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- GDP (PPP):
- $4.1 billion
- 4.0% growth
- 5.2% 5-year compound annual growth
- $2,138 per capita
- Inflation (CPI):
- FDI Inflow:
Lesotho’s economic freedom score is 49.5, making its economy the 154th freest in the 2014 Index. Its score is 1.6 points better than last year, with improvements in fiscal freedom, investment freedom, and freedom from corruption outweighing a substantial drop in business freedom. Lesotho is ranked 37th out of 46 countries in the Sub-Saharan Africa region, and its overall score is below the world average.
Over Lesotho’s 19-year history in the Index, its economic freedom has been stagnant, and its overall score has improved only 2.5 points. Improvements in half of the 10 economic freedoms, including trade freedom, monetary freedom, and financial freedom, have been undermined by deteriorations in labor freedom, property rights, and the control of government spending.
Considerable challenges remain in the struggle to promote stable long-term economic development, and lingering institutional weaknesses call for much greater commitment to reform, particularly in two areas. Lesotho continues to score below the world averages in freedom from corruption and the protection of property rights, and marginal reforms have failed to generate much improvement.
Lesotho became independent in 1966, but instability in the 1990s led to military intervention by South Africa and Botswana. An interim authority overhauled the government and oversaw elections in 2002. King Letsie III is ceremonial head of state. Prime Minister Thomas Thabane heads a coalition government that ousted former Prime Minister Bethuel Mosisili after close elections in May 2012. Lesotho is geographically surrounded by and economically integrated with South Africa, and it relies on customs duties from the Southern Africa Customs Union for revenue and on remittances from laborers employed in South Africa for much of its national income. Trade with the United States is important, and apparel exports have grown significantly with the help of the U.S. African Growth and Opportunity Act.
In 2013, Lesotho’s prime minister described corruption as the country’s worst public enemy after HIV/AIDS. Corruption affects all sectors of government, and cronyism is prevalent in state bidding procedures. The judiciary is relatively independent but politicized and chronically underfunded. There are insufficient mechanisms to hold authorities accountable. Protection of private property rights is ineffective, although expropriation is unlikely.
The top individual income tax rate is 35 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT) and a tax on dividends. Overall tax revenue is equal to 37.6 percent of gross domestic income. Government spending dominates the economy and equals 63 percent of GDP. Public debt is about 42 percent of gross domestic income.
Incorporating a business still takes almost a month, although no minimum capital is required. The cost of completing licensing requirements remains over eight times the level of average annual income, taking more than 300 days. Outmoded labor laws undermine the development of a dynamic labor market. The government influences prices through state-owned enterprises. Monetary stability is affected by inflationary pressures in South Africa.
Lesotho’s average tariff rate is 10.7 percent. Imports of some agricultural products and used clothing and autos may face additional barriers. Foreign investment is allowed but may be screened by the government. Much of the population lacks adequate access to banking services. The high cost of credit hinders entrepreneurial activity and the development of a vibrant private sector.