Policy Watch

Lesotho Monetary Policy Statement


Having considered the above economic developments, the MPC decided to increase

the NIR target floor from US$600.00 million to US$690.00 million for the third quarter

of 2016. The Committee also decided to keep the CBL Rate at 7.00 per cent.

Lesotho Monetary Policy Statement


The Committee decided to maintain the NIR target floor of US$600 million and increase the CBL Rate by 25 basis points from 6.75 per cent to 7.00 per cent. This would ensure that the Loti would still be adequately underwritten.

Lesotho Monetary Policy Statement


Having considered the above economic developments including those in the external sector and government budgetary operations, the MPC decided that the NIR position continues to remain strongly above the previously set target floor of US$635.00 million. However, due to currency depreciation of the Loti against major currencies in the fourth quarter, the parity between the Loti and the Rand can be adequately underwritten with the NIR floor of US$600.00 million. In addition, the Committee decided to increase the CBL Rate from 6.25 to 6.75 per cent.

Lesotho Monetary Policy Statement


Having considered the NIR developments and outlook, regional inflation and interest rate outlook,domestic economic conditions and the global economic outlook, the MPC set the CBL Rate at 6.25 per cent.

Debt vs GDP / Bonds vs bills

All Data - Lesotho

Year 2012 2013 2014 2015 2016 2017
GDP (billions US$) 2.49 2.27 1.93 - - -
Total Outstanding Amount (Billion US$) 0.15 0.12 - - - -
Bonds 0.07 0.06 - - - -
Bills 0.07 0.06 - - - -
Outstanding Amount/GDP (%) 5.85% 5.37% 0.00% - - -

Country Summary

Lesotho's financial sector is small and underdeveloped. The banking sector is very liquid, concentrated and linked to the economy of its main trading partner, South Africa: the 3 largest banks (First National Bank of LesothoNedbank Lesotho and Standard Bank Lesotho) are South African and they hold 90% of the assets of the sector. The liquidity ratio was 82.1% at the end of 2014.

 The insurance and pension fund industries are at their infancy stages. In the insurance segment, a subsidiary of a South African group, Metropolitan Insurance, operates along five other insurers in the country. The pension fund industry, on the other hand, weighed 13.7% of GDP in 2013; the largest pension firm is the Public Officer Defined Contribution Pension Fund, a public pension firm jointly managed by a South African firm (Stanlib Lesotho) and Africa Alliance.

Lesotho securities market is restricted to the debt market; there is not a stock exchange. In 2008, the Central Bank of Lesotho (CBL) reformed the public securities market with the objectives of increasing local participation and encouraging national savings. At the end of 2014, holdings of Treasury securities amounted to 1,139 billion maloti and the share of domestic debt on the national GDP was 4,8% in 2014.

Measures undertaken to improve the financial sector include enhancing the efficiency and the soundness of the institutional financial framework, developing the money and capital markets and introducing financial innovations. These measures aim to remove barriers to financial services access

Lesotho is an open economy which revenues are mainly derived from its trade activities with the South African Customs Union: in 2014, they represented 42% of Lesotho government revenues – 

Monetary policy & Public debt

The Central Bank of Lesotho (CBL) conducts its monetary policy so as to ensure price stability; its decisions must ensure that domestic inflation is lower than the regional inflation set at 5%. Lesotho currency, the loti, is pegged to the South African rand and to ensure the exchange rate stability, the Central Bank must hold a level of net international reserves; on August 2015, this level was increased to 710 million USD. The Central Bank uses reserve money as the operational target and the 91-d T-bill rate as the intermediation target .

Lesotho does not have a formal public debt policy. The Loans and Guarantees Act of 1967 and related legislation (Act No.14 of 1975, Act No.1 of 1976 and Local Loans Act no.14) govern the Lesotho debt management; these laws specify that :

-  Total external debt outstanding should not exceed the total revenue budget for the 3 last years

-  Domestic debt should not exceed one third (1/3) of recurrent revenue for last audited and published 3 successive financial years.

The Central Bank Act 2000 which gives the Central Bank the privilege of borrowing through Treasury securities, also clarifies that:

-  Total loans, advances and holdings of T-bills and government securities excluding government securities held as a share capital of the Bank, less any credit balances in the account of the government with the Central Bank of Lesotho shall not exceed 5% of the government actual revenues of the previous year’s budget.

Additionally, Lesotho membership to the SADC subjects it to macroeconomic criteria of convergence.

For the quarter ending December 2014, the stock of publicly guaranteed debt amounted to 10,760 billion maloti or 45,8% of GDP.

Market Structure

Market Participants


The Central Bank of Lesotho (CBL), under the directive of the Ministry of Finance, is given the authority to issue government securities. The Central Bank of Lesotho Act 2000 is the legislation that gives the Central Bank authority to issue Treasury securities.

