Lao PDR and ADB

ADB's Work in the Lao PDR

The Lao People’s Democratic Republic (Lao PDR) has enjoyed robust economic growth over 2 decades, but the economy has been slowing since 2015. While the country has avoided a large outbreak of coronavirus disease (COVID-19), restrictions associated with the pandemic have restrained economic expansion and accentuated the country’s development challenges.

The Lao PDR needs to achieve faster structural transformation and export diversification for higher and more inclusive growth. Challenges in building institutional capacity and maintaining macroeconomic stability hinder advances in competitiveness, while investments in infrastructure and skills are needed to increase productivity.

The Asian Development Bank (ADB) has been supporting the Lao PDR since 1968 and remains one of the country’s largest multilateral financiers. Since 1968, ADB has committed loans, grants, and technical assistance totaling $3.48 billion for the Lao PDR, inclusive of sovereign and nonsovereign operations.

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

Elsewhere, ADB’s support to the Lao PDR has continued to focus on infrastructure development, notably in transport, energy, agriculture, and human development. These investments are driving advances in rural development, social development, and environmental sustainability, particularly in improving urban environments and making cities more livable.

ADB also continues to support the Lao PDR on regional cooperation and integration to strengthen international trade and competitiveness. The country remains an active member of the Greater Mekong Subregion Economic Cooperation Program, the Association of Southeast Asian Nations, and the World Trade Organization.

ADB produced 11 publications and held one knowledge event for the Lao PDR in 2020. These publications covered trade and private sector development, gender mainstreaming, and climate change adaptation, among other topics. The Asian Development Outlook provided economic forecasting in its update on the Lao PDR, while the policy brief Impact of COVID-19 on Tourism Enterprises in the Lao People’s Democratic Republic, supported the country’s efforts to respond to the pandemic.

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 in loans and equity investments from ADB’s own funds in 2020 amounted to $1.4 billion for 38 transactions in economic and social infrastructure, finance sector, and agribusiness.

ADB also actively mobilizes cofinancing from commercial and concessional sources. In 2020, ADB mobilized $1.9 billion of long-term project cofinancing and $3.3 billion of cofinancing through its Trade and Supply Chain Finance Program and Microfinance Program. Total outstanding balances and commitments of nonsovereign transactions funded by ADB’s own resources stood at $14.3 billion as of 31 December 2020.

In the Lao PDR, ADB supports investments in hydropower through lending and technical assistance, resulting in a flagship investment in the Nam Ngiep 1, which involved the construction and operation of a 290-megawatt hydropower generation facility. Total outstanding balances and commitments of ADB’s nonsovereign transactions in the country as of 31 December 2020 was $164.8 million, representing 1% of ADB’s total nonsovereign portfolio.

ADB’s key knowledge operations to support private sector development in the Lao PDR include a cooperation with Lao National Chamber of Commerce and Industry and the Government of Australia through the Mekong Busines Initiative. This partnership has resulted in the production of the Provincial Facilitation for Investment and Trade Index (ProFIT) Index, which provides information on the business environment at the subnational level.

Financing Partnerships

Financing partnerships enable ADB’s financing 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 and Supply Chain Finance Program and Microfinance Program.

ADB began cofinancing operations in the Lao PDR in 1973. Since then, sovereign cofinancing commitments for the Lao PDR have amounted to $399.99 million for 34 investment projects and $49.53 million for 56 technical assistance projects. Nonsovereign cofinancing for the Lao PDR has amounted to $499.4 million for one investment project.

In 2020, the Lao PDR received $24.71 million grant cofinancing from Deutsche Gesellschaft für Internationale Zusammenarbeit for the Sustainable Rural Infrastructure and Watershed Management Sector Project.

A summary of projects with cofinancing is available at Lao PDR: Cofinancing.

Operational Challenges

Despite the government’s vigorous efforts to strengthen public finance management and improve the business environment, the COVID-19 pandemic has jeopardized economic well-being, with international trading conditions deteriorating, domestic demand weakening, and the public debt burden posing a high risk to macroeconomic stability. Policies to support suppression of COVID-19 have also entailed temporary suspension of selected project operations. Despite this, 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.

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

Future Directions

The Lao PDR’s 9th Five-Year National Socio-Economic Development Plan lays the foundation for building a stronger economy beyond COVID-19, with focus on addressing challenges stemming from the pandemic, climate change, trade wars, and heightened global uncertainty. The plan strives to see the Lao PDR graduate from least-developed country status in 2024 and supports strong progress towards achievement of the Sustainable Development Goals by 2030, including the transition to a low-carbon economy.

ADB’s support to the Lao PDR will combine financing, knowledge, and partnerships, with operations continuing to focus on institutional capacity, agriculture and natural resources, infrastructure for connectivity, human and social services, and making cities more liveable. Gender equality, good governance, and private sector development are themes that cut across ADB’s development assistance to the country. Regional sovereign and nonsovereign investments will place emphasis on the benefits of greater cooperation within Greater Mekong Subregion economic corridors.