【世界银行】莱索托经济更新：将财政政策转变为包容性增长的引擎-2025.4

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WORLDBANKGROUP

LESOTHO

ECONOMIC

UPDATE

April2025

--PublicDisclosureAuthorized

TRANSFORMINGFISCALPOLICY

INTOANENGINEOFINCLUSIVEGROWTH

Followingadecadeoflowandunsustainablegrowth

Lesothohasaunique

opportunitytobuildanewfoundationforrobustandinclusivegrowth

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LESOTHO

ECONOMICUPDATE

April2025

TRANSFORMINGFISCALPOLICY

INTOANENGINEOFINCLUSIVEGROWTH

LESOTHOECONOMICUPDATE2025-TransformingFiscalPolicyintoanEngineofInclusiveGrowth

LESOTHOECONOMICUPDATE2025-Transforming

FiscalPolicyintoanEngineofInclusiveGrowth

ACKNOWLEDGEMENTS

ThisfirsteditionoftheLesothoEconomicUpdateisdesignedtoinformarobustpolicydialoguearounddevelopmentchallengesandopportunitiesforgrowthandpovertyreduction.WorldBankEconomicUpdatesareaimedatawideaudience,includingstakeholdersfromthegovernment,academia,civilsociety,andtheinternationalcommunity.Eacheditionintheseriesincludesareviewofrecenteconomicdevelopments,anassessmentofthecountry’smedium-termoutlook,andaspecialfocussectionofferingadeeperanalysisofasalientissue,trend,orpolicyarea.InthiseditionoftheLesothoEconomicUpdate,thespecialfocussectionexaminestheroleoffiscalpolicyinstabilizingthebusinesscycleandproposespolicyactionstoimprovethequalityofthedeliveryofpublicservicesinanefficiencymanner.Bycontributingtostrengtheningmacroeconomicmanagementandincreasingthevalue-for-moneyinpublicspending,fiscalpolicywillstrengthenthefoundationsforsustainableandinclusivelong-termgrowth.

ThisEconomicUpdatewaspreparedbyateamledbySoniaAraujo(SeniorEconomist,EAEM2).KeycontributorstoPart1includedMonahengSeleteng,DanielaDborkin,andSoniaAraujo.ThemainauthorsforPart2wereSoniaAraujo,DanielaDborkin,andValentinaBonifacio.ThereportalsobenefitedfromvaluablefeedbackprovidedbyJacquesMorisset,PedroMartins,JoannaWatkins,JavierE.Baez,AjaiNair,OliveU.Nsababera,KirkSchmidt,andGuillermoVuletin.CherylKhupheassistedwithcommunicationsandthedisseminationofthereport.RelebohileMohlakoanaprovidedadministrativeandlogisticalsupport.

ThereportwaspreparedundertheoverallguidanceandsupervisionofSatuKahkonen(CountryDirectorforSouthernAfrica),DinaraDjoldosheva(ResidentRepresentativeforLesotho),HassanZaman(RegionalDirector,Prosperity),andMarcoHernandez(PracticeManager,EconomicPolicy).

ThereportwaseditedbySeanLothrop(Consultant)anddesignedbyLucyVictoriaDavis(Consultant).

LESOTHOECONOMICUPDATE2025-TransformingFiscalPolicyintoanEngineofInclusiveGrowth

LESOTHOECONOMICUPDATE2025-TransformingFiscalPolicyintoanEngineofInclusiveGrowth

TABLEOFCONTENTS

LISTOFACRONYMS,FIGURES,TABLESANDBOXES 6

EXECUTIVESUMMARY 9

PART1:THESTATEOFTHEECONOMY 15

1.1RECENTDEVELOPMENTS 15

1.1.1.Economicgrowth:Amodestrecoveryhighlightsopportunitiestoacceleratemacro-fiscalreforms 15

