Kingdom of Lesotho
Selected Issues and Statistical Appendix

The challenge of achieving broad-based growth in Lesotho is discussed. Economic growth is inconsistent. Lesotho is highly dependent on trade with South Africa. The sources of growth in Lesotho using a social accounting matrix model and a growth-accounting framework are outlined. The main constraints to growth and private investment and current policy initiative to promote broad-based growth and private investment are analyzed. The various methods employed suggest that there is neither external stability nor significant evidence of exchange rate misalignment.


The challenge of achieving broad-based growth in Lesotho is discussed. Economic growth is inconsistent. Lesotho is highly dependent on trade with South Africa. The sources of growth in Lesotho using a social accounting matrix model and a growth-accounting framework are outlined. The main constraints to growth and private investment and current policy initiative to promote broad-based growth and private investment are analyzed. The various methods employed suggest that there is neither external stability nor significant evidence of exchange rate misalignment.

I. Promoting Growth and Private Investment in Lesotho1

A. Introduction

1. This paper discusses the challenge of achieving broad based growth in Lesotho. It examines the main constraints to growth and discusses policy initiatives under way to promote growth and private investment in Lesotho. It is based on a review and synthesis of existing research produced to support the drafting of various developmental initiatives in Lesotho in the last few years (see references).

2. Lesotho has made considerable progress in macroeconomic stability in the past few years. The government’s fiscal position and external current account have improved markedly, the inflation rate has slowed, and net international reserves have increased. However, poverty, aggravated by a high incidence of HIV/AIDS, remains widespread.

3. Economic growth has been inconsistent. In the 1990s, Lesotho grew as fast as 6 percent per year. More recently its growth had slowed down to about 3 percent on average, before surging to 7 percent in 2006. Economic growth in the past has been weakened by the cumulative impact of several shocks. These shocks include a substantial real appreciation of the exchange rate of the rand, to which the loti is pegged; the removal of textile quotas by industrial countries; a continuing decline in the terms of trade; and persistent drought. Lesotho’s economic prospects could be affected by further trade preference erosion, a possible decline in revenue receipts from the Southern African Customs Union (SACU), and falling remittances from Lesotho workers in South Africa.

4. Lesotho is facing the challenge of restoring external competitiveness and promoting rapid and broad based growth to reduce poverty and achieve the Millennium Development Goals (MDGs). Economic growth in Lesotho needs to be broad based for the country to visibly reduce poverty and raise the standard of living to an acceptable level. Appropriate actions will also be needed to ensure that an adequate share of the growing income is devoted to reducing poverty by, for example, improving the delivery of social services. In view of the low level of per capita income in the country, redistribution cannot provide a solution to the problem of poverty unless the size of the national cake increases remarkably.

5. The remainder of the paper is organized as follows. Section B discusses the sources of growth in Lesotho using a social accounting matrix model and a growth accounting framework. Section C discusses the main constraints to growth and private investment and growth in Lesotho. Section D then outlines current policy initiatives under way to promote broad based growth and private investment in Lesotho. The conclusion of the paper is presented in Section E.

B. Accounting for Sources of Growth

The Social Accounting Matrix (SAM)

6. The World Bank has produced a Social Accounting Matrix (SAM) to analyze the impacts of a variety of economic shocks on growth in Lesotho. The model is utilized to decompose the marginal contribution to growth, employment and poverty of the following structural shocks: decline in miners’ remittances, Lesotho Highland Water Project (LHWP) investment, and expansion of the textile and garment industry (World Bank, 2005). The analysis shows that during the high LHWP period (1987/88-1998/99), the model yields GDP growth rates averaging 6.2 percent per annum, close to the actual growth rates of 6 percent per annum. This rate of growth can be decomposed as follows: 4.8 percent growth associated with LHWP investments; 2.3 percent growth from the increase in garment exports; and 1.0 percent reduction in growth due to declining migrant remittances.

7. At the sectoral level, the model simulations reproduce history with reasonable accuracy and shed light on the backward and forward linkages between sectors as well as the goods, services and the labor market. The model shows that the primary sector, for instance, gained about 4 percent in response to the LHWP and garment sector shocks. However, half of this growth was offset by dampened demand due to shrinking remittance incomes. Growth in the manufacturing sector at 10 percent per annum (the actual was also 10 percent) was driven by garment exports, which increased at over 8 percent, creating many new jobs and boosting household incomes. The model also shows that LHWP related activity raised demand for manufactured products by an additional 2 percent, but half of this was trimmed away by declining remittances.

