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ANNEX 2

FINANCE EXTERNAL CIRCULAR NOTICE NO.22 OF 2012

Ministry of Finance P.O. Box 395Maseru 100

14 November, 2012.

FIN/EXPDT/S.1 (2012/13)

TO: ALL PRINCIPAL SECRETARIESALL HEADS OF DEPARTMENTSCLERK TO THE SENATECLERK TO THE NATIONAL ASSEMBLYSENIOR PRIVATE SECRETARY TO HIS MAJESTYAUDITOR GENERALOMBUDSMANINDEPENDENT ELECTORAL COMMISSIONSECRETARY TO THE PUBLIC SERVICE COMMISSIONDCEOJUDICIARY SERVICES

COPY: GOVERNMENT SECRETARYATTORNEY GENERALSENIOR PRIVATE SECRETARY TO THE PRIME MINISTERSECRETARY TO THE TEACHING SERVICE COMMISSIONNATIONAL AIDS COMMISSIONDISTRICT COUNCIL SECRETARIES

Signed: Khosi Letsie______________________________________________________________________________

CALL CIRCULAR 2013/2014 BUDGET ESTIMATES

PART I

1.1 Chief Accounting Officers are requested to submit to the Ministry of Finance estimates of revenue and expenditure for the Financial Year 2013/2014 and projections of revenue and expenditure for 2014/2015 and 2015/2016 in accordance with the preliminary ceilings in

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Appendices 1and 3. The estimates must be submitted to the office of the Budget Controller by 30th November, 2012. The full calendar is covered in paragraph 1.3.

1.2 Ministries are urged to strictly adhere to the given budget ceilings for both recurrent and capital expenditure estimates. (See Appendices 1 and 2 respectively).

1.3 It is important that the deadlines for submissions and budget discussions are observed to enable delivery of the budget to Cabinet and Parliament on schedule.

ACTION DEADLINESubmission of Revenue Estimates 30th November, 2012Submission of Expenditure Estimates 30th November, 2012Budget Discussion with Line Ministries 05th December, 2012Presentation of Budget Estimates to Cabinet Budget Committee 14th January, 2013Presentation of Budget Estimates to Cabinet 29th January, 2013Presentation of Budget Estimates to Parliament 20th February, 2013

1.4 The introductory section of the call circular (Part I) deals with the budget calendar which must be adhered to. Part II deals with the Government goals and objectives for 2013/14 and Medium Term Fiscal Framework, 2013/14 – 2015/16. Part III provides the guidelines for the preparation of Budget Estimates for 2013/14 – 2015/16. Part IV deals with the need to prepare Procurement and Cash flow Plans which will be used as basis of Release of Funds. Part V covers the IFMIS Budget Module and Budget Entry Process. Part VI deals with the content of Budget Submissions. Part VII deals with the Budget Speech.

PART II

2.1 The National Growth and Development Policy Goals and the Macroeconomic Framework for 2013/14 to 2015/16

2.1.1 The National Strategic Development Plan (NSDP) recognises, as a point of departure, the need and urgency for Lesotho to radically transform its economy, health, intellectual and skills profiles by taking advantage of Lesotho’s location and defining a future that is characterised by the capacity to produce goods and services for the large Southern African markets, the African continent and global markets, whilst protecting the environment.

2.1.2 The NSDP will be a blue print for the implementation of the National Vision 2020, MDGs and other international policy commitments and form the basis upon which the GOL will make resource allocations in the 2013/14 and the medium-term. The over-arching goal of the NSDP is to reduce poverty and achieve sustainable development and the following strategic goals will be

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pursued over the Plan period: (I) Pursue high, shared and employment creating economic growth; (II) Develop key infrastructure; (III) Enhance the skills base, technology adoption and foundation for innovation; (IV) Improve health, combat HIV and AIDS and reduce vulnerability; (V) Reverse environmental degradation and adapt to climate change; and (VI) Promote peace, democratic governance and build effective institutions.

2.2 Priority Areas for Fiscal Year 2013-14

Based on the six strategic areas of the NSDP the focus for the fiscal year 2013/14 will be on:

2.2.1 Growth and Employment

Increase agricultural productivity, household food security, commercialization and diversification, develop irrigation capacity and integrated supply chains of existing sub-sectors (poultry, piggery, mushrooms, horticulture, wool and mohair)

Consolidate mining policy and the regulatory framework, complete geochemical mapping and promote the development of downstream industries/mining beneficiation

Develop existing tourist products and selected circuits to their full potential, support the development of community based tourism projects that are integrated with other sectors and market Lesotho effectively as a preferred tourist destination

Accelerate implementation of investment climate reforms and improve access to finance; consolidate the textiles sector; promote alternative industrial and services clusters and improve linkages between FDI and locals and rural and urban economies; and establish micro-projects support institution(s) to support community based commercial projects and Micro, Small and Medium enterprises (MSMEs)

2.2.2 Infrastructure Development

Establish minimum infrastructure platform to improve population access to water and sanitation, health services, clean energy, communication services and improve public transport system and education, training and skills development infrastructure.

Accelerate the development of industrial and internal and external trade supporting (transport and marketing) infrastructure and improve e-government and public asset management.

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2.2.3 Environment and Climate Change

Reverse land degradation through donga/gully reclamation, regeneration of appropriate bio-resources, especially to resuscitate rangelands, protect water sources and fragile ecosystems; enhance climate change resilience; improve physical planning and reduce urban sprawl.

