… A year of external shocks and untapped Potential
As the Mountain Kingdom wraps up a tumultuous 2025, analysts and economists have pointed to a series of missed opportunities that deepened the nation’s economic vulnerabilities amid global trade disruptions, aid cuts, and sluggish reforms.
Lesotho, a landlocked enclave entirely surrounded by South Africa, faced severe external pressures, yet failed to capitalise on potential buffers like revenue windfalls and infrastructure projects.
The year was dominated by U.S. policy shifts under President Donald Trump, which effectively undermined the African Growth and Opportunity Act (AGOA). Initial threats of 50 percent tariffs, the highest imposed on any country, slashed to around 15 percent after negotiations, but the uncertainty triggered factory closures, order cancellations, and massive layoffs in the textile sector, Lesotho’s primary export industry employing tens of thousands, mostly women.
A key missed opportunity was accelerating economic diversification away from over-reliance on AGOA-dependent garments. Despite years of warnings about the program’s impending expiration in September 2025 and calls for investment in agriculture, tourism, and renewables, progress remained slow.
The government declared a national state of disaster amid the crisis, but earlier pivots to sectors like eco-tourism, boosted by nearly one million visitors in recent years, or agro-processing could have mitigated job losses.
Health systems also suffered from U.S. foreign aid freezes, disrupting PEPFAR-funded HIV/AIDS programs in a country with one of the world’s highest prevalence rates.
Funding cuts led to staff layoffs, halted prevention initiatives, and treatment interruptions, with at least 23 percent of support affected.
While a new five-year U.S.-Lesotho health pact in December is anticipated to offer stabilisation, the delay in building domestic funding mechanisms represented another lost chance to reduce aid dependency.
Fiscal policy drew criticism for not fully leveraging windfall revenues from Southern African Customs Union (SACU) transfers and water royalties. The IMF noted that dramatic increases in public investment were unrealistic amid capacity constraints, risking wasteful spending.
Opportunities to establish a robust stabilisation fund, enforce fiscal rules, and prioritise private-sector job creation, amid “jobless growth” and high youth unemployment, were not seized aggressively enough.
The Lesotho Highlands Water Project Phase II provided a bright spot, with steady progress on dams, tunnels, and hydropower despite delays pushing completion to 2028/2029.
Higher royalties from South Africa bolstered revenues, but translating these into inclusive growth, such as through better SME support or infrastructure beyond the project, remained elusive.
Experts argue that 2025 highlighted structural challenges such as volatile revenues, limited private sector dynamism, and external shocks.
Proactive reforms in diversification, health self-sufficiency, and fiscal prudence could have turned vulnerabilities into strengths.
As Lesotho heads into 2026, stakeholders urge bolder action to harness resources like water and human capital for resilient, inclusive development.
Summary
- As the Mountain Kingdom wraps up a tumultuous 2025, analysts and economists have pointed to a series of missed opportunities that deepened the nation’s economic vulnerabilities amid global trade disruptions, aid cuts, and sluggish reforms.
- Initial threats of 50 percent tariffs, the highest imposed on any country, slashed to around 15 percent after negotiations, but the uncertainty triggered factory closures, order cancellations, and massive layoffs in the textile sector, Lesotho’s primary export industry employing tens of thousands, mostly women.
- The government declared a national state of disaster amid the crisis, but earlier pivots to sectors like eco-tourism, boosted by nearly one million visitors in recent years, or agro-processing could have mitigated job losses.
Authored by our expert team of writers and editors, with thorough research.
