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.