20 August 2009
Impact of the financial crisis in Lesotho
As many other developing countries, also Lesotho has been affected by the global economic and financial crisis.
There are several factors that make Lesotho exceedingly vulnerable to the current global situation.
Firstly, Lesotho’s government revenue, as well as country’s foreign reserves, is highly dependent on Southern
African Customs Union (SACU) revenue pool, which accounted for about 60 per cent of government revenue in
2008. SACU revenues are a direct result of imports into the sub-region. According to the South African Revenue
Service (SARS) the imports in the area diminished 19.8% from March 2009 to April 2009, indicating a decline in
these revenues. It has been estimated that the SACU revenues for Lesotho will decline by 37.7 per cent in
2009/2010 (including a repayment to the pool), and further by 11.2 per cent in 2010/2011 due to the decline in
imports in the area.
Secondly, both the nation and individual households remain highly exposed to the economic changes in
developed countries. The South African mining sector has been the third largest employer of Lesotho’s labor
force, consisting mainly of rural workers. There have been 53,000-54,000 Basotho people working in South
African mines annually and the remittances contributed 28% of the country’s GDP, equaling USD 371 million in
2007. It is estimated that remittances in Sub Saharan Africa will decline by 8.3-11.6% this year, which is more
than the global average. The statistics show that the number of Basotho workers employed at the mining sector
in South Africa has been declining since Q3 2007, mainly due to the falling gold and platinum prices. In 2009 gold
and platinum prices have been moderately increasing again, but the production rates remain lower compared to
the previous year. According to the Central Bank of Lesotho, the remittances diminished from M871 million in Q3
2008 to M860 million in Q4 2008, and further to M833 million during the Q1 in 2009 (the average exchange rate
has been between 8 and 10 maloti to USD in 2009). In January it was estimated that up to 14,000 employees
will face redundancy in the industry. As migrant workers are retrenched, many have to depend on increasingly
unpredictable agricultural outputs as sources of income.
Thirdly, a slowdown in the developed countries affects Lesotho’s exports. The main export destination in 2007
was North America with a share of 47 per cent. Exports to the European Union totaled 21 per cent and SACU
area almost 30 per cent. It is expected that both exports and imports decline in 2009 and start recuperating in
2010 again. (Table 1)
Table 1: Economic Indicators1
2007a
2008b
2009c
2010c
Real GDP growth (%)
4.8b
6.8
-2
2.8
Exports of goods (fob
USD bn)
0.8
1
0.8
0.9
Imports of goods (fob
USD bn)
1.6
1.9
1.6
1.7
a Actual, b EIU estimate, c EIU forecast
Lesotho’s exports to the U.S. declined by almost USD 69 million from 2007 to 2008 and further decline in 2009
can be expected. Exports from January to June 2009 were USD 39 million less than the year before. (Table 2)
1
Economist Intelligence Unit
20 August 2009
Table 2: Lesotho’s exports to the United States (USD)2
2006
2007
2008
2008*
2009*
Textiles and
apparel exports
387 242 000
383 568 000
339 757 000
155 202 000
122 265 000
Minerals and
metals exports
20 026 000
52 385 000
30 592 000
16 229 000
9 898 000
408 407 000
443 018 000
374 098 000
172 777 000
134 000 000
All sectors exports
* January-June
The economic slowdown and its impact on Lesotho’s exports have been resulting to retrenching workers in
Lesotho, especially in the clothing and textile sector. Previously manufacturing has been contributing about 50
per cent to the total employment, providing jobs to about 48,000 Basotho, of which approximately 45,000 have
been female. It has been estimated that the situation endangers indirectly the income of over 200,000 people
dependent on the patronage of the people working in the textile sector. In addition, declining global demand of
diamonds (Europe being the main market) had an enormous impact on Lesotho’s mining sector and the exports
of diamonds fell by 65.5 per cent in the fourth quarter of 2008 forcing mining sector to scale down its operations.
In addition to the falling prices access to trade financing is constrained and two mines had to suspend their
operations during the second half of 2008 partly due to credit unavailability. As unemployment grows in the
country (previously it has been over 40 per cent) it leads to diminishing purchasing power, lower consumption,
and lower income tax and VAT collections.
As a result of the global economic crisis and its impact on Lesotho, the government has been prepared to
increase public spending and cut taxes in the short to medium term. It is planned that a stimulus fund of M600
million is set aside for boosting economic growth during the next two years and in order to protect the vulnerable.
Furthermore, the Government has planned to implement structural reforms to creating a conductive and
competitive investment climate; restructuring the textile and clothing industry and creating institutional and
financial facilities to support export-import businesses and diversifying new export products; providing monetary
support for specific new investments, feasibility studies and SME start-ups; protecting workers currently
employed, and allocating funds to projects that use the services of the unemployed across all ten districts. These
measures would lead to fiscal deficits in the short and medium term and the Government has received push back
from the IMF during the Spring sessions as a result of which the budget is being revised downward.
Table 3: Key Fiscal Variables (% of GDP)3
2005/06
5006/07
2007/08
2008/09
2009/10
2010/11
2011/12
Revenue & Grants
51.1
60.7
58.7
59.2
62.2
48.5
53
Total Expenditure
46.6
47.4
47.3
49.9
64.4
62.4
61.1
Overall Balance
4.5
13.3
11.3
9.2
-2.2
-13.9
-8.2
Primary Balance
6.8
16.2
13.7
10.1
-1.2
-13.2
-7.6
At current rates, unless checked, these drivers of vulnerability, coupled with the effects of rising food prices
globally, are likely to intensify rural poverty and destitution. These results will arise from the increasing inability of
households to generate enough resources to satisfy their basic needs. Given the many and important roles
2
3
United States International Trade Commission
CBL Economic Review March 2009
20 August 2009
women and girls play (as de facto household heads, caregivers in HIV-affected households, and bread-winners in
the face of increasing HIV death-related orphanhood), the increased poverty and destitution will be more
preponderantly borne by females, thus negatively impacting the MDGs.
Sources:

Central Bank of Lesotho, Quarterly Review September 2008

Central Bank of Lesotho, Economic Review January 2009

Central Bank of Lesotho, Economic Review February 2009

Central Bank of Lesotho, Economic Review March 2009

United States International Trade Commission

World Bank Migration and Development Brief, July 13, 2009

IMF, The Implications of the Global Financial Crisis for Low Income Countries

South African Revenue Service

The Economist Intelligence Unit, Country Report Lesotho 2009

The World Bank, Migration and Remittances Factbook 2008

Goldprice.org

Platinumprice.org

Chamber of Mines of South Africa

South Africa Mining Report Q1 2009, Business Monitor International