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Countries and Regions Country Partnership Strategies Document
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Country Strategy and Program 2003-2005: Lao People’s Democratic Republic
II. Implementation of the Country Strategy and ProgramA. Progress under the Poverty Partnership Agreement11. The Government of the Lao PDR and ADB signed a poverty reduction partnership agreement in September 2001. It lays out a short-, medium-, and long-term vision to reduce poverty in accordance with the Millennium Development Goals, and identifies detailed indicators to monitor the implementation of the CSP and poverty reduction initiatives. 12. The Government is finalizing a national poverty eradication programme (NPEP). The NPEP will be considered the poverty reduction strategy paper and will be presented at the next roundtable meeting in about March 2003. The Government has recently adopted an official definition of poverty and criteria to identify and monitor poverty. The Government is conducting the 2002–2003 expenditure and consumption survey. ADB has supported the Government’s efforts to set up a system to quantitatively and qualitatively monitor poverty reduction, and to strengthen the institutional capacity of the National Statistics Center and local authorities. 13. Economic growth is assisting to reduce poverty in the Lao PDR. While quantifiable indicators are not readily available, consultations with concerned officials and stakeholders have indicated that primary and lower secondary net enrollment rates and female participation in primary school are up, and that rural access roads and water supply have increased. Community-based rural development is increasingly promoted to tackle rural poverty. Successful community initiatives require closer partnership between government agencies and community-based organizations. B. Progress in the Country Strategy and Program Focus Areas14. Rural Development and Market Linkages. With the help of considerable investment in irrigation systems over the past years, rice production increased by 50% during the 1990s, and reached 2.3 million tons in 2001. While remote and mountainous areas still face seasonal food shortages, the country overall has been self-sufficient in rice since 1999. This achievement opens up the opportunity to move beyond subsistence farming to more commercial agricultural activities. This is a matter that is being given close attention by the Government. To facilitate this development, the identification of niche markets and enhanced market linkages are critical. A more supportive enabling environment will be required to encourage private investment in commercial agriculture development. Rural finance and the remaining rural infrastructure constraints must be solved, productivity increased by strengthening research and extension, and rural market linkages enhanced through urban and small-towns development. ADB will continue to help the Government address these challenges. 15. Human Resource Development. The United Nations Development Programme 2001 Human Development Report reported that the country’s human development index in 1999 was 0.476, and ranked the Lao PDR 131st among 174 developing countries. Government reports and a recent reproductive health survey conducted by the United Nations Fund for Population Activities indicate that social development has progressed considerably. The adult literacy rate increased from 50% to 74% in the last decade, infant mortality declined from 104 to 75 per 1,000 live births during 1995-2000, and life expectancy increased from 50 years in 1995 to 55 years in 2000. However, the country’s human development still remains among the lowest in the world. The Government’s strategy is to achieve universal primary education by 2015 and primary health care for all by 2020, in line with the Millennium Development Goals. To achieve these targets, capital and recurrent expenditures must be balanced, and gender and regional disparities remedied. The Government has increased education expenditure from 9% of total expenditure in 2001 to about 12% in 2002. The Government aims to increase education expenditure up to 15% and health expenditure to 10% in 2005. ADB will continue to help the Government improve coverage, quality, and relevance of basic education, primary health care services, and water supply and sanitation. 16. Sustainable Environmental Management. In 2001, the Government and ADB prepared the Environment and Social Program Loan to improve environment and social safeguards in the development process, with particular emphasis on the energy and transport sectors. The main features included: (i) implementing decrees for the Environment Protection Law, and Water Resources and Water Law were issued; (ii) the Prime Minister endorsed the environmental impact assessment guidelines; (iii) preliminary draft guidelines on involuntary resettlement and compensation are undergoing public consultations; (iv) the principles of third-party monitoring were endorsed; and (v) the principles for establishing an environment fund were developed. Ecotourism is expected to be an important factor in future economic development and requires better management of the country’s rich natural resources and sociocultural environment. The Prime Minister issued a decree on forestry production in May 2002 and the Government is introducing a holistic river basin development and integrated water resources management approach with ADB’s help. The Government also emphasizes urban and small-towns development as an environmentally sustainable development measure. 