Lesotho’s economy has begun recovering from the shock caused by the COVID-19 pandemic. Real GDP growth is projected to improve from an annual average of -1.4% for 2019 to 2021, to 3.0% in 2022. Inflation is projected to increase from an annual average of 5.4% for 2019 to 2021, to 6.1% in 2022. The elevated inflation is caused by the sanctions against Russia which have increased the price of crucial imports. In the medium-term period from 2023 to 2025, real GDP growth is projected to decrease to an annual average of 2.0%. Meanwhile, inflation is projected to decrease to an average of 5.5% over the medium-term from 2023 to 2025.
The Government of Lesotho’s debt is project to begin moderating after increasing since 2020. Lesotho’s gross public debt is projected to decrease from an annual average of 53.1% of GDP for 2019 to 2021, to 52.5% of GDP in 2022. The decrease in public debt is largely due to the continued economic recovery despite the Government of Lesotho implementing procyclical fiscal expansion as the economy recovers from the shock caused by the global lockdown response to the COVID-19 pandemic. The fiscal deficit is projected to widen from an annual average of -4.7% of GDP for 2019 to 2021, to -7.8% in 2022. This shows the procyclical fiscal stance taken by the government as spending and further borrowing outpace revenue growth. In the medium-term period from 2023 to 2025, the fiscal deficit is projected to narrow to an annual average of -4.7% of GDP. Therefore, public debt is projected to decrease to an average of 47.8% of GDP over the medium-term from 2023 to 2025.
Lesotho’s external sector was not negatively affected by the COVID-19 pandemic in 2020 but the sector has deteriorated due to the rebound in aggregate demand, which has increased import demand. Lesotho’s current account deficit is projected to widen from an annual average of -USD 106.3 million (approx. -4.5% of GDP) for 2019 to 2021, to -USD 399.0 million (approx. -15.6% of GDP) in 2022. In the medium-term period from 2023 to 2025, the current account deficit is projected to narrow to an annual average of -USD 274.3 million (approx. -9.4% of GDP). This illustrates a short-lived improvement and the deteriorating current account balance due to the current rebound in aggregate demand and rising demand for imports. Unfortunately, Basotho authorities have limited policy tools to respond to the current deterioration in the external sector as a member of the Common Monetary Area which maintains a fixed exchange rate to the ZAR.
Lesotho is scheduled to hold its national elections in September 2022 and the election campaigning cycle is currently underway. Incumbent Prime Minister Moeketsi Majoro will most likely be vying for a second term in office after serving as the successor to former Prime Minister Thomas Thabane. The current political climate remains tense following the spate of political violence that led to former Prime Minister Thabane to resign. President P.M. Moeketsi Majoro will seek to play a more meaningful role in reform process led by SADC and the National Reform Authority (NRA). At the 41st SADC Summit the mandate of the NRA was extended by 6 months until the end of April 2022. Despite the time and resource constraints the NRA has achieved the formulation of the Eleventh Amendment to the Constitution which is being considered by the Basotho Parliament. The national reform process will remain the central focus of politics in Lesotho in addition to its interests as a member of SADC and SACU.