Lao People's Democratic Republic: Governance and Capacity Development in Public Sector Management Program - Subprogram 1

Sovereign Project | 46059-001

Summary

The proposed programmatic approach for the Governance and Capacity Development in Public Sector Management Program, comprising of two subprograms, supports the efforts of the Government of the Lao PDR to improve its overall public sector capacity and governance framework and strengthen its public financial management (PFM) and public administration reforms. The expected impact will be improved delivery of key public services, and the outcome will be strengthened national and subnational public sector management. Specific outputs of the program and the related capacity development project will support (i) implementiation of multiyear budgeting and intergovernmental fiscal relations; (ii) strengthen civil service capacity at the central and subnational level, including gender-responsive capacity; and (iii) strengthen investment management capacity in the public sector for private sector investments and identify potential public private partnership (PPP) arrangements.

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Project Name Governance and Capacity Development in Public Sector Management Program - Subprogram 1
Project Number 46059-001
Country Lao People's Democratic Republic
Project Status Approved
Project Type / Modality of Assistance Grant
Loan
Source of Funding / Amount
Grant 0308-LAO: Governance and Capacity Development in Public Sector Management Program - Subprogram 1
Asian Development Fund US$ 7.50 million
Grant 0309-LAO: Governance and Capacity Development in Public Sector Management Program - Subprogram 1
Asian Development Fund US$ 6.00 million
Loan 2905-LAO: Governance and Capacity Development in Public Sector Management Program - Subprogram 1
Asian Development Fund US$ 2.50 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Sector / Subsector Public sector management - Public expenditure and fiscal management
Gender Equity and Mainstreaming Effective gender mainstreaming
Description

The proposed programmatic approach for the Governance and Capacity Development in Public Sector Management Program, comprising of two subprograms, supports the efforts of the Government of the Lao PDR to improve its overall public sector capacity and governance framework and strengthen its public financial management (PFM) and public administration reforms. The expected impact will be improved delivery of key public services, and the outcome will be strengthened national and subnational public sector management. Specific outputs of the program and the related capacity development project will support (i) implementiation of multiyear budgeting and intergovernmental fiscal relations; (ii) strengthen civil service capacity at the central and subnational level, including gender-responsive capacity; and (iii) strengthen investment management capacity in the public sector for private sector investments and identify potential public private partnership (PPP) arrangements.

The program supports the strategy of the Government of the Lao PDR to improve the overall public sector capacity and governance framework and strengthen public financial management (PFM) and public administration reforms as a way to achieve sustained and inclusive economic growth. The program and the related capacity development project is embedded in the Seventh National Socio-Economic Development Plan (NSEDP7), 2010 2015, which envisages an accountable, effective, transparent, and responsive public administration as a key development objective to strengthen service delivery.

Project Rationale and Linkage to Country/Regional Strategy

Improved governance in public sector management is critical to ensuring better service delivery. In the Lao PDR, significant lack of resources and capacity constraints undermine the effectiveness of public sector management (PSM) at all levels. The underlying institutional weaknesses exacerbate expenditure inefficiencies in the achievement of better budgetary outcomes, and affect quality of frontline services. Skewed planning, weak PFM, and an ad hoc system of intergovernment fiscal arrangements affect strategic allocation of resources. Weakened institutional capacities also arise in part from significant inadequacies in financial resources. Despite recent progress in public finance, and increased allocations for education and health services, budget resources are grossly inadequate when compared with the needs identified in sector development plans. Local administrations, responsible for delivering most of the pro-poor programs, have major capacity constraints, especially for efficient and equitable education and health outcomes. While the Lao PDR has made significant progress in advancing gender equality, striking inequalities persist along rural urban lines, geographic areas (north, center, and south), and among ethnic groups. These have directly contributed to slow achievement of critical Millennium Development Goals (MDGs).

The private sector has been identified as the main engine of growth. To overcome persistent resource scarcity in the public sector and chronic inefficiency, the government has adopted policies to facilitate the gradual transition to a private-sector-led market economy, and is seeking domestic and foreign direct investment (FDI) in key sectors, including agriculture, education, and health, to achieve gross domestic product growth of at least 8% annually and to address the financing gap under the NSEDP7. Increasing recognition of the potential of the agriculture and natural resources sector has led to a large flow of FDI since 2008. While FDI brings capital, technology, and skills, in several instances, investments in the agriculture and natural resources sector, arising from highly discretionary large-scale land concessionagreements, have led to environmentally and socially damaging results. The government also faces a growing governance and institutional gap, and lacks the capacity both at the national and the local government levels to implement and enforce the current law on investment to ensure long-term sustainability and widespread social gains. Gaps remain in enforcement of land concession agreements and public sector capacity to enforce contracts. Doing Business 2012 ranks the Lao PDR 182 among 183 economies in investor protection and 165 in ease of doing business overall.

