Kingdom of Lesotho: 2025 Article IV Consultation-Press Release; and Staff Report

The 2025 Article IV Consultation discusses that against a backdrop of low growth and high unemployment, Lesotho’s government-led growth model has struggled to deliver on the authorities’ development goals. Now, an additional set of shocks has further clouded the outlook. Gross domestic product growth is expected to fall to 1.4 percent in FY25/26, from 2.2 percent a year earlier. Inflation has declined from a peak of 8.2 percent in early 2024 to 4.4 percent in May 2025, helped by the peg to the rand. Prudent spending in FY24/25, along with buoyant South African Customs Union (SACU) transfers and water royalties, delivered another sizable fiscal surplus. Looking forward, SACU transfers are expected to normalize, but increased water royalties from South Africa will help fill the gap and ensure continued strong revenue. The main challenge is to transform fiscal surpluses into sustainable and high-quality growth. Public funds should be saved wisely and spent strategically, with an emphasis on high-return investment projects. More effective use of public funds, alongside structural reforms, should support longer-term private sector-led growth.