Figure 1: Merchandise Trade Balance in Lesotho (2015-2018)
Source: UNCTAD 2019, UNCTADStat Database.
Total merchandise imports to Lesotho have increased to USD 2.2 billion in 2018, from an annual average of USD 2.0 billion from 2015 to 2017[1]. Exports increased to USD 1.2 billion in 2018 from an annual average of USD 918.4 million from 2015 to 2017[2]. The stronger growth in exports has slightly improved Lesotho’s persistent merchandise trade deficit to -USD 1.0 billion in 2018 from a deficit averaging -USD 1.1 billion from 2015 to 2017[3]. The increase in export earnings has not been sufficient to sustain or increase gross official reserves due to the persistent merchandise trade deficit.
Figure 2: Gross Official Reserves in Lesotho (2016/17-2022/23)
Source: IMF 2019, Lesotho 2019 Article IV Report; IMF 2018, Lesotho 2017 Article IV Report. Note: (*) Figures from 2018/19 onwards are projections from IMF, 2019.
Gross official foreign exchange reserves decreased to USD 692.0 million in 2018/19 from an annual average of USD 880.3 million from 2015/16 to 2017/18[4]. During this period, the LSL depreciated by -5.8% in 2018 to LSL 13.8 per USD (2017: 8.5%)[5]. The depreciation in currency was largely due to movements in the South African Rand, to which the LSL is pegged, given the sustained growth in Lesotho’s exports[6]. The LSL depreciated by an annual average of -10.8% in 2015 and 2016 from LSL 11.1 per USD in 2014/15 to LSL 14.1 per USD in 2016/17[7]. Gross official reserves are projected to increase to USD 705.0 million in 2019/20, which is equivalent to 3.3 months’ import cover[8]. In the forward-looking medium-term from 2020/21 to 2022/23, gross official reserves are projected to increase to an annual average of USD 761.5 million (approx. 3.0 months’ import cover)[9]. The export growth has also been insufficient to support improvement in Lesotho’s current account balance, which has deteriorated further due to the widening services trade deficit.
Lesotho’s current account balance deteriorated to a deficit of -USD 236.0 million in 2018/19, from a deficit averaging -USD 141.0 million from 2015/16 to 2017/18[10]. In spite of the growth in exports, which improved the current account balance, this has been undermined by the balance of services trade worsening leading to further deterioration of the current account balance. The balance of services trade is projected to deteriorate to a deficit of -USD 331.0 million in 2018/19 from a deficit averaging -USD 281.7 million from 2015/16 to 2017/18[11]. The current account balance is projected to deteriorate to a deficit of -USD 394.0 million (approx. -14.2% of GDP) in 2019/20[12]. In the forward-looking medium-term from 2020/21 to 2022/23, the current account balance is projected to improve to a deficit averaging -USD 303.3 million (approx. -9.8% of GDP)[13].
Figure 3: Current Account Balance in Lesotho (2016/17-2022/23)
Source: IMF 2019, Lesotho 2019 Article IV Report; IMF 2018, Lesotho 2017 Article IV Report. Note: (*) Figures from 2018/19 onwards are projections from IMF, 2019.
However, Lesotho is still heavily dependent on diamonds and clothing and textile exports even though other exports have grown to slowly diversify the economy and exports. Clothing and textiles contributed 40.7% of Lesotho’s total export earnings in 2018 which has decreased slightly from the average of 42.8% from 2015 to 2017 (2014: 35.5% of exports)[14]. Diamonds contributed an additional 32.0% of total exports in 2018 which remains largely unchanged from an annual average of 31.7% from 2015 to 2017 (2014: 42.6%)[15]. Diamonds and clothing and textiles exports contributed 72.6% of total exports in 2018 which has decreased from an annual average of 74.4% from 2015 to 2017 (2014: 78.1% of exports) [16]. In spite of this concentration of exports, Lesotho is highly integrated in terms of regional trade with neighbouring countries in SADC but its trade is unbalanced.
The top export from Lesotho to SADC is also clothing and textiles, which constituted 11.1% of total exports in 2018 (2015-‘17: 9.9% of total exports)[17]. The value of clothing and textiles exports from Lesotho to SADC increased to USD 136.3 million in 2018 from an annual average of USD 92.2 million from 2015 to 2017[18]. The other two exports in the top-five from Lesotho to SADC are electronic circuit boards and non-alcoholic beverages, which are less significant in comparison to the clothing and textiles exports. The value of electronic circuit boards exports from Lesotho to SADC increased to USD 38.2 million in 2018 from an average of USD 29.2 million from 2015 to 2017[19]. The value of non-alcoholic beverages exports increased to USD 28.7 million in 2018 from an annual average of USD 20.1 million from 2015 to 2017[20].
