Lesotho’s economy grew modestly at 2.4% in 2024 driven by infrastructure projects like the Lesotho Highland Water Project Phase II (LHWP-II) which boosted activity in the services sector.

Inflation eased to 6.1% due to lower food and fuel prices, while the fiscal balance recorded a surplus of 8.4% of gross domestic product (GDP), driven by a strong Southern African Customs Union (SACU) receipts and water royalties. Despite these gains, the economy remains vulnerable.

Growth is projected to slow to 1.1% in 2025 and 0.5% in 2026, with fiscal and external balances expected to weaken as SACU revenues decline, Official Development Assistance (ODA) shrinks, and capital spending rises.

Key risks include climate vulnerabilities, sluggish growth in key trading partners, escalating trade tensions, ODA cuts, and the aftermath of the cancellation of the Millenium Challenge Corporation Compact II (MCC II).

To mitigate these risks, Lesotho should prioritise economic diversification by shifting toward higher value-added sectors, while expanding trade partnerships to reduce reliance on a few key markets.

Report by the African Development Bank