Lesotho: Country Assistance Evaluation

LesothoDevelopment in a

Challenging EnvironmentA Joint World Bank–African

Development Bank Evaluation

Fareed M.A. HassanOladeji Ojo

2002THE AFRICAN DEVELOPMENT BANK

Abidjan

THE WORLD BANK

Washington, D.C.

W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N TAFRICAN DEVELOPMENT BANK OPERATIONS EVALUATION DEPARTMENT

http://www.afdb.orghttp://www.worldbank.org/oed

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ENHANCING DEVELOPMENT EFFECTIVENESS THROUGH EXCELLENCE AND INDEPENDENCE IN EVALUATION

The Operations Evaluation Department (OED) is an independent unit within the World Bank; it reports directlyto the Bank’s Board of Executive Directors. OED assesses what works, and what does not; how a borrower plansto run and maintain a project; and the lasting contribution of the Bank to a country’s overall development. Thegoals of evaluation are to learn from experience, to provide an objective basis for assessing the results of theBank’s work, and to provide accountability in the achievement of its objectives. It also improves Bank work byidentifying and disseminating the lessons learned from experience and by framing recommendations drawn fromevaluation findings.

THE AFRICAN DEVELOPMENT BANK GROUP

The African Development Bank Group’s mandate, as stipulated in Article 1 of the Agreement Establishing theBank, is to “contribute to the economic development and social progress of its regional members—individuallyand jointly.” The Bank’s mission, therefore, is to assist Regional Member Countries (RMCs) to break the viciouscycle of poverty in which they are entrapped. Working towards this goal, the Bank would endeavor to facilitateand mobilize the flow of external and domestic resources, public and private, promote investment, and providetechnical assistance and policy advice to RMCs.

OPERATIONS EVALUATION DEPARTMENT

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Contents

vii Acknowledgments

ix Foreword, Prólogo, Avant-Propos

xv Executive Summary, Resumen, Résumé Analytique

xxi Abbreviations and Acronyms

1 1. Lesotho’s Political, Economic, and Social Development01 The Economy04 Poverty, Inequality, Social Conditions, and Gender Bias: Low Welfare

Levels06 High but Declining Aid

7 2. Development Challenges and Constraints07 Poverty Reduction: The Overarching Objective of Lesotho’s Development07 Human Capital Development: Key for Jobs07 HIV/AIDS: A Formidable Challenge09 Institutional Capacity: A Major Weakness09 Private Sector Development: Key for Growth09 Political Instability: A Challenge and a Constraint to Sound Governance

11 3. World Bank Services and Products11 Policy Dialogue and Strategic Analysis19 Economic and Sector Analysis21 Lending

25 4. The Development Effectiveness of World Bank Assistance25 Macroeconomic Outcomes26 Rural Development and Poverty Reduction27 Human Capital Development29 Private Sector Development

33 5. African Development Bank Group Assistance to Lesotho33 Bank Group Strategy in Lesotho39 Sector Analysis51 Crosscutting Issues51 The Counterfactual

53 6. Overall Assessment of African Development Bank Group Assistance

57 7. Attribution of Performance of Development Partners57 World Bank Performance58 Borrower Performance59 Aid Partner Performance Issues59 Exogenous Factors

61 8. Conclusions and Recommendations61 Poverty, Human Capital Development, HIV/AIDS, and Institutional

Strengthening61 Monitoring and Evaluation62 Donor Coordination62 Political Stability

107 Endnotes

111 Bibliography

Annexes63 Annex A: Comments from the Government of Lesotho67 Annex B: Country Assistance Evaluation—Comments by the Country Team

for Lesotho69 Annex C: Report from the Committee on Development Effectiveness

(CODE)71 Annex D: Statistical Annex83 Annex E: Project and Program Data93 Annex F: OED Ratings Glossary and Definitions95 Annex G: Background Summaries, Selected Topics

095 World Bank Support for Human Capital Development in the 1990s,by Ellen Goldstein

100 Poverty Reduction and Rural Development, by Jack van Holst Pellekaan103 Evaluating Bank Assistance to Lesotho for Private Sector

Development, by Kevin Lumbila105 Water Sector Strategy Review, by Guy Le Moigne

Boxes02 Box 1.1: A Brief Political History of Lesotho13 Box 3.1: Lesotho—World Bank Strategies16 Box 3.2: The Lesotho Highlands Water Project (LHWP)18 Box 3.3: The Lesotho Highlands Water Project: Dam Safety, Environment,

and Other Bank Safeguards and Guidelines31 Box 4.1: The Muela Hydropower Plant

L e s o t h o : D e v e l o p m e n t i n a C h a l l e n g i n g E n v i r o n m e n t

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Figures 03 Figure 1.1: Number of Lesotho Miners in South Africa and Remittances,

FY89–9904 Figure 1.2: Gross Domestic Product and Gross National Product Growth

Rate, FY91–0022 Figure 3.1: Net Disbursements and Net Transfers28 Figure 4.1: Trends in Secondary School Enrollment44 Figure 5.1: Trends in Expanded Program on Immunization Vaccine

Coverage

Tables05 Table 1.1: Lesotho’s Poverty and Inequality Profile, 1993–9905 Table 1.2: Social Indicators in Lesotho and Comparator Countries06 Table 1.3: Official Development Assistance, Annual Average, 1990–94

and 1995–9708 Table 2.1: The Incidence of AIDS in Lesotho, South African Customs

Union, South African Development Corporation, Sub-SaharanAfrica, and Worldwide, 1999

12 Table 3.1: 1995 Poverty Reduction Action Plan14 Table 3.2: Relationships between 1995 Poverty Assessment, Country

Assistance Strategies, Lending, and Outcomes for MajorPrograms

21 Table 3.3: Sectoral Distribution of Bank Lending, FY66–9922 Table 3.4: OED Evaluation Findings of Recently Evaluated Projects

(Exiting in the 1990s)30 Table 4.1: Private Sector Development, 1995–0138 Table 5.1: Sectoral Breakdown of Bank Group–Approved Loans and

Grants, as of December 31, 199938 Table 5.2: Operations Evaluation Ratings of Completed Projects in Lesotho

Annex Tables71 Table D.1: Selected Social and Demographic Indicators of Lesotho,

South African Development Corporation, and Sub-SaharanAfrica, 1980

73 Table D.2: Selected Social and Demographic Indicators of Lesotho,South African Development Corporation, and Sub-SaharanAfrica, 1997

75 Table D.3: Annual Assistance to Lesotho and Comparator Countries,Average, 1990–97

76 Table D.4: Lesotho at a Glance79 Table D.5: Key Economic Indicators for Lesotho and Comparator

Countries, 1990–0081 Table D.6: Current Expenditure in the Social Sector, 1989–0083 Table E.1: Lesotho: List of World Bank Economic and Sector Work84 Table E.2: Costs of World Bank Programs for Lesotho and Comparator

Countries, FY91–9986 Table E.3: World Bank Operations Evaluation Department and Quality

Assurance Group Ratings for Lesotho and ComparatorCountries

C o n t e n t s

v

87 Table E.4: Summary Evaluations for World Bank Projects Closed since FY90or Ongoing

88 Table E.5: Lesotho: List of AfDB Projects89 Table E.6: Performance Evaluation of AfDB Transport Sector Projects in

Lesotho90 Tabel E.7: Summary of Transport Sector Projects in Lesotho92 Table E.8: Projects in the Social Sector, Lesotho, 1974–98


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Acknowledgments

Fareed M.A. Hassan was the Task Managerfor this report at the World Bank, andacknowledges with thanks the contribu-

tions by Oladeji Ojo (AfDB), Ellen Goldstein(OEDCR), Guy Le Moigne (consultant), KevinLumbila (OEDCR), and Jack van Holst Pellekaan(consultant). Oliver Rajakaruna and Dinara Sei-japarova provided statistical information, andNorma Namisato, administrative support.

For the African Development Bank, OladejiOjo served as the Task Officer, and the supportof Gabriel Kariisa, Director of the African Devel-opment Bank Group Operations EvaluationDepartment, is gratefully acknowledged.

A joint World Bank–African DevelopmentBank mission visited Lesotho from May 29 toJune 12, 2000. The mission also visited SouthAfrica and the various project sites of the LesothoHighlands Water Project, including some reset-tlement villages. The visit was facilitated by

arrangements made by staff of the Lesotho High-lands Development Authority. The contribu-tions and cooperation of all those who assistedthe mission and the evaluation are gratefullyacknowledged.

The study was published in the Partnershipsand Knowledge Group (OEDPK) by the Out-reach and Dissemination Unit. The task teamincludes Elizabeth Campbell-Pagé (task teamleader), Caroline McEuen (editor), and JuicyQureishi-Huq (administrative assistant).

Director-General, Operations Evaluation: Robert Picciotto

Director, Operations Evaluation Department:

Gregory K. Ingram

Manager, Country Evaluation and Regional Relations:

Ruben Lamdany

Task Manager: Fareed M.A. Hassan

Peer Reviewers: Shantayanan Devarajan

Alice Galenson

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FOREWORD

This Country AssistanceEvaluation was prepared in

collaboration with the AfricanDevelopment Bank Group. Lesotho’seconomic and social development inthe 1990s and the development chal-lenges facing the country wereassessed jointly; the roles of eachinstitution over the decade wereevaluated in parallel. The partner-ship led to significant capacitydevelopment, and further collabora-tion is already ongoing: the AfricanDevelopment Bank Group is cur-rently leading a joint evaluation ofthe Rwanda program.

Lesotho is a poor, small, moun-tainous country of about two mil-lion (predominantly rural) people.The country is landlocked andcompletely surrounded by, andeconomically dependent on,South Africa. Its economy is basedon limited agricultural and pas-toral production and light manu-facturing (textile, clothing, andleather) supplemented by large,although declining, remittancesfrom Lesotho miners in SouthAfrica. Recently there have alsobeen royalties from exportingwater to South Africa through theWorld Bank–supported LesothoHighlands Water Project (LHWP).

A major development chal-lenge for Lesotho is that half thepopulation lives below thepoverty line and income inequal-ity is among the highest in theworld. Other challenges are lowquality of education and healthservices, widespread HIV/AIDS,weak institutions, and lagging

PRÓLOGO

Esta evaluación de la asis-tencia al país se preparó en

colaboración con el Grupo delBanco Africano de Desarrollo(BAfD). El desarrollo económico ysocial de Lesotho en los añosnoventa y los desafíos que el paísencara en esa esfera se evaluaronconjuntamente; además se llevó acabo en forma paralela una evalua-ción del papel desempeñado porcada una de las organizacionesdurante dicho decenio. Esta coope-ración permitió alcanzar un signifi-cativo aumento de la capacidad yahora está intensificándose: elGrupo del Banco Africano de Des-arrollo actualmente dirige una eva-luación conjunta del programa paraRwanda.

Lesotho es un país pobre,pequeño y montañoso con unosdos millones de habitantes (queviven sobre todo en zonas rura-les). Carece de litoral y está total-mente rodeado por Sudáfrica, paísdel que depende económica-mente. La economía de Lesothose basa en una limitada produc-ción agrícola y ganadera y en acti-vidades manufactureras ligeras(textiles, prendas de vestir y artí-culos de cuero), lo que se com-plementa con cuantiosas remesasde los mineros de Lesotho quetrabajan en Sudáfrica, aunque suvolumen está disminuyendo. Últi-mamente Lesotho también harecibido regalías por concepto dela exportación de agua a Sud-áfrica a través del proyecto deexportación de recursos hídricosrespaldado por el Banco.

AVANT-PROPOS

Cette Évaluation de la straté-gie de l’aide au Lesotho a été

préparée en collaboration avec leGroupe de la Banque africaine dedéveloppement. Le développementéconomique et social du Lesothodurant les années 90 ainsi que lesdéfis que le développement pose aupays ont été évalués conjointement ;le rôle joué par chacune des institu-tions au cours de la décennie, quantà lui, l’a été en parallèle. Ce parte-nariat a permis de renforcer sub-stantiellement les capacités, et lacollaboration se poursuit : le Groupede la Banque africaine de dévelop-pement coordonne actuellement uneévaluation conjointe du programmepour le Rwanda.

Le Lesotho est un petit payspauvre et montagneux avec unepopulation (essentiellementrurale) d’environ deux millionsd’habitants. Enclavé dans l’Afri-que du Sud, dont il est économi-quement dépendant, il n’a pasde façade maritime. Son écono-mie repose sur une faible pro-duction agricole et pastorale, surla petite industrie (productionde textiles et de vêtements, tra-vail du cuir) ainsi que sur lessommes importantes qu’envoientles mineurs expatriés en Afriquedu Sud, un apport qui tend tou-tefois à baisser. Le pays a récem-ment commencé à recevoir desredevances sur l’eau qu’ilexporte en Afrique du Suddepuis qu’a été réalisé, avecl’aide de la Banque mondiale, leProjet hydraulique des hautesterres du Lesotho.

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private sector development.External aid to addressthese issues, althoughdeclining, is higher percapita than the Regionalaverage. Despite somemacroeconomic successes,political instability and

weak governance continue toconstrain the country’s develop-ment, reducing government own-ership of programs andhampering implementation.

World Bank assistance evolvedfrom an emphasis on stabilizationand growth to a focus on povertyreduction and private sectordevelopment in the latter part ofthe 1990s. The World Bank sup-ported joint work with the gov-ernment and the InternationalMonetary Fund on successive Pol-icy Framework Papers throughoutthe 1990s. The World Bank alsosupported a jointly preparedPoverty Assessment and a Strate-gic Economic Options Report, inwhich the government charted itspost-apartheid economic strategy.But other planned analytical workwas only partially carried out.Notably absent were periodicreviews of public expenditures.The LHWP was the most impor-tant of World Bank programs, buteducation, health, agriculture andrural development, and privatesector development also receivedsupport.

The successful macroeconomicpolicies and the substantial impactof construction in the LHWPhelped Lesotho achieve an aver-age annual GDP growth of closeto 4 percent during the 1990s.Although the World Bankfinanced less than 4 percent ofthe first-phase LHWP cost of $3.7billion, it facilitated an agreement


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En relación con su des-arrollo, Lesotho enfrenta elimportante desafío de quela mitad de su poblaciónvive por debajo del umbralde pobreza y que la des-igualdad en la distribucióndel ingreso se sitúa entre

las más altas del mundo. Otrosdesafíos en esta esfera son la bajacalidad de los servicios de educa-ción y salud, la alta incidencia deVIH/SIDA, existencia de institu-ciones deficientes y el lento des-arrollo del sector privado. Laasistencia externa aportada paraabordar estos problemas supera elpromedio regional sobre una baseper cápita, pero está disminu-yendo. No obstante algunos éxi-tos alcanzados a nivelmacroeconómico, la inestabilidadpolítica y los problemas de ges-tión de los asuntos públicossiguen repercutiendo adversa-mente en el desarrollo del país,reduciendo la identificación delgobierno con los programas yobstaculizando su ejecución.

La asistencia del Banco Mun-dial ha evolucionado, pasando delénfasis en la estabilización y elcrecimiento a la focalización en lareducción de la pobreza y el des-arrollo del sector privado a finesdel decenio de 1990. Durantetodo dicho decenio el BancoMundial participó conjuntamentecon el gobierno y el Fondo Mone-tario Internacional (FMI) en lapreparación de documentos sobreparámetros de política económica.El Banco Mundial también res-paldó la preparación conjunta deuna evaluación de la pobreza yde un informe estratégico sobreopciones económicas, en el queel gobierno plasmó su estrategiaeconómica para el período poste-

Sur le plan du dévelop-pement, un des grandsdéfis du Lesotho tient aufait que la moitié de sapopulation vit en dessousdu seuil de la pauvreté etque c’est l’un des endroitsdu monde où l’inégalité

des revenus est la plus marquée.Les autres problèmes du payssont la mauvaise qualité de l’édu-cation et des services de santé, laprévalence du VIH/SIDA, la fai-blesse des institutions et le retarddans le développement du secteurprivé. Même si elle baisse, l’aideextérieure fournie pour répondreà ces problèmes est, par habitant,supérieure à la moyenne régio-nale. Bien que certains succèsaient été enregistrés au niveaumacroéconomique, l’instabilitépolitique et une gestion inadé-quate des affaires publiques conti-nuent de freiner ledéveloppement du pays en dimi-nuant la mesure dans laquelle lespouvoirs publics prennent lesprogrammes au sérieux et engênant la réalisation de cesderniers.

L’aide de la Banque mondiale,qui plaçait initialement l’accentsur la stabilisation et la croissancede l’économie, a été réorientéevers la réduction de la pauvreté etdu développement du secteurprivé à la fin des années 90. LaBanque mondiale a égalementsoutenu, durant les années 90, larédaction, avec le gouvernementet le Fonds monétaire internatio-nal, plusieurs documents-cadre depolitique économique. Elle aprêté son concours à la prépara-tion conjointe d’une évaluation dela pauvreté et d’un rapport sur lesoptions économiques stratégiquesoù le gouvernement décrivait la

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between South Africa andLesotho, served as a cata-lyst in securing externalfinancing, and advised onproject formulation andimplementation. Althoughthe LHWP succeeded ingenerating sustained export

revenue for Lesotho, the WorldBank did not provide adequatetechnical support for improvingrural welfare from the proceeds ofwater sales. And the World Bankerred by not insisting on theinclusion of the Muela powerplant as an integral part of theproject under the management ofthe central oversight authority.This would have facilitatedMuela’s financing and implemen-tation, and also created an incen-tive for Lesotho and South Africato save on costs. Finally, with theexception of education, otherWorld Bank programs wereineffective.

The outcome of the WorldBank assistance program is mod-erately unsatisfactory. The WorldBank’s contribution to institutionaldevelopment was modest becausemost of the institutions estab-lished were weak and unsustain-able. Sustainability is uncertainsince growth has depended onaid inflows linked to the construc-tion of the LHWP, which are likelyto decline. In addition, the econ-omy remains vulnerable tochanges in the subregion. Animproved environment for growthand private sector developmentdepends also on enhanced politi-cal stability and better gover-nance, and on deeper parastatalreform. Prospects for all of thesechanges are uncertain.

The African Development BankGroup’s evaluation assessed AfDB

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rior al régimen de apart-heid. Ahora bien, otrasactividades analíticas pla-neadas sólo se llevaron a lapráctica parcialmente. Des-taca en particular en estesentido la ausencia de exá-menes periódicos de los

gastos públicos. El proyecto deexportación de recursos hídricosfue la actividad más importantedel Banco Mundial en el país,pero también apoyó actividadesen los sectores de educación,salud, agricultura y desarrollorural, así como fomento del sectorprivado.

La aplicación exitosa de laspolíticas macroeconómicas y elimpacto significativo de la cons-trucción del proyecto de exporta-ción de recursos hídricos ayudó aLesotho a alcanzar una tasa anualmedia de crecimiento del PIB cer-cana al 4% durante el decenio de1990. Si bien el Banco Mundialfinanció menos del 4% del costode US$3.700 millones de la pri-mera etapa del proyecto mencio-nado, propició la concertación deun acuerdo entre Sudáfrica yLesotho, actuó como catalizadorrespecto de la obtención de finan-ciamiento externo, y proporcionóasesoría para las fases de prepara-ción y ejecución. A pesar de queel proyecto ha logrado generar unvolumen sostenido de ingresos deexportación para Lesotho, elBanco Mundial no aportó apoyotécnico adecuado para mejorar elnivel de bienestar en las zonasrurales con el producto de lasventas de agua. Además, el BancoMundial cometió el error de noinsistir en la inclusión de la cen-tral de energía eléctrica de Muelacomo parte integral del proyectobajo la administración de la auto-

stratégie économique qu’ilavait l’intention d’adoptersuite à l’abandon de l’apar-theid. Mais d’autres analy-ses prévues n’ont été quepartiellement réalisées.L’absence d’examens pério-diques des dépenses publi-

ques s’est particulièrement faitsentir. Le projet hydraulique deshautes terres du Lesotho consti-tuait le principal programme de laBanque mondiale, mais un sou-tien a également été accordé dansles domaines de l’éducation, de lasanté, de l’agriculture et du déve-loppement rural ainsi que del’expansion du secteur privé.

Le succès des politiques macro-économiques et l’impact substan-tiel des travaux réalisés dans lecadre du projet hydraulique deshautes terres du Lesotho ont aidéce dernier à atteindre un tauxannuel moyen de croissance duPIB de près de 4 % durant lesannées 90. Même si la Banquemondiale a financé moins de 4 %de la phase initiale du projet(dont le coût s’élève à 3,7 mil-liards de dollars), elle a facilité laconclusion d’un accord entre leLesotho et l’Afrique du Sud, servide catalyseur pour le montage dufinancement externe et fourni desconseils lors de la conception etde l’exécution de ce projet. Celui-ci a effectivement assuré au Leso-tho une source régulière derecettes d’exportation, mais laBanque mondiale n’a pas accordéune aide technique suffisantepour que les revenus tirés desventes d’eau puissent servir àaméliorer le sort des populationsrurales. La Banque mondiale aégalement commis une erreur enn’insistant pas pour que la cen-trale de Muela soit pleinement

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assistance, including sup-port to the transport andsocial sectors. The evalua-tion focus and methodolo-gies differ, and thus, theevaluation ratings by eachinstitution are not alwayscomparable. Overall, the

outcome of the AfDB assistanceprogram was rated as “just satis-factory.” Nonlending operations(policy advice and dialogue, andeconomic and sector work) wererated unsatisfactory. Prior eco-nomic and sector work did notguide strategies and lending. Sus-tainability of the outcome appearslikely, as the government makesregular and adequate budget pro-vision for maintenance of invest-ments in the transport and socialsectors. The impact on institu-tional development is, however,modest, as Lesotho continues toexperience weaknesses in institu-tional performance. This is madeworse by the outflow of trainedmanpower to South Africa.

This joint evaluation recom-mends that future World Bankand African Development BankGroup assistance should continueto center on reducing poverty andinequality. They should do this byfocusing on the quality of educa-tion and human capital develop-ment (particularly in the poor,mountainous regions), combatingHIV/AIDS, strengthening ruralinstitutions (such as improvedland tenure, research, extension,and grazing management), andenhancing the enabling environ-ment for private sector develop-ment. Given the severe data gapsin almost all sectors, externalassistance should help Lesothoimprove its statistical database,most urgently in areas related to

ridad central de supervi-sión. Esto habría facilitadoel financiamiento y ejecu-ción de la central de Muelay también habría consti-tuido un incentivo para lareducción de los costos porLesotho y Sudáfrica. Por

último, con la excepción del sec-tor de educación, los demás pro-gramas del Banco Mundial hansido ineficaces.

Los resultados del programa deasistencia del Banco Mundial sonmoderadamente insatisfactorios.La aportación del Banco Mundialen el ámbito del desarrollo institu-cional ha sido modesta porque lamayoría de las instituciones esta-blecidas han resultado ser defi-cientes e insostenibles. Lasperspectivas de sostenibilidad sondudosas debido a que el creci-miento ha dependido de laafluencia de asistencia vinculadacon la construcción del proyectode exportación de recursos hídri-cos, cuyo volumen probable-mente disminuirá. Además, laeconomía sigue siendo vulnerablea cambios en la subregión. Elmejoramiento de las condicionespara el crecimiento y el desarrollodel sector privado dependen asi-mismo del aumento de la estabili-dad política y de una mayoreficiencia en la gestión de gob-ierno, así como de la implanta-ción de reformas más profundasen el sector paraestatal. Las pers-pectivas para la introducción detodos estos cambios son inciertas.

La evaluación realizada por elGrupo del Banco Africano deDesarrollo abarcó la asistenciafacilitada por esa institución,incluido el apoyo proporcionadoa los sectores social y de transpor-tes. Debido a las diferencias de

intégrée au projet et placéesous la responsabilité del’organisme de supervisioncentrale. Cela aurait facilitéson financement et sa réali-sation, en plus de donnerau Lesotho et à l’Afrique duSud des raisons de réduire

les coûts. Enfin, sauf en ce quiconcerne l’éducation, les autresprogrammes de la Banque mon-diale se sont avérés inefficaces.

Les résultats du programmed’aide de la Banque mondialesont modérément insatisfaisants.L’institution n’a que modestementcontribué au développement insti-tutionnel parce que la plupart desinstitutions créées sont restées fai-bles et n’ont pu être rendues via-bles. Leur viabilité est incertainepuisque la croissance économiqueest demeurée liée aux finance-ments accordés pour la réalisationdu projet hydraulique des hautesterres du Lesotho, qui vont proba-blement aller en diminuant. Deplus, l’économie du pays continued’être affectée par les change-ments qui surviennent dans lasous région. La création de condi-tions plus favorables à la crois-sance économique et audéveloppement du secteur privénécessite par ailleurs plus de sta-bilité politique, une améliorationde la gestion des affaires publi-ques et une réforme plus com-plète des institutionsparaétatiques. Les perspectives dechangement à ces égards sontincertaines.

Le Groupe de la Banque afri-caine de développement a évaluél’aide qu’elle a fourni, y comprisen ce qui concerne le secteur destransports et le secteur social. Lesméthodes utilisées pour l’évalua-tion et les éléments sur lesquels


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poverty reduction, and pro-mote monitoring and eval-uation systems. The WorldBank’s consultation withdonors on developmentpriorities could beenhanced by a strongeroperational representation

in Maseru, or more frequent inter-action with the government anddevelopment partners from theWorld Bank’s office in Pretoria.

énfasis y metodología, lasclasificaciones emanadasde las evaluaciones decada organismo no siempreson comparables. En con-junto, se clasificaron como“apenas satisfactorios” losresultados del programa de

asistencia del BAfD. Las operacio-nes no crediticias (asesoría y diá-logo sobre políticas, y estudioseconómicos y sectoriales) se con-sideraron insatisfactorias. La laboreconómica y sectorial previa nose utilizó para orientar las estrate-gias y las operaciones crediticias.Parece probable que los resulta-dos alcanzados sean sostenibles,dado que sobre una base regularel gobierno incluye en el presu-puesto fondos adecuados para elmantenimiento de las inversionesen los sectores social y de trans-portes. Sin embargo, el impactoen el desarrollo institucional hasido modesto, pues el desempeñode las instituciones de Lesothosigue adoleciendo de deficiencias.El éxodo de personal calificadohacia Sudáfrica agrava estasituación.

En esta evaluación conjunta serecomienda que la asistenciafutura del Banco Mundial y delGrupo del Banco Africano deDesarrollo siga centrándose en lareducción de la pobreza y la des-igualdad. En este sentido debenhacer hincapié en la calidad de laeducación y el desarrollo delcapital humano (particularmenteen las regiones montañosaspobres), la lucha contra elVIH/SIDA, el fortalecimiento insti-tucional en el sector rural (comomejoras en la tenencia de la tierra,las investigaciones, la extensiónagrícola y la gestión del pastoreo)y el mejoramiento de las condi-

elle insiste étant différents,les appréciations des deuxinstitutions ne sont pas tou-jours comparables. Dansl’ensemble, le résultat duprogramme d’aide de laBAfD a été jugé « juste »satisfaisant. Les services

hors prêt (dialogue et conseils surles politiques, études économi-ques et sectorielles) ont été jugésinsatisfaisants. Les stratégies et lesprêts ne se sont pas appuyés surles études effectuées précédem-ment. Les résultats obtenus sem-blent pouvoir être maintenusdurablement, puisque le gouver-nement inscrit régulièrement aubudget des dotations suffisantespour préserver les investissementsdans les transports et le secteursocial. L’impact du développe-ment institutionnel reste cepen-dant modeste, puisque laperformance institutionnelle duLesotho demeure marquée pardes lacunes. L’attrait que l’Afriquedu Sud exerce sur la main-d’œu-vre qualifiée a pour effet d’empi-rer la situation.

Dans le cadre de cette évalua-tion conjointe, il est recommandéque la Banque mondiale et leGroupe de la Banque africaine dedéveloppement continuent d’axerleur aide sur la réduction de lapauvreté et des inégalités. À cettefin, elles devraient concentrerleurs efforts sur l’amélioration dela qualité de l’éducation et sur lavalorisation du capital humain(surtout dans les régions monta-gneuses pauvres), la lutte contrele VIH/sida, le renforcement desinstitutions rurales (comme l’amé-lioration du régime d’occupationdes terres, la recherche, la vulgari-sation et la gestion des pâturages)et la création de conditions plus

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ciones para el desarrollodel sector privado. En vistade las graves brechas deinformación que existen encasi todos los sectores, através de la asistenciaexterna debe ayudarse aLesotho a mejorar su base

de datos estadísticos, con aten-ción prioritaria a esferas relacio-nadas con el alivio de la pobreza,y a perfeccionar los sistemas deseguimiento y evaluación. Laefectividad de las consultas quecelebra el Banco Mundial condonantes acerca de las priorida-des en materia de desarrollopodría incrementarse mediante elfortalecimiento de la representa-ción operacional en Maseru o lainteracción más frecuente con elgobierno y los asociados en elproceso de desarrollo a través dela oficina del Banco Mundial enPretoria.

favorables au développe-ment du secteur privé.Puisque les données pré-sentent de graves lacunesdans presque tous les sec-teurs, une aide extérieuredevrait être fournie auLesotho pour qu’il puisse

améliorer ses données statistiques,un besoin qui est particulièrementpressant dans les domaines rela-tifs à la réduction de la pauvreté,et pour favoriser la mise en placede systèmes de suivi et d’évalua-tion. Les consultations entre laBanque mondiale et les bailleursde fonds au sujet des priorités àfixer pour le développementpourraient être facilitées par unrenforcement de la représentationopérationnelle à Maseru ou parun accroissement de la fréquencedes interactions avec le gouverne-ment et les partenaires du déve-loppement à partir du bureau dela Banque mondiale à Pretoria.


