CHAPTER FOUR 4. Economic governance and management 4.1 Overview: from adjustment to growth and development 94 325. Lesotho has gone through a series of policy shifts since independence. These started with regulation and repression, moved to structural adjustment, and, finally, to postadjustment in the period from 2005 to the present. In this latest phase, the economy has been significantly liberalised and most price and cost distortions removed. The current development challenge is to harness the gains of previous reforms to lay the foundations for long-term growth and sustainable development by pursuing sound macroeconomic policies that are supportive of that effort. 326. The economy of Lesotho has experienced external shocks and structural changes since the 1980s. Only about half of its gross national product (GNP) was generated within its borders in the early 1980s. Remittances from migrants accounted for the rest. Since then, the economy has experienced sluggish growth caused by two major external shocks. Between 1980 and 1987 and between 1987 and 1997, growth trends in gross domestic product (GDP) and GNP moved in opposite directions. Several structural changes occurred. One was the launching of the Lesotho Highlands Water Project (LHWP). The other was the arrival of the textile and garments industry from across the border in South Africa. Both developments were associated with large-scale investment financed by foreign capital and both accelerated growth in GDP. 327. About the same time, a third development occurred. This was declining remittances from miners. Their share of GNP fell from 48 per cent between 1980 and 1987 to 36 per cent between 1987 and 1997. The combination of these developments, together with declines in terms of trade, led to a decline in net incomes from abroad. It forced GDP and GNP to converge. By 1997, the share of GDP in GNP was 76 per cent, up from 49 per cent in 1980. Growth in GNP has averaged only 1.4 per cent since 1999, largely because of further declines in remittances from workers. By 2001, their share in GNP had declined to 3 per cent, partly because of the declines in LHWP investments and partly because of the slowdown in service sectors. This permitted the export-oriented garment industry to emerge as the new engine of growth. 328. Over the years, however, the economy has faced serious development challenges. They include: poverty and unemployment; food insecurity; low incomes; Human Immunodeficiency Virus (HIV) and Acquired Immune Deficiency Syndrome (AIDS); some unique constraints, such as the size of the economy; stiff competition from established South African firms; and inadequate infrastructure. 329. Poverty and employment. Sluggish growth spanning several years has been accompanied by high poverty, inequality and unemployment. About 60 per cent of the population continues to be poor