The World Bank in Lesotho

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.

Economic growth

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

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. The next CPF for FY2023-27 is in the final stage of preparation. The CPF is aligned with the NSDP II and was formulated in close collaboration with the government and broader stakeholders. The new CPF will be finalized in the fourth quarter of FY2023.

World Bank Group Portfolio

Lesotho benefits from World Bank Group grant financing through the International Development Association (IDA). The portfolio includes 11 projects (9 national and 2 regional IDA projects), with a total commitment of $397.4 million ($341.4 million national and $56.0 million regional). Of the total national IDA, about $117.7 million is disbursed. In addition, there is one trust funded project in the education sector ($7.1 million).

IDA financed-projects include:
Lesotho COVID-19 Emergency Preparedness and Response Project, Smallholder Agriculture Development Project-II, Lesotho Education Quality for Equality Project,  AFR RI-Southern Africa Tuberculosis and Health Systems Support Project, Agriculture Productivity Program for Southern Africa Angola and Lesotho, Lowlands Water Development Project -II, the 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 recently completed the following reports:

• 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
• Lesotho Gender Landscape

Last Updated: Mar 23, 2023

Social Protection

Through the Social Assistance Project, and in partnership with UNICEF and the European Union, the government expanded its coverage of the poorest of the Child Grant Program (CGP) from 27,000 households to about 50,000 households in 2020. This project, whose aim was to strengthen the efficiency, equity, and shock responsiveness of selected social assistance programs, supported the government to scale up emergency cash transfers during the COVID-19 pandemic in 2020 and in response to the 2019 drought, to the amount of $7.4 million. In 2020, more than 40,000 households received CGP top-ups, and 10,000 new households were added to the program in response to the drought.

The project also helped the government build a targeting system based on the National Information System for Social Assistance (NISSA) in all rural community and urban councils in the country. It helped deactivate more than 12,000 names of deceased or ineligible beneficiaries from the Old Age Pension (OAP) database, and successfully merged the Post Primary Bursary Program (PPB) and the Orphans and Vulnerable Children Program into one, saving significant government resources every month.

It also supported the automation of data crossmatch between the Civil Service Pension and the OAP database to identify and remove double dippers. Through the project, the government piloted a proof-of-life process, whereby about 5,000 OAP pensioners and proxies without national identification were provided with an identification card. The project supported the creation of the Department of Social Assistance, within which all managerial positions have been filled.

Private Sector Development

Likhetlane Fruits is a 15.2-hectare fruit farm, growing apples and peaches, established with support from the Private Sector Competitiveness and Economic Diversification Project. The farm has registered as a company and has secured land rights through the acquisition of composite leases, facilitated by surveying and land titling efforts. The farm was designed to adopt and maintain GlobalG.A.P standards and certification.

The farm supports more than 24 jobs, including farm workers and managers, most of whom are women, and around 100 others who sell the fruit to local markets. Ten villagers, who contributed land for shares of the holding company, receive income, allowing them to escape poverty and repeated food shortages. Nearby villagers are now looking to add their own land.

This case illustrates the promise and the challenge of building up the horticulture industry in Lesotho. Commercial horticulture is largely a new way of business in the country which requires a mindset shift for smallholders as well as a supportive business climate and specific investments in production and skills for business owners. Coordinated efforts are needed to make this transformation and realize the tremendous opportunity for job creation and business growth in the sector.

Last Updated: Mar 23, 2023

Partners in Lesotho include members of the diplomatic corps, consular missions, and international organizations. Presently, there are five embassies/High Commissions and nine international organizations, of which seven are from the UN family and the other two are the Delegation of the European Union and the World Bank. Development Cooperation is coordinated by the Ministry of Development Planning.

Last Updated: Mar 23, 2023