LESOTHO COUNTRY BRIEF

LESOTHO COUNTRY BRIEF

This brief is part of a series of outputs under the analytical work Forever Young? Social Policies for a Changing Population in Southern Africa. Outputs include: Forever Young? Social Policies for a Changing Population in Southern Africa (overview report) Forever Young? Botswana Country Brief Forever Young? Lesotho Country Brief Forever Young? Namibia Country Brief Forever Young? South Africa Country Brief Forever Young? Swaziland Country Brief 216 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 2433 Telephone: 22-473-1; Internet: www.worldbank.org All rights reserved This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3. Unported license (CC BY 3.) http:// creativecommons.org/licenses/by/3.. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution Please cite the work as follows: Bruni, Lucilla Maria, Jamele Rigolini, and Sara Troiano. 216. Forever Young? Lesotho Country Brief. Washington, DC: World Bank. License: Creative Commons Attribution CC BY 3.. Translations If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 2433, USA; fax: 22-522-2625; e-mail: pubrights@worldbank.org. Design: Kilka Diseño Gráfico

DEMOGRAPHIC CHANGE MIGHT LEAD TO ECONOMIC OPPORTUNITY Lesotho has experienced a significant demographic transition over the last fifty years, with both mortality and fertility decreasing sharply. Between 195 and the early-199s, infant and child mortality fell by approximately 6 percent, and life expectancy at birth increased by almost 19 years. The average number of children per woman fell from 5.7 to 3.1 between 1978 and 215. Changes in mortality and fertility imply changes in the population age structure: the proportion of young dependents will fall steadily in the decades to come (Figure 1), at the same time as the proportion of working-age population will increase (Figure 2). This is a demographic window of opportunity: if productively employed, the larger workforce can trigger an increase in output per capita - a phenomenon referred to in the literature as the demographic dividend. In Lesotho, this window will open in 24 and stay open up to 286 (Figure 1), an exceptionally long period by international standards. 3

FIGURE 1. THE WINDOW OF DEMOGRAPHIC OPPORTUNITY WILL OPEN LATE, BUT WILL LAST LONG Share of population aged -14 and 65+ and the resulting demographic window of opportunity FIGURE 2. THE GROWTH RATE OF THE WORKING AGE POPULATION WILL STILL BE HIGH IN THE YEARS TO COME Annual average growth rate of working age population (%) 5 2. 1.79 1.78 Proportion of total population (%) 4 3 2 1 Annual average growth (%) 1.5 1..5 1.31.67 195 1975 2 225 25 275 21-198-215 215-25 Demographic window (24-286) Proportion aged < 15 Proportion aged 65+ Lesotho World Note: As defined by United Nations, the window of demographic opportunity opens when the proportion of the population under the age of 15 is less than 3 percent, and the proportion aged 65 and over is less than 15 percent. Source: Moultrie 215. BOX 1. THE HIV/AIDS EPIDEMIC HAS SLOWED DOWN, BUT NOT STOPPED, THE DEMOGRAPHIC TRANSITION The HIV/AIDS pandemic had severe effects on demographic trends in Lesotho, as life expectancy reversed its course and decreased dramatically between 199 and 25. The country will likely only regain the levels achieved prior to the epidemic in the late 23s. However, the HIV/AIDS pandemic has only slowed, not stopped, the ongoing demographic transition. Figure 3 illustrates the age-sex structure of the population between 195 and 215. The effects of male labour migration to the South African mines is evident in the population pyramid for 1975, while the effects HIV/AIDS mortality is clear in the hollowing-out between ages 4 and 6 in the population pyramid for 215. Projections for 25 however predict a more standard shape for the population pyramid, as the deployment of anti-retroviral treatments allows for a drop in AIDS-related deaths. Simulations confirm that the epidemic will affect the expected level of population in Lesotho, but less so its projected age structure. 4 FOREVER YOUNG? LESOTHO COUNTRY BRIEF

FIGURE 3. PERIOD EVENTS SUCH AS MIGRATION AND HIV/AIDS HAVE NOT STOPPED THE DEMOGRAPHIC TRANSITION Lesotho population age structure, 195-25 1+ 9-94 8-84 7-74 6-64 5-54 4-44 3-34 2-24 1-14 -4 15 1 5 5 1 15 Females 1+ 9-94 8-84 7-74 6-64 5-54 4-44 3-34 2-24 1-14 -4 15 1 5 5 1 15 Females 25 1+ 9-94 8-84 7-74 6-64 5-54 4-44 3-34 2-24 1-14 -4 15 1 5 5 1 15 Females 1975 215 Source: Moultrie 215. Males Males Males Thousands Thousands Thousands 5

