Lao PDR and ADB

ADB's Work in the Lao PDR

ADB has been supporting the Lao People’s Democratic Republic (Lao PDR) since 1968 and remains one of the country’s largest multilateral financiers.

Over the past 5 years, the country’s economy has enjoyed a healthy rate of growth. However, a delicately balanced macroeconomic outlook, weak human resources and infrastructure, and the recurrence of natural hazards continue to pose challenges to the Lao PDR’s development.

To reduce the country’s heavy reliance on the resources sector, particularly hydropower and mining, which offer limited jobs and lack industrial linkages to the rest of the economy, economic diversification and enhanced regional cooperation are needed to expand trade, accelerate private sector investment, and generate employment.

Since 1968, ADB has committed loans, grants, and technical assistance totaling $2.91 billion for the Lao PDR.

Aerial view of the Nam Theun 2 Hydropower Plant

Workers assembling electronic products in a factory inside the Savan Park Special Economic Zone in Savannakhet

In October 2019, ADB committed a total of $140 million in concessional loans and a grant to help the Government of the Lao PDR strengthen public financial management, enhance education to match employment prospects, and improve rural infrastructure and watershed management in the northern provinces.

Under the $140 million package, ADB committed a concessional loan of $45 million to enable the government to carry out the Public Finance Reform 2025. The funding will help the Lao PDR strengthen public debt management, reform tax administration, improve medium-term fiscal planning and budgeting, and boost governance and budget credibility.

The second component of the package saw ADB commit $50 million to support the Lao PDR’s ongoing efforts to raise school enrollment levels, improve the quality of secondary education, and align post-primary education (secondary education, technical and vocational education and training, and higher education) to enhance youth employability by addressing the changing needs of the labor market.

For the third component, ADB committed a $40 million concessional loan and a $5 million grant from its disaster risk reduction fund to help the Lao PDR improve rural infrastructure and watershed management in the four northern provinces, increasing incomes and improving the quality of life for struggling farmers.

New value crops like Japanese cucumbers are helping farmers in the Lao PDR maximize their land and generate additional income.

Nonsovereign Operations

As a catalyst for private investments, ADB provides financial assistance to nonsovereign projects and financial intermediaries. Total commitments from ADB’s own funds (in equity and direct loans) in 2019 amounted to $3.00 billion for 38 transactions in economic and social infrastructure, the finance sector, and agribusiness. ADB also actively mobilizes cofinancing from commercial and concessional sources. In 2019, ADB mobilized $3.28 billion of longterm cofinancing and $3.69 billion of cofinancing in trade finance, microfinance, and supply chain finance programs. Total outstanding balances and commitments of nonsovereign transactions funded by ADB’s own resources stood at $13.78 billion as of 31 December 2019.

Financing Partnerships

Financing partnerships enable ADB’s development partners, governments or their agencies, multilateral financing institutions, and commercial organizations to participate in financing ADB projects. The additional funds are provided in the form of loans and grants, technical assistance, and other nonsovereign cofinancing such as B loans, risk transfer arrangements, parallel loans and equity, guarantee cofinancing, and cofinancing for transactions under ADB’s Trade Finance Program and Supply Chain Finance Program.

ADB began cofinancing operations in the Lao PDR in 1973. Since then, sovereign cofinancing commitments for the Lao PDR have amounted to $375.28 million for 34 investment projects and $49.03 million for 56 technical assistance projects. Nonsovereign cofinancing for the Lao PDR has amounted to $499.4 million for one investment project.

In 2019, the Lao PDR received $4.46 million in grant cofinancing from the European Union for the sustainable rural infrastructure and watershed management sector.

Projects Cofinanced, 1 January 2014–31 December 2018

Operational Challenges

The Government of the Lao PDR has made vigorous efforts to contain the country’s large fiscal deficit and reduce public debt by implementing laws on public procurement and public debt management, and introducing a medium-term budget framework.

It is also working to bolster revenue collection and expand its revenue base. However, further steps are needed to reduce the fiscal deficit and improve the country’s public debt sustainability.

ADB continues to assist executing agencies in accelerating contract awards and disbursement through closer collaboration with agency project teams. The bank has been holding clinics for project staff covering procurement, safeguards, financial management, and disbursement. It is also providing direct advice on consultant recruitment procedures. The Lao PDR Resident Mission has taken measures to improve the quality of audited project financial statements to ensure that project funds are used for their prescribed purposes.

Extreme weather events also pose challenges for development. Floods in 2018 and 2019 inflicted heavy damage on agricultural production and infrastructure in six of the Lao PDR’s central and southern provinces, and revealed the country’s weak capacity to cope with natural hazards and its fragile resilience to climate change. ADB works closely with the government to assist communities in recovering and rebuilding after disaster events.

Students of Ban Palai elementary school in Paklai District, Sayaboury Province

Future Directions

To graduate from least-developed country status in 2024 and achieve the Sustainable Development Goals by 2030, the Lao PDR is incorporating measures into its forthcoming National Socio-economic Development Plan to achieve sustainable and inclusive growth, expand quality human resources, foster sustainable environmental management, and build climate resilience.

The ADB country operations business plan, 2020–2022 for the Lao PDR blends knowledge work with financing to help the government achieve its desired development outcomes. ADB operations will focus on infrastructure and private sector development to support employment and income generation, enhanced human development, and sustainable natural resource management and climate resilience, with gender equality and good governance as crosscutting themes.

ADB assistance under the Greater Mekong Subregion Economic Cooperation Program will aim to transform the Lao PDR from a landlocked to a land-linked country by promoting trade, investment, and tourism while ensuring cross-border social and environmental safeguards. Regional investments will place emphasis on helping the Lao PDR benefit from Greater Mekong Subregion economic corridors and on narrowing development gaps in the country’s poorer provinces.