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Robert PicciottoDirector-General, Operations Evaluation

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EXECUTIVESUMMARY

Lesotho is a small, poorcountry (GNP per capita,

$540). Half of its two million peoplelive below the poverty line andincome inequality is among thehighest in the world. Lesotho islandlocked and completely sur-rounded by South Africa, and thus itis economically dependent on thatcountry. Lesotho’s economy is basedon limited agricultural and pastoralproduction and light manufacturingsuch as textiles, clothing, andleather. The economy is supple-mented by large, but declining,remittances from Lesotho miners inSouth Africa and, recently, by thereceipt of royalties from supplyingwater to South Africa through theWorld Bank–supported LesothoHighlands Water Project (LHWP).Added to the formidable challengeof the difficult physical and eco-nomic environment is a fragile andunpredictable political situation.

Challenges RemainSubstantial improvements in stabi-lization and growth have beenachieved, stimulated in part bythe LHWP. GDP growth averaged4 percent yearly during the 1990s,but dropped sharply toward theend of the decade. Progress instructural reforms and sectoralpolicies such as privatization,health, agriculture, and ruraldevelopment has been lessimpressive. The country’s devel-opment continues to be chal-lenged by widespread poverty,low quality of education andhealth services, a very high

RESUMEN

Lesotho es un país pequeño ypobre (con un PNB per cápita

de US$540). La mitad de sus dosmillones de habitantes viven pordebajo del umbral de pobreza, y ladesigualdad en la distribución delingreso se sitúa entre las más altasdel mundo. Lesotho carece de litoraly está completamente rodeado porSudáfrica, país del que dependeeconómicamente. Su economía sebasa en una limitada producciónagrícola y ganadera y en activida-des manufactureras ligeras (porejemplo, textiles, prendas de vestir yartículos de cuero). La economía secomplementa con importantes reme-sas de los mineros de Lesotho quetrabajan en Sudáfrica, aunque suvolumen está disminuyendo. Última-mente Lesotho también ha recibidoregalías por concepto del suministrode agua a Sudáfrica a través delproyecto de exportación de recursoshídricos de Lesotho respaldado porel Banco Mundial. Al enorme des-afío que plantean las difíciles condi-ciones físicas y económicas delpaís se suma su frágil e impredeci-ble situación política.

Desafíos que aún persistenSe han alcanzado importantesmejoras en materia de estabiliza-ción y crecimiento, en parte gra-cias al estímulo proporcionadopor el proyecto de exportación derecursos hídricos. La tasa anual decrecimiento del PIB registró unpromedio del 4% durante el dece-nio de 1990, pero experimentó unpronunciado descenso hacia finesde dicho decenio. El progreso

RÉSUMÉ ANALYTIQUE

Le Lesotho est un petit payspauvre (PNB par habitant de

540 dollars). La moitié de ses deuxmillions d’habitants vivent en des-sous du seuil de la pauvreté et lesinégalités dans les revenus sontparmi les plus marquées au monde.Dépourvu de façade maritime, leLesotho est enclavé dans l’Afriquedu Sud et est donc économiquementdépendent de celle-ci. Son écono-mie repose sur une faible productionagropastorale et sur la petite indus-trie (production de textiles et devêtements, travail du cuir, par exem-ple). Son économie bénéficie desimportants envois de fonds desmineurs partis travailler en Afriquedu Sud, bien que cette source derevenus soit en baisse, et, depuisquelques temps, des redevances surl’eau qu’il exporte vers l’Afrique duSud depuis qu’a été réalisé, avecl’aide de la Banque mondiale, leProjet hydraulique des hautes terresdu Lesotho. Une situation politiquefragile et imprévisible vient aug-menter le formidable défi que posentdes conditions économiques et phy-siques difficiles.

Défis subsistantsDes progrès substantiels ont étéréalisés pour ce qui est de stabili-ser la situation et d’accélérer lacroissance, notamment grâce à laréalisation du Projet hydrauliquedes hautes terres du Lesotho. LePIB s’est accru de 4 % par an enmoyenne durant les années 90,mais a fortement chuté vers lafin de la décennie. Les progrèsaccomplis dans le cadre des

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incidence of HIV/AIDS,weak institutions, laggingprivate sector development,and insufficient donorcoordination.

The World Bank’sApproach in the 1990s

As the country stabilized, theWorld Bank turned to povertyreduction and private sectordevelopment in the latter part ofthe 1990s. The LHWP was themost important of WorldBank–supported projects. WorldBank commitments to Lesothotripled—to almost $300 million—in the 1990s because of theLHWP. Annual average net dis-bursements were $13 million andnet transfers $10 million duringFY90–00, with peaks of nearly$30 million for each in FY93 fol-lowing LHWP approval. Althoughthe LHWP project succeeded instimulating growth and generatingsustained export revenue forLesotho, its impact on povertyreduction was minimal. The Bankalso supported education, health,agriculture and rural develop-ment, and private sector develop-ment. With the exception ofeducation, other World Bank pro-grams were ineffective. Somesound analytical work was carriedout, but periodic reviews of pub-lic expenditures and/or povertyassessment updates would havebeen desirable.

African Development BankEvaluation Findings Since it began operations inLesotho in 1974, the AfricanDevelopment Bank Group hascommitted unit of account (UA)275 million for 27 projects, 3 linesof credit, and 6 studies. The pub-


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logrado en el ámbito de lasreformas estructurales y laspolíticas sectoriales, comoprivatización, salud, agri-cultura y desarrollo rural,ha sido menos impresio-nante. El desarrollo delpaís sigue viéndose obsta-

culizado por la pobreza generali-zada, la baja calidad de losservicios de educación y salud, laincidencia muy alta de VIH/SIDA,la debilidad de las instituciones, ellento desarrollo del sector privadoy la insuficiente coordinaciónentre los donantes.

El enfoque del Banco Mundialen los años noventaAl estabilizarse la situación en elpaís, el Banco Mundial centró suatención en el alivio de la pobrezay el desarrollo del sector privado afinales del decenio de 1990. Elproyecto de exportación de recur-sos hídricos fue el más importantede los apoyados por el BancoMundial en Lesotho. Como conse-cuencia de este proyecto, los com-promisos del Banco Mundial conLesotho se triplicaron en los añosnoventa, alcanzando un nivel decerca de US$300 millones. Elmonto anual medio neto de losdesembolsos ascendió a US$13millones y las transferencias netassumaron US$10 millones en elperíodo de los ejercicios de 1990 a2000; ambos rubros registraron suvolumen más alto, de casi US$30millones cada uno, en el ejerciciode 1993 a raíz de la aprobación dedicho proyecto. Aunque a travésdel proyecto de exportación derecursos hídricos se logró estimu-lar el crecimiento de Lesotho ygenerar un volumen sostenido deingresos de exportación para elpaís, su impacto en la reducción

réformes structurelles etdes politiques sectorielles,notamment dans les domai-nes de la privatisation, dela santé, de l’agriculture etdu développement rural,sont moins impression-nants. Le développement

du pays continue d’être compro-mis par une pauvreté généralisée,la mauvaise qualité de l’éducationet des services de santé, une trèsforte incidence du VIH/SIDA, lafaiblesse des institutions, la len-teur du développement du sec-teur privé et le manque decoordination entre les bailleurs defonds.

Approche adoptée par la Banque mondiale dans lesannées 90La situation devenant plus stableau Lesotho, la Banque mondiale aréorienté son action vers la réduc-tion de la pauvreté et le dévelop-pement du secteur privé dans ladernière partie des années 90. Parsuite du Projet hydraulique deshautes terres du Lesotho, le plusimportant des projets appuyés parl’institution, les montants engagéspar la Banque mondiale au Leso-tho ont triplé – pour atteindreprès de 300 millions de dollars –durant les années 90. Les décais-sements annuels nets moyens sesont établis à 13 millions de dol-lars et les transferts nets à 10 mil-lions entre les exercices 90 et 00,et ont fait un bond pour atteindrede près de 30 millions dans lesdeux cas pour l’exercice 93, c’est-à-dire après l’approbation du Pro-jet hydraulique. Même si celui-ci astimulé la croissance et permis auLesotho de générer des recettesd’exportation régulières, il n’a euqu’un effet limité sur le plan de la

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lic utilities and transportsectors are the main benefi-ciaries, with 28 percent and26 percent of the portfoliorespectively, followed bythe social sector (24 per-cent), agriculture (13 per-cent), and industry (9

percent). The evaluation dealtmainly with the transport andsocial sectors. Overall, the out-come of the African DevelopmentBank Group assistance programin Lesotho was rated as “just”satisfactory. Performance in non-lending activities was unsatisfac-tory: policy dialogue betweenLesotho and the Bank Group wasinadequate, Bank Group capacitybuilding efforts in the countrywere limited to the Ministries ofFinance and Planning, and coordi-nation with other donors wasinsufficient. The key lesson wasthat prior economic and sectorwork is crucial to the formulationof appropriate Bank Group opera-tional strategy for a country. Sus-tainability of the outcome appearslikely, given the demonstratedcommitment of the government(through the budgetary provi-sions) to the intervention projects.The impact on institutional devel-opment, however, is modest, asLesotho continues to experienceweaknesses in institutionalcapacity.

RecommendationsThe joint evaluation recommendsthat the strategies and activities ofboth banks should be centered onthe following goals:• Reduce poverty and inequality

in the medium to longer termby focusing on accelerating theimpact of human capital devel-opment at all levels.

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de la pobreza ha sido mín-imo. El Banco también harespaldado actividades enlos sectores de educación,salud, agricultura y desarro-llo rural, y desarrollo delsector privado. Con excep-ción de la educación, los

programas del Banco Mundial nohan sido eficaces. Si bien se lleva-ron a cabo algunos estudios analí-ticos provechosos, hubiera sidoaconsejable realizar exámenesperiódicos de los gastos públicoso actualizaciones de la evaluaciónde la pobreza.

Conclusiones de laevaluación del Banco Africano de DesarrolloDesde que inició sus operacionesen Lesotho en1974, el Grupo delBanco Africano de Desarrollo haefectuado compromisos en el paíspor valor de 275 millones de uni-dades de cuenta con destino a 27proyectos, tres líneas de crédito yseis estudios. Los sectores de servi-cios públicos y de transportes hansido los principales beneficiarios,con un 28% y un 26% del total,respectivamente, seguidos por elsector social (24%), la agricultura(13%) y la industria (9%). La eva-luación se centró principalmenteen los sectores social y de trans-portes. En general, los resultadosdel programa de asistencia delGrupo del Banco Africano de Des-arrollo en Lesotho se clasificaroncomo “apenas satisfactorios”. Sudesempeño en lo que respecta alas actividades no crediticias en elpaís se consideró insatisfactorio: sudiálogo sobre políticas con Leso-tho fue inadecuado, sus esfuerzospara ampliar la capacidad del paísse limitaron a los ministerios definanzas y planificación, y su coor-

réduction de la pauvreté.La Banque mondiale a éga-lement apporté un soutiendans les domaines del’éducation, de la santé, del’agriculture et du dévelop-pement rural ainsi que del’expansion du secteur

privé. Sauf pour l’éducation, lesprogrammes de l’institution sesont avérés inefficaces. Certainesanalyses intéressantes ont étéeffectuées, mais il aurait été sou-haitable de les compléter par desexamens périodiques des dépen-ses publiques ou des mises à jourdes évaluations de la pauvreté.

Constatations de la Banqueafricaine de développement Depuis qu’elle a commencé sesopérations au Lesotho, en 1974, leGroupe de la Banque africaine dedéveloppement a engagé 275 mil-lions d’unités de compte au titrede 27 projets, de 3 lignes de créditet de 6 études. Les secteurs desservices publics et des transportsen ont été les principaux bénéfi-ciaires, à raison de 28 % et de 26% respectivement du portefeuille,suivis par le secteur social (24 %),l’agriculture (13 %) et l’industrie (9%). L’évaluation a principalementporté sur le secteur des transportset le secteur social. Dans l’ensem-ble, le résultat du programmed’aide du Groupe de la Banqueafricaine de développement a étéjugé « juste » satisfaisant. Les résul-tats obtenus pour les opérationshors prêt ont été jugés insuffi-sants : le dialogue entre le Lesothoet le Groupe sur l’action à menerpar les pouvoirs publics n’a pasété adéquat. Les efforts de renfor-cement des capacités déployés parcette dernière dans le pays ont étélimités au ministère des Finances

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• Place HIV/AIDS pro-grams prominently onthe agenda.

• Use World Bank in-volvement in the LHWPand in agricultural pol-icy formulation, alongwith the African Devel-

opment Bank Group, tostrengthen rural institutionsand enhance the enabling envi-ronment for private sectordevelopment.

• Identify data weaknesses, mosturgently in areas related topoverty reduction, and pro-mote monitoring and evalua-tion systems.

• Enhance the World Bank’s con-sultations with donors througha stronger operational repre-sentation in Maseru.


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dinación con otros donan-tes fue insuficiente. La lec-ción clave es que losestudios económicos y sec-toriales previos revistenimportancia crucial para laformulación de una estrate-gia operacional apropiada

del Grupo del Banco Africano deDesarrollo para un país. Pareceprobable que los resultados seránsostenibles en vista del compro-miso demostrado por el gobierno(a través de las asignaciones pre-supuestarias) en relación con losproyectos de intervención. Sinembargo, el impacto en el desarro-llo institucional ha sido modesto,pues la capacidad institucional deLesotho sigue dando muestras dedebilidad.

RecomendacionesEn la evaluación conjunta serecomienda que las estrategias yactividades de ambos Bancosse centren en los siguientesobjetivos:• Reducir la pobreza y la des-

igualdad a mediano y largoplazo prestando especial aten-ción a la aceleración delimpacto del desarrollo delcapital humano en todos losniveles.

• Asignar un lugar prominenteen la agenda a los programasde lucha contra el VIH/SIDA.

• Aprovechar la participación delBanco Mundial en el proyectode exportación de recursoshídricos y en la formulación dela política agrícola, conjunta-mente con el Grupo del BancoAfricano de Desarrollo, parafortalecer las instituciones rura-les y brindar condiciones máspropicias para el desarrollo delsector privado.

et du Plan, et la coordina-tion avec les autres bailleursde fonds n’a pas été assezpoussée. Le principal ensei-gnement à retenir est que,pour pouvoir définir unestratégie opérationnellepour un pays, le Groupe de

la Banque africaine de développe-ment doit absolument s’appuyersur des études économiques etsectorielles. La pérennité des résul-tats obtenus est probable, car legouvernement a manifesté (par sesdotations budgétaires) sa volontéde soutenir les interventions effec-tuées par l’intermédiaire desprojets. L’impact sur le développe-ment institutionnel est toutefoismodeste, et le Lesotho continue desouffrir de l’insuffisance de sescapacités institutionnelles.

RecommandationsAux termes de l’évaluation con-jointe, il est recommandé que lesstratégies et activités des deuxbanques visent principalement lesobjectifs suivants :• réduire la pauvreté et les

inégalités, à moyen et longterme, en concentrant lesefforts sur l’accroissement del’impact de la valorisation ducapital humain à tous lesniveaux ;

• placer la lutte contre leVIH/SIDA parmi les toutes pre-mières priorités ;

• s’appuyer sur la participationde la Banque mondiale au Pro-jet hydraulique des hautes ter-res du Lesotho et à laformulation de la politiqueagricole avec le Groupe de laBanque africaine de dévelop-pement pour renforcer les insti-tutions rurales et créer desconditions plus favorables au

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• Identificar las deficien-cias en materia dedatos, asignando lamáxima prioridad a lasesferas relacionadas conel alivio de la pobreza,y perfeccionar los siste-mas de seguimiento y

evaluación.• Fortalecer el proceso de con-

sultas del Banco Mundial conlos donantes mediante unarepresentación operacionalmás fuerte en Maseru.

développement du sec-teur privé ;

• identifier les lacunesdans les données, enpriorité dans les domai-nes liés à la réductionde la pauvreté, et favori-ser la mise en place

de systèmes de suivi et d’évaluation ;

• intensifier les consultationsentre la Banque mondiale etles bailleurs de fonds enaccroissant le nombre de per-sonnes participant aux opéra-tions à Maseru.

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AAA Analytical and advisory servicesACP African, Caribbean, and Pacific countriesAfDB African Development BankAIDS Acquired Immunodeficiency SyndromeADF African Development Fund ASDP Agricultural Sector Adjustment ProgramASIP Agricultural Sector Investment ProgramBADEA Arab Bank for Economic Development in AfricaBCP Basotho Congress PartyBCG Bacillus of calmette and guerin BNP Basutoland National PartyCAE Country Assistance EvaluationCAS Country Assistance StrategyCDC Commonwealth Development CorporationCHAL Christian Health Association of Lesotho CODE Committee on Development EffectivenessCOSC Computer science (exam)CSP Country Strategy PaperCT Country teamCWIQ Core Welfare Indicators QuestionnaireDO Development objective DPT Diptheria, pertusis, and tetanusEA Environmental AssessmentED Executive directorEPCP Economic Prospects and Country ProgrammingEPI Expanded Program on ImmunizationEPP Emergency Preparedness PlanESAF Enhanced Structural Adjustment FacilityESDP Education Sector Development ProjectESSP Education Sector Strategy PaperESW Economic and sector workEU European UnionFAO Food and Agricultural Organization of the United NationsFIA Financial Institution ActGDP Gross domestic productGEF Global Environmental FacilityGNP Gross national productHSA Health Services AreaHSDP Health Services Development ProjectHIV Human Immunodeficiency VirusHNP Health, nutrition, and population sectorIBRD International Bank for Reconstruction and Development (World Bank)ICR Implementation Completion ReportIDA International Development AssociationIDI Institutional development impactIFC International Finance CorporationIMF International Monetary FundIP Implementation performance IPA Interim Political Authority

ABBREVIATIONS AND ACRONYMS

I-PRSP Interim Poverty Reduction Strategy PaperLADB Lesotho Agricultural Development BankLAC Lesotho Airlines Corporation LCU Labor construction unit LEC Lesotho Electricity CorporationLFCD Lesotho Fund for Community DevelopmentLHDA Lesotho Highlands Development AuthorityLHRF Lesotho Highlands Revenue FundLHWP Lesotho Highlands Water ProjectLIL Learning and Innovative LoanLNDC Lesotho National Development CorporationLSMS Living Standards Measurement SurveyLTC Lesotho Telecommunications CorporationLWSC Lesotho Water and Sewage CorporationMOE Ministry of EducationMOHSW Ministry of Health and Social Welfare MOPWT Ministry of Public Works and Transport NCDC National Curriculum Development Council NDP National Development PlanNEAP National Environmental Action PlanNGO Nongovernmental organizationNORAD Norwegian Agency for Development CooperationNTF Nigeria Trust Fund ODA Official development assistanceOED Operations Evaluation Department, World BankOPEC Organization of Petroleum Exporting CountriesOPEV Operations Evaluation Department, African Development Bank Group PCR Project Completion ReportPER Public Expenditure ReviewPFP Policy Framework PaperPHC Primary health care PIU Project Implementation Unit PRGF Poverty Reduction and Growth FacilityPRSP Poverty Reduction Strategy PaperPSD Private sector developmentPSR Project Status ReportQAG Quality Assurance GroupRB Roads Branch RHSP Rural Human Services ProgramRIS Reservoir-induced seismicitySACU South African Customs UnionSADC South African Development CorporationSAF Structural Adjustment FacilitySDR Special Drawing RightsSEOR Strategic Economic Options ReportSIDA Swedish International Development AuthoritySOE State-owned enterpriseSSA Sub-Saharan AfricaTAF Technical Assistance Fund


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TVET Technical and vocational educationUA Unit of accountUNAIDS Joint United Nations Programme on HIV/AIDSUNDP United Nations Development ProgramUSAID United States Agency for International Development WASA Lesotho Water and Sewage AuthorityWHO World Health Organization

A b b r e v i a t i o n s a n d A c r o n y m s

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Lesotho’s Political,Economic, and SocialDevelopment

Lesotho, which is landlocked and completely surrounded by South Africa,has had a tumultuous history (see box 1.1). Established as a Britishprotectorate in 1868, Lesotho became an independent constitutional

monarchy in 1966, with a parliamentary system of government. But Lesotho’sdemocratic process remains fragile and is marked by conflict between twomajor political parties—the Basutoland National Party (BNP) and the BasothoCongress Party (BCP)—as well as by power struggles between civilian andmilitary regimes. Since independence, there have been 4 military coups and

23 years of authoritarian rule, including 7 yearsof military government. Elections have beengenerally contested by the opposition parties andfollowed by civil unrest, army mutiny, and in-tervention by South Africa to restore order.

The 1990s saw these political upheavals es-calate. After a 1993 election, a new constitutionwas introduced, but the one-sided result led totension between the newly elected BCP gov-ernment and the military. A short-lived palace-led coup d’état followed, resulting in substantiallabor unrest in 1994 and the king’s death in1996. Another one-sided election result in May1998 brought more conflict over the allocationof political power. The intervention of troopsfrom South Africa and other neighboring coun-tries to quell riots in September 1998 had majorpolitical repercussions, the impacts of whichare still felt throughout Lesotho. An Interim Po-litical Authority (IPA) was created to review

Lesotho’s electoral system and to prepare for newelections within 15–18 months. That periodpassed without any elections, and a new elec-tion date has been set for the second half of 2002,but it is possible that elections will be post-poned again. The continued political uncer-tainty has hindered Lesotho’s economicdevelopment.

The EconomyLesotho is a poor country: its gross nationalproduct (GNP) per capita was $5401 in 2000,comparable with the average for Sub-SaharanAfrica ($500) but well below South Africa($3,020). Eighty percent of the population ofnearly two million lives in rural areas. Two-thirds of the country’s area is mountains andsteep valleys with a temperate subtropical climateand erratic rainfall. Its economy is based onlimited agricultural and pastoral production and

11

light manufacturing (clothing, textiles, andleather), supplemented by large, though de-clining, remittances from Lesotho mineworkers

in South Africa and, recently, by the receipt ofroyalties for supplying water to South Africa.Between 1990 and 1999, the primary economic


2

Strong sense of independenceThe origins of Lesotho as a nation date back to the nineteenthcentury, when King Moshoeshoe I rallied the Basotho from theremnants of ethnic groups scattered in the region. In 1868, theking negotiated British protection as tension between Basothoand South African Boers increased, but in 1884 the British gov-ernment took over direct responsibility for the protectorate.

In 1910, when South African provinces were united under theUnion of South Africa, Lesotho remained under the control of theBritish. South Africa assumed that it would ultimately annexLesotho, but in 1964 a constitution adopted in Lesotho providedfor its independence as a constitutional monarchy, with theparamount chief serving as king, and with a parliamentary sys-tem of government. Beside the National Assembly there is anonelective Senate, consisting mostly of principal chiefs.

Series of electionsThe Basutoland National Party (BNP), headed by Chief LeabuaJonathan, narrowly won the first election in 1966 at the time ofindependence. Chief Jonathan became the first Prime Ministerof independent Lesotho—under its king, Moshoeshoe II—andremained Prime Minister for the next 20 years.

In 1970, an opposition party—Basotho Congress Party (BCP)—won the second election, but Jonathan retained power by acoup. The constitution was suspended and the opposition banned,forcing its leaders into exile or into the mountains, where theyfought a low-key guerrilla war.

Rifts between Lesotho and South AfricaJonathan and his BNP party had initially supported cooperationwith South Africa, but he adopted a more independent foreignpolicy in the 1970s and 1980s, criticizing his neighbor’s apartheidpolicies and giving refuge to members of the outlawed AfricanNational Congress. Under pressure to reform, the BNP organizedelections in 1985 but manipulated them—only BNP candidatesstood for election. This resulted in growing opposition, intrapartystrife, and disunity in the army. In 1986 the army fought withinits ranks when a faction supporting Colonel Sehlabo clashed withone supporting Major General Lekhanya.

Annoyed by the BNP support of the African National Congress,South Africa mounted an economic blockade of Lesotho in early

1986. With South African help, Jonathan was soon overthrownin a military coup and replaced by Major General Lekhanya. AMilitary Council was established to rule the country in consul-tation with the king, and political activity was banned. Relationsbetween Lesotho and South Africa subsequently improved, witheach country agreeing not to permit its territory to be used tomount attacks on or subvert the other.

More moderate forces take overIn 1991, the reorganized Military Council promised a new con-stitution and announced that political activity could resume. Anew constitution went into effect following 1993 general elec-tions. The elections resulted in a landslide victory for the anti-apartheid BCP, led by Ntsu Mokhehle, who became PrimeMinister. The party won all 65 constituencies on a first-past-the-post electoral system with 78 percent of the popular vote.However, tensions between the new government and the armedforces—where the BNP has a major influence—arose. A palace-led coup d’etat in August 1994 was reversed a month later withpolitical intermediation by neighboring SADC states. Also, 1994witnessed significant labor unrest, the killing of the DeputyPrime Minister, and the kidnapping by the police of four cabinetministers. King Moshoeshoe II, who had been dethroned in 1990and had regained the throne in 1995, died in 1996 as a result of acar accident, and was succeeded by his eldest son, Letsie III.

Political instability remainsAfter a prolonged period of political instability, general electionswere held in May 1998, in which a newly formed party (LesothoCongress for Democracy) within the ruling BCP won all but 1 ofthe 80 parliamentary seats with only 60.5 percent of the popu-lar vote. The results were contested by the opposition parties,which alleged widespread rigging. The subsequent protestsled to civil unrest and an army mutiny in September. At the re-quest of the newly elected government, a South Africa–ledSADC force was brought into Lesotho to restore order. A new In-terim Political Authority (IPA) comprising 24 members, 2 fromeach of the 12 largest political parties, was set up to promoteand create conditions conducive to a more durable peace andto hold general elections by May 2000. They were not held, andconsiderable uncertainty remains.

A B r i e f P o l i t i c a l H i s t o r y o f L e s o t h oB o x 1 . 1

sectors (predominantly agriculture and livestock)accounted for 20 percent of gross domesticproduct (GDP), and secondary sectors (includ-ing manufacturing and construction) and serv-ices accounted for 38 percent and 42 percent,respectively.

The country is encircled by and economicallydependent on South Africa. Ninety percent ofLesotho’s imports come from South Africa and65 percent of its exports go there. The goldmines in South Africa have been a major sourceof employment for Lesotho’s labor force, andthus a source of remittances to the economy. Thecontraction of the South African gold industry,however, led to a sharp reduction in the num-ber of Lesotho’s miners in South Africa—from127,000 in 1989–90 to 69,000 in 1998–99. Con-sequently, miners’ remittances dropped from62 percent of GNP in 1989–90 to 18 percent in1998–99 (figure 1.1).

Lesotho is a member of the Southern AfricanCustoms Union (SACU); SACU pools the customsreceipts collected by its members (Botswana,Lesotho, Namibia, South Africa, and Swaziland),and distributes them based on a revenue-sharingformula. Lesotho’s share of SACU receipts rosefrom 12.6 percent of GNP in 1988–89 to 14.3 per-

cent of GNP in 1998–99, largely because of theconstruction of the Lesotho Highlands WaterProject (LHWP) (see Chapter 3 and box 3.2 fordetailed discussion). These receipts are expectedto decline as LHWP-related activities wind down.Furthermore, the Southern African Develop-ment Corporation (SADC) has agreed on a free-trade protocol for its members.2 The SACUrevenue-sharing formula will be revised andtariff levels will probably decline in line with theSADC-negotiated trade liberalization in the sub-region. Meanwhile, the LHWP continues to havea substantial impact on the economy. In 1998 theproject accounted for 13 percent of GNP—35percent of value-added in construction and 28percent of government revenue. Lesotho’s cur-rency (the loti; plural, maloti) is linked to SouthAfrica’s rand at a one-to-one rate, limitingLesotho’s monetary policy and raising the im-portance of a healthy fiscal policy and preserv-ing the external balance.

GNP grew at an annual average rate of lessthan 2 percent during the 1990s, but droppedsharply in 1997–98 and in 1998–99 (figure 1.2).This reversal was brought on by the sharp dropin LHWP-related investment, weak growth inagriculture and manufacturing on account of

L e s o t h o ’s P o l i t i c a l , E c o n o m i c , a n d S o c i a l D e v e l o p m e n t

3

N u m b e r o f L e s o t h o M i n e r s i n S o u t hA f r i c a a n d R e m i t t a n c e s , F Y 8 9 – 9 9F i g u r e 1 . 1

● ●● ●

●●

● ●●

●

●

◆ ◆

◆

◆

◆

◆

◆ ◆◆ ◆

◆

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 19990

20

40

60

80

100

120

140

0

10

20

30

40

50

60

70

Num

ber o

f min

ers

(000

’s)

Rem

ittan

ce (p

erce

nt o

f GN

P)

Year

No. of mineworkers (in thousands)

Miners' remittances (percent of GNP)

Source: World Bank data.

adverse weather conditions, and declining mi-grant worker remittances from South Africa.Moreover, economic activity, particularly foreigndirect investment, tapered off in response tothe 1998 civil unrest.3 Lesotho’s growth prospectsover the medium term are expected to remainconstrained as a result of (1) political instabilityand the uncertain outlook for foreign direct in-vestment; (2) continuing decreases in remit-tances; (3) the expected drop in SACU receipts;and (4) the decline in LHWP investment.

