LESOTHO

Key conditions andchallenges

Table 1

2023

Population, million

2.3GDP, current US$ billion

2.3

GDP per capita, current US$972.0

International poverty rate ($2.15)

a32.4
a54.6

a81.0

Lower middle-income poverty rate ($3.65)
Upper middle-income poverty rate ($6.85)
Gini index

a44.9

School enrollment, primary (% gross)b110.0b53.1

Total GHG emissions (mtCO2e)

4.3Life expectancy at birth, years

Source: WDI, Macro Poverty Outlook, and official data.
a/ Most recent value (2017), 2017 PPPs.
b/ Most recent WDI value (2021).

Growth increased to 2 percent in 2023
and will remain at around this rate over2024-26. The outlook is subject to downside risks from delays in the Lesotho
Highlands Water Project (LHWP), andthe implementation of reforms to control
public spending, raise efficiency, as wellas public investment effectiveness. Further delays in implementing reforms tobolster private sector development andhuman capital will also stall growth. Weaker global and regional growth, rising geopolitical tensions, and climate shocks could
adversely affect the growth trajectory.

Growth rate has averaged only 1.2 percent
since 2010, indicating that the consumption-driven growth model anchored on alarge public sector has not been sustainable. Weaknesses in fiscal policy and management has undermined public spending
inefficiencies. The large public sector has
also crowded out the private sector, curtailing business investment and the development of new private sector activities. Domestic entrepreneurs face difficulties in accessing credit. Gaps in the regulatory competition and investment frameworks, including for foreign direct investment, raise uncertainty and costs of doing business. Large infrastructure gaps,
including in information and communications technology, dampen private investment and the country’s integration inglobal value chains.
Fiscal imbalances have been persistent
overtime, as spending was not compensated by higher revenue, leading to higher
public debt. Volatile Southern African
Customs Union (SACU) receipts, poor
cash management, and deficiencies in public procurement processes have led to theaccumulation of arrears, which threaten
macroeconomic stability.
Weak regional and global demand are undermining exports, which remain heavily
concentrated to apparel and textile, andnatural resources. Policy measures areneeded to unlock private investment

FIGURE 1 Lesotho / Fiscal dynamics

Percentage of GDP70

and diversify the economy. The future ofthe textile sector hinges on the renewalof the United States’ African Growth andOpportunities Act (AGOA) beyond 2025
and measures to relaunch the competitiveness of the sector. South Africa’s
weak economy affects growth prospects
through trade and lower remittances.
Limited private sector activity andskills mismatches contribute to highunemployment, estimated at 22.5 percent in 2019 (reaching 38.3 percent
when discouraged job seekers are included), and high poverty rates. Over
one-third of the population was estimated to live on less than US$2.15 per
day (2017 PPP) in 2022. Lesotho is in
the top quintile of countries with themost unequal income distribution.

Recent developments
The economy expanded by an estimated
2 percent in 2023, mainly driven by thepublic sector, especially the LHWP-II
megaproject and its spillover effects ontransportation, logistics, and financial services. The project experienced some delays in early 2024 owing to strikes, but
activity has since resumed. On the downside, weaknesses in public investment
management and efforts to control
spending are delaying the implementation of capital projects. On the supply
side, the industrial sector grew by about
5 percent, while the expansion of theagricultural sector, while still positive,decelerated significantly.

FIGURE 2 Lesotho / Actual and projected poverty rates andreal GDP per capita
Percentage of GDP
860

Poverty rate (%)

Real GDP per capita (constant LCU)

9010500

80

610000

7050

440

230

020-210-40-6609500

50900040302021
2022
Revenues

2023e
2024f
Expenditures

8500

20

8000

1007500
2017

2025f
2026f
Fiscal balance (rhs)

Source: World Bank.

2019

2021

1Apr 242025

International poverty rate

Lower middle-income pov. rate

Upper middle-income pov. rate

Real GDP pc

Source: World Bank. Notes: see Table 2.

MPO

2023

Headline inflation decreased from its
peak of 9.8 percent in July 2022 to 7.2
percent in December 2023, owing primarily to the moderation in fuel and foodprices, but pressures are emerging again.
the central bank revised upwards thenet international reserves target floor to
US$750 million in January 2024 and increased the policy rate to 7.75 percent inJuly 2023, which stands below the SouthAfrican policy rate.
The fiscal balance improved dramatically,
from a deficit of 4.3 percent of GDP in
2022 to a surplus of 5.5 percent of GDP
in 2023, owing to the more than doubling of SACU revenue. The government
has spent more than half of SACU windfall in FY 2023/24, to increase public investment and recurrent spending by 2
percentage points of GDP each. Recurrent spending increases were driven bytransfers to other public sector bodies, social benefits, and subsidies. The public
sector wage bill growth kept constantas a share of GDP, even though it increased above inflation. Limited progresshas been made on arrears’ clearance,
which have emerged owing to recurrent
fiscal deficits in the past, and weaknesses
in public financial management and in
public procurement.

