Lesotho is one of the poorest and most unequal countries in the world. It is a small, mostly mountainous, and largely rural country of about 2 million people, completely surrounded by South Africa. The persistence of poverty and rising inequality are striking for an economy that grew at annual rates of 4 percent per capita over the past decade. Redefining the role of the state will be critical for meeting the twin goals through boosting inclusive growth and avoiding macroeconomic and social risks. In this context, this Systematic Country Diagnostic (SCD) is intended to assess development challenges and identify priorities for rapid progress in achieving the objectives of: (i) eliminating extreme poverty on a sustainable basis and (ii) ensuring shared prosperity by improving the welfare of Lesotho's poorer citizens. The report analyzes the opportunities and challenges in meeting these objectives, focusing on growth, inclusiveness, and sustainability. The SCD concludes by prioritizing the key challenges. Lesotho has an opportunity to eradicate extreme poverty and boost shared prosperity in coming years. It will require shifting to a growth model led by an export-oriented private sector, fortified by higher skilled, more productive, and more entrepreneurial individuals, households, and firms. Lesotho cannot realize this new growth model without redefining the role of the state. For this new model to develop, strong political consensus is necessary to push the difficult reforms needed