Poverty, Inequality, Social Conditions,and Gender Bias: Low Welfare LevelsLesotho’s levels of poverty and inequality re-mained extremely high during 1993–99 (table1.1). The Gini coefficient for Lesotho is one ofthe highest in the world, implying that in acountry with widespread poverty—half the pop-ulation in 1999—many of the poor suffer ex-treme deprivation. The national averageincidence of poverty changed little in the 1990s,except that urban poverty moved slightly lowerand rural poverty moved slightly higher, re-flecting the substantial growth in manufactur-ing and services, the stagnation of cropagriculture, and the deterioration of the range-

lands.4 Poverty and inequality also have geo-graphic, regional, occupational, and gender di-mensions. Poverty is overwhelmingly rural:more than 80 percent of poor people live in ruralareas and are concentrated among farmers,shepherds, and women, and in the country’smountainous regions. Unemployment, a majorcause of poverty, remains extremely high—atabout 40 percent, according to the 1997 LaborForce Survey. While economic growth is animportant prerequisite for improving welfare,strong economic performance during 1994–97was not accompanied by declining unemploy-ment, poverty, or inequality.

Lesotho’s social indicators are generally bet-ter than the Sub-Saharan Africa (SSA) average,but below the SADC subregion average (table1.2 and Annex D, tables D.1 and D.2). For ex-ample, Lesotho has one of the highest literacyrates in SSA. Due to inefficiency and poor qual-ity of the educational system, however, only asmall percentage of students reach the higher lev-els.5 Consequently, Lesotho’s secondary schoolenrollment is worse than the region and subre-gion averages. Human Development Report 2000ranks Lesotho as 127 out of 174 countries basedon its human development index (UNDP 2000).6


4

G r o s s D o m e s t i c P r o d u c t a n dG r o s s N a t i o n a l P r o d u c t G r o w t hR a t e , F Y 9 1 – 0 0

F i g u r e 1 . 2

●

●●

● ●

●

●

●

●

●

◆

◆

◆ ◆◆

◆

◆

◆

◆

◆

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000-10

-8

-6

-4

-2

0

2

4

6

8

10In

per

cent

per

yea

r

● GDP growth rate

◆ GNP growth rate

Year

Source: World Bank data.

Despite progress in improving social indica-tors in recent years (table 1.2), Lesotho’s socialservice delivery is weak. Health personnel arein short supply, health centers are not ade-quately equipped, and schools lack teachingmaterials. For instance, the population per physi-cian exceeds 20,000, double the average forSADC. The share of total government resources

devoted to the health sector steadily declinedduring 1995–99 by about 7 percent in real terms.Moreover, the stated commitment to primaryhealth care is not supported by the 30–40 percentof recurrent health resources allocated to QueenElizabeth II Hospital. Similarly, budget prioritiesand equity in the distribution of educationalresources remain skewed, with the National

L e s o t h o ’s P o l i t i c a l , E c o n o m i c , a n d S o c i a l D e v e l o p m e n t

5

Rural Maseru (capital) Other urban All1993 1999 1993 1999 1993 1999 1993 1999

Incidence

Povertya 54 56 28 22 27 29 49 51

Extreme povertyb 29 37 14 10 11 15 26 33

Intensity (poverty gap)

Poverty 27 30 13 22 12 27 24 30

Extreme poverty 10 14 4 11 5 14 9 14

Population share 82 80 14 15 4 5 100 100

Gini coefficient 0.55 n.a. 0.58 n.a. n.a. n.a. 0.57 0.60n.a. Not available.

a. The percentage of the population spending less than half of the mean consumption level.

b. Those consuming less than 25 percent of the average.

Source: Sechaba Consultants (1994) cited in World Bank (1995); and Sechaba Consultants (2000). The data for 1999 were prepared especially for the OED mission by Sechaba Consultants

(Sechaba Consultants 1999).

L e s o t h o ’ s P o v e r t y a n d I n e q u a l i t y P r o f i l e ,1 9 9 3 – 9 9 ( p e r c e n t )

T a b l e 1 . 1

Lesotho Comparator groupsIndicator 1980 1997 Subregion (SADC) 1997 Region (SSA) 1997

Life expectancy (years) 53 56 54 51

Total fertility 6 5 5 5

Infant mortality (per 1,000 births) 119 93 80 92

Net primary enrollment (% of age group) 67 69 75 —

Male 55 63 75 —

Female 80 74 75 —

Gross primary enrollment (% of age group) 104 109 106 78

Male 85 103 106 85

Female 122 114 105 71

Primary pupil-to-teacher ratio 48 48 39 34

Gross secondary enrollment (% of age group) 18 29 37 30

Adult illiteracy (% of population 15 years and older) 29 18 27 42Source: World Bank, World Development Indicators (various issues); details in Annex D, tables D.1 and D.2.

S o c i a l I n d i c a t o r s i n L e s o t h o a n dC o m p a r a t o r C o u n t r i e s

T a b l e 1 . 2

University of Lesotho absorbing about a fifth ofall recurrent expenditure on public education.In January 2000, the government started to phasein free primary education, and the first year ofimplementation witnessed increases in enroll-ments. With 80 percent of the population inrural areas characterized by mountainous terrainand remote villages, the challenge of deliveringsocial services is daunting.

Progress in improving quality of life in Lesothohas not been evenly distributed between malesand females (table 1.2). Boys receive less edu-cation than girls, and Lesotho’s net primary ed-ucation enrollment rate for boys is much lowerthan in the SADC subregion. The bias againstboys and men may stem from the fact that par-ents still view working in South African mines(having spent their youth herding livestock) asthe most promising job prospect for males; min-ing is an occupation requiring physical strengthand endurance more than literacy and numer-acy. Because of this long tradition of Lesothomen obtaining employment in South Africanmines, the number of de facto female-headedhouseholds is higher than in many other SSAcountries. However, Lesotho’s women have thelegal status of perpetual minors. For example,although the Land Act of 1979 and the 1992amendment provide tenure security to bothwomen and men, women have limited access

to economic resources and services such asrural credit.

High but Declining AidLesotho’s per capita Official Development As-sistance (ODA) exceeded the SSA average, butwas comparable with the SADC for 1990–97(table 1.3). Total ODA was high in the early 1990sbecause of Lesotho’s position as a frontline stateduring the apartheid era in South Africa, but since1994 it has declined steadily. International De-velopment Association (IDA) net disbursementsper capita to Lesotho over this period, repre-senting less than 10 percent of the country’s totalODA flows, were low relative to the compara-tor countries, particularly small IDA-eligible SSAcountries (Annex D, table D.3). However,Lesotho received additional net InternationalBank for Reconstruction and Development(IBRD) disbursements per capita (for the LHWP)averaging $10.4 per year over the 1990–97 pe-riod, indicating a high level of dependence onBank resources. External assistance to Lesothohas been delivered in a setting of political un-certainty, which continues to weaken the ef-fectiveness of assistance programs. Also, thereare considerable differences among donors interms of assistance strategy because of differentreadings of the political environment, resultingin different levels of commitment.


6

Lesotho SADC SSA1990–94 1995–97 1990–94 1995–97 1990–94 1995–97

Net ODA per capita ($) 75 53 80 60 45 37

Net AfDF-ODA per capita ($) 8 4 4 1 8 1

IDA commitments per capita ($) 6 9 7 4 8 6

IDA disbursements per capita ($) 4 5 4 5 6 6Source: OECD (various years); details in Annex D, table D.3.

O f f i c i a l D e v e l o p m e n t A s s i s t a n c e , A n n u a lA v e r a g e , 1 9 9 0 – 9 4 a n d 1 9 9 5 – 9 7

T a b l e 1 . 3

7

Development Challengesand Constraints

Poverty Reduction: The Overarching Objective of Lesotho’s Development

GDP growth for agriculture, the sector that employs most of the poor,was disappointing during the 1990s—about 1.8 percent a year, adrastic reduction from 6 percent a year during the second half of

the 1980s. Population grew at an average annual rate of 2.6 percent duringthe 1990s, indicating negative per capita growth in agricultural output.Agricultural GDP also suffered from wide yearly fluctuations in output, suchas the drop of 16 percent in GDP between 1991 and 1992 from drought.

Lesotho’s agricultural performance was alsobelow SSA’s overall growth rate of 2.2 percenta year in the 1990s. Slow agricultural growth hascontributed to the persistence of rural poverty(table 1.1). The sharp reduction in remittancesfrom miners in South Africa—on which manyrural households depend for their subsistenceand resources for capital improvements—hasalso had an impact. For a population with shrink-ing nonfarm sources of income, lower remit-tances have serious consequences for foodsecurity in rural areas.

Human Capital Development: Key for JobsThe size and unique geographic circumstancesof Lesotho make it essential that human capitalbe well adapted, not only to the domestic labormarket but also to the wider regional and in-ternational markets. Meeting the challenges ofthe post-apartheid era requires a shift in the

labor force from largely unskilled miners andapartheid labor to skilled and semiskilled work-ers. Thus, maintaining the competitiveness ofLesotho workers within the regional market willrequire sustained attention to the quality of ed-ucation and training. Among the major chal-lenges will be reversing the trend of decliningnet enrollment rates for primary education; vastlyimproving outcomes and efficiency in primaryand secondary education; adapting technical, vo-cational, and tertiary education to private sec-tor demand in the regional labor market; andstriking an appropriate and sustainable balancein public funding for various levels of the edu-cation system.

HIV/AIDS: A Formidable Challenge Lesotho is facing one of the most serious healthand social welfare threats of the new century:HIV/AIDS. Based only on a very small sentinel

22

surveillance system, UNAIDS estimates an adult(ages 15–49) HIV prevalence rate of 23.6 percentfor Lesotho in 1999—one of the highest rates inthe world (table 2.1). Lesotho can expect to seedramatic increases in infant, child, and adultmortality rates and decreased life expectancy,and there will be severe social, economic, andfinancial consequences from losing people intheir most productive years. Lesotho’s life ex-

pectancy is estimated, based on a modest preva-lence rate of 4.4 percent, to drop to 45 years by2010; without the presence of HIV/AIDS, life ex-pectancy would have been 66 years (U.S. Bureauof Census estimate, 1999). More recent esti-mates (UNAIDS 2000) put the HIV prevalencerate six times as high, reducing life expectancyeven further: the difference in life expectancy,with and without AIDS, is projected to reach a


8

No. of adults livingEstimated adult with AIDS No. of children No. of orphansa

Area prevalence (%) (aged 15–49) living with AIDS (cumulative)

Lesotho 23.57 240,000 8,200 35,000

SACU 25.13 1,195,000 28,850 141,250

SADC countries 15.90 1,064,545 38,482 426,636

Angola 2.78 160,000 7,900 98,000

Botswana 35.80 290,000 10,000 66,000

Congo, Dem. Rep. 5.07 1,100,000 53,000 680,000

Malawi 15.96 800,000 40,000 390,000

Mauritius 0.08 … … …

Mozambique 13.22 1,200,000 52,000 310,000

Namibia 19.54 160,000 6,600 67,000

Seychelles … … … …

South Africa 19.94 4,200,000 95,000 420,000

Swaziland 25.25 130,000 3,800 12,000

Tanzania 8.09 1,300,000 59,000 1,100,000

Zambia 19.95 870,000 40,000 650,000

Zimbabwe 25.06 1,500,000 56,000 900,000

Small IDA-eligible SSA countriesb 4.08 21,333 860 7,633

Cape Verde … … … …

Comoros 0.12 … … …

Djibouti 11.75 37,000 1,500 7,200

Gambia, The 1.95 13,000 520 9,600

Guinea-Bissau 2.50 14,000 560 6,100

São Tomé & Principe … … … …

SSA 8.57 24,500,000 1,000,000 12,100,000

Worldwide 1.07 34,300,000 1,300,000 13,200,000… Negligible.

a. Orphans are defined as children under 15 who have lost their mother or both parents to HIV/AIDS since the beginning of the epidemic.

b. Small is defined in terms of population size (countries of less than 1.5 million).

Source: UNAIDS (2000).

T h e I n c i d e n c e o f A I D S i n L e s o t h o , S o u t hA f r i c a n C u s t o m s U n i o n , S o u t h A f r i c a nD e v e l o p m e n t C o r p o r a t i o n , S u b - S a h a r a nA f r i c a , a n d W o r l d w i d e , 1 9 9 9

T a b l e 2 . 1

staggering 31.4 years by 2015 (World Bank2000a, p. 16). Preliminary estimates project thatthe annual loss of GDP growth due to AIDS willrise from 0.6 percent in 2001 to 2.7 percent by2015 (World Bank 2000a, p. 23). The impact ofAIDS will be greater on the poor, who are lesseducated about prevention and more vulnera-ble to rising medical costs and loss of income.

Institutional Capacity: A Major WeaknessInefficient government bureaucracy and limitedabsorptive capacity for external assistance im-pede Lesotho’s efforts to sustain broad-basedgrowth and reduce poverty. Inadequate ad-ministrative and institutional capacity in manyministries and central government agencies ap-pears to have seriously impeded policy formu-lation, coordination, and implementation forlong-term development. Data management sys-tems are weak, raising concerns about the time-liness and reliability of data about nationalaccounts, poverty, and society.

Private Sector Development: Keyfor GrowthLesotho’s labor force is growing at 25,000 newentrants a year, while the employment absorp-tive capacity is limited to about 9,000 a year(Lesotho 2000). The employment problems aremade worse by the substantial reduction of op-portunities for migrant miners in South Africa.About 180,000 subsistence farmers and about31,000 small-scale entrepreneurs dominate

Lesotho’s current workforce. While their pro-duction can grow, they cannot be a source ofsignificant additional employment.1 Any addi-tional employment will need to come from man-ufacturing. In the early to mid-1990s a numberof firms (generally foreign-owned, but withsome government equity) manufacturing textilesand footwear for export on a labor-intensive basisrapidly increased their contribution to GDP,reaching 14 percent in 1994–95. This growth wasbased mainly on firms from South Africa thatwere avoiding apartheid-era trade sanctions onSouth African exports. Unfortunately, the rapidgrowth was not sustained at the end of apartheid.Nevertheless, the best basis for growth is the pri-vate sector; establishing the enabling environ-ment for additional private investment remainsone of Lesotho’s biggest challenges.

Political Instability: A Challenge anda Constraint to Sound Governance There is no agreement among Lesotho’s politi-cal parties on appropriate security and politicalarrangements. Continuing political uncertaintyhas had a negative impact on public adminis-tration, private investment, and economic de-velopment (Chapter 1 and box 1.1). Meanwhile,the government has signed a defense pact withSADC countries, allowing them to intervene atthe government’s invitation, and at very short no-tice, should the need arise. Political stability, andtherefore more stable governance, remains akey challenge.

D e v e l o p m e n t C h a l l e n g e s a n d C o n s t r a i n t s

9

1 1

World Bank Servicesand Products

This chapter evaluates each service and product the World Bank hasdeployed to meet Lesotho’s development challenges. The servicesand products include policy dialogue and strategic advice, eco-

nomic and sector work, and lending. The evaluation indicates a moderatelyunsatisfactory outcome overall. The Bank’s contribution to institutional de-velopment has been modest and sustainability remains uncertain. Ongoinglending is riskier than average for the Bank’s portfolio.

Policy Dialogue and Strategic AnalysisThe complex political and economic transitionsin Lesotho and South Africa during the 1990s (seeChapter 1) required adjustments in policy anddevelopment strategy. Moreover, with Lesotho’sreturn to democracy in 1993, a new developmentstrategy was needed to reflect the new govern-ment’s vision. Consequently, a national taskforce of the major stakeholders in Lesotho’s de-velopment was created to develop a medium-term (1995–00) strategy. The World Bank andother donors provided analytical, technical, andfinancial inputs, and the task force produced theStrategic Economic Options Report (SEOR). Thereport contained detailed reviews of the issuesand strategies of 19 sectors and played a part inthe World Bank’s dialogue with the governmenton development priorities. For example, the1996 Country Assistance Strategy (CAS) usedthe report as one of its inputs. In sum, the SEORwas comprehensive and relevant. While it did

not rank the development priorities among sec-tors, it did recommend priority actions withinspecific sectors.

Policy dialogue was strengthened consider-ably through the preparation of a Poverty As-sessment by the World Bank, the government,the Lesotho Council of NGOs, the EU, andUSAID. The assessment was relevant, providinga comprehensive review of poverty in Lesotho,including a detailed analysis of the impact ofgrowth in different sectors on poverty reductionbased on a Social Accounting Matrix (table 3.1).The resultant strategy was, however, moder-ately unsatisfactory because its plan to fosterlabor-intensive growth in agriculture was unlikelyto succeed. It overplayed the opportunities forpoverty reduction through crop diversification,increased growth of high-value crops, and labor-intensive production of these crops. In anyevent, the 1990s witnessed limited diversificationor production of high-value vegetables and fruits

33

because of inadequate credit, poor irrigation fa-cilities, weak technological support, and remotemarkets (van Holst Pellekaan 2001). In addition,successful labor-intensive development of thenonfarm sectors was unlikely, as suggested in

the Poverty Assessment, because of the weak en-abling environment for investment in light in-dustry. The report stressed improved socialservices and human resources as a way to re-duce poverty; this was right on the mark.


1 2

Foster labor-intensive growthIn agriculture: In export-oriented light manufacturing:

• Remove price, marketing, and processing distortions • Keep minimum wages at a competitive level

• Invest in rural infrastructure • Improve industrial relations

• Make land tenure more secure • Reduce utility costs

• Promote a reduction in herd size • Root export firms more firmly in the economy by selling factories

• Reorient agricultural research and extension

In the small business sector: In tourism:

• Make it easier for small entrepreneurs (especially women) to get • Work much more closely with South African Travel agents

credit and do business • Develop a special “Lesotho package”

• Shift the emphasis away from broad entrepreneurship training in

manufacturing toward training in skills needed in the export and

service sectors

• Develop rural and urban marketplaces

Through infrastructure investments:

• Use private contractors on public works

• Invest more using labor-intensive approaches

Invest in human resources

In health care: In education:

• Exempt children less than five from fees • Lower the cost to parents of primary schooling

• Introduce a free basic health service • Strengthen informal education for out-of-school youth

• Increase geographic equity • Improve vocational and technical education

• Allow local facilities to retain certain fees • Invest more in education in poorer regions

• Create incentives for qualified teachers to teach in remote areas

• Spend proportionately more on primary education than university

Strengthen the safety net

Lower the cost of staple foods:

• Remove trade, marketing, and processing restrictions • Expand labor-intensive public works

• Exempt basic foods from the general sales tax • Decentralize planning and management

• Target special programs to vulnerable groups, including an • Pay in cash rather than in kind

improved drought relief program

Improve institutional capacity

• Implement a poverty reduction program financed from the • Privatize activities better performed by the private sector

Lesotho Highlands Revenue Fund • Improve planning and budgeting

• Decentralize political, fiscal, and administrative authority • Merge fragmented program management units

• Reform the civil service • Start doing annual household surveysSource: World Bank data.

1 9 9 5 P o v e r t y R e d u c t i o n A c t i o n P l a nT a b l e 3 . 1

Apart from the Poverty Assessment, WorldBank strategies during the 1990s were articulatedin a number of Country Assistance Strategies andannual Policy Framework Papers (PFPs), whichhad been prepared jointly by the government,the Bank, and the IMF since 1988 (box 3.1).These strategies evolved from an emphasis onstabilization and growth to greater emphasis onpoverty reduction and private sector develop-ment in the mid- to late 1990s. Poverty reduc-

tion was the overarching goal of the 1996 CAS,which reiterated the poverty reduction actionplan spelled out in the 1995 Poverty Assessment.The 1998 CAS reaffirmed the importance ofpoverty reduction and recommended measuresto enhance the enabling environment for privatesector development. A consistent objectivethroughout the 1990s was to maximize thepoverty-reducing impact of revenues generatedby the LHWP.

W o r l d B a n k S e r v i c e s a n d P r o d u c t s

1 3

1994 CAS: A Three-Pronged Strategy for GrowthGoals. The 1994 strategy aimed to help the government to (1) main-tain and deepen macroeconomic and structural reforms, in-cluding privatization; (2) improve capacity to implement theprogram; and (3) capture the benefits of the LHWP. The earlierstabilization and reform measures were supported by the IMFStructural Adjustment Facility/Enhanced Structural AdjustmentFacility (SAF/ESAF) and six successive Policy Framework Pa-pers during the periods 1988–89 and 1993–94. The CAS recognizedthe serious poverty situation and identified the lack of growthin the indigenous private sector (exemplified by handicrafts,textiles, and agricultural processing and marketing) as the rootcause for the high poverty. It also noted the existence of the im-port ban on wheat and maize as a reason for high food pricesthat hurt the poor, but no explicit strategies for poverty reduc-tion were proposed. The strategy saw prospects for increasedemployment of Basothos in the new socially inclusive SouthAfrica on the basis that Lesotho labor was in a strong compet-itive position, but seemed to overlook the severe shortage of jobsin South Africa.

Assistance program. It included ongoing LHWP, education,and health programs and proposed privatization and privatesector development projects. Progress in structural reformscould trigger preparation of another three IDA credits ($69 mil-lion). The CAS did not explicitly list upcoming economic and sec-tor work (ESW).

1996 CAS: A Poverty-Focused StrategyGoals. The 1996 CAS marked a shift in strategy toward povertyreduction. The CAS incorporated the findings of the 1995 PovertyAssessment: (1) foster labor-intensive growth; (2) invest in humanresources; (3) maximize the poverty-reducing impact of theLHWP, and (4) enhance institutional capacity.

Assistance program. It embraced the ongoing LHWP, the ed-ucation, health, and population programs, proposed a road re-habilitation and maintenance project, an agricultural sectorinvestment program (ASIP), a poverty reduction project, an ex-ports promotion and skills development project, and the thirdphase of the structural adjustment program, including the prepa-ration of a PFP. The high lending scenario ($122 million) envis-aged two additional projects and the triggers for higher lendinglevels, including a satisfactory macroeconomic program (asagreed in the IMF stand-by facility, accelerating progress in pri-vatization, deregulating agricultural trade, enhancing capacitybuilding, and activating the stalled rural development componentof the LHWP. The CAS did not explicitly list upcoming ESW.

1998 CAS: A Renewed Focus on PovertyGoals. Noting the shortfalls in achieving the 1996 CAS objectives,the 1998 CAS substantially reiterated the objective outlined inthe 1996 CAS—poverty reduction.

Assistance program. The proposed FY99–00 IDA programunder the base case lending scenario included four credits to-taling $50 million: a Social Fund Learning and Innovative Loan(LIL), Second Education Sector Development, a health sector proj-ect, and the Maluti-Drakensberg—GEF (Global Environment Fa-cility) project. The high case scenario envisaged two moreloans in addition to the above-mentioned four projects: privatesector development and water supply. The triggers for the highcase scenario included addressing the inefficiencies of thepublic utility sector, reforming the Lesotho Highlands RevenueFund (LHRF) into a poverty-focused fund, and implementation ofthe poverty reduction plan. The CAS envisaged five pieces ofESW: a public expenditure review, an education review, a healthreview, a poverty monitoring system support, and a regional re-view of labor market dynamics.

L e s o t h o — W o r l d B a n k S t r a t e g i e sB o x 3 . 1

Evaluation of the 1990s CASs. The 1994CAS was modestly relevant to poverty reductionand the outcome was moderately satisfactory.Macroeconomic stabilization was achieved,which was highly relevant and beneficial to thepoor. The Bank-supported LHWP helped Lesothogenerate substantial growth. Also, the outcomeof a sectorwide educational reform supported bythe Bank was moderately satisfactory (table 3.2).

But the important agricultural price policy,grazing management, and poverty reductionobjectives were not achieved. For example, noprogress was made on removing the importcontrols on wheat and maize that protectedLesotho’s farmers and encouraged them to growmaize in marginal land. There was no changein the exploitive management of rangelands.There was also no sign of meeting the high


1 4

Poverty Assessment recommendations Ongoing and proposedincorporated in CASs lending in CAS Resulting operationsa Outcomes

Foster labor-intensive growth

Support agricultural development Agriculture Sector Investment Agricultural Policy and Capacity Probably moderately satisfactory

Program (FY00), $22m Building (FY98), $7m

Stimulate small business sector Poverty Reduction Project (FY98), Community Development and Highly relevant but not timely;

$20m Support (LIL) (FY01), $5m slow start and no progress yet

Increase export-oriented Exports Promotion and Skills

light manufacturing Development (FY99), $40m

Expand tourism

Infrastructure investments Road Rehabilitation (FY96), $40m Road Rehabilitation (FY98), $40m Highly unsatisfactory so far

Invest in human resources

Improve health services Health and Population II (FY90, Health and Population II (FY90–98), Moderately unsatisfactory

ongoing), $12m $12m

Increase support to education Education Sector Development Education Sector Development Moderately satisfactory

(FY92, ongoing), $25m (FY92–99), $25m

Strengthen the safety net

Strengthen the safety net Poverty Reduction Project (FY98), Community Development and Highly relevant but not timely; slow

Lower the cost of staple foods $20m Support (LIL) (FY01), $5m start and no progress yet

Expand labor-intensive public Lesotho Highlands Water Lesotho Highlands Water Unsatisfactory in terms of poverty

works 1A (FY92, ongoing), $110m 1A (FY92–99), $68.9m reduction/rural development

Target special program to Lesotho Highlands Water LHWP 1B (FY98, ongoing) $45m Probably moderately satisfactory in

vulnerable groups 1B (FY98), $45m terms of poverty reduction/rural

development

Improve institutional capacity

Improve institutional capacity Poverty Reduction Project (FY98), Community Development and Highly relevant but not timely; slow

$20m Support (LIL) (FY01), $5m start and no progress yet

Agricultural Policy and Capacity Probably moderately satisfactory

Building (FY98), $7ma. Excludes the recently approved Health Sector Project (FY00, $20 million ) and the Second Education Sector Development Project (FY99, $15 million). Details in Annex E, table E.3.

R e l a t i o n s h i p s b e t w e e n 1 9 9 5 P o v e r t yA s s e s s m e n t , C o u n t r y A s s i s t a n c eS t r a t e g i e s , L e n d i n g , a n d O u t c o m e s f o rM a j o r P r o g r a m s

T a b l e 3 . 2

expectations for poverty reduction through ex-panded employment of Basothos in South Africaforeshadowed in the 1994 CAS (box 3.1). Theaim of activating “rural development compo-nents” in the context of the LHWP to reducepoverty in rural areas was also not achieved (box3.2). The 1994 Bank-assisted privatization pro-gram made slow progress. Finally, with the ex-ception of the privatization loan presented as partof the 1994 CAS, no new lending was approveduntil mid-1996 (table 3.2).

A review of the poverty reduction focus ofthe FY96 CASs in the Africa Region commendedthe Lesotho CAS as a best-practice example atthe time, reflecting the linkages between thepoverty assessment, strategy, and the lendingprogram (Taddese 1996). While highly relevantto poverty reduction, it had a moderately un-satisfactory outcome (table 3.2). This CAS re-flected the difficulty of implementing theproposed strategy and making progress on ad-dressing poverty reduction in Lesotho in the ab-sence of effective institutions and in the presenceof overoptimistic World Bank aspirations. Whilethe CAS optimistically stated that the LHWPwould “focus on improving the design and im-plementation of the Development Fund pro-gram” and laid out a number of actions, theFund never met its objectives. Rural develop-ment in the highlands stalled except for thehealth facilities provided as part of the LHWP(box 3.2).1 The proposed Poverty ReductionProject to support the Fund did not materialize,despite being listed under the base case scenarioof the 1996 CAS.

The $22 million Agricultural Sector InvestmentProgram (ASIP) suffered from inadequate fund-ing and was in effect replaced by the later, lessambitious Agricultural Policy and Capacity Build-ing Project (fiscal FY98, $7 million). The RoadRehabilitation and Maintenance Project ($40 mil-lion) floundered (van Holst Pellekaan 2001): itaimed to support economic growth and povertyreduction by building roads in isolated areas andproviding basic road-related services to districtcenters. In contrast, the Bank-supported edu-cation sector program continues to be moder-ately satisfactory (table 3.2). Finally, while therewas no discussion of government participation

in the preparation of the 1996 CAS, it does doc-ument sectoral consultations with the govern-ment, the Bank, and other donors.

The 1998 CAS, prepared on a participatorybasis with many stakeholders over six months,was modestly relevant with a moderately un-satisfactory outcome because it had no dis-cernible impact on poverty reduction. Whilestabilization aspects of the reform agenda, whichhad also involved support from the IMF, weresuccessfully addressed, little progress was madeon political and structural problems. The polit-ical matters will be pursued in more detailbelow, although it is now clear that the Bank hadnot correctly assessed the depth of political in-stability in the 1998 CAS. The outbreak of internalconflict in September 1998 created economic dif-ficulties that had long-term consequences anddelayed the implementation of this CAS.

The agricultural sector continued to performbelow its potential and therefore had little pos-itive impact on poverty reduction. The envi-ronmental and rangeland problems remainedand there was no progress on changes in landtenure or grazing rights. The rural developmentcomponent of the LHWP was still not operative.To address the problems of the nonperformingLesotho Highlands Revenue Fund, the Com-munity Development Support Fund (a Learningand Innovation Loan, or LIL) was proposed tosupport reforms financed by the Fund. However,by mid-2000, the new fund was not yet opera-tional. Clearly, while construction progress onthe LHWP was on schedule and successful, cru-cial rural development and poverty reduction ob-jectives for the LHWP had stalled (box 3.2).These aspects were not fully designed at proj-ect inception, contributing to implementationdelays, adverse publicity, and criticism by non-governmental organizations (NGOs).

