Lesotho’s government has published its Annual Borrowing Plan for FY2026/27, a constitutionally mandated document that reveals both the scale of the state’s fiscal ambitions and the structural constraints that continue to define its borrowing options.
For the first time under a constitutional requirement, the Ministry of Finance and Development Planning has laid out in public how it intends to borrow LSL4,638.8 million in the coming financial year. The document is not just a borrowing schedule. It is a window into the fiscal condition of the state, the risks it is managing, and the investments it is betting will define the next decade of national development.
The FY2026/27 Annual Borrowing Plan, published in February 2026, was prepared under the Tenth Amendment to the Constitution of Lesotho, which requires the Minister of Finance to present a borrowing plan alongside the annual budget for parliamentary approval. The plan is anchored in the 2026/27–2028/29 Medium Term Debt Strategy and provides the most granular public accounting of government borrowing in the country’s recent history.
What it reveals is a government that has made meaningful progress on debt reduction, but which remains heavily dependent on external concessional financing and faces real structural risks in its domestic debt operations, project implementation capacity, and exposure to South Africa’s economic performance.
Debt Has Declined — But the Structure Remains Fragile
The headline improvement is genuine. Total government debt as at end January 2026 stood at LSL22,717.5 million, equivalent to 50 percent of GDP, down from LSL23,385.4 million and 54.3 percent of GDP at the end of FY2024/25. This represents a reduction of LSL667.2 million, or approximately 3 percent of the debt stock, achieved through a combination of repayments, currency parity gains on external debt, and fiscal restraint.
The external debt portfolio, which accounts for 83.1 percent of total debt, declined from LSL19,790.8 million to LSL18,875.3 million. Domestic debt moved in the opposite direction, rising modestly from LSL3,594.6 million to LSL3,842.2 million, as the government issued bonds to manage cash flow requirements and domestic arrears.
| Indicator | 2023/24 | 2024/25 | 2025/26 ABP |
|---|---|---|---|
| External debt | 19,588.9 | 19,790.8 | 18,875.3 |
| Domestic debt | 4,008.2 | 3,594.6 | 3,842.2 |
| Total debt | 23,597.1 | 23,385.4 | 22,717.5 |
| Total debt as % of GDP | 59.5% | 53.0% | 50.0% |
| External debt as % of total | 83.0% | 83.8% | 84.6% |
| Concessional external debt share | 86.4% | 88.4% | 88.4% |
A critical context for the debt reduction is that Lesotho has recently graduated from IDA low-income to low-middle-income status. While this reflects economic progress, it also means the country faces hardened borrowing terms from international financial markets — the concessional financing that has underpinned the debt portfolio’s relatively low cost becomes harder to access as income thresholds rise.
One of the most counterintuitive findings in the borrowing plan concerns relative borrowing costs. Despite domestic debt constituting less than 20 percent of the total portfolio, the government pays more in annual interest on domestic debt than on its far larger external debt stock. This reflects the high yield environment in the domestic bond market compared to the highly concessional rates (1.25 to 2 percent) available from multilateral creditors.
The implication is that every additional loti of domestic borrowing is materially more expensive than equivalent external concessional financing. The Medium Term Debt Strategy’s target of maintaining domestic debt between 15 and 20 percent of the total portfolio is not just a debt management preference — it is a cost imperative.
The Borrowing Plan: LSL4,638.8 Million in Two Streams
The FY2026/27 borrowing plan is structured around two distinct financing streams, each serving a different fiscal purpose.
Domestic borrowing of LSL1,500 million through bond auctions will finance the budget deficit of LSL1,386.1 million (3 percent of GDP) and include LSL992 million to clear outstanding domestic arrears. External borrowing of LSL3,138.8 million in disbursements from existing concessional loan commitments will finance infrastructure and social sector projects across government ministries.
| Indicator | 2024/25 Actual | 2025/26 Proj. | 2026/27 Budget | 2027/28 Forecast |
|---|---|---|---|---|
| Nominal GDP (LSL millions) | 44,134.8 | 45,297.5 | 46,178.3 | 47,224.9 |
| Revenue & grants (% GDP) | 62.8% | 59.9% | 64.1% | 67.8% |
| Expenditure (% GDP) | 53.3% | 56.7% | 69.4% | 64.7% |
| Primary balance (% GDP) | 11.4% | 5.6% | -3.4% | 5.1% |
| Net lending / borrowing (% GDP) | 9.4% | 3.2% | -5.3% | 3.1% |
The macroeconomic projections show a sharp deterioration in the primary balance in 2026/27, swinging from a surplus of 5.6 percent of GDP in 2025/26 to a deficit of 3.4 percent. This swing is driven largely by a significant projected increase in expenditure to 69.4 percent of GDP, up from 56.7 percent, reflecting the capital investment ambitions built into the budget. The projections anticipate a return to surplus in 2027/28, suggesting the deficit is structured as a deliberate investment-driven fiscal expansion rather than a structural deterioration.
The Problem with External Disbursements
The most operationally significant concern in the plan is the persistent underperformance of external loan disbursements. Against a budget target of LSL3,317.6 million for FY2025/26, actual disbursements reached only LSL2,040.6 million — a shortfall of approximately 62 percent in disbursement of committed funds.
“This underperformance continues to reflect implementation challenges surrounding capital projects due to lack of capacity in the local project implementation units.”