2.2.4 Education and Skills Development

Improve coverage and quality (through improved teaching capacity) of early childhood, primary, secondary and high school education, including Information and Communication Technology (ICT), literacy and competency for mathematics and science; transform technical and vocational education and training (TVET), institutions of higher learning to improve relevance and competency of graduates and enhance capacity for research.

2.2.5 Health, HIV and AIDS and Social Vulnerability

Scale-up programmes targeted at reducing maternal mortality, under-five mortality, stuntingand malnutrition; reduction of in-patient mortality and strengthen the performance of the national referral hospital; enhance capacity for human resource development and management and improve drugs and medical supply management;

Improve HIV and AIDS behaviour change programmes, condom distribution and promotion of their use, expand coverage of ART treatment and rationalise the institutional infrastructure

Consolidate social protection programmes with the focus on increasing own capacity for livelihood security

2.2.6 Governance and effective Institutions Improve public financial management systems; combat corruption, conflicts, organised crime

and gender based violence; develop credible and efficient systems for speedy dispensation of justice; strengthen capacity of oversight bodies, local level structures, the Police service (LMPS) and National Security Services; operationalise the Human Rights Commission; and improve public service delivery and regional cooperation.

2.2.7 Gender, Youth and Marginalised groups

Implement targeted programmes to improve gender-equality and reduce vulnerability of children, people with disability and other marginalized groups as well as increasing youth opportunities, prevention of drug and alcohol abuse, improvement of sexual and reproductive

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health services, building sports excellence and mechanisms for participation in policy development and planning.

2.3 THE MACRO-ECONOMIC FRAMEWORK FOR THE 2013/14 - 2015/16 BUDGET

2.3.1 The Macroeconomic Framework, summarized below, gives key macroeconomic outcomes and forecasts, which, together with the national goals, provide direction to the Government’s budget for 2013/14 and indicative ceilings through 2015/16. The key macroeconomic outcomes for 2010/11 and 2011/12, as well as forecasts through 2015/16 are presented. A Medium Term Fiscal Framework is then drawn, highlighting key fiscal outcomes for 2010/11 and 2011/12 and also projecting the fiscal proposals through 2015/16.

2.3.2 Review of Key Macroeconomic Outcomes for 2010/11 and 2011/12 and Projections through 2015/16

Table 1 below provides an outcome of key macroeconomic indicators for 2010/11 and 2011/12 and a forecast of the indicators through 2015/16.

Table 1: Economic Review and Forecasts, 2010/11 – 2015/162010/11 2011/12 2012/13 2013/14 2014/15 2015/16

GDP at market prices (current prices)

16,310.3 18,396.0 20,566.3 23,052.0 25,961.0 29,082.9

GDP at market prices (constant, 2004, prices)

10,398.3 10,729.5 11,157.9 11,671.1 12,227.7 12,763.0

GDP Growth %(current prices)

9.7% 12.8% 11.8% 12.1% 12.6% 12.0%

GDP Growth %(constant prices) 5.7% 3.2% 4.0% 4.6% 4.8% 4.4%

GDP Deflator % 3.8% 9.3% 7.5% 7.2% 7.5% 7.3%

2.3.3 Real GDP registered a 5.7 percent growth in 2010/11; a recovery after the country was hit by the secondary effects of the world economic downturn during 2009/10. The main contributing sectors to this performance were agriculture (crops), which grew by 47 percent, construction by 13.3 percent; and manufacturing by 7.9 percent. The Metolong Dam construction and Millennium Challenge Account (MCA) projects in the health and water sectors played a major role in the construction activity while textiles recovered from low demand and competition from the Asian countries. However, mining recorded a decline of 6.7 percent as mining companies decided to reduce their production due to uncertainty about global diamond price developments. Growth in 2011/12 is estimated to decline to 3.2 percent, with agriculture (crops) declining by 33.8 percent due to floods, thus expected to impact negatively on production.

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Textile also declined due to uncertainty of the renewal of Third Country Fabric Provision (TCFP) under the African Growth and Opportunity Act (AGOA).

2.3.4 The medium-term forecasts indicate an average real GDP growth of 4.4 percent for 2012/13 through 2015/16 at the back of the world economic recovery which is expected to have a positive impact on mining and manufacturing. Construction activities related to Metolong Dam, Millennium Challenge Account (MCA) and Phase II of the Lesotho Highlands Water Project, coupled with other Government investment in infrastructure development will also contribute to the expected growth in real GDP in 2012/13. Agriculture, particularly crops, is expected to decline massively in 2012/13 by 70 percent as result of drought. It is then expected to recover, even though not to the previous level, by 250 percent in 2013/14 due to introduction of summer cropping.

2.3.5 It is, however, expected that in 2013/14, real GDP will also be affected by a winding down of construction activities related to MCC and Metolong Dam.

2.4 The Baseline Medium-Term Fiscal Framework, 2010/11 - 2015/16

2.4.1 Revenue

The revenue performance has demonstrated strong resilience despite a fragile economic recovery from combined adverse effects of the recent world economic recession, including various domestic shocks and uncertain global macroeconomic outlook. During FY 2010/11, overall government revenue declined by 35 percent due to a significant drop (47 percent) in SACU receipts. However, in FY 2011/12, revenue recovered by 12 percent from M8, 577.1 million to M 9, 615.9 million due to an improvement in tax revenue collections of around 22 percent.

