Lesotho’s domestic economy grew modestly in July 2024, following a contraction the previous month.
This was disclosed this week during the 109th meeting by the Monetary Policy Committee (MPC) of the Central Bank of Lesotho.
The governor of Central Bank, Dr Maluke Letete, said the growth was driven by stronger economic activity in the construction, transport and services subsectors, despite weak demand and subdued manufacturing.
Letete said in the near term, Lesotho’s economic growth is projected to improve as several key projects gain momentum.
“These include the Lowlands Water Development Project, the Lesotho Highlands Water Project, and the horticulture initiatives under the Millennium Challenge Corporation supported projects,” he noted.
According to the MPC, the domestic headline inflation eased to 6.0 per cent in August 2024, from 6.7 per cent in July.
This decline was mainly attributed to moderation in prices for education, transport, and clothing and footwear.
“However, food prices rose reflecting higher demand relative to constrained supply. Despite recent currency appreciation, the weak exchange rate continues to pose a risk to the inflation outlook.
“The inflation rate is projected to average 5.5 per cent in 2025 and 5.0 per cent in 2026,” the MPC recorded.
The committee also found that the money supply (M2) declined in July 2024 compared to a modest increase in the preceding month which reflected the decline in transferable and fixed-time deposits held by the business sector. Credit to the private sector grew marginally mainly benefiting business enterprises.
On the other hand, the MPC established that the government budgetary operations resulted in a surplus equivalent to 24.4 per cent of Gross Domestic Product (GDP) in July 2024.
Meanwhile, the public debt stock as a percentage of GDP increased slightly to 55.2 per cent, from a revised 54.9 per cent in the previous month.
The CBL’s Net International Reserves (NIR) decreased by approximately US$79.95 million to US$952.42 million on September 11 2024, from US$1032.37 million on July 16 2024. This was due to increases in the commercial banks’ foreign investment holdings and the need to fulfill foreign payment obligations by Lesotho nationals
The MPC therefore, concluded that global and domestic economic conditions have remained broadly stable since the last meeting in July. Moreover, developments in the money supply and exchange rate suggest that the current level of net international reserves is sufficient to sustain exchange rate parity.
However, a moderate adjustment may be necessary over the medium term to ensure ongoing stability.
Therefore, the MPC decided to lower the NIR target floor to US$750 million from US$760 million so as to ensure sufficient reserves to sustain the one-to-one peg between the Loti and the Rand.
The move was also aimed at maintaining the CBL rate at 7.75 per cent per annum, in alignment with prevailing domestic economic conditions and the broader regional monetary policy environment.
