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Annual Report 2001

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Lao People’s Democratic Republic

Economic performance

In 2001, GDP grew at 5.5% in the Lao People’s Democratic Republic (Lao PDR), compared with 5.9% in 2000. The agriculture, industry, and services sectors all reported healthy growth rates in 2001. Agriculture, which employed an estimated 85.0% of the workforce, grew at 3.9% in 2001. Industry grew at a rate of 8.5% in 2001, compared with 7.5% in 2000. In 2001, inflation was brought down to around 8%, due to strict monetary policy—adopted in the second half of 1999—restricting central bank lending to the Government, commercial banks, and state-owned enterprises. This was coupled with tight fiscal and monetary policies. In 2001, the exchange rate remained steady between 8,300 and 9,500 kip to the dollar. Total expenditures in FY2000 were 21.9% of GDP and the Government had a primary surplus of 6.2% of GDP and an overall budget deficit of 7.9% of GDP, largely financed by grants and external borrowing. In 2001, capital expenditure accounted for around 65.0% of total expenditure. The current account deficit in 2001 was 7.2% of GDP, compared with 5.8% in 2000. Exports continued to grow, reaching $393 million in 2000 and $425 million in 2001. Electricity from hydropower plants was the leading export. Tourism increased and was a major source of foreign exchange earning. Imports also grew from $591 million in 2000 to $653 million in 2001. In recent years, foreign private investment has focused mainly on hydropower and tourism. In 2001, foreign investment was estimated at $30 million, about the same level in 2000 but below the levels in previous years when investment was often above $100 million per year. The mining subsector started to gain momentum. In 2001, the Government signed several memorandums of understanding for surveys and explorations of copper, potassium, zinc, gold, and cement raw materials.

ADB operations

Operational strategy: ADB, with the Government, formulated its new country strategy and program (CSP) in 2001 to guide its operations in the Lao PDR for the next 5 years. The core strategies for reducing poverty are sustainable economic growth, inclusive social development, and good governance. The strategy focuses on five operational priorities: rural development and market linkages, human resource development, sustainable environmental management, private sector development, and regional integration. The Lao PDR is a key player in the Greater Mekong Subregion (GMS) program, and the CSP explores various options for maximizing the benefits of subregional cooperation. ADB’s interventions will focus primarily on the poor northern provinces and along the East-West Corridor. A partnership agreement on poverty reduction was signed between the Government and ADB in September 2001.

Policy dialogue: In 2001, policy dialogue focused on fiscal management, financial sector reform, private sector development, environment management, and poverty monitoring. A policy-based loan was processed in 2001 to help the Government take into account environment and social concerns in energy and transport infrastructure development projects. ADB also conducted a joint public expenditure review with IMF and the World Bank to ensure that public expenditures incorporate the Government’s strategy for reducing poverty. ADB also helped the Government improve its public investment program, and its monitoring of aid and poverty incidence.

Consistent with ADB’s Resident Mission Policy, the Lao Resident Mission (LRM), established in 2000, has become increasingly active in aid coordination and project implementation. The Lao PDR Prime Minister and the ADB President inaugurated the LRM in July 2001. LRM led the annual country portfolio review mission in 2001. ADB has been an active member of the funding agency community in the Lao PDR. In 2001, ADB worked closely with the IMF and World Bank in support of systemic reform in the financial sector.

Loans and technical assistance: In 2001, ADB approved three loans totaling $65 million: Vientiane Urban Infrastructure and Services Project, Second Education Quality Improvement Project, and Environment and Social Program. ADB also approved 10 technical assistance grants totaling $5.2 million. Five are advisory in nature, including three for capacity building—in project financial management, of the Lao Women's Union, and for environment and social management in energy and transport; and two for institutional strengthening of public investment management and of the National Audit Office. The rest are to prepare projects on the northern community-managed irrigation sector, financial sector development program, and roads for rural development.

Project implementation: Since joining ADB in 1966, the Lao PDR has received 52 loans, of which 19 were active at the end of 2001. Contract awards totaled $50.9 million, bringing the cumulative figure to $718.1 million. The contract award ratio was 25.5%, higher than the ADB-wide average of 14.8%. Disbursements during the year totaled $44.7 million, bringing cumulative disbursements to $660.3 million. The disbursement ratio was 18.9%, lower than the ADB-wide average of 20.5%.

The LRM assists in project administration and helps executing agencies understand ADB procedures. The LRM and the Committee for Planning and Cooperation hold quarterly review meetings with national project directors to monitor portfolio performance. In November, a country portfolio review was undertaken with the Government. The implementation status of the 2000 action plan was reviewed and additional measures were agreed upon with the Government to improve further the overall portfolio performance.

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