Lesotho Must Empower Private Sector to Tackle Job Crisis, Says IMF Report

An IMF report warns that Lesotho’s public sector–driven economy has failed to create jobs or growth, urging a shift toward private-sector-led development. It calls for reforms in infrastructure, finance, and skills to unlock employment and diversify the economy.

A new report by the International Monetary Fund’s African Department, produced with support from the World Bank, the International Labour Organization (ILO), and the United Nations Economic Commission for Africa (UNECA), offers a sobering look at Lesotho’s economy. The study, “Unleashing Private Sector Job Creation: Challenges and Opportunities for Lesotho”, finds that decades of government-led growth have failed to create enough jobs or improve living standards. Despite massive public spending, the economy has stagnated, and opportunities for ordinary Basotho remain scarce.

Researchers Athene Laws and Ann-Alice Ticha reveal that public expenditure consumes more than half of Lesotho’s GDP, with 17 percent going to government wages, almost three-quarters of total tax revenue. Yet this spending has not translated into prosperity. GDP per person has dropped by 14 percent since 2016, and over half of all formal workers are in the public sector, where pay is four times higher than in the private economy.

A Weak Job Market and Rising Dependence

Unemployment in Lesotho stands at 16 percent, far above the regional average, and four out of five workers are stuck in informal jobs. About 40 percent of citizens live in extreme poverty, surviving on less than $2.15 a day. Many depend on relatives abroad, as remittances account for 20 percent of GDP. These cash inflows, the report warns, are essential for survival but cannot replace real economic growth.

The collapse of the textile industry, once employing 60,000 people but now supporting only half that number, has deepened the jobs crisis. With exports to the U.S. relying heavily on the African Growth and Opportunity Act (AGOA), the sector faces uncertainty if the trade program expires. The possible loss of the Millennium Challenge Compact (MCC), which was meant to stimulate private investment, could further set back development efforts.

Stuck in Low-Value Sectors

The IMF finds that Lesotho’s economy is overly dependent on a few low-value industries such as textiles, diamonds, wool, and water exports. These sectors bring income but create few jobs and have weak links to other industries. The country has not experienced the “structural transformation” that lifts workers from low-productivity farming into higher-value manufacturing or services.

The report suggests that Lesotho should turn to “industries without smokestacks”, sectors like tourism, agro-processing, and modern services that can generate both jobs and growth. Tourism, for example, could become a major employer thanks to the country’s mountains and culture, but poor roads, limited air access, high visa costs, and unreliable electricity keep visitors away. Agriculture also has potential, particularly in horticulture, honey, and natural oils, but infrastructure gaps and the lack of international certification facilities limit exports.

Small Businesses Struggle to Grow

Small and medium enterprises (SMEs) employ around 360,000 people, more than half of them women, yet most are informal and underfinanced. Access to credit is the biggest challenge; only 17 percent of SMEs have a bank account, and just 10 percent have ever received a formal loan. Banks, mostly subsidiaries of South African institutions, prefer lending to salaried employees rather than entrepreneurs.

The report highlights the need for stronger financial inclusion. Efforts under the National Financial Inclusion Strategy II (2024–28) and Financial Sector Development Strategy II (2025–30) aim to expand access to credit and improve financial literacy. Still, progress will depend on coordination between the government, banks, and small businesses.

Electricity shortages also cripple productivity. About 65 percent of firms experience power cuts, and the Lesotho Electric Company, which imports half the country’s energy, is financially insolvent. Corruption, excessive red tape, and long delays in government payments further discourage private investment.

Youth, Women, and the Skills Gap

Lesotho’s unemployment crisis hits young people and women the hardest. Youth unemployment is nearly 25 percent, while over 40 percent of young women are not in school or work. Women also face steep barriers when trying to open businesses or secure loans; banks often require their husbands’ approval. Although many women run small enterprises, these are typically low-profit and vulnerable to shocks.

The education system adds to the problem. Two-thirds of university graduates study social sciences, while industries like manufacturing, tourism, and technology suffer from skill shortages. The IMF says Lesotho needs stronger links between training programs and real job markets, as well as better labor data to understand what employers need.

A Call for Bold, Coordinated Reform

The IMF urges Lesotho to shift from a state-dominated economy to one that empowers the private sector. This means investing in infrastructure, simplifying business registration, ensuring reliable electricity, and improving public procurement to pay firms on time. The government should focus on enabling private investment rather than competing with it.

Industrial policies must be used carefully, targeted at fixing real market failures, not picking winners. Public employment programs, if introduced, should be temporary and linked to skills training, not long-term substitutes for private jobs. Lesotho’s economy cannot rely on public spending forever. To secure a more inclusive and resilient future, it must embrace entrepreneurship, attract private investment, and create an environment where businesses and workers can thrive.