High and sustained rate of economic growth in Yemen is a necesary, though not sufficient, condition for reduction of the high incidence of poverty and for raising the living standards of Yemeni citizens. Evidence in this report suggests that the main obstacle to rapid and sustained economic growth is the weak governance that characterizes Yemen in addition to the weaknesses in domestic security, property rights, and rule of law systems. Weak governance in Yemen is characterized/manifested by widespread corruption, lack of transparency and accountability, inefficiency in the interaction of public officials and private business, ineffective or absent market promoting institutions such as those enforcing contracts (courts, tribunals, etc.), poor performance of the public sector in terms of delivering essential goods and implementing programs, associated lack of incentives and skills in the civil service, and weak enforceability of contracts and rulings. Along with ordering the governance situation, there are areas that should receive government priority in the short and medium term, including: 1) enhancing domestic security to boost economic activity in all economic sectors; 2) removing excessive and arbitrary regulations to strengthen basic infrastructure and other services and to attract private investment into these sectors; 3) legal and judicial reform; and 4) sustained implementation of civil service reforms.