ADB's Work in the Lao PDR

The Lao People’s Democratic Republic (Lao PDR) enjoyed robust economic growth before the coronavirus disease (COVID-19) pandemic. Gross domestic product (GDP) growth averaged 7% between 2000 and 2019, boosted by investment in natural resources. In 2020, due to COVID-19, GDP growth contracted by 0.5% and the public debt rose to 72% of GDP. The unexpected second wave of COVID-19 in 2021 delayed economic recovery, with real GDP growth projected at 2.3%. In August 2021 the national assembly—the country’s supreme legislative body—approved a national agenda to address the economic and financial difficulties by prioritizing several policy objectives including domestic resource mobilization, transparent debt management, and improving the business climate.

The Lao PDR completed a voluntary national review of progress toward the Sustainable Development Goals (SDGs). The country is on track for achieving SDGs on clean water and sanitation, decent work and economic growth, and responsible consumption and production. Progress on water supply and sanitation is particularly noteworthy, with ADB supporting water supply connections to 2% of households across the country. Progress on the remaining 14 SDGs has been more moderate. The Government of the Lao PDR is prioritizing education, health, and social protection in its 9th National Socio-Economic Development Plan (NSEDP) as part of its strategy to graduate from the United Nation’s Least Developed Country category by 2026.

To date, ADB has committed 363 public sector loans, grants, and technical assistance totaling $2.6 billion to the Lao PDR. Cumulative loan and grant disbursements to the Lao PDR amount to $2.32 billion. These were financed by regular and concessional ordinary capital resources, and the Asian Development Fund. ADB’s ongoing sovereign portfolio in the Lao PDR includes 16 loans and 15 grants worth $776.7 million.

ADB is one of the country’s largest sources of official development assistance, with an average annual lending of $100 million over the 5 years to 2021. As of 31 December 2021, ADB’s active committed sovereign portfolio in the Lao PDR comprised 19 loans and 18 grant projects with the total amount of $829.06 million. ADB also provided $6.7 million for 2 national technical assistance projects and additional support from 84 regional technical assistance projects.

Nonsovereign operations. ADB partnered with the Lao National Chamber of Commerce and Industry to develop the Provincial Facilitation for Investment and Trade Index (ProFIT). The index showed improvements in the business environment across all provinces due to the consolidation of requirements on business. Challenges include excessive licensing requirements and informal practices, with negative impact on tax revenue collection and private sector led post-pandemic recovery. Total outstanding balances and undisbursed commitments of ADB’s nonsovereign transactions in the Lao PDR as of 31 December 2021 was $136.65 million representing 0.97% of ADB’s total private sector portfolio.

Operational challenges. Containment and mitigation measures to prevent the spread of COVID-19 temporarily reduced or halted some project operations. Despite this, most projects continued making inroads to achieve targets. Portfolio reviews helped identify broad portfolio issues, propose solutions, and agree on time-bound actions to improve portfolio performance.

In 2021, notable improvements in safeguard compliance were observed. Due to the government’s tight fiscal position, ADB approved the use of projects funds to cover some resettlement costs.

Aerial view of the Nam Theun 2 Hydropower Plant. Photo: ADB

Protracted procurement processes remain a challenge. To address this, the government has approved the use of harmonized bidding documents that can be used across multilateral development banks’ projects. Delegation of procurement transactions to provincial authorities is becoming more common. ADB has been instrumental in supporting capacity building of implementing agencies through trainings in safeguards, procurement, gender, and financial management. Continued improvements in audited project financial management is expected through trainings.

COVID-19 Response

In response to the COVID-19 pandemic, ADB provided additional financing of $20 million through the Greater Mekong Subregion health security project to procure essential medical equipment and ambulances. Another additional financing of $1.4 million through Supporting Education and Health Sector Programs Facility will help improve the research and teaching capacity of the Lao PDR’s University of Health Sciences, including COVID-19-related research and studies. The Lao PDR is among the countries included in a regional private sector project for a midterm corporate loan of up to $20 million to fund COVID-19 response operating expenses and working capital needs in South and Southeast Asia. Further technical assistance was provided to support the government to integrate climate change into the national planning and strategy and enhance the climate finance mapping capacity.

Knowledge Work

ADB collaborated with the Ministry of Planning and Investment to launch a report that explores potential links between the agriculture and tourism, which helped guide policy makers in the formation of the 9th NSEDP. ADB also led the preparation of a paper for the government’s Annual High Level Roundtable Meeting with development partners. To promote regional connectivity, ADB is in active collaboration with the government and development partners in the preparation of the Ha Noi connectivity corridor study. ADB also supported the development of national disaster risk management strategy and the revision of the national strategy on climate change.

In 2021, cooperation with civil society organizations was boosted through a partnership with Humana People to People in the implementation of an ADB-financed regional technical assistance. ADB also leveraged expertise in design and construction of wastewater treatment system from Bremen Overseas Research and Development Association to support the implementation of ADB-financed urban development, agriculture, and education projects.

  ADB Projects in the Lao PDR Project data sheets for loans, grants, TAs

Future Directions

ADB’s sovereign operations in the near term will continue to focus on mainstreaming recovery from COVID-19 and providing targeted support for transparent debt management. In the medium term, the focus will be on (i) strengthening governance for COVID-19 recovery, including transparent debt management, domestic resource mobilization, due diligence for public investments, policies for the “new normal,” and labor market governance; and (ii) leveraging the benefits of regional cooperation and economic integration, including “one-health”, business reforms, skills and protections, tourism recovery, financial inclusion, border town development, renewable energy, and climate resilience.

ADB’s support to the Lao PDR will continue to combine financing, knowledge, and partnerships. Gender equality, good governance, and private sector development are cross-cutting themes across ADB’s assistance. Regional investments will emphasize the benefits of greater cooperation within the GMS economic corridors. ADB’s nonsovereign operations will also continue to seek national and regional transaction opportunities in renewable energy, value chain development, and forest conservation.