Economic performance and outlook: GDP grew an estimated 4.6% in 2017, following 2.4% growth in 2016. Growth was driven largely by better performance in the primary sector, with production at the Lighongbong mine expected to rebound, accompanied by modest growth in the tertiary sector. The contribution of the secondary sector is constrained by lower construction activities. GDP growth is projected to moderate slightly to 4.3% in 2018, as mining growth drops, and to 4% in 2019. Growth will be driven mainly by enhanced construction activities under Phase II of the Lesotho Highland Water Project (LHWP). Manufacturing’s contribution to GDP growth remained modest in 2016, due to slow growth in textiles and clothing for the U.S. African Growth and Opportunities Act (AGOA) market.
Macroeconomic evolution: The government’s fiscal stance is likely to be less expansionary. The budget balance showed an estimated 0.1% surplus in 2017, up from a 0.5% deficit of in 2016, and is projected to be 0.3% in 2018, before moderating to 0.2% in 2019. Underlying the surpluses is a recovery in Southern African Customs Union revenue and a modest increase in government spending. Private-sector credit is expected to grow faster in 2017 in response to higher growth and the crowding-in effect of the government’s fiscal stance. Lesotho maintains parity between the loti and the South African rand and aligns its policy interest rate to South Africa’s repo rate. Public debt dropped an estimated 1.5 percentage points, to 46.3% in 2017 and is projected to drop to 45.5% in 2018. The decline is driven largely by lower external debt (accounting for 83% of total public debt), which more than offsets the increase in domestic debt. External debt remains sustainable, and the risk of debt distress is modest. Inflation decelerated from 2016, to an estimated 5.3% in 2017. This was in tandem with drops in food prices as domestic production in the region recovered from the carryover effects of the Dry El Niño weather conditions. The current account deficit improved from 16.7% in 2016 to an estimated 15.9% in 2017 and is projected to be 13.8% in 2018. The budget surplus and expected improvements in the current account result in projected official international reserves of 5 months of imports by 2019.
Tailwinds: The emerging opportunities for diversification to the neighboring South Africa market are promising in the medium term. Activities for the second phase of the LHWP, together with booming wholesale and retail trade, are expected to boost construction activities. Achieving full production capacity of existing mines at Lets’eng and Kao will support medium-term growth. The enhancement of telecommunications internet services since 2017 will improve access to financial and insurance services, which are expected to benefit from enhanced reforms under the financial sector development strategy, particularly improved access to credit and financial inclusion. Increased official transfers and foreign direct investment (FDI) are projected to cushion the reduction in FDI following the completion of the Liqhobong mining plant.
Headwinds: The risks to the domestic growth outlook remain elevated. Export demand could be hindered by the uncertainties surrounding continued access to the U.S. market under AGOA. Uncertainties surrounding South Africa’s growth prospects may constrain Lesotho’s growth prospects. Carryover effects of political developments may weaken implementation of economic policies and threaten private investment in the medium term. Increased domestic demand is boosting import absorption of consumer goods, with limited impact on domestic investment but negative impact on gross international reserves.
- The government securities yield curve extended to 10 years with three benchmark points along the curve (5-7 and 10 years).
- The issuance strategy is based on the government’s budgetary needs and the development of the domestic debt market.
- Lesotho is 30th in the ABMDI 2017 Ranking Report.
The issuance strategy is to finance government budgetary needs and to develop the domestic debt market.
In order to facilitate pricing and valuation of capital market securities, the government issues debt instruments, although not in a satisfactory manner as there are currently no long-dated maturities, which defeats the purpose of lengthening the maturity profile of government domestic debt. There are few benchmark points to construct the yield curve that could be used for pricing of other financial instruments. There are 3 benchmarks maturities: 5-7 and 10 years. By the auction method, the government issues new instruments and also re-opens existing bonds.
Yield curve calculation models
There is no yield curve in Lesotho even though the government issuance strategy refers to building the government benchmark yield curve. The “bootstrapping” model has been approved and the yield curve will be constructed once a month. The yield curve will be based on primary market activities.
There is no yield curve in Lesotho.
Yield curve managed by
If constructed, the yield curves will be built by the Central Bank of Lesotho.
The yield curve will be on the Bank's website first, and later on both Bloomberg and Reuters.
Challenges in building an efficient yield curve
- Illiquid bonds and limited secondary market: there is no vibrant secondary market because activity is minimal. Holders do not sell but hold securities to maturity as they view them as a form of savings.
- Lack of transparency in pricing: due to inactivity in the secondary market, there is lack of transparency and knowledge in terms of pricing of securities.
- Narrow investor base
Guide d’achat des obligations
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%.
The settlement takes place the same day as the auction (T+0).
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).
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.
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.
Documents et ressources
Documents - Ministère des Finances
- Lesotho-Draft_Speech_by_Honorable_Min_Finance-June_2014.pdf (37 kB)
- Lesotho_Nat.Strat_Dvpt_Plan-2013-17.pdf (1.3 MB)
- Lesotho_Nat.Strat_Dvpt_Plan-Concept_Note-2012-17.pdf (325 kB)