Lesotho: Economic Outline

Economic Indicators

Since 2010, Lesotho’s growth rate has averaged only 1.2%, highlighting the unsustainability of the consumption-driven growth model reliant on a sizable public sector. In 2023, the economy saw growth of approximately 2%, largely propelled by the public sector, notably the Lesotho Highlands Water Project (LHWP-II) megaproject, which positively influenced transportation, logistics, and financial services. However, strikes caused delays in early 2024, although activities have resumed since then. Nevertheless, inefficiencies in public investment management and spending control are postponing the execution of capital projects. On the industrial front, there was growth of around 5%, while agricultural expansion, though still positive, slowed notably. The forecast suggests that growth will continue at a subdued pace, expected to hover around 2-2.5% over the next three years. This rate falls short of bringing the economy back to its pre-pandemic level by 2026 and making substantial strides in reducing poverty and inequality rates (World Bank).

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. Despite previous challenges, the fiscal balance saw a remarkable improvement in 2023, as it shifted from a 4.3% GDP deficit in 2022 to a 5.5% surplus, largely due to a significant increase in SACU revenue. In the fiscal year 2023/24, the government allocated more than half of the SACU windfall to bolster public investment and recurrent spending, each by 2% of GDP. These spending increments primarily targeted transfers to other public sector entities, social benefits, and subsidies. In the same year, the IMF estimated the debt-to-GDP ratio at 61.3%. Following the substantial fiscal surplus recorded in 2023, the government is anticipated to revert to deficits, despite the continued high levels of SACU transfers. This situation poses a risk to macroeconomic stability. Headline inflation dipped from 9.8% peak to 7.2% by December 2023, driven by lower fuel and food costs, but new pressures arise. Expected to ease to 5.0% with decreasing energy and food prices, but staying relatively elevated due to rand depreciation (data World Bank). Fiscal policy flaws and management inefficiencies impede public spending. Dominance of the public sector stifles private sector engagement, curbing investment and new ventures. Entrepreneurs face credit access hurdles, while regulatory gaps raise costs and uncertainty, hindering competition and investment, including foreign direct investment. Significant infrastructure gaps, particularly in technology, discourage private investment and hamper global value chain integration.

Poverty and strong inequalities plague Lesotho’s social environment: in 2022, over one-third of the population was estimated to live on less than USD 2.15 per day (2017 PPP), and the Kingdom ranks among the top quintile of countries with the most unequal income distribution. According to the World Bank, the unemployment rate stood at 16.3% in 2023 (from 16.7% one year earlier). The GDP per capita (PPP) was estimated at only USD 2,646 in 2022.

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: May 2024