Stanbic Bank’s economic outlook for Lesotho

Lesotho, a small landlocked country surrounded by South Africa, is showing promise for economic growth despite challenges highlighted in a recent economic outlook report published by the Central Bank. Matsela Matsela, Head for Global Markets at Stanbic Bank Lesotho, shared insights on the positive outlook for the Kingdom of Lesotho during a recent interview with CNBC Africa. The report indicated a downward revision in near-term economic growth forecasts, mainly due to declining activity in the manufacturing sector. However, projections still show growth potential, with construction, mining, and service industries expected to support the economy in the coming years. One of the key concerns highlighted in the report is inflation, which is expected to average around 6.2 percent in 2023 before gradually declining in the following years. The fiscal position is expected to improve, supported by higher SACU revenues and modest growth in domestic tax revenue. However, the current account deficit remains a challenge due to various factors like weaker manufacturing exports and capital transfers. Despite these challenges, Matsela expressed optimism about the country's economic prospects. He emphasized the importance of strategic projects like the Highlands Water Project Phase 2 and the Millennium Challenge Account in driving economic growth and reducing poverty. The Highlands Water Project, a bilateral partnership between Lesotho and South Africa, involves significant infrastructure development that is expected to generate employment opportunities and boost capital flow into the country. The Millennium Challenge Account, a US$330 million initiative focusing on sectors like agriculture and health systems, is another key project that is set to positively impact Lesotho's economy. Matsela highlighted the potential for these investments to stimulate economic growth and improve living standards across the country. In terms of local money market rates, there is a notable deviation between the Central Bank of Lesotho and the South African Reserve Bank rates. The divergence reflects confidence in Lesotho's economic stability and reserves, despite challenges like increased inflation. Matsela noted the importance of developing new markets and investable products to meet the evolving needs of market participants. Looking ahead, Matsela sees opportunities for Lesotho to attract foreign investment and develop new financing structures. The country's ties to the South African economy present avenues for equity link structures and corporate bonds that could support local entities in accessing financing and driving sustainable economic growth. Overall, Lesotho's economic outlook shows signs of improvement, supported by strategic investments and ongoing efforts to attract foreign investment. With careful planning and continued collaboration, the Kingdom of Lesotho is poised for economic growth and development in the years to come.