On the whole, World Bank assistance strate-gies for Lesotho in the 1990s overreached in theirobjectives, given weak government ownershipand insufficient implementation capacity.2 Thestrategies pursued too many goals, and themeasures they recommended were so broadthat government authorities, NGOs, and civilsociety found them difficult to gauge and im-plement. For example, the 1995 poverty reduc-


1 5

tion action plan overextended itself by sug-gesting between three and seven major, but un-prioritized, interventions in each of nine sectors(table 3.1). Similarly, the 1998 CAS identified 11out of 14 areas as high development priorities.Thus the strategies were not sufficiently realis-tic; they did not take into account Bank and clientresources and strengths, and particularly mis-judged Lesotho’s political instability, limited re-sources, and weak institutions.

The relevance of the World Bank’s increas-ing focus on poverty reduction was undermineduntil late in the 1990s by inadequate attentionto poverty monitoring and weak performancebenchmarks. Where performance indicators ex-isted (for example, in the social sectors), theyoften exhibited such weaknesses as vague word-ing, input orientation, no baseline data, or un-realistic targets (Goldstein 2001). There was a

dearth of information required to evaluateprogress toward poverty reduction, and bench-marks were not established. The 1995 PovertyAssessment, the 1996 CAS, and the 1998 CAS allproposed putting in place a system for data col-lection that would permit poverty monitoring. Itwas not until the FY00 Community DevelopmentProject that the Bank supported a formal surveymechanism. Most of the World Bank’s projectsin Lesotho do not have a poverty monitoring andevaluation mechanism; nor were the CASs usedto raise consciousness in Lesotho regarding theneed for monitoring poverty and setting targets.The 2000 Interim Poverty Reduction StrategyPaper again emphasized the need for improveddata on poverty (Lesotho 2000).

World Bank strategies also underestimatedthe extent of political instability and did not ad-equately assess the effect of political upheavals


1 6

Background. The LHWP is a four-phase binational project be-tween Lesotho and South Africa, involving the export of waterfrom Lesotho (through a series of dams and tunnels) to the water-scarce Gauteng Province in South Africa (which produces 60 per-cent of South Africa’s GDP). In addition, the Muela hydropowerplant was constructed to meet Lesotho’s energy needs. Phase1 is governed by a treaty and comprises two components: Phase1A (1991–98) and Phase1B (1999–03), with costs of $2.6 billion and$1.1 billion respectively. The project is the lowest-cost alter-native, by about $1 billion, and South Africa bears the full costand associated debt of the water transfer, while the hydropowerplant (15 percent of Phase 1A cost) is the responsibility ofLesotho.

The role of the World Bank. Studies of the LHWP concept dateback to the 1950s, but the World Bank played a significant andcatalytic role in the negotiations of the 1986 Water Treaty, in-cluding facilitating the drafting and signing of the treaty be-tween the governments of Lesotho and South Africa. Althoughthe Bank financed 4 percent of the project cost, it was a cata-lyst for securing external financing and advised on project for-mulation and implementation. The Bank’s objectives were to helpLesotho (1) transfer its most abundant water resource into much-needed export revenues and alleviate water shortages in SouthAfrica; (2) direct the benefits from the LHWP to development-

oriented programs to reduce poverty; and (3) ensure that thesocial and environmental aspects of the project are managed.

Substantial macroeconomic impact. The project has had a sub-stantial impact on the Lesotho’s economy, both directly and in-directly: (1) the receipt of 484 million maloti ($73 million) inwater royalties from FY96–97 to FY99–00; (2) buoyant customrevenues associated with the large imports for construction ofthe project; (3) increased tax revenues as a result of project ac-tivities; and (4) several ancillary developments, including the con-struction of roads and bridges. In 1998 the project accounted for14 percent of GDP, 35 percent of value-added in construction, and28 percent of government revenues. But little progress has beenmade on transferring benefits from the project to the poor throughthe Development Fund and Rural Development Program.

Shortfalls in the Distribution of BenefitsDevelopment Fund. A Development Fund was established in1992 (with part of the LHWP revenues) for financing programstargeted to the alleviation of poverty. Experience to date with theFund is very disappointing, even though some 240 projects wereapproved at a cost of 215 million maloti, including roads, bridges,clinics, markets, and small dams. These projects are reportedto focus on increased access to public services and appear tohave created significant short-term employment, but problems

T h e L e s o t h o H i g h l a n d s W a t e r P r o j e c t( L H W P )

B o x 3 . 2

on the implementation of the Bank’s program,despite the 1993 election experience. In partic-ular, the Bank did not appear to understandpolicy decisionmaking in the country and wastoo optimistic in assuming that democratizationand stability could be accomplished soon afterthe May 1998 elections. For example, the 1998CAS, presented to the Board shortly after theelection, noted that the risk to the Bank’s pro-gram was “minimized by progress in Lesotho’songoing democratization process and efforts toachieve good governance.” The Bank’s assistancestrategy did not include contingency plans in theevent the democratization process fell apart, asit did. Awareness of the long-standing sourcesof political and social volatility in Lesotho shouldhave indicated a far more modest strategy for thebase case scenario than the four projects pro-posed in the 1998 CAS.

The strategy’s insufficient attention toHIV/AIDS raised questions about its relevanceto broad-based sector development. The impli-cations of reduced incidence of AIDS and lowerpopulation growth for enhanced per capita in-come growth and poverty reduction were not ad-dressed in the Bank’s strategy, despite widelyavailable calculations that they would be ofmajor significance.3 Although the World Bankdrew government attention to the importance ofthese issues, the Bank did not help Lesotho de-velop the most basic integrated health informa-tion system and survey instruments necessary tomonitor HIV/AIDS, leading to underestimationof prevalence and, consequently, of its impact.HIV/AIDS was not then at the center of thecountry dialogue, and the Bank’s 1994 popula-tion sector review did not trigger a shift in Bankstrategy in the last half of the 1990s toward


1 7

such as inadequate criteria for project approval, low-quality con-struction, and poor operation and maintenance have hamperedthe effective use of project funds. The Development Fund did notfully achieve what was intended. It was replaced by the LesothoFund for Community Development. The new Fund will be man-aged under the Bank-assisted Community Development Sup-port Project that became effective in July 2000. Unfortunately,this project came extraordinarily late, since it is now five yearssince the 1996 CAS and its commitment on the use of the LHWPrevenues for poverty reduction. So far, the poor have seen fewbenefits from the LHWP, and project progress continues to beslow.

Rural Development Program. The program was designed toprovide long-term indirect compensation to households di-rectly affected by the LHWP, on the grounds that they should notbe worse-off due to the project. An independent evaluation ofthe rural program was extremely critical of its limited achieve-ments during Phase 1A. A number of components of the program(such as improved livestock production, irrigated vegetableproduction, and fruit tree distribution) were either seriously atrisk of failure or not likely to succeed at all (Eriksen 1996). Inaddition, household surveys suggest that eight years after thestart of Phase 1A, there has been virtually no improvement inthe incomes and welfare of households in the project area

(SW-B & A Consult 1999). They also show that for many welfareindicators, households in the project area are no better off thanother households in the highlands. While Bank staff expresseddoubts about the validity of this survey, this assessment of theimpact of the project on poverty reduction is consistent with aclient survey in 1997 (quoted in the 1998 CAS) in which re-spondents reported little impact from the Bank’s lending onpoverty reduction.

Sustainability of the social component. The long-term future ofthe Lesotho Highlands Development Authority (LHDA—the im-plementing agency) after the current construction program iscompleted in about 2003, and before a possible second phasestarts up (at earliest, in 5–10 years), remains unresolved. The strat-egy for the transfer of health facilities, infrastructure, and humanresources to the government or other third parties is still beingdeveloped. The Bank’s Operations Evaluation Department (OED)considers that sustainability of the social component is not yetcertain, as organizations (public, private, or community) with thecapabilities to take over the operations and maintenance ofthese assets have in many cases not yet been identified. Meet-ing international standards for construction, operation, andmaintenance of the facilities built by the LHDA may be beyondthe present capabilities of Lesotho. Sustained financing of thefacilities is also uncertain.

more actively combating HIV/AIDS. This shift oc-curred only at the beginning of the new decade(World Bank 2000a).

In sum, the World Bank strategies were mod-estly relevant to poverty reduction. They sup-ported macroeconomic policies that had asubstantial impact on inflation and growth. Theprograms also provided vital support for the fi-nancing and implementation of the LHWP. Sup-port to the educational program was highlyappreciated by the government. In the secondhalf of the 1990s, the strategies focused heavilyon poverty reduction, but were undermined bya poor appreciation of the political instability,which reduced ownership of the reform pro-gram. The sectoral strategies were neither suf-

ficiently selective nor realistic,4 and they didnot pay enough attention to HIV/AIDS, povertymonitoring,5 performance indicators, rangelandproblems, rural development, and Lesotho’sweak institutional capacity.

As the decade came to a close, Lesotho hadseen little progress on agricultural diversification,employment creation, and rural development.The World Bank–supported education reformprogram, however, achieved its major objec-tives. Also, substantial economic growth wasachieved during much of the 1990s, spurred bythe LHWP as well as sound economic policy. Forexample, the impact of construction in the LHWPhelped Lesotho realize an average GDP growthof close to 4 percent a year during the 1990s. The


1 8

Panels of experts contribution. OED commends the valuablecontribution made to the project by the two World Bank–financedpanels of experts, one for design and construction and the otherfor environmental and social matters, and by the Disputes Res-olution Board. All parties to the project met by the OED missionconfirmed the quality of the panel contributions. In particular,the design panel’s recommendations resulted in significant costsavings, while the advice of the Disputes Resolution Boardhelped avoid costly litigation and arbitration. The design and con-struction panel also analyzed the consequences of the reservoir-induced seismicity (RIS) and concluded that there was noadverse effect on the safety or operation of the project, althoughit recommended that monitoring be enhanced. RIS impactedthe villages adjacent to the Katse Reservoir, requiring repairsto and construction of replacement houses, and created ad-verse publicity for the project.

Dam safety. Phase 1A can be considered satisfactory in meet-ing the World Bank’s dam safety guidelines and in developingEmergency Preparedness Plans (EPP) for the dams. However, aspointed out in a 1999 World Bank implementation completion re-port (ICR), the project dam safety and surveillance require somefurther strengthening, and the EPP are still to be tested with thepublic at large, as ongoing awareness activities have so farconcentrated on public institutions in the area, such as policeand clinics.

Environmental assessment. A National Environmental Action Plan(NEAP) included in the original project design was generic in na-ture and covered the LHWP as a whole. While meeting the WorldBank’s environmental guidelines in effect at the time of Phase 1Aproject appraisal, it was not sufficiently detailed and lacked anelement of public participation. As a result of the uncertainty ofthe original plan, coupled with the Bank’s optimistic assumptionsabout the LHDA’s capabilities to fully design and implement the plan,the majority of the Phase 1A environmental component was de-layed. In addition, there was a lack of clarity in Phase 1A as to whatshare of the project’s environmental program was attributable tothe water transfer component and should therefore be funded bySouth Africa, and what share was of a general development na-ture and should be financed by Lesotho. This confusion contributedto the delay in implementing the program. However, lessons werelearned and applied in preparing Phase 1B and an EnvironmentalAssessment (EA) was synthesized from the results of 14 coordinatedbaseline studies of physical, chemical, ecological, and social as-pects. The EA work was monitored by the Bank and an interna-tional multidisciplinary team of experts. There was also acomprehensive consultation of the highland communities.

Involuntary resettlement. Although households directly affectedby Phase 1A of the project have been resettled (359 householdsas opposed to 173 at appraisal), there are two residual issues beingaddressed. One issue includes the definitive legal transfer of

T h e L e s o t h o H i g h l a n d s W a t e r P r o j e c t :D a m S a f e t y , E n v i r o n m e n t , a n d O t h e r B a n kS a f e g u a r d s a n d G u i d e l i n e s

B o x 3 . 3

annual royalties for supply of water to SouthAfrica through LHWP, amounting to 18 percentof government revenues and 5 percent of GNPin 1998, are substantial and sustainable. Theseroyalties have already contributed to economicand social development expenditures, but theyhave so far been unsuccessful in stimulatingrural development and achieving poverty re-duction. It is not clear what will sustain economicgrowth in Lesotho once the impact of the largeconstruction program has played out. Can themanufacturing sector contribute more than itscurrent 10 percent of GDP? To what extent canthe agricultural sector contribute to the economy,to exports, and to poverty reduction? Despite im-proved strategies and some investments, Lesotho

is no closer to making progress on these ques-tions. It remains unclear how the large pool ofrelatively unskilled, unemployed, and under-employed rural Basothos will find jobs.6 TheBank’s contribution to resolving these questionshas been moderately unsatisfactory.

Economic and Sector AnalysisThe Bank completed several formal and informalsector reports in the 1990s, and Lesotho was alsoincluded in several regional studies during thoseyears (Annex E, table E.1). Three areas—agri-culture, education, and the financial sector—have been covered in depth, while population,health, and nutrition received less attention.7 Theshare of resources allocated to economic and


1 9

resettlement houses to their beneficiaries and the associated cut-off of all future LHDA legal responsibilities. The other issue is theinternal evaluation of resettlement performance using a set ofrisk indicators that include homelessness, landlessness, job-lessness, morbidity, and mortality. The proposed evaluation of re-settled families will provide a measure of project impact. ForPhase 1B, the physical resettlement for the 99 families includedin Stage I has been completed, but not the goal of providing gar-dens, or sustainable jobs, for these families to achieve food security.The resettled families rely heavily on compensation for their basicneeds, making it more difficult to wean them off this entitlementand to reestablish their integration in normal village life. Stage IIresettlement will affect 226 households, representing an increaseof 40 percent from the initial 163 households identified in the re-settlement action plan approved in 1997. The experience of StageI has caused concern about the chances of achieving the goal ofsustained food security for these households. There is a lack of un-derstanding of the compensation policy among the affected house-holds, due in part to the unavailability of the policy in the locallanguage, which leads to multiple interpretations and the per-sistence of a number of complaints highlighted by NGOs.

Projects in international waters. The LHWP is a binational proj-ect implemented in the Orange River Basin shared by Lesotho,South Africa, and Namibia. As a riparian of the project, Namibiawas notified and indicated that it had no objection.

Procurement and corruption. The alleged corruption associatedwith some of the procurement in Phase 1A was not mentionedin the ICR for Phase 1A because (as OED was advised by theAfrica Region) it was not known by the Bank at the time the ICRwas written. In discussing procurement aspects for Phase 1A,the general manager of the Engineering Group of LHDA men-tioned to the OED mission that the World Bank had played a keyrole in assisting the Tender Evaluation Team by financing“seven wise men.” This assistance proved helpful in refutingcorruption alleged by various countries and enhancing thecredibility of the evaluation. Nevertheless, a number of con-sulting firms and contractors working on the project have beencharged with paying bribes and their trial is underway. TheWorld Bank Oversight Committee for Fraud and Corruption isinvestigating the alleged corruption, but its report has not yetbeen completed.

The World Bank Inspection Panel. The panel received two re-quests, in 1998 and 1999. The 1998 request alleged that the WorldBank failed to consider demand management alternatives toPhase 1B. The Panel supported the Bank’s and South Africa’sanalysis that the benefits of the project outweigh the costs of de-mand management required to justify the delay. The second re-quest alleged that the reservoir inundated land over which therequesters claim to have a mining lease, but the Panel did notrecommend an investigation.

sector work (ESW) for Lesotho—averaging 15percent a year during FY91–99—was below theSSA regional average (19 percent), but above theaverage of small SSA countries (10 percent)(Annex E, table E.2). While the reports were gen-erally of satisfactory quality, education sectorwork in particular was effective in producing acoherent framework to establish priorities and toguide lending. A summary evaluation of ESWbased largely on the approach used by the Qual-ity Assurance Group (QAG) is presented below.

Agriculture and environment. There werereviews of the agriculture sector in 1981 and1986, as well as a comprehensive National En-vironmental Action Plan (NEAP) in 1989. The sec-tor reviews were relevant and of satisfactoryquality. They emphasized the potential of moreintensive use of the lowlands for high-valuecrops and the importance of improving man-agement of grazing resources in the highlands.The NEAP was also relevant and of moderatelysatisfactory quality. It laid out an ambitious butunprioritized agenda and had little impact dur-ing the 1990s. Seven years after the NEAP’s re-lease, the 1996 CAS lamented that up to then, noaction had been taken on the NEAP’s recom-mendations. In 1993 the World Bank undertooka study of environment and agricultural diversi-fication. The work was painstakingly preparedusing considerable published and unpublisheddata, and its quality was satisfactory. But its im-pact on the sector has been limited—for exam-ple (as noted earlier), diversification of cropproduction has been slow and largely unsuc-cessful, despite theoretical support for the change.

Education. An FY90 study of improving qual-ity and efficiency in education was exceptionallyeffective in helping establish a coherent policyframework for education reform in the 1990s. Thestudy was of satisfactory quality and identified areasonable number of priorities through a rec-ommended core action plan. It was adequatelydisseminated and timed to provide an input intothe government’s Education Sector DevelopmentPlan (included in its Fifth Development Plan,1991/92–1995/96). Of all the sectors, analysis ineducation has been most incisive. It is thereforeno surprise that the Bank’s assistance in this sec-tor is well received. A senior official in the Min-

istry of Education noted that “the World Bank ed-ucated us to be able to identify our own needs.The 1989 report was very helpful. Before, we hadmultiple donors, and everything was on a first-come, first-served basis.”

Financial intermediation. Two financialsector reports were prepared during the 1990s.The first, in 1990, did not envisage emergingweaknesses of the financial sector and sug-gested only modest changes to existing policies.Toward the end of the decade the financial sec-tor had deteriorated such that the 1998 report ex-pressed concerns about the financial system’sweak capacity to support initiatives in the com-mercialization of agriculture, tourism develop-ment, and export promotion. It therefore focusedon the broader issues of financial intermediation,the performance of the banking system, andsmall- and medium-scale enterprise develop-ment. Central to the conclusions of the secondreport was the need to improve the supervisoryfunctions of the Lesotho Central Bank. This re-port did not, however, provide a solution to theweak financial services in rural areas.

Health, nutrition, and population. After aHealth, Nutrition, and Population (HNP) Sectorreview in 1981, no formal analytical work on thehealth sector and the health system in Lesothowas undertaken for nearly 20 years. In particu-lar, there was a lack of analytic work during thefirst half of the decade when the National HealthSector Plan was developed. While the workdone in the population sector (1994 populationsector review) was of moderately satisfactoryquality, it was ill-timed and too poorly dissem-inated to influence strategy or lending as pro-posed in the 1985–94 HNP and 1989–98 HNP II.

Summary. Some sound sector analysis wascarried out during the late 1980s and 1990s, butthere were substantial shortcomings. For exam-ple, there was no broad economic work to fol-low up the action plan in the 1995 PovertyAssessment.8 Notable for their absence wereperiodic reviews of the allocation and uses ofpublic expenditures. These would have been ofparticular importance to ensure that socialexpenditures were strengthened, given the sub-stantial and sustained revenues generated by theLHWP. A Public Expenditure Review (PER) was


2 0

planned for 1996–97 as the basis for reformingpublic expenditures proposed by the ninth Pol-icy Framework Paper (1996), but it did not ma-terialize. A Public Expenditure and BudgetManagement Review currently under preparationis highly relevant, and an analysis of labor mar-kets (part of a regional study) is currently underpreparation. Given the persistently high unem-ployment level, the analysis of Lesotho’s labormarket is relevant and important work.

LendingOver the past three decades, World Bank com-mitments to Lesotho were about $448 million for28 projects. Of this, $293 million was for 26IDA credits and $155 million was for two IBRDloans. Ten-year commitments grew rapidly fromless than $50 million in the 1970s to about $100million by the 1980s, and then tripled to almost$300 million in the 1990s. The Bank’s portfoliowas changing rapidly in the 1990s because of theintroduction of a major water supply project,LHWP, with commitments amounting to $110million in FY92 and $45 million in fiscal FY98.While the share going to water supply increasedto 51 percent, the share for agriculture, transport,and urban development declined. The sharegoing to education also declined, but less thanthe other sectors (table 3.3). Annual averagenet disbursements were $13 million and nettransfers $10 million during fiscal FY90–00, with

peaks of nearly $30 million for each in FY93 fol-lowing the approval of the LHWP (figure 3.1).The International Finance Corporation has no op-erations in Lesotho. The Multilateral InvestmentGuarantee Agency currently has an exposure inLesotho amounting to $23.7 million.

OED Findings on Closed ProjectsFor projects exiting the portfolio since FY90, table3.4 shows that 67 percent (by net commitment)of Lesotho’s evaluated portfolio was found tohave satisfactory outcomes, comparable with theSSA average, but significantly below the SADC sub-region, small SSA countries, and Bankwide results.Sustainability of projects, however, was ratedlikely for only 22 percent of the net commitmentsevaluated, similar to the score for small SSA coun-tries, but considerably below other comparatorcountries and the Bankwide average. Institutionaldevelopment fared even worse; it was substantialfor only 18 percent of the total lending evaluated,the lowest rating among comparators. Of partic-ular concern is that projects approved during fis-cal FY90–00 and already closed performed worsethan older ones (Annex E, table E.3).

Project performance ratings by sector showsignificant differences (Annex E, table E.4). TheLHWP, by far the largest and most significant ac-tivity in the Bank program, has been satisfactoryin stimulating economic growth and generatingsustained export revenue for Lesotho. The proj-


2 1

1966–99 1966–79 1980–89 1990–99Sector $M Percent $M Percent $M Percent $M Percent

Agriculture 34 7.7 11.6 22.7 16.0 16.9 6.8 2.3

Education 78 17.4 11.5 22.5 20.0 21.1 46.2 15.3

Finance 6.5 1.5 2.5 5.0 4.0 4.2 0.0 0.0

Industry 21.0 4.7 0.0 0.0 0.0 0.0 21.0 7.0

Health, nutrition, and population 15.6 3.5 0.0 0.0 3.5 3.7 12.1 4.0

Public sector management 11.0 2.4 0.0 0.0 0.0 0.0 11.0 3.6

Transportation 74.6 16.7 19.5 38.1 15.2 16.0 40.0 13.3

Urban development 36.2 8.0 0.0 0.0 26.4 27.8 9.8 3.3

Water supply and sanitation 170.8 38.1 6.0 11.7 9.8 10.3 155.0 51.3Source: World Bank.

S e c t o r a l D i s t r i b u t i o n o f B a n k L e n d i n g ,F Y 6 6 – 9 9

T a b l e 3 . 3

ect accounted for about 14 percent of Lesotho’sGNP and about 40 percent of value-added in con-struction per year during 1994–98. It also gen-erated 28 percent of government revenue in1998, including receipt of royalties for supply ofwater (on the order of $45 million, or 5 percentof GNP), SACU tariff revenues from imports ofmaterials for construction, and the increased taxrevenues as a result of project activities (box 3.2).The LHWP made it possible for the governmentto turn a budget deficit in the late 1980s into a

surplus in the 1990s and increase allocations ofpublic expenditures to the social sectors. At thesame time, there were, until very recently, seri-ous shortcomings in progress on the distributionof benefits from the LHWP through the Devel-opment Fund and Rural Development Program.Household surveys suggest that eight years afterthe start of Phase 1A, there had been virtually noprogress in terms of the incomes and welfare ofhouseholds in the project area.9 While Bank staffexpressed doubts about the validity of these sur-


2 2

N e t D i s b u r s e m e n t s a n d N e tT r a n s f e r sF i g u r e 3 . 1

◆

◆

◆

◆

◆◆

◆

◆

◆

◆

◆

■

■■

■

■ ■

■

■

■

■

■

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

0

5

10

15

20

25

30

35($

M)

Year

◆ Net disbursement ($m)

■ Net transfer ($m)

Source: World Bank Business Warehouse.

Satisfactory outcome (%) Likely sustainability (%) Substantial ID (%)No. of Net No. of Net No. of Net

Country projects commitment projects commitment projects commitment

Lesotho 60 67 30 22 20 18

Small SSA countries 64 72 24 20 29 36

SADC 58 74 33 35 29 35

SSA 56 65 29 31 24 26

IDA operations 65 75 37 45 30 33

Bankwide 68 77 47 60 33 39Source: OED, details in Annex E, table E.3.

O E D E v a l u a t i o n F i n d i n g s o f R e c e n t l yE v a l u a t e d P r o j e c t s ( E x i t i n g i n t h e 1 9 9 0 s )

T a b l e 3 . 4

veys, this assessment is consistent with the per-ception of a client survey in 1997 showing thatthe Bank’s clients (government, private sector,civil society, and donor community) did not seemuch impact from the Bank’s lending programon poverty alleviation (box 3.2).

In the education sector, Lesotho’s projectsscored well. The two credits evaluated had a sat-isfactory or moderately satisfactory outcome. Bycontrast, the two health loans were rated mod-erately satisfactory and moderately unsatisfactory.At the other end of the spectrum, all completedagricultural and private sector development proj-ects had unsatisfactory or highly unsatisfactoryoutcomes (Annex E, table E.4). Most projects withunsatisfactory outcomes had problems of qual-ity at entry, complex and overambitious designgiven the limited local capacity, noninvolvementof beneficiaries during design, and failure tolearn from previous experience.10

Project-level performance is an important in-dicator of the World Bank’s contribution to eco-nomic development, but it tells only part of thestory. The Bank assistance program (lendingand nonlending) was based on a correct diag-nosis of the country’s problems and included rel-evant objectives such as growth and povertyreduction. The outcomes, however, were mod-erately unsatisfactory11 because the program in-cluded poorly designed and complex projects,overestimated Lesotho’s implementation capac-ity, overlooked the need to obtain agreement onimportant project conditions before Board pre-sentation, paid inadequate attention to HIV/AIDSand poverty monitoring, and ignored politicalconditions that affected ownership of the pro-gram. More important, the Bank provided in-adequate support for the implementation of theDevelopment Fund, which was designed to dis-tribute benefits from the LHWP to Lesotho’spoor. While the substantial growth achievedduring the 1990s is a prerequisite for improvingwelfare, no reduction in poverty or inequality hasbeen measured during the decade, despite thestrong growth performance.

In applying its safeguard policies, the WorldBank took all measures required to meet the pro-visions of the dam safety guidelines (box 3.3).However, the reservoir-induced seismicity im-

pacted villages adjacent to the Katse Reservoir,requiring replacement of some houses and cre-ating adverse publicity. The Bank also preparedan environment assessment that complied withits safeguard policy, but there were delays in im-plementation. Although a detailed resettlementplan was implemented, many issues remained un-resolved. Finally, Namibia, which shares the Or-ange River Basin with Lesotho and South Africa,was notified and indicated no objections to theLHWP. OED suggests that Bank performance onsafeguard issues should be reviewed after thecompletion of Phase 1B of the LHWP.

Efficiency of World Bank AssistanceThe cost of operations in Lesotho ranks amongthe Bank’s most expensive for fiscal FY91–99(Annex E, table E.2). Lesotho’s average programcost of $81 per $1,000 of net commitment for sat-isfactory and nonrisky projects is much higherthan that of SSA ($39), SADC ($31), and Bankwideaverages ($16). Among 107 countries, Lesothoranks as the 93rd-highest cost, and among 50countries with similar project size (of $20–$40 mil-lion), Lesotho ranks as the 35th-highest cost.The Bank program in Lesotho was expensivepartly because of the large commitment cancel-lations, amounting to 25 percent—more thandouble the Bankwide average of 10 percent forfiscal FY90–99 (Annex E, table E.4).

World Bank Portfolio Performance: QualityAssurance Group AssessmentsQuality Assurance Group (QAG) assessments ofportfolio performance show that, as of April2000, Lesotho’s active portfolio has 50 percent ofprojects (3 of 6) and 71 percent of commitmentsat risk. The risk percentage is much higher thanSADC (18 percent), SSA (22 percent), and theWorld Bank average (19 percent) (Annex E, tableE.3). Of the three risky projects, two were ratedas actual problems (Road Rehabilitation andMaintenance and Agricultural Policy and Ca-pacity Building) and one as a potential problem(LHWP Phase 1B). These ratios are sensitive tothe time period examined (Annex E, table E.3).Delays in effectiveness and slow disbursementsare among the reasons QAG cites for rating theseprojects as risky.


2 3

2 5

The DevelopmentEffectiveness of WorldBank Assistance

This chapter evaluates World Bank assistance in macroeconomics, ruraldevelopment and poverty reduction, human capital development,and private sector development in terms of its contribution to

Lesotho’s development outcomes. The evaluation indicates that the devel-opment effectiveness of Bank assistance was moderately unsatisfactory.

Macroeconomic OutcomesEarly achievements but subsequent disap-pointments. Macroeconomic outcomes wereparticularly impressive from FY90–91 to FY96–97(Annex D, table D.5). Real GDP growth averaged5.3 percent a year; inflation was moderate; thefiscal balance strengthened; and foreign reservesaccumulated to the equivalent of about sevenmonths of imports by 1996–97. The macroeco-nomic dialogue, through the joint IMF/Bank/gov-ernment Poverty Framework Paper (PFP) and theIMF stand-by facilities (the SAF and ESAF), helpedthe government establish a sound framework forstabilization and adjustment.1 The economy per-formed strongly following the construction of theLHWP, which peaked during 1994–97; the es-tablishment of export-oriented manufacturingoutput such as clothing, electronics, and lightmanufacturing; excellent mid-1994 harvests; anda favorable external environment for trade. Themacroeconomic performance was more favorablethan projected in successive adjustment pro-grams and PFPs for Lesotho.