In FY 2012/13, revenue is estimated to grow by 44 percent. The growth in revenue will be boosted predominantly by a substantial increase of about 117 percent in SACU receipts from M2, 752.6 million to M5, 966.3 million. The remarkable growth in SACU receipts reflects a strong rebound of extra SACU imports which had declined due to the global economic recession. The second largest contributor to revenue will be VAT which is expected to grow at 23 percent.

Grants also continued to grow indicating strong support from various donors & development partners over the past few years. The grants are expected to grow by 25 percent. This growth in donor grants proportionately represents Millennium Challenge Account (MCA) and non-MCA grants disbursements for the various institutional reforms & public investment programmes.

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In FY2013/14, overall revenue collection is projected to decline marginally by 1.4 percent from M13, 836.6 million to M12, 673.6 million. The decline largely represents a 39 percent reduction in donor grants reflecting a phase-out of the MCA investment projects & programmes. However, between FY2014/15 and FY2015/16, the overall revenue collection is projected to grow moderately by an average of 4.7 percent given that many of the primary sources of the government revenue indicate a slow pace of growth in the medium term.

2.4.2 ExpenditureAggregate expenditure is expected to decline by 8 percent, from M12, 806 million in FY2012/13 to M12, 796.3 million in FY2013/14. It is expected to further decline by 1 percent in FY2014/15 and increase by 2 percent in FY2015/16.

2.4.2.1 Recurrent Expenditure Total recurrent expenditure grew by an average of 4 percent from M6, 501.3 million in

FY2010/11 to M7, 459.9 million in FY2011/12. The marginal growth in recurrent expenditure was based on government policy to keep constant in real terms recurrent expenditure while increasing capital expenditure to stimulate the economy during the recent global economic recession. The fiscal consolidation was further strengthened by the signing of the IMF Extended Credit Facility (ECF) program in FY2010/11. In FY2012/13 recurrent expenditure is expected to reach M8, 051 million due to expected increase (35 percent growth) in employer contributions.

In the medium term recurrent expenditure is projected to grow in line with the rate of 5.6 percent inflation which reflects the continued government commitment to fiscal consolidation. Therefore, the recurrent expenditure is projected to grow at an average rate of 6 percent to reach M9, 701.6 million in FY2015/16.

2.4.2.2 Capital expenditure In recent years, overall capital expenditure has been growing in line with the

government’s policy to foster rapid and sustainable economic growth. Capital expenditure grew at an average rate of nearly19 percent between FY2010/11 and FY2011/12. Growth in capital expenditure was largely associated with the ongoing construction of the Metolong dam, the Roma-Ramabanta road and implementation of the Millennium Challenge Account (MCA) development projects. In 2012/13, capital expenditure is expected to reach M4, 754.3 million.

In the medium term, the overall capital expenditure is projected to decline by an average rate of 12 percent due to the completion of the Metolong dam and phase-out of the MCA development projects – which constitute a bulk of the ongoing development projects.

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With no policy change, the fiscal balance in 2012/13 is expected to register a surplus of M964.5 million, which is around 4.7 percent of GDP. In the medium term, the government is expected to accumulate further surpluses reaching 6.8 percent of GDP at the end of 2015/16. Consequently, the progressive growth in surpluses will result in accumulation of foreign reserves which improves import cover above the required minimum level of 3 months import coverage.

Table 2: Summary Fiscal Framework (Baseline), Detailed

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

Actuals Actuals Projections Projections Projections Projections

Revenue 8,577.1 9,615.9 13,836.6 13,646.5 13,960.9 14,945.7

1. Tax revenue 3,500.9 4,283.3 5,137.5 5,721.1 6297.2 6,996.4

2. Social Contributions

3. Grants 1,200.1 1,436.8 1,791.9 1,094.1 555.9 582.1

4. Other revenue 1,248.2 1,143.2 941.0 1,040.6 1,282.2 1,343.3

5. SACU 2,627.9 2,752.6 5,966.3 5,790.8 5,825.6 6,023.9

Recurrent Expense

A. Expense -6,501.3 -7,459.9 -8,051.7 -8,579.0 -9,125.1 -9,701.6

1. Compensation of Employees -3,024.1 -3,385.1 -3,707.6 -3,959.8 -4,278.9 -4,624.1

2. Use of goods and services -1,447.2 -1,633.5 -2,004.8 -2,177.6 -2,300.1 -2,427.6

4. Interest Payments -96.0 -137.1 -163.3 -225.6 -234.1 -238.1

5. Subsidies -216.2 -229.9 -235.6 -224.3 -228.9 -231.9

6. Grants -505.1 -753.3 -692.1 -660.4 -699.4 -739.9

7. Social Benefits -590.9 -571.5 -529.9 -567.2 -576.9 -587.5

8. Other expense -621.8 -749.5 -718.3 -764.1 -806.7 -852.5

B. Net Worth -34.1 -34.6 -38.5 -39.1 -38.6 -38.3

1 Nonfinancial assets -34.0 -34.6 -38.5 -38.4 -38.3 -38.1

2. Financial assets -0.0 0.1 0.0 -0.7 -0.3 -0.2

Capital (Outturn/Projected)

Capital expenditure by source of funds 2,837.4 4,038.0 4,754.3 4,217.3 3,604.5 3,235.1

Government of Lesotho 1,879.1 2,532.3 2,484.8 2,315.2 2,460.6 2,612.7

Donor Loans 130.3 358.8 777.7 1,108.1 708.1 161.3

Non-Metolong 92.8 165.0 134.3 144.0 152.5 161.3

Metolong 37.5 193.8 643.4 964.1 555.6

Donor Grants 828.0 1,146.9 1,491.9 794.1 435.9 461.1

non-MCA 533.3 571.9 387.2 411.6 435.9 461.1

MCA 294.7 575.0 1,104.7 382.5

Fiscal Deficit/Surplus (GoL) -1,045.6 -1,916.5 964.5 811.1 1,192.7 1,970.6

Fiscal Deficit/Surplus (GoL) -6.4% -10.4% 4.7% 3.5% 4.6% 6.8%

Current Price GDP 16,310.3 18,396.0 20,566.3 23,052.0 25,961.0 29,082.9

Real GDP growth 5.7% 3.2% 4.0% 4.6% 4.8% 4.4%

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Monthly Import Coverage 4.3 3.9 4.0 4.8 5.7 6.7

Government deposits 3,651.9 2,782.0 3,928.6 5,628.6 7,259.7 9,111.8

Debt /GDP Ratio 35.8% 31.2% 33.3% 35.3% 36.3% 35.1%

PART III

3. GUIDELINES FOR BUDGET ESTIMATES FOR 2013/14 – 2015/16

The 2013/14-2015/16 budget estimates will be prepared using the chart of accounts as per attached Appendix 4. It is expected that all ministries will prepare their 2013/14 budget estimates using programmes. The 2013/14-2015/16 budget estimates will continue to be entered into the IFMIS Budget Module. However, the familiar MTEF budget entry forms and guidelines will continue to be used to facilitate proper costing and budget justification.

3.1 Revenue EstimatesAll revenue collecting agencies must ensure that they submit realistic and achievable revenue estimates. Extra efforts to collect and close loopholes in the collection systems and book-in revenues in the IFMIS are required. Ministries should identify specific actions which will be implemented to improve administration of all revenue collecting activities. All relevant policy issues should be covered, including:

The need to increase rates on fees and charges to keep them in line with inflation; and

The identification of possible new tax and non-tax revenue items to compensate for decline in revenue from the traditional sources such as SACU.

Revenue estimates should include: Actual Performance for 2011/12; projected outturn for 2012/13 based on Actual Performance in the first six months of 2012/13; and estimates for the financial years 2013/14 and projections for 2014/15 and 2015/16.

3.2 Recurrent Expenditure Estimates

3.2.1 General Issues

Sound Public Expenditure Management has three components:

Adherence to the resource envelope defined in the fiscal framework;

Targeting resources at those activities which make the largest contribution to the attainment of national development goals and objectives; and

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Undertaking approved activities with maximum productivity and efficiency.

The Government will continue to implement the Medium-Term Expenditure Framework (MTEF) approach to budgeting. All Ministries now prepare medium-term estimates, and all Ministries prepare Budget Framework Papers.

Ministries have produced Budget Framework Papers (BFPs), matching their ministerial objectives and funding requirements with national development documents such as vision 20/20, MDGs, NSDP. Discussions on the BFPs are held to highlight government’s goals and priorities, and to build consensus on the resource allocation based on these priorities and by looking atallocations made to cost centres, sub-cost centres, programmes and sub-programmes.

The discussions on the BFPs are not intended to result in increased aggregate ministerial ceilings. The BFPs provide valuable information to assist the Ministries of Finance and of Development Planning and the Cabinet Budget Committee to make more informed decisions about budget priorities. The BFPs also increase the focus on ways of improving effectivenessand efficiency by identifying issues to be addressed to improve service delivery and areas where reallocations and savings can be made within the Ministries.

3.2.2 Conditions for Budget Estimates

Ministries are required to observe the following conditions pertaining to the 2013/14-2015/16budget estimates:

(i) Ministries should ensure that their budget estimates are linked to the proposals included in their BFPs;

(ii) Submissions must include all commitments already made by the Government which will have the effect of incurring expenditure over the coming years;

(iii) Submissions should identify measures that will be taken to improve the policy environment and to build up institutional capacity to implement approved activities in a timely manner.

(iv) In view of the prevailing aggregate resource constraint, ministerial submissions should clearly indicate the priority ranking of allocations by programmes;

(v) Ministerial submissions should include realistic estimates to meet the recurrent costs arising from projects which are scheduled for completion in 2013/2014-2015/2016 as well as for the maintenance of existing assets.

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(vi) In compliance with PFMA Act, virements will only be allowed for 20% of the approved item of the recurrent budget and 10% of the capital budget.

(vii) Based on experience, the Contingency Fund will be spent from the Ministry of Finance and not transferred to the requesting ministry.

(viii) New salaries and vacant positions will be centrally budgeted for in the Ministry of Finance.

The submissions must also demonstrate that they include policy measures and/or resource allocations required to satisfy agreements with Development Partners.

3.2.3 Content of Detailed Submissions

(a) Personal Emoluments (PE)

(i) Chief Accounting Officers are advised to discuss their staffing situation with Ministry of Public Service before submission of the estimates:

Requests for creation of new posts should be cleared with the Ministry of Public Serviceand funding with Ministry of Finance.

Promotions should be cleared with Human Resource Department (HRD).

