Overview

Background

Lesotho, a small completely surrounded by the Republic of South Africa, it has a population of about two million. At 30,000 sq, km, Lesotho’s highlands constitute two-thirds of territory; less than 10% of which is suitable for cultivation.

Lesotho became independent in 1966. As a constitutional monarchy, Lesotho ruled by a king and governed by a 33-member Senate and a 120-member National Assembly. In mid-2015, the coalition government faced its greatest political challenge since its formation in June 2012, as disagreements among key coalition partners led the suspension of parliament by the Prime Minister, raising concerns about the ability of government to manage the legislative agenda to support its economic programs. The Southern African Development Community led peace mediation efforts, which resulted in general elections in February 2015 and brought in a seven-party coalition government, which controls 65 of 120 parliamentary seats.

Economic growth

Growth is expected to remain low as in 2015 with an estimated 2.7% in 2015 to 2.6% in 2016 due to weak growth prospects in South Africa, lower Southern Africa Customs Union (SACU) revenues and lower global growth prospects.

Unemployment stood at 24% in 2008 and is unlikely to have changed much, even as underemployment and low productivity employment is widespread, especially in rural areas. 2010/11 Household Budget Survey estimates show that the national poverty head count rate stood at 57.1% and the Gini Coefficient based on consumption is estimated to be at about 0.54. Poverty has decreased in urban areas, while it has increased in rural areas.

Lesotho’s is facing a tough fiscal outlook due to the decline in SACU revenues from 29.2% of gross domestic product (GDP) in 2014/15 to 16.4% of GDP in 2016/17 and is expected to remain low in the medium term. Recent depreciation of the loti have increased  the public debt to GDP ratio to 60% in 2015/16, and the projected sharp decline in SACU revenues call for a substantial and sustained fiscal adjustment to protect debt sustainability and the peg with the South African Rand.

The current account deficit of the balance of payments is projected to widen in 2016/17 with lower SACU revenues, before progressively narrowing thereafter as net exports would grow. Although fiscal consolidation can have a small negative impact on GDP in the short term it is necessary for macroeconomic stability and higher growth in the medium-to-long term.

Development Challenges

The country finds itself at a crossroads requiring new growth engines, a more streamlined role for the state, and a dynamic private sector to seize opportunities in the Southern African market. Public spending grew from 45% of GDP in FY2004-05 to about 59% in 2015/16, mostly due to the increase in the wage bill which is 22% of GDP in 2015/16, one of the highest ratios in the world. The level of public spending is unsustainable, and it can no longer be relied upon to drive growth.

The government regards HIV/AIDS as one of its most important development issues, which it is addressing the pandemic through its HIV/AIDS National Strategic Plan (NSP). Lesotho has the second highest HIV prevalence among adults in the world, at 23.4% in 2014 and is projected to remain stable for the next few years. Between 1990 and 2005, life expectancy at birth declined from almost 60 years to 47 years, and currently stands at 49 years. Between 2014-15 the number of new HIV infections were estimated at 19,000.

Development Strategy: Lesotho’s vision

The Lesotho government’s development goals are reflected in its “Vision 2020” and the National Strategic Development Plan (NSDP) approved in March 2012.

Last Updated: May 12, 2016

The World Bank Group (WBG) has recently completed the Systemic Country Diagnostic (SCD) to underpin the new Country Partnership Framework (CPF) scheduled for delivery in FY2017.

World Bank Group Portfolio

The pace of implementation of the program has improved and major portfolio issues have been resolved over the last fiscal year.  The current portfolio consists of six Investment Lending (IL) projects with a total commitment amount of $99.04 million; of these about US$52.01 million are disbursed (52 percent disbursement rate). As of 14th March 2016 the disbursement ratio stands at 23.7%. 

The International Development Association (IDA) portfolio is supplemented by several grants. A trade facilitation grant agreement was signed with the Lesotho, which will help to stimulate trade with South Africa – Africa’s largest economy – by streamlining border procedures.

International Financing Cooperation (IFC) is acting as lead transaction advisor on four Public Private Partnership in Infrastructure (PPP) projects for Lesotho. The Multilateral Investment Guarantee Agency (MIGA) is not active in Lesotho.

