Adjustment, external shocks and poverty in Lesotho : a multiplier analysis

According to the study, the impacts of reduced government expenditures on household income have been relatively small overall and have fallen hardest on urban groups; the poor, who reside mainly in rural areas, have not been greatly affected, in part because linkages across Lesotho"s economic sectors are weak. Of greater importance was the drought, which reduced the incomes of the poor by 5.4% relative to 1987 (and by more relative to 1990). The decline in migrant workers" remittances -- 17.2% between 1987 and 1992 -- affected mostly the nonpoor in both rural and urban areas, although urban nonpoor were more likely to find alternative sources of income. Together, reduced government spending, drought, and lower migrant remittances reduced household incomes in Lesotho by an average of 14%; hardest hit were households with migrant income, but nonmigrant rural households also saw declines of 10.7%-11.8%. However, when the effects of the LHWP are factored in, its importance in moderating the impacts of the three shocks upon the poor is highlighted: without the increased earnings generated by the project, average incomes of the poor fall by 12.9%, vs. 2.1% when these effects are included. The report points out that the analysis hides devastating losses by individual households, who may have lost an entire crop or all their remittance income; for these households and others who gained little from LHWP construction activities, targeted poverty alleviation measures may be justified.