The small landlocked country has been hit by the depressed global economic environment. In addition, the undecided but hotly contested parliamentary election of 26 May left the country in fear for a return of the violence that followed the 1998 polls and prompted military intervention. Prime Minister Mosisili - who has been in charge of the constitutional monarchy for 14 years - did not manage to obtain an outright majority. Henceforth, anti-Mosisili coalition negotiations might lead to post-poll backbiting. Soldiers are being deployed in the capital as tensions have led to violent clashes between party supporters during the run-up to the elections.

Impact on country risk

Lesotho depends mainly on remittances and SACU (South African Customs Union) duty-revenues coming from its big neighbour South Africa. Falling revenues entailed a foreign exchange reserves drop to the deepest low in more than a decade and have weakened the country’s liquidity position. Moreover, Lesotho’s economy carries an exchange rate risk caused by the increasing fluctuations of the South African Rand, to which the Loti is pegged. The Rand lost around 7% of its value over the last year with global uncertainty depressing capital inflows. Henceforth, ONDD’s risk management downgraded Lesotho’s short term political risk category from 2 to 3, against the background of high external vulnerability, low liquidity and political uncertainty.

Analyst: Louise Van Cauwenbergh, l.vancauwenbergh@credendogroup.com