This impressive macroeconomic performancereversed toward the end of the decade, however.Economic activity began to slow down in1997–98 and real GDP declined by an estimated4 percent in 1998–99. The 1998–99 budget deficitmore than doubled from the previous year to 4.2percent of GNP, driven primarily by a large in-crease (7.5 percent) in current expenditures. In-flation increased in the last quarter of 1998 inresponse to the dislocation in the supply of es-sential commodities that followed the Septem-ber 1998 civil unrest. The balance of paymentsposition weakened drastically in 1998–99, withthe surplus falling from $127 million in 1997–98to $33 million in 1998–99.2 As indicated earlier,many factors contributed to this reversal. Becauseof these factors, macroeconomic performancewas much lower than projected. For example,the ninth PFP, for the program period 1996–97to 1998–99, projected a 10.3 percent annualgrowth in GDP, a fiscal surplus averaging 0.9 per-cent of GNP, and official reserves reaching $577million by 1998–99.

44

The counterfactual. Could Lesotho havedone better without the macroeconomic policiesand the LHWP? Despite the difficulties towardthe end of the 1990s, Lesotho’s macroeconomicoutcomes during the decade were better thanthose of all SSA countries, the SADC subregion,and small SSA countries (Annex D, table D.5).During these ten years, Lesotho grew at an av-erage of 3.8 percent per year, with real percapita GDP growth averaging 1.1 percent; bothfigures were better than the comparator coun-tries. Lesotho’s inflation averaged less than 10percent during the decade, out-performing SSA,SADC, and small SSA countries. This would nothave been achieved without sound macro-economic policy and the LHWP constructionprogram.

The series of structural adjustment programs,which the government has entered into with theIMF and the World Bank since 1988, laid thefoundation for economic stability and growth.Under these programs, the fiscal balance turnedfrom a deficit of 10 percent of GNP in 1987–88to a surplus of 2.1 percent, on average, from1992–93 to 1997–98. Inflation was halved, from18 percent in 1988 to an average of 9 percentduring the 1990s. The strong growth perform-ance, stimulated by the LHWP construction, maynot have taken place without the Bank supportin formulating, financing (including leveragingsignificant international finance), implementing,and supervising the project.

The LHWP also generated substantial andsustainable water royalties, but, so far, they havenot been used effectively for targeting povertybecause of inadequate preparation and weak in-stitutional arrangements. These failures wererecognized and the Bank started to addressthem in a more effective way toward the end ofthe decade. Poverty may have increased with-out the LHWP, but the strong growth perform-ance during the 1990s spurred by the LHWP hasso far not been accompanied by decliningpoverty.

While the LHWP construction program pro-vided a major (one-time) boost to overall eco-nomic growth, its impact on the economy willobviously not be sustained once the pace of con-struction starts to decline. The current con-

struction program for Phase 1B of the LHWP isexpected to be completed in about 2003, and apossible second phase is not expected to startup for another 5 to 10 years at the earliest. Theend of the apartheid regime in South Africa wasaccompanied by a reduction in official devel-opment assistance and donor and foreign in-vestor presence in Lesotho. Furthermore, thecontinuing political uncertainty, decreased min-ers’ remittances, and the projected drop in SACUrevenues may adversely affect future growth. Animproved environment for growth and privatesector development depends on enhanced po-litical stability, better governance, and deeperparastatal reform of the state sector. Prospectsfor all of these improvements are uncertain.

Rural Development and PovertyReductionDisappointing agricultural growth. Whileaggregate GDP grew rapidly during the 1990s inLesotho, GDP from primary sectors grew moreslowly, at about 1.8 percent per year, whichwas substantially less than in the second half ofthe 1980s (6 percent yearly). In the 1990s GDPfrom crops grew at about 3.6 percent per year,but livestock declined by 1.9 percent yearly;hence, the substantial reduction in the average.Per capita agricultural growth declined in ruralareas by about 1 percent per year, a disap-pointing result given that 80 percent of house-holds depend on agriculture. While thisperformance prevented any reduction in the in-cidence of poverty in Lesotho, it was not sig-nificantly different from the agricultural growthin both Swaziland and South Africa in the 1990s.3

The difference is that Basothos are far more de-pendent on agriculture than Swazis or SouthAfricans.

Poverty and inequality remained ex-tremely high. Consistent with the trends inagriculture, poverty in Lesotho remains at highlevels in all rural areas and is particularly highin the mountainous regions. The incidence anddepth of poverty are as high as any region inSub-Saharan Africa (see World Bank 2000c, p. 90,for comparisons) and a series of studies indicaterising inequality in Lesotho. In 1967–69 the low-est 60 percent of households earned only 38 per-


2 6

cent of all income, while the top 20 percentearned 40 percent. By 1972–73 the situationhad deteriorated: the bottom 50 percent earnedonly about 15 percent of all income (van HolstPellekaan 2001). Later surveys show that the Ginicoefficient doubled between 1967–69 and 1993to about 0.57 and has remained high since then(table 1.1).4

Poverty also high in neighboring regionsof South Africa. High rates of poverty, whileof considerable concern for Lesotho, are in parta function of the harsh environment that facesmuch of rural Lesotho. Similar rates of povertyexist in neighboring regions of South Africa.Recent poverty mapping for South Africa showsthat two of the three provinces that surroundLesotho (the Free State and the Eastern Cape)are, on average, the poorest provinces in SouthAfrica, with poverty rates of 48 and 47 percentrespectively (World Bank 2000d). Therefore,while the average Basotho is much poorer thanthe average South African, the extent of povertyin Lesotho is comparable with the average SouthAfrican living in the same subregion. While thisis not an encouraging picture of poverty for thesubregion, it might be reassuring when seekingto explain the high rates of poverty in Lesotho.It is also sobering in terms of the difficulties inreducing poverty among Basothos in the moun-tainous regions.

The counterfactual. Excluding the LHWP,the World Bank provided net credits for rural de-velopment (including agriculture, education,and roads) totaling $217 million for projects thatclosed or were approved in the 1990s. WouldLesotho’s economic and social developmenthave been worse if the World Bank had not pro-vided its assistance through strategic analysis andadvice, as well as investment support in rural de-velopment? This evaluation concludes that, whilethe Bank’s contribution to rural development wasunsatisfactory, it had a positive impact in someareas (Annex G, “Poverty Reduction and RuralDevelopment”).

World Bank support of supply-led agriculturaldevelopment projects in the 1970s and 1980saimed mainly at improving land managementand controlling erosion to improve agriculturalproductivity.5 These projects were not success-

ful because incentives and supporting institutionsfor increased crop and livestock production didnot exist. The change in approach toward a de-mand-led development program in agriculture(the Agricultural Policy Capacity Building Pro-ject) in the late 1990s, now supported by theBank along with other donors, has not yetshown results. However, the project supportschanges in the right direction for rural devel-opment in Lesotho. These changes would nothave taken place without the enthusiastic sup-port of the World Bank at the design stage, fol-lowing the widely held conclusion thatsupply-led investments assisted by the WorldBank had failed.

Economic and policy analysis of the agricul-tural sector and poverty in Lesotho would prob-ably not have been done without the WorldBank. The evaluation of the prospects for di-versification and the poverty assessment wereparticularly important contributions to devel-opment planning in Lesotho. But the promotionof diversifying into horticultural crops as a strat-egy for poverty reduction proved infeasiblegiven the limited available technology and ex-tension services—that is, training, unreliablewater resources for even the simplest irrigationschemes, weak financial services, and distant andunreliable markets in South Africa.

The Development Fund created to use rev-enues from the LHWP to support rural develop-ment and poverty reduction in Lesotho has hadserious shortcomings since its inception. Its fail-ure was recognized by the World Bank and ad-dressed in Phase 1B of the LHWP. After a numberof failed attempts to make marginal changes inthe original concept, the World Bank and the gov-ernment agreed in FY00 on the Community De-velopment Support Project. Although it is a smallpilot, the project focuses on providing assistanceto rural communities and the participation ofthose communities. This change in project ori-entation would not have taken place without theBank: the orientation follows models for socialfunds the Bank has introduced elsewhere in SSA.

Human Capital DevelopmentExcluding IBRD loans for the LHWP, humancapital development drew the largest IDA sup-

T h e D e v e l o p m e n t E f f e c t i v e n e s s o f W o r l d B a n k A s s i s t a n c e

2 7

port, amounting to 40 percent of all IDA lend-ing to Lesotho during the 1990s. Most of this wentto education, a pattern repeated from previousdecades. In addition to lending, the World Bankprovided analytical and advisory services, par-ticularly in education.

The counterfactual—education. Could thehighly influential analytical support for policy for-mulation and sector planning, which laid thefoundation for Lesotho to prepare its EducationSector Development Plan and Action Program,and which guided all partners’ efforts for muchof the 1990s, have been provided by institutionsother than the World Bank? Probably not. TheWorld Bank built on this work with effective sec-torwide interventions to increase capacitythrough construction and furnishing of class-rooms and university laboratories and increasednumbers of teachers. Enrollment rates increasedsubstantially at the secondary level (see figure4.1). Central and district-level efforts at institu-tional development were impressive, particularlyin a highly unstable political environment. TheWorld Bank was effective in strengthening theMinistry of Education’s (MOE) institutional ca-

pacity and supporting district-level enhance-ments in primary and secondary education. TheDirectorate of Planning was strengthened andthere was concerted attention to incentives thatallowed the education sector to recruit and re-tain staff.

The Bank also supported the constructionand staffing of ten District Resource Centers,bringing services closer to the community andproviding a much-valued support network to themany inexperienced teachers in rural areas. TheBank was credited for bringing about broadconsensus of the state, churches, and commu-nities on education policy through the 1995 Ed-ucation Act. In sum, the adoption of the Act,establishment of a Teacher Service Division, im-plementation of decentralization, and Bank in-vestment in buildings and curriculum havemodernized schools, increased the government’sinfluence in the education sector, and laid thebasis for further sector development.

Whereas enrollments at the university leveldoubled during the 1990s, the management ef-ficiency and cost containment objectives in thishigh-cost subsector were not achieved.6 Rising


2 8

T r e n d s i n S e c o n d a r y S c h o o lE n r o l l m e n tF i g u r e 4 . 1

1993 1994 1995 1996

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Year

Stud

ents

enr

olle

d

Source: South African Development Bank.

spending for higher education minimized op-portunities to balance sector budgets efficientlyand equitably, given that the government beganimplementation of free primary education inJanuary 2000. However, the ongoing FY00 Ed-ucation Sector Development Project (ESPD) IIsupports special efforts to enhance school par-ticipation through grater emphasis on affordableaccess and equity.7 On balance, the Bank’s ef-fectiveness in the education program was mod-erately satisfactory (Annex G, “World BankSupport for Human Capital Development in the1990s”).

The counterfactual—health, nutrition,and population. The World Bank did not pro-vide much relevant assistance in the health sec-tor during the 1990s. Would it have been moreeffective if the Bank had not intervened? TheBank’s contribution, in terms of effectively ex-panding health services and impacting posi-tively on health status, was unsatisfactory (AnnexG, “World Bank Support for Human Capital De-velopment in the 1990s”). No analytic work wasdone for nearly two decades in health and nu-trition, although a high-quality Population Sec-tor review was completed in 1994. It was too lateto affect the design for Bank lending (for HNPduring 1985–94 and HNP II during 1989–98), andit was inadequately disseminated to catalyzethe necessary shift in strategic objectives as theHIV/AIDS epidemic emerged. The link betweenanalytic work and lending was weak. The Bankwas also ineffective in the critical areas of sec-tor management, including resource allocationand developing basic health information systems.Only recently did the Bank implement a newadaptable program credit, supporting a sector-wide approach for HNP in FY00.

Private Sector DevelopmentThe private sector is the third-largest recipientof IDA’s loans (excluding IBRD loans for theLHWP), drawing about 22 percent of total IDAlending to Lesotho during the 1990s. Recipientsincluded the Industrial and Agro-Industry Proj-ect ($21 million) and the Privatization and Pri-vate Sector Development Project ($11 million).No analytical work preceded either of the twolending operations. Could World Bank inter-

ventions have contributed more to the emer-gence of an efficient private sector?

The lack of analytical work was particularlyevident in the attempt to develop the indigenousprivate sector in the context of the Agro-IndustryProject. It ultimately failed because of an inad-equate assessment of the prospects and con-straints in the sector. Similarly, the failure tocreate linkages between the manufacturing ex-port firms and local entrepreneurs, as a way ofdeveloping the indigenous sector, was partlyexplained by the lack of a feasibility study. Theequity fund, established to assist investment bylocal entrepreneurs, also failed for lack of Banktechnical support.

The Industrial and Agro-Industry Project wasvery complex, providing, among other things, aline of credit for private sector investment. OEDrated the outcome as unsatisfactory. The proj-ect attracted foreign investors, but requiredgovernment subsidies. The project was not suc-cessful in encouraging indigenous investment,or in diversifying agricultural investments into ac-tivities of higher value added, or in establishinglinkages to the LHWP. Only a few investmentpolicy reforms were implemented to encourageprivate sector investment, including replacing thecostly tax holiday with a general 15 percentcorporate tax.

Apart from political uncertainties, many con-straints remained, such as a land policy thatdiscourages investors (by the absence of legaltitles), a legal system that is incapable of pro-tecting investors, and inadequate financial in-termediation. These are the areas where adialogue on policy should have been moreforceful. Because Lesotho’s indigenous privatesector is still at the microenterprise level (em-ploying no more than one or two workers) andoperates mainly in rural areas, the focus of thisproject was misplaced. It should have lookedmore at microenterprise development, policysupport, and private sector participation in in-frastructure, rather than development of subsidy-dependent banking activities, which would beexpected to support mature enterprises.

The Privatization and Private Sector Devel-opment Project also has been problematic. Theprivatization process evolved more slowly than


2 9

expected. Only 10 of 32 state-owned enterpriseshave been privatized for a project that called forprivatization of at least 4 enterprises each yearduring 1995–2001 (table 4.1 provides a list of pri-vatized enterprises and privatization proceeds in$ million). This outcome is explained mainly by:(1) Lesotho’s weak private sector; (2) delaysbrought on by multiple consultations both in cab-inet and parliament about each stage of the pri-vatization process; and (3) the difficulty forBasotho entrepreneurs of accessing capitalbecause of the lack of collateral. The projectunderestimated the extent of vested interestsagainst privatization. Overall, the World Bank’scontribution to private sector development (PSD)during the 1990s was unsatisfactory, although itimproved toward the end of the decade as theBank started to address sectoral constraints moreeffectively, including the inefficiencies of theutility sector under the new Public Utility SectorReform Project (Annex G, “Evaluating BankAssistance to Lesotho for Private SectorDevelopment”).

The counterfactual. The Bank would prob-ably have contributed more to the emergence ofan efficient private sector had its assistance been

preceded or accompanied by the array of in-terlocking legislative, regulatory, institutional,and financial measures critical to the creation ofa more congenial environment for private sec-tor investment. Sector development would alsohave benefited from improved water supplyand electrical services. For example, would con-tinued Bank engagement in domestic water sup-ply, rather than the neglect of the mid- to late1990s, have been a more prudent policy to im-prove services to urban areas and the manu-facturing sector (Le Moigne 2001, p. 6)? TheBank misjudged the interest of other donors infilling the void created by the Bank’s disen-gagement from domestic water supplies in favorof the LHWP. As it turned out, the 1998 CAS pro-posed a renewed focus on public utilities, andin 1999 the Bank, in collaboration with otherdonors, renewed its interests in domestic watersupplies in Lesotho (Annex G, “Water SectorStrategy Review”).

The Bank could also have insisted on keepingthe Muela hydropower component of the LHWPas part of the total project, rather than as a separateproject outside the management of the centraloversight authority. Consequently, the Bank mighthave avoided the procurement problems thatarose and the subsequent high cost of private fi-nancing of the power plant, as well as the cost ofthe diversion tunnel made necessary by the delay.The higher electricity rates (compared with the costof supplies from South Africa) have had a severeimpact on manufacturers.

Those close to the implementation of theLHWP claim that, since electricity generationwas not part of the water project, South Africawas not prepared to include the Muela powerplant under the central management authority.Nevertheless, it does appear that the Bank shouldhave used its influence to insist on includingMuela in LHWP management. This would havefacilitated Muela’s financing and implementation,and also created an incentive for all parties tosave on costs—with Lesotho contributing a per-centage corresponding to the cost of the powerplant (see box 4.1).


3 0

Gross privatization proceedsPrivatized enterprises ($ million)

1. Plant and Vehicle Pool Services 11.30

2. PVPS Plant Building 0.03

3. Minet Kingsway 0.22

4. Avis 0.05

5. Lesotho Airways Cooperation 2.40

6. Lesotho Flour Mills 10.70

7. Marakabei 0.02

8. Orange River Lodge 0.02

9. Lesotho Telecom Corporation 17.00

10. Vodacom Lesotho 0.69

Total proceeds 42.82Source: Ministry of Finance of the government of Lesotho.

P r i v a t e S e c t o rD e v e l o p m e n t ,1 9 9 5 – 0 1

T a b l e 4 . 1


3 1

The Muela hydropower plant was constructed during 1998 andoperated by the Lesotho Highlands Development Authority (LHDA)to achieve energy self-sufficiency. The cost of the plant, whichis fully met by Lesotho, was estimated at 925 million maloti($140 million equivalent as of January 1999), of which 57 percentwas in the form of commercial loans, 38 percent in grants, andthe remaining 5 percent in concessionary loans. Prior to thecommissioning of the plant, Lesotho imported all of its electricityfrom South Africa’s state-owned primary power supply com-pany (ESKOM).

The rate of return for the hydropower component at appraisal(1991) was 6 percent. The analysis was based on the assump-tion of a long-term 0.5 percent a year tariff increase from ESKOM.Since electricity generation was not part of the transfer of water,South Africa declined to finance this component, but the AfricanDevelopment Bank (AfDB) and the Commonwealth Develop-ment Corporation (CDC) expressed interest in offering conces-sional loans, amounting to $50 million and $36 millionrespectively. Unfortunately, the 30 percent drop in the real priceof electricity from ESKOM (due mainly to overcapacity) hasmade the power component relatively more expensive thanforeseen at appraisal. In addition, disagreement between theLHDA and the AfDB over the award of the main construction con-tract led to the decision by the AfDB to withdraw from financ-ing this component. The estimated low rate of return of thepower component led the CDC to pull out of financing for thiscomponent.

These decisions and the time required to secure financing fromother sources were the main reasons for the 18-month delay incompleting this part of the project. The delay, in turn, was the mainreason for the significant increase in cost of this component, es-pecially as it necessitated accelerated construction of the by-pass to ensure timely water delivery to South Africa in accordancewith the treaty. Moreover, the need for the LHDA to arrange al-ternative financing on shorter terms and at higher interest rates(17.8 percent) than those offered by the AfDB and CDC createdsevere cash-flow problems in servicing the debts and in payingcontractors. An IMF internal communication of June 30, 1999, in-dicated that, in addition to servicing debt obligations amountingto 38 million maloti in 1999–00, the LHDA was expected to pay 104million maloti to various contractors for cost overruns sustainedwhen construction of the Muela plant was suspended in Sep-tember 1998. The IMF added that the LHDA defaulted on its loanof 120 million maloti from the Lesotho Bank. In addition, theLesotho Electricity Corporation, which purchased the generated

power, also suffered from a poor financial situation and, until thegovernment intervened this year, was unable to pay the LHDA forits bulk electricity purchases. At completion the estimated rateof return for the power component was only 3 percent. Also, aspointed out in the ICR, the LHDA’s electricity charges are con-siderably above the rates of ESKOM and are unsustainable.

The financial restructuring of the hydropower componentdebt began to be implemented following discussions with theWorld Bank and IMF in December 1999. The government had topay some 430 million maloti to refinance and pay off debts in FY00and will have to make further payments in the years to come.There are indications that the recent membership of Lesotho inthe Southern Africa Power Pool and the effect of the new Pub-lic Utility Sector Reform Project may eventually improve the fi-nancial situation of this component. This remains to be seen, andOED should review Muela hydropower in its audit of the com-pleted Phase 1.

In retrospect, World Bank assistance to Lesotho in the pro-curement and financing of this component of the project (par-ticularly after the AfDB withdrew its proposed financing) was,at best, too late to avoid severe financial difficulties for thecountry. However, the May 2000 supervision mission consid-ered that, since the Bank does not supervise contracts it doesnot finance, it was not in a position to avoid the procurementproblems and their financial consequences for the power com-ponent. The OED mission considers that, in view of the loancovenants dealing with the financial targets of the power com-ponent and its overall influence on Phase 1A, the Bank shouldhave assisted the government in dealing with the financial con-sequences of the delay in awarding the construction contract.The Bank, however, eventually helped the government in the fi-nancial restructuring of the power component.

With hindsight, the OED mission agrees with the commentsmade by both Lesotho and South African members of the JPTC(a binational body created to safeguard the interests of Lesothoand South Africa) that it would have been preferable to includethe power component as an integral part of the project. Thiswould have enabled the JPTC to control the procurement pro-cedure for the power component and facilitated the financingof this component. It would also have avoided difficult andlengthy discussions within the JPTC as to whether an expensebelongs to the water transfer (and thus to be paid by SouthAfrica) or to the power component alone (to be paid by Lesotho).Also, it would have facilitated governance of the project. Would

T h e M u e l a H y d r o p o w e r P l a n tB o x 4 . 1

(continued on following page)


3 2

the difficulties with Muela plant have been avoided if the Bankhad insisted that this component should have been part of theLHWP? It will be recalled that the problem with Muela was adisagreement between the AfDB and the government on pro-curement for the main construction contract. Obviously, it isnot possible to be sure whether the disagreement would have

arisen if all procurement arrangements had been handled underone set of guidelines, with recourse for settlement of disputesto one supervisory body. However, at least the same standardwould have been applied, and this may have avoided the quiteserious economic implications of the procurement problems atMuela.

T h e M u e l a H y d r o p o w e r P l a n t ( c o n t i n u e d )B o x 4 . 1

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African DevelopmentBank Group Assistanceto Lesotho

This chapter reviews the African Development Bank Group assistanceto Lesotho. It covers the evaluation of the strategy that governed bothBank Group nonlending assistance (policy dialogue and advice, eco-

nomic and sector work, aid coordination, and resource mobilization) andlending assistance. The tentative conclusion that can be drawn from theevaluation is that, overall, Bank Group assistance can be described as mod-erately satisfactory, with nonlending assistance being rated as unsatisfactory.The assistance is also sustainable over the long term as a result of its impacton institutional development, as well as overall government commitmentto the process of development.

Bank Group Strategy in Lesotho

The 1988 StrategyAlthough the Bank Group started operations inLesotho in 1974, it was not until 1988 that it de-veloped a strategy toward the country. In the ag-gregate, Bank Group strategy toward Lesothowas no different from its overall mandate ofpromoting economic and social development ofother countries in the region. In the pursuit ofthis objective in Lesotho, however, the BankGroup had to make strategic choices. As spelledout in the 1988 “Economic Prospects and Coun-try Programming” (EPCP), Bank Group strategyin the medium term “will continue to be the pro-vision of basic socioeconomic infrastructure, es-pecially the road network and rural airfields,

potable water and health.” It was added that “thecontinuing inaccessibility of most of the EasternHighlands districts means that the developmentof a reliable road and rural airfields will remainhigh on the agenda. Due to the nature of the ter-rain, the program will necessarily be expensive.Continued ADF participation in this sector willtherefore remain on the high side.” It was alsoargued that considerable attention would begiven to improving rural incomes through sup-porting medium-scale agricultural and agro-industrial projects. The EPCP also recognized theexisting manpower constraints in Lesotho. Henceit proposed the provision of institutional supportto various ministries, in particular to the Trans-port Ministry and the Ministry of Finance andEconomic Planning.

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With respect to the social sector, the 1988EPCP noted that as a result of its mild climate,Lesotho is largely free from major tropical dis-eases. But with only 2,204 hospital and clinicbeds (or 1.45 beds per 1,000 inhabitants), thecountry is below half of the World Health Or-ganization’s (WHO) recommended ratio forAfrica. As a result, the WHO recommended aBank Group strategy of strengthening interme-diate health units that provide the necessarybackup services to the primary units. Althoughsubsequent Country Strategy Papers (CSPs) weresilent on the basic thrust of Bank Group strat-egy in the health sector, the recommendationsof the 1988 EPCP continued to guide BankGroup intervention.

While Lesotho has one of the highest liter-acy rates in Sub-Saharan Africa, the ineffi-ciency of the educational system does notpermit more than a small percentage of stu-dents to reach higher levels (see table 1.2). Thecountry’s economic development is thus con-strained by the dearth of well-trained person-nel. Bank Group strategy, beginning with the1988 EPCP, aimed to address the lack of humanresources for national development, the highproportion of unqualified teachers, and thelimited and unequal access to educationalopportunities. The priority areas identifiedincluded basic education, manpower devel-opment (vocational, technical, and teachertraining), and strengthening institutional man-agement of educational development.

The 1996 and 1998 StrategiesThe next attempt to articulate a Bank Groupstrategy for Lesotho was in the 1996 CSP, the suc-cessor document to the 1988 EPCP. In the CSP,the Bank Group recognized the need to addressconstraints to the economy, such as the short-age of skilled manpower, unemployment, in-adequate infrastructure, and increasing poverty.From these constraints, the Bank Group chooseto concentrate its intervention on agriculture andpublic utilities during 1996–98. The 1999 CSP,covering the period 1999–01, is perhaps themost comprehensive attempt to situate BankGroup intervention in the context of a well-defined strategy. Inspired by the global concern

for poverty reduction and the African Develop-ment Bank Group’s vision, the CSP articulateda strategy aimed at contributing to government’sagenda for poverty reduction through projectsand programs for sustainable growth, job cre-ation, and human resource development. It thenproposed a series of incentives to encourage pri-vate sector development, with agriculture re-ceiving the bulk of Bank Group lending (65percent), followed by the social sector (35 per-cent). The 1999 CSP strategy also recognized thatprivate sector development is an essential com-ponent of poverty reduction.

Relevance of the StrategyWhen set against the prevailing economic andpolitical situation of the time, Bank Group strat-egy as formulated in 1988 was relevant. Com-pletely enclosed by South Africa, whose politicalideology of apartheid was evoking worldwidesanctions, Lesotho certainly faced a hostile de-velopment environment. Lesotho’s underdevel-oped road network warranted making detoursthrough South Africa even to domestic destina-tions. Such detours became expensive, both po-litically and economically, in view of sanctionsagainst South Africa.

The development of an efficient road networkthus became a matter of national survival: itwould reduce Lesotho’s dependence on SouthAfrica, link the mountainous and urban areas ofthe country, and facilitate the movement ofgoods and people. Bank Group strategy, whichcoincided with that of the government, was thusrelevant in light of the prevailing circumstances.For instance, the development of air transportwas predicated on the fact that as a mountain-ous country, it would take considerable time andresources to link the country by a road net-work. Although the outcome of this strategymight have turned out to be unsatisfactory, it wasalso a relevant strategy to pursue at the time.

The 1996 CSP was formulated against thebackground of the collapse of apartheid andgrowing poverty in Lesotho. However, with thecollapse of apartheid, the use of South Africa’sroad network became less cumbersome, andLesotho had made considerable progress in link-ing the country with a credible road network.


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Thus the shift in strategy from the developmentof infrastructure toward programs and projects(for example, in agriculture, health, and educa-tion) that could contribute to poverty reductionwas indeed a relevant strategy to pursue. The1999 CSP continued the emphasis on poverty re-duction, and its objectives remain relevant, giventhe depth and severity of poverty in Lesotho (seetable 1.1) and the Bank Group’s renewed com-mitment to the eradication of poverty in allcountries of the region.

Bank Group strategy in the social sector wassimilarly relevant: most interventions were aimedat simply providing health care facilities, a di-rect response to the observed shortage of suchfacilities. In the education subsector, the short-age of skilled manpower was constraining na-tional economic management. Thus any strategyaimed at filling this gap would be relevant toboth the needs of Lesotho and the Bank Group’seducation strategy as spelled out in the 1986 Ed-ucation Sector Strategy Paper (ESSP). The strat-egy was also relevant to the national goals ofimproving teacher quality and building capac-ity for curriculum development. It provided sup-port to strengthen public and private sectorcollaboration for education and included an ed-ucation study as a component of ESDP I.

Although the Bank Group’s strategy towardLesotho, particularly in the transport and socialsectors, can be described as relevant, it appearsto have been undermined by three key factors.One was the inadequate attention paid to gov-ernance issues in the country (see box 1.1). Thisreflected the absence of a forum for policy dia-logue. The second factor was the slow responseto HIV/AIDS-related issues in Bank Group lend-ing to the health sector. The Bank Group wasmore concerned with the provision of physicalhealth facilities than measures to monitor and pre-vent the spread of HIV/AIDS at a time when theepidemic was ravaging the country. Finally, BankGroup strategy paid little attention to poverty is-sues. It was not until the 1996 CSP that povertyissues became central to Bank Group interven-tion in Lesotho, and even then there was no ex-plicit poverty-reduction program or any attemptto understand the depth and dynamics ofLesotho’s poverty.

