The World Bank in Lesotho

Lesotho is a small, mountainous, landlocked country surrounded by its much larger neighbor, South Africa. It has a population of about two million, and a per capita gross domestic product (GDP) of $999.7 in 2022. Lesotho is classified as a lower middle-income country. It is primarily highlands, with its lowest point 1,400 meters above sea level. Previously a British protectorate, the nation gained its independence in October 1966. Lesotho is a constitutional monarchy, ruled by a King as Head of State, and governed by a 33-member Senate and a 120-member National Assembly.

The current government came into power in November 2022 and is led by the Right Honourable Prime Minister, Samuel Ntsokoane Matekane’s Revolution for Prosperity (RFP) party in coalition with the Movement for Economic Change (MEC) and Alliance for Democrats (AD) parties.

The government has extended Lesotho’s Second National Strategic Development Plan (NSPD II) 2018/19–22/23 for another five years until 2027/28. The NSPD II’s four priorities are: enhancing inclusive and sustainable economic growth and private sector-led job creation; strengthening human capital; building enabling infrastructure; and strengthening national governance and accountability systems.

Economic growth

Lesotho’s economy grew by 1.8% in 2022. The main growth drivers were construction, mining, manufacturing, business services, and public administration. Agriculture also contributed positively due to good seasonal rainfalls and input subsidies.

The inflation rate was 8.3% in 2022 compared with 6% in 2021. Inflation reached a peak at 9.8% in July 2022, and it has since receded to 4.5% in July 2023 due to moderation in the prices of fuel and food. The current account deficit widened from 1.4% of GDP in 2021 to 2.4% in 2022, primarily due to higher imports of capital goods and services associated with the ongoing construction project of the Lesotho Highlands Water Project and limited export growth.

The fiscal situation deteriorated, with an overall deficit of 7.6% of GDP in 2022 compared to 4.2% in 2021. The increase in expenditures was driven by a rise in both recurrent expenses and capital spending, while revenue declined due to lower South Africa Customs Union (SACU) receipts. The public debt stock was 59% of GDP in 2022 mainly due to the redemption of 7-year and 10-year Treasury Bonds. A majority of public debt is contracted from external sources, accounting for 72.7% of the total debt. Regarding shares to GDP, external and domestic debt stood at 44.8% and 16.9% of GDP in 2022, respectively. Lesotho’s risk of external and overall debt distress remains moderate but risks to debt sustainability have risen since the previous Debt Sustainability Analysis of 2021.

The IMF’s staff visit to Lesotho occurred in December 2022, and the Article IV consultation mission occurred in May 2023. The IMF continues to maintain close relations with the authorities through policy dialogue, technical assistance, and capacity building, including an engagement in improving governance and transparency, enhancing public financial management, improving tax policy, strengthening national account and government finance statistics, implementing risk-based supervision, and improving liquidity management of the central bank.

Unemployment remains high, estimated at 18% in 2022, coupled with high inequality and poverty. Lesotho made progress in poverty reduction in the 2000s by lowering its headcount poverty rate ($1.9/day PPP) from 61.3% in 2002 to 59.7% in 2011. Estimates for 2022 suggest that 32.4% of the population is still trapped under the $2.15 poverty line. Addressing the fiscal and external challenges remains difficult in an environment of high inequality and weak institutions.

As part of the budget bill for 2023/2024, the government outlined measures to reduce recurrent expenditures and scale up domestic revenue. However, stronger fiscal consolidation efforts would entail rationalizing the wage bill. Such consolidation, structural reforms, financial reforms, and the reconciliation of fiscal and financing data, could open the way for broader support from development partners. The support would help the government to cushion reserves (which have severely fallen with lower SACU revenue.)

Development Challenges

Lesotho’s greatest challenges include a high unemployment rate. The main factors inhibiting returns to labor and jobs in Lesotho are lack of skills, high burden of disease (especially HIV/AIDS and tuberculosis (TB)), poor investment climate, and lack of key infrastructure. The HIV prevalence rate in Lesotho is 25% in the adult population (15-49 years), the second highest globally. The incidence of TB stands at 724 cases per 100,000, according to the 2017 Global TB Report, the second highest. 

Last Updated: Sep 20, 2023

The World Bank Group (WBG) partnership with Lesotho is fully aligned with the second National Strategic Development Plan (NSDP II) 2018/19-2022/23.

The WBG prepared a Systematic County Diagnostics Update in late 2021 and finalized the Completion and Learning Review (CLR) of the 2016-2020 Country Partnership Framework (CPF).  A new Country Partnership Framework (CPF) 2024/2028 was launched in July 2023. The five-year CPF is centered around three high-level, long-term outcomes:

• increased employment in the private sector through improving the enabling environment for Micro, Small, and Medium Enterprises’ growth to crowd in private investment for enhanced job creation,
• improved human capital outcomes through the strengthening of the quality of education, health, and social protection,
• strengthened climate resilience through improving the management of natural resources and access to climate-resilient infrastructure.

