The Potential Impact of Economic Integration on Fiscal Policy Operations in Lesotho

THE WORLD economy is adopting economic integration as a tool to lead developing countries out of maladies such as poverty. The Southern African Development Community (SADC) is not an exemption, with a clear roadmap leading to a single Central Bank. However, the initiative does not have the same benefits for all Member States. The study, therefore, aimed to establish how Lesotho will be affected by the integration.

It is revealed that Lesotho derives about 45 per cent of revenue from SACU inflows, and that the country exports minimally in the region. Furthermore, tax performance test results reveal that the elasticity of revenue to national income is more than unity. This implies that if the country loses fiscal revenue, there is a potential to recover it through other macroeconomic initiatives. This is supported by empirical literature, which confirmed that about 30 per cent of revenue is recovered after the reforms. It is therefore concluded that economic integration can ignite other dormant macroeconomic variables. Context.