Fitch: Lesotho alleged coup attempt highlights political risks

Emergency regional mediation talks were held in Pretoria today to discuss the political crisis in Lesotho.

Thomas Thabane, leader of All Basotho Convention (ABC). Picture: AFP.

LONDON - The flight of Prime Minister Thomas Thabane from Lesotho highlights the political risk inherent in the country, which has a relatively short democratic history and has periodically seen military involvement in politics, Fitch Ratings says.

The stand-off should be resolved rapidly mainly thanks to South Africa's strong involvement along with its political and economic interest in ensuring stability in a country that is locked inside its territory. In 1998, South Africa sent its army to help restore stability after violent protests in Maseru, the capital city of Lesotho.

Lesotho's membership of the South African Customs Union (SACU), the Common Monetary Area and the Southern African Development Community will strengthen external pressure for a peaceful resolution.

However, the political crisis that began when the prime minster suspended parliament in June shows weaknesses in the executive power that are bound to hamper policy implementation and limit the scope of reforms that would support Lesotho's economic development.

An absence of reform could lead to negative rating pressure in the medium term. The failure to secure a renewal of the IMF programme in early 2014, following the expiry of the Extended Credit Facility in September 2013, was a negative signal in terms of the reform dynamics.

If the crisis is not resolved quickly, which is not our base assumption, it could lead to short-term negative rating pressure as it would affect macro stability, GDP growth and potentially external financial support from the international community, which is critical for Lesotho.

About 40 percent of government receipts and 20 percent of current account receipts are directly derived from SACU receipts paid quarterly by South Africa. In addition, Lesotho benefits from external support in the form of grants and concessional loans from bilateral and multilateral donors.

The recent development has been described by observers as an attempt by Deputy Prime Minister Mothetjoa Metsing to take over power from his rival Thabane.

The latter has ruled a coalition of three parties, which has been weakened by internal disputes, since June 2012. In June 2014, the prime minister suspended parliament sessions to avoid a vote of no confidence, triggering protests among opposition and coalition partners.

A general election is not scheduled until 2017. On Saturday, Thabane fled to South Africa where he said a coup attempt had been made by the military and said he feared for his life.

Media reported clashes between armed groups leading to the death of one policeman and four other casualties. The level of political risk is already reflected in the current 'BB-' rating and is not uncommon at this rating level. It is balanced by other positive factors, such as macro stability, a net external creditor position and significant financial, political and, potentially, military support from South Africa.

The next scheduled review of Lesotho's ratings is on 31 October.