Up-grading should be cleared with Remuneration and Benefits Department (RBD).

Ministries should provide information on the current status of filling of vacant positions. Regarding the creation of new positions, strong justification should be provided, including how these positions will enhance performance of the ministries/departments and the impact on the future wage bill.

(ii) Allowances should be shown by type; numbers of employees affected and clear costing.

(iii) Estimates of Personal Emoluments must be complemented by nominal roll indicating grades and number of employees in each grade; vacancies; and gross salaries for 2012/13, 2013/14, 2014/15 and 2015/16.

(iv) Ministries should ensure that the Sub-Cost Centre totals for Personal Emoluments estimates match those contained in the payroll system. If estimates are placed in

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the wrong Sub-Cost Centre, warrants will be distributed to the wrong Sub Cost Centre, and there may be delays in the payment of salaries until the relevant ministry is able to process virements. Ministries are requested to take note of paragraph 15 (1) of the Public Financial Management and Accountability Act, 2011 which guides ministries on virements/reallocation.

(ix) In respect of Teaching Service, additional information is required in the following format:

Number of schools;

Number of Government-paid teachers per district;

Salaries and allowances estimates for 2013/14; and

Projections for 2014/15 and 2015/16

(x) The Ministry of Public Service should be given a copy of estimates of Personal Emoluments to confirm payroll with establishment.

(b) Other Charges (OC)

Ministries should use official Government prices to estimate fuel and maintenance costs, obtained from Finance, Budget Department. A comprehensive list of ministerial/departmental fleet containing vehicle descriptions and date of purchase must be attached to the estimates.

With regard to vehicles under Full Maintenance Lease, the latest hire rates must be used.

Appropriate authority must accompany a request for purchase of new vehicles.

A prioritized list of international trips should be attached to the estimates for International Travel.

Details of seminars, workshops and short courses proposed for the financial year should be attached.

Breakdown for Training Costs should be provided according to type of training, individual positions (i.e. not names of holders) affected and the amount estimated.

Efforts should be made to prioritise training activities and spread the training plan over the medium term.

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Subscriptions to International Organisations are now classified within Operating Costs, using Items 431021 to 431025, and Item 431027. Ministries should also attach a breakdown showing name of the organisation and an amount to be paid.

Line ministries providing subsidies/subventions to other organisations should submit a complete budget for such institutions, including audited accounts and annual reports for 2010/11 and 2011/2012.

Parent ministries should discuss the requested subvention with relevant institutions and agree on the level of support proposed.

3.2.4 Special Funds and Trading AccountsMinistries operating special funds and trading accounts are expected to prepare their estimates for approval by the Minister of Finance prior to the beginning of the financial year.

(a) Separate submissions are required for:

(i) Trading Accounts; and

(ii) Special Funds

(b) Ministries should further note that:

(i) No Trading Accounts/Special Funds will be allowed to operate without approved budget estimates;

(ii) Trading Accounts/Special Funds that do not submit regular and audited financial and non-financial reports will not be considered for approval.

3.2.5 Projects and Other Bank Accounts

Ministries must include in their submissions a list of all project bank accounts and their balances at commercial banks and at the Central Bank of Lesotho. Ministries should also note that the balances in the bank accounts (in respect of GOL funds) should be retired at the end of the financial year and should not be part of the budget for the following year.

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3.3 Capital Estimates

3.3.1 General Issues

Criteria for selection of Projects and/or relocation of resources

In line with National Development Goals set out in the NSDP and the priorities described in Part II, the most important criterion for selection of projects will be their impact on economic growth and employment and reduction of vulnerability. These have been put into three categories in order of priority. There are also target areas where private investment should be mobilised and/or where public investment is required to crowd-in private investment in order to achieve the required level on capital stock that will have impact on poverty and employment. These are categorised into PPPs and Private Investment areas.

Table 3:Category Strategic AreaA Agriculture (production and marketing) and climate

change resilience Core Investment Climate reform Agenda (Business

environment, Crime, Access to land and labour stability) Key infrastructure and basic services (access to water and

sanitation, health services, energy, communication services and basic transport infrastructure)

Industrial infrastructure and basic infrastructure to production areas (mining, agriculture, tourism and others)

Enterprise development support for communities and MSMEs, Technical and Vocational Training (TVET),

HIV and AIDS, Public Financial management (PFM)

B Other economic infrastructure (National roads, Marketing infrastructure)

Other social Infrastructure (Primary and secondary, Non-TVET higher learning,

Soil and water conservation, range management Governance

C OthersPPP Agro-industry

Financial sector developmentDevelopment of Waste and recycling economyCreative industries

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Private Investment Promotion

Textiles HubOther manufacturing (Water bottling, Pharmaceuticals, Leather, Wood and Furniture, Mining beneficiationTourism and sports (water sports and other recreation)

It is also very important that there is serious consideration for allocations under the recurrent expenditure for covering operating and maintenance costs of public assets. National assets have often suffered waste due to lack of maintenance and eventually become very expensive to rehabilitate or reconstruct. The aggregate ceilings for capital expenditure for Financial Year 2013/14 and indicative ceilings for subsequent financial years are set out below:

Table 4: Capital Expenditure, Aggregate Ceiling (M4, 217.3 Maloti)

CapitalBudget

2012/13Ceiling

2012/13 Approved Estimates

2013/14 ProposedCeilings

2014/15 Indicative Ceilings

2015/2016 Indicative Ceilings

Total 4,754.3 5,431.9 4,217.3 3,604.5 3,235.1GOL 2,484.8 2,152.5 2,315.2 2,460.6 2,612.7

Loans 777.7 1,152.5 1,108.1 708.1 161.3Grants 1,491.9 1,893.0 794.1 435.9 461.1

Of which MCA 1,104.7 600.8 382.5 0 0

All project submissions should indicate how the project reflects national development priorities as contained in the National Strategic Development Plan (NSDP).