1.1.2.Labor:Ahighpovertyratereflectslimitedemploymentopportunities 17

1.1.3.Prices:Disinflationcreatesspaceformoreaccommodativemonetarypolicy 19

1.1.4.TheExternalSector:RisingSACUrevenues,waterroyalties,androbustremittanceshavebrought

thecurrentaccountintosurplus 20

1.1.5.FiscalPolicy:Multiplefactorshavecontributedtoaburgeoningfiscalsurplus 21

1.2ECONOMICOUTLOOKANDRISKS 23

1.2.1.Thebaselinescenarioisbroadlyfavorable 23

1.2.2.Highexposuretodomesticandexternalriskscloudstheoutlook 25

1.3THREEPOLICYACTIONSTOINCENTIVIZEPRIVATESECTORDEVELOPMENT,

STRENGTHENMACRO-FISCALMANAGEMENT,ANDENHANCEPUBLICSPENDING 27

1.3.1.PolicyAction1:IncentivizePrivateSectorDevelopment 27

1.3.2.PolicyAction2:StrengthenMacro-FiscalManagement 30

1.3.3.PolicyAction3:EnhancetheEfficiencyandEffectivenessofPublicSpending 31

PART2:SPECIALFOCUS:HOWTOMAKEFISCALPOLICYANENGINEOF

INCLUSIVEGROWTH 33

2.1EFFECTIVEFISCALPOLICYISVITALTOLESOTHO’SDEVELOPMENT 33

2.1.1.Longstandingchallengesinmacro-fiscalmanagementweakentheimpactoffiscalpolicyongrowth 34

2.1.2.Budgetaryrigiditiesconstrainthecapacitytoaligntheuseofpublicresourceswiththecountry’sneeds 37

2.1.3.Strengtheningfiscalmanagementandbudgetallocationcouldimprovebudgetexecutionandenhance

theeffectivenessofpublicspending 40

2.2THREEREFORMAREASTOTRANSFORMFISCALPOLICYINTOANENGINE

OFINCLUSIVEGROWTH 43

2.2.1.ReformArea1:AdoptingFiscalRulesandCreatingaStabilizationFundtoPromoteMacroeconomicStability43

2.2.2.ReformArea2:ImprovingtheAllocationofSpending 44

2.2.3.ReformArea3.EnhancingtheEfficiencyofPublicSpending 45

REFERENCES 47

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LESOTHOECONOMICUPDATE2025-TransformingFiscalPolicyintoanEngineofInclusiveGrowth

LISTOFACRONYMS

AfCFTA

AfricanContinentalFreeTradeArea

AGOA

AfricanGrowthandOpportunityAct

ECCD

EarlyChildhoodCareandDevelopment

CBL

CentralBankofLesotho

CGP

ChildGrantsProgram

EIP

EconomicInclusionPrograms

FDI

ForeignDirectInvestment

FY

FiscalYear

GDP

GrossDomesticProduct

GFS

GovernmentFinanceStatistics

IFMIS

IntegratedFinancialManagementInformationSystem

IMF

InternationalMonetaryFund

LHWP-II

LesothoHighlandsWaterProjectPhaseTwo

M

LesothoMaloti

MoFDP

MinistryofFinanceandDevelopmentPlanning

MSMEs

Microandsmallenterprises

MTFF

Medium-TermFiscalFramework

NSDPII

SecondNationalStrategicDevelopmentPlan

OAP

OlaAgePension

PA

PublicAssistance

PFM

PublicFinancialManagement

PIM

Publicinvestmentmanagement

SACU

SouthernAfricaCustomsUnion

SACCOs

Savingsandcreditcooperativesocieties

SARB

SouthAfricaReserveBank

SOEs

State-OwnedEnterprises

SP

SocialPrograms

LISTOFFIGURES

Figure1.Despitereboundingin2024,Lesotho’sgrowthratehasfallenovertime 15

Figure2. andtheGDPgapbetweenLesothoanditspeersiswidening15

Figure3.TextilesanddiamondsrepresentthebulkofLesotho’sexports 16

Figure4. andexportsareconcentratedinahandfuldestinationmarkets16

Figure5.Thefinancialsectordrovegrowthin2024 16

Figure6. whilewaterexportsmadeamodestcontribution.16

Figure7.Alargeshareofthepopulationdoesnotparticipateinthelabormarket 17

Figure8.Relativetopeercountries,labor-forceparticipationislowandunemploymentishigh 17

