Lesotho: Economic Outline

Economic Indicators

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Lesotho's economy has been consistently deteriorating for about a decade. Structural bottlenecks, a weak regional environment, climate shocks and the outbreak of the Covid-19 contributed to this prolonged recession (IMF). Economic growth rebounded in 2021 (2.1% GDP), but stagnated in 2022 (2.1% GDP) in the context of weaker external demand, South Africa’s energy crisis and the spillovers from the war in Ukraine. Growth remains largely dependent on South Africa's economic recovery and uneven foreign investment in infrastructure mega-projects (IMF). The IMF forecasts economic growth to remain subdued at 2.2% in 2023 and 2.3% in 2024. More optimistically, the World Bank forecasts economic activity to pick up to 2.6% in 2023 and 3.1% in 2024, underpinned by the construction (particularly Phase II of the Lesotho Highlands Water Project), agriculture, services and mining sectors.

Lesotho's economy was already facing challenges when it was further hit by the Covid-19 pandemic, declining revenues from the Southern African Customs Union (SACU), the spillovers from the war in Ukraine and major flooding. Nonetheless, contained expenditures and increased revenues helped fiscal deficit reduce from -4.4% GDP in 2021 to -3.4% GDP in 2022, and according to IMF estimates a surplus of 2.5% GDP will be achieved in 2023, and 8.4% GDP in 2024. Public debt slightly increased from 56.4% GDP in 2021 to 57.9% GDP in 2022, and it is expected to reach 58.5% GDP in 2023 before declining to 57.3% GDP in 2024 (IMF). Considered sustainable by the IMF, it should remain below the SADC convergence criterion of 60% GDP. The public debt is mostly external and concessional, and relies on international lenders. If Lesotho’s fiscal performance was better than expected, its external position weakened. The war in Ukraine hindered food imports and raised commodity prices, exacerbating agricultural disruptions due to floods and the pandemic (IMF). Inflation increased from 6% in 2021 to 8.2% in 2022, and though declining it is expected to remain high at 6.8% in 2023 and 5.5% in 2024 (IMF). The priority of the new coalition government lead by the businessman Sam Matekane is to enhance economic growth and build resilience through economic transformation from a consumer-based economy to a producer and export-driven economy. Fiscal discipline, structural reforms to restore macro-fiscal stability and consolidate public financial management are the priorities.

Poverty and strong inequalities plague Lesotho’s social environment. Indeed, according to the World Bank, unemployment rate amounted to 18.3% in 2021 and according to national poverty lines, more than a third of the population lives in poverty. In terms of human development, the country is ranked 168th out of 191 countries in the Human Development Index published by UNDP.

Monetary Indicators	2016	2017	2018	2019	2020
Lesotho Loti (LSL) - Average Annual Exchange Rate For 1 GBP	19.86	17.16	17.67	18.13	21.12

Source: World Bank - Latest available data.

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Latest Update: September 2023