17. Private Sector Development. The private sector produces most agriculture output and about 75% of the service sector output. More private investments are expected in hydropower, mining, forestry, specialized commercial agriculture, and tourism. However, the small and fragmented domestic market, untapped entrepreneurship, weak physical and legal infrastructure, poor contract enforcement, and cumbersome bureaucratic requirements have hampered private sector development. Some recent steps to improve the business environment for the private sector include (i) issuance of implementing decrees for the Foreign Investment Law and the Bankruptcy Law; (ii) introduction of a one-stop approval system to simplify the foreign direct investment approval procedure; (iii) delegation of authority to the Deputy Prime Minister, who is also the President of Committee for Planning and Cooperation (CPC), to approve investments of less than $10 million in priority areas; (iv) strengthening of the Business Improvement Committee under the Prime Minister’s Office and issuance of a prime minister’s decree on state-owned enterprise reform in May 2002; and (v) establishment of the Lao Trade Promotion Center to facilitate dissemination of information on business procedures, business-related law and regulations, and the export market. An ADB-assisted workshop to discuss obstacles to private sector development was held in March 2002 with government officials, the private sector, and development partners. The workshop recommended developing a pro-business environment by streamlining licensing and registration, improving access to finance, promoting asset securitization, providing a level playing field for enterprises, and strengthening the Chamber of Commerce. In May 2002, the Deputy Prime Minister and President of CPC chaired dialogue meetings with the private sector. The Government has also committed to wide-ranging financial sector reforms, which are also critical for private sector development. The Government has in principle agreed with ADB and the World Bank on a restructuring plan for state-owned commercial banks (SOCBs), which will be a centerpiece of the proposed 2002 banking sector reform program loan. 18. Governance and Capacity Building. Over the last 5 years, the Lao PDR has introduced several important steps to increase the efficiency of public services including: (i) issuance of guidelines on Public Administration Reform in 1998; (ii) establishment of the Central Committee for Government Organization Improvement under the Prime Minister and provincial committees during 1998–2000; (iii) establishment of the National Audit Office in 1998; (iv) issuance of a prime minister’s order on anticorruption in 1999; (v) restructuring of central agencies and ministries during 1999–2001; (vi) issuance of a prime minister’s decree on decentralization in 2000; (vii) transferring of the personnel management functions from the Lao People’s Revolutionary Party (Organizational Committee) to the Prime Minister’s Office (Public Administration Department) in 2001; (viii) review and increases in civil servants’ salaries during 2000–2002; and (ix) development and implementation of a new performance evaluation system for civil servants during 2000–2002. The last three are important steps to enhance professionalism in public service delivery. However, the structure and capability of public service is still far below that is required to realize the country’s potential. Further public sector reform is necessary to improve efficiency and transparency of the public sector; provide an adequate legal and institutional framework for private sector development; and remove constraints impeding dynamic economic and social development. A Government dialogue meeting with donors is planned in September 2002 to discuss these and other key governance issues. 19. Geographical Focus. To enhance the development impact of projects and ensure their close monitoring, ADB’s interventions will focus primarily on the northern provinces, which are among the poorest in the country, and on the Greater Mekong Subregion (GMS) East-West Corridor, in coordination with other development partners. ADB will process in 2002 an advisory technical assistance to assist the preparation of a northern region development plan. The TA will focus on the development constraints and opportunities in the northern region and assist in identifying priority investments (both public and private). The findings will have a major bearing on ADB’s future loan and TA program. 20. Subregional Cooperation. In 2002, the Government appointed a GMS Minister for subregional cooperation and the ADB GMS program has been discussed at cabinet meetings. Recently, the Prime Ministers of the Lao PDR, Cambodia, and Viet Nam discussed the establishment of a Viet Nam–Lao PDR–Cambodia development triangle. This is a reflection of the growing awareness at the highest political levels of the crucial importance of linking with rest of the GMS region and beyond to achieve significant and sustainable poverty reduction. ADB is preparing two important GMS projects for 2002 approval, namely: GMS: northern economic corridor project, in close cooperation with the governments of Thailand and the People’s Republic of China, and the GMS: Mekong River tourism infrastructure development project. These projects are expected to help stimulate economic and social development, particularly in the northern region of the country. C. Highlights in Coordination of External Funding and Partnership Arrangements21. ADB has closely coordinated its policy dialogue and operations with other major development partners, particularly the World Bank and IMF. ADB, IMF, and the World Bank are jointly preparing a public expenditure review and are working closely in the reform of the banking and financial sector. The SOCB restructuring plan to be covered under ADB’s proposed banking sector reform program will complement the conditions outlined in the IMF’s PRGF and the World Bank’s Financial Management Adjustment Credit. ADB, together with the World Bank and IMF, has helped the Government engage in dialogue with the private sector. ADB’s Resident Mission has facilitated donor coordination within the country through participation at the monthly United Nations country team meetings, assisting to organize the quarterly local donor coordination meetings, and active participation in various sectoral donor coordination meetings. 22. In 2001, ADB mobilized cofinancing for the Vientiane Urban Infrastructure and Services Project ($4.4 million equivalent from Agence Française de Développement [AFD]) and the Second Education Quality Improvement Project ($9.6 million from the Swedish International Development Agency). A number of potential cofinanciers have been identified and approached for future cooperation: AFD (capacity building for river basin development and urban development); European Union (capacity building for banking); Food and Agriculture Organization (livestock) Organization of Petroleum Exporting Countries Fund (rural access roads and small airports); Nordic Development Fund (rural electrification and urban development) and United Nations International Drug Control Programme (rural access roads and rural development).
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