Issue # 14 2009 53243 Lao PDR Economic Monitor End-Year Update Lao PDR Recent Economic Developments The World Bank Office, Vientiane Lao PDR at a glance East Key Development Indicators Lao Asia & Low GDP growth (%) PDR Pacific incom e 12 2008 10 8.5 7.6 7.3 Population, mid-year (millions) 6.0 1,912 1,296 8 6.4 7.1 5.9 6.1 GNI (Atlas method, US$ billions) 4.7 4,173 744 6 GNI per capita (Atlas method, US$) 740 2,182 574 4 GNI per capita (PPP, international $) 2,080 4,969 1,489 2 0 2002 2003 2004 2005 2006 2007 2008 GDP growth (%) 7.3 11.4 6.4 GDP per capita growth (%) 4.7 10.5 4.2 Lao PDR EAP LIC Local Prices 2006 2007 2008 Consumer prices (annual % change) 6.8 4.5 7.6 Current account balance Implicit GDP deflator 13.3 6.6 8.4 40 Exchange rate (period average, kip per 1 US$) 10,160 9,603 8,635 30 GDP (US$ millions) 3,522 4,287 5,543 20 10 Balance of Payments and Trade (US$ millions) 0 -10 Exports of goods (fob) 1,080 1,188 1,422 -20 Imports of goods (cif) 1,506 1,923 2,337 2002 2003 2004 2005 2006 2007 2008 Exports of goods and services 1,295 1,510 1,814 CAB (% of GDP) Imports of goods and services 1,568 1,989 2,377 Non-resource CAB (% of GDP) Net trade in goods and services) -273 -479 -563 Exports (% of GDP) Current account balance (% of GDP) -9.9 -12.4 -12.7 Non-resource current account (% of GDP) -13.1 -11.7 -13.7 Reserves, including gold 335 531 636 Fiscal performance (% of GDP) 25 20 Government Finance (FY) (% of GDP) 15 10 Total revenue (including grants) 14.6 15.1 15.2 5 Revenue 12.5 13.4 13.9 0 Tax revenue 10.7 11.9 12.1 -5 Current expenditure 9.2 9.1 10.0 -10 Overall surplus/deficit -3.8 -3.1 -1.8 2002 2003 2004 2005 2006 2007 2008 Total revenue Total expenditure External Debt and Resource Flows Overall surplus/deficit Total external public debt (% of GDP) 63.1 59.1 53.1 Debt service (% of gov. revenue) Total debt service (% of exports) 5.7 12.5 10.3 Foreign direct investment (US$ millions) 625 617 771 Source: Lao authorities, World Development Indicators (2009) and staff estimates. Lao PDR Economic Monitor 2009 – End-Year Update 1 EXECUTIVE SUMMARY The Lao economy has performed relatively well in the midst of the global financial crisis, supported by higher than initially forecasted commodity prices and significant expansion in public outlays which have acted as a fiscal stimulus. The impact of the global financial crisis is felt through declining commodity export earnings, reduced FDI inflows and remittance income, as well as a decline in non-resource exports, especially agriculture. Real GDP growth in 2009 is projected to slow to about 6.4 percent, as the impacts of the global financial crisis are felt in the domestic economy. This impressive growth rate – the second highest in the East Asia region after China – was possible for the following reasons: First, the Laotian economy is relatively insulated from the global financial system and its exposure to global trade is relatively limited, thereby mitigating the direct impact of external shocks. Second, it has benefited from a sustained demand for exports (minerals from China, garments from Europe, electricity from Thailand) and for tourism services, and from lower energy (fuel) prices. Third, a significant fiscal stimulus also contributed in 2009 to sustain economic growth and to compensate for the decline in foreign investment. This fiscal stimulus was driven by increased on-budget expenditures (wages and domestic capital spending) and by off-budget quasi-fiscal spending by the Bank of Laos financing local public infrastructure projects. The contribution to GDP growth has shown a noticeable shift toward the resource sectors. The mining sector (mostly copper and gold) contributes about 2.5 percentage points to growth this year; manufacturing and construction together and agriculture about 1 percentage point each. Services account for the remainder. With the expected global recovery, real GDP growth in Lao PDR will strengthen over the medium- term although the recovery remains subject to global commodity price changes (mainly in metals and agriculture). The economy is projected to benefit from the recovery of tourism, the implementation of large hydropower projects under construction and in the pipeline, and from projected increase in demand from neighboring countries (especially Thailand, China and Vietnam) and the European Union. Prices have begun to rise after falling significantly during the past several months of this year. The headline inflation has climbed by 1.5 percent in November 2009 year-on-year after staying at just below zero during the past months, as food and energy prices recovered. At the same time, core inflation excluding food and energy has also increased gradually from 0.4 percent in June to 1.1 percent in September and 2.4 percent in