Ministry of Finance and Development Planning · ABP FY2026/27The ministry acknowledges this as an improvement on the previous year’s 50 percent disbursement rate, but the improvement is marginal. Lesotho has secured significant concessional loan commitments from multilateral partners. The constraint is not access to finance — it is the institutional capacity to deploy it. Project implementation units across ministries lack the personnel, procurement expertise, and project management systems to draw down committed funds within the financial year.
The consequence is compounding: undisbursed funds carry commitment fees, committed capital sits idle while development needs go unmet, and the credibility of future borrowing requests to multilateral partners is quietly undermined by delivery failures.
| Indicator | 2023/24 | 2024/25 | 2025/26 ABP |
|---|---|---|---|
| Disbursed outstanding debt | 19,588.9 | 19,790.8 | 18,875.3 |
| Disbursements received | 1,438.0 | 2,074.0 | 1,109.0 |
| Principal repaid | 1,090.8 | 1,051.1 | 900.4 |
| Interest paid | 260.2 | 263.6 | 182.1 |
| Total debt service | 1,351.0 | 1,314.7 | 1,082.6 |
Domestic Bond Auctions: Performance and the 2026/27 Calendar
On the domestic side, the picture is more encouraging. Treasury bond auctions in FY2025/26 were oversubscribed, raising LSL513.6 million against a target of LSL500 million. The domestic investor base, comprising commercial banks, insurance companies, and other financial institutions, has demonstrated consistent appetite for government paper.
The government’s strategy is to issue exclusively long-term instruments, with a minimum tenor of seven years, to reduce refinancing risk. Treasury bills are no longer issued for fiscal purposes. Four auctions are planned for FY2026/27, targeting a total of LSL1,500 million.
A notable innovation signalled in the plan is the government’s intention to issue a diaspora bond, designed to broaden the domestic investor base by accessing remittance flows and savings held by Basotho living abroad. The feasibility of this instrument will depend on the regulatory framework and the government’s ability to offer competitive terms to diaspora investors.
Concessional External Borrowing: Who Lesotho Borrows From and at What Cost
External loan contractions in 2026/27 will be restricted to concessional sources. The major creditors are the International Development Association (World Bank), the African Development Fund, IFAD, the OPEC Fund for International Development, and the Export-Import Bank of China. The terms are markedly favourable compared to commercial market rates.
Grace: 5 years
Rate: 1.25%
Service: 0.75%
Grace: 5 years
Rate: 1.25%
Service: 0.75%
Grace: 5 years
Rate: 2.0%
Commitment: 0.5%
Grace: 5 years
Rate: 2.0%
Commitment: 0.15%
Where the Money Goes: The Project Disbursement Budget
The LSL3,138.8 million in projected external disbursements for 2026/27 is allocated across 14 active projects spanning eight government ministries. The largest single allocation is to the natural resources sector, reflecting the scale of Lesotho’s water infrastructure commitments.
The water sector alone accounts for LSL1,366.4 million, or 43.5 percent of the total disbursement budget. This reflects the continuing scale of Lesotho’s water infrastructure commitments, particularly the Lowlands Water Development Project Phase III, which at LSL750.8 million is the single largest project in the plan. Energy is the second-largest sector at LSL531 million, spanning the Ramarothole solar project and the SREP renewable energy initiative.
New Commitments: LSL292 Million to Be Signed in 2026/27
Beyond disbursements on existing loans, the government plans to sign a significant pipeline of new project agreements during 2026/27. The new commitments total approximately USD292 million in new loan commitments, spanning energy, education, agriculture, digital infrastructure, transport, and social development.
Two education projects from the World Bank targeting TVET and skills development, totalling USD55 million, represent the most significant new commitment in the social sector. The Ramarothole Solar Phase II project, which will expand the Mafeteng solar farm from 30MW to 80MW and add 15MW of battery storage, is the largest single new commitment at USD58 million. A Safe City project financed by EXIM Bank China at USD30 million will be implemented through the Lesotho Mounted Police Service.
Three large projects with funders not yet identified — a 132kV transmission line from Ha Mofoka to Qacha’s Nek (USD86 million), construction of the Tsoeneng landfill (USD70 million), and the Thaba-Tseka to Mokhotlong road upgrade (USD136 million) — represent a combined USD292 million pipeline that remains unfunded. Securing creditors for these projects will be a significant task for the ministry in the coming year.
Five Risks the Government Is Managing
The Larger Picture: What the Plan Reveals About Lesotho’s Development Model
Read in full, the Annual Borrowing Plan is not merely a borrowing schedule. It is a document that reveals the shape of Lesotho’s development model and its current constraints.
The model is heavily dependent on external concessional finance, which is both rational given the cost differential over domestic borrowing, and structurally risky given Lesotho’s graduation to lower-middle-income status and the resulting tightening of concessional access over time. The domestic financial system, as the companion banking series in this publication has documented, is not yet capable of filling that gap.
The project disbursement underperformance — 62 percent of committed funds not drawn — points to a capacity problem that no amount of additional borrowing will resolve on its own. Infrastructure ministries, particularly those managing large water and energy projects, require investment in procurement systems, project management capability, and staffing to translate loan commitments into physical assets and services.
The publication of the Annual Borrowing Plan under constitutional mandate is itself a meaningful step toward fiscal transparency. A document of this detail, released publicly alongside the budget, enables the scrutiny that accountability requires. Parliament, civil society, and the press now have a baseline against which the government’s borrowing and disbursement performance can be tracked through the year.
The plan’s ambitions are clear. The constraints are equally clear. Closing the gap between committed finance and deployed capital will determine whether the infrastructure investments outlined here translate into the growth, employment, and service delivery that the underlying macroeconomic projections assume.
