The Central Bank of Lesotho (CBL) has raised concerns over the potential economic fallout following the U.S. government’s decision to suspend foreign aid programs for 90 days.
The suspension affects key initiatives such as the Millennium Challenge Corporation (MCC) Compact II and the United States Agency for International Development (USAID) programs.
Speaking during the Monetary Policy Committee (MPC) meeting this week, CBL Governor Dr Maluke Letete emphasised the significant role of foreign aid in Lesotho’s economy, particularly in the health sector.
He warned that the financing of ARVs, tuberculosis treatments, and other critical health services relies heavily on foreign aid, and if this aid is cut, the impact on the economy and public health will be severe.
“The health sector in Lesotho, in particular, the issue of (ARVs), the issue of Tuberculosis and others depends largely on the foreign aid which has financing has been good but the cut of the aid will have huge impacts on the economy but also remember that MCC project worth M6 billion so if that is also cut, it says there’s going to be huge challenges for the growth,” Letete said.
Beyond direct aid cuts, the African Growth and Opportunity Act (AGOA), which provides Lesotho with preferential access to the U.S. market, is also a key concern.
“Also, remember that we have another sort of financing project in the form of access to a market of the United States of America (USA) being African Growth and Opportunity Act (AGOA),” MPC emphasised.
Letete stressed that the government must proactively explore alternative financing strategies, particularly for health services, to mitigate the risks associated with potential aid reductions.
“It therefore compels the government to find a way and sustain finance medication for the people. These issues have not been discussed at length to the highest level in terms of what scenarios can take so that if anything happens, we cannot take a hard knock from these aid cuts,” MPC noted.
Meanwhile, the MPC meeting also focused on monetary policy adjustments to ensure economic stability amid growing uncertainties. Key decisions included raising the Net International Reserves (NIR) target floor from M14.3 billion to M15.6 billion to sustain the one-to-one peg between the loti and the South African rand.
Additionally, the CBL rate was lowered by 25 basis points to 7.25 percent per annum, aligning it with domestic and regional economic conditions.
Letete highlighted that the NIR increased by M781.7 million between the previous meeting in November 2024 and the February 2025 session, mainly due to higher SACU revenue receipts. At current levels, reserves provide approximately 4.7 months of import cover, with projections indicating a stable outlook in the near term.
The global economy showed moderate growth in 2024, a trend expected to continue into 2025. However, protectionist policies in major economies remain a significant risk. For Lesotho, growth is expected to be driven by construction-related activities, although global market uncertainties may pose challenges.
Government budgetary operations recorded a deficit of 4.8 percent of GDP in November 2024, driven by a decline in revenue that outpaced expenditure reductions. Public debt rose to 56.2 percent of GDP, up from 55.7 percent in the previous quarter, reflecting disbursements for ongoing foreign-funded projects.
Domestic economic growth was estimated at 3.1 percent in November 2024, up from 1.5 percent the previous month, primarily driven by consumer spending and strong exports. Inflation declined to 3.7 percent in December 2024, down from 4.4 percent in November, largely due to falling food and fuel prices and a stronger currency.
Seabata Mahao is a general news reporter with special focus on Business and Sports.
Started working at Newsday in 2021.
has an Associate Degree in Journalism and Media.
