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Countries and Regions Country Partnership Strategies Document
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Country Strategy and Program 2002-2004: Lao People’s Democratic Republic
Executive SummaryThe Lao People’s Democratic Republic (Lao PDR) has a rich and varied natural resource base and is also the hub of the economic corridor linking the subregional economies. However, the Lao PDR’s mountainous terrain, remote settlements, and low population density are barriers to access to and cost-efficient delivery of public services. Policy and administrative reform must be accelerated and institutions and human resources developed to realize the country’s potential. During the last five years, the Lao PDR has achieved average economic growth of about 6 percent per annum and reduced the incidence of poverty from 45 to 39 percent. The incidence of poverty varies significantly across regions as well as between urban and rural areas, and is highest in the northern region and lowest in Vientiane Municipality. While economic growth has helped reduce poverty, the better-off have benefited more than the poor. Sustaining poverty reduction through equitable economic growth will be a major challenge. The Government’s ambitious development goal is to reduce poverty by half by 2005 and eradicate it and for the Lao PDR to graduate from the status of least developed country by 2020. The Government targets broad-based economic growth of 6-7 percent per annum over the next five years. The strategic approach is to reduce poverty through human and rural development, and people’s participation, focusing on (i) agriculture and forestry, (ii) education, (iii) health, and (iv) road infrastructure. To achieve its ambitious objectives with limited financial and human resources, the Government will need to prioritize and phase in its poverty reduction program. The Asian Development Bank’s (ADB) 1996 Country Operational Strategy Study places high priority on sustainable economic growth through infrastructure investments, and secondary but important emphasis on policy reform, social services, and human development. The Study also emphasizes subregional cooperation. Operations evaluation findings show that ADB’s past operations contributed to the country’s economic development, poverty reduction, and regional integration. However, to maximize the development impact of ADB’s operations in the Lao PDR, the following are needed: (i) more emphasis on synergy between various development activities, (ii) better social and environmental management in economic development planning and implementation, (iii) effective institutional development and capacity building, (iv) greater sustainability of investment projects, and (v) more emphasis on full participation and ownership of stakeholders. The theme of ADB’s interventions in the Lao PDR over the next five years will be poverty reduction by broadening community participation and opportunities. Core strategies are (i) sustainable economic growth, (ii) inclusive social development, and (iii) good governance through policy and institutional development. ADB will thus focus on four operational priorities (i) rural development and market linkages, (ii) human resource development, (iii) sustainable environmental management, and (iv) private sector development and regional integration. The participatory poverty assessment highlights the need to improve rural infrastructure and increase market access in rural areas. With local community’s participation, ADB will support the development of rural access roads, electricity, water supply, and other rural physical infrastructure. ADB investments will be complemented by improved basic education, skills, and health standards. To increase agricultural productivity, ADB will focus on (i) institutional development and policy reform; (ii) crop diversification, including livestock and commercialization; (iii) reducing shifting cultivation; (iv) rural finance development; and (v) provision of extension services. Small-town development will help link the rural and urban areas. ADB will continue to widen the coverage of quality services in basic education, primary health care, and water supply, and to support development of isolated areas, women, and ethnic minorities. Social services will be made more relevant to community needs by increasing community participation in project preparation and implementation. ADB will strengthen policy dialogue to address the imbalance between current and capital expenditures to make social sector investment more sustainable and efficient. In a natural resource-based economy, all public investments have potentially important environmental implications. Environmental considerations will be increasingly integrated into earlier stages of economic planning and infrastructure development, including hydropower. ADB will work closely with other aid agencies, community groups, and civil society to improve the institutional, policy, and regulatory framework for sustainable environmental management. ADB will place more emphasis on community consultation and involvement, and on raising public awareness of social and environmental issues. ADB will consider investment support for river basin development and industrial tree plantation. Private sector development, particularly of micro- and small businesses, is critical to achieve sustainable economic growth and reduce poverty. To improve the business environment, ADB will focus on (i) restructuring state-owned commercial banks (SOCBs) and improving corporate governance, (ii) providing a level playing field for state-owned enterprises and the private sector, (iii) improving financial service delivery in rural areas, (iv) establishing regular dialogue between business groups and the Government, and (v) removing barriers to cross-border movement of goods and people. Infrastructure projects will develop potential markets, tourism, and enterprises. ADB will pursue internal and subregional economic integration to expand the economy’s market base and broaden the country’s opportunities. Most road networks in the land-linked Lao PDR contribute to subregional cooperation. The country program should be effectively linked with Greater Mekong Subregion (GMS) initiatives. The country strategy and program (CSP) aims to explore policy, administrative, and public expenditure options to maximize the benefits to the Lao PDR from subregional cooperation. Potential areas for subregional development cooperation include transport, tourism, power transmission, telecommunications, trade and investment, HIV/AIDS and other disease prevention, and environmental management. To enhance the development impact of projects and ensure their close monitoring, ADB’s interventions in the Lao PDR will focus primarily on the northern region provinces, which are the poorest in the country, and on Savannakhet Province, where the ongoing GMS: East-West Corridor Project connecting the Lao PDR with Thailand and Viet Nam will provide opportunities for access to markets. Weak capacity of the Government and local agencies and inefficient delivery of public services are major constraints to development. Institutional development, improved governance, and greater stakeholder participation in development will be an integral part of all ADB operations. ADB will particularly focus on improving (i) public finance management, (ii) government accounting and auditing, (iii) project implementation and monitoring; and (iv) the capacity of provincial authorities. Long-term institutional development and capacity-building programs for agencies will be prepared and reflected in ADB investment, as appropriate. Three lending scenarios are proposed for the 2002–2004 assistance plan. Considering recent achievements in macroeconomic stability, economic growth, poverty reduction, and social development, the current situation is a base case lending scenario. Subject to performance-based allocation, an indicative planning figure (IPF) of $45 million–55 million per year for lending, with additional IPF for subregional projects, is used to develop the 2002–2004 assistance plan. A base case scenario would be triggered by (i) stable macroeconomic outlook; (ii) formulation of and Government commitment to a SOCB restructuring plan and implementation of agreed upon interim measures; (iii) enactment and implementation of the prime minister’s decree on social and environmental impact assessment; and (iv) implementation of monitoring systems for contract award, submission of audited financial reports, and compliance with loan covenants. A high case scenario would be triggered by (i) significant improvement in macroeconomic management; (ii) implementation of restructuring plan of the banking sector and rural finance; (iii) significant improvement in the balance between capital and current expenditures in social development; and (iv) significant improvement in contract award, submission of audited financial reports, and compliance with loan covenants.
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