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Mon Sep 1, 2014 11:51am EDT
(The following statement was released by the rating agency) LONDON, September 01 (Fitch) The flight of Prime Minister Thomas Thabane from Lesotho highlights the political risk inherent in the country, which has a relatively short democratic history and has periodically seen military involvement in politics, Fitch Ratings says. The stand-off should be resolved rapidly mainly thanks to South Africa's strong involvement along with its political and economic interest in ensuring stability in a country that is locked inside its territory. In 1998, South Africa sent its army to help restore stability after violent protests in Maseru, the capital city of Lesotho. Lesotho's membership of the South African Customs Union (SACU), the Common Monetary Area and the Southern African Development Community will strengthen external pressure for a peaceful resolution. However, the political crisis that began when the prime minster suspended parliament in June shows weaknesses in the executive power that are bound to hamper policy implementation and limit the scope of reforms that would support Lesotho's economic development. An absence of reform could lead to negative rating pressure in the medium term. The failure to secure a renewal of the IMF programme in early 2014, following the expiry of the Extended Credit Facility in September 2013, was a negative signal in terms of the reform dynamics. If the crisis is not resolved quickly, which is not our base assumption, it could lead to short-term negative rating pressure as it would affect macro stability, GDP growth and potentially external financial support from the international community, which is critical for Lesotho. About 40% of government receipts and 20% of current account receipts are directly derived from SACU receipts paid quarterly by South Africa. In addition, Lesotho benefits from external support in the form of grants and concessional loans from bilateral and multilateral donors. The recent development has been described by observers as an attempt by Deputy Prime Minister Mothetjoa Metsing to take over power from his rival Thabane. The latter has ruled a coalition of three parties, which has been weakened by internal disputes, since June 2012. In June 2014, the prime minister suspended parliament sessions to avoid a vote of no confidence, triggering protests among opposition and coalition partners. A general election is not scheduled until 2017. On Saturday, Thabane fled to South Africa where he said a coup attempt had been made by the military and said he feared for his life. Media reported clashes between armed groups leading to the death of one policeman and four other casualties. The level of political risk is already reflected in the current 'BB-' rating and is not uncommon at this rating level. It is balanced by other positive factors, such as macro stability, a net external creditor position and significant financial, political and, potentially, military support from South Africa. The next scheduled review of Lesotho's ratings is on 31 October. Contact: Arnaud Louis Director Sovereigns +44 20 3530 1539 Fitch Ratings Ltd 30 North Colonnade London E14 5GN Mark Brown Senior Director Fitch Wire +44 20 3530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
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