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Balance of Payments and International FDI Position in Lesotho: FY2019/20

Lesotho BoP and FDI Position: FY2019/20

Lesotho’s merchandise export earnings have grown consistently since 2015. The current account balance has been volatile despite the improvements in merchandise export earnings. The balance of payments has improved supported by persistent inward foreign direct investment (FDI) inflows and personal remittance receipts. These capital flows have supported Lesotho’s balance of payments but worsened the country’s net international FDI position. Lesotho’s balance of payments is projected to remain stable in the medium-term which should increase gross official reserves in the medium-term.

 

Figure 1: Current Account Balance in Lesotho (2016/17-2023/24)

Current Account Balance in Lesotho (2016/17-2023/24)

Source: IMF 2019, Lesotho 2019 Article IV Consultation. Note: (*) Figures from 2018/19 onwards are projections.

 

Total merchandise imports to Lesotho increased to USD 2.2 billion in 2018, from an annual average of USD 2.0 billion for 2015 to 2017[1]. Exports increased to USD 1.2 billion in 2018 from an annual average of USD 918.5 million for 2015 to 2017[2]. The growth in exports has not been sufficient to improve Lesotho’s current account balance, which has been volatile and widened from a deficit averaging -USD 188.7 million (approx. -7.2% of GDP) for 2016/17 to 2018/19, to a deficit of -USD 394.0 million (approx. -14.2% of GDP) in 2019/20[3]. The weaker current account balance has not affected Lesotho’s balance of payments and gross official reserves.

 

Figure 2: Capital and Financial Account Balance in Lesotho (2016/17-2023/24)

Capital and Financial Account Balance in Lesotho (2016/17-2023/24)

Source: IMF 2019, Lesotho 2019 Article IV Consultation. Note: (*) Figures from 2018/19 onwards are projections.

 

Lesotho’s capital and financial account balance improved from a surplus (net inflows) averaging USD 157.0 million (approx. 6.2.% of GDP) for 2016/17 to 2018/19, to a surplus of USD 395.0 million (approx. 14.2% of GDP) in 2019/20[4]. The balance of payments improved from an average of -USD 63.7 million (approx. -2.1% of GDP) for 2016/17 to 2018/19, to a surplus of USD 1.0 million (approx. 0.04% of GDP) in 2019/20[5]. As a result, Lesotho’s gross official reserves decreased from USD 841.0 million in 2016/17 to USD 692.0 million in 2018/19, before increasing to USD 705.0 million in 2019/20[6]. During this period, Lesotho experienced persistent inward FDI inflows.

 

Figure 3: Gross Official Reserves and Balance of Payment in Lesotho (2016/17-2023/24)

Gross Official Reserves and Balance of Payment in Lesotho (2016/17-2023/24)

Source: IMF 2019, Lesotho 2019 Article IV Consultation. Note: (*) Figures from 2018/19 onwards are projections.

 

Inward FDI inflows increased from USD 40.5 million in 2015 to USD 43.1 billion in 2017, before deteriorating to USD 39.3 million in 2018[7]. As a result, Lesotho’s inward FDI stock increased from an average of USD 579.1 million for 2015 to 2017, to USD 614.1 million in 2018[8]. Lesotho citizens have no investments abroad which also suggests that the country is reliant on remittances from its citizens abroad to balance its international payments.

 

Figure 4: Inward Foreign Direct Investment in Lesotho (2015-2018)

Inward Foreign Direct Investment in Lesotho (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

Personal remittance receipts increased from USD 370.8 million in 2015 to USD 401.0 million in 2017, and continued increasing to USD 437.8 million in 2018[9]. Lesotho does not have any outward FDI stock during this period[10]. These remittance flows have improved Lesotho’s balance of payment but have no impact on the country’s net international FDI position.

 

Figure 5: Outward Foreign Direct Investment from Lesotho (2015-2018)

Outward Foreign Direct Investment from Lesotho (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

Lesotho’s balance of payment has been supported by persistent inward FDI inflows. In addition, the country has received increased personal remittance receipts from its diaspora which contributes to balance its international payments. Lesotho’s net international FDI position deteriorated from net liabilities amounting to an average of -USD 622.9 million (approx. -25.3% of GDP) for 2015 to 2017, to net liabilities amounting to -USD 653.5 million (approx. -24.1% of GDP) in 2018[11].

 

Figure 6: International Foreign Direct Investment Position in Lesotho (2015-2018)

International Foreign Direct Investment Position in Lesotho (2015-2018)

Sources: UNCTAD 2019, UNCTADStat Database.

 

At these levels Lesotho’s foreign liabilities remain sustainable yet significant as a proportion of GDP. Given the very narrow domestic capital markets, Lesotho should focus on attracting inward FDI in sectors that will diversify its productive capacity and exports because the country is still heavily dependent on clothing and textiles and diamond exports. Nevertheless, Lesotho’s balance of payments is projected to remain stable in the medium-term, which is projected to support growth in gross official reserves.

 

Improvements in the capital and financial account balance should support continued improvement of Lesotho’s balance of payments in the forward-looking medium-term despite the persistent current account deficit. The current account balance is projected to improve from a deficit of -USD 394.0 million (approx. -14.2% of GDP) in 2019/20 to a deficit averaging -USD 304.0 million (approx. -9.7% of GDP) from 2020/21 to 2023/24[12]. Lesotho’s capital and financial account balance is projected to improve to a surplus (net inflows) averaging USD 303.8 million (approx. 9.6% of GDP) from 2020/21 to 2023/24[13]. Therefore, the balance of payment is projected to deteriorate to a small deficit averaging USD 250,000 (approx. -0.01% of GDP) from 2020/21 to 2023/24[14]. Thus, Lesotho’s gross official reserves are projected to increase from USD 705.0 million in 2019/20 to an average of USD 761.5 million from 2020/21 to 2023/24[15].

 


[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 8 March 2020].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] IMF 2019. Lesotho 2019 Article IV Consultation,  International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020].
[4] IMF 2019. Lesotho 2019 Article IV Consultation, ibid.
[5] IMF 2019. Lesotho 2019 Article IV Consultation, ibid. There are relatively significant errors and omissions in Lesotho’s balance of payments data equivalent to: -USD 83.0 million in 2016, USD 68.0 million in 2017 and USD 111.0 million in 2018.
[6] IMF 2019. Lesotho 2019 Article IV Consultation, ibid.
[7] UNCTAD 2019. UNCTADStat Database, ibid.
[8] UNCTAD 2019. UNCTADStat Database, ibid.
[9] UNCTAD 2019. UNCTADStat Database, ibid.
[10] UNCTAD 2019. UNCTADStat Database, ibid.
[11] UNCTAD 2019. UNCTADStat Database, ibid.
[12] IMF 2019. Lesotho 2019 Article IV Consultation, ibid.
[13] IMF 2019. Lesotho 2019 Article IV Consultation, ibid.
[14] IMF 2019. Lesotho 2019 Article IV Consultation, ibid.
[15] IMF 2019. Lesotho 2019 Article IV Consultation, ibid.

 

 


Siya Biniza

Role: Executive Director
Contact: siya@politicaleconomy.org.za
Siya is a Political Economist specialising in Development Finance, Industrial Development, and Regional Integration...

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