Lesotho Economic Outlook

Lesotho recorded modest growth in 2011 in spite of severe flooding at the beginning of the year. Over the medium term economic growth will remain moderate.
Private sector participation continues to be impeded by structural constraints while showing a very high potential for creating employment and alleviating poverty.
Youth unemployment is a critical development challenge.

The impact of heavy flooding during early 2011 slowed the pace of the country’s economic growth. Growth is projected to recover in 2012 and 2013, aided by a better performance in the manufacturing sector and improved global demand for diamonds, notwithstanding growth of imports and the low revenue from the Southern African Customs Union (SACU). Investment in Phase II of the Lesotho Highland project and rehabilitation of infrastructure damaged by flooding will contribute to recovery in growth. Fiscal policy remains dependent on the performance of the SACU revenue which will average 27% of GDP in the medium-term, much higher than the average of 15% in 2010/11. Lesotho has adopted a strategic approach to reduce public debt to sustainable levels using accumulated reserves to service debt and to build adequate levels of international reserves. The expiry of concessions on textile exports under the World Trade Organization (WTO) in 2012 will affect the country’s exports to the United States and hence economic growth in the medium term.

Youth unemployment is a critical development challenge. According to the 2008 Labour Force Survey (LFS), among those aged 15 to 24 the rate of employment stood at 45.1%. At 52.5%, men had a comparatively higher rate than women (37.8%). The effort to ease the challenges of integrating young people into the labour market through the promotion of self-employment led to the creation of the Youth Employment Promotion Project (YEP) in 2006. The recent evaluation of the YEP by the United Nations Development Programme (UNDP) indicates satisfaction with the programme, as evidenced by thefinancial subvention.