Figure9.Thepublicsectorhasbecomethecountry’slargestformalemployer 18

Figure10.Remittanceshaverecentlyincreased 18

Figure11. andarewellabovethelevelsofregionalandincome-grouppeers18

Figure12.Inflationistrendingdownward 19

Figure13. butfoodpricesremainthelargestcontributortoinflation19

Figure14.TheCBLpolicyratecloselytracksthepolicyrateinSouthAfrica 20

Figure15.Thesupplyofcredittotheprivatesectorhasexpanded,butmostloansgotohouseholds 20

Figure16.SACUrevenuesandwaterexportshavebolsteredthecurrentaccount 21

Figure17.Waterexportssurgedin2024,butexportsofdiamondsandtextilesremainweak 21

Figure18.AsharpincreaseinSACUtransfersandwaterroyaltieshasboostedrevenue 22

Figure19. creatingalargebutvulnerablefiscalsurplus22

LESOTHOECONOMICUPDATE2025-TransformingFiscal

PolicyintoanEngineofInclusiveGrowth

Figure20.Theshareofdomesticdebtintotaldebthasincreasedovertime 23

Figure21. andinterestpaymentsarehighandrising,particularlyondomesticdebt23

Figure22.RevenuesdependonvolatileSACUtransfersandwaterroyalties 31

Figure23.Arrearshaverecentlybeencontained,butchallengespersist 31

Figure24.Thecyclicallyadjustedprimarybalanceisworseningovertime 35

Figure25. withfrequentanddeepfiscaldeficits35

Figure26.Publicspendingisincreasinglyprocyclical 35

Figure27.ThegrowthofthewagebillhasconsistentlyoutpacedGDPgrowth 37

Figure28. andthewagebillnowsignificantlyexceedsthelevelsofpeercountries(average2018-2023)37

Figure29.Lesotho’spublic-sectorwagebillisthehighestinSSA 38

Figure30.Thepublic-sectorwagepremiumisthehighestamongSACUcountries 38

Figure31. andthepremiumisgreatestamongworkerswithlowereducationlevels38

Figure32.Mostpublicspendingishighlyrigid 39

Figure33. andexpenditurerigidityhasincreasedovertime39

Figure34.Publicspendingiswellabovethelevelsofpeercountriesandregionalaverages 41

Figure35.The“EightMust-Haves”:ASystematicGuidanceFrameworkforPIM 42

LISTOFTABLES

Table1.Baselineforecasts(Annualpercentchangeunlessindicatedotherwise) 27

LISTOFBOXES

Box1.Arevisedformulaforwaterroyaltieshasdeliveredasurgeinfiscalrevenue 21

Box2.TheBudgetSpeech2025/26 25

Box3.ThecloseeconomictiesbetweenSouthAfricaandLesotho 26

Box4.Monetaryandfiscalpolicyunderafixedexchangerateregime 36

Box5.MeasuringbudgetaryrigidityinLesotho 39

LESOTHOECONOMICUPDATE2025-TransformingFiscalPolicyintoanEngineofInclusiveGrowth

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LESOTHOECONOMICUPDATE2025-TransformingFiscalPolicyintoanEngineofInclusiveGrowth

