. . . as economic growth slows
. . . public spending remains unsustainable
Moroke Sekoboto
AMIDST rife unemployment in Lesotho, the International Monetary Fund (IMF) has issued a stern warning for the country to intensify efforts to reduce its public wage bill as part of critical reforms to safeguard fiscal stability and foster sustainable growth.
According to the IMF Staff Concluding Statement issued this week, following a two-week Article IV consultation mission in Lesotho, the country’s wage bill, measured as a share of GDP, is not only the highest among member states of the Southern African Customs Union (SACU) but also triple the average in sub-Saharan Africa.
“Lesotho’s wage bill (as a share of GDP) is the highest among SACU members and triple the sub-Saharan African average. Reducing the amount spent on wages has long been a key recommendation of past Article IV consultations,” the IMF said.
While conceding that the government’s decision to impose a moratorium on public sector hiring over the past year has helped moderate spending, the IMF cautioned that more must be done to achieve a balanced and efficient public sector that supports long-term development.
“The government’s continued restraint over the past year has been a critical step in the right direction – this effort should continue, with a continued moratorium on hiring, streamlining of the establishment list, and regular reviews of the compensation system,” the IMF added.
The IMF’s recommendations come at a time when Lesotho is grappling with a cocktail of economic challenges, including staggering unemployment, widespread poverty and sluggish private sector development.
Just last month, Prime Minister Sam Matekane declared youth unemployment a state of emergency, underscoring the gravity of the crisis.
Addressing the National Youth Dialogue at the ‘Manthabiseng Convention Centre in Maseru, Mr Matekane said the youth’s eagerness to be part of the solution had spurred his government to act decisively.
He acknowledged that unemployment has long been a major challenge, exacerbated by external factors such as global trade tensions and climate change.
Perceived government delays in addressing the crisis were largely due to inherited financial constraints, including empty coffers, outstanding debts, and dilapidated infrastructure, he said.
“To stabilise the situation, we worked on fiscal discipline, increased the capital budget to create jobs through major government projects, and promoted growth in foreign direct investment,” Mr Matekane said.
He committed to removing barriers to youth entrepreneurship, announcing free registration for small and medium enterprises (SMEs), free access to tender documents, elimination of lease requirements to start trading, and the reservation of 40 percent of government procurement for youth-led initiatives.
But the IMF warns that unless Lesotho transforms its fiscal surpluses into high-quality, productive growth, the country risks squandering its limited resources.
Despite the significant fiscal surplus of 9.0 percent of GDP in financial year (FY) 2024/25 – buoyed by SACU transfers and water royalties – growth is expected to drop to 1.4 percent in FY2025/26 due to external shocks, including shifting US tariffs and aid.
These have been compounded by external shocks such as shifts in United States trade and aid policies, which are projected to slash growth from 2.6 percent in FY2024/25 to just 1.4 percent in FY2025/26.
“Against a backdrop of low growth, high unemployment, and widespread poverty, Lesotho’s government-led growth model has long struggled to deliver on the authorities’ growth and development goals,” the report states.
The IMF stressed that windfalls such as SACU transfers and water royalties should not justify increased recurrent spending, but must be channelled toward high-return investment projects and strategic savings.
“A striking lesson from the country’s recent history is that greater public spending is no guarantee of higher living standards. As a proportion of GDP, government spending in Lesotho is well above international norms – more than double the SACU average.
“Indeed, real per capita incomes shrunk by 12 percent between 2016 and 2023, and unemployment and inequality remain high,” the IMF observed.
The Fund urged authorities to prioritise the establishment of a stabilisation fund, governed by a strong legal and fiscal framework, to protect future revenues and ensure continuous service delivery in the face of economic shocks.
“The authorities should quickly establish a well-governed savings framework (stabilisation fund) . . . anchored by a clear and credible fiscal rule . . . with a clear governance structure that is independent from political influence, safeguarding Lesotho’s savings until they can be used wisely,” the statement reads.
The IMF also expressed concern over inefficiencies in public investment and wasteful social spending, singling out the tertiary education loan scheme, which consumes 2.7 percent of GDP but has a loan recovery rate of only two percent.
“Social spending is several times (higher than) that of neighbouring countries as a share of GDP, but the targeting of social safety schemes should be improved. A better targeted safety net would not only free resources for the most vulnerable but also help enhance Lesotho’s resilience to new shocks.”
The Fund emphasised that long-term growth will only be sustainable if Lesotho transitions from a government-led economic model to one driven by the private sector.
This, it said, calls for structural reforms to improve the business climate, ensure regulatory consistency, and curb corruption.
“The current government-led growth model has resulted in an economy with a small and undiversified private sector – contributing to low productivity, anaemic private investment, declining competitiveness, and high informality,” the statement noted.
To mitigate these structural weaknesses, the IMF advised urgent implementation of pending legislation including the Public Financial Management and Accountability Bill, the Public Debt Management Bill, and procurement-related secondary laws.
While Lesotho’s macroeconomic indicators have recently improved, public debt fell from 61.5 percent of GDP in FY2023/24 to 56.6 percent in FY2024/25.
The IMF cautioned that the country remains vulnerable to external shocks and must act decisively to reduce fiscal risks and lay the groundwork for sustainable development.
“Although the risk of debt distress is ‘moderate,’ there is little scope to absorb any further shocks. A medium-term goal of 50 percent of GDP would be appropriate . . . The authorities should therefore scale back new borrowing,” the IMF warned.
The Fund’s mission was led by its Mission Chief for Lesotho, Andrew Tiffin, and included engagements with government officials, private sector representatives and civil society in Maseru between 4 and 17 June 2025.