8. A key insight of the model is that while real GDP growth was sustained at 6.2 percent per annum for a decade, it was accompanied by neither sufficient job creation nor sufficient increase in household incomes. Per annum growth in employment was less than 4 percent and in average incomes less than 2 percent far below the growth rates needed to reduce poverty.

9. Why did high GDP growth during the high LHWP period not lead to job creation and reduce poverty? The model shows that the narrow base and pattern of growth explains much of this conundrum.

  • First, the sectors that support the poor grew slowly. A substantial contraction in the share of primary sector GDP during the high LHWP period triggered large scale losses in rural job opportunities.

  • Second, growth was capital intensive while decline in remittances adversely affected job creation. Economy wide job creation predicted by the model at a rate of 3.7 percent per annum was insufficient to reduce unemployment rates of over 25 percent.

  • Third, rural areas benefited little from the LHWP and the garment sector growth. Approximately 40 percent of the new jobs were in the primary sector, in which the average earnings are not high enough to pull households out of poverty. This was offset by job loses resulting from declining remittances.

  • Last, the bulk of the jobs created were in manufacturing and or urban areas. The model estimates that about 32 percent of new jobs were in manufacturing, an urban activity that provides low wages (still above the poverty line), especially in textiles.

10. The model is also useful in explaining how GDP growth declined to 3-4 percent per annum in the post LHWP period (1998-2000/01). The model yields GDP growth of 3.6 percent after 1999/00, a combined effect of the following: a) 2.3 percent decline in GDP fueled by persistently declining remittances; b) 3 percent growth in GDP related to LHWP investments which, although declining, were still fairly large; and c) 2.8 percent growth in GDP attributable to the steady performance of garment exports.

11. Since 2004, growth has been driven mainly by the garment and mining sectors with agriculture playing a limited role. The Mining sector has recorded strong growth between 2004 and 2006, contributing roughly 65 percent to real GDP growth over the period as a result of the reopening of the diamond mines. Two diamond mines in Letseng and Liqhobong are operational. Other mines are expected to be opened in Kao, Mothae and Kolo. Diamond production in Lesotho reached 97,097 carats in 2006 compared with 47,633 a year earlier (Central Bank of Lesotho, 2007). The performance of the garment sector has been strong except in 2005 as a result of a more competitive operating environment caused by the strong exchange rate and the end of quotas under the International Agreement on Textiles and Clothing. About 10,000 jobs were lost between December 2004 and June 2005 through factory closures and reductions in production lines. However, the sector rebounded in 2006 contributing roughly 10 percent to GDP growth. The agriculture sector has contributed minimally to GDP growth because of adverse weather conditions. The rebound of the garment sector and the growing diamond mining are expected to continue to drive medium term growth in Lesotho.

Growth Accounting Exercise

12. The result from a growth accounting exercise suggests that economic growth in Lesotho has been driven mainly by factor accumulation. Between 1960 and 2002, real GDP posted a positive annual growth rate of 3.4 (table I.4). Factor accumulation took place on an annual rate of 3.5 percent, accounting for roughly 105 percent of growth, with physical capital and labor accounting for roughly 74 and 31 percent respectively (Tahari, Ghura, Akitoby and Aka, 2004). The country, however, experienced total factor productivity growth of −0.1 percent during the period, representing a contribution of −5 percent to real GDP growth.

Table I.1.

Accounting for Growth During the High LHWP Period (1987/88–1998/99)—Simulations from the SAM Based Model

(In percent, unless otherwise stated)

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Source: World Bank (2005).
Table I.2

Accounting for Growth During the Post LHWP Period (1998/99–2000/01)—Simulations from the SAM Based Model

(In percent, unless otherwise stated)

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Source: World Bank (2005).
Table I.3.

Lesotho: Sectoral Contribution to Real GDP Growth


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Source: National authorities and staff estimates
Table I.4.

