Fitch revises Lesotho's outlook to stable

Fitch has simultaneously affirmed the country's long-term foreign currency issuer default rating at 'BB-', long-term local currency IDR at 'BB' and short-term foreign currency IDR at 'B'.

Fitch has also affirmed Lesotho's country ceiling at 'A-'.

Fitch says the revision of Lesotho's reflects the following key rating factors:

1. On-going improvements in public finance management which will support budget consolidation and lessen dependence on South African Customs Union (SACU) receipts. Reforms with the assistance of the IMF (Extended Credit Facility started in 2010) have led to improved tax compliance and increase in non-SACU tax revenue (at 23.5% of GDP in fiscal year 2012-13 (FY12-13) from 20.5% in FY09-10).

Although the agency forecasts a budget deficit of 1.1% of GDP by FY14-15 from a surplus of 5.1% in FY12-13, this reflects an expected rebalancing of Lesotho's public finances, with lower SACU receipts partially offset by lower investment, restraint in current expenditures and gradual increase in non-SACU tax receipts.

2. Structural reforms expected to benefit real GDP growth. Fitch expects growth to remain above 4% (from 3.6% in 2012) in the medium term, supported by public investments in infrastructure, foreign direct investment (FDI) in the diamond sector and structural reforms to improve the business environment (such as the new Company Act) in line with the National Strategic Development Plan. The extension of the Third Country Fabric Provision of the African Growth Opportunity Act (AGOA) in September 2012 allows the textile exporting sector, the main private sector employer, to keep sourcing materials from non-AGOA countries and supports growth prospects.

Continue: Fitch revises Lesotho's outlook to stable