Lesotho Economic Update

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - Lesotho has a unique opportunity to build a new foundation for robust and inclusive growth following a decade of low and unsustainable growth [2][3] - The report emphasizes the critical role of fiscal policy in mitigating macroeconomic volatility and fostering sustainable and inclusive growth [22] - Effective prioritization of policies and investments, sound public financial management, and restoration of fiscal buffers are essential for seizing growth opportunities [21][32] Summary by Sections Part 1: The State of the Economy - Lesotho's economy has experienced a modest recovery, with GDP growth rebounding to an estimated 2.3 percent in 2024 after a contraction of 8.2 percent in 2020 [24][29] - High SACU revenues and renegotiated water royalties have led to fiscal surpluses of 7.1 percent of GDP in FY23/24 and 8.8 percent in FY24/25 [28][86] - The unemployment rate is persistently high at an estimated 16 percent, with significant underemployment in the informal sector [26][62] - Inflation has declined from 6.4 percent in 2023 to 6.1 percent in 2024, creating space for more accommodative monetary policy [25][74] Part 2: Special Focus on Fiscal Policy - The report identifies three reform areas to transform fiscal policy into an engine of inclusive growth: adopting fiscal rules, improving the allocation of spending, and enhancing the efficiency of public spending [40][41] - Implementing fiscal rules and establishing a stabilization fund could help mitigate macroeconomic instability and strengthen the government's long-term fiscal position [41] - The allocation of the education budget should focus on expanding access to quality early childhood care and development, particularly in rural areas [39][42]