Sources of Real GDP Growth in Selected Sub-Saharan African Countries, 1960-2002

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Notes: Investment is average gross fixed capital formation as a percentage of GDP from1980-2004.Source: Tahari, Ghura, Akitoby and Aka, 2004 and World Development Indicators

13. The growth accounting exercise also shows a high contribution of physical capital to growth and little contribution from labor. Lesotho has one of the highest investments to GDP ratios in sub-Saharan Africa but real GDP growth has been lower than in countries with lower investment to GDP ratios. In addition, Lesotho has one of the lowest contributions to growth from labor in SSA. Productivity growth has also been slightly lower than the sub-Saharan African average.2

14. The empirical literature on the determinants of total factor productivity growth identify good quality institutions, human capital development, favorable macroeconomic environment, and economic diversification as factors that positively influence TFP growth. Better institutions promote rule of law, secure property rights, enforce contracts, and limit the powers of political leaders, thereby increasing incentives for investment. A well educated and healthy workforce increases human knowledge, encourages innovations, and facilitates the adoption of new technologies. Diversification of the economic base is crucial for TFP growth. Berthelemy and Soderling (2001) shows that countries in SSA that have been successful at diversifying their economic base from agriculture to secondary and tertiary sectors have experienced higher TFP growth.

C. Promoting Growth in Lesotho: Key Constraints and Challenges

Cross Cutting Constraints

15. Lesotho has a small market and a peculiar location. The country is highly dependent on South Africa but this dependence has declined in recent years. A challenge for Lesotho is to exploit the proximity to South Africa and tailor the spillover to its own advantage. This could imply using the design of South Africa’s institutions as a template for its own institutions (with appropriate modifications); using South Africa’s superior services more proactively to promote its own development goals, and partnering with South Africa’s tourism authorities to include and promote Lesotho as a destination.

16. Agriculture—the backbone of the rural economy and the sector that employs most of the poor—has been stagnant since the early-1990s. The economy is largely based on limited agricultural and pastoral production and on light manufacturing. About 70 percent of Lesotho’s population lives in the rural regions and mountainous areas where income is generated from traditional, largely subsistence, low-value-added agriculture and herding. The average household plot holding is about half a hectare, only two-thirds of households have access to land, and 70 percent of the plots are sharecropped informally. The poor performance of the agricultural sector in recent years has lead to negative per-capita growth in agriculture output with serious consequences for food security. In addition, agricultural performance is heavily affected by an eroding natural resource base, lack of infrastructure, vulnerability to drought, and the high HIV/AIDS prevalence.

17. Another challenge to the growth outlook is the expiration of the Multi Fiber Arrangement (MFA) and the uncertainty after 2012 of the AGOA rules of origin clauses. Lesotho’s exports include a narrow range of products to a single market (the US) financed largely by FDI. With the expiration of the MFA, Lesotho’s textile exports have to compete with some of the most efficient producers in the world, including China and India. Unless the productivity of labor improves, it will be difficult for the garment industry to diversify into higher value added products which face reduced competition. There is also the risk that FDI may relocate to more competitive countries. Related to this is the uncertainty after 2012 when AGOA’s new rules of origin clause will kick in. This clause will require firms in Lesotho (which presently import almost all materials from China) to use fabric produced in AGOA to benefit from tariff-free access to the US markets.

18. Infrastructure is inadequate and constrains economic growth and human development. In particular, the absence of good roads prevents access to the mountain areas with tourism potential. It also prevents the rural population from accessing markets, schools and health facilities. In Maseru, where roads in general are adequate, the neglect of the railhead at Maseru Station is hampering the development of the sandstone quarrying and other manufacturing sectors. The poor quality of many infrastructure services has been a serious problem for the private sector in Lesotho. Although the quality of telecommunications service is relatively poor and the availability of water is placing constraints on the garment industry, the poor performance of the power and transportation sectors appear to be the greatest constraints. Despite price increases at the beginning of 2004, the cost of power does not appear to be high by international standards but the quality of service is poor. Although outages are less common than in most SSA countries, firms had greater losses due to outages than in several African countries with more outages because firms in Lesotho are less likely to have generators (World Bank, 2007). Public infrastructure needs to be further developed to improve the efficiency of the road, rail and energy sectors and harness the country’s water resources for human, industrial and irrigation needs.

19. Over the medium term, the most worrisome and potentially most devastating development is the impact of HIV/AIDS. Lesotho has one of the highest HIV/AIDS prevalence rates among all sub-Saharan African countries. The results of a population-based HIV prevalence survey conducted in 2004 showed that 24 percent of the adult population is HIV-positive.3 Prevalence rates are found to be higher in urban areas (29 percent) than in rural areas (22 percent). The most worrisome trend is that one in nine persons aged 15-24 is HIV-infected, with 15 percent among young women and 6 percent among young men. The impact on households is severe, often leading to depletion of assets to cover medical and burial costs, and to a loss of income as productive members of the household become ill and die. Preliminary estimates indicate that the cost to the economy and the public sector of the HIV/AIDS pandemic are very high. Slower labor force growth and a lower savings rate, which reduces capital formation, could lower output growth by an average of 0.4 percent per year between 2005 and 2014. The impact of HIV/AIDS on the fiscal position of the government could also be considerable, although donors finance a significant proportion of the efforts against HIV/AIDS.

