Country Brief

Last updated September 2009

History and politics

As a constitutional monarchy, Lesotho, is ruled by a King, and governed by a 33-member Senate and a 120-member National Assembly. The Senate is made up of 22 Principal Chiefs and 11 members appointed by the King on the advice of the Council of State. Eighty members of the National Assembly are elected through the first-past-the-ballot system, while the remaining 40 are allocated through a proportional representation system . The political landscape has been dominated by two major parties: the BNP, which ruled the country from 1965 until 1986, and the Basotho Congress Party (BCP) which governed the country from 1993 until a breakaway faction, the Lesotho Congress for Democracy (LCD) won by a landslide in the 1998 elections. The 2002 elections saw the LCD winning 79 out of the 80 seats and retained power by winning 61 seats in the 2007 elections.

Economy

Economic performance

Lesotho is small and landlocked, with limited natural resources and a narrow production and export base. Aside from subsistence agriculture, the garment sector plays a critical role in generating employment, output, and exports. The economy is highly open, with imports amounting to about 90 % of gross domestic product (GDP), and depends heavily on inflows of workers’ remittances and receipts from the Southern African Customs Union (SACU). Lesotho is also a member of the Common Monetary Area (CMA). The Lesotho Maloti is pegged at par to the South African rand which is legal tender in the country.

Real per capita GDP growth averaged 3.3 % over 1991-2007, above the average for sub-Saharan Africa.  However, this growth has been erratic.  Lesotho’s growth path has been closely linked to the external environment, weather conditions and the strength and weakness of the rand to which the Maloti is pegged.  Following a respectable growth of 4.6 % in 2004, real GDP grew by less than 1 % in 2005, owing to the uncertainty about the extension of the Agreement on Textiles and Clothing beyond December 2004.  This was compounded by the relatively strong rand, hence the Maloti, against the US dollar, which hampered textile and clothing exports to the United States.  Real GDP rose 8.5 % in 2006, driven by booming diamond production, a recovery of the garment industry, and good performance in the agriculture and services sectors, while drought returned in 2007 and agriculture’s contribution to GDP growth was negative, mining, garment industry, and construction remained vibrant, and overall GDP growth of about 4.3 % was achieved. GDP growth is estimated to have rebounded somewhat in 2008 to about 6 % but is expected to be much lower in 2009 as a result of the impact of the global economic crisis.

The global crisis is affecting Lesotho through the following main channels: (i) textiles, due to the economic slow down in the United States which is Lesotho’s main export destination for garments and the resulting job losses; (ii) mining, including weak prices for diamonds and reduced production and export of diamonds; (iii) drop in SACU revenues due to the economic slow down in the South African economy, and (iv) reduction in worker remittances due to weakening of the South African economy and contraction of the mining sector and related job losses in South Africa.

Donor coordination

Fifteen development partner agencies are active in Lesotho.  Donor coordination, alignment and harmonization have improved since the formation of Development Partners Consultative Forum (DPCF) in 2005, which is co-chaired jointly by the United Nations Development Program (UNDP) and Irish Aid. All resident development partners are members of the DPCF, which includes the World Bank, the U.K. Department for International Development  (DFID), European Community (EC), GTZ, and many of the specialized United Nations agencies, in addition to member countries (US, China and Ireland). The DPCF is responsible for donor coordination and taking forward the 2005 Paris Declaration on Aid Effectiveness for Lesotho. The DPCF provides space for development partners to discuss their current and planned activities, to coordinate programs and promote efficient and effective delivery of development projects. The World Bank has a number of operations either being jointly financed with other donors, such as the Integrated Transport Project (with the EC), or moving towards sector-wide approaches in the health and education  sector with Irish Aid and the joint donor Poverty Reduction Support Credit (European Commission, DFID and African Development Bank).  The Bank is also working closely with the Millennium Challenge Corporation to improve water supply and sanitation.

World Bank Group program

World Bank role

Lesotho joined the World Bank and the International Development Association (IDA) in 1968. It joined the International Finance Corporation (IFC) in 1972 and the Multilateral Investment Guarantee Agency (MIGA) in 1988. The World Bank provides support to the government's strategy to reduce poverty and to improve the country's competitiveness through greater integration into the sub-regional economy.

Cumulative IDA commitments to Lesotho stand at US$399.1 million for 37 credits, and cumulative IBRD commitments are $155 million for two loans. IFC has provided technical assistance to private sector development in tourism and export promotion, as well as in health reform. IFC has been acting in an advisory role to the government on plans for public-private partnership to develop a new hospital in Maseru. The work is a pioneering joint initiative by the World Bank and IFC in sub-Saharan Africa.  The World Bank and IFC are currently exploring ways to assist Lesotho in setting up an small and medium enterprise financing scheme with possible IFC risk capital and technical assistance participation.

MIGA's outstanding portfolio consists of two contracts of guarantee with $10.0 million in gross and net exposure in the services sector.

Contacts

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