…despite recent resilience amid elevated external risks
Moroke Sekoboto
LESOTHO’s economy is under growing strain as a series of external shocks filter through to the domestic financial system, threatening both corporate stability and household livelihoods.
According to the 2025 Financial Stability Report by the Central Bank of Lesotho (CBL), dated December 2025, a combination of global market downturns, rising protectionism, and escalating geopolitical tensions has exposed structural vulnerabilities in the country’s economic base.
The report notes that a sharp decline in the global diamond market has significantly reduced Lesotho’s export earnings, with mining firms facing tightening liquidity and operational cutbacks. This has, in turn, weakened household incomes—particularly among mine workers—and reduced debt repayment capacity.
It further highlights that rising global protectionism is increasing uncertainty for the textile export sector, leaving firms and their banking partners exposed to sudden shifts in external demand. Meanwhile, elevated energy and food prices continue to raise business costs, erode household purchasing power, and constrain monetary policy flexibility, contributing to rising domestic credit risk.
Speaking at a Financial Stability Seminar held at the Lehakoe Recreational and Cultural Centre, CBL Governor Dr Maluke Letete, urged households to prioritise essential spending and avoid excessive borrowing amid weakening labour market conditions.
“We are gathered to take stock of the key risks and vulnerabilities facing the financial system, to reflect on the resilience we have built, and—most importantly—to agree on practical steps to promote stability,” Dr Letete said.
He further emphasised the importance of financial stability.
“Financial stability is not an abstract concept. It is the condition that enables households to save with confidence, businesses to invest and create jobs, and the payments system to function smoothly—especially during periods of stress.
“In a small, open economy such as ours, shocks originating beyond our borders can quickly spread through trade, commodity prices, capital flows, and investor sentiment. That reality makes disciplined surveillance, timely policy coordination, and candid dialogue with industry indispensable.”
Dr Letete also said the environment remained highly uncertain.
“Globally, geopolitical tensions, fragmented trade conditions, commodity-price volatility, and elevated policy uncertainty continue to strain resilience. Domestically, macro-financial pressures have risen as growth has softened and financial buffers have been strained,” he said.
While acknowledging resilience in the financial system, he cautioned against complacency.
“Our core financial system remains broadly resilient, supported by robust capital and liquidity buffers and reliable financial market infrastructures. Yet resilience should not lead to complacency,” he said, warning of rising credit risks, higher leverage among households and firms, vulnerabilities in parts of the non-bank financial sector, and growing cyber and operational risks linked to digital finance.
He added that CBL would continue strengthening its early-warning and macroprudential frameworks, but stressed that effectiveness depends on collaboration across the financial sector.
Presenting the report, CBL Head of Financial Stability, Nkhahle Seeiso, said financial stability risks had deteriorated due to external vulnerabilities.
“South African spillovers, persistent weak growth, elevated interest rates and ongoing fiscal strain, reinforce regional vulnerabilities.
“Financial stability risks outlook worsened in 2025, following temporary easing in 2024. Domestically, the macro financial environment outlook deteriorated further as several downside risks materialised.
“The introduction of US tariffs, withdrawal of the MCC Compact II, and cuts in health sector aid have led to an unexpected downgrade in medium-term domestic growth. These developments are expected to negatively affect the textile and clothing industry, slow growth in the services sector and weaken overall domestic demand,” Mr Seeiso said.
CBL First Deputy Governor, Lehlomelo Mohapi, said macro-financial stability was increasingly shaped by geopolitical tensions, shifting trade policies, and disruptions in global commodity markets.
“Changing the United States tariff measures and retaliatory trade actions unsettled global trade flows, weakened investor sentiment, and contributed to sharp swings in global financial markets.
“Together, these developments reinforced an external landscape characterized by elevated uncertainty and rising vulnerabilities.”
Mr Mohapi further noted that South Africa’s economic slowdown continued to transmit adverse effects to Lesotho through trade and financial linkages.
“Moderating inflation, lower interest rates, and relatively resilient household consumption provided some support; however, weak demand in mining and manufacturing, higher US tariffs, and low trade volumes eroded export competitiveness.
“Domestically, the macro financial environment deteriorated in 2025. Economic activity slowed notably as external and domestic support weakened. The GDP gap remained negative, signalling continued weak economic momentum.”
Mr Mohapi also warned that geopolitical conflicts and energy market disruptions are driving a more fragmented global economy.
The panel also discussed real estate market dynamics, noting that debt-servicing pressures were mounting amid weak economic activity and tighter financial conditions.