November. Average inflation is estimated to decline from 7.6 percent in 2008 to just below 1 percent this year, but should increase slowly over the medium term as prices for oil and food grow. Pressure from the global crisis combined with commitments to host a series of major events led to significant expansion of public outlays in 2009. As a result, the budget deficit is estimated to increase sharply from 1.8 percent in 2008 to 6.8 percent in 2009. Public spending has noticeably increased on capital expenditure and the wage bill (the increase in public servants’ wages and allowances was approved by the National Assembly before the crisis). There was an increase in quasi-fiscal expenditures through the Bank of Lao PDR to support local infrastructure projects and two important events, the South-East Asian (SEA) Games and the 450 year Vientiane Anniversary. However, BOL has officially announced a phasing out of such direct lending operations by the end of 2009, which addresses in part the concerns over domestic debt levels in the future. Revenue collection is projected to fall short of the target by 8 percent, and to slightly fall to 13.8 percent of GDP in 2009. This is due to a reduction in resource revenues and non-tax revenue (particularly dividends). While Lao PDR has made progress in reducing its external and public debt burden, it still faces a high risk of debt distress because of its large debt stock. Nevertheless, public debt service remains manageable as much of the debt is contracted on concessional terms. However, it is expected to increase slightly in the medium-term due to expected government need to finance equity holding in large investment projects. Lao PDR Economic Monitor 2009 – End-Year Update 2 Lao PDR’s external trade turnover has contracted moderately due to secondary impacts of the global economic crisis. Trade is expected to decline slightly this year due to drops in commodity prices and global demand. While Lao commodity exports contracted by 7.2 percent compared to last year, imports are down by 9.6 percent in the same period due to falling prices of capital goods and fuel imported. As a result, the current account deficit has narrowed to 7.9 percent of GDP in 2009 from 12.5 percent in 2008. The capital account surplus almost halved in 2009 largely due to a noticeable fall in foreign direct investment. Coupled with lower foreign capital inflows, expansionary monetary policy has resulted in a reduction of foreign reserves. BOL’s direct lending, interventions on kip appreciation, and lower FDI contributed to a reduction of foreign reserves by almost 16 percent, recorded at US$ 583 million as of June 2009 compared to the same period last year. This reserve level can cover 4.9 months of non-resource imports. Despite the falling reserves, this number has been relatively stable in the past three years because the imports have also declined. The kip exchange rate appreciated slightly by 0.5 percent against US dollar but depreciated by 3.1 percent against Thai baht during the last six months (Jun-Nov). Credit has been growing rapidly. Credit growth recorded a 98 percent y-o-y increase, of which 30 percentage points are from the BOL lending to local government infrastructure projects. This fast credit expansion clearly represented an attempt to stimulate the economy in the midst of the crisis and is not sustainable over the medium term, although the risks on macro-stability are somewhat reduced by a low initial base (base of 12 percent of GDP at the end-2008). The Government is cognizant of the risks and committed recently to rein credit in to more sustainable levels of expansion. Reforms have shown some progress. Most importantly, the government has committed to returning to a more sustainable macroeconomic path and a phasing out of quasi-fiscal activities. Public finance management reforms include completing the provincial level centralization of the Treasury, Customs, and Tax functions this year. Consolidation of revenue accounts with the National Treasury is also in progress, as is the revision and implementation of various laws and decrees, including the VAT law, the tax law, the executive decrees on minerals and royalties, and on the civil service administration. The government is also moving ahead with the elimination of the tax exemption on motor vehicle imports. A new decree on new import and export licensing procedures has also been approved, as have been the mineral law and the new unified law on investment promotion. However, the actual promulgation and enforcement of these laws is still pending. Lao PDR Economic Monitor 2009 – End-Year Update 3 TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................................................... 