The World Bank has released the Lesotho Economic Update titled "Transforming Fiscal Policy into an Engine of Inclusive Growth" on April 7, 2025. This inaugural report reviews recent economic developments in Lesotho, assesses the medium-term outlook, and explores how fiscal policy could stabilize the business cycle while enhancing public service delivery.
According to the update, strengthening macroeconomic management and optimizing public spending are crucial for long-term inclusive growth in Lesotho. The report intends to facilitate discussion on development challenges and opportunities in the country, aiming to transform fiscal policy into a catalyst for inclusive growth.
The report outlines a series of recommendations. Firstly, it suggests implementing Fiscal Rules and a Stabilization Fund to reduce revenue volatility and enhance economic stability. With additional revenue from SACU and water royalties expected in the coming years, Lesotho has an opportunity to bolster fiscal reserves and foreign reserves, which could be pivotal when economic pressures intensify.
Second, the update advocates for better allocation of budgetary resources. By increasing investment shares and controlling the expansion of recurrent expenditures such as the public wage bill, Lesotho can improve growth prospects and reduce inequalities. Effective reform in data transparency and resource allocation for human capital and social sectors could also be beneficial.
Third, the LEU advises a significant reform to improve public spending efficiency. Despite developmental needs, Lesotho has historically seen high public spending without corresponding growth and poverty reduction benefits. These outcomes are linked to deficiencies in public investment management, financial management, and procurement processes.
To further aid growth and development, the report suggests reforms to support private sector development. This includes reducing business costs, promoting market competition, and revising investment-related legislation. As part of the African Continental Free Trade Area (AfCFTA), Lesotho could align its laws with the agreement's operational phase, which began in April 2024.
In education, the report calls for reforms in spending efficiency. Enhancing access to quality early childhood care, investing in education infrastructure, and reviewing tertiary education funding are recommended actions. Addressing dropout rates, improving teacher training, and aligning education with labor market needs in technical and vocational education and training are other areas for improvement.