In view of prevailing aggregate resource constraints, all new project submissions should clearly indicate priority ranking attached to proposed resource allocations.

Ministries must submit their Capital Estimates for two categories of projects:CB1 Forms should be used for ongoing projects which have been allocated resources in the Capital Budget Estimates for 2012/13 and which will have some additional resource requirements in 2013/14 and subsequent financial years; and

CB2 forms should be used for new project proposals which have not yet received any resource allocations but which are expected to incur some capital expenditure in Financial Years 2013/14, 2014/15 and 2015/16. Ministries must ensure that minimum conditions (e.g. site availability, appraisal, feasibility studies, etc.) have been met as these are critical for timely implementation of projects. Given the current resource constraint, new progammes/projects are most likely to attract funding if they clearly target plan objectives shown in Part II.

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3.3.2 Priorities in Capital Allocations

The first priority in allocating capital resources will be the requirement to address the objectives under Part II and to meet counterpart obligations under financial agreements with Development Partners, and complete ongoing GOL funded projects. Ministries are urged to ensure that projects are completed over the planned period in order to give space for new initiatives.

The Capital Budget Estimates must include all projects funded through grants and loans regardless of the funding arrangements (e.g. Treasury, project bank account, and direct payment by Development Partner). Balances accrued in project bank accounts must be included in the estimates of the respective projects for the coming financial year for appropriation so that such balances do not constitute unauthorized expenditure. In-case of GOL funding, balances are expected to be retired back to the consolidated fund at the end of the financial year.

(a) Ongoing Projects

Ministries MUST submit Form CB1 for ALL projects funded that are expected to require funds in financial year 2013/14, 2014/15 and 2015/16. This includes all ongoing projects that will NOT be completed by 31st March, 2013 or will have financial obligations after that date.

Form CB1 also requires submission of an implementation progress report indicating the progress achieved in implementing the project during 2012/13 (and any problems and delays experienced during implementation). An updated Implementation Schedule should be provided to indicate the expected attainment of key dates in implementation.

If a project has been COMPLETED during 2012/13, this should be reflected in the Progress Report and the Implementation Schedule and the Form should clearly indicate that there will be NO resource requirements in 2013/14 or future years.

Ministries must ensure that at the time of making payments, retention fees are transferred into the Treasury Trust Fund until when they will be claimed.

Form CB1 should also show additional resource requirements for the ministerial recurrent budget once the project has been completed and is being utilized.

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(b) New Project Proposals

While the Government continues to be committed to social development, in line with its stated objective of Broad Based Growth, new projects linked to the creation of conducive and competitive environment for increased investment and employment creation will be accorded high priority.

Ministries must submit Form CB2 in respect of EVERY new capital project proposal which is expected to incur capital expenditure in 2013/14, 2014/15 and 2015/16. Screening of new project proposals will be facilitated if all sections of Form CB2 are completed comprehensively in accordance with the Guidance Notes. In particular, a clear description of the physical scope of the project is required, together with a statement of the project objectives demonstrating that the project is consistent with the national and sectoral development goals.

It will still be necessary for all new project proposals to have been considered by the Project Appraisal Committee and included in the Public Sector Investment Programme (PSIP) prior to formal endorsement and inclusion in the Capital Budget Estimates for 2013/14. To assist in screening of new project proposals, it is necessary to indicate the progress made in satisfying minimum acceptance conditions as listed in Form CB2.

Form CB2 should also show additional resource requirements for the ministerial recurrent budget once the project has been completed and is being utilized. Proposals which have large recurrent implications will be subject to careful scrutiny in view of the limits being imposed on the creation of new posts.

(c) Summary Forms

Ministries should also complete summary Form CB3 (for ongoing projects and new projects). The information contained in these summary forms must be extracted accurately from the relevant Project Forms CB1 and CB2 for each specific project. All these forms can be obtained from the Ministry of Finance (Budget Department).

Guidelines for the release of projects’ funds Cash plans and Implementation schedule

Certificates and invoices

Quotations or tender panel approvals

Projects with special features will be afforded appropriate treatment or consideration (e.g. costed breakdown of the activities to be undertaken).

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(d) Information Communication technology

Top priority should be given to internet connectivity within Government (Including districts). Reliability of internet service providers and their ability to render resolutions to problems are critical for operations of the Ministries.

Other issues or areas to be considered include:

Website update and maintenance;

Staff training in ICT service/operation; and

Software license renewal.

Ministries should contact the ICT department of Ministry of Communications, Science and Technology for advice and guidance in respect of infrastructure requirements relating to the development of e-governance and associated cost estimates.

PART IV

4. Procurement Plans:

Ministries are reminded that annual Procurement plans will be required prior to release of funds. It is recommended that procurement plans be prepared when the budget is being discussed in Parliament so that funds can be released on time at the start of the financial year.

