Economic Crisis in Lesotho

Lesotho, a small landlocked country, is facing a severe economic crisis due to cuts in foreign aid and harsh US trade tariffs. The country is struggling with high unemployment and fresh job losses, which are exacerbating its already fragile economy.

Current Economic Situation

The African Development Bank (AfDB) has released a report that predicts Lesotho’s economic growth will shrink to just 0.5% next year. This is a significant decline from the 2.4% growth rate in 2024. The report attributes this slowdown to declining Southern African Customs Union revenues, a decrease in foreign aid, and rising trade-related risks.

Impact of Aid Cuts

The sudden termination of US aid programs has resulted in the loss of about 1,500 healthcare jobs. This has severely undermined efforts in prevention, treatment, and outreach for HIV, which is a significant concern in Lesotho. The country has one of the highest HIV prevalence rates globally, with over 20% of the adult population living with the virus. Furthermore, Lesotho’s health system is already underfunded, with only 21 health workers per 10,000 people, far below the World Health Organisation’s recommended minimum of 44.

Threat to the Textile Industry

Lesotho’s key export sector, textiles and apparel, is under threat due to the imposition of a 50% tariff by the US. Although this tariff has been temporarily reduced to 10% until 1 August, the long-term consequences could be severe. The textile industry has long depended on duty-free access to US markets, which make up 47% of its shipments, valued at over $200-million annually, and account for nearly 13% of GDP. The AfDB warns that the tariffs could lead to a 20 to 30% decline in orders, a loss of over R1-billion in exports, and potentially push GDP growth below 1%.

Action Needed

The AfDB urges Lesotho to act swiftly to mitigate the economic crisis. Economic diversification, investing in skills and infrastructure, and expanding regional trade, especially through the African Continental Free Trade Area (AfCFTA), are essential. Tax reform and debt management programmes, supported by AfDB, are already underway, but more action is urgently needed.

Recommendations

To keep the textile sector viable, the report recommends improving quality standards, logistics, and worker skills to meet changing global market demands. It also calls for accelerating regional trade efforts under AfCFTA and encouraging entrepreneurship in non-textile industries. Lesotho could reorient its production towards regional markets and gradually reduce its exposure to US policy shocks.

Conclusion

In conclusion, Lesotho is facing a severe economic crisis that requires swift and coordinated policy actions. The country must diversify its economy, invest in skills and infrastructure, and expand regional trade to mitigate the impact of aid cuts and trade tariffs. By taking proactive measures, Lesotho can reduce its dependence on US markets and create a more resilient economy. The international community, including organizations like the AfDB, must also provide support to help Lesotho navigate this challenging period and achieve sustainable economic growth.