Lesotho is a small, mountainous, and landlocked country, surrounded by its much larger neighbor, South Africa. It has a population of almost 2.3 million and nominal gross domestic product (GDP) per capita of $1,045.9 in 2022.
A lower-middle-income country, Lesotho is mostly highlands, with its lowest point 1,400 meters above sea level. Previously a British protectorate, the nation gained independence on October 4, 1966. Lesotho is a constitutional monarchy, ruled by a king as Head of State and a Prime Minister as Head of Government. A 33-member Senate and a 120-member National Assembly govern Lesotho. A new government was established in November 2022.
Lesotho has been affected by multiple shocks, which have constrained growth. Its development prospects are affected by the challenging global environment characterized by the war in Ukraine, rising global geopolitical tensions, climate change, and the abating COVID-19 pandemic. Political instability has contributed to its weak economic performance.
Nonetheless, economic activity is expected to pick up in 2023, underpinned by the construction sector, particularly Phase II of the Lesotho Highlands Water Project (LHWP-II), which includes the construction of a water transfer tunnel, the Senqu River bridge, and the Polihali dam. GDP is expected to expand by 2.6% in 2023, 3.1% in 2024, and 3.3% in 2025, as construction activity in the LHWP-II reaches its peak.
The agriculture and the services sectors are also expected to drive growth. The services sector is expected to benefit from the positive spillovers of the construction sub-sector, even though some gains are likely to be offset by elevated consumer prices. The services sector is also expected to add impetus to growth due to improved business and consumer confidence. The agricultural sector is expected to continue to register positive growth on account of good harvests envisaged for crops, due to government subsidies for inputs like seeds and fertilizers, coupled with good seasonal rainfall.
Another boost is expected to emanate from strong growth in the mining industry due to an improved market outlook for rough diamonds and the current upsurge in commodity prices. The return to full-scale production of some of the mines, under care and maintenance in 2021, is expected to improve the sector’s performance.
Given the limited recovery in 2022, poverty levels are estimated to have remained high at 34.7% in 2022 (based on $2.15/person/day, 2017 purchasing power parities [PPP] terms). Other factors, such as rising food prices, limit poverty reduction.
Despite the recent growth in the agricultural sector, food insecurity remains a challenge, particularly among the rural population. Between October 2022 and March 2023, an estimated 320,000 people (22% of the population) in rural areas will be food insecure, up from 15% between July and September 2022.
Development Challenges and Risks
Lesotho’s poverty rate fell from 56.6% in 2002 to 49.7% in 2017. When using the international poverty line of $2.15 per person per day (in 2017 PPP), a sharper decline is observed, with poverty falling from 66.3% to 32.4% over the same period. Poverty reduction gains were made largely in urban areas, while rural and mountainous regions, where 58% of the population resides, continue to be the poorest.
The skewed spatial distribution of poverty is strongly correlated with levels of human capital, economic opportunities, and access to services, as well as to risks of natural disasters. The COVID-19 pandemic, together with other recent major shocks such as price inflation and recurrent climate anomalies, have reversed the downward trend in poverty reduction, with recent projections suggesting that poverty increased to 35.8 % in 2021.
High HIV/AIDS prevalence and tuberculosis (TB) remain Lesotho’s greatest health challenges. The HIV/AIDS prevalence rate in Lesotho is 25% in the adult population (15-49 years), the second highest in the world. In 2020 the incidence of TB stood at 650 cases per 100,000. While high health costs exert more pressure on the fiscal burden, these high rates continue to contribute to persistently high inequality and poverty.
Last Updated: Mar 23, 2023