Lesotho began a structural economic transformation in the early 1990s. The transformation has brought higher, more secure incomes to households while the government succeeded in dramatically improving access to services such as education, health, water, and transportation. Yet today, Lesotho faces a number of serious development challenges, including a high rate of chronic poverty, entrenched income inequality, and most troubling one of the highest HIV/AIDS prevalence rates in the world. This report focuses on three main areas: i) livelihood patterns among Lesotho's households and how these correlate with opportunity and exclusion; ii) how the government could make access to public services and overall social development more equitable; and iii) how the economic and social vulnerabilities of households, including HIV/AIDS, could be alleviated in order to reduce poverty. In this report concludes that it is possible for Lesotho to reduce poverty and to continue its transition to an economically diverse middle-income country by undertaking three key strategies: continuing to develop the investment climate for labor-intensive production; implementing programs to support commercial agriculture and reduce land degradation in rural areas; and developing a strategy to support socioeconomic and geographic mobility of workers into higher-productivity sectors. Public funds should be better targeted towards assisting the poor to build human capital and manage risks. Other recommendations to improve the plight of the people of Lesotho include creating a more equitable and inclusive society, especially for women, and developing a more effective campaign against HIV/AIDS.