An Evaluation of Lesotho’s Fiscal Policy Stance across the Business Cycle

Abstract

This paper calculates Lesotho’s cyclically adjusted primary budget balance (CAPB) and evaluates the country’s fiscal policy stance across the business cycle, between 2007Q1 to 2019Q4. The study identified four peaks and four troughs over the review period. The stance of fiscal policy was found to be generally pro-cyclical to neutral in the early periods of contraction, before turning counter-cyclical, albeit accompanied by relatively high levels of public debt and low levels of GDP growth. During recovery and expansion periods, the fiscal stance was broadly counter cyclical, with low levels of GDP growth and debt levels comparable to those in the contractionary periods.