Constraints to Firm Growth

20. The private sector faces constraints related to the weak property rights and rule of law, access to finance, and bureaucratic red tape. A firm level survey in Lesotho found crime, access to finance, tax administration, and exchange rate instability as constraints to growth (World Bank, 2007). Over 40 percent of managers rated each of these issues as a major or very severe problem. These were not the only obstacle to firm investment and growth—corruption, electricity shortage, policy uncertainty, access to land, weak legal systems, poor telecommunication infrastructure, and skill shortage were also mentioned as major problems by smaller percentages of firms.

Inadequate Access to Finance

21. The firm level survey finds that about half of firms in Lesotho rated the cost of financing as a major or very severe problem and close to 40 percent rate access to financing the same way. Lesotho’s financial sector is small and concentrated. The banking sector, which is small and relatively underdeveloped, is dominated by three South African owned banks, while the non banking financial sector is also very small. Commercial banks provide little finance to small and medium enterprises limiting their services to overdraft facilities for large customers in the service and trade sectors. The legal framework is also a deterrent to financial intermediation. The slow execution of due process manifested by slow court proceedings, lender’s inadequate access to timely foreclosure procedures, the absence of credit assessment information, and weak enforcement of property rights all undermine financial intermediation. Moreover, the legal system puts married women at a legal disadvantage because matrimonial law in Lesotho treats them as minors.4

Crime and Security

22. In contrast to most other areas of the investment climate, there was broad agreement among the firms covered by the survey that crime and security is a serious problem. About 47 percent of manufacturing enterprises and 53 percent of construction firms rate crime, theft and disorder as a major or very severe problem. Moreover, complaints about crime and security were common among foreign and domestic enterprises. Employee theft appears to be an especially serious problem in Lesotho. In the manufacturing sector, managers attributed close to three quarters of losses to employee theft. Managers of garment firms were particularly concerned about employee theft—attributing over 90 percent of losses due to crime to employee theft. This is considerably higher than South Africa, where only about 43 percent of direct losses were attributed to employee theft.

Corruption and Regulation

23. Corruption and the burden of regulation have been impediments to private investment in Lesotho. Lesotho has been fairly successful in attracting foreign investors to take advantage of its trade preferences (the Lesotho National Development Corporation is playing an important role in attracting investors). These temporary advantages need to be consolidated by public interventions that will continue to attract new investments. The challenge for the government is to reduce corruption and the burden of regulation to retain existing investors and attract new investors to Lesotho’s textiles industry. Even though corruption remains a concern for firm growth, it is less of a problem in Lesotho than in most SSA. Lesotho ranks relatively well on many corruption indices. In 2007 edition of the Transparency International’s Corruption Perception Index, Lesotho ranked 84th out of 179 countries—higher than most SSA countries. Lesotho also scores well on other aggregate indices related to other governance measures (for example, government effectiveness and the rule of law). About 45 percent of managers interviewed mentioned that gifts or informal payments were needed to get things done with regards to taxes, licenses, regulations, and services but the median reported payment was lower than in most African countries. Although corruption is relatively low, the burden of regulation is not. Managers in Lesotho reported spending more time dealing with government regulations, inspections and required meetings than managers in South Africa. Starting a business can also be complicated. In 2005, it took nine procedures and 92 days to start a standard business. This is higher than in most countries. The cost is also higher both in dollar terms ($453) and as a percent of per capita income (61.2). By reducing procedures and the time to complete each procedure, the government could seriously reduce entry cost. It is also important to develop and implement a modern legal framework to lay the foundation for a business friendly legal and regulatory environment.

Exchange Rate Instability

24. Exchange rate instability is considered a major constraint to firm growth. About 40 percent of firm mangers in Lesotho, mainly exporters, rated exchange rate instability as a serious concern. Although the peg with the rand means that there has been little instability with respect to the rand, the rand has varied greatly against the US dollar in recent years. This is especially problematic for garment exporters because about 93 percent of garment exports from Lesotho are bound for the U.S. due to AGOA. This emphasizes the need to diversify exports away from the United States. Diversifying export markets outside of the United States and exports out of the garment sector would reduce concern about the dollar- rand exchange rate and make the economy less vulnerable to exchange rate fluctuations.