EXECUTIVESUMMARY

Followingadecadeoflowandunstablegrowth,Lesothohasauniqueopportunitytobuildanewfoundationforrobustandinclusivedevelopment.AsrealGDPgrowthpivotedfroma6.3percentexpansionin2012toan8.2percentcontractionin2020,percapitaincomelevelsdeclinedsharply,andLesotho’shopesofimprovinglivingstandardsslippedaway.However,thecountrynowhasachancetoreturntoaconvergencepath,asthesecondphaseoftheLesothoHighlandsWaterProject(LHWP-II),increasedrevenuetransfersfromtheSouthernAfricanCustomsUnion(SACU),andtherenegotiationofwaterroyaltiesfromSouthAfricaareexpectedtodriveeconomicactivityandprovideresourcesformuch-neededsocialspendingandinfrastructureinvestment.Seizingthisopportunitywillrequireeffectiveprioritizationofpoliciesandinvestments,soundpublicfinancialmanagement,andtherestorationofsufficientfiscalbuffers(savings)tocounternegativeshocks.

ThisEconomicUpdatehighlightsthecriticalroleoffiscalpolicyinmitigatingmacroeconomicvolatilityandfosteringsustainableandinclusivegrowth.ItstressestheneedforeffectivefiscalandpublicinvestmentmanagementreformstoaddressLesotho’seconomicchallengesandunlockopportunitiesfordevelopment.Aligningfiscalpolicieswiththegoalofinclusivegrowthisessentialtoensurethatbenefitsreachallsegmentsofsociety.

THESTATEOFTHEECONOMY

Lesothohasexperiencedamodesteconomicrecovery.Aftercontractingforthreeconsecutiveyearsfrom2017to2019,Lesotho’seconomywashardlyhitbytheCOVID-19pandemic,whichledtoafurthercontractionof8.2percentofGDPin2020.From2021to2023,theeconomyexpandedatanaverageannualrateof2.1percent,whichhasbeeninsufficienttoreversethenearly20percentdeclineinpercapitaincomeobservedsince2016.Whileexternalshocksandextremeweathereventshavealsoplayedarole,Lesotho’sunfavorablebusinessenvironmenthasdiscourageddomesticandforeigninvestment,weakenedexportcompetitiveness,andcontributedtothegrowthofalargesubsistence-orientedinformalsector.Consequently,theincomegapbetweenLesothoanditslower-middleincomepeersiswidening.

2024wasanexceptionalyearforLesotho.Theeconomyexpandedbyanestimated2.3percent.Meanwhile,historicallyhighSACUrevenuesandtherenegotiationofwaterroyaltiesdeliveredalargealbeitvulnerablefiscalsurplusevenaspublicspendingincreased.Growthcontinuestobedrivenbythepublicsector,withtheLHWP-IIcontributingtoasurgeinpublicinvestment.Thisprojecthasgeneratedpositivespillovereffectsonthefinancial,communications,andbusinessservicessectors,furtheracceleratinggrowth.Bycontrast,manufacturing,utilities,andminingslowedgrowthin2024.Anespeciallysharpcontractioninthemanufacturingsector,whichisdominatedbymultinationaltextileandgarmentfirms,reducedoverallgrowthbymorethan1.5percentagepoints,whilesubduedinternationaldemandfordiamondsadverselyaffectedminingandquarryingoutput.

Inflationhascontinuedtodecline,fallingfrom6.4percentin2023to6.1percentin2024.Sustaineddisinflationhascreatedspaceforamoreaccommodativemonetarypolicy.However,Lesotho’scentralbankremainstightlyfocusedonmaintainingthestabilityofthepegbetweentheLoti(pluralMaloti:M)

andtheSouthAfricanrand,whichlimitsthescopeformonetarystimulus.

Povertylevelsremainhigh,largelyduetolimitedemploymentopportunities.Alargeshareofthepopulationdoesnotparticipateinthelabormarket,andhouseholdincomeremainscriticallydependentonremittances.Theunemploymentrateispersistentlyhighatanestimated16percent,withwomenandyoungpeopleoverrepresentedamongtheunemployedpopulationof125,000.Moreover,thesefiguresdonotaccountforunderemploymentorprecariousemploymentinLesotho’slargeinformalsector.Supportingrenewedprivatesectordevelopmentwillbevitaltoacceleratejobcreation.

