Lesotho Faces Economic Collapse Amid Aid Cuts and US Tariffs

Lesotho is facing economic and public health crises due to cuts in foreign aid and harsh US trade tariffs. The country's economic growth is expected to fall from 2.4% in 2024 to 0.5% in 2026, driven by declining Southern African Customs Union revenues and rising trade-related risks. Aid cuts have severely undermined Lesotho's health sector, leading to job losses and a decline in efforts to combat HIV. The textile industry, which accounts for 13% of GDP, is also under threat from US tariffs. The African Development Bank urges Lesotho to act quickly to address these issues and mitigate the impact of the crises.

Lesotho is grappling with severe economic and public health crises, primarily due to cuts in foreign aid and harsh US trade tariffs. The African Development Bank (AfDB) has warned that the country's economic growth could shrink to just 0.5% in 2026, down from an expected 2.4% in 2024. This significant slowdown is driven by declining Southern African Customs Union revenues, a decrease in foreign aid, and rising trade-related risks, notably the new, prohibitively high US trade tariffs [1].

The textile industry, a key sector in Lesotho's economy, is under threat. US tariffs, initially set at 50% and temporarily reduced to 10% until August 1, 2025, could lead to a 20 to 30% decline in orders and a loss of over R1-billion in exports. The textile industry, which accounts for nearly 13% of GDP, has long depended on duty-free access to US markets, which make up 47% of its shipments, valued at over $200-million annually [1].

The health sector has also been severely impacted. The sudden termination of US aid programs has resulted in the loss of about 1,500 healthcare jobs, undermining efforts in prevention, treatment, and outreach for HIV. Lesotho has one of the highest HIV prevalence rates globally, with over 20% of the adult population living with the virus. The country now has only 21 health workers per 10,000 people, far below the World Health Organisation’s recommended minimum of 44 [1].

The AfDB urges Lesotho to act swiftly. Economic diversification, investing in skills and infrastructure, and expanding regional trade, especially through the African Continental Free Trade Area (AfCFTA), are essential. Tax reform and debt management programmes, supported by the AfDB, are already underway, but more action is urgently needed. To keep the textile sector viable, the report recommends improving quality standards, logistics, and worker skills to meet changing global market demands. It also calls for accelerating regional trade efforts under AfCFTA and encouraging entrepreneurship in non-textile industries [1].

References:
[1] https://groundup.org.za/article/lesotho-faces-economic-collapse-after-aid-cuts-and-trumps-tariffs/