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- GDP (PPP):
- $4.3 billion
- 5.8% growth
- 5.2% 5-year compound annual growth
- $2,255 per capita
- Inflation (CPI):
- FDI Inflow:
Lesotho’s economic freedom score is 49.6, making its economy the 155th freest in the 2015 Index. Its score is essentially the same as last year’s, with a change of 0.1 point reflecting improvements in freedom from corruption, labor freedom, and fiscal freedom that outweigh declines in property rights, investment freedom, and trade freedom. Lesotho is ranked 38th out of 46 countries in the Sub-Saharan Africa region, and its overall score is below the world average.
Over the past five years, economic freedom in Lesotho has advanced by 2.1 points, reflecting marked improvements in six of the 10 economic freedoms, but a gain of over 20 points in fiscal freedom has been more than offset by a decline of over 20 points in the management of government spending.
Corruption remains a serious problem and pervades all levels of government. High tariffs on agricultural and other products exacerbate food security issues and increase costs. Outmoded labor laws undermine the development of a formal labor market, and inefficient business regulations inhibit business formation.
Following independence from the United Kingdom in 1966, Lesotho was subject to frequent coups and foreign military interventions for nearly three decades. Lesotho is a parliamentary constitutional monarchy. King Letsie III is ceremonial head of state. Thomas Thabane, elected prime minister in May 2012, was forced to flee in August 2014 following an attempted coup by a renegade general. He was reinstated following a peace deal brokered by the South African 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. In 2012, one of the worst food crises in human history hit Lesotho after its crops failed due to extraordinary weather circumstances. Lesotho has the world’s third-highest HIV rate.
In 2013, the water minister became the first cabinet member ever to be dismissed because of corruption. Corruption pervades all sectors of public service, 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.
Lesotho’s top individual income tax rate is 35 percent, and its top corporate tax rate is 25 percent. Other taxes include a value-added tax and a tax on dividends. Tax revenue equals about 36.1 percent of domestic output, and public expenditures have reached 61.1 percent of domestic production. Public debt is equivalent to about 40 percent of gross domestic product.
Starting a business takes seven procedures, and no minimum capital is required, but completing licensing requirements still takes over 150 days on average. The labor market remains stagnant. A large portion of the workforce is in the informal sector. The government influences prices through state-owned enterprises. Monetary stability is affected by inflationary pressures in South Africa.
Lesotho’s average tariff rate is 12.7 percent. Imports of agricultural products or used clothing and cars may require a license. Foreign and domestic investments are treated equally under the law. The financial system is closely linked to South Africa’s and dominated by South African–owned banks. Much of the population lacks adequate access to banking services. There is no stock exchange.