Investor base

Commercial banks are the largest investors of T-bills, holding 70% of the 585,97 million maloti of Treasury bills stocks; the non-banking sector holds the remaining 30%.

On the other hand, the stock of T-bonds worth 553,33 million maloti at the end of 2014 was held at 58% by banks.

Other intermediaries

There are no primary dealers in Lesotho.

Instruments issued

Treasury securities

Issuance of the 273-d and 364-d T-bills are recent activities of the Lesotho debt market. Prior to 2008, there were only the 91-d & the 182-d T-bills. In October 2015, the government re-introduced the 7- and 10-year T-bonds for financing purposes . Maturities available for T-bonds are: 3-,5-, 7- and the 10-years.

Treasury bills represent the largest share of domestic debt held by the financial sector: commercial banks held 1,73% (1,75% for the non-banking sector); as for the T-bonds stock, the respective percentage was 1,37% for the banking sector and 0,76% for the non-banking sector.

Average time to maturity and yield to maturity

At the end of Q4 2014, the average yield on the 91-d T-bill was 6.30%, while that on T-bonds was 9, 6%.

Primary and secondary markets

Primary market

Auctions of T-bills are conducted every two weeks and those of T-bonds every two months; all auctions take place at the CBL. Seven days before the auction, the CBL advertises the sale of the government securities in the press and on its website. Investors can submit competitive or non-competitive bids. Investors wishing to participate in competitive bids must submit a minimum of 100,000 maloti and non-competitive bidders must submit a minimum of 5,000 maloti; any subsequent bids must be in multiples of 100 maloti. 

Investors can submit only one application per non-competitive bid. The limit is four in competitive bids.

Secondary market

OTC vs. Exchange listed

The secondary market is limited and most investors prefer a buy and hold strategy. Furthermore, the infrequent issuance of government securities, in particular T-bonds as well the limited offering of maturities reduces the odds of having an active secondary market.

The Trading Rules on government of Lesotho Treasury bills of 2011 are the regulatory framework of secondary market trading. The Central Bank may not issue T-bills of beyond 365-d.

Clearing, settlement and custody

The CBL is responsible for the clearing and settlement of all capital market activities. The Central Bank Capital Markets Regulations 2014, which was awaiting gazetting, is now in place: activities such as the establishment of an interim stock exchange, the licensing of stockbrokers or the creation of a Registrar are now regulated sections of the market.. 

Investor Protection

The judicial system is fair; there is generally equal treatment between domestic and foreign investors. Lesotho was ranked 136th out of 189 countries by the 2014 World Bank Ease of Doing business.

Guide to Buying Bonds

Procedures for market participation

To participate in the auction, an investor must have a Central Securities Deposit (CDS) account at the Central Bank of Lesotho (CBL) and a bank account with one of the commercial banks.

The investor can then choose to participate in a competitive bid or a non-competitive bid. Competitive bidders can submit up to 4 bids and non-competitive bidders only one. Bid forms must be submitted to the Central Bank at 3:00 PM the day preceding the auction day.

Participations to the 91-d & 182-d T-bills are distinct: bids for the 91-d can only be competitive, with minimum bid amount of 250,000 maloti. Bids for the 182-d can either be competitive and non-competitive: minimum participation amount must be respectively 250,000 maloti (multiple bids allowed for competitive bids) and 5,000 maloti.

Investors may gain further details on auction participation rules in the Government Treasury Securities Trading Regulations of 2009.


Withholding Tax is payable on interest income earned from investment in treasury securities. The rates are 10% and 15% for residents and non-residents respectively.

The tax rate on capital gains is 25%.

Settlement cycle

The settlement takes place the same day as the auction (T+0).

Market restrictions

Openness to foreign investors

There are almost no restrictions on foreign investment and foreign investors are allowed to participate in the purchase and sale of Treasury securities (which are available only in the local currency).

Capital controls

Non-residents of the Common Monetary Area (CMA) zone are subject to exchange rate restrictions.

Profits and dividends from investments in Lesotho should be registered at the CBL as well as inflows of capital. Local companies can invest outside the CMA, but foreign exchange earnings must be repatriated.

Foreign exchange restrictions and profit repatriation

With some restrictions, residents and non-residents may hold foreign exchange accounts. However, CBL must approve all flows of capital and dividends outside of the CMA zone. Some payments and transfers are subject to prior government approval and limitations, and many capital transactions face restrictions or quantitative limits.

Credit rating

Fitch has rated Lesotho BB- in May 2014 and gave it a stable outlook.

List of Primary Dealers

There are no primary dealers in Lesotho.