PART V

5. IFMIS Budget Module – Budget Entry Process

5.1 For 2012/13, fifteen pilot ministries built their revenue and expenditure budget estimates using the programme Budget approach, the MTEF entry forms, and the IFMIS budget module, in2013/14, all ministries will adopt programme budget entry process for their budget estimates and only officers with user rights will be able to use the IFMIS Budget Module. Any officer in a Ministry who does not have the appropriate IFMIS user name and password will not be permitted to use the IFMIS Budget Module. It should also be noted that it will be an offence for any officer to share his/her user name and password with another officer. Ministries should take advance action to ensure that relevant officers have the appropriate user access rights.

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PART VI

6. ESTIMATES SUBMISSIONS

6.1 Estimates submissions must cover actual expenditure in Financial Year 2011/12; approved budget for 2012/13; the projected outturn for 2012/13; budget requests for 2013/14; and projections for 20134/15 and 2015/16.

6.2 Ministerial Budget Framework Papers should form the basis for preparation of the estimates and projections. Information contained in the BFPs assists MoF and the Cabinet Budget Committee to prioritize new spending and to set expenditure ceilings.

6.3 Ministries are required to ensure that financial implications of decisions they make over the medium term are properly analysed, and included in the budget estimates.

6.4 Line Ministries must submit three signed hard copies of the documents of the Budget Estimates (REVENUE, RECURRENT EXPENDITURE AND CAPITAL EXPENDITURE).

PART VII

7. BUDGET SPEECH 2012/13

7.1 Contributions to the 2013/14 Budget Speech should be submitted with the Estimates.

7.2 The contribution should include: an assessment of performance in 2012/13; and an outline of the Ministry’s planned objectives and activities for 2013/14, 2014/15 and 2015/16. The contributions should be brief and specific, focusing on core goals, objectives and achievements of the Ministry.

PART VIII

Submissions are considered complete when signed by the Minister and composed of the following:

1. Revenue Estimates 2. Recurrent Expenditure Estimates 3. Capital Expenditure Estimates4. Contribution to the Budget Speech5. Capital Budget physical progress report for 2012/13 financial year

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Appendix 1Recurrent Budget Ceilings: 2013/14 – 2015/16

Code MinistryProposed Ceilings 2013/14

Indicative Ceiling 2014/15

Indicative Ceiling 2015/16

1 Agriculture & Food Security

155,853,942

165,205,179

175,117,489

2 Health

1,337,102,039

1,417,328,161 1,502,367,851

3 Education & Training

1,626,148,584

1,723,717,499 1,827,140,549

4 Finance

399,187,828

423,139,097

448,527,443

5 Trade & Industry, Cooperatives & Marketing

59,366,016

62,927,977

66,703,655

6 Development Planning

809,027,977

857,569,656

909,023,835

7 Justice, Human Rights and Correctional Services

146,127,585

154,895,240

164,188,955

8 Home Affairs

95,036,188

100,738,359

106,782,660

9 Prime Minister’s Office

71,695,582

75,997,317

80,557,156

10 Communications, Science and Technology

81,346,880

86,227,693

91,401,355

11 Law & Constitutional Affairs

51,732,268

54,836,204

58,126,376

12 Foreign Affairs and International Relations

291,070,948

308,535,205

327,047,317

13 Public Works and Transport

137,828,266

146,097,962

154,863,839

14 Forestry and Land Reclamation

42,808,500

45,377,010

48,099,630

15 Energy, Meteorology and Water Affairs

152,549,893

161,702,887

171,405,060

16 Labour and Employment

56,531,240

59,923,114

63,518,501

17 Tourism, Environment and Culture

78,413,970

83,118,808

88,105,937

18 Auditor General’s Office

22,242,688

23,577,249

24,991,884

19 His Majesty’s Office

4,276,860

4,533,472

4,805,480

20 Public Service Commission

5,973,813

6,332,241

6,712,176

37 Defence and National Security

453,859,198

481,090,750

509,956,195

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38 National Assembly

75,672,049

80,212,371

85,025,114

39 Senate

11,954,924

12,672,219

13,432,552

40 Ombudsman

4,783,429

5,070,434

5,374,660

41 Independent Electoral Commission

29,618,757

31,395,883

33,279,636

42 Local Government and Chieftainship Affairs

339,266,924

359,622,940

381,200,316

43 Gender and Youth, Sports and Recreation

51,795,441

54,903,167

58,197,357

44 Public Service

29,580,563

31,355,397

33,236,721

45 Judiciary

94,695,605

100,377,341

106,399,981

46 Social Development

45,349,463

48,070,431

50,954,657

47 Directorate of Corruption and Economic Offences

10,169,346

10,779,507

11,426,278

48 Mining

7,126,849

7,554,460

8,007,728

49 Police and Public Safety

335,605,537

355,741,869

377,086,381

TOTAL

7,113,799,149

7,540,627,098 7,993,064,724

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Appendix 2Capital Budget Ceilings: 2013/14 – 2015/16

