Lesotho Economic Outlook

  • After four years of robust growth averaging 4.3% annually, growth dropped to an estimated 3.4% in 2015, largely due to weakness in the construction and manufacturing sectors and it is expected to remain subdued in 2016 and 2017.
  • Unemployment, poverty and inequality have remained pervasive in the face of non-inclusive growth.
  • The high rate of urbanisation has outpaced the ability of the authorities to provide necessary services, and the sustainability of living conditions for much of the urban population remains a critical challenge.

Economic growth in Lesotho slowed to an estimated rate of 3.4% in 2015, down from 3.6% in 2014. Growth is projected to remain subdued at 2.6% in 2016 and 2.9% in 2017. Growth in 2015 was significantly affected by low implementation of the public investment budget, which weighed heavily on the construction sector and other inter-related sectors highly dependent on government spending. Slow growth in manufacturing and spillovers from slower growth in South African economy were a further brake on growth.

Despite the country’s solid economic performance in recent years (2010-14), growth remained non-inclusive. Consequently, a large population is still languishing in extreme poverty. Unemployment remains high at 24%, and the country’s Gini coefficient of 0.5 means that inequality is still a problem. Based on the poverty headcount ratio at USD 1.25 a day, 56.2% of the population is still trapped in extreme poverty. Efforts to promote inclusive growth are constrained by the pressure of high HIV prevalence (22.9% of the total population) and the volatility of receipts from the Southern African Customs Union (SACU), which finance 50% of the budget.

A massive influx of the population from rural to urban centres has led to rapid urbanisation. This has been triggered by a multitude of factors, the most important being climate change, which has led to low agricultural productivity, and spatial differences in the provision of services and the location of opportunities, often in favour of urban areas. With urban dwellers estimated at 22.8% of the overall population and the urban population growing at a rate of 37% every ten years, sustainability remains a critical challenge. The urban population has outpaced the ability of the authorities to provide commensurate social services. This in turn has often resulted in other challenges, such as poor waste disposal, pollution of water bodies, poor housing and inadequate social and economic infrastructure. For urbanisation to remain sustainable, innovative policies are required, along with commitment towards their effective implementation. The government plans to link urban growth poles to the rural economy, and its commitment to implement climate change adaptation initiatives are highly commendable.