Lesotho is one of the poorest and mostunequal countries in the world. It is a small, mostlymountainous, and largely rural country of about 2 millionpeople, completely surrounded by South Africa. Thepersistence of poverty and rising inequality are strikingfor an economy that grew at annual rates of 4 percent percapita over the past decade. Redefining the role of thestate will be critical for meeting the twin goals throughboosting inclusive growth and avoiding macroeconomic andsocial risks. In this context, this Systematic CountryDiagnostic (SCD) is intended to assess developmentchallenges and identify priorities for rapid progress inachieving the objectives of: (i) eliminating extreme povertyon a sustainable basis and (ii) ensuring shared prosperityby improving the welfare of Lesotho’s poorer citizens. Thereport analyzes the opportunities and challenges in meetingthese objectives, focusing on growth, inclusiveness, andsustainability. The SCD concludes by prioritizing the keychallenges. Lesotho has an opportunity to eradicate extremepoverty and boost shared prosperity in coming years. It willrequire shifting to a growth model led by an export-orientedprivate sector, fortified by higher skilled, moreproductive, and more entrepreneurial individuals,households, and firms. Lesotho cannot realize this newgrowth model without redefining the role of the state. Forthis new model to develop, strong political consensus isnecessary to push the difficult reforms needed.
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