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- GDP (PPP):
- $5.3 billion
- 2.2% growth
- 4.5% 5-year compound annual growth
- $2,764 per capita
- Inflation (CPI):
- FDI Inflow:
Institutional shortcomings and the lack of much-needed economic reform continue to undermine Lesotho’s entrepreneurial growth. Recent fiscal reforms have been limited in scope and depth. Impeded by political volatility and pervasive corruption, the protection of property rights and enforcement of the rule of law remain weak.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 50.6 (up 1.0 point)
- Economic Freedom Status: Mostly Unfree
- Global Ranking: 152nd
- Regional Ranking: 38th in Sub-Saharan Africa
- Notable Successes: Monetary Freedom
- Concerns: Management of Public Finance and Rule of Law
- Overall Score Change Since 2012: +4
The state’s presence in private-sector activity remains intrusive, and government spending is high. Despite marginal economic reforms, including the strengthening of contract enforcement through a new commercial court, regulatory barriers and poor trade freedom still stifle broad-based private-sector development.
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 four days later following a deal brokered by the South African government and fled again, along with other opposition leaders, in May 2015. General elections held in February 2015 were largely viewed as free and fair, and Pakalitha Mosisili is now prime minister in a coalition government. Geographically surrounded by and economically integrated with South Africa, Lesotho relies on customs duties from the Southern Africa Customs Union for government revenue and remittances from laborers employed in South Africa for much of its national income. Principal exports include diamonds and water. Lesotho has the world’s third-highest HIV rate.
The August 2014 failed military coup shook Lesotho’s political institutions, temporarily closed the courts, and left lasting tensions. Corruption remains pervasive in all sectors of government and public services, and cronyism is prevalent in state bidding procedures. The judiciary is relatively independent but politicized and chronically underfunded. Protection of private property rights is ineffective, but expropriation is unlikely.
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. Overall tax revenue equals 47.3 percent of national income. Government spending has reached over 60 percent of GDP. The deficit has been around 2 percent, and public debt equals about 46 percent of total domestic output.
The entrepreneurial environment remains hampered by regulatory inefficiency and a lack of transparency. The cost of licensing requirements still equals almost 10 times the average annual income. The labor market remains inefficient, and informal labor activity is high. The government increased food subsidies in 2015 and influences prices through state-owned enterprises. The volatility of the South African rand affects monetary stability.
Lesotho’s average tariff rate is 2.1 percent. A license may be required to import used clothing and cars. Additional controls apply to agricultural imports and exports. There is no general screening of foreign investment. 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.