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ꢀꢁ – Lesotho

Lesotho

2006 At a Glance

Population (mn)

1.8

Population Growth (annual %) Official Language (s) Currency

-0.2
English/Sesotho
Loti (LSL)
1.4

GDP (Current US$ bn) GDP Growth (annual %) GDP Per Capita (US$) FDI, net inflows (US$ mn) (2005) External Debt (US$ mn) External Debt/GDP (%) CPI Inflation (annual %)

1.6
806
47
700
46.6
4.5

sovereign ratings

Exports of goods and services (% of GDP) Gross Official Reserves (US$ bn) Gross Official Reserves (in month of imports) UNDP HDI RaNkING

41.8
0.591
5.3

  • Long
  • Local

Currency
Foreign

  • Currency
  • term

Fitch

  • BB+
  • BB–

149

Source: AfDB, IMF, UNCTAD, UNDP, UN Population Division

1. overview of Financial system

on treasury bills have moved downward, influenced by the fall in the government borrowing requirement, and interest rate spreads relative to South Africa have narrowed.
The Central Bank of Lesotho, (CBL), known until 1982 as the Lesotho Monetary Authority, is charged with the principal objective to achieve and maintain price stability in the financial system. Lesotho is a member of the Common Monetary Area (CMA) through a trilateral Agreement between South Africa, Swaziland and recently Namibia. The CMA replaced the Rand Monetary Area in 1986, accommodating changes in the position of Swaziland. While South Africa effectively formulates the monetary policy for the entire region, each member has its own central bank, isresponsibleforitsownmonetarypolicy, andcontrols its financial institutions. However, management of the Rand currency and the gold and foreign exchange reserves of the Rand area remains the sole responsibility of South Africa. The Central Bank of Lesotho Act of 2000 conferred a considerable degree of autonomy to the CBL. Monetary developments have reflected those in South Africa. The discount rate has remained steady since August 2004, market yields
Lesotho’s debt indicators have improved markedly.
With the strengthening of its fiscal position, the Government reduced the stock of outstanding treasury bills from 17% of GDP in 2002/03 to 8% in 2005. Lesotho’s external public debt as a share of GDP has also been steadily declining.

L

Bank and non-Bank Financial sector

The commercial banking sector is dominated by Lesotho Bank and the South African-owned Standard Bank (which acquired Barclays Bank’s interests in Lesotho). The Lesotho Building Finance Corporation merged with Lesotho Bank in April 1993 to facilitate an increased scale of domestic mortgage lending. The CBL regulates all financial institutions in the nation; it established the Financial Institutions Supervision Technical Committee (FISTC), comprising of the

Lesotho – ꢀꢂ

governor and other senior management, in order to develop and consistently review its programme to establish an efficient financial system.

has the right to issue its own currency which serves as legal tender in the issuing country only.

Under the CMA agreement, the LSL is pegged at par to the South African Rand. There are no exchange controls between members of the CMA. Exchange controls for external transactions are similar to those in the Republic of South Africa. However, these controls and regulations are implemented by the CBL.

Capital Markets

The CMA agreement provides Lesotho’s banking institutions with access to the South African capital market. Public and private sector institutions of Lesotho, which are subject to relevant financial laws and policies applicable to counterparts, have the full right to access the South African capital market. There is no stock exchange in Lesotho, as companies are able to list on the Johannesburg Stock Exchange. There is also no formal debt market for the issuance of treasury bonds, as the Government only issues treasury bills for its monetary operations.

LsL Per unit of usd ( year end)

15 10
5
2001 2002 2003 2004 2005 2006

Source: Bloomberg

2. Fixed income Markets
4. Participation of Foreign

Government securities

investors and issuers

In 1992, the Central Bank of Lesotho introduced an EnglishAuctionSystem(EAS)forissuanceoftreasury bills to the public. A monthly auction was introduced in 2001 to drain excess liquidity from the highly liquid banking sector. It is aimed at encouraging local banks to invest their excess reserves in the country to build up foreign reserves. The Dutch Auction System is currently being proposed as a replacement of the EAS as it was often difficult for first-time investors to relate the price of the security to the rate of interest that would accrue on their investment (i.e. purchasing at a discount). Market-determined interest rates on treasury bills are set at a level slightly higher than similar instruments in South Africa. The CBL strives to educate and sensitise the general public about its operations in the capital markets.
There is no participation of foreign investors in government treasury offerings.

5. investment taxation

Dividends payable to non-resident shareholders are subject to a withholding tax of 25% and are charged to the non-resident shareholders.

6. Key Contacts

•

Central Bank of Lesotho

Mailing Address: P.O. Box 1184,

MASERU 100, Kingdom of Lesotho Other Address: Corner Airport and Moshoeshoe Roads, Maseru Central, Lesotho Tel: +266)-22314281/22324281 Fax: +266-22310051/22310679 E-mail: [email protected] Web: www.centralbank.org.ls

3. Foreign exchange

In 1980, the Lesotho Monetary Authority (now the Central Bank of Lesotho) began issuing the Loti (LSL) as the national currency. The South African Rand serves as legal tender in all countries of the Common Monetary Area (CMA), except for Swaziland. Each member state

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