MASERU, April 7, 2025 — Lesotho can create more jobs and grow its economy by promoting private sector-led growth, encouraging investments in export industries and implementing fiscal policy reforms, according to the World Bank’s inaugural Lesotho Economic Update (LEU) released today. The report also provides an analysis of the country’s recent economic performance and prospects for the medium term.
The year 2024 has been exceptional for Lesotho, as rising transfers from the Southern Africa Customs Union (SACU) and water royalties created current account and fiscal surpluses, allowing for a renewed impetus in public investment. The second phase of the Lesotho Highlands Water Project (LHWP-II) is expected to drive a temporary surge in economic activity.
“Lesotho can leverage renewed economic activity for inclusive development, fostering job creation and better quality of life for the people. Effective management of revenues is critical for sustainable long-term growth and poverty alleviation,” says Satu Kahkonen, World Bank Division Director for Lesotho.
The Economic Update recommends saving increased SACU revenues and water royalties to rebuild fiscal buffers which can be used in downturns and strengthen foreign reserves. Authorities could establish a stabilization fund with fiscal rules to control debt accumulation and guide fiscal policy.
A comprehensive set of public sector reforms could improve the efficiency and effectiveness of public spending, making sure that public resources have a strong impact on growth and development. This can be achieved by i) channeling more resources to public investment while controlling recurrent public spending; and ii) improving public investment management and prioritization, public financial management, and public procurement which could realign public spending with the country’s development needs.
To boost growth, the LEU calls for ambitious reforms to promote private-sector-led growth and export-oriented investment for job creation. Lesotho could i) focus on cost-free business reforms and enhance its trade and investment reputation by aligning policies with regional agreements like the African Continental Free Trade Area, promoting competition and easing regulatory burdens on businesses; and ii) improving education outcomes and reduce urban-rural divides would support sustainable long-term growth.
“The inaugural Lesotho Economic Update is well aligned to our policy areas as evidenced by our 2025/2026 budget which is anchored on fiscal prudence and seeks to create opportunities for a more active role for the private sector by fostering a business environment that attracts both domestic and foreign investment. This analysis comes at a pivotal time and will contribute to us reshaping our economic agenda so that every Mosotho has an opportunity to thrive,” says Honourable Dr. Retšelisitsoe Adelaide Matlanyane, Minister of Finance and Development Planning.
The LEU aims to provide insights into economic developments and outlook to stimulate discussions on macro-economic issues facing the country. This report highlights the opportunity to transform fiscal policy and contribute to growth in Lesotho.
