Lesotho is a small, mountainous, and landlocked country, surrounded by its much larger neighbor, South Africa. It has a population of about 2.2 million, and nominal gross domestic product (GDP) per capita of $1,091 in 2021.
The World Bank classifies Lesotho as a lower-middle-income country. It is mostly highlands, with its lowest point being 1,400 meters above sea level. Previously a British protectorate, the nation gained its independence on October 4, 1966. Lesotho is a constitutional monarchy and is ruled by a king who is Head of State, and a Prime Minister as Head of Government. Lesotho is governed by a 33-member Senate and a 120-member National Assembly. The country will hold national elections at the beginning of October 2022.
In recent years, Lesotho’s economic performance has remained weak, exacerbated by the COVID-19 pandemic. Moreover, sustained political instability has also contributed to weak economic performance. Real GDP contracted by an average 0.7%annually between 2017 and 2019 before it declined by 8.4% in 2020.
The downturn continued until the third quarter of 2021, after which some recovery was observed in sectors including construction, mining, manufacturing, business services, and public administration which recorded double-digit quarterly growth rates. It is estimated that the economy rebounded by 1.3% in 2021.
Economic activity is expected to pick up in 2022 underpinned by the construction sector. GDP is expected to expand by 2.6% in 2022 and then slowdown to 2.3% in 2023, before accelerating to 2.9% in 2024 as activity within the Lesotho Highlands Water Project Phase-II (LHWP-II) reaches its peak.
The agriculture and the services sector are also expected to drive growth. The services sector is expected to benefit from the positive spillovers from 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 as the COVID-19 induced supply bottlenecks ease. The agricultural sector is expected to continue positive growth on account of envisaged good harvests for crops due to government subsidies (e.g. seeds and fertilizers), coupled with good seasonal rainfall.
A boost is also expected to emanate from strong growth in the mining industry due to 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 2021, poverty levels are estimated to have remained at 36% in 2021 (based on $2.15/person/day, 2017 PPP terms). Other factors – such as rising food prices and slow labor market recovery from COVID-19-related lockdown measures – have limited poverty reduction.
Recurring climatic hazards, which adversely affect performance of the agricultural sector, exacerbate the challenge and increase levels of food insecurity particularly among the rural population. The poverty rate is expected to improve at a slow pace as increases in food and energy prices as well as a fragile economic environment constrain budgets and livelihoods of lower income households. The $2.15/person/day (in 2017 PPP terms) poverty rate is projected to improve slightly to 35.2% in 2022 and reach 34.1% by 2024.
Development Challenges and Risks
Lesotho remains vulnerable to both existing and new infectious diseases including the COVID–19 pandemic. Lesotho launched a timely national response since the first cases of COVID-19 in May 2020. Since August 2022 the Government of Lesotho has lifted all COVID-19 restrictions. As of September 2022, it is estimated that about 45.2% of the population has been vaccinated with 61.7% of those above the age of 18 years are vaccinated as well as 33.3% of the population between the ages of 12 -17 years. During the same period, there have been 903,911 confirmed cases and 697 deaths.
The COVID-19 pandemic has setback human capital development. Although the human capital index increased from 0.34 in 2010 to 0.40 in 2020, the level is below the average of lower middle-income countries and the situation seems to have been exacerbated by the pandemic. In addition to the immediate impact of income losses, disruptions in essential health and education services are likely to reverse progress made in human capital development and poverty alleviation thus far.
The COVID-19 pandemic has exacerbated weak macroeconomic performance and budgetary constraints, leading to limited fiscal capacity to respond to shocks. The geographical proximity, porous borders, and close economic ties with South Africa place Lesotho at a particular risk of continued importation of coronavirus infections and subsequent community transmissions. Exports have declined in light of the economic contractions in many countries and remittances, on which Basotho households rely on, have dropped significantly.
High HIV/AIDS prevalence and tuberculosis (TB) remain Lesotho’s greatest health challenges. The HIV 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 to the fiscal burden, high HIV/AIDS and TB rates continue to contribute to persistently high inequality and poverty.
Last Updated: Oct 06, 2022