World Bank Urges Private Sector-Led Growth to Revive Lesotho’s Economy
As unemployment and poverty continue to plague the nation
By Mohloai Mpesi
The World Bank Group has emphasized that fostering a private sector-driven economy is essential for rejuvenating Lesotho’s ailing economy. As the country gradually emerges from the impacts of the Covid-19 pandemic, the private sector has been largely sidelined, resulting in the government becoming the predominant employer.
Growing Economic Challenges
This shift has led to a ballooning civil service wage bill, consequently hindering economic progress. The World Bank made these observations at the launch of its Lesotho Economic Update Report at Avani Lesotho, highlighting the urgent need for economic reforms.
The report raises alarm at the rising levels of unemployment and poverty in Lesotho, estimating that as of 2024, approximately 37 percent of Lesotho’s two million people were living in extreme poverty. Women and young people are disproportionately affected by unemployment, with the overall youth unemployment rate currently at 38.9 percent.
Private Sector Struggles
The report states that the private sector’s contribution to economic growth remains limited. In 2024, domestic investment was expected to account for only 15 percent of GDP, while Foreign Direct Investment (FDI) inflows were anticipated to drop to less than one percent of GDP.
“The restricted role of the private sector hampers job creation and diminishes the government’s ability to generate tax revenue,” the report notes, citing factors such as a challenging regulatory environment, inadequate skills, insufficient access to credit, and infrastructure deficiencies as significant obstacles.
Trade Challenges and Textile Sector Crisis
The economic situation has been further complicated by recent US trade policies. Lesotho was hit with a 50 percent tariff rate, one of the highest imposed, which threatens its crucial textiles sector and could worsen joblessness. These tariffs have effectively voided existing trade agreements, including the African Growth and Opportunity Act (AGOA), which had enabled tariff-free exports to the US for 25 years.
At its peak, Lesotho’s textile sector employed approximately 53,000 workers, making it the country’s second-largest employer. However, recent years have seen employment figures drop to around 31,000, with the latest trade developments jeopardizing an additional 12,000 jobs.
Government Calls for Private Sector Action
During the report launch, Finance Minister Dr. Retṧelisitsoe Matlanyane emphasized the urgent need for private sector involvement: “We urge the private sector to engage meaningfully in the economic development of our nation. Recent events have prompted us to reassess our strategies.”
Dr. Matlanyane criticized Lesotho’s over-reliance on development partners, stating, “We have been resting for 58 years on development partners. Shame on us.” She called for more dynamic private sector participation, acknowledging the risks but encouraging businesses to find ways to de-risk their operations.
Central Bank Concerns
Dr. Maluke Letete, Governor of the Central Bank of Lesotho, expressed concern over the country’s slow economic growth of just 1.5 to 2.3 percent, noting that excluding government projects, growth falls to about 1 percent. He criticized the private sector for slow project delivery and inflated pricing, citing examples where local companies took significantly longer than foreign contractors to complete similar projects.
Economic Recovery Status
Economist Dr. Monaheng Seleteng noted that while Lesotho’s economy has received boosts from SACU revenues and the Lesotho Highlands Water Project, it hasn’t fully recovered from the COVID-19 pandemic. He highlighted the concerning shift from private to public sector dominance in employment, stressing the need to reverse this trend.
The report and officials’ comments underscore the critical juncture at which Lesotho’s economy stands, with private sector engagement emerging as the key to sustainable growth and poverty reduction.