…urges shift from public sector dependency to private sector–led growth
Moroke Sekoboto
THE government must urgently overhaul Lesotho’s economic model to unlock private sector–led job creation to end chronic unemployment and poverty, the International Monetary Fund (IMF) has said.
According to the IMF’s Selected Issues Paper No. 2025/141 released this week, Lesotho’s long-standing reliance on public spending to drive growth has failed to deliver sustainable employment or rising living standards.
The report, titled “Unleashing Private Sector Job Creation: Challenges and Opportunities for Lesotho”, said over half of all formal workers are employed by the government, which spends 17 percent of GDP on public sector wages—equivalent to 72 percent of total tax revenue. This is all despite that GDP per capita has fallen by 14 percent since 2016.
“Lesotho has operated a public sector–led growth and employment model that has failed to deliver increased living standards,” the IMF says.
“Given that public sector dominance has not generated the desired employment and living standard outcomes, Lesotho must switch gears toward enabling more private sector job creation.”
Urgent need for reform
The IMF calls for a comprehensive, multi-year reform effort aimed at dismantling the barriers holding back private investment and employment.
“A concerted, coordinated effort could change this bleak picture and a feasible reform scenario that incorporates macro-fiscal reform could increase growth by 1.5 percentage points.
“Using estimates of the median elasticity between growth and job creation for sub-Saharan Africa, this growth increase could be associated with the creation of 4,800 jobs per year. If reforms also make growth more job-intensive, the same increase in growth could create 14,000 jobs per year—rapidly enough to counteract the jobs lost through the recent shocks.”
It also states that Lesotho’s unemployment rate remains among the highest in Africa, estimated at 16 percent in 2024 compared to 6 percent for sub-Saharan Africa. Nearly 80 percent of those employed work in the informal sector, while almost four in 10 people live in extreme poverty.
“The primary challenge in Lesotho is a lack of labor demand. The private sector is small, undiversified, and subject to considerable constraints. At the same time, a secondary challenge is a labour supply mismatch, particularly for key skills.”
Private sector too constrained
The IMF says Lesotho’s private firms face multiple obstacles, from poor access to finance and unreliable electricity supply to corruption and bureaucratic red tape.
“It takes an average of 15 days to obtain an operating license, 73 days to obtain an import license and 78 days to obtain a construction permit—all well above the Southern African Customs Union (SACU) average. Firms in the B-READY survey report having to pay unofficial ‘compliance fees’ to receive permits and services.
“Even firms that win government tenders face long waits for payment, averaging 152 days—more than twice the sub-Saharan African average,” the report adds.
Electricity access is another bottleneck towards economic growth, warns the IMF.
“About 65 percent of businesses experience electricity outages. The effects on operations are exacerbated because only about a quarter of Lesotho’s businesses have access to a back-up generator. The Lesotho Electricity Company’s financial troubles have worsened reliability, with the utility declaring bankruptcy in 2025.”
Finance and skills barriers
The IMF identifies access to finance as “the primary barrier to firm growth”.
“Only 17 percent of micro, small and medium enterprises (MSMEs) have a formal bank account, while just 10 percent have received credit from a formal institution.
“Banks report SME lending as too high risk, with limited bankable projects, and instead focus on foreign direct investment and state-level projects. Two thirds of firms highlight insufficient operational cash flow as a key challenge, while most MSMEs instead rely on mobile money for transactions and informal mechanisms for saving and credit.”
The IMF praises recent policy initiatives, saying “the authorities have developed a comprehensive reform agenda to address the challenges,” including the National Financial Inclusion Strategy II (2024–28) and the forthcoming Financial Sector Development Strategy II (2025–30).
These, it says, emphasize digitization, fintech regulation, and the development of inclusive financial products.
Skills mismatch is another deep-seated issue.
“Two-thirds of tertiary graduates studied social sciences and education, while most private and public investment is oriented towards agriculture, manufacturing, tourism, and technology. This mismatch leaves many graduates unemployed even as firms struggle to find qualified workers.”
Women and youth most affected
The IMF points out that women and young people are the hardest hit by joblessness.
“The youth unemployment rate is 24.8 percent for 15 to 24-year-olds versus 10.1 percent for sub-Saharan Africa. More than one in three youths are neither in employment, education or training, with the rate reaching over 40 percent for young women.”
“Across all age ranges, women face higher rates of unemployment than men. Women are far less likely to successfully access bank business loans; they are instead required to provide their husband’s name and income statements, and are less likely to be approved than men, particularly if unmarried.”
Path to prosperity
The IMF therefore urges the government to act decisively in reforming Lesotho’s economic model.
“The public sector should switch roles—acting as an enabler of private sector development, rather than a substitute.”
It also says the current wage policies distort the labour market and undermine private employment.
“Carefully addressing distortions from comparatively high public sector wages will address crowding out in the labour market,” the report stated.
The IMF also emphasises the need for stronger coordination among state programmes that support business growth.
“Government efforts to spur private sector development could be better coordinated and evaluated for transparency.
“Policymakers should be very cautious with ‘picking winners’ by directly supporting individual firms or sectors without addressing these bottlenecks,” the report warned.
While acknowledging that temporary job schemes can provide short-term relief, the IMF says those cannot replace long-term reforms.
“These programs are no substitute for the deep reforms required to spur durable, private sector–led job creation.
“Only through sustained reform and strong political will can Lesotho transform its economy from one dependent on the state to one powered by dynamic local enterprises. Such a transformation could unleash thousands of new jobs and deliver the inclusive growth and decent livelihoods that Basotho have long been waiting for.”