THE DEMOGRAPHIC DIVIDEND IS JUST A MIRAGE IF LESOTHO DOES NOT INVEST IN HUMAN CAPITAL AND EMPLOYMENT A long window of demographic opportunity is a welcome news for Lesotho, as the country will need time to implement strategic policy reforms to make sure to harness the demographic dividend. In particular, large cohorts of children and youth will soon reach working age. The effects of good (or bad) social policies for children and youth will therefore be amplified in the years to come. For example, if Lesotho were to increase its investment in the education of the young generations so to converge to the educational level of upper-middle-income countries by 25, its GDP per capita in that year would be as much as 18 percent higher than under the current policy conditions (Figure 4). On the other hand, if the current large gaps in coverage (Figure 5) and poor quality of education (Figure 6) persist, the country will soon have to face large cohorts of poorly educated adults, that will be less likely to find productive jobs. This would be a curse for a country that is already suffering from high unemployment, especially among the youth (Figure 7). Surely, social policies cannot do the job alone. A sound macroeconomic environment, policies favoring private-sector development, and investment in labor-intensive sectors will be needed to employ the future large cohorts of working age population. 6 FOREVER YOUNG? LESOTHO COUNTRY BRIEF

FIGURE 4. INVESTING IN HUMAN CAPITAL COULD LEAD TO A SIGNIFICANT INCREASE IN INCOME PER CAPITA Real GDP per capita, 25 GDP per capita in 25 (expressed as a ratio of GDP per capita in 214=1) (Index) 3 2 1 241 285 FIGURE 5. THERE ARE STILL LARGE GAPS IN EDUCATION COVERAGE Grade 12 Grade 7 Projected completion rates 3 46 61 83 92 97 Same policy environment Education convergence - 5 215 23 25 1 (%) Source: Ahmed & Cruz 215. Source: Van der Berg & Knoesen 215. Imputed PISA score - Combined quality index FIGURE 6. LEARNING PERFORMANCE IS LOWER THAN IN ECONOMICALLY COMPARABLE COUNTRIES 6 55 5 45 4 35 3 25 2 Learning performance in PISA metrics by per capita GDP (PPP$), around 211 Lesotho Log GDP per capita FIGURE 7. HIGH UNEMPLOYMENT IS A MAJOR CHALLENGE TO REAP THE DEMOGRAPHIC DIVIDEND Proportion of labor force (%) Overall and youth unemployment rate by gender 4 2 29 2 34 22 Youth unemployment, male Overall unemployment, male Youth unemployment, female Overall unemployment, female Source: Van der Berg & Knoesen 215. Source: Margolis & Yassine 215. 7

SAVINGS FROM A MORE EFFICIENT PUBLIC SPENDING WILL BE NECESSARY TO INVEST IN THE YOUNGER GENERATIONS Implementing strategic reforms to boost human capital and employment will require increased efficiency in social spending. In education, for example, ad hoc programs like the Tertiary Bursaries Scheme and administrative inefficiencies cause per capita spending to be higher than in OECD countries (Figure 8). Converging to the OECD s education spending profile would imply a decrease in public spending in education from 12.2 of GDP in 21 to 5.7 in 25 (green line in Figure 9): resources that could be reinvested to improve both coverage and quality of education, and provide employment services to the youth. Instead, social assistance spending currently accrues mostly to the elderly: resources per individual in the age group 65-plus are twelve times those available to individuals aged -19, although there are six times more poor children than poor old people. Social pensions are more generous than in the OECD (Figure 8). A benefit incidence analysis confirms that the impact of social grants on poverty among the nonelderly remains negligible (Figure 1). The demographic moment urges Lesotho to improve coordination among social programs along the life-cycle (Figure 11), and to rebalance social assistance towards the younger generations. 8 FOREVER YOUNG? LESOTHO COUNTRY BRIEF

FIGURE 8. PER CAPITA SOCIAL SPENDING IS HIGHER IN LESOTHO THAN IN OECD: MORE GENEROUS BENEFITS OR INEFFICIENCIES? Per capita social spending by age Lesotho OECD 8 8 % GDP per capita 6 4 2 % GDP per capita 6 4 2 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 Education Health Social assistance Education Health Non-contributory pensions FIGURE 9. CONSIDERABLE SAVINGS FROM INCREASING EFFICIENCY IN SPENDING Aggregate spending as a % of GDP, 21-21 14 12 1 % of GDP 8 6 4 5.7 6.9 2 21 22 23 24 25 26 27 28 29 21 25-21 Education - Constant spending Education - Spending profile profile converging to OECD Source: Oosthuzein 215. 9