Tax Administration

25. About 43 percent of firms rated tax rates as a major or very severe obstacle. Although this might suggest that taxes are too high, it is important to emphasize that taxes are needed to finance public expenditures including those needed to improve the investment climate and that tax rates typically rate among the largest constraints especially in low income countries. The World Bank’s latest Doing Business report calculated the amount of taxes that a manufacturing enterprise would pay under a set of standardized assumptions about profitability, ownership, and other enterprise characteristics. Under these assumptions, the enterprise would pay less in taxes in Lesotho than it would in most SSA countries. In addition to perception based measures, firms were asked about the number of tax inspections that they faced during the previous year. The median enterprise in Lesotho reported 7 inspections or required meetings. In comparison, the median enterprise in South Africa, Mozambique, Kenya and Tanzania reported 1, 1, 2, and 6 inspection(s) respectively.

Education and Training

26. The investment climate assessment shows that worker education and skills limit the growth and productivity of the private sector, especially export oriented industries such as the garment industry. In spite of the recent improvements in educational infrastructure, the demand for education beyond primary levels and the success rates are unacceptably low. Some survey evidence suggests that the high cost of secondary education is one of the reasons for low demand. To improve the productivity of its abundant but low skilled labor, the government needs to improve the delivery and outcomes of both education and training and develop and expand technical education. Attention also needs to be paid to vocational training, as the country does not have the institutions that develop the kinds of skills that are required in the economy. Special efforts need to be made to facilitate the diffusion of skills from the export oriented sector. In addition, proactive measures, such as public private initiatives in training are needed to integrate the export sector with the rest of the economy.

Growth Policies in Lesotho

27. Promoting total factor productivity growth is important for growth in Lesotho. Lesotho’s long run growth prospects depend importantly on policies and institutions that will help to maintain TFP growth, reduce unemployment by enhancing job skills, and improve the investment environment. The policies to boost TFP include efforts to improve education and skills development, governance institutions, and private sector development.

28. Boosting TFP alone will not be sufficient to raise economic growth rates in Lesotho to levels required to significantly reduce poverty. It will also be essential to boost the level and quality of public and private investments. Concerning private investment, recent empirical work suggests that it can be boosted by increases in government investment, a stable macroeconomic environment, financial deepening, and improvement in the quality of institutions. It is also important to encourage employment friendly investments and to keep labor market institutions flexible.

29. The government is developing a Growth Strategy Paper (GSP) with the objective of achieving broad based and sustainable growth. The GSP sets out the opportunities and most binding constraints facing the economy. Furthermore, it sets out the policy framework and makes sectoral level recommendations on prioritized actions to be implemented. The GSP aims to achieve its objectives by linking itself to the budget process. This document, expected to become an implementation tool for the growth component of the Vision 2020 and the PRS, will be the basis for Budget Framework Papers. In addition, the GSP is expected to provide an analysis of the potential growth sectors and make recommendations on the potential short, medium and long term sources of growth. It is expected that the GSP will enable the budget process to be geared toward higher, broad based and sustainable growth.

30. The government has initiatives designed to alleviate some of the constraints to growth. Important efforts are ongoing to improve access and affordability of basic physical infrastructure (power, telecommunications, and water). In addition, the government recently outlined key reform that will be fast tracked for implementation in the areas of the judiciary and administration of justice, the financial sector, and the land tenure and mortgage regimes. These reforms should improve the availability of finance as firms will be able to pledge land as collateral. Many of these reforms are expected to be funded by the Millennium Challenge Corporation and the World Bank’s Private Sector Competitiveness Project.

31. The government has signed a $362.6 million Compact with the Millennium Challenge Corporation to promote growth and reduce poverty. The Compact is focused on improving the provision of water supplies for industrial and domestic use, improving health outcomes and removing barriers to foreign and domestic private sector development. The water sector project will provide essential infrastructure (the construction of Metolong dam) to deliver water to garment and textile operations. The health sector project is expected to mitigate the economic impacts of poor maternal health, HIV/AIDS and other diseases by substantially strengthening the country’s health care infrastructure and human resources for health capacity. The private sector development project is designed to increase private sector economic activity by improving access to bank finance, reducing transactions costs and increasing the participation of women in the formal economy.