The value of total exports from Lesotho to SADC increased to USD 415.8 million (approx. 33.8% of total exports) in 2018 from an average of USD 305.5 million (approx. 36.0% of total exports)[21]. These are very high levels of intra-regional trade given that the SADC average intra-regional exports level was 17.9% of total exports in 2018. The SADC intra-regional exports, meaning total exports amongst SADC countries, as a share of total exports to the world decreased from an average of 20.8% from 2015 to 2017[22].
Figure 4: Nominal Exchange Rate in Lesotho (2015-2018)
Sources: IMF 2019, Lesotho 2019 Article IV Report; IMF 2018, Lesotho 2017 Article IV Report.
Lesotho’s top-five imports from SADC are petroleum, fabricated metals, meat, electronic circuit boards and vehicles. These imports are diversified and constituted 19.3% of total imports to Lesotho in 2018 (2015-‘17: 17.9% of total imports)[23]. The value of the top-five imports from SADC to Lesotho increased to USD 434.5 million in 2018 from an annual average of USD 355.3 million from 2015 to 2017[24].
The value of Lesotho’s total imports from SADC increased to USD 1.8 billion (approx. 78.5% of total imports) in 2018 from an annual average of USD 1.6 billion (approx. 77.2% of total exports) from 2015 to 2017[25]. These are very high levels of intra-regional trade given that the SADC average intra-regional imports level was 20.9% of total imports in 2018[26]. The SADC intra-regional imports, meaning total imports amongst SADC countries, as a share of total imports from the world increased only slightly from an average of 20.7% from 2015 to 2017[27].
Table 1: SADC Regional Trade for Lesotho (2015-2018)
Source: UNCTAD 2019, UNCTADStat Database.
Lesotho maintains a persistent merchandise trade deficit in SADC which increased to -USD 1.4 billion in 2018 (2015-’17: -USD 1.3 billion). In addition, Lesotho might consider diversifying the sources of its imports given its trade deficit in SADC and disproportionate reliance on SADC imports. However, structural constraints such geographic location may hinder Lesotho’s ability to diversify the sources of its imports, which means that increasing exports is the only viable strategy to reduce its merchandise trade deficit with SADC. Hence, there is significant room to increase Lesotho’s exports to SADC countries. This would make Lesotho’s intra-regional trade balance in SADC more equitable.
[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 26 September 2019].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] UNCTAD 2019. UNCTADStat Database, ibid.
[4] IMF 2019. Lesotho First Review of the Extended Arrangement Under the Extended Fund Facility; International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 26 September 2019]; IMF 2018. Lesotho Request for An Extended Arrangement Under the Extended Fund Facility, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 26 September 2019].
[5] IMF 2018. Lesotho Request for An Extended Arrangement Under the Extended Fund Facility, ibid.
[6] BNA 2018. Foreign Exchange Market, National Bank of Lesotho: Luanda. Available At: http://www.bna.ao/ [Last Accessed: 26 September 2019].
[7] IMF 2018. Lesotho Request for An Extended Arrangement Under the Extended Fund Facility, ibid.
[8] IMF 2018. Lesotho Request for An Extended Arrangement Under the Extended Fund Facility, ibid.
[9] IMF 2019. Lesotho First Review of the Extended Arrangement Under the Extended Fund Facility; ibid.
[10] IMF 2019. Lesotho First Review of the Extended Arrangement Under the Extended Fund Facility; ibid.; IMF 2018. Lesotho Request for An Extended Arrangement Under the Extended Fund Facility, ibid.
[11] IMF 2019. Lesotho First Review of the Extended Arrangement Under the Extended Fund Facility; ibid.
[12] IMF 2018. Lesotho Request for An Extended Arrangement Under the Extended Fund Facility, ibid.
[13] IMF 2019. Lesotho First Review of the Extended Arrangement Under the Extended Fund Facility; ibid.
[14] UNCTAD 2019. UNCTADStat Database, ibid.
[15] UNCTAD 2019. UNCTADStat Database, ibid.
[16] UNCTAD 2019. UNCTADStat Database, ibid.
[17] UNCTAD 2019. UNCTADStat Database, ibid.
[18] UNCTAD 2019. UNCTADStat Database, ibid.
[19] UNCTAD 2019. UNCTADStat Database, ibid.
[20] UNCTAD 2019. UNCTADStat Database, ibid.
[21] UNCTAD 2019. UNCTADStat Database, ibid.
[22] UNCTAD 2019. UNCTADStat Database, ibid.
[23] UNCTAD 2019. UNCTADStat Database, ibid.
[24] UNCTAD 2019. UNCTADStat Database, ibid.
[25] UNCTAD 2019. UNCTADStat Database, ibid.
[26] UNCTAD 2019. UNCTADStat Database, ibid.
[27] UNCTAD 2019. UNCTADStat Database, ibid.
