The transport and construction sectors displayed resilience amid prevailing economic uncertainties, helping to sustain Lesotho’s modest economic growth during the second quarter of 2025.
This development underscored a growing reliance on large-scale infrastructure projects, notably the ongoing Lesotho Highlands Water Project (LHWP) Phase II implementation, which includes the Polihali Dam and Senqu Bridge.
The influence of the construction and logistics sectors’ influence was highlighted by the Central Bank of Lesotho’s (CBL) Governor Dr Maluke Letete, during the announcement of the bank’s Monetary Policy Committee (MPC) decisions this week.
The decisions included maintaining the Net International Reserves (NIR) target floor at US$840 million. This level is considered sufficient to support the stability of the loti, which is pegged to the South African rand.
The MPC also resolved to keep the CBL rate unchanged at 6.75 percent per annum.According to the bank, this decision is aimed at aligning with prevailing domestic economic conditions while remaining consistent with the broader regional monetary policy environment.
Addressing journalists on Tuesday, Letete said external shocks had continued to weigh on Lesotho’s economy, with the textile sector being the hardest hit.
Weak demand from United States buyers has significantly reduced Lesotho’s textile exports, creating ripple effects across the manufacturing industry.
“Unlike before, the textile and manufacturing industry have dropped to the lowest levels, leaving only the construction and logistics sector as the key economic driver,” Dr. Letete stated.
The textile industry, once a backbone of Lesotho’s export economy, has been significantly impacted by waning U.S. demand and a tariff hike from the United States, leading to a sharp contraction in output and export figures.
“There is nothing, especially with the ongoing tariff hike from the United States of America. The textile industry has dropped by a large margin. The manufacturing industry has also dropped across all categories,” Letete added.
“The preliminary indicator of economic activity showed a slight growth in July 2025, reflecting expansion in transport and construction categories,” Letete said.
“Nonetheless, weak domestic demand and a fall in manufacturing, driven by lower U.S. textile exports, constrained growth. In the medium term, growth is expected to moderate due to external shocks, especially those emanating from the export-oriented industries.”
The lack of agricultural production and limited investment in land use were also cited as key issues, further exacerbating economic vulnerabilities.
“The lack of production from Basotho is evident, with very little investment in agricultural and horticultural sectors,” he noted.
Lesotho’s economy tends to move in tandem with that of South Africa, given the currency peg and close economic ties. Letete noted that South Africa experienced a rebound in the second quarter of 2025 after a sluggish start to the year.
“In South Africa, economic growth picked up in the second quarter of 2025 following a moderate performance in the first quarter. This was driven primarily by a rebound in manufacturing and mining activity alongside stronger household consumption,” he explained.
He added that inflationary pressures in South Africa had eased in August but were expected to rise in the near term due to persistent increases in administered prices.
“Consequently, the South African Reserve Bank decided to keep the policy rate unchanged, balancing support for growth with the need to monitor emerging inflationary risks,” he said.
Lesotho’s headline inflation edged up to 4.6 percent in August 2025, compared to 4.4 percent in July.
“This mainly reflected an increase in food prices due to the supply constraint of wheat. In the near term, inflation is expected to moderate, amid mixed price pressures, but the outlook is balanced,” Letete said.
On the fiscal front, government finances improved significantly during the quarter under review.
“The overall fiscal balance strengthened markedly in July 2025, shifting to a surplus of 11.4 per cent of GDP from 0.6 per cent in June, largely driven by SACU receipts,” Letete revealed.
However, the country’s debt burden also grew slightly. “The public debt-to-GDP ratio increased to 56.0 per cent in July 2025, from 55.8 per cent in June 2025 due to project disbursements,” he said.
In the external sector, Lesotho’s current account recorded a deficit of 4.8 percent of GDP in June 2025, compared to a surplus in the previous quarter. This was mainly attributed to persistently high import demand relative to exports.
The bank noted that surpluses in the primary and secondary income accounts helped partially offset the deficit.
Summary
- The influence of the construction and logistics sectors’ influence was highlighted by the Central Bank of Lesotho’s (CBL) Governor Dr Maluke Letete, during the announcement of the bank’s Monetary Policy Committee (MPC) decisions this week.
- Letete noted that South Africa experienced a rebound in the second quarter of 2025 after a sluggish start to the year.
- He added that inflationary pressures in South Africa had eased in August but were expected to rise in the near term due to persistent increases in administered prices.
Authored by our expert team of writers and editors, with thorough research.
