Chapter 6: The macroeconomic environment of international trade in Lesotho

International trade in any economy primarily depends on its macroeconomic environment, which includes the economy’s monetary and fiscal policies and their interactions. Therefore, understanding how the macroeconomic environment influences, or is shaped by, international trade in Lesotho is essential. This chapter analyses the key monetary and fiscal policy scenario of Lesotho and its coordination to flesh out implications for international trade in Lesotho. The chapter employs content summarisation techniques and descriptive statistics for its analysis. Evidence from the last four decades shows that international trade indicators in Lesotho are relatively stable during some of the global shocks, tax rates are relatively accommodating, subsidies across products indicate where the government is ready to support and interest rates are competitively low, thanks to some good macroeconomic policy coordination. Conversely, Lesotho ranked second in Africa for countries with available data, in terms of general government final consumption expenditure as a percentage of gross domestic product in 2020, with about 70% and 74% allocated for recurrent expenditure in 2022/23 and 2023/24, respectively. This paints a gloomy fiscal picture of the Lesotho economy. The study recommends that the government promote an export-led, growth-oriented policy framework. This includes enhancing infrastructure for international trade through increased capital allocation, raising awareness of competitive tax rates in the region to attract investors and improving macroeconomic coordination, among other measures.