## Kingdom of Lesotho: Selected Issues

_IMF Staff Country Reports, March 5, 2018_

## Source details

**Canonical URL:** [Kingdom of Lesotho: Selected Issues](https://www.imf.org/en/publications/cr/issues/2018/03/05/kingdom-of-lesotho-selected-issues-45675)

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## Bibliographic details
- Published: March 5, 2018
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781484344941.002

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### Overview
- Provides further background on the macrofinancial sector analysis that informed Lesotho’s 2017 Article IV consultation.
- Focuses on potential consequences for the financial system of a severe Southern African Customs Union (SACU) revenue shock.
- Emphasizes interaction of fiscal position, balance of payments, and financial sector vulnerabilities.

### Financial system characteristics
- Financial sector described as small, concentrated, and lacking financial inclusion.
- Mobile banking services and financial cooperatives offer some encouraging potential.
- Financial shallowness and lack of inclusion may be a defining feature of the formal banking system, raising questions about trade-offs between inclusiveness and financial stability.

### Key vulnerabilities and transmission channels
- Most important vulnerabilities: exposure to developments in South Africa and dependence on SACU revenues.
- Shocks to SACU revenues can become a source of systemic risk by:
  - Affecting the fiscal position.
  - Affecting the balance of payments.
- The financial system will be affected by both channels, with substantial implications if the shock is permanent.

### Scenarios analyzed
- Decline in reserves that may threaten the sustainability of the hard currency peg with the South African rand.
- Impact of a forced fiscal consolidation on:
  - Household income.
  - Quality of credit to households, affecting both bank and nonbank lenders.

### Policy implications and considerations
- Need to assess stability of the hard currency peg under reserve pressure from SACU revenue shocks.
- Consider trade-offs between expanding financial inclusion and maintaining financial stability given financial system shallowness.
- Monitor household credit quality and nonbank lenders' exposures in the event of fiscal consolidation.

### Publication and metadata
- Pages: 13
- Volume: 2018
- DOI: https://doi.org/10.5089/9781484344941.002
- Issue: 059
- Series: Country Report No. 2018/059
- Stock No: 1LSOEA2018002
- ISBN: 9781484344941
- ISSN: 1934-7685

### Subject and keywords
- Subject: Bank credit, Banking, Commercial banks, Credit, Financial inclusion, Financial institutions, Financial markets, Loans, Mobile banking, Money, Technology
- Keywords: Africa, bank, bank NFA coverage, CBL stress testing, Commercial banks, coverage ratio, CR, Credit, Financial inclusion, ISCR, Lesotho, loan, Loans, Mobile banking, NFA holding, portfolio choice, Southern Africa

*International Monetary Fund. "Kingdom of Lesotho: Selected Issues", IMF Staff Country Reports 2018, 059 (2018).*

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_Source: https://www.imf.org/en/publications/cr/issues/2018/03/05/kingdom-of-lesotho-selected-issues-45675_