Every few months the global rating agencies look at countries and decide what they are worth on the world’s risk ladder. Sometimes the moves are dramatic. A downgrade sends governments into panic mode. An upgrade gets paraded as proof that things are finally turning around.
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Fiscal Surpluses: Fitch forecasts a budget surplus of 2.0% of GDP for the fiscal year ending March 2026 (FY25), down from an estimated 8.8% in FY24. The surpluses in FY23 (7.1% of GDP) and FY24 were due to SACU windfalls, underspent capital budgets, and higher water royalties in FY24. We estimate that SACU receipts will decline by 6.4% of GDP in FY25 to 20.8%, partially offset by an 4.5% of GDP increase in water royalties, after Lesotho renegotiated its water export rates to South Africa, resulting in over a two-fold increase, effective January 2024. Fitch projects a 2% decrease in tax revenue in FY25 and FY26, due to potential textile factory closures.
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When Fitch looked at Lesotho in June this year, it simply kept the country at B with a Stable Outlook. That is the same rating Lesotho has carried since 2019. No change, no drama, no signal that anything fundamental has shifted. As November comes to an end, the silence has grown louder and more uncomfortable. Policymakers like to believe that no news is good news. It really is not. A decade of rating history tells a very different story.
If you go back to 2015, Lesotho held a BB minus rating. It was still speculative, but it was a step above where we are today. By the following year, Fitch had cut the rating to B plus. For a while it held there. In 2016, 2017 and 2018 the rating remained at B plus, although by 2018 the outlook had turned negative. The agency was already warning about structural weaknesses, political turbulence and a widening fiscal hole.
Then came August 2019. Fitch downgraded Lesotho to B, pushed by weakening public finances and growing economic vulnerabilities. That was the moment the country fell deeper into junk territory. It has not climbed out since. The outlook has moved around instead. In 2020 and 2021, Fitch kept the rating at B but changed the outlook to Negative. It cited high external debt, declining revenues, and a worrying history of political instability that makes reform difficult and inconsistent. In 2022 the outlook went back to Stable and has stayed there through to 2023, 2024 and the latest review in June 2025.
This is the entire picture. A downgrade in 2016. Another downgrade in 2019. Six years stuck at B with no movement in either direction. That is not stability. That is stagnation.
Fitch is never emotional. Its language may be bland, but it is brutally honest if you pay attention. Over the years the agency has repeated the same points. Lesotho relies heavily on SACU revenues that rise and fall without warning. Public debt is climbing faster than the economy can grow. The political environment is unpredictable. Government reforms start with fanfare, stall midway and then get overtaken by new crises. Growth is too weak to carry the load. Even before Covid, the economy had fallen into a recession that policymakers never acknowledged until the numbers became too obvious to spin away.
More recently, Fitch noted that growth picked up only slightly in 2024, reaching just above two percent, and is expected to slow again into 2025. This is nowhere near the pace required to stabilise debt or improve living standards. It is certainly not enough to convince investors that the country is becoming more resilient or better governed.
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ESG – Governance: Lesotho has an ESG Relevance Score (RS) of ‘5’ for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. Theses scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model (SRM). Lesotho has a medium WBGI ranking at 32.8 reflecting a recent record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption.
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Five months after the June review, the rating has not changed. It is tempting for the government to shrug and say the rating was confirmed so things must be fine. Meanwhile, the world around us is moving. Ghana, a country that hit the absolute bottom of sovereign finance and entered restricted default, managed to secure an upgrade to B minus in June as part of its recovery program. South Africa is now openly edging toward its first upgrade in almost twenty years after a period of fiscal tightening and structural adjustments. Kenya, to the other extreme, took a downgrade after stalled reforms and tax protests shook investor confidence.
Across the region the rating map is shifting. Either up or down. Lesotho is the only one standing still. In practice, a country that stands still is sliding backwards, because the world does not wait for us to fix our politics or tidy up our books. Investors do not reward countries that refuse to reform. They punish them quietly through higher interest rates, poor sentiment and a reluctance to commit long term capital.
A ‘B’ rating carries real consequences. It signals that lending to Lesotho carries a high risk of default. It means that if the government ever turned to international markets, the interest rates would be painful. It tells global institutions and private investors that public finances are fragile, reforms are slow and the political environment is a constant drag on implementation capacity. Even where debt is concessional, the rating is a reminder that the country’s margin for error is thin. Fitch has warned more than once that continued drawdowns of government deposits and persistent current account pressures could eventually stress the very foreign reserves that protect the loti to rand peg.
The truth is that ratings reflect behaviour, not speeches. A decade of Fitch reports shows that the agency kept waiting for reforms that never arrived. Public finance management remains weak. Procurement is still a playground for political networks. Major projects are delayed year after year. Even the Lesotho Highlands Water Project, which should have been a growth engine, has been slowed down by politics and bureaucracy. In this environment no rating agency will give an upgrade simply because a minister says things are improving.
By the time 2025 closes, Lesotho will have spent ten straight years trapped in the same corner of the ratings map. Formerly BB minus. Then B plus. Now B. With a Stable Outlook that quietly means nothing is improving fast enough to change the country’s position.
This is not only a financial story. It is a leadership story. Countries that take reform seriously find a way to climb back up the ladder. Ghana did it from the worst possible starting point. South Africa is trying. Even smaller economies with far more limited resources than ours have pushed for better credit outcomes through discipline, governance and clear reform paths.
Lesotho has not done that. The long stagnation at B is not Fitch’s judgment alone. It is the world’s quiet conclusion that our politics and our institutions have become comfortable with underachievement.