Nonlending Assistance

Institutional SupportWhile Bank Group lending operations started inLesotho in 1974, it took some time for it to ap-preciate that investing in nonlending activitiescould enhance the effectiveness of its lendingprograms. Thus there was little at first in the wayof economic and sector work, policy dialogue,and advice. But the Bank Group did provide (al-beit in a rather incoherent manner) some insti-tutional support to certain ministries, such asTransport, Finance, and Economic Planning. In-stitutional support to the transport sector aimedto strengthen and sustain government’s capabilityin the sector. Specifically, it attempted to improveplanning and management of investment andexpenditure, improve the administration andmanagement of civil aviation, and develop amaintenance program.

Other Bank Group support components in-cluded training and management studies. Thesupport was relevant to the problem at hand asit assisted the government in developing an in-dependent road network and enhanced gov-ernment capacity for the management of thetransport sector. An example of relevant assis-tance is the feeder roads study, aimed at prepar-ing detailed engineering designs, includingtender documents, for Likalaneng-Thaba TsekaRoad, and carrying out the feasibility study, in-cluding preliminary designs, of two rural roads(Roma-Ramabanta, Semonlong-Sekare Roads). Asthis project is ongoing, it is difficult to assess itsachievements, but it is relevant in the sense thatit would provide a sound basis for making a de-cision one way or the other on the feasibility ofproceeding with the construction of the roads.

Institutional support to the vital ministries ofFinance and Economic Planning has been aimedat strengthening their analytical and adminis-trative capabilities. Lesotho has a dearth ofhuman and institutional capacity for policy for-mulation and implementation, and the BankGroup response has focused on human resourcedevelopment through training and on institu-tional development. The latter is to be achievedthrough the provision of essential materials suchas personal computers. Although the assistance

A f r i c a n D e v e l o p m e n t B a n k G r o u p A s s i s t a n c e t o L e s o t h o

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is still under implementation, it can be said ten-tatively that it is achieving its objectives. Mem-bers of both ministries have been trained and arenow equipped with personal computers. How-ever, Bank Group assistance faces a major newchallenge. As a result of the combined effects oflow domestic wages, the collapse of apartheid,and porous borders with South Africa, many ofthe trained personnel are now finding more at-tractive employment opportunities in SouthAfrica. The sustainability of institutional sup-port is therefore uncertain.

Economic and Sector Work, Policy Advice, and DialogueExcept for the mandatory preparation of theEPCP and the CSP, the Bank Group has not car-ried out any economic and sector work inLesotho. While the Bank Group has investedheavily in the transport and social sectors, it didso with limited knowledge of these and othersectors. The Bank Group was not at all involvedin the authoritative and strategic study on theeconomic and social development of Lesotho—Lesotho’s Strategic Economic Options (SIDA 1996).As indicated earlier, this study, which benefitedfrom the analytical, technical, and financial sup-port of the World Bank and the Swedish Inter-national Development Agency (SIDA), laid thebasis for a post-apartheid development strat-egy. It has proved useful in the formulation ofthe World Bank’s assistance strategy for Lesothoand in the formulation of the country’s own de-velopment agenda. Without involvement in thisinfluential study, the Bank Group found itself in-creasingly tied to the policy framework andlong-term development agenda as set by theWorld Bank and the country.

The Bank Group’s major economic docu-ments (the EPCP and the CSP) have rarely beenused as instruments of advice and policy dia-logue, partly because they are not rooted in se-rious economic analysis. Indeed they have servedmainly as instruments for programming BankGroup interventions in Lesotho. Lesotho hasnever benefited from a policy-based lendingprogram from the Bank Group. In spite of theseshortcomings, mention must be made of theBank Group’s work on economic integration in

southern Africa. The documentation made apersuasive case that all countries in southernAfrica have much to gain from various forms ofregional cooperation and from launching a de-termined effort to integrate the regional market.As a small country, Lesotho has much to gain(and much to fear) from the economic integra-tion of the southern African economies. To date,however, it is not obvious how the Bank Grouphas used the findings of the study to affect itsinterventions in Lesotho (particularly regardingair transport). Mention should also be made ofthe Bank Group’s work (financed by the gov-ernment of Japan) on long-term finance in south-ern Africa and SADC countries. Again, it remainsunclear how much this work has influencedBank Group operations in Lesotho.

In recent years the Bank Group has takensome hesitant steps to enhance policy dialogueand advice. It took the unsuccessful initiative toencourage the government to accept the Sup-plementary Financing Mechanism (SFM) for therepayment of interest on AfDB loans. But thegovernment did not show sufficient interest inthe initiative, as it does not consider its debt bur-den serious enough for the purpose. The BankGroup is currently engaged in dialogue with thegovernment on private sector development. Apublic utilities reform project, which would fa-cilitate the reform of telecommunications, water,and electricity and their eventual privatization,is being planned for Board discussions beforethe end of 2000. While these new initiatives ap-pear to be in the right direction, it is too earlyto judge them for relevance and impact. How-ever, the overall Bank Group contribution to pol-icy dialogue and advice to date can only bejudged unsatisfactory.

Aid Coordination and Resource MobilizationThe United Nations Development Program(UNDP) has been at the forefront of conveningRoundtable Conferences on Lesotho, with theBank Group actively participating in them. Atthese meetings, the government of Lesotho pres-ents its long-term plan for sustainable develop-ment and identifies the requisite resources toimplement the plan. Available information showsthat the coordination of development assistance


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has been effective. In 1992, for example, this co-ordination played a key role in counteracting thesevere impact of the drought then ravagingLesotho and the rest of southern Africa. In 1997,aid coordination also played a major role in en-listing donor support for the government’spoverty alleviation efforts. This resulted in donorpledges of about $336 million for five years tofinance a new and targeted approach to povertyreduction through improvements in primaryhealth and education services and employmentcreation for the poor.

The Bank Group has also been active in co-financing development activities. To date, it hascofinanced four projects in Lesotho with bilat-eral and multilateral development partners. It co-financed a water project with the Organizationof Petroleum Exporting Countries (OPEC) Fundand the Norwegian Agency for Development Co-Operation (NORAD); road projects with IDA, theArab Bank for Economic Development in Africa(BADEA), the OPEC Fund, and the Kuwait Fund;and a health project with the OPEC Fund. Co-financing arrangements are being planned for theAgricultural Sector Adjustment Program (ASDP),which was presented to and approved by theBoard in March 1999. The ASDP represents theBank Group’s financing of the first phase of theLesotho ASDP—a long-term development pro-gram spanning about 10 years. The first phaseof the Lesotho ASDP is being financed throughthe Agricultural Policy and Capacity BuildingProject by various donors, including the BankGroup, the World Bank, and the EuropeanUnion, among others.

ConclusionWhile the Bank Group has stepped up its effortsto make its nonlending assistance to Lesothomore effective in recent years, the performanceto date is rated as unsatisfactory. The BankGroup program of technical assistance remainsfragmented and incoherent, and largely unsup-portive of its lending programs. The BankGroup’s role in policy dialogue and advice isweak, and it has not made any contribution toeconomic and sector work. It has, however, co-ordinated well with other donors, particularly theWorld Bank, presumably because as a small

player in aid delivery, the Bank Group had tocoordinate well with a bigger provider of aid toLesotho. In the future, the Bank Group shouldstrengthen its nonlending assistance, since com-ponents of this assistance are preconditions forthe success of its lending operations.

Lending AssistanceSince it started operations in Lesotho in 1974, theBank Group has approved loans totaling unit ofaccount (UA) 274.81 million, comprising UA88.66 million of AfDB resources, UA 170.72 ofAfrican Development Fund (ADF) resources,and UA 15.43 million of Nigeria Trust Fund(NTF) resources. These resources were used tofinance 27 projects, 3 lines of credit, and 6 stud-ies. Following the cancellation of a number ofloans (UA 50.96 million) in the wake of theportfolio restructuring exercise of 1994, BankGroup net commitments now stand at UA 223.85million. Twenty-three operations have beencompleted. In terms of sectoral distribution, thepublic utilities and transport sectors are the mainbeneficiaries, with 28 percent and 26 percent ofthe portfolio respectively. They are followed bythe social sector, with 24 percent; agriculture,with 13 percent; and industry, with 9 percent.As of December 1999, UA 175.82 million havebeen disbursed, representing a disbursementrate of 78.5 percent (table 5.1). A breakdown ofthe projects is contained in Annex E, table E.5.

Table 5.2 shows Operations Evaluation(OPEV) ratings of 14 completed projects inLesotho.1 The table shows that in terms of im-plementation performance (IP), 10 projects (or85.7 percent of completed projects) were ratedeither unsatisfactory or highly unsatisfactory,whereas 2 projects (or 14.3 percent) were ratedas satisfactory. Poor project implementation per-formance has always been the experience of theBank Group in Lesotho. In 1994, a portfolio re-view report of Lesotho recommended the can-cellation of several loans as a result of poorimplementation. The 1998 country portfolio per-formance review concluded that delays in loaneffectiveness and project start-up, noncompliancewith Bank Group procedures, and weak insti-tutional capacity are largely responsible forLesotho’s poor record on the IP criterion. On the


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development objective (DO) criterion, the tableshows that 10 of the rated projects (71.4 percent)had satisfactory ratings, whereas only 4 (28 per-cent) had unsatisfactory or highly unsatisfac-tory ratings.

In terms of aggregate performance, the BankGroup portfolio in Lesotho appears satisfactory.According to the annual portfolio performancereview, the portfolio has also been improvingover time. For example, in 1998 and 1999 the


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No. of approved

Sector operations AfDB ADF/TAF NTF Total %

Agriculture 8 — 27.16 2.13 29.29 13.1

Industry 4 12.50 20.76 9.3

Transport 10 — 57.07 — 57.07 25.5

Public utilities 7 35.40 26.27 — 61.67 27.5

Social 7 — 54.29 — 54.29 24.3

Multisector 1 — 0.77 — 0.77 0.3

Total 37 43.66 165.56 14.63 223.85 100.0

% of total approvals 24 70 6 100— Not available.

Note: TAF: Technical Assistance Fund.

Source: AfDB (2001).

S e c t o r a l B r e a k d o w n o f B a n k G r o u p –A p p r o v e d L o a n s a n d G r a n t s , a s o fD e c e m b e r 3 1 , 1 9 9 9 ( n e t c o m m i t m e n t s i nU A m i l l i o n )

T a b l e 5 . 1

IP DOProject name Sector assessment assessment

Health Service Development Health HUS S

Butha-Butha-Roma-Somokong Road Construction Road transport/highways HUS S

Joel-Drift-Khamana Road Construction Road transport/highways HUS S

Maseru Water Supply Water supply HUS US

Parc d'engraissement du Betail Agriculture HUS US

Phuthiatsana Integrated Rural Development (ADF) Rural development HUS US

Telecommunications I Project Telecommunications US US

Line of Credit to Lesotho Bank Agriculture S S

Rural Health Services Health HUS S

Rural Health Services II Health HUS S

Rural Credit and Banking Facilities Agriculture US S

Road Maintenance Railways/transport S S

Four Centres Water Supply and Maseru II Water Supply Projects Water supply US S

Khamane–Oxbow Road Project Road transport/highways US SNote: S: satisfactory; US: unsatisfactory; HUS: highly unsatisfactory.

Source: African Development Bank data.

O p e r a t i o n s E v a l u a t i o n R a t i n g s o fC o m p l e t e d P r o j e c t s i n L e s o t h o

T a b l e 5 . 2

review found that there were no problematicprojects on the IP and DO criteria. However, itfound that three projects (3 percent of the port-folio) met the project-at-risk criterion. Thisamounts to commitments of UA 10.37 million (or19 percent of total commitments) at risk. The ageprofile of the portfolio also appears reasonableby Bank Group standards: the average age was6.25 years between 1995 and January 2000. InJanuary 2000, it was 5.6 years. All these are in-dicative of an ever-improving portfolio, whichmay be due to institutional strengthening, par-ticularly in the transport sector.

Sector Analysis

The Transport Sector

EfficacyBank Group assistance to the transport sectorcomprises 13 operations as listed in Annex tableE.7. The net commitment in the sector is UA 78.52million, representing 30 percent of total com-mitments to Lesotho. The portfolio comprises nineinfrastructure construction projects and one in-stitutional support project. The infrastructural fa-cilities funded by the Bank Group were roadsections of the western (A2 and A1) and north-ern (A1) perimeter main road, and sections ofpenetrating main roads (A3 and A5), as well asthe new international airport of Maseru. Of thethree studies in the transport sector portfolio, thefirst resulted in the construction of three new sec-tions of the northern perimeter main road. Thesecond study on feeder roads did not result inany construction activity. A Feeder Roads Proj-ect was planned in March 1994 but has not beenappraised by the Bank Group to this date. Thethird (ongoing) study concerns two importantpenetrating roads that provide access to the cen-tral mountain areas.

With the exception of the new internationalairport, the transport sector projects achievedtheir major goals of providing low-cost accessto remote areas of the country and connectingthe major population and economic centers.Access has been provided to all districts and im-portant population and production centers. Asa result, it is no longer necessary to transit

through the roads of South Africa when travel-ing from Maseru to the remote areas of thecountry. Traffic growth rates after constructionexceeded appraisal expectations with the ex-ceptions of the mountain roads from Khamaneto Oxbow and from Oxbow to Mokhotlong. In1994, the length of primary, secondary, and ter-tiary road networks was estimated to be 5,323kilometers. As of the time of this evaluation, thetotal length was estimated at 6,216 kilometers,excluding urban roads.

In the air transport subsector, the construc-tion and furnishing of a new international airportwere satisfactorily carried out. Comprehensivetraining and technical assistance were providedto the new international airport and the De-partment of Civil Aviation. A feasibility study anddetailed design of domestic airports (1990–91)and a management study of Lesotho AirlinesCorporation (LAC) were also carried out.

EfficiencyThe implementation of Bank Group projects inthe transport sector is noted for long delays. De-lays in completion of road projects varied from7 to 62 months and had a tendency to increaseover time. Loan deadlines were also often ex-tended. Time overruns varied from 29 to 113 per-cent, while cost overruns varied from 13 to 53percent (Annex E, table E.6). Cost overrunssometimes resulted from extensions in the scopeof projects, and very often from technicalshortcomings.

Road projects resulted in lower vehicle op-erating costs and were generally followed byhigh traffic growth rates. The new sealed roadsare providing low-cost access to rural areas forpersons and goods, particularly agricultural in-puts and outputs, and are contributing to ruraldevelopment.

With the exception of two projects, the roadsubsector projects were efficient, with economicinternal rates of return higher than 12 percentat completion and at post-evaluation. The ex-ceptions were the mountain roads from Khamaneto Oxbow and from Oxbow to Mokhotlong.For the first road, a 22 kilometer section climb-ing from the foothills (1,750 meters) to the highplateau (> 3,000 meters), an attempt was made


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to decrease construction costs and improve theefficiency of the project by adopting a substan-dard cross-section and cutting steep slopes. Thisresulted in serious environmental and safetyhazards and an internal rate of return of about6 percent at completion and post-evaluation.

At the time of its construction, the Maseru In-ternational Airport was relevant to the develop-ment needs of the country. It served the purposeof reducing the isolation of Lesotho during theapartheid era by providing a means of trans-portation independent of South Africa. How-ever, with the collapse of apartheid and theprogress made in road construction, air traffic wasreduced considerably. Although the airport canbe useful in winter when road transportationbecomes difficult, there is no doubt that in rela-tion to the cost of construction, maintenance, andtrained personnel, the project has become inef-ficient over time. The Department of Civil Avia-tion is currently marketing the airport for cargotransport, following cargo congestion in regionalinternational airports. It is still hoped that the air-port could be used for shipment to Europe offresh vegetables and fruits from Lesotho, as wellas fish and seafood from South Africa.

Institutional DevelopmentIn broad terms, Bank Group activities in thetransport sector have supported institutional de-velopment in Lesotho. All the projects, withoutexception, resulted in significant enhancementof institutional capability. Transport sector proj-ects also contributed to the development of theprivate sector by providing jobs to the nationalroad construction industry, which now com-prises more than 50 active contractors provid-ing both labor and equipment. The former LaborConstruction Unit (LCU) of the Ministry of Pub-lic Works and Transport has carried out a pro-gram for training of labor-based contractors onunsealed road maintenance, while the RoadsBranch (RB) has promoted training of truckhaulage subcontractors in mechanical road con-struction. The institutional support to the Min-istry of Transport has strengthened the capacityof the government to manage the sector, whilemany of the studies have assisted in the formu-lation of road projects.

The successful implementation of the 10 proj-ects in the transport sector by the borrower andits implementing agencies is indicative of insti-tutional strengthening. The training componentsof some of the projects have actually enhancedhuman resource development, while valuable ex-perience has been accumulated in road con-struction by both public servants and privatesector operators. In the 1970s and 1980s, manyroad departments were managed by expatriatetechnical staff. The training components of someof the projects have obviated the need for suchexpatriates.

The use of direct labor for road constructionand maintenance within the Roads Branch andthe LCU has not adversely affected the devel-opment of private contractors in Lesotho, and hasindeed been an advantage in their training.Labor-intensive contractors carried out 181 rou-tine, periodic maintenance, and upgrading con-tracts for the LCU between 1997 and 2000, or anaverage of 60 contracts a year.

Sustainability of the AchievementsAvailable data from the Roads Branch and fromthe Department of Rural Roads shows that, sinceconstruction, all sealed roads have been regularlymaintained. Some sections have also beenstrengthened by the LHDA to carry the heavy traf-fic required by its dam construction activities.Road projects have therefore been satisfactorilysustained. Some road sections—sections of A1,A2, A3, and A5 that were rehabilitated in 1985,1987, and 1988—are reaching the end of their 15-year structural design life. However, no sign ofstructural fatigue is apparent in these sections. Adetailed study for strengthening and upgradingof the Butha Buthe to Oxbow section of A1 wascommissioned to a consultant, and works are pro-grammed under the Road Rehabilitation andMaintenance Project. But in two projects (theKhamane to Oxbow and Oxbow to Mokhot-long roads), winter maintenance was ignored. Asa result, the Roads Branch has no capacity forwinter maintenance, and access betweenKhamane, Oxbow, and Mokhotlong is not all-weather as expected.

The sustainability of the road subsector is fur-ther assured by the appropriate allocation of re-


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sources by the government for maintenance.The evidence shows consistent allocation (ofabout 20 percent of total road expenditure) forthis purpose. While budget allocations were suf-ficient for routine and periodic maintenance ofsealed roads, they did not permit proper main-tenance of the whole network. A backlog ofmaintenance was accumulated in the unsealedroad network, but more money was allocated inrecent years to reabsorb the backlog and bringthe unsealed road network to good condition.

The country also has the relevant institutionsfor ensuring sustainability. The Ministry of Pub-lic Works and Transport (MOPWT) now hasoverall responsibility for the transport sector.The rural road network and main urban roadsare managed by two different departments of theMOPWT: the Roads Branch is responsible for thesealed road network and for unsealed roadswith high volumes of traffic, and the Departmentof Rural Roads has responsibility for all low-volume unsealed roads. Both departments op-erate a pavement management informationsystem.

Based on government commitment, socialand financial support, and management effec-tiveness, it can be said that future prospects forroad maintenance and project sustainability arebright in Lesotho. This statement is reinforcedby the observation that Lesotho has been ableto address most critical issues of the road trans-port sector, such as the backlog of road main-tenance, appropriate management and sustainedfinancial resources for the road network, insti-tutional reform and road user involvement, en-forcement of axle load limits, a road safetyaction plan, well-adapted guidelines, and stan-dard specifications for road and bridgeconstruction.

Finally, the government of Lesotho has alsoachieved remarkable results in training and pro-moting both labor-intensive and plant-orientedcontractors. The national road contracting in-dustry already comprises more than 50 unitsdealing with rehabilitation and maintenance ofunsealed roads, as well as rehabilitation andconstruction of bitumen sealed roads. The De-partment of Rural Roads is currently managinglabor-intensive contracts and the low-volume, un-

sealed road network. The Roads Branch is man-aging machine-intensive contracts and the high-volume road network. The Roads Branch alsohas three regional units for routine and periodicmaintenance. Additional contractor and super-visor training programs and pilot projects arebeing discussed with donors.

The limited achievement in the air transportsector, however, is not sustainable. This is duepartly to the decline in passenger traffic overtime, and partly to the increasing importance ofroad transport. As the country was connected byroads, air transport became relatively more ex-pensive. In the years ahead, however, the air-field could also (in addition to its use to transportfresh vegetables and fruits from Lesotho to Eu-rope and fish and seafood from South Africa)provide service to the South African towns nearthe Lesotho border.

Performance of the Bank GroupBank Group assistance focused on the devel-opment of the main road network, with six proj-ects and a total length of 368.9 kilometers ofnewly constructed and rehabilitated trunk roads.With the exception of the new international air-port, which only achieved its physical objective,transport projects generally achieved their ob-jectives. But Bank Group interventions experi-enced significant technical shortcomings. Suchshortcomings (lack of consideration of water-logged soils and frost conditions, for example)repeatedly caused difficulties in two roads (Joel’sDrift to Khamane and Khamane to OxbowRoads) and three successive projects (Joel’s Driftto Khamane, Khamane to Oxbow, and Oxbowto Mokhotlong Roads). The implementation ofroad construction in several projects witnessedunnecessary design reviews, redesigns, and de-sign changes. Inappropriate specification andcontract clauses, departure from well-establishedstandards and codes of practice, poor investi-gations and unforeseen site conditions, mis-takes in lime stabilization of natural materials,and pavement design problems also caused costand time overruns.

The less-than-satisfactory performance of theBank Group is also evident in other stages of theproject cycle. Out of a total of 10 projects, only


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6 were subjected to self-evaluation in the formof project completion reports (PCR). Two im-portant projects, the new international airport andthe institutional support project, were not sub-jected to self-evaluation. Only road constructionprojects (six projects) were self-evaluated and,among these, four have been subject to post-evaluation by the Operations Evaluation De-partment. In the area of donor coordination,however, the Bank Group performed very wellas it coordinated its activities with the World Bank(through cofinancing operations).

Overall, Bank Group performance can berated as just satisfactory. While the Bank Groupdelivered the resources for financing the con-struction of the roads, it did not carry out any sec-tor study in order to inform itself of the situationon the ground. In several cases, the road designswere considered inadequate. But the Bank Groupdid well in the areas of aid coordination, cofi-nancing, and institutional development.

Performance of the BorrowerThe figures in Annex E, table E.6, on time andcost overruns indicate poor concern of the bor-rower for time effectiveness. The borrower gen-erally complied with reporting requirements,except for annual audited reports. Procurementwas generally satisfactory. The borrower and itsimplementing agencies are in the process ofimproving their performance and have gainedexperience in the course of implementing suc-cessive projects. In spite of poor manpowerresources and lack of experience, they werealways committed to successful implementationof projects.

The borrower created suitable conditions forproject sustainability and regularly maintained theroads. Institutional reform in the road sector isprogressing with the Roads Board, theestablishment of the Roads Fund, and the es-tablishment of a central road authority. The per-formance of the borrower, which continues toimprove, can be rated as satisfactory.

The Social SectorSince commencement of Bank Group assistancein 1974, a total of eight operations, (six in healthand two in education) have been approved for

support in the social sector. In addition, theBank Group has provided support for the con-duct of a health study. By the beginning of1998, operations in the social sector amountedto UA 55.73 million, representing 23.49 percentof Bank Group total commitment to Lesotho(Annex E, table E.8).

Health Subsector Bank Group assistance has provided support forthe strengthening of immunization services andrenovation and upgrading of district hospitals.The goal was to provide better referral servicesfor rural clinics and health centers, and to offertechnical support to public health and otherhealth promotion activities in the Health ServiceAreas (HSA) where the district hospitals are lo-cated. A total of six projects have been supportedin the health sector. A secondary health carestudy was implemented as a component of thefirst Rural Health Service Project in 1976, and ahealth study is ongoing.

EfficacyA major constraint in assessing the efficacy ofBank Group strategy in the health subsector isthe absence of time-bound, measurable goals andindicators for evaluation and impact assessmentin the appraisal reports. Evaluation is also con-strained by the absence of baseline data againstwhich the impact of interventions can be as-sessed, thus making it difficult to assess thecontribution of the projects to the attainment ofthe overall sector goal to provide more and im-proved health services on a sustainable basis.Furthermore, there was no prior sector work thatcould have served as a good basis for BankGroup intervention. Such a study also couldhave, for example, identified private operativessuch as the Christian Health Association ofLesotho (CHAL) and recommended strategies forstrengthening existing collaboration betweenpublic and private providers of health care.

Nonetheless, the assessment of efficacy reliesprincipally on discrete measures obtained frompublished and unpublished government reports,information from other donors, and from ananalysis of social indicators in population datasheets published annually by the Ministry of


4 2

Economic Planning and Development. Thesedata sheets provide national—and in some cases,district—estimates of access to health care anddemographic characteristics, but are of limitedvalue in the assessment of the health status ofthe target population. Data on utilization wereobtained from routinely collected information onconsultations, referrals, and reattendance fromthe Statistics Unit of the Ministry of Health andSocial Welfare from 1992 to 1998. These data arealso of limited value as they are incomplete andinaccurate.

These limitations notwithstanding, BankGroup interventions achieved their stated ob-jectives. Under Rural Human Services Program(RHSP) I, 31 health centers were renovated and10 new ones were constructed. The renovatedand new health centers comprised 22 percent ofthe total national coverage of 187 health centersin 1995. RHSP I also constructed and renovatedstaff houses, waiting mothers’ lodges, and foodstores. However, these health centers did not pro-vide for staff accommodation; consequently, themothers’ lodges have been converted to staffaccommodation.

RHSP II–IV has completed the construction,equipping, and furnishing of eight district hos-pitals in Leribe, Mohale’s Hoek, Butha Buthe,Mafeteng, Quthing, Mokhotlong, Berea, andQacha’s Neck. This comprises 90 percent ofgovernment-owned district hospitals in Lesotho,but excludes hospitals owned by nongovern-mental partners in the health system, particularlythose managed by CHAL, raising questions of eq-uity in access and quality of health care. The ex-clusion of CHAL hospitals was premised on aneed to prioritize investments in health and theabsence of guarantees for loans disbursed to sup-port assistance to CHAL hospitals. An analysisof trends on hospital utilization suggests a highermean number of annual consultations, refer-rals, and reattendance in districts where theBank Group has provided support for facility ren-ovation and strengthening.

Bank Group–assisted projects have con-tributed significantly to the number of health cen-ters and the rehabilitation of district hospitals inLesotho. A total of eight district hospitals wererenovated, equipped, and furnished. Thirty-one

health centers were also renovated, while 10 newones were constructed. These have also been fur-nished and equipped. A very commendable fea-ture is the extensive use of solar power in all ADFfacilities.

Improvements have also been reported inthe health of the Basotho. It is reported, for ex-ample, that between 1988 and 1998, life ex-pectancy increased from 51 to 53.7 years, andinfant mortality declined from 113 to 89.7 per1,000 live births, partly as a result of these in-terventions. The first intervention in health aimedto strengthen immunization services. It is re-ported that the number of children under oneyear of age who had received the third dose ofdiphtheria, pertusis, and tetanus (DPT) increasedby 43.59 percent—from 24,744 in 1981 to 35,531in 1985. During the same period, there was anincrease of 19.15 percent and 67.15 percent inthe numbers vaccinated against tuberculosis andmeasles, respectively. The percentage of childrenimmunized rose from 31 percent for the thirddose of DPT in 1976 to 68 percent in 1985,nearly a twofold increase (figure 5.1). The re-ported increase in numbers immunized againstmeasles was more pronounced, rising from zeropercent in 1976 to 67 percent in 1985. It was re-ported that for 1984, approximately 91 percentof the actual beneficiaries of the program hadbeen reached through fixed and outreach im-munization services provided by Bank Group as-sistance, and coverage extended to all parts ofthe country. However, mountainous areas remainunderserved.

EfficiencyVirtually all the projects experienced significantslippage in time to completion, but there wereno cost overruns. In health projects where costdata were available, there was a mean cost un-derrun of UA 0.33 million. The number of doc-tors per capita increased from 1 in 13,905 in 1992to 1 in 16,548 in 1998, and the number of den-tists per capita increased from 1 in 104,712 in1992 to 1 in 113,998 in 1998. The correspondingfigures for nurses were 1 in 2,761 in 1992 to 1in 2,340 in 1998. The number of consultationsincreased from 29,269 in 1991 to 40,842 in 1998.There was no discernable trend in referrals dur-


4 3

ing this period, as they fluctuated between 247in 1994 and 460 in 1960. Reattendance increasedfrom 3,388 in 1992 to 5,860 in 1998. These ag-gregate results notwithstanding, there is evi-dence that the mountainous areas remainunderserved. The health sector of Lesotho, likethe rest of the economy, is suffering the para-doxically adverse effects of the collapse ofapartheid. Following the collapse, labor hasbeen migrating to South Africa in response to bet-ter remuneration and better living conditions.Thus the health sector is currently facing severeproblems of brain drain from Lesotho to SouthAfrica. This has significantly reduced the avail-ability of all cadres of skilled human resourcesfor the sector.

There is evidence of poor utilization of in-stalled facilities. The district hospitals are beingconsulted for primary-level care. This repre-sents a misuse of clinics, the district-level facil-ities that were designed for such care and as thefirst step in the medical care continuum. Therewas no provision for staff accommodation under

RSHP I; hence mothers’ lodges have been con-verted to staff accommodation.

