LESOTHO COUNTRY BRIEF This brief is part of a series of outputs under the analytical work “Forever Young? Social Policies for a Changing Population in Southern Africa”. Outputs include: • Forever Young? Social Policies for a Changing Population in Southern Africa (overview report) • Forever Young? Botswana Country Brief • Forever Young? Lesotho Country Brief • Forever Young? Namibia Country Brief • Forever Young? South Africa Country Brief • Forever Young? Swaziland Country Brief © 2016 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. 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All queries on rights and licenses should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Design: Kilka Diseño Gráfico DEMOGRAPHIC CHANGE MIGHT LEAD TO ECONOMIC OPPORTUNITY Lesotho has experienced a significant demographic transition over the last fifty years, with both mortality and fertility decreasing sharply. Between 1950 and the early-1990s, infant and child mortality fell by approximately 60 percent, and life expectancy at birth increased by almost 19 years. The average number of children per woman fell from 5.7 to 3.1 between 1978 and 2015. Changes in mortality and fertility imply changes in the population age structure: the proportion of young dependents will fall steadily in the decades to come (Figure 1), at the same time as the proportion of working-age population will increase (Figure 2). This is a demographic window of opportunity: if productively employed, the larger workforce can trigger an increase in output per capita - a phenomenon referred to in the literature as the demographic dividend. In Lesotho, this window will open in 2040 and stay open up to 2086 (Figure 1), an exceptionally long period by international standards. 3 FIGURE 1. THE WINDOW OF FIGURE 2. THE GROWTH RATE OF THE DEMOGRAPHIC OPPORTUNITY WILL WORKING AGE POPULATION WILL STILL OPEN LATE, BUT WILL LAST LONG BE HIGH IN THE YEARS TO COME Share of population aged 0-14 and 65+ and the Annual average growth rate of working age resulting demographic window of opportunity population (%) 50 2.0 1.79 1.78 40 Proportion of total 1.5 Annual average 1.31 population (%) growth (%) 30 1.0 20 0.67 10 0.5 0 - 1950 1975 2000 2025 2050 2075 2100 1980-2015 2015-2050 Demographic window (2040-2086) Lesotho Proportion aged < 15 World Proportion aged 65+ Note: As defined by United Nations, the window of demographic opportunity opens when the proportion of the population under the age of 15 is less than 30 percent, and the proportion aged 65 and over is less than 15 percent. Source: Moultrie 2015. BOX 1. THE HIV/AIDS EPIDEMIC HAS SLOWED DOWN, BUT NOT STOPPED, THE DEMOGRAPHIC TRANSITION The HIV/AIDS pandemic had severe effects on demographic trends in Lesotho, as life expectancy reversed its course and decreased dramatically between 1990 and 2005. The country will likely only regain the levels achieved prior to the epidemic in the late 2030s. However, the HIV/AIDS pandemic has only slowed, not stopped, the ongoing demographic transition. Figure 3 illustrates the age-sex structure of the population between 1950 and 2015. The effects of male labour migration to the South African mines is evident in the population pyramid for 1975, while the effects HIV/AIDS mortality is clear in the ‘hollowing-out’ between ages 40 and 60 in the population pyramid for 2015. Projections for 2050 however predict a more standard shape for the population pyramid, as the deployment of anti-retroviral treatments allows for a drop in AIDS-related deaths. Simulations confirm that the epidemic will affect the expected level of population in Lesotho, but less so its projected age structure. FOREVER YOUNG? 4 LESOTHO COUNTRY BRIEF FIGURE 3. PERIOD EVENTS SUCH AS MIGRATION AND HIV/AIDS HAVE NOT STOPPED THE DEMOGRAPHIC TRANSITION Lesotho population age structure, 1950 -2050 1975 100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 150 100 50 0 50 100 150 Thousands Females Males 2015 100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 150 100 50 0 50 100 150 Thousands Females Males 2050 100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 150 100 50 0 50 100 150 Thousands Females Males Source: Moultrie 2015. 