- Capital: Maseru
- Region: Southern Africa
- Official languages: Siswati and English
- Independence Day: October 04, 1966
- Area: 30,355 sq km
- Population (2018): 1.1 million
- REC membership: SACU, SADC
- WTO membership: January 1, 1995
- GDP (2018): US$ 4.711 billion
- GNI per capita (2018): US$ 3 930
- Currency: Loti
Lesotho’s economy grew at an estimated 2.6% in 2019, up from 1.2% in 2018 owing to strong mining performance and a textiles recovery in an improved global economy. Growth is projected at 1.8% for 2020 and 1.7% for 2021. Services predominated in GDP (60.1%), followed by industry (34.6%), and agriculture (5.3%). Yet 80% of the population depends on subsistence farming, so productivity is low. Lesotho imports about 80% of its goods from South Africa, and since inflation in South Africa is low and within the target range of 3%-6%, any currency depreciation is minimal.
Lesotho’s inflation, estimated at 5.6% for 2019, is projected at 5.3% for 2020 and 5.4% for 2021. The fiscal deficit worsened from 3.4% in 2017 to 5.1% in 2018, reflecting a sharp decline in Southern African Customs Union (SACU) receipts, which are below their historical average of 30% of GDP. But the deficit improved to an estimated 4% in 2019 and is projected to be 3.9% in 2020 and 3.6% in 2021. The deficit will be financed by a drawdown of central bank deposits, which might have implications for the currency peg to the South African rand.
The risk of external debt distress was revised from low in 2017 to moderate in 2018, but at 34% of GDP in 2018 and an estimated 37% in 2019 the debt was sustainable, according to the IMF/World Bank debt sustainability analysis. The current account deficit, at 0.2% of GDP in 2018, deteriorated to an estimated 3.7% of GDP in 2019 due to increased imports. It is financed by a drawdown of foreign exchange reserves, reducing Lesotho’s ability to absorb external shocks. Low productivity in agriculture, coupled with fiscal and liquidity difficulties, continued to undermine efforts to reduce poverty (57%), unemployment (32.8%), and inequality.
With construction beginning in 2020, the Lesotho Highlands Water Project, costing $2.3 billion, will bring royalties from South Africa, improve water resources, and boost private sector growth. And Southern African Development Community efforts, combined with the national governance dialogue launched in June 2018, augur well for political stability and policy continuity. With the recent improvement in Lesotho’s business environment, the Continental Free Trade Area will provide a wider market, create new industrial jobs, and boost Lesotho’s GDP.
And the country’s picturesque landscape and snow-covered mountain slopes, ideal for skiing, will foster tourism. A possible South African economic slowdown could further reduce SACU revenues. Lesotho’s huge public wage bill of 24% of GDP and accumulation of payment arrears, currently $76.4 million, may contribute to further deterioration in fiscal space. Textiles declined from 21.7% of exports during 2003-07 to 11% in 2018, even with US African Growth and Opportunity Act trade preferences, due to competition from Asian producers. This threatens macroeconomic stability and underscores the need to invest in more efficient textile machinery.
Lesotho lacks skills and capacity, particularly in digital technology and statistics, partly due to the migration of qualified Basotho to South Africa. A 49% shortfall in reliable statistics hinders national planning and monitoring and evaluating donor-funded projects. The European Union discontinued its budget support due to budgetary opacity. Official development assistance was already at an all-time low of $147 million in 2017, down from $256 million in 2010. And the fiscal situation is likely to deteriorate further with the ongoing trade tensions between the United States and China and between the United States and the European Union.
Last updated: April 2020