## Policy Coordination in Lesotho: Kingdom of Lesotho

_Selected Issues Papers, December 6, 2022_

## Source details

**Canonical URL:** [Policy Coordination in Lesotho: Kingdom of Lesotho](https://www.imf.org/en/publications/selected-issues-papers/issues/2022/12/07/policy-coordination-in-lesotho-kingdom-of-lesotho-526727)

## Other formats

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## Bibliographic details
- Authors: Yibin Mu
- Published: December 6, 2022
- Series: Selected Issues Papers
- DOI: https://doi.org/10.5089/9798400226601.018

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### Overview
- In Lesotho, high capital mobility and leakages abroad create an intertwined relationship between fiscal, monetary, and exchange rate policy, so that public spending and reserves are strongly linked.
- The paper:
  - Offers an overview of the economic institutions and arrangements in Lesotho.
  - Discusses a short primer on macroeconomic policies under a fixed exchange rate.
  - Stresses a vital role for macro policy coordination in Lesotho.
  - Proposes a macro policy framework.
- The analysis, while developed in the context of Lesotho, is presented as applicable to small open economies under the fixed exchange rate arrangement.

### Key findings and analysis
- Fiscal, monetary, and exchange rate policies are tightly connected in Lesotho due to:
  - High capital mobility.
  - Leakages of funds abroad.
- Public spending and international reserves are strongly linked, implying that fiscal choices have direct implications for reserve dynamics under the fixed exchange rate.
- Macro policy coordination is characterized as vital for ensuring stability under the fixed exchange rate arrangement.

### Proposed macro policy framework (summary)
- The paper proposes a macro policy framework designed for Lesotho’s context of:
  - Fixed exchange rate arrangements.
  - High capital mobility and external leakages.
- Emphasis is placed on coordination across:
  - Fiscal policy.
  - Monetary policy.
  - Exchange rate policy.
- The framework is positioned as relevant for other small open economies operating under fixed exchange rate arrangements.

### Institutional context and scope
- Provides an overview of Lesotho’s economic institutions and arrangements relevant to macro policy and coordination.
- Includes a short primer on macroeconomic policies applicable under a fixed exchange rate.

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_Source: https://www.imf.org/en/publications/selected-issues-papers/issues/2022/12/07/policy-coordination-in-lesotho-kingdom-of-lesotho-526727_