ABSTRACT
In the case of Lesotho, surrounded by South Africa, on which it is so extremely dependent, forecasting is particularly difficult because developments in South Africa so obviously will affect what happens in Lesotho but are themselves impossible to predict with much confidence. Attempts to generate nonagricultural sources of income for the population, especially in manufacturing, are constrained by physical infrastructure, transport costs and uncertainty, and the difficulties of competing with South African bantustans. Fiscal considerations make it risky to consider leaving either the Customs Union or the monetary area, which in turn greatly constrain policy options and make it very difficult to enhance the attractiveness of Lesotho as a site for productive activity compared to South Africa and its bantustans. On the international side, the Lesotho government is in danger of suffering substantial damage if it misjudges its stance vis-a-vis South Africa.
