Kingdom of Lesotho receives payout under ARC sovereign drought parametric policy

African Risk Capacity Limited (ARC), a specialised agency of the African Union, has issued an insurance payout of $2,767,958 to the Government of the Kingdom of Lesotho, after its sovereign drought insurance policy for the 2024/25 agricultural season was triggered.

This payout was made possible by the Government’s subscription to ARC’s sovereign risk financing mechanism and will fund the country’s Final Implementation Plan (FIP), which will be in the form of emergency food aid and cash transfers to households affected by the drought.

The two ARC drought insurance policies (crop and rangeland) taken out for the season were funded through the Africa Disaster Risk Financing (ADRiFi) programme, an African Development Bank/ARC initiative, and premium support from the German Development Bank KfW.

The payout will support drought-affected vulnerable households in all 10 districts of Lesotho, with each household anticipated to receive a sum of Maluti 1500, equivalent of USD 81 as determined by the LVAC (cost of minimum essential basket).

An estimated 30,709 farming and vulnerable households (comprising an average of 4 members) will be reached by this assistance. While 90% of the total payout will benefit vulnerable farming families directly affected by crop failure, 10% will support the scale-up of the social cash transfer for ultra-poor labour-constrained households.

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The Kingdom of Lesotho held the Chairmanship of the ARC Conference of the Parties from April 2024 to April 2025 and has been a strong advocate for climate resilience and disaster risk financing in Africa.

Dr Jean-Chrysostome Ngabitsinze, ARC Group Director General, commented, “Lesotho’s leadership in investing in disaster risk financing sets a powerful example for Africa. This foresight ensures timely resources to protect lives and livelihoods. ARC is proud to stand with Lesotho in translating policy into real impact for vulnerable communities.”

David Maslo, Interim Chief Executive Officer of ARC Ltd, added, “This first-ever payout in Lesotho is about giving people the means to recover with dignity and continue building their futures. We commend the Government’s commitment to protecting its citizens through pre-arranged financing tools, together with the support of our partners, and encourage scaling up such coverage. This forward-looking approach shows how countries can withstand climate shocks without derailing their development efforts.”

Honourable Minister in the Prime Minister’s Office, Hon Limpho Justice Tau, stated, “Lesotho signed the Memorandum of Understanding with ARC in October 2020, and further ratified the treaty in July 2024. These have given the country amazing fruits, as now we are benefiting from this payout equivalent to 49,100,357 million Maloti to be geared towards assisting vulnerable small Farmers who were affected by drought in the cropping season 2024/25.”

Lastly, Hon. Dr Retselisitsoe Adelaide Matlanyane, Minister of Finance and Development Planning, said, “For Ministries of Finance across Africa, ARC is particularly important. It gives us a predictable and reliable instrument to manage disaster risks while protecting national budgets and safeguarding the livelihoods of our citizens.”