Economic Analysis - Loss Of US Trade Deal Would Lead To Sharp Economic Contraction - JAN 2018


BMI View: Lesotho ' s tariff-free access to the US economy is increasingly at risk given the deterioration of the political environment over recent months. Although the fluidity of the political situation prevents us from adopting the loss of access as our baseline expectation, a ' downside ' scenario analysis reveals that the economy would contract by between 5.0-10.0% in 2018 and a further 3.0-5.0% in 2019 were t he country to lose this access.

The risks to Lesotho's eligibility for the African Growth and Opportunities Act (AGOA), which gives the country tariff-free access to the US, have increased significantly since our last update and we therefore believe the downside risks to economic growth have also risen sharply. The political situation remains extremely fluid and a loss of AGOA is not yet our core scenario; we have therefore not factored it into our growth forecasts at this stage. We retain our view that the economy will expand by 3.8% in 2018 and 3.0% in 2019 ( see ' Growth Accelerating, But AGOA Cancellation Remains A Pertinent Risk ' , June 19). However, given the increase in the likelihood that Washington revokes Lesotho's AGOA status, we believe that it is worth assessing the likely impact on the economy. In short, the effect would be devastating. Were Lesotho to lose AGOA eligibility in late 2017 or early 2018, we estimate that the economy would contract by between 5.0-10.0% in 2018 and by a further 3.0-5.0% in 2019 as exports, private consumption and investment would all be negatively impacted.

Risks To AGOA Continue To Rise

AGOA Revocation Would Lead To Sharp Economic Contraction
Lesotho - Real GDP Growth Scenarios, % y-o-y
Source: UN, BMI. f = BMI forecasts.

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