LESOTHO HAS achieved solid economic growth and a seemingly positive shift in the output structure. Nonetheless, these have not translated into corresponding improvements in employment and poverty outcomes. The literature identifies a number of factors that explain this phenomenon. The empirical analysis and case studies included in this paper reveal that economic growth should be supplemented with employment generating economic structural transformation to have a meaningful poverty reducing impact. Effective economic transformation can be achieved when there is an effective institutional structure in place to support implementation of strategic development policies. Development of effective institutions could be the solution to Lesotho’s sluggish implementation of strategic development policies. Lesotho needs to define the kind of institutions that have to be developed to address all impediments to effective implementation of policies that have the potential to transform the economy, generate employment and address poverty.