Last Updated: May 12, 2016

Private Sector Development

The second phase of the Lesotho Private Sector Competitiveness and Economic Diversification Project was approved by the World Bank (WB) on October 31, 2013, and aims to    contribute to the development of non-textile sectors to  increase private investment, firm growth and job creation.

Education

For the past four years, the World Bank Group (WBG) has been working closely with the Global Partnership on Education (GPE), Irish Aid, and the local donor group to improve in-country donor harmonization. As part of this harmonization effort, the Education Sector Strategic Plan 2005-2015 was updated in 2009 and Lesotho, benefited from a (the third) GPE Fund grant, with the WBG as supervising entity for the grant implementation. This project closed in April 2015 having reached a moderately satisfactory rating.  

The project development objective of the new project is to improve basic education service delivery and student retention in targeted schools.

Water Sector

Water is one of Lesotho’s most important renewable assets and central to the country’s long-term growth prospects. The sector contributes roughly eight% to the overall gross domestic product (GDP), a large portion of which is derived from revenues associated with the Lesotho Highlands Waters Project (LHWP).

The Metolong Dam Water Supply Program was officially inaugurated on November 20, 2015 by His Majesty the King. The assisted operations are in place and water is being delivered to Maseru and surrounding towns.

Transport Sector

Lesotho’s past transport infrastructure development program largely concentrated its activities in the Lowlands strip that borders the Republic of South Africa, leading to a neglect of the basic access needs of populations that reside in the Mountains and other remote regions.

The Government of Lesotho and the WBG are in advance stages in preparing for the proposed Transport Infrastructure and Connectivity Project.

Health Sector

The HIV and AIDS Technical Assistance Project ($5 million) is recognized as an important contribution to the national AIDS response. The project’s objective is to build capacity of government’s agencies and civil society organizations at both national and local levels to address the identified key gaps in implementing the National HIV and AIDS Strategic Plan in an effort to contain and reverse the epidemic.

The Maternal Newborn Health (MNH) Performance Based Financing (PBF)

The Board of the WBG approved a $16 million Maternal Newborn Health (MNH) Performance-based Financing (PBF) Project in April 2013. The project’s goal is to improve the utilization and quality of maternal and newborn health services in selected districts in Lesotho. The PBF pilot program is showing implementation progress at the health center level, with good progress noted for indicators including institutional deliveries, four ANC visits, post-natal care and immunization, fully-trained staff and ongoing training for health workers.    The Ministry of Health and the WBG have agreed on key steps for the project restructuring.

Agriculture

The Smallholder Agriculture Development Project (SADP) is funded jointly by the WBG and the International Fund for Agricultural Development (IFAD) with total investment of about $25 million. The objective of the SADP is to increase, over a six-year period, marketed output among project beneficiaries in Lesotho’s smallholder agriculture sector. The two main project outcomes are an increase in agricultural market opportunities in the project area, and productivity and output of smallholder farming activities in the project area increased. The project operates in four of Lesotho’s 10 districts; Botha-Bothe, Leribe, Berea, and Mafeteng.

Public Financial Management (PFM) Reform

The government and development partners have committed to move to a new phase of PFM reforms founded on greater implementation of the new rules and regulations, tighter internal controls and greater attention to the benefits of PFM reforms for Ministries, Departments, Agencies (MDAs) and sectors.

The WBG has signed a Project Financing Agreement with the Government of Lesotho on 24 February 2014. The project became effective on 25 July 2014.

This operation will support the government with the implementation of key result (b) of component five above of its PFMRAP. Essentially this will entail stabilization and improving the effectiveness of the IFMIS platform.

Last Updated: May 12, 2016

Fifteen development partner agencies are active in Lesotho. Donor coordination, alignment and harmonization have improved since the formation of Development Partners Consultative Forum in 2005, which is co-chaired jointly by the United Nations Development Program (UNDP) and US Embassy until 2015. Effective 2015 the DPCF is coordinated by Ministry of Development Planning. All development partners are members of the Development Partners Consultative Forum (DPCF), which includes the World Bank Group.

Last Updated: May 12, 2016


LENDING

Lesotho: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments