Lesotho’s economy recorded a modest growth of 2.4% in 2024, supported largely by major infrastructure investments, notably the Lesotho Highland Water Project Phase II (LHWP-II), which helped stimulate the services sector. This is according to the Country Focus Report 2025 published by the African Development Bank.
The report highlights a positive turn in inflation, which dropped to 6.1% thanks to reduced food and fuel costs. Lesotho also saw its fiscal balance swing into a surplus of 8.4% of GDP, mainly due to higher receipts from the Southern African Customs Union (SACU) and increased water royalties.
However, these gains may be short-lived. The African Development Bank projects that economic growth could slow to just 1.1% in 2025 and fall further to 0.5% in 2026. This slowdown is attributed to an expected drop in SACU revenues, a decline in Official Development Assistance (ODA), and higher government spending on capital projects. Fiscal and external balances are likely to weaken under these pressures.
The report also outlines several risks that could further strain Lesotho’s economic stability. These include climate change impacts, sluggish performance in key trading partner economies, rising global trade tensions, and funding challenges following the cancellation of the Millennium Challenge Corporation Compact II (MCC II).
To build resilience and drive sustainable growth, the report recommends that Lesotho diversify its economic base by moving into higher value-added industries. Strengthening trade ties beyond its current primary markets could also help reduce vulnerability to external shocks.
For a small, landlocked nation like Lesotho, these strategic shifts could prove critical in turning short-term gains into long-term, inclusive development.
