Lesotho registers growth in economic activity

RETHABILE MOHONO

MASERU – The Central Bank of Lesotho (CBL)’s Monetary Policy Committee (MPC) convened for its 108th meeting and reported a second consecutive increase in Lesotho’s economic activity, with a 1.0 percent growth in May 2024, following a 0.9 per cent growth in April 2024.

CBL governor, Dr. Maluke Letete, attributed this growth to the improved performance in the construction and financial services sectors. However, he said domestic demand and the manufacturing sector activity moderated the expansion.

“In the near term, growth is expected to be stronger mainly due to Lesotho Highlands Water Project (LHWP) construction activity and its spillover effects on services industries.,” he said.

Apart from that, he said Domestic headline inflation rose to 6.5 percent in June 2024 from 6.3 percent in May 2024. “The major contributor to this was food and non-alcoholic beverages,” he said. However, Dr Letete said the weaker exchange rate remains a challenge to elevated domestic headline inflation. 

He added that money supply (M2) remained unchanged in May 2024 from the preceding month, reflecting the fall in transferable deposits held by other financial corporations, which was met with a commensurate increase in household savings and deposits.

“Despite this, private sector credit grew, supported by ongoing construction activities around the country,” he said. He added that government operations registered a deficit of 1.7 percent of Gross Domestic Product (GDP) in May 2024.

“The deficit was because of relatively higher government spending during the same period,” he said, adding that the stock of public debt as a percentage of GDP declined to 52.4 percent from a revised 53.0 percent in the preceding month.

He went on to say that the CBL’s Net International Reserves (NIR) increased by approximately US$119.29 million (over M2 billion) between May 2024 and July 18, 2024.

“This was mainly due to Southern African Customs Union (SACU) receipts and increased water royalties during the same period. The NIR is expected to improve in the next three quarters to March 2025, with cyclical peaks and troughs,” he said.

Looking at global economic growth, Dr Letete said it is expected to remain resilient in 2024 amid risks to the outlook while the domestic economy grew modestly but is expected to expand in the medium term.

“Having considered the NIR developments and outlook, regional inflation and interest rates outlook, domestic economic conditions and the global economic outlook, the MPC decided to maintain the NIR target floor at US$760 million (over M13.5 billion). At this level, the NIR target will be sufficient to maintain a one-to-one exchange rate peg between the Loti and the Rand and maintain the CBL rate at 7.75 percent per annum.