Impact Improved delivery of key public services
Project Outcome
Description of Outcome Strengthened national and subnational public sector management
Progress Toward Outcome In progress
Implementation Progress
Description of Project Outputs

1. Multiyear budgeting and intergovernmental fiscal relations implemented

2. Civil service capacity at the central and subnational levels, including gender-responsive capacity strengthening

3. Investment management capacity in the public sector for private sector investments and identifying potential PPP arrangements strengthened

Status of Implementation Progress (Outputs, Activities, and Issues) In progress
Geographical Location
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects The program will have no adverse environmental impacts.
Involuntary Resettlement The program will have no involuntary resettlement impacts.
Indigenous Peoples The program will have no impact on indigenous peoples.
Stakeholder Communication, Participation, and Consultation
During Project Design Governance is a key strategic priority under the NSEDP7. The government has adopted several measures, including a long-term strategic plan, to implement public sector governance reforms. The government is committed to strengthening the PFM system under the ongoing Public Financial Management Strengthening Program (PFMSP). The National Governance and Public Administration Reforms (NGPAR), 2011 2015 seek to ensure an accountable and effective civil service at all levels. Major political reforms are under way to strengthen districts as the primary administrative units for service delivery, as a precursor to fundamental reforms in intergovernmental financial arrangements. In addition, gender equality and women's empowerment issues have been prioritized in the national development plans, including the National Strategy for the Advancement of Women (NSAW), 2011 2015. The business regulatory environment continues to be streamlined and a broad range of economic reforms has resulted in an improved investment climate, trade, and private sector development. The Lao PDR is geographically well placed to attract foreign investment from the rest of the Greater Mekong Subregion and from the Association of Southeast Asian Nations, and private sector participation. Regular consultations were held with the Government and the program priorities are aligned with government reform priorities, and are well coordinated with development partners. The program is consistent with key objectives of the NSEDP7 that underline the link between good governance and broader development goals. Support to the PFMSP, NGPAR, and NSAW goals maximizes harmonization and ownership. Using a programmatic approach, the program seeks to sequence high-impact policy reforms, which allows reforms to be phased in over the medium term. Development partners recognize that the lack of institutional capacity in the public sector is a crosscutting challenge.
During Project Implementation

The implementation period for subprogram 1 is from January 2010 to July 2012, and the implementation period for subprogram 2 is from August 2012 to September 2014. The executing agency for the program is the MOF. As the executing agency, the MOF will be responsible for the overall implementation of subprogram 1 including disbursements, maintenance of all program records, and communicating with ADB on behalf of the government.

The project implementation period commenced from July 2013, and inception period is over, and the implemenation of major activities for all the three components have commenced. Inception mission was jointly undertaken by the Ministry of Home Affairs, the Executing Agency for the project, and with full participation from the Ministry of Finance (MOF), Ministry of Home Affairs, and Ministry of Planning and Investment, including Ministry of Education and Sports and Ministry of health. Regular consultations will also continue with the private sector on the policy initiatives concerning public private partnership projects under component 3 of the project.

Component 1: A consulting firm (PWC) has been engaged since June 2013 to undertake the tasks under this component. Various meetings have been conducted with MOF and a few trainings have been conducted. MOF has received the initial inputs/reports from the consultants and is considering their recommendation. Firm will undertake further meetings with the various stakeholders in order to meet requirements of the project.

Component 2: A consulting firm (VICA) has been engaged since June 2013 to undertake the tasks under this component. Various trainings/meetings have been conducted by the firm and will continue to conduct as per requirements of the project.

Component 3: Under the PPP component, Rebel Group has been engaged since June 2013. Initial tasks under the project was to draft the legal framework on PPP. This is being finalized. Under the component on land lease, an international contract management expert was engaged to assist MONRE on this aspect.

A review mission was recently undertaken to review the implementation progress of components 1, 2 and 3. Project team will continue to coordinate with the EA, the implementing ministries, three consulting firms, and individual consultants engaged under the project. A new gender expert will be engaged under component 2. Recruitment is already being processed.

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Business Opportunities
Consulting Services A total of 119 international and 150 national consulting services will be recruited under the project grant.
Procurement Procurement of IT equipment and vehicle.
Responsible ADB Officer Prasanna Kumar Jena
Responsible ADB Department Southeast Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SERD
Executing Agencies
Ministry of FinanceThat Luang Road
P.O. Box 46, Vientiane, 23 Singha Road
Lao People's Democratic Republic of
Ministry of Home AffairsVientiane, Lao PDR
Timetable
Concept Clearance 22 Jun 2012
Fact Finding 02 Jul 2012 to 10 Jul 2012
MRM 08 Aug 2012
Approval 27 Sep 2012
Last Review Mission -
Last PDS Update 28 Mar 2014

Grant 0308-LAO

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
27 Sep 2012 23 Oct 2012 07 Dec 2012 31 Mar 2013 - 31 Mar 2013
Financing Plan Grant Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 7.50 Cumulative Contract Awards
ADB 7.50 27 Sep 2012 7.50 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 27 Sep 2012 7.50 0.00 100%

Grant 0309-LAO

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
27 Sep 2012 23 Oct 2012 14 Dec 2012 31 Jul 2016 - -
Financing Plan Grant Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 6.50 Cumulative Contract Awards
ADB 6.00 27 Sep 2012 3.89 0.00 65%
Counterpart 0.50 Cumulative Disbursements
Cofinancing 0.00 27 Sep 2012 2.78 0.00 46%

Loan 2905-LAO

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
27 Sep 2012 23 Oct 2012 07 Dec 2012 31 Mar 2013 - 31 Mar 2013
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 2.50 Cumulative Contract Awards
ADB 2.50 27 Sep 2012 2.55 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 27 Sep 2012 2.55 0.00 100%

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