Lao PDR improves public finance management

The Lao PDR is one of the fastest-growing economies in Southeast Asia, with its gross domestic product (GDP) growing 7.4% on average every year from 2010 to 2018. Gross national income per capita reached USD2,599 in 2018 and poverty rate dropped to 23.2% in 2013 from 27.6% in 2008.

The Lao PDR aims to graduate from least-developed country status and met two out of the three United Nations (UN) eligibility criteria for graduation for the first time in 2018. If the Lao PDR sustains development outcomes and meets the criteria again in 2021, the country will formally graduate from the least-developed country status in 2024.

But the Lao PDR’s social development has fallen behind its regional peers, and inequality has widened from 1993 to 2013. The economy’s heavy reliance on natural resources means it has become increasingly vulnerable to fluctuating commodity prices, which has been exacerbated by weak tax administration. That has led to high public debt levels and a growing fiscal deficit, which was 4.4% of GDP in 2018, up from 3.0% in 2010–2016.

“The loan aims to help reduce the Lao PDR’s vulnerability to economic shocks, maintain economic growth, and improve health, education, and other social sector indicators,” said ADB Senior Public Management Specialist Ms. Jhelum Thomas. “It underlines ADB’s support for long-term reforms in a sequenced, demand-driven manner, in line with government priorities.”

The policy-based loan has two subprograms. The first covers actions in eight policy areas, including a new public debt management law, a tax sector development plan, a medium-term fiscal plan, and a new oversight body for public finance management reform. Building upon the progress of the first subprogram, the second subprogram will include targeted policy actions to support the implementation of the reforms, including developing regulations and strengthening institutions.

This program builds on ADB’s experience of fiscal reforms in the Lao PDR. ADB has focused on public expenditure management, including efficiency, planning, budgeting, and accountability, to help the government incorporate national poverty reduction strategies into budgeting and implementation, improve transparency, and boost the government’s capacity in public financial management, among others./.