Regions and Countries

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p. 12 of 12 BACK | NEXT Executive Summary I. Recent Economic Developments II. Short-and Medium-Term Economic Prospects and Policy Issues III. Poverty Reduction A. Trends in Poverty and Inequality B. Public Policies and the Poor

Country Economic Review: Lao People’s Democratic Republic : III. Poverty Reduction

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B. Public Policies and the Poor

94. Given the low level of automatic transmission of economic growth to poverty reduction, the Government and assistance agencies should take additional steps to reduce poverty. Investing in rural infrastructure will help the benefits of growth reach the poor due to the opening of markets and increasing economic activities. At the same time, concrete investments to improve agricultural productivity (such as increasing agricultural extension and applied agricultural research) will also directly benefit the poor, who largely depend on agriculture as their main source of income.

95. The high population growth rate not only lowers the economic potential of the country, it also places additional burdens on the country. Women are placed at risk from additional births (the total fertility rate in the Lao PDR is around six children per woman) and a growing population can burden the education and health system. The high dependency rate (nonworking household members compared with working household members) also dilutes the household’s income and contributes to poverty. However the high population rate is not only a cause of poverty, it is also an effect of poverty. Part of the motivation for households to have a large number of children is the fear of infant and child mortality (reducing the number of surviving children) and to provide security in the parents’ old age.

96. Investing in the human capital of the poor will also allow the poor to integrate better into the economy. Although, the agriculture sector has played an important role in economic growth in the past decade, the overwhelming historical evidence shows that the sector will decrease as a proportion of the economy and agricultural growth rates will fall below those of the rest of the economy. Education is essential for the population to take advantage of the growing opportunities in the economy. Investing in towns and small cities will also increase the opportunities of the rural population by increasing the market and by serving as a destination for migration.

97. The Government is formulating its 5^th five year socioeconomic development plan for 2001 to 2005 as part of its long-term framework to reduce poverty. The Government is to seek to promote balanced economic growth in both the urban and rural areas. Recognizing that a large percentage of the population of the Lao PDR depend on the natural environment for their well-being, the Government also emphasizes sustainable natural resource management. The Government has also prepared an interim poverty reduction strategy paper to refine its poverty reduction strategy.

98. Given the lack of data, measuring the effect of government spending on the welfare of the poor is difficult. A study of the health and education needs of ethnic minorities in the Lao PDR,12 showed that education spending disproportionately benefits urban students. Estimates are that a university student receives a subsidy that is 20 times larger than the subsidy for a primary student. Likewise the increase in government capital expenditures probably tends to be biased towards wealthier households. The Government is committed to reduce this imbalance in its new socioeconomic development plan with its increased focus on recurrent spending and social spending.

99. Since the poor are largely out of the cash economy, they do not suffer the direct effects of taxation (which mostly falls on imported goods) but are likely to suffer from the fact that tax policy restricts trade. They also suffer from internal barriers to trade, in the form of taxes on domestic commerce and local monopolies that reduce the commercialization of goods.

Back A. Trends in Poverty and Inequality	Country Economic Review: Lao People’s Democratic Republic