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, Adeleke Salami

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  • The economy registered growth of 4.3% in 2014 and average growth of 4.9% is expected in the two following years.
  • The economy remains highly open and undiversified in both products and markets making it more susceptible to external shocks.
  • With higher rates of poverty, unemployment and inequality in rural relative to urban areas, spatial inclusion for the rural areas remains a critical challenge which requires urgent attention.

Lesotho’s economy is projected to attain modest growth averaging 4.9% over the medium term (2015-16), in spite of the constraining factors related to subdued growth in mining and quarrying and the effects of delayed renewal of the United States’ African Growth and Opportunity Act (AGOA) which expires in 2015, on the manufacturing of textiles and clothing. The temporary halt in production activities of the Mothae and Liqhobong diamond mining companies will continue to impede the mining sector. Nonetheless, in spite of these constraints and the unstable political and security situation which dominated the second half of 2014, the economy remained resilient in 2014. Growth was estimated at 4.3% supported by recovery in diamond production, modest performance in particular crops in the agricultural sector, electricity and water, wholesale trade, real estate and building, transport and communications, and financial intermediation.

The economy continues to face numerous challenges. These include a lower degree of diversification, low domestic savings leading to over-dependence on foreign capital inflows, high unemployment, widening inequality and poverty, as well as spatial exclusion. Added to this is the burden of HIV/AIDS, particularly on the young generation. Together with high inequality (Gini Index of 0.52) these have implications on social spending to protect the vulnerable population. An accommodative fiscal policy was pursued in 2014 supported by improved Southern African Customs Union (SACU) receipts which boosted the gross reserve in months of import cover. The high level of gross international reserves ensured the sustainability of the peg of the loti against the rand, and enabled some level of liquidity. The slow implementation of the foreign financed capital expenditure component in the budget remains an area where improvements are urgently needed. Low absorption of capital funds poses a risk to projected growth.

Slow implementation of Southern African Development Community (SADC) protocols on free movement of goods, services, labour and capital is a cause for concern. Promoting free movements is critical for regional economic integration as well as for spatial inclusion of Lesotho in regional growth. Poverty in Lesotho has a strong spatial dimension, as the rural areas are home to the majority of the poor and this divide is translated into various poverty indicators such as the national poverty, extreme poverty and dollar/day poverty rates. Income distribution in Lesotho remains skewed towards the urban areas, which calls for urgent policies to redress this. Another area of spatial tension is unemployment and inequality. About 75.7% of the unemployed live in rural areas. Unemployment is also high among the youth. The majority of rural workers are employed in private household activities, largely agriculture while in urban areas, manufacturing and services sectors tend to be the main employers. Decline in agriculture over time and concentration of key activities in urban areas have encouraged rural to urban
migration with the attendant negative socio-economic effects.

Table 1: Macroeconomic indicators

 20132014(e)2015(p)2016(p)
Real GDP growth5.74.34.75.1
Real GDP per capita growth4.63.23.74.1
CPI inflation5.36.665.5
Budget balance % GDP4.812.31.5
Current account balance % GDP-7.9-3.4-2.1-5.1

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

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