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Select Economic and Financial Indicators2014201520162017e2018f
Real GDP (% change)3.42.52.44.64.0
GDP (USD bn)2.62.42.32.72.9
Inflation (average)4.64.36.45.35.1
Fiscal Balance (% GDP)-0.8-0.5-6.9-4.5-4.2
Broad Money (% change, end period)1.56.47.413.49.2
Population (mn)1.911.921.921.931.93
Exports (USD bn)0.91.10.91.11.3
Imports (USD bn)2.22.21.92.42.5
Current Account Balance (% GDP)-5.2-4.8-7.7-8.5-9.4
FX Reserves (USD bn, end period)1.11.10.70.91.0
Exchange Rate (average)10.8512.7814.7013.3113.16
Sources: IMF, World Bank, UN, Bloomberg, Ecobank Research

Economic Outlook

Economic Outlook

Real GDP: The economy will continue to grow modestly in the post-election era, buoyed by a growing mining sector and recent recovery in the agricultural sector following a prolonged period of drought. Economic activity in the textiles industry will also lend some support to growth, thanks to ongoing implementation of SADC recommendations to stabilise the political climate, a prerequisite to sustaining the country’s preferential access to the US under the US initiative, African Growth Opportunity Act (AGOA) 2000, extended for 10 years in September 2015; this initiative provides Lesotho with duty-free access of textiles to the US market. Increased telecommunications and financial services activity should also boost economic growth. However, economic prospects will be constrained by ongoing weak Southern African Customs Union (SACU) revenue (accounting for about 50% of Lesotho’s government revenue and 30% of GDP), especially given weak growth in South Africa (albeit recovering). This will continue to undermine Lesotho’s budgetary operations and hence the public works programme. Other negative risk factors such as the recent drought alongside widespread unemployment and high levels of poverty and HIV/AIDS prevalence will also remain obstacles to Lesotho’s economic development.

Inflation is expected to slow on the back of moderating food prices and subdued domestic demand. Inflation will be anchored as much by fiscal policy as by the loti’s peg to the South African rand. Preservation of this currency peg is crucial for Lesotho to maintain an adequate stock of international reserves.

Fiscal balance: The fiscal position is expected to improve as the government reins in spending in light of falling SACU revenue. In addition, tax revenue from fixed investment will continue to benefit from financial sector reforms which have eased access to credit and government capital investment. However, the country will continue to record structural deficits given high government spending (around 60% of GDP, a large portion of which is allocated to the wage bill), and agriculture-related outlays to mitigate the impact of recurrent drought. FDI prospects will also remain weak given tepid growth in Lesotho’s main source of FDI, South Africa.

Current account: Strengthening global demand will help to boost prospect for Lesotho’s mining sector, specifically the diamond-mining sector; the textiles sector will also benefit from improving global demand (assuming continued broad political stability, which is essential to risk losing the country’s access to the US under AGOA). Recent announcement by US President Donald Trump that the US will pull out of the Trans-Pacific Partnership Agreement should also bode well for Lesotho: this will prevent Lesotho’s market share in especially textiles and apparel from being eroded by competitors such as Vietnam. However, given high government spending and the country’ high import dependency, alongside rising oil import costs, the import bill will continue to rise faster than exports, affecting the trade balance. However, the currency’s peg to the ZAR, which is likely to make some gains in 2018) will help to limit the impact.

Risks

While Lesotho’s medium-term economic outlook seems fairly favourable, a persistent current account deficit and lack of access to international financial markets remain key constraints. Exposure to a downturn in South Africa, given labour, trade and other links is another potential concern. High unemployment adds risk to Lesotho’s economic growth prospects. In addition, agricultural production faces ongoing challenges from adverse weather conditions and disease, and given the significant proportion of the country reliant directly or indirectly on farming, a prolonged drought could suppress economic development significantly.

