More than 40 percent of jobs in Lesotho’s textile sector were lost in 2025 as US tariffs and weak global demand battered the country’s largest private-sector employer, exposing deep structural weaknesses in the economy and increasing risks to the banking sector.
The textile industry was never supposed to be Lesotho’s future. It was always a stopgap – a way to employ thousands of mostly women workers while the country built something more sustainable.
Three decades later, the stopgap has become a crutch. And now that crutch has snapped.
According to the Central Bank of Lesotho’s 2025 Financial Stability Report, US tariffs imposed on trading partners triggered a chain reaction.
The report argues that the country’s business sector remained under severe pressure throughout 2025 and that the effects are increasingly being felt beyond factories and company balance sheets.
“The business sector remained fragile, largely due to heightened external policy uncertainty and persistently weak global demand,” the report says.
For Lesotho, where the textile industry remains a major source of employment and export earnings, the consequences have been severe.
The central bank says private-sector firms “faced significant headwinds, particularly in the first half of 2025, following the imposition of tariffs by the U.S. administration on its trading partners.”
Those measures had a direct impact on the country’s export-oriented manufacturing sector.
“These measures dampened external demand, resulting in a decline in export revenues and the loss of more than 40 percent of jobs in the sector.”
The finding is one of the clearest indicators yet of the economic damage inflicted on Lesotho’s textile industry by global trade disruptions and slowing demand in key export markets.
The danger of relying on one market
Beyond the immediate job losses, the report identifies a deeper structural problem: Lesotho’s dependence on a narrow range of export markets.
“This highlights the lack of market diversification, which continues to expose the sector to external shocks, particularly those originating from the U.S. market.”
That observation goes to the heart of a long-standing concern among economists. For decades, Lesotho’s textile industry has relied heavily on preferential access to the American market. While that relationship has generated employment and export earnings, it has also left the sector vulnerable to policy shifts beyond the country’s control.
The central bank suggests that vulnerability is now being exposed.
From factory floor to bank balance sheet
The report’s most significant contribution is its attempt to connect economic weakness in the real economy with emerging risks in the financial sector.
According to the CBL, the slowdown is no longer simply a business problem.
“The contraction in economic activity not only weakened business performance but also had indirect implications for the banking sector, as reduced revenues among textile firms constrained their debt-servicing capacity and heightened credit risk.”
In simple terms, companies earning less money become less able to repay loans.
As firms struggle, banks become more exposed.
That risk appears to be materialising across several sectors simultaneously.
The report says the business sector “remained under significant strain in 2025, as renewed credit risks across major industries highlighted rising vulnerabilities.”
After several years of relative stability, the quality of business loans has deteriorated sharply.
“After a period of relative moderation between 2022 and 2024, NPL ratios increase markedly in 2025, driven by a broad-based deterioration across wholesale and retail trade, construction, manufacturing, and mining and quarrying.”
The increase in non-performing loans suggests that more businesses are struggling to meet their repayment obligations.
A problem bigger than textiles
While textiles are at the centre of the current crisis, the report makes clear that stress is spreading across the wider economy.
“The sharp increase in wholesale and retail trade NPLs reflects subdued domestic consumption, which weakened business revenues and strained repayment capacity.”
At the same time, the mining sector remains under pressure from falling diamond prices, while manufacturers continue to battle uncertainty in global markets.
“The mining sector continues to face pressure from declining diamond prices, while manufacturing remains constrained by challenges in the textile industry amid heightened global policy uncertainty, all of which have contributed to rising loan distress.”
The result is a broad-based weakening of business conditions.
“This broad-based deterioration across sectors suggests that vulnerabilities are becoming more widespread within the business environment.”
Credit remains concentrated in a handful of sectors
The report also raises concerns about the structure of business lending itself.
Demand for business loans remains concentrated in a relatively small number of industries, particularly wholesale and retail trade, construction, real estate and business services.
By contrast, productive sectors such as agriculture, manufacturing and mining account for a much smaller share of borrowing.
According to the central bank, this reflects “weak profitability, high operating costs, and heightened uncertainty surrounding export markets and input prices.”
Business borrowing peaked at around 28 percent of total loans in 2023 before declining to approximately 26 percent during 2024 and 2025.
The moderation, the report suggests, may indicate weakening business confidence and reduced appetite for expansion.
“The persistent concentration of credit demand in a narrow set of sectors underscores the need for continued monitoring of sectoral exposures to safeguard financial stability and mitigate vulnerabilities arising from concentrated lending patterns.”
The LHWP-II effect
Another trend identified by the central bank is a resurgence in corporate borrowing linked to major infrastructure spending.
The report notes that the credit-to-GDP gap, a commonly used indicator of financial stability risk, turned positive in 2023 and again in 2025 after years of remaining below trend.
The increase was “partly driven by financing needs for infrastructure projects such as the Lesotho Highlands Water Project Phase II (LHWP-II).”
While infrastructure investment can stimulate economic activity, the central bank warns that it can also create risks if expected cash flows fail to materialise.
“The widening credit gap underscores emerging financial stability risks, including potential loan impairments if project cash flows are delayed or economic conditions weaken.”
In that scenario, banks could face rising losses, adding further pressure to a financial system already dealing with deteriorating credit quality in several sectors.
A warning about economic resilience
Taken together, the report paints a picture of an economy facing simultaneous pressures from external trade shocks, weak consumer demand, declining export performance and rising business distress.
The loss of more than 40 percent of textile jobs is perhaps the most visible symptom of that strain.
But the central bank’s broader warning is that what begins as an employment and export crisis can quickly become a banking-sector problem if struggling businesses are unable to meet their debt obligations.
The report suggests that the immediate challenge is not only supporting affected industries but addressing deeper structural vulnerabilities, particularly Lesotho’s dependence on a narrow range of export markets and sectors.
Summary
- More than 40 percent of jobs in Lesotho’s textile sector were lost in 2025 as US tariffs and weak global demand battered the country’s largest private-sector employer, exposing deep structural weaknesses in the economy and increasing risks to the banking sector.
- “These measures dampened external demand, resulting in a decline in export revenues and the loss of more than 40 percent of jobs in the sector.
- The finding is one of the clearest indicators yet of the economic damage inflicted on Lesotho’s textile industry by global trade disruptions and slowing demand in key export markets.
Lesotho activist and journalist who is the Chairperson of the Media Institute of Southern Africa (MISA) Lesotho. He is an International Visitor Leadership Program (IVLP) alumnus.
Boloetse is driven by the need to protect and promote the rights of others, especially the marginalized segment of society. He rose to prominence as an activist in 2018 when he wrote to Lesotho communications Authority (LCA) asking it to order Econet Telecom Lesotho (ETL) and Vodacom Lesotho (VCL) to stop charging expensive out-of-bundle rates for data when customers’ data bundles get depleted.