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LESOTHOECONOMICUPDATE2025-TransformingFiscalPolicyintoanEngineofInclusiveGrowth

HighSACUrevenuesgeneratedthecountry’sfirstcurrentaccountsurplusin17years.Lesotho’slargetradedeficittypicallyresultsincurrentaccountdeficits.In2024,however,thetradedeficitnarrowedatthemargin,aslowerdiamondandtextileexportsandhigherimportslinkedtotheLHWP-IIwerecompensatedbyincreasedwaterrevenues,whichrosefrom5percentofGDPin2023to7.2percentin2024.UnprecedentedSACUrevenueinflows,togetherwithlargeandsustainedremittances,helpedboostthesecondaryincomebalance,offsettingthetradedeficit.

HighSACUrevenuesresultedintwoconsecutiveannualfiscalsurpluses.SACUtransfersandwaterroyaltiessurgedbyacumulative17percentagepointsinthepasttwoyears,leadingtosurplusesof7.1percentofGDPinFY23/24and8.8percentinFY24/25.Theauthoritiesusedpartoftheseresourcestoraisespendingandpaydownarrearstoprivatesuppliers,whichreemergedin2022andpeakedat3.17percentofGDPatend-FY23/24.Inearly2025,arrearsfelltoanestimated0.6percentofGDP(nearlyM250million).Astrategyforassessingandclearingtheremainingarrearswouldimprovebudgetmanagementandbuildtrustandaccountabilityinthepublicsector.

Lesotho’seconomicoutlookismoderatelypositive.Underthebaselinescenario,realGDPgrowthisprojectedtotemporarilyincreaseto3.0percentofGDPin2025andreturntoitshistoricalaverageof2percentthereafter.Theexpansionin2025willbedrivenbypublicinvestment,especiallytheLHWP-IIandtransportationprojects.Exportswillremainsubduedamidweakexternaldemand.Headlineinflationisexpectedtograduallyconvergeto5percentasglobalfuelpricesmoderateandinflationinSouthAfricaremainsmodest.Inthiscontext,monetarypolicyisexpectedtobecomemoreaccommodative,whichshouldhelpincreasethesupplyofcredittotheprivatesector.However,thenationalheadcountpovertyrateisprojectedtoremainrelativelystableatabout60percentoverthenextthreeyearsduetopersistentlyhighunemployment.

Amixofnewandlongstandingriskscloudstheoutlook.Asasmallundiversifiedeconomysurroundedbyasingle,muchlargereconomy,Lesothoisverysensitivetoexternaldemandshocks.Weakerglobalandregionalgrowth,potentiallyworsenedbygeopoliticalconflicts,couldreducediamondexportsandremittances,impactingjobsandhouseholdconsumption.TheUSgovernment’sfailuretorenewtheAfricanGrowthandOpportunityAct(AGOA)couldalsodecreaseexportsandincreaseunemployment.Lesotho’seconomicperformanceishighlysensitivetodevelopmentsinSouthAfrica,whichaffecttrade,monetarypolicy,theexchangerate,andremittances.Climate-relatedshockscouldnegativelyimpacttheagriculturalsectorandslowtheimplementationofinfrastructureprojects,weakeninggrowthandreversinggainsinpovertyreduction.Domesticrisksincludepoliticalinstability,whichcouldstallimportantfiscalreformsandmeasurestoimprovethebusinessenvironment,hinderinggrowth.Fiscalmismanagement,potentiallyincludingtheemergenceofnewarrears,coulderodefiscalbuffersandweakentheimpactofspendingongrowthandpovertyreduction.

OngoingchangesinUSbilateralandmultilateralaidposeadditionalrisks.TheUSfundsmanyofLesotho’shealthprograms,andareductioninaidcouldincreasesocialtensionsandamplifydomesticspendingpressures.DelaysinimplementingtheMillenniumChallengeCorporation(MCC)CompactII,whichincludesinvestmentsinwaterinfrastructure,healthservices,andentrepreneurshipprograms,couldinhibitgrowth,jobcreation,andexports.