Outlook
Growth is projected to remain subdued, ataround 2-2.5 percent over the next threeyears. This rate will be insufficient to return the economy to its pre-pandemic levelby 2026 and significantly reduce poverty
and inequality rates. The implementationof the LHWP-II project should continue todrive growth, but private activities are expected to expand modestly as longstanding structural constraints remain unaddressed. Consequently, the US$2.15 per
day poverty rate is projected to fall only
slightly from 37.0 percent in 2022 to36.1 percent in 2025.
Inflation is expected to gradually moderate to 5.0 percent in line with declining
energy and food prices, but to remain relatively high owing to the rand depreciation. The current account deficit is projected to widen due to higher imports associated with the LHWP-II, and weaker
demand for exports, driven by uncertainties surrounding the renewal of AGOA,
and a deceleration in the US economy.
After the large fiscal surplus registered in2023, the government’s accounts are expected to return to deficits, even though

TABLE 2 Lesotho / Macro poverty outlook indicators

SACU transfers are projected to remain elevated, risking undermining macroeconomic stability. Although the projected
deficits will be driven by public investment, and there are substantial gaps inproductive, social, and resilient infrastructure, public investment prioritization andmanagement have been weak, raising concerns about the country’s absorptive capacity and resource misallocation. Using
the SACU windfall to implement reforms
that stimulate private sector investment
and bring down recurrent spending wouldstrengthen growth.
Domestic and external risks are tilted
to the downside. Weaker global and regional growth, and the intensification ofgeopolitical conflicts, would impact negatively on diamond exports and remittances. This and failure to renew AGOA
would widen the current account deficit,
while further delays in the LHWP-IIwould lower growth. On the positiveside, devising a plan to clear arrears
and delivering on it would strengthen
the macroeconomic policy framework
and public spending. Climate shocks
could weaken the outlook and endanger
gains in poverty alleviation, underscoring the need to strengthen climate risk
management and resilience.

(annual percent change unless indicated otherwise)

Real GDP growth, at constant market prices
Private consumption
Government consumption
Gross fixed capital investment
Exports, goods and services
Imports, goods and services

2021
1.9-6.7
-5.3
6.5
5.1
-0.4

2022
1.1
9.1
2.4
10.8
36.7
22.5

2023e
2.0
3.6
2.2
54.7
2.2
10.3

2024f
2.2
3.5
17.9
9.3
2.2
10.8

2025f
2.5
3.2
11.5
26.7
2.2
11.3

2026f
2.3
3.2
12.3
18.3
2.0
10.5

Real GDP growth, at constant factor prices
Agriculture
Industry
Services

1.9
-16.0
4.7
2.3

1.1
12.5
5.0
-0.8

2.0
2.4
5.0
1.0

2.2
2.4
5.3
1.1

2.5
2.4
5.0
1.6

2.3
2.4
5.0
1.3

Inflation (consumer price index)

6.0

8.3

6.4

5.3

5.0

5.0

Current account balance (% of GDP)Net foreign direct investment inflow (% of GDP)

-4.1
1.2

-6.2
1.2

-5.5
1.4

-6.2
1.9

-6.6
1.4

-6.4
1.2

Fiscal balance (% of GDP)
Revenues (% of GDP)
Debt (% of GDP)
Primary balance (% of GDP)

-4.3
50.2
60.4
-3.3

-4.3
49.1
60.6
-3.4

5.5
57.6
57.5
6.4

-2.5
58.9
54.9
-1.6

-0.8
59.1
51.2
0.0

-1.5
59.6
47.7
-0.8

37.0
59.7
84.8

37.0
59.7
84.8

36.8
59.4
84.5

36.6
59.0
84.3

36.1
58.6
83.8

35.6
58.3
83.6

1.3
57.9

2.3
58.1

2.6
58.2

2.8
58.4

2.9
58.6

2.1
58.5

a,b

International poverty rate ($2.15 in 2017 PPP)a,b
Lower middle-income poverty rate ($3.65 in 2017 PPP)a,b
Upper middle-income poverty rate ($6.85 in 2017 PPP)
GHG emissions growth (mtCO2e)
Energy related GHG emissions (% of total)

Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD.
Notes: e = estimate, f = forecast.
a/ Calculations based on 2017-CMSHBS. Actual data: 2017. Nowcast: 2018-2023. Forecasts are from 2024 to 2026.
b/ Projection using neutral distribution (2017) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU.

MPO2

Apr 24