5 THE DEMOGRAPHIC DIVIDEND IS JUST A MIRAGE IF LESOTHO DOES NOT INVEST IN HUMAN CAPITAL AND EMPLOYMENT A long window of demographic opportunity is a welcome news for Lesotho, as the country will need time to implement strategic policy reforms to make sure to harness the demographic dividend. In particular, large cohorts of children and youth will soon reach working age. The effects of good (or bad) social policies for children and youth will therefore be amplified in the years to come. For example, if Lesotho were to increase its investment in the education of the young generations so to converge to the educational level of upper-middle-income countries by 2050, its GDP per capita in that year would be as much as 18 percent higher than under the current policy conditions (Figure 4). On the other hand, if the current large gaps in coverage (Figure 5) and poor quality of education (Figure 6) persist, the country will soon have to face large cohorts of poorly educated adults, that will be less likely to find productive jobs. This would be a curse for a country that is already suffering from high unemployment, especially among the youth (Figure 7). Surely, social policies cannot do the job alone. A sound macroeconomic environment, policies favoring private-sector development, and investment in labor-intensive sectors will be needed to employ the future large cohorts of working age population. FOREVER YOUNG? 6 LESOTHO COUNTRY BRIEF FIGURE 4. INVESTING IN HUMAN CAPITAL FIGURE 5. THERE ARE STILL LARGE GAPS COULD LEAD TO A SIGNIFICANT INCREASE IN EDUCATION COVERAGE IN INCOME PER CAPITA GDP per capita in 2050 Projected completion rates (expressed as a ratio of GDP per capita in 2014=100) 300 285 Real GDP per capita, 2050 30 Grade 241 12 46 61 (Index) 200 83 Grade 92 7 100 97 Same policy environment - 50 100 (%) Education convergence 2015 2030 2050 Source: Ahmed & Cruz 2015. Source: Van der Berg & Knoesen 2015. FIGURE 6. LEARNING PERFORMANCE FIGURE 7. HIGH UNEMPLOYMENT IS A MAJOR IS LOWER THAN IN ECONOMICALLY CHALLENGE TO REAP THE DEMOGRAPHIC COMPARABLE COUNTRIES DIVIDEND Learning performance in PISA metrics by Overall and youth unemployment rate by gender per capita GDP (PPP$), around 2011 600 40 Imputed PISA score - Combined 34 Proportion of labor force 550 29 500 22 quality index 450 20 (%) 20 400 350 300 250 Lesotho 0 200 Log GDP per capita Youth unemployment, male Overall unemployment, male Youth unemployment, female Overall unemployment, female Source: Van der Berg & Knoesen 2015. Source: Margolis & Yassine 2015. 7 SAVINGS FROM A MORE EFFICIENT PUBLIC SPENDING WILL BE NECESSARY TO INVEST IN THE YOUNGER GENERATIONS Implementing strategic reforms to boost human capital and employment will require increased efficiency in social spending. In education, for example, ad hoc programs like the Tertiary Bursaries Scheme and administrative inefficiencies cause per capita spending to be higher than in OECD countries (Figure 8). Converging to the OECD’s education spending profile would imply a decrease in public spending in education from 12.2 of GDP in 2010 to 5.7 in 2050 (green line in Figure 9): resources that could be reinvested to improve both coverage and quality of education, and provide employment services to the youth. Instead, social assistance spending currently accrues mostly to the elderly: resources per individual in the age group 65-plus are twelve times those available to individuals aged 0-19, although there are six times more poor children than poor old people. Social pensions are more generous than in the OECD (Figure 8). A benefit incidence analysis confirms that the impact of social grants on poverty among the non- elderly remains negligible (Figure 10). The demographic moment urges Lesotho to improve coordination among social programs along the life-cycle (Figure 11), and to rebalance social assistance towards the younger generations. FOREVER YOUNG? 8 LESOTHO COUNTRY BRIEF FIGURE 8. PER CAPITA SOCIAL SPENDING IS HIGHER IN LESOTHO THAN IN OECD: MORE GENEROUS BENEFITS OR INEFFICIENCIES? Per capita social spending by age Lesotho OECD 80 80 % GDP per capita % GDP per capita 60 60 40 40 20 20 0 0 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 Education Education Health Health Social assistance Non-contributory pensions FIGURE 9. CONSIDERABLE SAVINGS FROM INCREASING EFFICIENCY IN SPENDING Aggregate spending as a % of GDP, 2010-2100 14 12 10 % of GDP 8 6.9 6 5.7 4 2 0 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 2050-2100 Education - Constant spending Education - Spending profile profile converging to OECD Source: Oosthuzein 2015. 