. . As annual economic growth rate is revised from 3.4 to 1.3 percent
Leemisa Thuseho
LESOTHO continues to face fiscal pressures because of its overdependence on Southern African Customs Union (SACU) receipts, which have declined by over 16 percent in the current fiscal year, exposing the country to revenue volatility.
This was revealed by Minister of Finance and Development Planning, Dr Retšelisitsoe Matlanyane, while presenting the mid-term budget report for the 2025/26 fiscal year before a joint sitting of Parliament yesterday.
Dr Matlanyane said SACU transfers, which contribute over 20 percent of the Gross Domestic Product (GDP), continue to anchor Lesotho’s revenue base.
By mid-year, Lesotho had received M4.59 billion, representing exactly 50 percent of the annual allocation. The country is expected to receive the full M9.18 billion by year-end, equivalent to 20.2 percent of GDP, providing crucial fiscal support during this period.
While the mid-term review reveals encouraging signs of fiscal stability, supported by prudent revenue and expenditure management, authorities are keeping an eye on the volatility of SACU receipts and the rising cost of recurrent spending, particularly the government’s wage bill.
“Compensation of employees remains stable at 46.4 percent of the budget and is expected to remain at 17.2 percent of GDP by year end,” she said.
The country is also facing challenges of underperformance in capital budget execution, and sectoral vulnerabilities in mining, manufacturing, and exports.
Dr Matlanyane said these realities underscore the urgent need to diversify Lesotho’s revenue base, enhance spending effectiveness and strengthen the efficiency of public service delivery.
“Persistent challenges, such as revenue volatility from SACU, underperformance in capital budget execution, and sectoral vulnerabilities in mining, manufacturing, and exports, underscore the need for enhanced implementation capacity and diversified revenue sources.”
The projected economic growth for the 2025/26 fiscal year has been revised downward to 1.3 percent from the previous 3.4 percent estimate quoted in the current year’s budget.
Dr Matlanyane said the new United States tariffs on exports and the challenges in the textile and mining sectors had presented major growth impediments.
Thus, she said, the growth adjustment reflects a more cautious outlook for the country’s economy in the near term, with a medium-term average growth rate of 1.2 percent.
Total revenue for 2025/26 was budgeted at M29.84 billion, equivalent to 67.2 percent of GDP. By mid-year, M12.87 billion had been collected, representing 43.1 percent of the approved budget. At mid-year, M5.21 billion in tax revenue had been collected against an annual target of M11.23 billion, representing 46.4 percent performance.
“Tax revenue, while showing resilience at mid-year, will remain under stress for the remainder of the fiscal year given the subdued macroeconomic environment.”
She added that VAT collections were lagging slightly at 43.1 percent at mid-year, reflecting subdued consumer activity and weakened imports.
“Excise taxes, particularly those levied on alcohol and tobacco underperformed, attaining 45.2 percent by mid-year against the target of M178.4 million, reflecting non-compliance and revenue loss due to illicit trade.”
Meanwhile, the original fiscal framework projected a deficit of 2.5 percent of GDP (-M1.12 billion).
However, Dr Matlanyane said due to the sharp contraction in capital spending, the fiscal balance is now expected to shift to a surplus of M1.65 billion, which reflects delayed project execution and financing constraints, not improved efficiency.
“The imposition of a 50 percent tariff by the United States, our key trade partner, on selected textile exports dealt a severe blow to our manufacturing sector. Although these tariffs have since been reduced to 15 percent, the damage to production volumes and investor confidence has been considerable. Simultaneously, mining output has lagged expectations, further dampening overall revenue inflows.
“Royalties from the Lesotho Highlands Development Authority (LHDA) realised revenue of M1.93 billion, representing 39 percent of the annual target in the first six months of the fiscal year.
“However, water royalties are expected to underperform at M4.78 billion by the end of the fiscal year, below the annual target of M4.95 billion, falling short by M174.4 million. This was due to the unexpected extension of the Muela Tunnel maintenance, which led to reduced water transfers to South Africa.”
She said as of September, total outstanding debt had reached M22.98 billion, up from M21.94 billion the previous year. This comprises M3.84 billion in domestic debt and M19.13 billion in external debt.
The increase is mainly due to higher external disbursements, partially offset by M493.9 million in exchange-rate gains. Dr Matlanyane said domestic debt remained stable and is expected to decline with upcoming bond maturities.
She added that despite global and regional challenges such as trade disruptions, climate shocks, and inflationary pressures, the government’s strategic investments, reforms, and prudent fiscal management had delivered several achievements, including strengthened fiscal stability, progress in infrastructure, agriculture and digital transformation, and improvements in social protection and governance.
Reacting to the mid-term budget, DC Member of Parliament for Hloahloeng, Katleho Mabeleng, said the volatility of water royalties, SACU receipts and AGOA revenues were major concerns.
“In the current state AGOA no longer has the absorption capacity it used to have, and it is at risk, that is a huge concern,” Mr Mabeleng told the Lesotho Times after the presentation.
“Now that the water royalty’s collection has decreased it says we are going to face a challenge in funding public services like health, education, and infrastructure amongst others.”
Mr Mabeleng said he expected the minister to address what he described as the government’s reckless decision to draw over M1 million from the contingency fund to finance Deputy Prime Minister Nthomeng Majara’s trip to attend the COP 30 Summit in Brazil earlier this month. She had nonetheless not done so.
He said the budget statement did not address “profligate spending” which has been an issue of concern in parliament recently.
The government’s continued resort to drawing from contingency fund, meant for emergencies, has drawn the ire of opposition MPs in recent weeks amidst revelations that the government had already overdrawn from it.
A sum of M955,684,354 is set aside for the contingency fund, of which M528,824,258 has already been spent with only M426,860,096 remaining.
“Contingencies Fund has played a vital role in addressing urgent needs such as post-windstorm reconstruction, school feeding arrears, and budget shortfalls, while also supporting infrastructure, diplomatic efforts, and the constitutional tribunal,” Dr Matlanyane said yesterday but did not directly address MPs’ concerns about the controversial trip to Brazil by Ms Majara.
Minister of Foreign Affairs and International Relations, Lejone Mpotjoane, said the statement reflected sluggish performance and shortfalls across several areas.
“The statement of the minister has indicated that we are experiencing sluggish performance in many areas including revenue collection, financing and implementation of large-scale capital projects,” Mr Mpotjoane said.
He attributed many delays to US-imposed tariffs and the shutting down of MCC projects.
He added that there were still other projects in the pipeline, including Mission 300 — a World Bank and African Development Bank partnership to provide electricity to 300 million Africans by 2030, which Lesotho is part of.
