The International Monetary Fund (IMF) team, led by Andrew Tiffin, conducted a mission in Lesotho from June 4 to 17, 2025, as part of the Article IV consultation. The discussions centered on fiscal and monetary policies for macroeconomic stability and debt sustainability, alongside structural reforms to foster private-sector-led growth.
The IMF staff's preliminary findings suggest that Lesotho's real GDP growth increased to 2.6% in FY24/25 from 2.0% the previous year. This was mainly due to spillovers from the Lesotho Highlands Water Project II (LHWP-II), which helped counteract declining competitiveness in the apparel sector and lower diamond prices. Headline inflation dropped to 4.0% in April from a peak of 8.2% in January 2024.
Lesotho achieved a fiscal surplus of 9.0% of GDP in FY24/25, supported by increased South African Customs Union transfers and controlled recurrent spending. Public debt decreased to 56.6% of GDP from 61.5%. However, an uncertain global environment threatens economic prospects with expected growth halving to 1.4% in FY25/26 due to potential changes in U.S. tariffs and development assistance.
SACU transfers are anticipated to decrease but renegotiated water royalty rates under LHWP-II could provide significant revenue over the medium term. The authorities aim to transform fiscal surpluses into sustained growth by establishing a savings framework for stable government funding and improving public investment management.
Efforts are underway to enhance public financial management through pending legislation such as the Public Financial Management and Accountability Bill and others related to procurement and debt management.
In addition, broad structural reforms are needed alongside improved public investment for better service delivery and higher-quality investment aimed at unlocking private sector growth potential.
"The IMF team thanks the Lesotho authorities and other counterparts for their hospitality," said Mr. Tiffin.