Lesotho Faces Fiscal Instability Amidst Slowing Growth and Rife Unemployment

Strategic Insights -

Economic growth in Lesotho has been slowing, and the country is struggling to address its high public wage bill, which the International Monetary Fund (IMF) has identified as a major challenge for the country's fiscal stability. According to the IMF, Lesotho's wage bill is the highest among member states of the Southern African Customs Union (SACU) and triple the sub-Saharan African average. The IMF has issued a stern warning, urging the government to reduce its public wage bill and adopt structural reforms to foster sustainable growth.

Key Takeaways:

  • Lesotho's wage bill, measured as a share of GDP, is the highest among SACU members and triple the sub-Saharan African average.
  • The government's decision to impose a moratorium on public sector hiring has helped moderate spending, but more needs to be done to achieve a balanced and efficient public sector.
  • The IMF recommends continued restraint on hiring, streamlining of the establishment list, and regular reviews of the compensation system.
  • Lesotho is grappling with a cocktail of economic challenges, including staggering unemployment, widespread poverty, and sluggish private sector development.
  • Prime Minister Sam Matekane declared youth unemployment a state of emergency, underscoring the gravity of the crisis.
  • The government has committed to removing barriers to youth entrepreneurship, including free registration for SMEs, free access to tender documents, and reservation of 40 percent of government procurement for youth-led initiatives.
  • The IMF warns that unless Lesotho transforms its fiscal surpluses into high-quality, productive growth, the country risks squandering its limited resources.
  • External shocks, including shifting US tariffs and aid, are projected to slash growth from 2.6 percent in FY2024/25 to just 1.4 percent in FY2025/26.
  • Lesotho's government-led growth model has struggled to deliver on the authorities' growth and development goals.

Statistics:

  • Lesotho's wage bill is 10.2% of GDP (SACU average: 3.3%, sub-Saharan African average: 3.6%)
  • Fiscal surplus: 9.0% of GDP in FY2024/25
  • Growth forecast: 1.4% in FY2025/26 (down from 2.6% in FY2024/25)
  • Debt-to-GDP ratio: 56.6% in FY2024/25 (down from 61.5% in FY2023/24)
  • Public sector hiring moratorium: implemented for one year

Sources:

  • IMF Staff Concluding Statement (no specific date or publication date mentioned)
  • Lesotho's Prime Minister Sam Matekane's speech at the National Youth Dialogue (no specific date mentioned)
  • International Monetary Fund (IMF) (no specific date or publication date mentioned)
  • Southern African Customs Union (SACU) (no specific date or publication date mentioned)