FX, FI and Commodity Information

FX, FI and Commodity Information

Exchange rate structure

RegimeFixed
TargetLSL1 to ZAR1
Type of interventionVia Central Bank
Convertible currency?Yes
Market participantsn/a
Source: Bloomberg, IMF, and Ecobank Research

FX

FX ProductsSpotForwardsNon-deliverable ForwardsOptionsSwaps
On offerYesNoNoNoNo
Daily trading volume (USD mn)n/an/a
Average trade size (USD mn)n/a
Average spreadn/a
Trading hoursLimited
Settlement cycleT+2
FX Market StructureThe LSL is guaranteed by a pegged exchange rate with the ZAR. The stability of the peg is ensured by an adequate level of net international reserves held by CBL.
Non-resident FX RegulationsSpotForwardsNon-deliverable ForwardsOptionsSwaps
Trade and FDI flowNon-residents of CMA zone require central bank approval for capital flowsn/a
Financial flow
Resident FX RegulationsSpotForwardsNon-deliverable ForwardsOptionsSwaps
Trade and FDI flowNo restrictionsn/a
Financial flow
Source: Bloomberg, IMF, and Ecobank Research

FI

Primary MarketTreasury billsTreasury notesTreasury bondsCentral Bank billsOMOs
IssuerGovernmentn/aGovernmentn/a
End useGovernment financingGovernment financing
Maturity structure91- to 364-days7- to 10-yrs
CouponZeroFixed
Coupon paymentsn/aSemi-annual
Secondary Market
Daily trading volumeLimited tradingn/a
Average trade sizeLimited trading
Settlement cycleT+2
Nedbank contact details for Lesotho
Nedbank Lesotho Limited, 115-117 Griffith Hill, Kingsway Street, Maseru 100
PO Box 1001
Tel: +266 2228 2100 / Fax: +266 2231 0025
Source: Bloomberg, IMF, and Ecobank Research

FI primary market information

FI primary market information

Lesotho Debt2014201520162017e2018f
Government debt (% GDP)42.149.747.846.345.5
Sub-Sahara average44.552.656.155.655.8
External debt (official creditors, % GDP)35.338.041.134.933.8
Sub-Sahara average25.530.231.932.933.2
External public debt stock (USD bn)0.90.90.90.91.0
Share of total sub-Sahara debt (%)0.40.30.30.30.3
Source: IMF and World Bank

Commodity and trade information

Commodity and trade information

Hydrocarbon & mineral production

Lesotho is a minor diamond producer, with output focused on low-volume, high-quality diamonds. The country produced an estimated 342,000 carats of diamonds in 2016, but output could rise in the coming years following the start of production at the Liqhobong mine in 2017. The country’s known reserves of coal, base metals and uranium have yet to be commercially developed.

Lesotho has no known oil and gas reserves and must import all its refined products. Lesotho consumes an estimated 200,000 tonnes of refined product annually, all of which are imported from South Africa.

Soft commodity production

Given the country’s tiny size and mountainous geography, Lesotho lacks a robust agricultural sector, which is mostly subsistence farming. Output of staple foods is small, led by potatoes (122,000 tonnes in 2016), vegetables (32,000 tonnes) and maize (25,000 tonnes). As a result, the country relies on food imports from South Africa to meet its domestic food requirement.

Trade flows

Imports

Lesotho’s imports totalled US$1.5bn in 2017. As the country has no refining capacity, Lesotho is entirely reliant on imports of petroleum products, worth US$152mn in 2017, all of which come from South Africa. Lesotho is also dependent on imports of capital goods, importing US$233mn worth of machinery, vehicles & electronics in 2017, reflecting the lack of high-end manufacturing. The country’s textiles and garment sector is well developed, requiring substantial imports of fabric (US$141mn in 2017) and cotton (US$47mn). Lesotho also imports significant volumes of iron & steel (worth US$185mn) and plastics (US$30mn) for its construction sector. The country is also dependent on food imports, including cereals & flour (worth US$74mn), meat & fish (US$66mn) and dairy products (US$24mn).

Exports

Lesotho’s exports totalled US$1bn in 2017. The country is Sub-Saharan Africa’s largest exporter of textiles and footwear to the USA under the AGOA initiative, with textiles and footwear exports together worth US$453mn in 2017. Diamonds were the other significant export worth US$376mn, all of which went to Belgium, Botswana (for polishing & re-export) and South Africa. Lesotho also exports small volumes of electronics (US$59mn in 2017), wool (US$57mn) and cotton (US$16mn).

  • Flag
  • Population
    1.93 M
  • Area
    30,355 sq km
  • Capital
    Maseru
  • Largest city
    Maseru
  • Official language
    Sesotho and English
  • Major languages
    Sesotho, English, Zulu and Xhosa
  • Currency
    Lesotho loti

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