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- GDP (PPP):
- $5.8 billion
- 2.5% growth
- 3.9% 5-year compound annual growth
- $2,987 per capita
- Inflation (CPI):
- FDI Inflow:
Lesotho has made considerable gains in income growth and poverty reduction, but a large portion of its population still depends on subsistence farming, and dynamic private-sector activity remains limited. The state is heavily involved in most economic activity, fueling high levels of government spending and preventing the emergence of entrepreneurial dynamism.
Significant barriers to trade constrain poverty-alleviating growth. The burdensome regulatory environment increases the cost of foreign and domestic investment, constraining the development of a vibrant private sector. Significant corruption and the poor protection of property rights continue to add to the cost of economic activity.
Lesotho is a parliamentary constitutional monarchy, and King Letsie III is ceremonial head of state. Thomas Thabane, elected prime minister in May 2012, fled in August 2014 after an attempted coup. He returned following a deal brokered by the South African government but fled again along with other opposition leaders in May 2015. General elections in February 2015 were largely viewed as free and fair, and Pakalitha Mosisili is now prime minister. Rights groups have accused the government of human rights abuses, and a prominent editor of a local paper narrowly survived an assassination attempt in July 2016. Principal exports include diamonds and water. Lesotho has one of the world’s highest HIV rates.
Protection of private property rights is ineffective, but expropriation is unlikely. Legal structures to protect intellectual property rights are comparatively strong. The judiciary is relatively independent but politicized and chronically underfunded. Corruption remains a problem in all areas of government and public services, and there is little that citizens can do to hold the government to account. Management of public finances lacks transparency.
The top personal income tax rate is 35 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax and a tax on dividends. The overall tax burden equals 50.8 percent of total domestic income. Government spending has amounted to 60.7 percent of total output (GDP) over the past three years, and budget deficits have averaged 0.6 percent of GDP. Public debt is equivalent to 60.0 percent of GDP.
Red tape and outmoded commercial laws continue to limit the overall efficiency of the regulatory system. The labor market remains rigid and not fully developed, driving a large share of the labor force into the informal economy. The government increased food subsidies again in 2016 in response to drought, and it influences other prices through state-owned enterprises. Monetary stability is affected by the volatility of the South African rand.
Trade is extremely important to Lesotho’s economy; the value of exports and imports taken together equals 136 percent of GDP. The average applied tariff rate is 2.4 percent. Customs procedures have been improved. Investment in some sectors of the economy is restricted. 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.