- GDP (PPP):
- $6.9 billion
- 1.2% growth
- 1.5% 5-year compound annual growth
- $2,882 per capita
- Inflation (CPI):
- FDI Inflow:
Lesotho’s economic freedom score is 53.5, making its economy the 142nd freest in the 2021 Index. Its overall score has decreased by 1.0 point, primarily because of a decline in trade freedom. Lesotho is ranked 31st among 47 countries in the Sub-Saharan Africa region, and its overall score is below the regional and world averages.
Although the economy of Lesotho had been climbing higher in the mostly unfree category, it has suffered a setback this year. To expand economic freedom, the government will need to redouble its efforts to fight corruption and take other meaningful steps to improve the business and investment climates. Poor fiscal management is of particular concern.
IMPACT OF COVID-19: As of December 1, 2020, 44 deaths had been attributed to the pandemic in Lesotho, and the economy was forecast to contract by 4.8 percent for the year.
Landlocked within a mountainous area of South Africa, Basutoland was renamed the Kingdom of Lesotho upon independence from the United Kingdom in 1966. It is a parliamentary constitutional monarchy, currently headed by King Letsie III. In 2020, Finance Minister Moeketsi Majoro replaced Prime Minister Thomas Thabane, who resigned after being implicated in the murder of his ex-wife. Lesotho’s narrow economic base consists of textile manufacturing, agriculture, diamond mining, remittances from Basothos working in South Africa, and regional customs revenue. About three-fourths of the population is engaged in animal herding and subsistence agriculture. A large dam and tunnel infrastructure project will divert water to South Africa and provide money and hydropower to Lesotho.
Property rights are protected by law, but enforcement is inconsistent. Expropriation is unlikely. The judiciary is relatively independent but politicized, inefficient, slow, and chronically underfunded. Official corruption and impunity remain problems in all sectors of government and public services. The management of state revenues is not transparent. The anticorruption agency lacks full prosecutorial powers and faces capacity and funding challenges.
The top individual income tax rate is 35 percent, and the top corporate tax rate is 25 percent. The overall tax burden equals 31.6 percent of total domestic income. Government spending has amounted to 50.9 percent of total output (GDP) over the past three years, and budget deficits have averaged 4.1 percent of GDP. Public debt is equivalent to 54.4 percent of GDP.
Lesotho has made starting a business easier by removing the requirement for a health certificate and the requirement for inspection of the premises for all businesses. The labor force participation rate rose in 2019. Monetary stability is affected by the South African rand, and the government maintains food subsidies and influences other prices through state-owned enterprises.
Lesotho has six preferential trade agreements in force. The trade-weighted average tariff rate is 11.4 percent. Customs procedures are gradually improving, but other nontariff barriers persist. Private-sector investment remains limited. Facilitation of economic diversification is stymied by political considerations, and investment inflows remain constrained. The high cost of credit hinders the development of a vibrant private sector.