Poverty reduction strategies and policies have gained considerable popularity in recent policy discourse and international economic relations. These policies and strategies are framed in the context of the Millennium Development Goals that set specific quantitative targets to be achieved within a specified time framework. The goals specify the targets and require countries to design national poverty reduction strategies and achieve them with a generous financial assistance from the international community. However, the domestic political economic forces remain to shape the extent and effectiveness of such strategies in addressing and reducing the extent and depth of poverty in the reforming countries. This paper develops a political economy perspective of adopting and pursuing sustainable economic growth and poverty reduction path with particular reference to the Ethiopian situation. It addresses the policies, assesses the experience and identifies the impediments to poverty reduction in Ethiopia and explores the prospects for sustained improvement in standard of living and elimination of chronic poverty.