Lesotho Budget 2025/26 analysis

SEMETHE LEPHOSA

The government of Lesotho is “committed to transition from a government-led economy to a private-sector-driven model, with emphasis on growth, job creation, infrastructure development, and continuous policy reforms,” says Honourable Retšelisitsoe Matlanyane, Minister of Finance and Development Planning.

Looking ahead to the budget year 2025/26, the government has projected an improved growth rate of 3.4 percent. This optimistic outlook is supported by several positive indicators articulated in the budget speech.

Budgetary work and forecasts are one of the most pivotal oversight functions of Parliament. Through the budget, government is communicating financial and non-financial key focus areas that reflect choices the government must make. The national budget is a tool the government uses to achieve its economic and development goals.

World-wide, a lion’s share of different governments faces some constraint on the overall size of the budget, Lesotho likewise is faced with the same challenge.

Helicopter view of Lesotho Budget operations (2025/26)

Revenue

The government anticipates closing the current fiscal year (2024/25) at M27,2b while 2025/26 revenue is budgeted to be M29.8b translating into a 9 percent increase. Tax revenue, SACU receipts and Other revenue account to 38 percent, 31 percent and 20 percent of total revenue respectively, while 12 percent relates to expected Grants.

SACU receipts are budgeted to decrease by 21 percent in next fiscal year. The 9 percent increase is primarily driven by projected increase in Other revenue(M2.0b), Grants (M1.8b) and Tax revenue (M1.2b).

Tax Revenue- the key contributors in this line of revenue include, Value-Added Tax(M5,0b), Pay as You Earn(M3,1b) and Corporations and Other enterprises taxes (M1,1b).
Other Revenue – Lesotho Highlights Development Authority’s water royalties are highest in this line of revenue.
Southern Africa Customs Union (SACU) – as alluded above, SACU receipts are budgeted to contribute 31 percent of government revenue. The Minister mentioned her concern that this line is quite volatile, and her government is committed to reduce its exposure to this very volatile source of revenue.
Grants: as stated above, the Grants make 20 percent of government revenue. It’s quite interesting that Grants revenue is anticipated to increase in by 103 percent.

Expenses

The overall expenditure is budgeted to increase by 26 percent when comparing 2024/25 forecast with 2025/26 budget, with a step increase of M4,2b witnessed from capital expenditure while non-capital expenditure is set to increase by M2.2b.

Non-capital expenditures– The government is budgeting 12 percent in non-capital expenditures. The underlying cause of increase is due to government’s ambition to increase Use of goods and services by M1.9b from anticipated M2.7b of 2024/25.
Capital Expenditure- The government is budgeting M10.6b for this category, which aligns with government’s commitment to boost infrastructure development and economic growth.

It is fascinating that the 60 percent of Capital expenditure funding is donor based, which is often a better way to utilize donations. On this line of budget, the Minister couldn’t be silent about risks faced in this line, by highlighting that the ambitious capital expenditure program may face implementation challenges.

Surplus/(Deficit)

In the coming fiscal year 2025/26, the government is foreseeing a deficit of M1.2b and this is attributable to a significant increase in Capital expenditure of MM4,2b and the steep decrease on SACU revenue of M2.4b. It is also forecasted that government will have M2.7b surplus by end of fiscal year of 2024/25. Since this just a forecast and if things go as planned this M2,7b surplus might help in reducing the projected to M1.2b deficit of the next fiscal year 2025/26.

Three Years actual performances

Over the past three years; 2022/21, 2023/22 and 2024/23, Lesotho government has survived two years with M1.6b deficit each year.

Key highlights from budgets speech

The Minister highlighted that the government is transitioning from a government-led economy to a private-sector-driven model. Underlying this transition, is a need to introduce a series of further reforms and policies aimed at stimulating economic growth. It is expected that there will be more active participation from private sector.
The government is also planning to prioritize strategies to equip Basotho with the skills and tools needed to participate meaningfully in a rapidly changing global environment.
Globally, United States, China’s, India, Sub-Saharan Africa including South Africa which plays critical rule in Lesotho’s economy, all anticipate economic performance growths.
Inflation rate is forecasted to decrease from 6 percent to 5.4 percent in 2025/26 which is good news to consumers as this will improve disposable income. As if this is not enough, a drop to 4.9 percent is anticipated on inflation for the fiscal year 2026/27.
The Minister highlighted that as at January 2025 government debt was sitting at M23,1b implying that the government still has a long way to make repayments of principal and interest amounts. This debt is quite hefty despite anticipated growth especially for Lesotho growing economy.
On one of sessions, Honourable Retšelisitsoe Matlanyane, Minister of Finance and Development Planning, mentioned that International Monetary Fund (IMF) and World bank are impressed with Lesotho efforts on reducing national debt.
The findings from the 2024 Labour Force Survey indicated that nearly 39 percent of Lesotho youth is actively looking for work is unable to secure a job.
The government plans to reduce VAT registration threshold from M850 000 to M2 000 000. This indeed shall relieve small businesses of high compliance costs and accordingly facilitate investment and improved economic activity of small businesses.
Majority of Lesotho economy seems to be externally driven whereby large infrastructure projects across the country are the main economic drivers.

Conclusion

In overall, due to Lesotho government’s strategic shift from a government-led economy to a private-sector-driven model, capital expenditure is planned to increase to support the change in approach. The budget looks quite especially for private-sector and for Basotho at large.

I loved the closing remarks of Minister when she said, “we can turn this vision into reality lekaka lenyatheli la monna oa mosephili, monna ha ka ba hloke khomo a ntse a tsamaea ho’e ho ee a e fumane.”

Embodied in this Sesotho expression is Lesotho collective leadership words echoing a deep desire for making Lesotho be better country. Yes, I agree, this ship can be turned around.

Khotso! Pula! Nala!