FIGURE 1. THE POVERTY IMPACT OF CASH TRANSFERS ON CHILDREN AND YOUTH REMAINS NEGLIGIBLE Poverty rates before and after cash transfers to households 1 8 Poverty rate (%) 6 4 2 1 2 3 4 5 6 7 8 9 Post grants Pre grants Note: The estimates are based on the national poverty line. Source: Oosthuizen 215. Under the right set of policies, healthy and educated children can become large cohorts of productive adults. With access to jobs and social services, these adults can fulfill their earning potential, save, invest, and contribute to the country s fiscal revenues. And they can be more likely to raise healthy and educated children, leading to a virtuous cycle of social welfare. But realizing the dividend is by no means assured. If the right policies are not in place, the high levels of unemployment and the fiscal challenges that are already troubling Lesotho could escalate and bring on a vicious intergenerational cycle of poverty, unemployment, and vulnerability. Lesotho needs to act now if the country is to move to a virtous cycle and reap the benefits of the demographic moment. BOX 2. UNCERTAINTY IN REVENUES TO FINANCE SOCIAL SPENDING In Lesotho, roughly 4 percent of government expenditures are financed by the Common Revenue Pool (CRP), which is fed by revenues from the Southern African Customs Union (SACU) (SACU 214). Revenues from SACU have recently declined due to lower-than-expected import receipts, and are projected to continue on a low trajectory in the medium term. If SACU revenues continue along these grim forecasts, and the government does not offset the fall through such steps as improving efficiency of the public sector, Lesotho will find it increasingly harder to keep up current levels of social expenditure, and invest adequately in the young generations. 1 FOREVER YOUNG? LESOTHO COUNTRY BRIEF

FIGURE 11. A MOMENT TO REORGANIZE SOCIAL ASSISTANCE AND PROMOTION PROGRAMS IN AN INTEGRATED LIFE-CYCLE APPROACH, TO IDENTIFY AND ADDRESS BLIND SPOTS Mapping of main social services available by age group, around 212 Social Assistance: Child Grant, Tertiary Bursary Scheme Social Promotion: Basic and Tertiary Education, Health services (including reproductive health) Adolescents Social Assistance: Child grants School feeding OVC bursaries Nutrition (WFP) Social Promotion: Maternal & child health Basic Education Children and Youth HOUSEHOLD Elderly Working Age Population Social Assistance: Public Assistance Social Promotion: Ipelegeng Agricultural Input Fertilizer & Input Subsidy Health services Social Assistance: Old age pension Social promotion: Health services Source: Troiano 215. 11

REFERENCES Ahmed, Syud Amer, and Marcio Cruz. 215. Growth and Poverty in Southern Africa under Different Policy Scenarios. Background paper for Forever Young? Social policies for a changing population in Southern Africa. World Bank. Margolis, David N., and Chaimaa Yassine. 215. Demographics and Labor Markets in Southern Africa. Background paper for Forever Young? Social policies for a changing population in Southern Africa. World Bank. Moultrie, Tom A. 215. Demographic Profiles of Five Countries in Southern Africa and Implications for the Demographic Dividend. Background paper for Forever Young? Social policies for a changing population in Southern Africa. World Bank. Oosthuizen, Morné J. 215. Public Spending and Demographic Change in Southern Africa. Background paper for Forever Young? Social policies for a changing population in Southern Africa. World Bank. SACU. 214. Southern African Customs Union: Annual Report 214. Troiano, Sara. 215. A Life-Cycle Assessment of Social Protection Systems in Southern Africa. Background paper for Forever Young? Social policies for a changing population in Southern Africa. World Bank. University of KwaZulu Natal. 21. Health Expenditure Implications of SACU s Revenue Volatility on BLNS Countries. Issue Brief. Health Economics and HIV/AIDS Research. van der Berg, Servaas, and Marizanne Knoesen. 215. Implications of Demographic Projections for Education in the Five SACU Countries. Background paper for Forever Young? Social policies for a changing population in Southern Africa. World Bank. 12 FOREVER YOUNG? LESOTHO COUNTRY BRIEF