Executive summary arrangements have been generally successful in maintaining macroeconomic stability, promoting economic growth and creating jobs as a step towards poverty reduction. Real gross domestic product (GDP) per capita grew at an average annual rate of 3.86 per cent between 1990 and 2006. At the same time, the macroeconomic framework has helped Lesotho to control inflation and keep it at a low, single-digit rate over most of the last decade. Moreover, the country has maintained fiscal and account surpluses since about 2004. 4.19 Lesotho has implemented various financial sector reforms and measures to remove structural rigidities in the financial sector and increase bank lending to the private sector. These include the establishment of a commercial court, the promulgation of the Financial Institutions Act (FIA) and the Central Bank Act, restructuring of the former Lesotho Bank, and the establishment of the Lesotho National Development Corporation (LNDC) and the Basotho Enterprises Development Corporation (BEDCO). Yet, access to credit remains limited, especially in rural areas and for indigenous enterprises, and financial intermediation is low. All the major commercial banks in Lesotho are affiliated to parent banks in South Africa. Because of risk and return considerations, commercial banks prefer to invest more in treasury bills than in lending to private investors. 4.20 Over the years, Lesotho has relied excessively on SACU receipts as the major source of revenue, since the contribution of domestic revenue remains low. The public budget is characterised by high dependence on aid and SACU revenue and low implementation rates, especially in relation to capital expenditure. High budget surpluses recorded between 2003 and 2008 were merely a reflection of the inability to implement projects according to plans. Accordingly, actual public expenditure is often skewed towards current expenditure items, and delays in project implementation mean that infrastructure deficits continue to constrain opportunities for investment and efficient service delivery. From year to year, underspending of the budget is usually reported by government departments. This tends to give the impression of fiscal prudence, but, in reality, it is nothing more than limited capacity on the part of these departments to implement their budget proposals. 4.21 Regional integration arrangements imply that both producers and workers in Lesotho have unrestricted access to the large South African product and labour markets. The number of Basotho working in the mining sector in South Africa was 127,000 in 1990 and 50,100 in 2007. These workers transfer over 70 per cent of their annual earnings (estimated at M3.5 million in 2007) to Lesotho, mainly to support their families. South African firms and banks are a major source of investment and capital, as well as employment within Lesotho. Workers’ remittances are currently on the decline as a result of lay-offs of Basotho miners in South Africa. This is further aggravating an already critical unemployment situation. The unemployment rate remains critically high at around 30 per cent, while poverty remains high at the estimated rate of 56.7 per cent in 2007. 4.22 The policy framework in Lesotho is built on some key pillars. These are the framework of the Millennium Development Goals (MDGs), the Poverty Reduction Strategy Paper (PRSP), Vision 2020 and the new growth strategy. Their combination provides a framework for planning, accelerated and sustained growth, private sector development and poverty reduction. Recently, the government put in place the Medium-Term Expenditure Framework (MTEF) as a means of improving the links between budget processes and the overall development strategies such as the PRSP and MDGs. The MTEF was implemented in some line ministries in the preparation of the 2005/2006 budget. 7