32. In the agriculture sector, the government has initiatives to increase food production. The main priority is to move away from maize-driven food self-sufficiency to food security by developing production where the country has a comparative advantage and access to markets, such as in certain vegetables and fruits and through production support aimed directly at the poor. The key elements to achieve these objectives include: development of a national land policy; intensification of agricultural production, piloting a block farming approach in horticulture and fruit trees and strengthening and decentralization of the extension service. Further efforts are still needed to increase agriculture investment, promote cash cropping and encourage agro processing.

Lesotho: Structural Reform Agenda

Key elements of the structural reform agenda developed jointly with the support of the World Bank and bilateral donors include:

Removing regulatory constraints

  • Restructure and consolidate registration processes to reduce the time it takes to register a business to under one week;

  • Convert mandatory trade licensing to a reporting requirement, eliminate the licensing boards and the pioneer industries board to significantly reduce the time and costs of obtaining both trade and industrial licenses;

  • Simplify and streamline immigration, customs and work permit procedures;

  • Reduce the compliance costs to tax payers; and

  • Make the commercial courts functioning

Improving the Private Sector’s Access to Bank Credit

  • Put in place a comprehensive and easily accessible property registry;

  • Introduce a national identification system;

  • Amend the Matrimonial Act to allow married women access to bank credit without their husbands’ permission;

  • Simplify and streamline land transfer procedures; and

  • Develop leasing facilities

Assisting adjustment of Private Investors

  • Develop a strategy for a competitive textile sector—emphasizing product and market diversification—in the context of the “Multi Fiber Agreement”

  • Attract new FDI through public-private cooperation in the inter-ministerial task force;

  • Improve labor productivity through industry led, demand driven skills development programs;

  • Invest in utilities, roads, and solid waste and water facilities; and

  • Launch outreach marketing programs to secure and improve market access.

Source: IMF Country Report No. 06/404

33. Initiatives are also under way to reduce the spread of HIV/AIDS but more needs to be done to strengthen social safety nets and care for HIV/AIDS affected. With the support of the Global Fund, the government has initiated a treatment campaign to roll out anti retroviral drugs (ARV), widen the distribution of protective measures like condoms, and scale up HIV/AIDS prevention. It is expected that by the end of 2010, ARV would reach about 80 percent of ARV needed population. The pace of implementation of these programs, however, remains slow and efforts are needed to speed up the process. Direct measures are needed to improve the welfare of the poor, as the bulk of the children and elderly are in poor households. Families faced catastrophic illnesses such as HIV/AIDS and death of productive members, and those caring for orphans also need direct public assistance through safety nets provision. HIV/AIDS still remain a major challenge to the health sector and a major risk to the achievement of any substantial improvement in health outcomes.

D. Conclusion

34. Lesotho has made considerable progress in macroeconomic stability in the past few years but sustaining fast growth remains a challenge. Growth has recently surged but has at times been weakened by the persistent drought, the real appreciation of the loti, and the removal of textile quotas by industrial countries. The country is facing the challenge of restoring external competitiveness and promoting rapid and broad based growth to reduce poverty and achieve the Millennium Development Goals (MDGs).

35. Accelerating economic growth in Lesotho requires multiple policy reforms in several core areas: property rights, infrastructure, education and skills development, agricultural development, governance, private sector development, and social safety nets. The government has started to implement a number of reforms designed to alleviate some of the constraints to growth. Important efforts are ongoing to improve access and affordability of basic physical infrastructure. In addition, the government recently outlined key reform that will be fast tracked for implementation in the areas of the judiciary and administration of justice, the financial sector, and the land tenure and mortgage regimes. These reforms should improve the availability of finance. Further efforts are still needed to exploiting the growth potential of the rural economy, improve the regulatory and institutional framework, improve transportation links to South Africa, strengthen education and skills development programs, improve labor productivity and accelerate diversification. The multiplicity of needs and constraints calls for action on several fronts, but also for an effort to prioritize. The work on the Growth Strategy Paper, which is closely aligned with the production of a new PRS, is expected to be key in this regard.


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Prepared by Charles Amo Yartey.


The high investment to GDP ratio in Lesotho is due to the huge investment undertaken during the Lesotho Highland Water Project. In addition any ratio to GDP in Lesotho is likely to be misleading because of the large size of remittances and transfers, which are part of GNDI but not of GDP.


Lesotho Demographic and Health Survey, 2004. Ministry of Health and Social Welfare and Bureau of Statistics, Maseru, Lesotho, February 2006.


A law has recently been enacted to improve the status of married women and ensure the access of married women to property rights.