as high energy prices threaten to push up cost of living
Moroke Sekoboto
THE International Monetary Fund (IMF) has urged Lesotho and other sub-Saharan African countries to protect vulnerable households from rising energy and food prices through targeted assistance rather than costly, blanket fuel subsidies that could strain already limited public finances.
In its October 2026 Regional Economic Outlook Update, titled Resilient Growth, Clouded Outlook, the IMF warns that higher fuel and transport costs, combined with rising fertiliser prices and potential weather-related disruptions, could intensify cost-of-living pressures across the region.
The Fund says governments must balance immediate relief for struggling households with the need to preserve public funds for essential services, infrastructure and other investments that support long-term economic growth.
An illustrative comparison involving 19 countries found that general fuel-price smoothing could cost about 4 percent of gross domestic product (GDP). By contrast, targeted transfers designed to provide the poorest 40 percent of households with the same benefit from fuel support would cost no more than 0.5 percent of GDP.
“Generalised price relief is poorly targeted because better-off households typically receive a lion’s share of the benefits,” the report states, warning that such measures can crowd out social spending that would protect vulnerable groups more effectively.
The IMF recommends that governments use existing social-protection programmes where possible and, where delivery systems are weak, consider alternatives such as school feeding schemes, geographically targeted assistance and support for vulnerable farmers. Any temporary fuel-price relief should be transparently funded, capped and time-bound.
“Where these systems are weak, governments should use the narrowest feasible proxies—such as school feeding, geographically targeted support or support to vulnerable farmers—while improving social registries and payment channels,” the report states.
The warning comes as Lesotho faces the risk of renewed inflationary pressure from higher international oil prices, rising import costs and potential disruptions to food supplies.
The IMF’s report places Lesotho among countries facing the challenge of passing on higher international fuel costs to consumers while cushioning households against the effects of more expensive energy. Its preliminary estimates show that, between 23 February and 14 September 2026, changes in Lesotho’s retail gasoline prices reflected 82 percent of the corresponding increase in international refined-product benchmark prices. The pass-through for diesel was higher, at 116 percent.
For Lesotho, higher fuel prices have implications beyond the cost of filling up vehicles. More expensive transport and business operations can feed into the prices of goods and services, while rising fertiliser costs threaten to add to food prices and put further pressure on household budgets.
According to the Central Bank of Lesotho (CBL), Lesotho’s domestic inflation eased to 2.6 percent in August 2026, from 2.9 percent in July. The decline reflected lower food prices and slower price increases in clothing and restaurant services.
However, the CBL warned that inflationary risks remain, citing possible weather-related disruptions to food supplies, higher oil prices and fuel levies, and the potential for businesses to pass increased operating costs on to consumers.
Inflation is projected to rise to 4.7 percent in 2027, mainly because of higher food prices. This suggests that the recent easing in inflation may not necessarily translate into sustained relief for households if energy and food costs begin to rise again.
The IMF also cautions that fertiliser-price increases can affect food prices with a delay. Higher input costs may discourage farmers from using sufficient fertiliser, potentially reducing harvests and prolonging inflationary pressure even after international energy prices begin to ease.
The risks are particularly significant for Southern Africa, where the IMF expects El Niño to threaten food and electricity supplies during the 2026/27 season. Forecasts for October 2026 to March 2027 point to below-normal rainfall across much of the region, raising concerns about crop and pasture losses, declining rural incomes and higher food prices.
A severe El Niño could compound the effects of disruptions to global energy and fertiliser supplies, increasing import bills and putting additional pressure on public finances. The IMF warns that the effects could extend into 2027.
Against this backdrop, the Fund says governments should avoid relying indefinitely on broad subsidies or repeatedly sacrificing productive investment to finance short-term relief.
It argues that countries facing higher import bills should continue with necessary fiscal adjustment while protecting essential services and investments that support economic activity. Governments should also strengthen revenue collection, improve spending efficiency and ensure that new borrowing remains consistent with debt sustainability.
The IMF notes that interest payments absorb a median of about 12 percent of the government revenue across sub-Saharan Africa in its 2025–27 estimates. This leaves governments with less room to finance public services, infrastructure and responses to further economic shocks.
Financing conditions are also becoming less favourable for vulnerable economies. Bilateral aid to the region is projected to fall by a further 12 percent in 2026, following a decline of roughly one-quarter in 2025, according to the report.
The IMF warns that increased reliance on domestic banks to finance the government borrowing can also reduce the availability of credit to businesses and households, while exposing banks more heavily to the government finances.
For countries such as Lesotho, the combination of higher import costs, limited fiscal room and uncertainty in the global economy reinforces the need to direct assistance to households most affected by price increases without undermining economic stability.
The CBL has also reported that domestic economic activity rebounded in July 2026 after contracting in the preceding month, supported mainly by construction, manufacturing and transport. However, domestic demand remained weak.
“Real GDP growth is expected to remain modest in 2026 and gradually pick up over 2027–2028,” the CBL stated last month, warning that the outlook remained vulnerable to labour-market weakness, subdued domestic demand, challenges in the mining sector and external uncertainty.
The IMF projects that sub-Saharan Africa will grow by 4.5 percent in both 2026 and 2027, following estimated growth of 4.5 percent in 2025. Its forecast for 2026 is 0.2 percentage points higher than its April projection.
However, the regional outlook masks considerable differences between economies. Growth in non-resource-intensive countries is expected to slow, while some resource-rich economies are benefiting from higher commodity prices, including oil, copper and gold.
Median inflation across the region is projected to rise from 3.4 percent in 2025 to 4.3 percent in 2026 and five percent in 2027. Fuel and transport costs are driving the immediate pressure, while higher fertiliser prices and other imported input costs are expected to feed into food prices over time.
IMF African Department Director, Zeine Zeidane, said the region’s economic resilience reflected difficult reforms and the ability of governments and businesses to adapt to a challenging global environment.
“Growth has held up despite the war in the Middle East and a difficult global environment. We project the region to grow by 4.5 percent in both 2026 and 2027,” Mr Zeidane said.
He cautioned, however, that the region’s resilience should not be mistaken for immunity to further shocks.
“Resilience today must not be financed by sacrificing tomorrow’s growth. Protecting the vulnerable, preserving stability, and sustaining productive investment are how resilience becomes durable prosperity,” he said.
The IMF says governments should also pursue reforms that strengthen their economies against future shocks, including improving electricity supplies, expanding digital connectivity, developing skills and creating a more predictable business environment to encourage private investment and job creation.
Greater regional trade and electricity integration could expand markets and reduce dependence on imported fuel, while stronger social-protection systems would allow governments to deliver targeted assistance more quickly when households face sudden price increases.
The Fund warns that risks to the outlook remain tilted to the downside, including renewed disruptions to energy supplies, worsening global financial conditions, further aid reductions and severe weather shocks.
