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Lesotho Country Risk Report 2015

  • February 2016
  • -
  • Business Monitor International
  • -
  • 33 pages

Core Views

Lesotho is poised for a decade of stable and moderate real GDPgrowth, based on its expanding clothing and textiles sector as wellas a burgeoning construction industry and increased telecommunicationsand financial service activity. The country’s high levels ofpoverty and HIV/AIDS prevalence will remain as obstacles to strongereconomic development, as will Lesotho’s reliance on South Africato support export demand.Amid Lesotho’s slow growing economy we expect fixed investmentand its textile sector to provide support to growth.

We forecast fixedinvestment and exports to grow by 5.0% and 4.0%, respectively, in2016. This will be driven by the second phase of the Lesotho HighlandsWater Project as well as growing clothing exports to the US.Lesotho’s fiscal balance will move into deficit in 2016 as a result ofa high public sector wage bill outweighing revenue growth. We forecastthe fiscal balance will deteriorate into a deficit of 0.5% of GDPin 2016 compared to an average surplus of 1.4% in the precedingfour years.We expect the slight narrowing of Lesotho’s current account deficitto signal the beginning of a recovery in the country’s external position.

We forecast the current account deficit to moderate slightlyfrom 11.3% in 2016 to 10.9% of GDP over the next two years dueto robust clothing exports and a weak domestic currency.Inflation in Lesotho will tick up from 3.2% in 2015 to 4.9% in 2016 due to higher food prices on the back of regional droughts. Lesotho’sreliance on South Africa for wheat and maize imports will remain thelargest contributor to rising prices in the country.Political risk in Lesotho is set to remain elevated over the comingdecade as ongoing elite power struggles and an HIV/AIDS epidemiccontinue to destabilise the political landscape.Lesotho’s political and economic stability will remain strongly influencedby South Africa, which completely surrounds the mountainousnation, over the coming decade. Lesotho is reliant on South Africandemand for its exports, as well as political assistance, as evidencedby South Africa’s deputy president’s involvement as the SouthernAfrican Development Community (SADC) facilitator in Lesotho.A SADC-led Commission of Inquiry was established in 2015 toinvestigate political unrest in the country.

Table Of Contents

Lesotho Country Risk Report 2015
Executive Summary 5
Core Views5
Key Risk5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Bright Spots Amid Slow Growth8
Amid Lesotho's slow growing economy we expect fixed investment and its textile sector to provide support to growth We forecast
fixed investment and exports to grow by 50% and 40%, respectively, in 2016 This will be driven by the second phase of the Lesotho
Highlands Water Project as well as growing clothing exports to the US
GDP By Expenditure Outlook 8
TABLE: GDP GROWTH FORECASTS8
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS9
TABLE: FIXED INVESTMENT FORECASTS9
TABLE: NET EXPORTS FORECASTS9
Monetary Policy 10
Regional Factors To Drive Inflation10
Inflation in Lesotho will tick up from 32% in 2015 to 49% in 2016 due to higher food prices on the back of regional droughts Lesotho's
reliance on South Africa for wheat and maize imports will remain the largest contributor to rising inflation in the country
Monetary Policy Framework 11
Fiscal And Debt Outlook 12
Budget Balance To Move Into Deficit12
Lesotho's fiscal balance will move into deficit in 2016 as a result of a high public sector wage bill outweighing revenue growth We
forecast the fiscal balance will deteriorate in to a deficit of 05% of GDP in 2016 compared to an average surplus of 14% in the
preceding four years
Structural Fiscal Position 12
External Trade And Investment Outlook 14
A Long, Steady Road To Recovery14
We expect the slight narrowing of Lesotho's current account deficit to signal the beginning of a recovery in the country's external
position We forecast the current account deficit to moderate slightly from 113% in 2016 to 109% of GDP over the next two years due
to robust clothing exports and low oil prices
Outlook On External Position 14
TABLE: TOP FIVE EXPORTS 15
TABLE: TOP FIVE IMPORTS 15
Long-Term Economic Outlook 16
Slow But Steady Growth Ahead16
Lesotho is poised for a decade of stable and moderate real GDP growth, based on its expanding clothing and textiles sector as well as
a burgeoning construction industry and increased telecommunications and financial service activity The country's high levels of poverty
and HIV/AIDS prevalence will remain as obstacles to stronger economic development, as will Lesotho's reliance on South Africa to
support export demand
TABLE: LONG-TERM MACROECONOMIC FORECASTS 16
Chapter 2: Political Outlook 19
SWOT Analysis 19
BMI Political Risk Index 19
Domestic Politics 20
No Significant Reform In Sight20
Lesotho's political situation will remain precarious over the next two years as key decisions by the government and Lesotho Defence
Force will dictate the country's participation in the Southern African Development Community SADC's threat to suspend Lesotho
highlights its slow progress in reforming political instability and continued military intervention in politics
TABLE: POLITICAL OVERVIEW 20
Long-Term Political Outlook 21
Significant Political Challenges Ahead21
Political risk in Lesotho is set to remain elevated over the coming decade as ongoing elite power struggles and an HIV/AIDS epidemic
continue to destabilise the political landscape
Chapter 3: Demographic Outlook 25
Demographic Outlook 2016 25
TABLE: POPULATION BY AGE GROUP 26
TABLE: POPULATION BY AGE GROUP % 26
TABLE: POPULATION HEADLINE INDICATORS 27
TABLE: KEY POPULATION RATIOS 27
TABLE: URBAN/RURAL POPULATION and LIFE EXPECTANCY 27
Chapter 4: BMI Global Macro Outlook 29
Global Macro Outlook 29
Downside Risks Gather Momentum29
TABLE: GLOBAL ASSUMPTIONS 29
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 30
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 30
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 31
TABLE: MACROECONOMIC DATA and FORECASTS33

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