the extension of subsidies to distributors LESOTHO to contain prices. Recent developments A new household survey is being con- ducted in CY17. In its absence, estimates From an average growth rate of 4.5 per- point to a slow reduction in the headcount cent from CY11-15, growth is estimated to poverty rate ($1.9/day PPP) from 59.7 per- Table 1 2016 have decelerated to 2.3 percent in CY16, cent in CY11 to 57.8 percent of the popula- P o pulatio n, millio n 2.2 which is much lower than the 5 percent tion in CY16. This slow poverty reduction GDP , current US$ billio n 2.2 growth target set in the National Strategic is estimated to have been accompanied GDP per capita, current US$ 984 Development Plan (NSDP) to reduce pov- with stagnation of inequality between Internatio nal po verty rate ($ 1.9) a 59.6 erty and inequality. CY11 and CY16, with high Gini coefficient Lo wer middle-inco me po verty rate ($ 3.2) a 78.1 Despite the drought agricultural produc- measured at 0.54. a 89.9 tion grew by 7 percent in CY16, mostly Upper middle-inco me po verty rate ($ 5.5) a due to strong growth in horticulture. Gini co efficient 54.2 Scho o l enro llment, primary (% gro ss) b 107.1 While mining shrank by 2.4 percent, in- dustry growth remained strong overall, Outlook b Life expectancy at birth, years 49.7 boosted by growth in textiles. In contrast, Source: WDI, M acro Poverty Outlook, and official data. growth in services remained modest at Growth is expected to pick up from an Notes: (a) M ost recent value (2010), 2011 PPPs. 1.2 percent. estimated 2.3 percent in CY16 to 4 per- (b) M ost recent WDI value (2014) The fiscal deficit widened in FY16 (April cent and 4.2 percent in CY17 and CY18, 2016-March 2017) to an estimated 6.9 per- respectively due to the construction cent of GDP. This deterioration was main- phase of the second phase of the Lesotho ly due to the drop in SACU revenues highlands water project and an increase which declined from 25 percent of GDP in in diamond mining. Private consump- FY14 to at about 13.6 percent in FY16. tion is expected to grow modestly, in The fiscal deficit was mostly financed line with the public wage growth which through a drawdown of reserves due to will be contained in FY17. Public invest- limited domestic borrowing opportuni- ment, and the water project will signifi- Growth has slowed down since 2015 from ties. Thus, the reserves coverage went cantly contribute to the rebound in total 5.6 to 2.3 percent due to modest growth down from 5.4 months of imports in investment from CY17. in the services sector. Higher growth rates FY15 to 4.2 in FY16. The current ac- The FY17 budget is encouraging in count deficit increased from 7.2 percent terms of containing expenditure are projected for 2017-18, boosted by an of GDP in CY15 to 11.1 percent of GDP growth. It includes measures on limit- increase in construction and mining de- in Cy16. ing wage bill growth and the use of spite the narrowing fiscal space. With a total debt to GDP ratio a 47.3 per- goods of services, and increasing the cent in FY16, Lesotho’s risks of external recovery on tertiary student loans. debt distress are considered moderate. Nonetheless, additional reforms are With the drought, CPI inflation accelerat- required to ensure fiscal sustainability, ed to 5.7 percent at the end of CY16 as in light of projected lower SACU reve- food inflation rose to 9.4 percent, despite nues in the medium -term. FIGURE 1 Lesotho / GDP growth and contribution to GDP FIGURE 2 Lesotho / Actual and projected poverty rates and growth by sectors GDP per capita Percent Poverty rate (%) GDP per capita (constant LCU) 8 100 14000 6 12000 80 10000 4 60 8000 2 40 6000 0 4000 20 -2 2000 -4 0 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2002 2004 2006 2008 2010 2012 2014 2016 2018 Agriculture Industry International poverty rate Lower middle-income pov. rate Services GDP at factor cost Upper middle-income pov. rate GDP pc Sources: BOS and WB staff calculations. Sources: World Bank. Notes: see table 2. MPO 242 Oct 17 Fiscal deficits are respectively projected at Increasing the private sector development 4.3 and 3.7 percent of GDP in FY17 and FY18. This would imply continuously Risks and challenges and employment creation can lead to fast- er and inclusive growth. Delivery of pov- lower reserves coverage below 4 months erty targeted labor market programs can of imports in FY17 and FY18. Under this The key risks to outlook is a possible de- lead to faster poverty reduction and re- scenario, Lesotho would nonetheless re- lay in fiscal consolidation due to height- duce inequality. main at moderate risk of debt distress ened political uncertainty and lower re- during that period. gional growth. Poverty is expected to continue declining Although the budget has made a commit- slowly. Given retained growth projec- ment to contain expenditures, further re- tions, the poverty rate (at US$1.9/day PPP) forms are needed to improve the efficien- is anticipated to fall from 57.8 percent in cy of public spending. Delays in this pro- CY16 to 57.3 percent in CY18. cess can risk macroeconomic stability. TABLE 2 Lesotho / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2014 2015 2016 e 2017 f 2018 f 2019 f Real GDP growth, at constant market prices 2.3 5.6 2.3 4.0 4.0 4.2 Private Consumption -1.1 1.1 1.1 2.0 2.1 2.1 Government Consumption 11.9 -0.4 -1.9 5.9 -0.4 -0.5 Gross Fixed Capital Investment 3.9 4.4 -3.3 10.6 19.4 19.8 Exports, Goods and Services 13.2 15.0 2.0 2.1 2.2 2.3 Imports, Goods and Services 7.7 8.2 -4.1 3.0 4.0 5.0 Real GDP growth, at constant factor prices 2.4 5.5 2.3 4.0 4.0 4.2 Agriculture -4.8 -7.2 7.0 3.0 1.9 1.9 Industry 0.3 7.9 3.9 4.0 6.0 6.0 Services 4.1 5.7 1.2 4.1 3.3 3.5 Inflation (Consumer Price Index) 5.3 3.2 5.7 5.0 5.0 5.0 Current Account Balance (% of GDP) -7.3 -7.2 -11.1 -9.5 -9.7 -12.2 Financial and Capital Account (% of GDP) 8.5 7.9 10.3 6.6 5.2 7.5 Net Foreign Direct Investment (% of GDP) 3.7 3.6 1.1 0.9 0.7 0.7 Fiscal Balance (% of GDP) 3.1 -1.4 -6.9 -4.3 -3.7 -2.8 Debt (% of GDP) 44.0 48.4 47.3 46.3 45.1 43.6 Primary Balance (% of GDP) 3.8 -0.5 -6.1 -3.2 -2.6 -1.6 a,b International poverty rate ($1.9 in 2011 PPP) 58.0 57.9 57.8 57.5 57.3 57.0 Lower middle-income poverty rate ($3.2 in 2011 PPP) a,b 76.9 76.8 76.7 76.5 76.3 76.2 Upper middle-income poverty rate ($5.5 in 2011 PPP) a,b 89.1 89.1 89.0 88.9 88.8 88.7 So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty and Equity Glo bal P ractice. No tes: f = fo recast. (a) Calculatio ns based o n 2001 -HB S, 201 1-HB S and 201 0-CM SHB S. No wcast: 201 4 - 2016. Fo recast are fro m 2017 to 2019. (b) P ro jectio n using po int-to -po int elasticity (2010-2014) with pass-thro ugh = 0.5 based o n GDP per capita in co nstant LCU. MPO 243 Oct 17