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- GDP (PPP):
- $3.8 billion
- 4.2% growth
- 4.6% 5-year compound annual growth
- $1,960 per capita
- Inflation (CPI):
- FDI Inflow:
Lesotho’s economic freedom score is 47.9, making its economy the 155th freest in the 2013 Index. Its score is 1.3 points better than last year, reflecting notable gains in business freedom and investment freedom that offset a decline in labor freedom. Lesotho is ranked 38th out of 46 countries in the Sub-Saharan Africa region, and its overall score is below the world average.
Economic freedom in Lesotho continues to be held back by poor institutional development and the lack of much-needed economic reform. The protection of property rights and enforcement of the rule of law remain weak. In addition, significant corruption burdens individuals and entrepreneurs.
The government remains heavily involved in private-sector activity, leading to extremely high government spending and a low score on the related economic pillar. Marginal reforms have been initiated, including the strengthening of contract enforcement through a new commercial court, but regulatory barriers and poor trade freedom still cause much of the population to remain in subsistence agriculture, preventing broad-based private-sector development.
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, and Prime Minister Bethuel Pakalitha Mosisili is head of government and holds executive authority. Mosisili’s party won a parliamentary majority in February 2007. In 2012, Mosisili left his Congress for Democracy party to form the Democratic Congress party, but he remains in power. 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 exports and 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.
Protection of private property rights is ineffective, but expropriation is unlikely. The judiciary has been relatively independent, but there are insufficient mechanisms to hold authorities accountable. A new government formed by a coalition of opposition parties took power in June 2012 and may be tempted to enact populist policies favored by its urban base. Corruption remains a major problem.
The top 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 57.7 percent of national income. Government spending amounts to 62.1 percent of GDP. The deficit has also risen, and public debt amounts to about 40 percent of total domestic output.
The requirements for starting a business have been simplified, but the entrepreneurial environment remains hampered by regulatory inefficiency and a lack of transparency. Licensing requirements still cost almost 10 times the level of average annual income. The labor market remains inefficient, and informal labor activity is quite high. Inflation has risen slightly. The government influences prices through state-owned enterprises.
The trade-weighted average tariff rate is relatively high at 10.5 percent, and import licensing and other non-tariff barriers raise the cost of trade. Restrictions on foreign land ownership have been relaxed but not eliminated. 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.