9 FIGURE 10. THE POVERTY IMPACT OF CASH TRANSFERS ON CHILDREN AND YOUTH REMAINS NEGLIGIBLE Poverty rates before and after cash transfers to households 100 80 Poverty rate 60 (%) 40 20 0 0 10 20 30 40 50 60 70 80 90 Post grants Pre grants Note: The estimates are based on the national poverty line. Source: Oosthuizen 2015. Under the right set of policies, healthy and educated children can become large cohorts of productive adults. With access to jobs and social services, these adults can fulfill their earning potential, save, invest, and contribute to the country’s fiscal revenues. And they can be more likely to raise healthy and educated children, leading to a virtuous cycle of social welfare. But realizing the dividend is by no means assured. If the right policies are not in place, the high levels of unemployment and the fiscal challenges that are already troubling Lesotho could escalate and bring on a vicious intergenerational cycle of poverty, unemployment, and vulnerability. Lesotho needs to act now if the country is to move to a virtous cycle and reap the benefits of the demographic moment. BOX 2. UNCERTAINTY IN REVENUES TO FINANCE SOCIAL SPENDING In Lesotho, roughly 40 percent of government expenditures are financed by the Common Revenue Pool (CRP), which is fed by revenues from the Southern African Customs Union (SACU) (SACU 2014). Revenues from SACU have recently declined due to lower-than-expected import receipts, and are projected to continue on a low trajectory in the medium term. If SACU revenues continue along these grim forecasts, and the government does not offset the fall through such steps as improving efficiency of the public sector, Lesotho will find it increasingly harder to keep up current levels of social expenditure, and invest adequately in the young generations. FOREVER YOUNG? 10 LESOTHO COUNTRY BRIEF FIGURE 11. A MOMENT TO REORGANIZE SOCIAL ASSISTANCE AND PROMOTION PROGRAMS IN AN INTEGRATED LIFE-CYCLE APPROACH, TO IDENTIFY AND ADDRESS BLIND SPOTS Mapping of main social services available by age group, around 2012 Social Assistance: Child Grant, Tertiary Bursary Scheme Social Promotion: Basic and Tertiary Education, Health services (including reproductive health) Adolescents and Youth Social Social Assistance: Assistance: Child grants Public School feeding Assistance OVC bursaries Working Social Nutrition (WFP) Children HOUSEHOLD Age Promotion: Social Population Ipelegeng Promotion: Agricultural Maternal & child Input Fertilizer health & Input Subsidy Basic Education Health services Elderly Social Assistance: Old age pension Social promotion: Health services Source: Troiano 2015. 11 REFERENCES Ahmed, Syud Amer, and Marcio Cruz. 2015. “Growth and Poverty in Southern Africa under Different Policy Scenarios.” Background paper for Forever Young? Social policies for a changing population in Southern Africa. World Bank. Margolis, David N., and Chaimaa Yassine. 2015. “Demographics and Labor Markets in Southern Africa.” Background paper for Forever Young? Social policies for a changing population in Southern Africa. World Bank. Moultrie, Tom A. 2015. “Demographic Profiles of Five Countries in Southern Africa and Implications for the Demographic Dividend.” Background paper for Forever Young? Social policies for a changing population in Southern Africa. World Bank. Oosthuizen, Morné J. 2015. “Public Spending and Demographic Change in Southern Africa.” Background paper for Forever Young? Social policies for a changing population in Southern Africa. World Bank. SACU. 2014. “Southern African Customs Union: Annual Report 2014.” Troiano, Sara. 2015. “A Life-Cycle Assessment of Social Protection Systems in Southern Africa.” Background paper for Forever Young? Social policies for a changing population in Southern Africa. World Bank. University of KwaZulu Natal. 2010. “Health Expenditure Implications of SACU’s Revenue Volatility on BLNS Countries. Issue Brief.” Health Economics and HIV/AIDS Research. van der Berg, Servaas, and Marizanne Knoesen. 2015. “Implications of Demographic Projections for Education in the Five SACU Countries.” Background paper for Forever Young? Social policies for a changing population in Southern Africa. World Bank. FOREVER YOUNG? 12 LESOTHO COUNTRY BRIEF