Heightenedrisksandincreasedrevenuescallforboldreformstobolstergrowth.Inacontextofconsiderableexternaluncertainty,theauthoritiescanleverageacombinationofpublicinvestmentandeconomicreformstoeaseconstraintsongrowthandjobcreation.CurrentgrowthisbeingdrivenbytheLHWP-IIproject,increasedSACUtransfersandwaterroyalites.Ifthegovernmentdoesnotseizetheinitiativeandimplementboldreforms,growthwilldeclineasLHWP-IIinvestmentstaperoff,andthedualsurpluseswillgraduallydisappear.

Lesotho’sprivatesectordevelopmentishinderedbyaweakbusinessenvironment,adominantpublicsector,skillshortages,limitedaccesstofinancingamongsmallandmedium-sizedenterprises,andalargeinfrastructuregap.Theseconditionshavelimitedemploymentopportunitiesanddiscouragedinvestmentsinproductionandexportdiversification.Improvingthebusinessenvironment,expandingaccesstoqualityeducation,andboostingcredittotheprivatesectorwillbecrucialtospurgrowthandjobcreation,especiallyforyoungerworkers.

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LESOTHOECONOMICUPDATE2025-Transforming

FiscalPolicyintoanEngineofInclusiveGrowth

Historically,publicexpenditureshavebeendrivenlargelybySACUtransfers,exacerbatingmacroeconomicvolatility.SACUtransferstendtobevolatileandprocyclical—surgingduringexpansionsandfallingduringrecessions.Inthepast,policymakershavetendedtospendincreasedrevenuesimmediately,andithasbeendifficulttoadjustspendingwhenrevenuesdecline.Unsustainableexpenditurepatternshavedepletedfiscalbuffersandledtotheaccumulationofarrears,generatingpersistentfiscalimbalancesthathavecausedthepublicdebttosoar.Withmonetarypolicyappropriatelyfocusedonmaintainingastableexchangeratewiththerand,fiscalpolicyistheprimarymacroeconomicmanagementtool.Weaknessesinfiscalpolicycontributetomacroeconomicinstability,whichunderminesprivateinvestmentandgrowthandperpetuatespoverty.

Despitehighlevelsofpublicspending,growthhasremainedwellbelowitspotential.Manyfactorsunderminetheeffectivenessofpublicspending,includinginefficienciesinpublicprocurementsystems,weaknessesinpublicfinancialandinvestmentmanagement,aswellasbudgetaryallocation.

ThisfirsteditionoftheLesothoEconomicUpdateproposestwopathwaystounlockavirtuous

cycleofdevelopmentinwhichboththeprivateandpublicsectorsactasrobustenginesofgrowth.

Pathway1:Enhancingprivatesectordevelopment

Toaccelerateprivate-sectordevelopment,thegovernmentcouldconsiderreformsinthreeareas:incentivizingprivateinvestmentandthecreationofnewbusinesses,improvingeducationoutcomes,andexpandingcredittotheprivatesector.

Thefollowingpolicyactionscouldcreatenewopportunitiesforentrepreneurshipandinvestment:

•Reducethecostsofdoingbusinessandpromotebusinessentry.Simplifyingbusinessregulationsandadministrativeprocedures,acceleratingpublicsectordecisionsandlimitingdiscretioninevaluatinginvestmentdecisionswouldreducecostsanduncertainty.Theauthoritiescouldalsoadvancetheimplementationoftheirinvestmentpolicyandclarifytheconditionsforforeigndirectinvestmentinthebusinesslicensingandregistrationact.

•Leverageregionalagreementswhilecontinuetomakeprogressintradefacilitationand

connectivity.Lesothocouldreinforceitsreputationofafriendlyplacetodobusiness,withafocus

onexporters,byaligningitspolicieswithregionalagreements.Forexample,asamemberofthe

AfricanContinentalFreeTradeArea(AfCFT),Lesothocouldtakestepstoalignitslegislationwith

therequirementsoftheoperationalphaseoftheagreement,whichtookeffectinApril2024.

