## IMF Executive Board Concludes 2024 Article IV Consultation with Kingdom of Lesotho

_IMF News, September 11, 2024_

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## Bibliographic details
- Published: September 11, 2024

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### Overview
- Press Release No. 24/324; IMF Communications Department; September 11, 2024.
- The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Kingdom of Lesotho.
- Key challenge: ensure windfall revenues are saved wisely and spent strategically amid sizable development needs.

### Economic performance and inflation
- GDP growth picked up to 2.2 percent in the 12-month period ending March 2024, compared with 1.6 percent a year earlier.
- Growth drivers: accelerated construction from the Lesotho Highlands Water Project (LHWP-II).
- Persistent challenges: high unemployment, sluggish diamond and textile exports, exceptional dry season increasing food-security concerns.
- Headline (consumer) inflation:
  - Reached a peak of 8.2 percent in January 2024.
  - Was 6.5 percent in June 2024.
  - Increased from 4.5 percent in July 2023 to 6.5 percent in June 2024; rise largely due to exogenous factors expected to fade.

### Fiscal and external balances
- Fiscal outcome FY ending March 2024:
  - Sizable fiscal surplus of 6.1 percent of GDP.
  - SACU transfers were 10.4 percent of GDP higher than in FY22/23.
  - Authorities used SACU proceeds to reduce arrears and rebuild deposits at the Central Bank rather than increase the public wage bill.
- Outlook:
  - Growth projected to peak at 2.7 percent in the fiscal year ending March 2025.
  - Another year of windfall SACU transfers (6 percentage points of GDP above the 10-year average) will bolster FY24/25 fiscal and external balances.
  - SACU transfers projected to fall sharply starting in FY25/26; higher water royalties will help fill the gap.
  - Medium-term projections:
    - Fiscal balance projected at a surplus of around 1 percent of GDP.
    - Current account deficit projected at a modest 2.6 percent.

### Monetary policy and financial sector
- Central Bank policy:
  - Policy rate kept steady at 7.75 percent since May 2023 to support the Loti’s peg to the Rand.
- Financial conditions:
  - Private sector credit growth picked up to 12.5 percent in FY23/24, mainly due to construction.
  - Nonperforming loans eased to 3.8 percent of total loans as of 2023 Q4.
  - Gross international reserves (months of imports): 4.1 (2020/21); 4.3 (2021/22); 4.0 (2022/23); 5.7 (2023/24); 6.2 (2024/25).
  - Net international reserves (US$ millions): 718 (2020/21); 846 (2021/22); 671 (2022/23); 755 (2023/24); 916 (2024/25); 1,121 (2025/26); 1,258 (2026/27); 1,343 (2027/28); 1,417 (2028/29); 1,513 (2029/30).
  - Net international reserves (Percent of M1 Plus): 109 (2020/21); 127 (2021/22); 111 (2022/23); 114 (2023/24); 137 (2024/25); 163 (2025/26); 179 (2026/27); 185 (2027/28); 190 (2028/29); 197 (2029/30).

### Executive Board assessment and policy recommendations
- Directors agreed with the staff appraisal and welcomed the pickup in growth, while noting substantial challenges: high unemployment, widespread poverty, and sluggish growth.
- Noted risks: global growth shocks, extreme weather events, uncertain SACU transfers, and commodity price volatility.
- Fiscal policy recommendations:
  - Continue fiscal prudence to strengthen foreign exchange reserve coverage, safeguard the peg, and preserve medium-term debt sustainability.
  - Contain the public wage bill.
  - Increase spending efficiency.
  - Prioritize social spending on the most vulnerable.
  - Establish a well-governed savings framework anchored by a credible fiscal rule, given increased water royalties.
- Public financial management (PFM):
  - Strengthen PFM, including passage of PFM-related legislation, improved budget processes, strengthened internal controls, and enhanced financial reporting.
  - Boost public investment efficiency via a prioritized capital project pipeline with enhanced project management capacity.
- Monetary and central bank governance:
  - Monetary policy should focus on price stability and safeguarding the exchange rate peg.
  - Monitor price dynamics closely and stand ready to adjust policy if inflationary pressures reemerge.
  - Improve central bank governance and coordinate fiscal and monetary policies closely.
- Financial sector and inclusion:
  - Continue monitoring financial sector risks, including nonbank financial sector.
  - Update national financial inclusion strategy to improve financial intermediation and support private sector growth.
  - Continue strengthening legal and regulatory frameworks for financial stability and AML/CFT.
- Structural reforms:
  - Implement reforms to catalyze job-rich inclusive growth, including improving the business environment, strengthening governance, and reducing corruption risks.
  - Improve data quality and timeliness to support policymaking.

### Selected economic indicators (highlights from table)
- GDP at constant prices (including LHWP-II): -5.3 (2020/21); 1.7 (2021/22); 1.6 (2022/23); 2.2 (2023/24); 2.7 (2024/25); 2.4 (2025/26); 1.9 (2026/27); 2.1 (2027/28).
- GDP at market prices (Maloti billions): 34.2 (2020/21); 36.0 (2021/22); 38.5 (2022/23); 41.5 (2023/24); 45.2 (2024/25); 48.8 (2025/26); 52.4 (2026/27); 56.1 (2027/28); 60.0 (2028/29); 64.4 (2029/30).
- GDP at market prices (US$ billions): 2.3 (2020/21); 2.5 (2021/22); 2.8 (2022/23); 2.9 (2023/24).
- Consumer prices (average): 5.4 (2020/21); 6.5 (2021/22); 8.2 (2022/23); 6.7 (2023/24); 5.8 (2024/25); 5.6 (2025/26); 5.3 (2026/27); 5.1 (2027/28).
- Current account balance (percent of GDP): -5.7 (2020/21); -9.0 (2021/22); -13.8 (2022/23); -0.2 (2023/24); -0.7 (2024/25); -2.3 (2025/26); -2.9 (2026/27); -2.5 (2027/28).
- Public debt (Percent of GDP): 54.7 (2020/21); 58.4 (2021/22); 64.5 (2022/23); 61.5 (2023/24); 59.9 (2024/25); 59.7 (2025/26); 59.8 (2026/27); 59.5 (2027/28).
- Revenue (Percent of GDP): 54.4 (2020/21); 44.6 (2021/22); 56.5 (2022/23); 63.4 (2023/24); 61.1 (2024/25); 57.8 (2025/26); 55.6 (2026/27); 54.8 (2027/28).
- SACU transfers (Percent of GDP): 26.2 (2020/21); 16.7 (2021/22); 14.0 (2022/23); 25.6 (2023/24); 19.3 (2024/25); 18.5 (2025/26); 17.5 (2026/27).
- Overall balance (Percent of GDP): -5.4 (2020/21); -5.5 (2021/22); 6.1 (2022/23); 0.8 (2023/24); 0.5 (2024/25).

*Press Release No. 24/324, IMF Communications Department, September 11, 2024.*

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## References

- [Kingdom of Lesotho and the IMF](http://www.imf.org/external/country/LSO/index.htm)
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_Source: https://www.imf.org/en/news/articles/2024/09/10/pr-24324-lesotho-imf-executive-board-concludes-2024-article-iv-consultation_