equivalent of a disbursement of a conventional loan.
Purchasing-power parity (PPP): the exchange rate at which two currencies would buy the same quantity of goods in
their respective countries. PPP exchange rates are notoriously difficult to calculate because of the considerable
differences in relative prices and consumption patterns between different countries.


                                                             Q
Quota: In the IMF, a member country's contribution to the IMF, which deter mines its voting strength and the amount it
can borrow from the Fund


                                                              R
Reflation: an attempt by a government to increase the rate of growth in an economy in the shor t ter m, using
expansionary fiscal policy and/or monetary policy, to stimulate demand in the economy. Reflation in inappropriate
circumstances may give rise to excess demand or, in extreme cases, over heating. The opposite of reflation is
deflation.




                                                                                                                          40
Regional Development Banks: the African, Asian and Inter-American Development Banks (AfDB, AsDB and IADB
respectively). These operate as miniature regional versions of the World Bank, but with less control by the major
creditor countries and far smaller resources.
Repayment period: the period during which amor tisation pay ments are made under a loan or a rescheduling
agreement — that is, the period from the end of the grace period until the loan is fully repaid.
Repurchase: repayment of debt to the IMF. (Strictly speaking, the IMF member is not repaying a debt, but buying back
its own currency from the Fund.)
Rescheduling: deferment of pay ments of principal and/or interest due on loans, by agreement w ith creditors.


                                                             S
"Seal of approval": support by the IMF of a country's adjustment programme, either through financial suppor t under
an IMF facility, or through enhanced surveillance.
Short-term external debt is defined as debt that has an original maturity of one year or less.
Soft loan: a concessional loan
Solvency: the ability of a country to meet its foreign exchange obligation in full over the long ter m as opposed to its
liquidity.
Structural adjustment: economic policies seeking to change the way the economy works at the microeconomic level,
particularly the role of the public sector, the regulatory framework, the taxation system and incentive structures, with
the intention of increasing economic efficiency and improving long- ter m economic perfor mance. Structural adjustment
may be suppor ted by the World Bank, through a structural adjustment loan or credit (SAL or SAC), a sectoral
adjustment loan or credit (SECAL), or a hybrid loan or credit; and/or by the IMF under the ex tended fund facility (EFF),
the structural adjustment facility (SAF), or the enhanced structural adjustment facility (ESAF).
Subsidy: a payment, generally by the government or a public sector agency, to the producer or consumer of a good or
service, intended to encourage its production and/or to reduce its cost to consumers. Subsidies are generally seen by
the IMF and the World Bank as reducing the efficiency of the economy ( since they represent a distor tion of the mar ket
for the good concerned); and as an inefficient use of the limited resources available to the government. Where
subsidies exist in an economy, therefore, structural adjustment programmes generally involve eliminating them,
reducing them, or improving their targeting.
Syndicated loan: a commer cial bank loan in which a number of banks participate. The loan is negotiated by a small
group of lead banks, which then (in effect) sell par ts of the loan to other banks. Syndicated lending was the most
common for m of commercial bank lending to developing countries in the 1970s and early 1980s, and represents
virtually all of the outstanding debt of the debt problem countries to the commercial banks.


                                                             T
Total debt flows include disbursements, principal repay ments, and interest repay ments for total long- ter m debt and
transactions with the IMF
Total debt stock (EDT) consists of public and publicly guaranteed long- ter m debt, private nonguaranteed long- ter m
debt, commercial, the use of IMF credit, and estimated short- ter m debt.
Trade liberalisation: an important component of most structural adjustment programmes, aimed at opening the
economy to increased international trade, par ticularly by reducing protectionism. The main elements of trade
liberalisation, in the usual order of implementation, are:

         reducing, and ultimately removing, taxes on exports;
         reducing, and ultimately removing, quantitative restrictions on imports;
         ncreasing the unifor mity of tar iff rates applying to different impor ts;
         and reducing the overall level of impor t tariffs.



                                                                                                                     41
Trading bloc: a group of countr ies, usually within a particular geographical region, which allow easier access to their
markets for each other's exports than the exports from outside the group - for example, the EEC.
Tranche: one of two disbursements under a loan agreement.


                                                              U
Unilateral: an action taken by a single debtor country independently of any other country, and without the agreement
of creditors, par ticularly the declaration of a moratorium.


                                                              V
Voluntary lending: lending which is offered voluntary by a lender or group of lenders (particularly commercial lenders),
as opposed to concer ted lending.


                                                              W
World Bank: the main international agency responsible for providing development finance. The World Bank, like the
IMF, was established by the Bretton Woods conference in 1944, as par t of the United Nations system. Its main role
was initially that of post-war reconstruction, par ticular ly in Europe, but as this task was accomplished the emphasis
shifted to the financing of development projects in developing countries. Since 1980, the Bank has also provided loans
in support of programmes of structural adjustment in developing and Eastern European countries. Like the IMF, the
Bank's highest decision- making body is nominally the Board of Governors, but its 22- member Executive Board is much
more impor tant in practice. The Bank's Management is headed, and the Executive Board is chaired, by its President,
traditionally American. The Bank's capital is provided by contributions from its member countries, but its operations are
financed mainly by borrowing from the international financial mar kets. The World Bank is made up of three main par ts:
the International Bank for Reconstruction and Development (IBRD), which lends mainly to the governments of middle -
income countries; the International Development Association (IDA), which lends only to the governments of low -income
countries; and the International Financial Corporation (IFC), which lends to and invests in private sector companies in
developing countries. Institutionally, however, the IBRD and IDA are effectively the same, sharing a common staff and
Management: the difference is in the countries which are eligible to borrow, and the lending ter ms they offer.
Write down: to reduce the value of debt shown in the creditor's accounts and make a provision against it. This does
not involve any reduction in the debt from the debtor's point of view, and should not be confused w ith writing off debts.
Write off: to cancel a debt, or to reduce its face value and the payments due on it. (The latter is a par tial write-off.)




                                                                                                                             42
REFERENCES

1.   International Monetary Fund, and World Bank, 2001, Guidelines for Public
     Debt Management (Washington).

2.   Kingdom of Lesotho. 2004. Lesotho Debt Policy . Maseru
     http://www.finance.gov.ls/divisions/d_debts.php

3.   Kingdom of Lesotho. 2004. Lesotho Debt Position. Maseru
     http://www.finance.gov.ls/divisions/d_debts.php

4.   Woodward, D. 1992. Debt, Adjustment and Poverty in Developing Countries:
     National and International Dimensions of Debt and Adjustment in Developing
     Countries. Pinter Publishers London.

5.   World Bank. 2008. Current Projects: Lesotho. Washington.
     http://web.worldbank.org/external/t/main?menuPK=356061&pagePK=141155
     &K=141124&theSitePK=356029




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