Capacity building was a major objective underRHSP I–IV. Accordingly, field officers weretrained to implement EPI (Expanded Program onImmunization) at the local level, but were laterdeployed to district hospitals. This created avacuum in the implementation of EPI at thecommunity level. Doctors, dentists, nurses, andnurse clinicians were also identified for in-country, regional, and overseas training. How-ever, training and capacity building componentsof all projects were underutilized, and of thosetrained, it is estimated that only about 25 per-cent are retained. Besides the low numbers ofsuitably trained staff to manage these facilities,the staff deployment policy of the governmenthas limited the numbers of staff posted to thesecenters. In addition, staff are not kept at one lo-cation long enough to involve local communi-ties in the management of the facilities. It isalso observed that staff are often not trained inthe use of the sophisticated equipment pro-


4 4

T r e n d s i n E x p a n d e d P r o g r a m o nI m m u n i z a t i o n V a c c i n e C o v e r a g eF i g u r e 5 . 1

1992 1993 1994 1995 1996 1998

0

10

20

30

40

50

60

70

80

90

100Pe

rcen

t

Year

BCG DPT OPV Measles Full

Source: African Development Bank data.

vided. Lack of training is exacerbated by the highpost-training attrition of health workers frompublic sector service in Lesotho. Health centerswere not clearly delineated by health service ordistrict area, and local responsibility for theirmanagement remains unclear. There is also anemerging threat to security in the urban clinics:in the absence of staff to manage the clinics, localbandits raid them for equipment.

Institutional Development Bank Group assistance has aided the establish-ment of an effective Project ImplementationUnit (PIU) in the Ministry of Health and SocialWelfare (MOHSW). The capacity of the MOHSWto implement and manage civil works and pro-curement has been significantly enhanced by theintervention. The PIU has also been strengthenedto manage Bank Group procurement, disburse-ments, and reporting procedures. It is importantto mainstream this PIU into broad activities inthe MOHSW for wider institutional develop-ment impact.

Institutional and operational linkages be-tween the health centers project and the fourRHSP projects are not clearly articulated. Healthcenters established to provide services at the locallevel are poorly linked to the district hospitals.This linkage is required for the development ofan efficient referral system and for sustainedcapacity/technical resource building for healthsystems development based on the primaryhealth care (PHC) approach. Poor linkages havelimited project contribution to the establishmentof a decentralized system for health care deliv-ery in Lesotho.

The MOHSW was unable to identify candi-dates for training, and the few that were trainedwere lost to more attractive positions in SouthAfrica. The absence of a health management in-formation system, which would include an in-ventory of human resources, limits the ability ofthe health system to quantify attrition. How-ever, officials of the MOHSW estimate that at-trition may be as high as 75 percent of trainedhealth workers. This level of loss of trained staffhas limited the impact of Bank Group assis-tance on human resource development andavailability, and consequently on institutional

strengthening for service delivery and healthmanagement.

Sustainability of AchievementsWhile per capita government expenditure inLesotho has increased from 507 maloti in 1992to 1,203 maloti in 1998, there is a decrease in per-centage of total expenditure in health from 38.0percent in 1992/93 to 25.6 percent in 1998/99.This represents a decline of 32.6 percent inhealth in relation to total expenditure. Capital ex-penditure as a percentage of total expenditureon the social sector dropped sharply, from 48.1percent in 1992/93 to 12.5 percent in 1998/99, adecline of 74.0 percent. Current expenditure in-creased from 9.2 percent of total current ex-penditure of the government in 1989/90 to 9.7to 12.6 percent in 1994/95. It then declined grad-ually to 9.5 percent of total current expenditureof government in 1997/98 (Annex D, table D.5).

Over the years, government budgetary com-mitment to health, relative to other sectors, hasdropped significantly, with a greater drop incapital investments. This decrease in capital in-vestments raises doubts about the ability of thegovernment to maintain investments in infra-structure and equipment in the health sector. Thedrop in current expenditure also highlights thegovernment’s inability to sustain maintenanceand operations in health in the absence of con-tinued donor investment and improvements indistributive allocations.

The government has traditionally chargeduser fees for the use of health facilities. Thesefees have increased from 2.0 maloti in 1970 toa current high of 5.0 maloti for up to one weekof outpatient consultation. A similar increase isreported in the cost of inpatient charges in theperiod being evaluated. The increase in usercharges from 2 maloti to 5 maloti may actuallybe counterproductive to Lesotho’s major policyobjective of increasing access to health services,especially for deprived rural and other vulner-able groups. The effect of the increase is to ex-clude those who cannot afford to pay, to lureneedy users to cheaper, substandard, and un-reliable sources of health care. The objective ofthe increase is to enable the government tomeet recurrent costs, but the 5-maloti charge is


4 5

not even enough to meet operations and main-tenance costs. This cost recovery strategy istherefore doomed to fail because it deprivesthe needy of basic health services, and in themedium and long term, it may translate intolower productivity rates. The current strategy maybe much more expensive than maintaining theformer user charge of 2 maloti and adopting analternative strategy of collaborating with the pri-vate sector. However, the alternative strategy oftapping Lesotho’s potential capacity for privatehealth care provision could lure away benefici-aries (who can afford to pay) from public healthservices to private facilities.

The previous gains in EPI vaccine coverageare also rapidly declining, as the personneltrained to manage and implement EPI at thecommunity and health-center levels have beendeployed to manage district hospitals. Currentfigures from the Lesotho population data sheetsreport full immunization coverage of 67 percentin 1996. This represents a decline of 26 percentfrom the level reported in 1985. Reported cov-erage for bacillus of calmette and guerin (BCG),a tuberculosis inoculation, in 1998 was 57.0 per-cent. This is very disturbing in the face of a resur-gent epidemic of tuberculosis infection, a newconsequence of the HIV/AIDS epidemic andrising levels of poverty.

Institutional capacity for the maintenance ofthese structures is also largely unavailable inthese rural settings, and is becoming even scarcerwith dwindling donor support for the socialsector in Lesotho. The MOHSW was unable toprovide a human resource development plan, oraccurate numbers of trained personnel lost onaccount of deployment from the primary facil-ity of identification or to migration outsideLesotho. It is estimated that about 75 percent ofthe trained staff have been lost. The availabilityof a human resource development plan for theMOHSW could not be ascertained at the time ofthis evaluation.

The PIU established to manage RHSP projectsis centrally located, with offices and staff onlyin Maseru. This has limited the ability of district-level staff to contribute to project design and im-plementation. The PIU is also largely staffed bymilitary officers with qualifications in civil works

and engineering, but limited exposure to healthmanagement and systems design. The overall ef-fect has been that projects have been imple-mented as mainly engineering concerns, withminimal attention paid to health systems devel-opment, management, and planning. Infra-structure and equipment were of acceptablestandards and quality.

Poor provider attitude and staff motivation arereal threats to sustainable health care delivery inthe constructed facilities. It was observed dur-ing the visit to the Berea district hospital that con-sumer attempts to access health care serviceswere attended by long waits, often without in-formation on procedures or any reason for thewait. This becomes more alarming given thepresence of adequate supplies, equipment, andfacilities for effective and efficient patient care.Consequently, it is reported that end-users in-creasingly patronize traditional and unorthodoxhealth care providers for more expeditious anduser-friendly services, or resort to the use of localherbal remedies.

The sustainability of the PHC approach tohealth systems development depends largelyon community initiatives and partnerships at allstages, from design to evaluation. There hasbeen insignificant community participation in thedesign of infrastructure and the location of fa-cilities. The management of the facilities providedby Bank Group investments rests solely with thepublic sector. This remains a major obstacle tosustainability of the public sector projects inhealth.

Performance of the BorrowerThe borrower is the government of Lesotho,while the Ministry of Health and Social Welfare(MOHSW) is the executing agency of all proj-ects in the health sector. The initial design of theHSDP (Health Services Development Project)was ambitious, as it did not recognize the in-ability of both institutional and manpower ca-pacity to manage and implement the project.Consequently the HSDP had to be redesignedto exclude the construction of a maternity wingfor the Queen Elizabeth II (QE II) hospital inMaseru and construction works in the nursehostel and school of nursing. The implementa-


4 6

tion of HSDP was plagued by prolonged delays,with an overall implementation delay of about45 months. The borrower was also unable to ful-fill loan conditions, and in some cases had tomake significant changes to project design afterits approval, such as the exclusion of civil worksin QE II and the nurse’s hostel. Design issueswere eventually resolved by reduction in thescope and magnitude of proposed activities.

The implementation of all training and ca-pacity building components of the projects wasunsatisfactory. Approved budgets were not dis-bursed for this category of assistance, as the gov-ernment was unable to identify suitablecandidates for training in the indicated cadres.This failure to utilize approved amounts for ca-pacity building has recurred in all projects inhealth. The health deployment policy of thegovernment has meant that the manpowertrained for the established centers have not beenretained in the centers. This has had a negativeimpact on service quality and the effective uti-lization of equipment and infrastructure.

The institutional capacity to identify, manage,and implement projects is weak, as evidencedby the low availability of skilled human re-sources. This situation is made more difficult bythe absence of information for health manage-ment. The only information system available isa disease reporting and notification system,which is itself incomplete and inaccurate. Theabsence of a robust health management infor-mation system has been a major constraint in as-sessment of project contribution to the overallsector goals of improving the health status andquality of life of the Basotho.

There was significant slippage in completionof all projects in the health subsector, with amean slippage of 28 months. However, techni-cal assistance and supervisory missions fromthe Bank Group significantly improved institu-tional capacity to comply with Bank Group re-porting and procurement procedures. Currentprojects are thus implemented with minimal de-lays. All borrower reports (quarterly, financial,and project completion) have been submitted ontime and the government has honored all legalcovenants of the project and is not in arrears tothe Bank Group.

Performance of the Bank GroupBank Group performance was generally unsat-isfactory. Clear targets and strategies were notdefined in log matrices of appraisal reports.Log-frame matrices, which came into existencein 1996, were prepared for the more recentprojects, RHSP III–IV, but there were significantdivergences between activities in the log frameand planned output. As a result, appraisal reportsdid not clearly define measurable indicators ofimpact and success, or set time-bound targets orcountry-sensitive strategies to foster local own-ership or community participation, which is thebedrock of the PHC approach. It is thus difficultto assess progress toward attainment of goalsstated in the Bank Group’s sector strategy pa-pers or the efficacy of its intervention in health.

Although the sector strategy papers indicatedhealth improvement as the overall goal of BankGroup intervention, projects in health were im-plemented as mere engineering or finance proj-ects. Little or no attention was paid to the localparticipation required by the PHC approach orto the development of indicators or strategies tomeasure overall impact on health status. Ap-praisal reports focused on the design of struc-tural components of the intervention and theamount of equipment to be procured. In theirself-evaluation, project completion reports alsofocused on achievements in these areas. Alldocuments paid very limited attention to healthstatus, equity, improved access, and communityparticipation, all of which are components of thesector goals of improvement in health.

Several assumptions were made in the pro-jection of the potential contribution of theseprojects to the overall sector goals of improvingthe status of target populations and promotingequity in access. One presumption was that anincrease in numbers of facilities alone would besufficient to increase access of rural popula-tions to health care services. Consequently, proj-ect designs did not give adequate considerationto the epidemiological pattern of disease andwere not placed in the context of an overallhealth plan.

The Bank Group did not ensure the avail-ability of appropriately trained manpower as acomponent of project appraisals, more so when


4 7

there was a huge investment in infrastructure.This remains the major limiting factor in efficientutilization of investments in health in Lesotho.

There exists a unique partnership between thegovernment and CHAL in the management ofhealth centers and district hospitals, with CHALmanaging about 40 percent of health facilitiesand providing 50 percent of coverage in Lesotho.Intervention in RHSP I supported only eightCHAL-operated clinics, and none of the CHALHSAs were included in all other RHSP projects.This unfortunate failure to harness the unique-ness of private-public partnership for health,and the comparative advantage of CHAL insti-tutions in community engagement and outreachprograms, has resulted in inequities in deliveryand access to quality medical care. Bank Groupassistance has strengthened only the public sec-tor hospitals, with an almost total neglect ofCHAL hospitals and centers that provide 50 per-cent of the coverage for health care delivery, par-ticularly to the rural poor. There was noconsumer consultation in the location and de-sign of district hospitals and health centers. Thusimprovement in infrastructure, equipment, andfacilities was not accompanied by a sense of localownership of the facilities. The exclusion ofCHAL hospitals from project assistance alsomeant that there remained inequities in the dis-tribution of facilities and services, and thus in ac-cess to quality health care.

Education SubsectorBank Group intervention in the education sec-tor in Lesotho commenced in 1990. At the timeof evaluation, two projects had been supported,with a total investment of UA 14.72 million(Annex E, table E.8). The Education Project I fo-cused principally on secondary education andwas national in scope, while the Education Proj-ect II provides support for both secondary andprimary education in the three districts of Thaba-Tseka, Qacha Nek, and Quthing. Both projectswere designed and approved in the period cov-ered by the ESSP of 1986, with the goal of im-proving education in science and technicalsubjects and strengthening capacity of the Cen-tral Inspectorate for monitoring, supervision,and curriculum development.

EfficacyAs in the health sector, evaluation is limited byfailure to define targets or select indicators forevaluation and to obtain baseline information inthe completed Education Project I. The evalua-tion of the efficacy of the strategy is also limitedby lack of information. While the borrower hasprepared a PCR, the Bank Group is yet to finalizeits own PCR. In the case of Education II, the onlyavailable information is contained in the bor-rower’s progress report. The achievements in thisreport refer to Education I; for Education II, thereport assesses the progress of implementation.

The achievements are assessed for the period1992–98, for which some educational indica-tors were available from the annual populationdata sheets published by the Department ofPlanning and Economic Development. Duringthis period, there was a 13.97 percent increasein the number of secondary schools (179 to204) and a 5.09 percent increase in the numberof primary schools. Primary school student en-rollment also increased from 51,908 in 1992 to71,475 in 1998—37.7 percent. Enrollment in sec-ondary schools increased from 55,342 in 1993to 71,475 in 1996. There were also improvementsin teacher to student ratios in both secondary andprimary schools.

The 1998 impact assessment report of theMOE evaluated the educational system between1990 and 1996. The report observed that thenumber of students passing junior certificateexaminations increased from 59.2 percent in1990 to 71.9 percent in 1996. There was also anincrease in the numbers who passed the com-puter science (COSC) examinations, from 27.8percent in 1990 to 34.2 percent in 1996. Genderparticipation in education is unique. The statis-tics reveal positive female participation in edu-cation, with 54 percent female enrollment. Thereis a real threat that with this trend, males maybe marginalized in educational achievement inthe long term. The observation that males of pri-mary school age are often herding cattle andthose of secondary school and higher ages haveemigrated to South Africa for less professionalbut higher-paying occupations in the mines maybe indicative of this potential for males to bemarginalized.


4 8

Bank Group intervention in education hasprovided 18 science units, each composed of alaboratory, preparation room, and classroom. Ithas also supported the construction of 18 prac-tical subjects units, each of which comprise astoreroom, workshop, and drawing room. Thisrepresents a contribution of 64.29 percent and100 percent respectively of the total national in-crease in the number of science laboratoriesand practical subjects workshops between 1990and 1998. A total of 31 schools have been ben-eficiaries of this intervention. All constructedbuildings have been furnished, equipped, andare currently fully functional. In addition, sets ofreference library books for science laboratoriesand practical workshops have been purchasedand supplied to all sites. Thirty-six staff houseshave been constructed and furnished.

The percentage of qualified teachers has alsoincreased from a level of 72.5 percent in 1990 to81.6 percent in 1996. Correspondingly, the num-ber of expatriate teachers dropped from 21.9percent to 17.0 percent, and the percentage ofexpatriate science teachers from 41.8 percent to25.4 percent during the same period.

The Central Inspectorate for Education and theNational Curriculum Development Council(NCDC) have been strengthened for supervisionby the purchase of project vehicles and spareparts. In-country and overseas training have beencompletely utilized and have covered curriculumdevelopment and school inspection. The qual-ity and quantity of teachers in the science sub-jects have also been significantly improved byvarious in-country courses and short-term train-ing courses in overseas institutions.

The capacity building component of the proj-ect was completely utilized and a zero percentattrition rate reported for both in-country andoverseas training. Projects have effectively inte-grated quantitative and qualitative developmentin education, but are limited by the unavailabil-ity of indicators and a management informationsystem. This information and technology isneeded to monitor progress toward the achieve-ment of the overall sector goal of improved qual-ity and access to both formal and nonformaleducation, and the provision of human resourcesrequired for national development.

EfficiencyThere is insufficient data to estimate cost effi-ciency in projects in education, as project com-pletion reports are yet to be prepared. There wasa huge slippage in both loan effectiveness andcompletion in Education I. The estimated slip-page in completion date is 96 months. It is notpossible to assess cost efficiency, as no PCRwas available at the time of this evaluation.

There has been a decrease in the proportionof unqualified teachers. This has been achievedthrough in-country and overseas training. Bothlong and short-term courses have been offeredand the attrition rate has dropped. A teachingsession was in progress in one the project schoolsvisited and a high level of teacher and studentmotivation was observed.

It should be noted that Education II becameeffective in December 1999, about five monthsbefore the evaluation. The progress report sub-mitted by the borrower reflects principallypreparatory activities, as intervention is yet tocommence.

Institutional Development There has been a significant improvement in in-frastructure in all intervention schools with theconstruction of science and practical subjectworkshops. Although not all schools had thebenefit of having both a science laboratory anda practical subject workshop, the distribution ofthe 31 beneficiary secondary schools was na-tional. It is also noted that the numbers of bothsecondary and primary schools have increased,with consequent increase in access to educationas evidenced by enrollment ratios (table 1.2 andAnnex D, tables D.1, D.2).

The Central Inspectorate has also beenstrengthened for supervisory functions by bothtraining and support of the purchase of a vehi-cle to improve support logistics. This has madea meaningful contribution to an increase in thenumber of supervisory visits to schools. Staffquality has improved and the institutional capacityfor curriculum development strengthened.

In-country and overseas training have re-sulted in an increase in the number of qualifiedteachers. Attrition is low, and has decreasedfrom 13.0 percent in 1990 to 8.8 percent in 1996.


4 9

Sustainability of Achievements The percentage of government recurrent expen-diture in education in relation to total expendi-ture rose from 18.1 percent in 1989–90, to 22.1percent in the 1992–93, to 45.1 percent in1995–96. Thereafter, it declined progressivelyto a level of 27.9 percent in 1998–99 (Annex D,table D.6). The percentage of government cap-ital expenditure in education in relation to totalexpenditure also declined from 16.1 percent in1992–93 to 12.5 percent in 1995–96, and to anall-time low of 9.9 percent in 1997–98.

Between 1992 and 1996, government ex-penditure for each primary school pupil in-creased from 86 to 385 maloti, an increase of 37percent in real terms, and for secondary edu-cation from 432 to 1,331 maloti, an increase of188 percent. Furthermore, the impact assess-ment report of 1998 observed that the total costof education, inclusive of indirect costs such astravel, uniforms, and school meals, has increasedsharply, an increase that is observed to be be-yond the sustainable capacity of many Basothofamilies.

Spending on secondary education as a per-centage of total expenditure of the Ministry ofEducation declined from 31 percent in 1990 to26 percent in 1996. Spending on technical andvocational education, however, increased from2.7 to 5.6 percent, and for university educationfrom 19 to 27 percent over the same period. Inspite of these achievements, in 1998 there stillexisted the problem of a high pupil-to-teacherratio of 59:1 and inadequate teaching materials.In addition, of the school-aged population, only57,000 (21.5 percent) were enrolled in school atthe end of 1998. The introduction of free primaryeducation in January 2000 has worsened the al-ready high pupil-to-teacher ratio, necessitatingthe recruitment of unqualified teachers to meetthe demand for primary education.

Traditionally, missionaries and the churcheshave managed schools in Lesotho, while gov-ernment participation has provided grants tosupport the payment of teachers’ salaries and thepurchase of teaching aids. The government’s1992 Education Sector Development Policy wasdeveloped in response to the complexity ofmanaging the educational system, and attempted

to form a more coherent policy and managementstructure for the schools that allowed participa-tion by parents and the local community. Thishas fostered a sense of local ownership of theeducational system, a factor that is important toits sustainability. This is also relevant to theBank Group’s policy and support for the adop-tion of participatory approaches to education de-velopment that involve beneficiary groups andstakeholders not merely in project implementa-tion, but also in the design and choice of inter-ventions in the sector.

Performance of the BorrowerImplementation delays were common occur-rences among projects in the Bank Group port-folio in Lesotho. In the case of the Education IProject, there was a completion delay of 96months. This was principally due to a delay incompliance with the legal covenants and con-ditions of the project. At the time of the evalua-tion, all project activities had been completed, buta PCR has yet to be written. This delay is prin-cipally due to the failure of the executing agencyto familiarize its managers with Bank Group fi-nancial management, reporting, and procure-ment procedures. It also took over three yearsto establish an effective PIU and to identify a proj-ect manager to oversee implementation. Theselapses, however, have been addressed, and it isanticipated that the implementation of EducationII will proceed with minimal delays. It should benoted that there have been significant improve-ments in preparation for this second project andthere is increased confidence in borrower capacityto manage and implement it. The borrower ex-perienced difficulties in compliance with thelegal covenants of the project, another factor re-sponsible for the prolonged period between thedate of approval and the effective date of the loan.These limitations have been rectified in the on-going Education II Project. However, based onthe difficulties described above, borrower per-formance should be judged as unsatisfactory.

Performance of the Bank GroupAlthough projects were identified in the contextof the country’s development priorities and BankGroup sector strategy in education, there was in-


5 0

adequate assessment of the capacity of the gov-ernment and its executing agency in the edu-cation sector—the Ministry of Education—toimplement and manage the Education I projectat the time of its identification and appraisal. Con-sequently, there was a prolonged slippage of 96months in completion of the project, and evenat the time of the evaluation, no PCR was avail-able for review. There was inadequate supervi-sion during the first few years of implementationof the Education I Project. This is partly re-sponsible for the slippage in effective and com-pletion dates of the project.

The Education I Project was designed duringthe ESSP of 1986 and the appraisal did notclearly specify indicators of outcome and impactassessment, thus making it difficult to quantifythe contribution of the project to improving ed-ucational quality. This limitation has been ad-dressed in the design of the Education II Project,which has approximately developed log frames.On balance, it can be said that Bank Groupperformance was barely satisfactory.

Crosscutting IssuesUntil recently, the crosscutting issues of envi-ronment and gender did not figure prominentlyin Bank Group lending and policy. Hence, theolder projects in its portfolio, including all thosein Lesotho, did not show explicit concern for theseissues. One of the findings of the present evalu-ation is that Lesotho scores low on both issues.

As pointed out earlier, the poverty situationin Lesotho has a gender bias: more women arepoor than men. Although the Land Acts of 1979and 1992 tried to accord equal tenure securityto both sexes, it is still true that women have lim-ited access to economic resources such as credit.The government is aware of this bias againstwomen and has taken steps to address the sit-uation. It has set up a Ministry of Youth and En-vironment to develop programs and projectsfor ameliorating the gender bias. In the area ofeducation, however, women appear to be doing

better. The national adult illiteracy rate is 29percent: but it is 7.5 percent for females and 28.5percent for males.

Environmental issues were similarly not takeninto account in Bank Group lending to Lesotho.This evaluation found that design shortcomingsresulted in serious environmental hazards on theKhamane-Oxbow road. There was also no pro-vision for winter maintenance on some roads.On other roads, serious environmental hazardswere created by inappropriate design of cutslopes. The establishment of the Ministry ofYouth and Environment is indicative of the will-ingness of the government to correct current en-vironmental problems and safeguard againstfuture problems in all its development projects.Recent interventions, however, indicate that theBank Group is now more serious about envi-ronmental issues. For example, the recently ap-proved Lesotho Highlands Natural Resourcesand Income Enhancement Project has some 40percent of its budget allocated to natural resourcemanagement and conservation of the highlandsof Lesotho.

The CounterfactualThe economy of Lesotho grew at annual aver-age rate of 1.3 percent during the past decade.The growth rate has fluctuated sharply, and evendeclined in the late 1990s. The bulk of BankGroup lending has not been allocated to directlyproductive activities, but rather to social (over-head) capital. To the extent that this has facili-tated growth, the Bank Group contribution canbe said to be indirect. But could the recordedachievements have taken place in the absenceof Bank Group intervention? The answer is prob-ably no. The Bank Group obviously filled a re-source gap in Lesotho. While it cannot be creditedwith the entire outcome, it can lay claim to what-ever has happened in Lesotho—success or fail-ure. The responsibility for economic outcomesin Lesotho is therefore to be shared by all donorsand the government of Lesotho.


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Overall Assessment ofAfrican DevelopmentBank Group Assistance

The Bank Group has intervened on a systematic basis in Lesotho since1974. Its net commitment currently stands at UA 223.85 million. Interms of sectoral distribution, the public utility and transport sectors

are the main beneficiaries, with 28 percent and 26 percent of the portfoliorespectively. They are followed by the social sector (24 percent), agricul-ture (13 percent), and industry (9 percent). The bulk of interventions were

not in directly productive activities, but rather insocial capital—transport, public utilities, health,and education. The interventions may not haveled to direct impact on GDP growth rates, butinsofar as they eased constraints in the affectedsectors, they must have facilitated economicgrowth.

Although not explicitly stated, Bank Group in-tervention in Lesotho appears to have been in-formed by the country’s history and geography.Geographically, Lesotho is a small, landlocked,mountainous country that is completely sur-rounded by South Africa. As a result, Lesotho suf-fered from apartheid-induced sanctions on SouthAfrica. Thus, government policy was aimed atreducing the country’s vulnerability to devel-opments in South Africa, including its depend-ence on the country’s road network. Bank Groupstrategy, as spelled out in the 1988 EPCP, coin-cided with that of the government. In that EPCP,the Bank Group decided to pursue a strategy ofassistance that placed emphasis on the devel-

opment of infrastructure, mostly road networks.With the collapse of apartheid, Bank Groupstrategy appeared to have shifted emphasis tothe promotion of growth and poverty reduction.

The Bank Group had no strategy for its lim-ited interventions in nonlending activities. Therewas also no prior economic and sector work tofacilitate lending activities. While the more re-cent CSPs have been used as instruments ofpolicy dialogue (for example, in the context ofthe Agriculture Sector Reform Program and thePublic Utilities Sector Reform Program), thiscannot be said of the earlier EPCPs. Indeedthere was practically no policy dialogue prior to1996. There was, in addition, nothing coherentabout the limited institutional support programsand technical assistance programs that the BankGroup provided to Lesotho. The programs werealso not geared to be supportive of Bank Grouplending activities.

Sectorally, Bank Group lending to the trans-port sector coincided with government devel-

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opment imperatives of the time. The 1988 EPCPmerely mentioned the inaccessibility of most ofthe eastern highlands as the prime motivationfor Bank Group intervention in the transport sec-tor. There was no explicit reference to the trans-port constraints posed by location of Lesothoinside South Africa. In spite of this shortcoming,the strategy achieved its objective. In the roadsector, it achieved the objective of linking themajor urban centers with the rural areas. It alsoachieved the objective of reducing the country’sdependence on South Africa’s road network.Bank Group intervention has also strengthenedthe capacity of the various government depart-ments connected with the sector. Similarly, im-plementation agencies have been strengthenedthrough training. The Department of Rural Roadshas a direct labor force unit that is equipped andtrained for labor-intensive rehabilitation and theconstruction of new unsealed roads.

The transport sector projects also contributedto the development of the private sector by pro-viding jobs to the national road construction in-dustry, which now comprises more than 50 activecontractors. Their labor-intensive operations haveresulted in significant employment generation.They also carried out about 181 routine mainte-nance and upgrading contracts for the LaborConstruction Unit (LCU), between 1997 and2000—an average of 60 contracts per year. TheLCU has also embarked on an extensive programof training for labor-based contractors on un-sealed road maintenance. Similarly, the RoadsBranch has promoted the training of truck haulagesubcontractors in mechanical road construction.

Bank Group assistance in the social sectorcame early in the history of the Bank Group–Lesotho relationship. There was no Lesotho-specific strategy in the sector other than thebroad Bank Group sector policies approved in1986 for health and education. Bank Group in-terventions in the two sectors, which wereguided by the sector policies, were relevant tothe situation prevailing in Lesotho at the time.Bank Group assistance in the health sector hascontributed to an increase in the number ofhealth facilities and has led to construction of 10health centers, the renovation of 31 more, andthe upgrading of 8 district hospitals.

Although the projects have increased equip-ment and the number of facilities, they have con-tributed only marginally to the overall sectorgoals of improving the health status of the pop-ulation of Lesotho. Good buildings do not makefor better health. While the availability of the in-frastructure promoted consumer confidence, poorservice and provider attitude soon eroded it. Theprojects were also presumptuous of institutionaland human resource capacity for health systemsmanagement and development. The civil worksfocus of the projects also meant that little atten-tion was paid to the development of a decen-tralized information management system or tobuilding institutional resources for health sys-tems monitoring, evaluation, and planning.

Bank Group assistance in education has sig-nificantly contributed to increased infrastructurefor education and improvement in the quality ofeducation in science and practical subjects. TheBank Group has also supported increases in thenumber of qualified teachers and in strengthen-ing institutional capacity to manage education andcurriculum development. Trained capacity hasbeen retained and the numbers of Basotho chil-dren enrolling in and completing education haveincreased. The focus of the interventions hascovered infrastructure and operations, with asignificant amount of investment in human re-sources and institutional strengthening. How-ever, appraisal documents have not documentedthe intended useful life of physical structuresand vehicles provided for logistical support.They have also not included strategies for sus-tainable maintenance of increases in current ex-penditure, particularly teachers’ emoluments,infrastructure, or private sector participation ineducation. In addition, there is no strategy for thedevelopment of a management information sys-tem to monitor and evaluate the effect of vari-ous interventions on teacher quality, access toeducation, and quality of education.

