Authors

Overview

Recent Developments & Prospects

Macroeconomic Policy

Fiscal Policy

Monetary Policy

Economic Cooperation, Regional Integration & Trade

Debt Policy

Economic & Political Governance

Private Sector

Financial Sector

Public Sector Management, Institutions & Reform

Natural Resource Management & Environment

Political Context

Social Context & Human Development

Building Human Resources

Poverty Reduction, Social Protection & Labour

Gender Equality

Thematic analysis: Structural transformation and natural resources

Authors: Edirisa Nseera, Alka Bhatia

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  • Lesotho's economy grew by 3.4% in 2013 and should average 4.4% in the next two years.
  • With a 57% poverty level and a 25% unemployment rate, policies need to make growth more inclusive.
  • Textiles and livestock are key value chains with considerable growth potential.

The outlook for Lesotho in 2014 and 2015 remains moderately positive with average growth of 4.4% expected, though there are risks over global demand for diamonds and the renewal of the United States' African Growth and Opportunity Act which runs out in 2015. The economy is estimated to have grown by 3.4% in 2013, well below the strong 6.5% recorded in 2012. Lesotho suffered from economic uncertainty in Europe which constrained production activity in the mining sector. Growth was supported by booming construction activities, a strong recovery by textile and clothing, transport and communications, and financial intermediation.

Growth so far has not been inclusive enough and there is widespread unemployment, inequality and poverty, particularly in rural areas. The proportion of households living below the poverty line has increased from 56.6% in 2003 to 57.1% in 2013. The Gini inequality index coefficient remains high at 0.51. HIV/AIDS continues to have a serious impact on the young. These factors mean increasing numbers in need of social protection.

The fiscal policy stance in 2013 remained tight because of the need to curb high spending. However, the fiscal consolidation, in the absence of strong private sector support, is likely to compromise the country's growth. Coupled with this is the government's weak capacity to implement a sound capital programme aligned to its development objectives. The government needs to undertake deep reforms to improve capacity, accountability and efficiency.

Clothing, textiles and livestock are the most important value chains with considerable potential to contribute to economic growth and poverty reduction. The livestock sub-sector can develop important value chains mainly focusing on wool and mohair by exploiting trade connections with South Africa.

Table 1: Macroeconomic indicators

 20122013(e)2014(p)2015(p)
Real GDP growth6.53.44.54.3
Real GDP per capita growth5.42.33.43.2
CPI inflation6.154.94.5
Budget balance % GDP-5.71.5-8-7.6
Current account balance % GDP-9.4-4.4-3.7-6.3

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors’ calculations.

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