•Favoropenmarketsandcompetition.ThegovernmentcouldencouragecompetitionbyupgradingandmodernizingitscompetitionlawandbyreinforcingthelevelplayingfieldbetweenthepublicandtheprivatesectorinitsState-OwnedEnterprise(SOE)Policy.TheSOEPolicycouldalsointegrateprovisionstoenhanceefficiency,promotegoodgovernance,andstrengthentransparencyandaccountabilityintheuseofpublicfundsassociatedwithSOEactivity.

•EconomicInclusionPrograms(EIPs)offerapromisingpathwaybyprovidingpoorandvulnerablepopulationswithintegratedsupport—suchascashtransfers,skillstraining,productivegrants,andfinancialinclusion—totransitionfromsubsistencetosustainablelivelihoods.EIPscanplayacriticalroleinfosteringself-employmentandsmallenterprisedevelopment,particularlyforwomenandyouth.Evidenceshowsthatwell-designedEIPsarecost-effectiveandleadtomeaningfulimprovementsinincome,resilience,andeconomicmobility.IntegratingEIPsintoexistingsafetynetsliketheChildGrantsProgram(CGP)andPublicAssistance(PA)canreducedependencyontransfersanddriveinclusive,sustainablegrowth.

Toimproveeducationoutcomes,theauthoritiescouldconsiderthreekeyreformobjectives:

•Raisetheefficiencyofeducationspending:thepubliceducationbudgetishighcomparedtothoseofpeercountries,butoutcomescontinuetolagduetoinefficienciesintheeducationsystem.Toimproveeducationoutcomesandenhanceequalityofopportunity,thegovernmentcouldrevise

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LESOTHOECONOMICUPDATE2025-TransformingFiscalPolicyintoanEngineofInclusiveGrowth

theallocationoftheeducationbudgettograduallyexpandaccesstoqualityearlychildhoodcareanddevelopment(ECCD),especiallyinruralareas.Itcouldalsoincreaseinvestmentinbuildings,equipment,andmaterials,anditcouldreviewthetertiaryeducationloanbursaryscheme.

•Improvetheeffectivenessofteachers.ThegovernmentcouldenhanceteachertrainingbyimplementingstandardizedtestingandbydevelopingaContinuousTeacherDevelopmentFramework.Theauthoritiescouldalsoimproveteacherdeploymenttoharmonizestudent-teacherratiosacrossruralandurbanschools.

•Aligneducationwithlabor-marketneeds.Theauthoritiescouldreorientthecurriculumfortechnicalandvocationaleducationandtrainingandhighereducationtobetterreflectthedemandsofemployers.

Toexpandaccesstofinance,Lesothocouldconsiderthefollowingoptionstofurtherimprovethecreditenvironment:

•Consolidatethepartialcreditguaranteescheme.Theauthoritiescouldalsoimproveitsgovernanceandoperationsinlinewithinternationalbestpractices.

•Acceleratetheestablishmentofinteroperablepaymentsandrapidpayments.Thegovernmentcanspeedtherolloutofpaymentsbetweenbanksandnonbankfinancialinstitutions,facilitatefastpaymentsthroughtheNationalPaymentSwitch,andincreasetheacceptanceofelectronicpayments.

Pathway2:Transformingfiscalpolicyintoanengineofinclusivegrowth

Totransformfiscalpolicyintoanengineofinclusivegrowth,thegovernmentcouldconsiderreformsinthreeareas.TheseincludeinsulatingpublicspendingfromvolatileSACUrevenues,improvingtheallocationofspendingfocusingoninclusivityandefficiency,andstrengtheningpublicfinancialmanagement,investment,andprocurement.

ToinsulatepublicspendingfromvolatileSACUrevenuesandenhancetheroleoffiscalpolicyinstabilizingtheeconomy,thegovernmentcouldconsider:

•Implementingfiscalrulesandestabl