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Berti, K., Salto, M., & Lequien, M. (2012). An Early-Detection Index of Fiscal Stress for EU Countries (No. 475). Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

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• TITLE: A Fiscal Vulnerability Indicator for Lesotho

  AUTHORS: Moeti Damane

  KEYWORDS: Fiscal Policy, Budget Deficit, Fiscal Vulnerability, Public Debt, Lesotho

  JOURNAL NAME: Modern Economy, Vol.13 No.3, March 18, 2022

  ABSTRACT: The objective of this paper is to construct a fiscal vulnerability indicator for Lesotho using annual fiscal and macroeconomic data from 1993 to 2017 and a Dynamic Debt Equation for calculating Fiscal Vulnerability (DDE-FV) that estimates a debt stabilising primary balance. A normal fiscal vulnerability range of 2 to 4 percent of GDP and a severe fiscal vulnerability range of 8 to 10 percent of GDP were identified. Results show few periods of severe fiscal vulnerability compared to normal fiscal vulnerability episodes from 1993 to 2017. The severe fiscal vulnerability was observed in two out of the 25 years. The normal fiscal vulnerability was observed for 11 out of the 25 periods. Lesotho’s fiscal policy was above the normal fiscal vulnerability threshold between 1992 and 2001 before returning to levels largely within the tolerable fiscal vulnerability level for the remainder of the 1993-2017 period.