Code Ministry 2013/2014 GOL Ceiling

01 Agriculture and Food Security 100,000,000

02 Health 59,000,000

03 Education and Training 40,000,000

04 Finance 50,000,000

05 Trade and Industry, Cooperatives and Marketing 55,500,000

06 Development Planning 15,000,000

07 Justice, Human Rights and Correctional Services 28,000,000

08 Home Affairs 118,000,000

09 Prime Minister's Office 5,000,000

10 Communications, Science and Technology 160,000,000

13 Public Works and Transport 550,000,000

14 Forestry and Land Reclamation 101,100,000

15 Energy, Meteorology and Water Affairs 269,000,000

17 Tourism, Environment and Culture 43,000,00019 His Majesty's Office 3,000,000

34 Lesotho Highlands Development Authority 2,000,000

37 Defence and National Security 13,000,00039 Senate 10,000,000

42 Local Government and Chieftainship Affairs 400,000,000

43 Gender and Youth, Sports and Recreation 23,000,000

46 Social Development 15,000,000

49 Police 50,000,000

TOTAL CEILING 2,109,600,000

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Appendix 3

CHART OF ACCOUNTS

1. Overview

As mentioned in the Call Circular, the structure and scope of the chart of accounts has been changed to take advantage of the powerful analytical and reporting capacity of the IFMIS, and to comply with international accounting and financial statistics standards.

The budget classification system has been expanded and revised to introduce several new fields. The new set of reporting fields are summarised in the table below:

Head

Cost Centre

Sub Cost Centre

Program

Sub Program

Account Type

Fund Source

Donor

Project

Objective

Output

Activity

Subhead& Item (Economic)

xx xx xx xx xx x x xxx xxxx xx xx xx xx xxxx

2.Head

There have been no changes to the Ministry or Head code. It remains two digits and each Ministry or Head has retained its previous code.

3.Cost Centre and Sub Cost Centre

Cost Centre and Sub-Cost Centre codes are each two digits long. Each Ministry must have at least one Cost Centre, and at least one Sub-Cost Centre. The numbering of Cost Centres must start from 01. The numbering of Sub-Cost Centres must also commence from 01.

4.Programme and Sub Programme

Programmes define the broad functions of the Ministry, e.g. Curative Health. Sub-Programmes define the more specific areas of activity or functions within a Programme (sub function) e.g. Out-Patient Services. Programme and Sub- Programme codes are each two digits long.

5.Account Type

There is a 1 digit Account Type field which must be used. There are five codes that can be used:

Account Type Code Account Type Description

1 Recurrent expenditure

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2 Development expenditure3 Recurrent revenue4 Development revenue5 Below the Line

6.Fund SourceThe chart of accounts requires that a source of finance or Fund Source be defined for every item of expenditure. At this stage, there are six possible Fund Sources:

Fund Source Code Fund Source Description

1 Government of Lesotho2 Donor Grant Funding3 Donor Loan Funding4 Government of Lesotho Counterpart Contributions5 Commercial Loan Funding6 Budget Support

7.Donor and Project CodesProjects must now be coded using a new 4 digit code. These codes must be assigned by the Ministry of Finance, and cannot be changed by line Ministries. For every project, there must also be a 3 digit Donor code. If there is no Project or Donor, these fields must be coded as Donor 000, and Project 0000.

8.Objectives, Outputs and ActivitiesThe MTEF reforms include the definitions of Objectives, Outputs and Activities. These are uniquely defined by each Ministry, so no listings of these are attached to this circular. Each of these fields is 2 digits long. If no Objectives, Outputs or Activities have yet been defined, then these should be numbered as 00 respectively. If any have been defined, then numbering must commence from 01.

9.Changes to Revenue and Expenditure ItemsWhen using Item codes, it should be noted that any Item code in the chart of accounts that ends in 00, i.e. two zeros, is either a summary level code or a place holder for future use, and no budget or revenue or expenditure can be recorded against it.Some Items of revenue and expenditure have simply had their titles changed to make it clearer what kind of revenue or expenditure it covers. Other Items have been removed altogether, and an alternative Item will need to be used by Ministries.

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Appendix 4List of Desk Officers

MINISTRY DESK OFFICER ROOM NO. EXT. NO.

Tourism, Environment and Culture Ms. M. Mpobole 3042 3466

Law and Constitutional AffairsPublic Service Commission Mr. L. Talanyane 3060 3425

Foreign Affairs and International RelationsNational Assembly Ms. K. Moshoeshoe 3066 3443

Energy, Meteorology and Water AffairsMining

Mr. T. Mosoloane 3045 3416

Trade and Industry, Cooperatives & Marketing

Ms S. Ts’epe 3046 3465

Labour & Employment Mrs. M. Mosoang 3046 3446

Auditor General’s OfficeIndependent Electoral Commission Mrs. P. McPherson 3048 3479Home AffairsPolice and Public Safety Ms. L. Moremoholo 3041 3445

HealthSocial DevelopmentPublic Service

Ms K. Motjamela 3064 3432

Prime Minister’s OfficeCommunications, Science and Technology Ms. M. Malefane 3057 3411FinanceDevelopment Planning Ms. M. Lekomola 3067 3442Agriculture and Food SecuritySenate Mr K. Lenyatsa 3060 3425

Education and Training Ms. L. Molemohi 3047 3427Local Government and Chieftainship AffairsForestry and Land Reclamation Ms. I. Borotho 3047 3427

Gender, and Youth, Sports and RecreationOmbudsman

Ms. M. Thelisi 3047 3428

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Public Works and Transport Ms. M. Mokhoro 3047 3428Justice, Human Rights & Correctional ServiceDCEOJudiciary

Mr. T. Jomane 3060 3425

Defence and National SecurityHis Majesty’s Office

Mr. F. Libete 3047 3428