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Annual Report 2002 : Mekong

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Lao People’s Democratic Republic

Economic performance

The Lao PDR’s GDP growth rate was 5.8% in 2002, slightly above the 2001 level. The agriculture sector, which employs an estimated 80% of the workforce, grew at 4% in 2002. The industry sector grew by 9.8% and the services sector by 5.8%. The inflation rate increased to 10.6% and the kip depreciated by 13.5% against the US dollar.

The overall budget deficit was 8.3% of GDP, mostly financed by grants and external concessional loans. Total expenditure in FY2002 (ending September) was 21.6% of GDP and total revenue was 13.3% of GDP. From preliminary estimates, capital expenditure accounted for about 57.5% of total expenditure. Spending on education and health increased from 11.4% in FY2001 to 19.1% in FY2002. The current account deficit declined from 6.9% of GDP in 2001 to 5.6% of GDP in 2002, while the trade deficit went from $217 million in 2001 to $199 million in 2002. Garments, wood products, and electricity from hydropower plants led exports. The value of new foreign investment projects approved in FY2002 increased.

ADB operations

Operational strategy: ADB’s strategy focuses on reducing poverty by broadening community participation and opportunities through rural development and market linkages, human resource development, sustainable environmental management, and private sector development. The strategy also aims to maximize benefits from subregional cooperation with interventions focusing on poor northern provinces and along the East-West road corridor.

Policy dialogue: Policy dialogue in 2002 focused on fiscal management, financial sector reform, private sector development, environmental management, and poverty monitoring. ADB, in close coordination with the International Monetary Fund (IMF) and the World Bank, helped the Government develop a policy framework for banking sector reform and conducted a joint public expenditure review. ADB also assisted the Government in preparing official decrees on public investment, official development assistance, and environmental impact assessment.

Loans and technical assistance: Six loans totaling $86.9 million were approved in 2002, including the Lao PDR component of the GMS regional project for developing tourism. Other projects aim to develop the Nam Ngum River basin, reform the banking sector, assist smallholders, and develop the GMS northern economic corridor. Seven technical assistance totaling $3.7 million were approved (see tables 1, 6, 24, and 25 in the Statistical Annex).

Project implementation: Since joining ADB in 1966, the Lao PDR has received 58 loans totaling 1,039.4 million, of which 24 were active at the end of 2002. Contract awards totaled $43.2 million, bringing the cumulative figure to $766.8 million. The contract awards ratio for 2002 was 17.7%—lower than ADB’s average of 22.6%. Disbursements during the year totaled $48.6 million, bringing cumulative disbursements to $708.9 million. The disbursement ratio was 19.5%—lower than the ADB-wide average of 22.2% (see tables 14–23 in the Statistical Annex).

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