Lesotho is a small, mountainous, and 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 $1,318. Lesotho is classified as a lower-middle-income country. It is mostly 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. Lesotho held elections in June 2017 for the third time in a period of five years starting from 2012. This led to the formation of a four-party, coalition government, led by Prime Minister Thomas Thabane. In keeping with recommendations made by the Southern African Development Community (SADC), the Government of Lesotho is currently undertaking key Constitutional and Security Reforms.
Over the past four years, Lesotho’s economy has faced challenges emanating from political instability and a prolonged period of slow growth in South Africa, which has led to falling Southern Africa Customs Union (SACU) revenue and liquidity challenges. Economic growth from 2015 to 2017 averaged 1.7%.
The country finds itself at a crossroads needing new engines for growth, a more streamlined role for the state, and a dynamic private sector to help it seize opportunities in regional and global markets. Lesotho has made important progress in improving its Doing Business indicators, especially in terms of streamlining business and property registration processes that hinder the growth of local businesses as well as foreign direct investment (FDI). However, more progress is needed to improve the business environment and achieve the country’s development goals. The decline in Southern African Customs Union (SACU) revenues continues to pose a challenge to the country's fiscal outlook: SACU revenues fell from 24% of GDP in 2014/15 to an estimated 17.2% of GDP in 2017/18 and is projected to decline further to 15.8% of GDP in 2019/20.
As part of the budget bill for 2019/20, the government outlined some measures to reduce recurrent expenditures and scale up domestic revenue. However, stronger fiscal consolidation efforts would entail rationalizing the wage bill. Such consolidation, in addition to 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.)
Lesotho’s greatest health challenge remains its high HIV/AIDS prevalence and tuberculosis (TB)co-epidemic. The HIV prevalence rate in Lesotho is 25% in the adult population (15-49 years), the second-highest in the world. The incidence of TB stands at 724 cases per 100,000, according to the 2017 Global TB report, the second-highest globally. While high health costs contribute to the narrowing of the fiscal space, high HIV/AIDS and TB rates contribute to persistently high inequality and poverty.
Last Updated: Mar 25, 2019