Known as the Mountain Kingdom, Lesotho is situated in the southern region of Africa. It is a small mountainous country covering a land area of approximately 30,000 sq. km. Landlocked and completely encircled by South Africa, Lesotho is one of the smallest countries in the world, but the challenges its people are facing are enormous. The major factors contributing to the currently very difficult situation is high levels of both HIV, poverty and malnutrition in combination with seriously decreasing revenues to the Government budget due to the global economic downturn.

The country is one of the 49 Least Developed Countries (LDC) in the world and due to low human development and the increasingly difficult development situation, is it unlikely to graduate this category in the near future.

In the 2009 Human Development Index, Lesotho is ranked 156 out of 177 countries. According to the Gini index, it is one of the most unequal countries in the world. With a value of 52.5 (where 0 is complete equality and 100 reflects complete inequality), it is placed together with countries such as Guatemala and Liberia in terms of inequality. Persistence of inequalities in growth would have a direct impact on achievement of the MDGs, especially poverty, hunger and health related issues.

The inflation rate has remained relatively low in Lesotho, and the consumer price index (CPI) has been increasing on average by 7 per cent annually since 2000. In 2002, 2003, and 2007 onwards, the inflation has been above average, following the global increase in prices. The inflation in global food prices moderated after 2008, but the inflation on food items in Lesotho has continued to be high. This can have an enormous impact on achievement of MDGs in a country like Lesotho, where malnutrition and poverty are .

Lesotho’s economy is highly open, with imports amounting up to about 90 per cent of GDP. The country has been highly dependent on inflows of workers’ remittances and receipts from the Southern African Customs Union (SACU). SACU has been a major revenue source for the government but the expected declines in this will put considerable pressure on the government’s budget in the coming years. The number of miners employed in South Africa has also gone down from the peak years and many families, especially in rural areas, have lost a vital source of income.

Exports

Lesotho has limited natural resources and a narrow production and export base. The major export products are textiles, diamonds, water and electricity. The garment sector has been the main contributor to rapidly growing exports and it plays a critical role in generating employment. The sector employed approximately 42,000 people in 2008 and accounted for over 11 per cent of the GDP. But as a result of the global economic crisis, demand is declining in its major export market, the USA. Thousands of workers have lost their jobs as factories have had to close down and it is likely that this trend will continue. The value of the diamond exports has also been growing rapidly since 2002 and the perspectives for the industry look bright, despite a temporary scaling back of operations due to the global crisis. The main market for diamond export is the EU. In 2009, the sector contributed almost 10 per cent to GDP. Lesotho exports water and electricity to South Africa through the outputs from two large dams. The water and electricity sector contributed to 3.8 per cent to the GDP in 2008, which is slightly less than during the past ten years. In addition to the two existing dams, a third one is being built and fourth one will be started in two years.

Food security

Currently, Lesotho cannot produce enough food to meet the domestic demand. Almost 70 per cent of the annual cereal requirement is imported, mainly from South Africa. The majority of the people, especially in the rural areas, rely heavily on subsistence farming. But arable land is limited and less than 10 percent of the country is presently under cultivation. A large proportion of the rural population is caught in a poverty trap, with limited crop yields and little or no resources to buy imported food. As a result of this, over 40 per cent per cent of the population are malnourished.

Official Development Assistance (ODA)

The official development assistance (ODA) net receipts have risen steadily and in 2008 it was USD 136 million or approximately 10 per cent of the GNI, according to OECD figures. Only less than one third of the commitments, which was USD 443 million, were actually given. The foreign grants and loans given to the government went up by over 200 per cent between 2000/01 and 2008/09. The economic crisis is not expected to have a negative impact on the support in medium term. In fact it is expected that the ODA will continue to increase, especially due to direct budget support from the World Bank and EC and a compact signed between the Government and the Millennium Challenge Corporation in 2007. The compact allocates USD 362.6 million to the areas of water, health and private sector development for a five-year period, 2009-2013.

Development Planning

The Government of Lesotho currently operates with an interim development framework as the Poverty Reduction Strategy ran out in 2007. The Government has indicated that the new National Development Plan will be in place in 2012/13. This is much needed, and if the plan is closely links development targets to the MDGs, it can

On a positive note, this is an ideal time to develop the plan and provide response mechanisms to the new challenges and link the development targets to the MDG framework in order to ensure targeted and successful interventions. This also links to the Vision 2020, developed after country-wide consultations in 2004: ‘By the year 2020 Lesotho shall be a stable democracy, a united and prosperous nation at peace with itself and its neighbours. It shall have a healthy and well developed human resource base, its economy shall be strong, its environment well managed and its technology well established’.

Governance

After the civil unrest following disputed elections in 1998 settled, the political atmosphere has been relatively calm. There have been no major changes government structures which should significantly impact the work towards achieving the MDGs. However, since the elections in 2007 there has been a dispute between the ruling Lesotho Congress for Democracy (LDC) and opposition parties regarding the proportional seat allocation in parliament related to the Mixed Member Proportional (MMP) model used in Lesotho. With the 1998 unrest in mind, all parties have made efforts to avoid an escalation of the controversy. The Southern Africa Development Community (SADC) was called to serve as a mediator between the parties and the UN House has often been used as a neutral meeting poin for the negotiation talks. In 2010, the SADC mandate ended without a deal between the parties. The mediation process is now led by the Christian Council of Lesotho (CCL) with the support of SADC. In the last few weeks of March, there were signs of a deal coming closer.

Although this political controversy has not directly impacted the work towards development goals in the country, it is possible that it has had an indirectly effect by taking considerable time and attention of Government and possibly also hampered the public debate on development issues as political parties have focused on the controversy.

On governance issues such as government effectiveness, rule of law and voice and accountability, Lesotho ranks better than the average Sub-Saharan African country. One of the major achievements has been in improving public financial management systems, which will principally improve public expenditure management, accountability and timely reporting and auditing of public accounts. Other related reforms include the adoption of the Medium Term Expenditure Framework (MTEF) approach which has now been rolled out to all Ministries, programme based budgeting, and modernisation of procurement system and overhauling public finance laws in line with the policy reforms. The Government is increasingly focusing attention on service delivery, which is likely to have a positive impact on MDGs.