Following the 1998 election and its related civil unrest, the economy in Lesotho dropped dramatically, putting the country into its first major recession in 20 years. Even with help from international organizations, economic growth has been slow. Unemployment was at about 45% in 2000 and the per capita GDP was only US $2,450 in 2001. The Lesotho Highlands Water Project (LHWP), which permits the sale of water to South Africa, has thus become increasingly important in government planning and revenue calculations. These revenues now amount to about US $40 million per year. In July 1998, the World Bank approved construction of the Mohale Dam, the second of five dams to be constructed. The project has created great consternation in many quarters as it emphasizes a supply response to South Africa's water concerns rather than conservation efforts. Within Lesotho, thousands of people have been displaced by the Katse Dam, and there has been little success in creating new incomes for these families.
A second government response to unemployment has come in the form of increased attention to tourism and focus on education for its citizenry. Lesotho has a high literacy rate (85%), and its laborers have an excellent reputation in South Africa. The government has attempted to use these advantages to attract manufacturing capital, combined with tax inducements and duty-free access to the European Union (EU) and Southern African Development Community (SADC) markets. Attempts have also been made to encourage South African firms to relocate by offering various incentives to do so.
Despite the poor quality of most of Lesotho for arable cultivation, about 86% of the population depends on agriculture for subsistence. Drought, soil erosion, insecure land tenure, and poor farming practices have led to a sharp drop in revenue.
Lesotho, which once boasted one of the highest life expectancy ratings in the Southern African region, has recently been ranked as 127th out of 174 countries on the Global Human Development Index. In 2002, average life expectancy was 47 years. The HIV/AIDS pandemic and bouts of famine are serious detriments to the health of the population. A 2003 South African report put Lesotho's HIV/AIDS infection rate at 31%. Mosisili is currently in the process of applying with the International Monetary Fund for a three-year program of aid under its Poverty Reduction and Growth Facility.
Early in 2003, Prime Minister Mosisili realigned the government ministries, increasing the total number of ministers and assistant ministers from 20 to 24 and creating a new Ministry of Forestry and Land Reclamation. The aim of these changes, he stated, was to help his nation meet the challenges of HIV/AIDS, poverty and unemployment. He also stressed the importance of practical training in educating a population able to meet the technological demands of the modern world.