In conclusion, it can be said that Bank Groupassistance to Lesotho has certainly filled a re-source gap in the country. But the delivery ofthat assistance was not carried out in the con-text of a clearly defined strategy. Perhaps this isunderstandable, given that the use of a prede-fined strategy to guide aid allocation is a recent


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phenomenon in the Bank Group. Nevertheless,Bank Group assistance to the country can bejudged as barely satisfactory. Lending assistanceperformed relatively better than nonlending as-sistance. Bank Group assistance in the latterarea is indeed poor. As is very well known, ef-

fective aid is not just about the provision of fi-nance: it should also include the provision ofideas. The Bank Group has provided financethrough its various interventions, but it has failedto provide ideas that can continue to generateand sustain economic growth.

O v e r a l l A s s e s s m e n t o f A f r i c a n D e v e l o p m e n t B a n k G r o u p A s s i s t a n c e

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Attribution of Performanceof Development Partners

This chapter examines the contribution the World Bank and its de-velopment partners to Bank assistance programs, as well as the im-pact of exogenous factors. Such attribution is obviously difficult to

measure, because it requires disentangling the World Bank’s contributionfrom that of the government and the Bank’s aid partners.

World Bank PerformanceDuring the 1990s the reforms of the Lesothoeconomy supported by the World Bank and theIMF achieved growth of nearly 4 percent a year.The Bank also provided strong leadership for thereview of implementation of Phase 1A of theLHWP and managed the appraisal of Phase 1B.These reviews were competently carried out andwon praise from the government and all partnersin the project. The opinion is that Phases 1A and1B of the LHWP would never have come tofruition without Bank leadership and guidanceduring difficult negotiations among financiersand the government over 13 years. However,Bank support did not strengthen the govern-ment’s ability to utilize the royalties for supplyof water through the LHWP to stimulate rural de-velopment. It was not until the 1998 appraisal ofPhase 1B of the project, when the failures in ruraldevelopment became a prominent issue, thataction was taken in this direction.

Another successful series of activities was ineducation. The World Bank’s support in educa-

tion was based on relevant and timely analyticwork and was consistent with government andCAS objectives. The moderately satisfactory1991–99 Education Sector Development Project(ESPD) led to a strong relationship with theclient, allowing for effective problem-solvingdespite considerable political turmoil.

The World Bank was associated with someproject failures in agriculture, roads, health, andthe private sector because it had not adequatelyinvestigated the sectoral issues and the govern-ment’s weak ownership of projects and pro-grams. Agriculture projects were undulycomplex, which meant that start-up was slow.In addition, the Bank did not apply a lesson fromthe past: many conditions of project effective-ness are sure to cause difficulties if not dealt withat or before negotiations. As a result, quality atentry for agricultural projects was poor. Conse-quently, supervision became difficult and therewere long delays in achieving effectiveness.1 Inthe road sector the situation was more serious.Failed institutional development resulted in an

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unsatisfactory implementation of the ongoingroad project.

The World Bank failed to do any formalanalysis of health and nutrition issues, leavingit unprepared to support two complex HNPprojects from 1990 to 1994. The Bank also se-verely underestimated the institutional capacityneeded for satisfactory implementation of theseprojects. This oversight was compounded bylengthy gaps in formal supervision, as well asslow Bank action to resolve implementationproblems.

In private sector development, the Bank didnot exercise sufficient prudence in the design ofprojects. The projects were complex—involvingmultiple objectives and implementing agenciesand numerous conditions of effectiveness—andexperienced delays in effectiveness ranging from9 to 19 months (Annex E, table E.4). Quality atentry was therefore poor. The Bank also did nottake measures to improve the poor performanceof the Agro-Industry Project line of credit, de-spite warning signals concerning financial per-formance of the host institution, the LesothoBank. Similarly, although the performance of theproject’s equity fund was dependent upon on-going technical assistance, the Bank did notprovide it. Officials of the Chamber of Commerceand Industry reported to the OED mission thatthe equity fund did not help entrepreneurs be-cause they could not meet the conditions put inplace by the Lesotho National DevelopmentCorporation, the implementing agency. Thus, alarge part of the fund was undisbursed and re-turned to the Bank. Concerning the Privatizationand PSD Project, officials indicated to the mis-sion that the Bank’s support was weak. The of-ficials suggest that Bank support available atthe beginning of the project in terms of work-shops and seminars should have continued dur-ing the implementation to clarify the rationalefor privatization.

Borrower PerformanceThe government was a constructive partner inIMF and World Bank efforts to improve macro-economic policy during the 1990s, althoughmuch of the success was due to the impact ofthe LHWP construction. The high growth rates

of GDP during most of the 1990s speak for them-selves, but reductions in mine workers’ jobs inSouth Africa since the early 1990s led to a lowgrowth in GNP, except for the peak in 1997,which was again due to LHWP construction.

There was, however, limited enthusiasm on thepart of the borrower for the World Bank’s proj-ects for agriculture and rural development. It isdifficult to assess the reasons for the government’sviews, but there were, for example, bitter dif-ferences on the need for parastatal reform in agri-culture, on the justification for changes inagricultural price policy, on the urgency to amendlaws on land tenure, and on regulations for graz-ing rights. Some of these differences have beenresolved, but many remain.

Implementation of the rural developmentprogram in the LHWP was originally to be in-tegrated into ongoing national programs andmanaged by a combination of government agen-cies, NGOs, and local and regional contractors.This approach was clearly an attempt to give allinstitutions using public resources some accessto the large increase in government revenues,but this disparate management was also the rea-son the program did not work. Despite gov-ernment commitments to efficiently manage theDevelopment Fund and the subsequent con-version of the Fund into the Lesotho HighlandsRevenue Fund (LHRF), Fund management wasinadequate, with insufficient internal controls toaccount for expenditures and weak technical ap-praisal and supervision of projects.2 In 1999 theLHRF was superceded by the Lesotho Fund forCommunity Development (LFCD), which will besupported by the FY00 Community DevelopmentSupport Project. It will still take some years forthe new LFCD to be activated in a substantialway, since it was only recently that key staff forthis Fund were appointed in Lesotho.

The borrower provided considerable leader-ship in education, and used analytical work bythe World Bank to develop a comprehensive ed-ucation sector reform program. Consultationwith stakeholders on education policy was sub-stantial, while consultation with, and coordina-tion of, external partners has been reasonablyeffective through the Directorate of Planningunder the umbrella of ESDP I and II. Counter-


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part funding and program implementation werefrequently delayed, but ultimately satisfactory,while compliance with covenants was achieved.

In the health sector the lack of capacity andpolitical will to generate basic data systems con-tributed to the lack of meaningful analytic workand a sector strategy. This led inevitably to thepoor quality at entry of lending operations. Ac-countable departments took insufficient re-sponsibility for implementation, shifting theburden to a separate Project Management Unit.The Ministry of Health also fell short in reach-ing agreements with nongovernmental partnersessential to achieving sector and project goals.Finally, compliance with legal covenants, whichwere admittedly excessive and imprecise, wasnot achieved.

The government’s inadequate analysis and theabsence of a strategy had a detrimental impacton attempts to make progress on private sectordevelopment. As a result, except for financial andlegal covenants, project preparation and imple-mentation of World Bank assistance projectsfaced many difficulties and the outcomes weredisappointing. Nevertheless, over the last yearthe government has recognized the importanceof making progress in private sector developmentand has strengthened the management of this ef-fort in the context of the ongoing project. Thisappears to be bringing better results.

Aid Partner Performance IssuesThe strength of partnership among donors variesaccording to the sector. It has been strong inLHWP and education, moderately strong inhealth, and improving in rural development fol-lowing the introduction of the FY98 Agricul-tural Policy Capacity Building Project, jointlyfinanced by a number of donors and now ef-fectively coordinated by the Food and Agricul-tural Organization of the United Nations (FAO).Although the Bank financed less than 4 percentof the estimated $3.7 billion cost of the firstphase of the LHWP, it was a catalyst for aid andprivate capital inflows.

Donors played an important role throughoutthe 1990s in shaping the education sector de-velopment program and in mobilizing coordi-nated international and government support.3

However, donors indicated that consultationwas still inadequate, particularly with respect tothe recently adopted 1999–11 education sectorprogram supported (in its first phase) by ESDPII. Donors providing parallel funding claimed thatthey were not invited to participate in such keypreparation events as log-frame sessions to iden-tify key project performance issues. In the HNPsector the ratio of other donors’ support to IDAwas lower than in education. Aid coordinationin the design phase was satisfactory, resulting incomplementary inputs in many areas (such asrural clinics, the National Health Training Col-lege, and the National Tuberculosis Program).But aid coordination was difficult in the imple-mentation and evaluation phases (which trackeddisbursements from other donors) because ofdonors’ diverse reporting standards.4 Finally,partners appreciated the World Bank consulta-tive process with donors while preparing theHealth Sector Reform Program (2000–09).

While donors collaborate in the major sectors,there is almost no leadership.5 The Country As-sistance Evaluation (CAE) mission found strongsupport among donors for the World Bank toprovide such leadership. Lesotho’s limited ab-sorptive capacity for external assistance alsomeans that it could benefit from harmonizationof donor polices and procedures and from moreeffective aid coordination.

At present the World Bank has only a liaisonoffice in Maseru staffed by one support staff. Thecountry director has been based in South Africasince 2000. This is not adequate to provide theBank support and leadership expected by theclient and donors. A stronger operational rep-resentation in Maseru or more frequent interac-tion with the government and developmentpartners from the World Bank’s office in Preto-ria is recommended. Such representation couldhelp develop a closer partnership with the gov-ernment, enhance coordination with donors andNGOs, and improve portfolio performance.

Exogenous FactorsThe end of apartheid in South Africa presentedLesotho with extraordinary opportunities forgreater economic integration and employment.In the short run, however, it caused a sharp drop

A t t r i b u t i o n o f P e r f o r m a n c e o f D e v e l o p m e n t P a r t n e r s

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in foreign investment in Lesotho, reduced re-mittance flows from South Africa, created a braindrain of skilled professionals, shifted donor re-sources toward South Africa, reduced fiscal rev-enues from SACU, and lowered regional growthopportunities. Another factor that has already hada considerable impact and promises to cause fur-ther difficulties is the regional HIV/AIDS pan-demic. Already high adult prevalence rates inLesotho (currently one in four adults is infected)will certainly rise because of increased interre-gional movement of people in southern Africa.The policy changes needed to adapt to both theopportunities and the challenges presented bythe new South Africa have occurred slowly, andare still incomplete.

In addition to subregional developments,Lesotho, one of the most vulnerable small coun-tries in the world because of its limited re-sources, is facing a changing global economic

environment.6 For instance, the trade prefer-ences once afforded to small states were erodedfollowing the agreement on post-Lomé arrange-ments recently concluded between the EuropeanUnion (EU) and the 71 African, Caribbean, andPacific (ACP) countries. The ACP countries willhave to gradually give up the principle of non-reciprocal trade preferences. More important, thephasing out by 2004 of the Multifibre Arrange-ment will remove incentives to invest in ACPcountries. Under the current agreement, Lesotho’stextile exports to the United States and Canadaare not subject to quota restrictions. As a result,almost all of the growth in Lesotho’s exports tothe United States—which increased by 73 per-cent between 1994 and 1998, though startingfrom a very small base—came from the textilesector, mainly garments. Textiles constitutedmore than 80 percent of Lesotho’s total mer-chandise exports in this period.


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6 1

Conclusions andRecommendations

Poverty, Human Capital Development, HIV/AIDS, and Institutional Strengthening

These are major challenges for Lesotho in the foreseeable future. Halfthe population remains below the poverty line. The Gini coefficientof 60 percent is one of the highest in the world. Unemployment is

about 40 percent. Highland rangeland resources continue to deteriorate. Theadult HIV/AIDS prevalence rate is estimated at 24 percent. Poverty and in-equality have regional, occupational, gender, and income dimensions: more

than 80 percent of the poor live in rural areas,particularly the mountainous regions, and areconcentrated among small farmers, shepherds,and women. This evaluation recommends thatdonor assistance should focus on the followinggoals:• Reduce poverty and inequality in the medium

to longer term by focusing on the quality ofeducation and human capital development atall levels, particularly in the poor mountain-ous regions, to increase employmentprospects for Basothos within Lesotho andSouth Africa.

• Increase the focus of donor assistance pro-grams on HIV/AIDS by featuring it promi-nently in donor assistance strategy, such asin support to institutions capable of moni-toring and coping with HIV/AIDS.

• Use World Bank involvement in the LHWPand agricultural policy formulation, alongwith the AfDB, to enhance the policy and reg-

ulatory institutions for rangeland manage-ment in Lesotho (including land tenure, re-search, extension, rural finance, and grazingmanagement) to foster the sustainable pro-duction of livestock in the highlands and anenhanced enabling environment for privatesector development.

Monitoring and Evaluation A critical need across almost all sectors is to es-tablish better monitoring and evaluation systems.This is a problem with roots in the lack of datacollection and analysis. The timeliness and reli-ability of national accounts, fiscal, trade, mone-tary, and social data have been of particularconcern. Without reliable data, neither the gov-ernment nor donors can monitor and assess de-velopment progress or identify more successfulstrategies. The evaluation recommends that:• Donors, including the World Bank and

AfDB, should help Lesotho improve its sta-

88

tistical database, most urgently in areas re-lated to poverty reduction (for example,household surveys and health and nutri-tion information systems) and promote mon-itoring and evaluation systems within keyline ministries.

• Monitoring and evaluation should be ac-companied by an economic and sector workprogram that includes poverty assessmentupdates and public expenditure reviews.

Donor CoordinationThere are considerable differences in viewsamong donors about development assistanceto Lesotho that can usually be resolved throughcollaboration and leadership. While there iscollaboration among donors, this evaluationfound that the leadership vacuum is real, andthere would be strong support for the WorldBank to provide that leadership. The WorldBank’s consultation with donors on develop-ment priorities was viewed as insufficient butimproving, and hampered by lack of localrepresentation. The evaluation recommends:

• The World Bank should establish a strongeroperational representation in Maseru, or morefrequent interaction with the government anddevelopment partners from the Bank’s officein Pretoria. This would enhance coordinationamong donors and improve portfolioperformance.

Political Stability External assistance to Lesotho has been deliv-ered in a setting of political uncertainty withlimited government ownership, which has ham-pered project implementation. At the sametime, donors, who differ in their readings of thepolitical environment, differ in their perspec-tives on the risks associated with the imple-mentation of their programs. The evaluationsuggests:• The donor community should improve its

understanding of the political economy of pol-icy change in Lesotho, and hence enhance itsassessment of government ownership of as-sistance programs and the risks associatedwith those programs.


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Chapter 11. All dollar amounts represent U.S. dollars

unless otherwise noted.2. SADC members are: Angola, Botswana,

the Democratic Republic of the Congo, Lesotho,Malawi, Mauritius, Mozambique, Namibia, theSeychelles, South Africa, Swaziland, Tanzania,Zambia, and Zimbabwe.

3. A UNDP/World Bank mission estimated thetotal cost of reconstructing damaged propertiesat 160 million maloti, or $34 million (WorldBank 1998b).

4. The 2000 Interim Poverty Reduction Strat-egy Paper (I-PRSP) (Lesotho 2000) indicated aslight improvement in the national incidence ofpoverty in 1999 compared with 1993 (68 percentas opposed to 71 percent). Country AssistanceEvaluation (CAE) and I-PRSP estimates differbecause the CAE estimates are on a per capitabasis, the I-PRSP estimates on a household basis.

5. Less than 4 percent of children entering pri-mary school successfully complete secondaryschool, and only 10 percent of students enter-ing secondary school successfully complete thatlevel (Goldstein 2001, p. 3).

6. The Human Development Index is a com-posite index that measures a country’s achieve-ments in terms of life expectancy, educationalattainment, and adjusted real income.

Chapter 21. According to the 1997 Labor Force Survey,

about 13 percent (46,100 persons) of Lesotho’sworking population are employed in governmentor in parastatals. The rest of the workforce(about 87 percent, or 307,000 persons) is occu-pied in the informal sector. Of those working inthe informal sector, 10 percent are working ontheir own, 26 percent are paid employees, 3 per-cent are unpaid employees, and the remaining61 percent are subsistence farmers (which sug-gests about 180,000 subsistence farms).

Chapter 31. The Lesotho Highlands Revenue Fund

(LHRF) was established as an extrabudgetaryfund in 1992 and inflows began in the mid-1990s (initially import duties; later, water royal-ties). With inflows averaging around $45 million

per year in the second half of the decade, theLHRF had the potential to support targetedpoverty reduction efforts and strengthen basicsocial services. While the LHRF did supportlocal employment-generation schemes, and trans-ferred about a third of its revenue to the gov-ernment’s general revenue account, use of thefunds became highly politicized and lacking intransparency. A project appraisal for Phase 1Bof the project noted that the selection of the ini-tial projects was not transparent, technicaldesigns were weak (and hence some dams androads have been washed away), and weak-nesses have been detected in financial controland monitoring.

2. Regional staff argues that whether the Bankwas overly ambitious or not in its judgment ofgovernment commitment and implementationcapacity depends on the appropriateness ofusing current standards and priorities to judgepast actions.

3. For instance, it had been estimated that incountries with adult prevalence of 10 percent ormore, HIV/AIDS will erase 17 years of potentialgains in life expectancy (UNAIDS 2000 andWorld Bank 2000b).

4. Regional staff argues that selectivity has notbeen possible because the challenges facingLesotho are numerous and require resourcesdisproportionate to the size of the economy.

5. The country team for Lesotho is workingwith the government in developing a PovertyReduction Strategy Paper by focusing onstrengthening monitoring and evaluation.

6. The search for work will need to range wellbeyond South Africa, even though it is an obvi-ous place to look. Economic growth in SouthAfrica has been low and rates of unemploy-ment are high (reported at about 37 percent in1997 by Gelb and Tidrick 2000). Furthermore,the informal sector in the South Africa, whichwould be the most logical sector for the employ-ment of Basothos, is small by African standards.

7. A recent World Bank study indicates thatESW has significant positive impact on the qual-ity of World Bank loans, due to better designedand implemented projects (Deininger, Squire,and Basu 1998). Furthermore, OED’s evalua-tion of Bank’s lending to Lesotho by sector

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ENDNOTES

shows that sectors with effective ESW, such aseducation, scored well.

8. A country economic memorandum andPublic Expenditure Review were prepared forLesotho by the World Bank in 1987 and 1988,respectively. No such economic reports were pre-pared in the 1990s. The 1995 Poverty Assessmentproposed putting in place a system of data col-lection that would permit poverty monitoring.

9. See SW-B & A Consult (1999) and Eriksen(1996).

10. For example, rural development projectshad unsatisfactory outcomes over a long periodstarting well before the 1990s. There has beena sequence of failed projects followed byattempted solutions in follow-up projects that sofar have not yet shown positive results. Specif-ically, the unsatisfactory Thaba Bostiu AreaDevelopment Project (1973–79) was followed bythe unsatisfactory Basic Agricultural ServicesProject (1978–85). Both projects were intendedto support increased agricultural production,but both fell far short of their targets because thenecessary technology had not yet been devel-oped, and the policy environment was not pro-pitious. They were followed by the unsatisfactoryLand Management and Conservation Project(1988–97), which set back progress on impor-tant issues such as land policy. This was followedby the contemporary 1998 Agricultural Policy andCapacity Building Project, which tackles land pol-icy again. Two years after Board approval, thisproject, apart from meeting conditions of effec-tiveness one year after Board approval, has onlyrecently met a number of important milestoneson process issues. It has made virtually noprogress on substantive matters such as improv-ing marketing, pricing policy, and land man-agement. Its closing date will therefore inevitablybe delayed. The most recent Community Devel-opment Support Project became effective in July2000 but is already behind schedule.

11. Aggregate country portfolio performancecan differ from the performance of a country pro-gram as evaluated in a CAE. Nevertheless, proj-ect portfolio performance tends to be positivelybut weakly associated with OED’s overall ratingof the Bank’s country program (World Bank2001).

Chapter 41. The government embarked on a series of

structural adjustment programs supported bythe International Monetary Fund (IMF) SAF for1988–89 to 1990–91 of SDR (Special DrawingRights) 3.0, 4.5, and 3.0 million, respectively, andESAF for 1991–92 to 1995–96 of SDR 4.5, 6.0, 7.6,8.4, and 7.2 million, respectively. The IMF andthe World Bank emphasized key structuralreforms, including privatization, parastatal reform,and deregulation of agricultural markets.

2. The government has responded to thesenegative developments by taking several meas-ures. During January–September 2000, the gov-ernment implemented an IMF Staff-MonitoredProgram and, in December 2000, reached under-standings with the IMF and the World Bank ona program that would be supported by a three-year arrangement under the Poverty Reductionand Growth Facility (PRGF). In March 2001, theIMF approved a PRGF loan amounting to 24.5SDR ($32 million).

3. The annual growth rates for Swazilandand South Africa in the 1990s were 0.6 percentand –0.6 percent respectively. For the second halfof the 1980s their growth rates were 5.8 and 2.4percent respectively.

4. In 1998, the United Nations DevelopmentProgram (UNDP) found that 45 percent of allincome flows to the richest 10 percent of thepopulation, compared with less than 1 percentfor the poorest 10 percent, translating into a Ginicoefficient of 0.57 (UNDP 1999).

5. “Supply-led” refers to a development strat-egy focused on generating a supply of goods andservices without necessarily taking account ofdemand. “Demand-led” refers to a strategyfocused on responding to a known or projecteddemand for goods and services.

6. Under the recent fiscal 2000 ESDP II, theWorld Bank hopes to reverse the negative trendin recurrent resource allocation through publicexpenditure review and establishment of amedium-term expenditure framework.

7. Until the end of the decade, World Bankobjectives were oriented toward expandingphysical access to, and quality of, formal edu-cation, rather than enhancing participationthrough nonformal or more flexible forms of


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schooling and eliminating financial barriers toparticipation by the poor. These omissionsbecame obvious by the end of the decade, lead-ing to a revision of World Bank objectives toinclude—in addition to a continued focus onimproving the quality of basic education—arenewed emphasis on affordable access andequity, nonformal education, and early childhooddevelopment to achieve universal primary edu-cation by 2011.

Chapter 51. As not all completed projects are subject

to OPEV evaluation, there could be a discrep-ancy between table 3.3 and Annex table E.6.These evaluations were carried out before thecurrent use of the multilateral developmentbank–recommended evaluation criteria (that is,relevance, efficacy, efficiency, institutional devel-opment, and sustainability).

Chapter 71. Overall, the quality of supervision was mod-

erately satisfactory, but Bank staff turnover wassometimes rapid. For instance, for the AgriculturalPolicy and Capacity Building Project, the taskmanager has been the same since appraisal; also,for the rural development component of theLHWP, the task manager has been the same sincethe appraisal of Phase 1B. However, in the caseof the Road Rehabilitation and Maintenance Proj-ect, there have been three task managers sinceBoard approval in May 1996 and very little evi-dence of improvement in project performance.The problem of changing task managers alsoapplies to the Community Development and Sup-port Project approved in fiscal 2000.

2. World Bank (1999). 3. Within ESDP I (1991–99) and ESDP II

(1999–03), IDA funding has been more thanmatched by parallel funding from external part-ners (EC and USAID for ESDP I; U.K., AfDB, Ger-many, and Ireland for ESDP II). The IDAcommitment has also helped to mobilize gov-ernment resources, which amount to nearly 30percent of total program costs under ESDP I.

4. A new Project Accounting Unit will beestablished within the Ministry of Health toallow for standardized and synthesized report-ing of all partners’ contributions.

5. The UNDP is responsible for donor coor-dination in Lesotho and organizes the country’speriodic roundtable conferences. The last round-table was held in Geneva in 1997, during whichit was agreed that there would be no roundtableconferences until the government reformulatedits poverty program (then anticipated to happenin two years). However, no roundtable confer-ence has been held since 1997 because of thepolitical instability following the 1998 elections.

6. The Commonwealth/World Bank vulnera-bility index, which ranks countries according tomeasurable components of exposure (such aslack of diversification, extent of export depend-ence, and impact of natural disasters) andresilience to external shocks, lists Lesotho amongthe most vulnerable countries (World Bank,2000e, table 6, p. 22).

Annex G1. A person who is a national of Lesotho is

referred to as a Basotho. The national languageis Sesotho.

E n d n o t e s

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AfDB (African Development Bank). 2001.Lesotho, Country Strategy Paper, 1999–2001.Abidjan.

____. 1988. “Economic Prospects & CountryProgramming.” Abidjan.

Deininger, Klaus, Lyn Squire, and Swati Basu.1998. “Does Economic Analysis Improve theQuality of Foreign Assistance?” World BankEconomic Review 12(3):385-418.

Eriksen, John H. 1996. “An Evaluation of the Agri-cultural and Livestock Activities of the LesothoHighlands Water Project—Current Status andFuture Orientation.” World Bank, Washington,D.C. Photocopy.

Gelb, Alan, and Gene Tidrick. 2000. “Growth andJob Creation in Africa.” World Bank AfricaRegion, Washington, D.C. Photocopy.

Goldstein, Ellen A. 2001. “Lesotho CAE: WorldBank Support for Human Capital Develop-ment in the 1990s.” OED Lesotho CAE Back-ground Paper. World Bank, Washington, D.C.Photocopy.

IMF (International Monetary Fund). 2000. WorldEconomic Outlook. Washington, D.C.

Lesotho, Ministry of Development Planning.2000. Interim Poverty Reduction StrategyPaper. Maseru. (Also available at the IMFwebsite.)

Le Moigne, Guy. 2001. “Lesotho CAE: WaterSector Strategy Review.” OED Lesotho CAEBackground Paper. World Bank, Washing-ton, D.C. Photocopy.

Lumbila, Kevin. 2001. “Lesotho CAE: EvaluatingBank Assistance for Private Sector Develop-ment.” OED Lesotho CAE Background Paper.World Bank, Washington, D.C. Photocopy.

OECD. Various years. “Geographical Distributionof Financial Flows to Aid Recipients.” Paris.

Sechaba Consultants. 2000. Poverty and Liveli-hoods in Lesotho 2000: More than a MappingExercise. John Gay and David Hall, eds.Maseru.

____. 1999. Poverty in Lesotho, 1999. Maseru.____. 1994. Poverty in Lesotho, 1994: A Mapping

Exercise. Maseru.SW-B & A Consult. 1999. “Report on the 1999

Socio-Economic Survey of Phase 1A.” Paperprepared for the Lesotho Highlands WaterProject. Maseru. Photocopy.

SIDA (Swedish International DevelopmentAuthority). 1996. Lesotho’s Strategic EconomicOptions: Toward Closer Integration. Macro-economic Report 1996:4. Stockholm.

Taddese, Abeba. 1996. “A Review of the Focuson Poverty Reduction in FY96 Country Assis-tance Strategies in the Africa Region.” WorldBank Africa Regional Office, Washington,D.C. Photocopy.

UNAIDS (Joint United Nations Programme onHIV/AIDS). 2000. The UNAIDS Report. NewYork, NY: Oxford University Press.

UNDP (United Nations Development Program).2000. Human Development Report. New York,NY: Oxford University Press.

____. 1999. World Income Inequality Database.New York.

van Holst Pellekaan, Jack. 2001. “Lesotho CAE:Poverty Reduction and Rural Development.”OED Lesotho CAE Background Paper. WorldBank, Washington, D.C. Photocopy.

World Bank. 2002. 2001 Annual Review of Devel-opment Effectiveness: Making Choices. Oper-ations Evaluation Department Study Series.Washington, D.C.

____. 2001. Annual Review of Development Effec-tiveness: From Strategy to Results. OperationsEvaluation Department Study Series. Wash-ington, D.C.: World Bank.

____. 2000a. Lesotho: The Development Impact ofHIV/AIDS: Selected Issues and Options. WorldBank Report No. 21103-LSO. Washington, D.C.

____. 2000b. Intensifying Action against HIV/AIDSin Africa—Responding to a Development Cri-sis. World Bank AIDS Campaign Team forAfrica. Washington, D.C.

____. 2000c. Can Africa Claim the 21st Cen-tury? Washington, D.C.

____. 2000d. “Is Census Income an AdequateMeasure of Household Welfare? CombiningCensus and Survey Data to Construct a PovertyMap of South Africa.” Statistics South Africa andthe World Bank, Washington, D.C. Photocopy.

____. 2000e. Small States: Meeting Challenges inthe Global Economy. Report of the Com-monwealth Secretariat/World Bank Joint TaskForce on Small States. Washington, D.C., andLondon: World Bank and CommonwealthSecretariat.

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BIBLIOGRAPHY

____. 1999. “Lesotho Community DevelopmentSupport Project.” Report No. 18387-LSO.Washington, D.C.

____. 1998a. “Lesotho: A Review of StrategicOptions for Financial Sector Reform.” Wash-ington, D.C. Photocopy.

____. 1998b. “Kingdom of Lesotho. Post-ConflictNeeds Assessment.” Washington, D.C.Photocopy.

____. “Lesotho Highlands Water Project—Phase1B.” Project Appraisal Document 17727. Wash-ington, D.C.

____. 1995. “Lesotho—Poverty Assessment.”Sector Report 13171. Washington, D.C.Photocopy.

____. Various. World Development Indicators.Washington, D.C.


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Documents

Lesotho: Country Assistance Evaluation