World Bank Group Portfolio

Lesotho benefits from World Bank Group financing through the International Development Association (IDA). The portfolio includes 11 projects (9 national, a grant and 2 regional IDA projects), with a total commitment of $372.4 million ($316.4 million national and $56.0 million regional). Of the total, about $106.7 million is disbursed for the national IDA and $36.6 for regional as of September 2023.

IDA financed-projects include: Lesotho COVID-19 Emergency Preparedness and Response Project, Smallholder Agriculture Development Project-II,  Southern Africa Tuberculosis and Health Systems Support Project, Agriculture Productivity Program for Southern Africa, Angola and Lesotho, Lowlands Water Development Project-II, Lesotho Renewable Energy and Energy Access Project, Lesotho Nutrition and Health System Strengthening Project, Lesotho Transport Infrastructure and Connectivity Project, Pathways to Sustainable Livelihoods Project, and Lesotho Competitiveness and Financial Inclusion Project. The Trust Fund project is the Lesotho Basic Education Strengthening Project.

These investment activities are underpinned by Advisory Services and Analytics. The World Bank has completed the following reports:

• A Survey of Basotho’s Aspirations and Challenges
• Lesotho Gender Assessment
• Lesotho Social Protection Programs and Systems Review
• Lesotho Poverty Assessment – Poverty and inequality remain widespread despite decline
• Inequality in Southern Africa: An Assessment of the Southern Africa Customs Union

Last Updated: Sep 20, 2023

Education

Through the Lesotho Education Quality for Equality Project 73 classrooms were constructed with new furniture, 48 latrine blocks for boys, 24 urinals, and 120 latrine blocks for girls and 48 latrine blocks for teachers (male and female) in the 25 targeted schools in remote areas in all 10 districts were constructed. Learning has improved and pupils motivated to attend classes daily. The enrollment is anticipated to increase from fewer students per year prior to the construction to a higher number. In addition, the community builder’s skills have improved under the new community-based construction approach.

The Accelerated Teaching and Learning (ATL) and Recovery Strategy component was added to enable the project to respond to the impact of COVID-19 on learning and service delivery. It has enabled the recruitment and training of a cohort of assistant teachers on a narrowed curriculum of the ATL strategy in core subjects with the aim of providing temporary relief to overstretched teachers in efforts of catching up on lost time, while also being available to work with smaller, individualized groups of learners to help them catch up at their own pace. The component also facilitated the safe reopening of school by supporting, among other things, the provision of personal protective equipment to teachers and students. Furthermore, the funding provisioned for the development of learner workbooks and revision booklets for all grades in the country. Revised curriculum revision booklets, teacher guides, learner packs and narrowed curriculum assessment strategy booklet were developed, printed, and distributed to 590 schools.

School Improvement Planning (SIP) supported 377 primary schools. The SIP evaluation report showed that most respondents affirmatively indicated that strides were made in reduction of both learners’ and teachers’ absenteeism. The introduction of new tools that were used to record both learners and teachers’ attendance, helped the schools to monitor teachers’ presence and where gaps were seen, principals were able to see them on time and necessary measures were taken within reasonable time. Learners’ attendance was improved due to a combination of improved learning environment such as availability of desks, availability of toilets, new relevant teaching aids and introduction of recreational activities.

Agriculture

The Smallholder Agricultural Development Project II accomplished the following:

• A total of 2,830 farmers and 387 extension staff have been trained on 5 prioritized CSA initiatives (Improved crop varieties and livestock management, Protected agriculture (shade nets and Plastic tunnels) water harvesting and drip irrigation, conservation agriculture and agroforestry) across the country.
• 1,200 farmers have been trained in irrigation technologies and management.
• The project has rehabilitated irrigation schemes (namely Makoabating (Maseru), Nkhunkhu (Mohale’s Hoek) and Tsitsong (Quthing)). These schemes are also used for demonstration and trial excercises for protected agriculture versus open field farming. The first cycle of production has already been harvested.
• 2,353 farmers have been trained in agri-business, marketing skills, and group formation under horizontal alliances.
• 330 grants, including youth grants, have been awarded to smallholder farmers and agri-businesses as capital investments to increase their agricultural production and enhance commercialization.
• 104 Nutrition Clubs with 1,702 households have been selected for Nutrition Sensitive Grants and to date, 45 nutrition clubs have already received funds for procurement and construction of 3 x 9 meter shade-nets, covering 732 households in Thaba-Tseka, Leribe, Berea, Maseru, and Mafeteng.

Last Updated: Sep 20, 2023

Development Cooperation is coordinated by the Ministry of Development Planning. The Japanese Government and International Fund for Agricultural Development (IFAD) cofinance the Smallholder Agricultural Development Project. The Protection and Management of Ecosystem Services for Inclusive and Climate Resilient Future coordinates its activities with the Lesotho Development Partners’ Consultative and Coordination Forum on Environment, Resilience, and Natural Resources Management. Members of this forum include the German Federal Ministry for Economic Cooperation and Development, Catholic Relief Services, the European Union, Food and Agriculture Organization of the United Nations, German Agency for International Cooperation, IFAD, Millennium Challenge Corporation, United Nations UNDP, the World Food Program, and the World Bank.

Other partners include UNICEF, WHO, IMF, AFDB, and the European Investment Bank.

Last Updated: Sep 20, 2023