1 PART I – RECENT ECONOMIC DEVELOPMENTS ............................................................. 5 1.1 GROWTH AND INFLATION ..........................................................................................................5 1.2 GOVERNMENT’S REVENUE AND EXPENDITURE ........................................................................7 1.3 EXTERNAL BALANCE .................................................................................................................9 1.4 MONETARY SECTOR .................................................................................................................10 PART II. STRUCTURAL AND POLICY REFORMS ........................................................... 12 2.1 PUBLIC EXPENDITURE POLICY AND MANAGEMENT ............................................................... 12 2.2 FINANCIAL SECTOR REFORM ...................................................................................................15 2.3 TRADE REFORM ........................................................................................................................16 2.4 PRIVATE SECTOR DEVELOPMENT ............................................................................................ 17 PART III. DONOR ASSISTANCE AND REFORMS ............................................................ 19 3.1 SUMMARY OF DONOR ASSISTANCE TO KEY REFORM AGENDA IN LAO PDR ........................19 ANNEXES ANNEX 1 – GLOBAL ECONOMIC OUTLOOK................................................................................ 21 ANNEX 2 – LIST OF DONOR ASSISTANCE ON REFORM AGENDA ................................................. 22 ANNEX 3 - ACRONYMS AND ABBREVIATIONS ........................................................................... 32 Lao PDR Economic Monitor 2009 – End-Year Update 4 Figures and Tables Figure 1. Growth and Inflation, (percent change) ..............................................................................................5 Figure 2. Resource Sectors Contribution to GDP Growth, (percentage points) .................................................6 Figure 3. Real GDP Growth (at factor cost): Contribution by Sector (percentage points) .................................6 Figure 4. Monthly Inflation (y-o-y percent change) ...........................................................................................7 Figure 5. Food Prices (y-o-y percent change) ....................................................................................................7 Figure 6. Quarterly Revenues (billion kip) .........................................................................................................7 Figure 7. Domestic Revenues (percent of GDP) ................................................................................................8 Figure 8. GOL’s Fiscal Performance (percent of GDP) .....................................................................................8 Figure 9. Key Government Expenditures (percent of GDP) ..............................................................................8 Figure 10. Lao PDR: External Public Debt Indicators at End-2008 (percent) ...................................................9 Figure 11. Exports and Imports (US$ million) ...................................................................................................9 Figure 12. Balance of Payments (percent of GDP), 2006-12 ...........................................................................10 Figure 13. FDI in Lao PDR, 2006-14 (US$ million) ........................................................................................10 Figure 14. Kip Exchange Rate (Index Dec-2006 =100) ...................................................................................10 Figure 15. Lao PDR: Gross Official Reserves..................................................................................................11 Figure 16. Contribution to Bank Credit Growth (y-o-y percentage points) ...............................................11 Figure 17. Bank Lending (percent of GDP) .....................................................................................................12 Figure 18. Credits to Economy and Government (billion kip) .........................................................................16 Figure 19. Lao PDR – Major Constraints to Investment (ICA 2009)...............................................................18 Figure 20. Actual FDI in Lao PDR (US$ m) ....................................................................................................18 Figure 21. Share of accrual FDI by country .....................................................................................................18 Tables Table 1. GOL’s four priority sectors expenditures ........................................................................................14 Lao PDR Economic Monitor 2009 – End-Year Update 5 PART I – RECENT ECONOMIC DEVELOPMENTS Economic growth in Lao PDR is projected to slow to a limited extent in 2009, down to 6.4 percent, as a result of higher than first anticipated production and prices in the mining sector, more resilient growth in the non-resource sectors, and the support of a significant fiscal stimulus. In the past, Lao PDR has succeeded in maintaining a robust economic growth with real GDP growing at an average rate of 7.2 percent per annum in 2003-2008 driven largely by natural resources sectors and services (mainly trade and tourism). The key impacts of the crisis on Lao PDR were felt through a decline in foreign direct investment, prices and demand for exports (especially in late 2008 and early 2009), and government revenue falling below the planned target. Tourism and manufacturing (garments) were less affected by the crisis than initially projected. Headline inflation has declined significantly since late 2008 due to lower fuel and food prices. The Lao economy has recovered faster than energy) climbed to 2.4 percent from about 1.1 expected from the global economic slowdown as percent in September. The kip has remained fairly a result of rapid growth in the mining sector stable against the US dollar but has weakened (copper and gold) and the recent rebound of Lao against the Thai baht in recent months, as a result of exports due to the recent recovery of major the de facto peg against the US dollar. Domestic commodity prices (in the second and third quarter revenue collection improved significantly in the of 2009). In addition, the SEA Games have acted as second half of FY2008/09 (an increase of 59.7 a timely stimulus on the economy, by attracting percent compared to the same period of more than ten thousand foreign visitors and by FY2007/08) as deferred mining taxes were paid to supporting Lao tourism, retail trade, construction the GOL by major mining projects and several and other services industries. Finally, expansionary revenue measures were put in place. The budget fiscal policy in 2009 has helped maintain rapid deficit widened in FY2008/09 but is expected to economic growth through a higher public wage bill decline in FY2009/10 as the spending impact of the and a significant increase in the public investment major events hosted by the country (SEA games, program. This has resulted in an upward revision of 450-year anniversary of Vientiane Capital) are 2009 GDP projections to 6.4 percent growth. After expected to wane. The balance of payments overall several month in the negative, headline inflation balance is projected to decline slightly as a result of appeared to have bottomed out and started to rise a smaller capital account surplus and lower current again to about 1.5 percent in November 2009 as account deficit, leading to a moderate decline in food and fuel prices seemed to have recovered. At official net foreign assets. the same time, core CPI (excluding food and 1.1 GROWTH AND INFLATION Figure 1. Growth and Inflation, (percent change) Lao PDR is one of the best performers in the GDP growth (%) region with real GDP projected to grow at 6.4 CPI (% change, annual average) percent in 2009 (although slightly lower than the 10 7.3 percent in 2008), see Figure 1. This projection 8.5 8 7.1 7.6 7.3 7.5 7.8 has been revised upwards from 5 percent earlier in 6.4 6 7.2 7.6 the year because most sectors, including mining, 6.8 manufacturing (garment, food and beverages, 4 4.5 4.5 cement and metal industries), construction, 3.5 2 1.0 agriculture and services have been performing 0 better than expected due to the recent recovery of 2005 2006 2007 2008 2009 2010 2015* commodity prices (copper and gold), increased public expenditures and recovery in regional Source: GOL (MPI) and staff estimates and projections. * Yearly average for 2011-15 demand (especially from China). Lao PDR Economic Monitor 2009 – End-Year Update 6 Figure 2. Resource Sectors Contribution to GDP The contribution to GDP growth has shown a Growth, (percentage points) noticeable shift toward the resource sectors. The mining and power sectors together contribute about Mining and power sectors Other sectors 3.3 percentage points to the overall growth of 6.4 9 percent this year (this includes both direct and 8 indirect contributions) 1 compared to 2 percentage 7 6 points in 2008 (Figure 2); of which the mining 3.5 4.4 5.7 5 5.3 3.1 sector (mostly copper and gold) contributes about 4 7.3 2.5 percentage points; manufacturing and 3 construction together and agriculture about 2 4.0 3.4 3.3 1 percentage point each, and services account for 2.5 2.0 1 0.3 0 the remainder (Figure 3). The construction industry 2006 2007 2008 2009 2010 2015* has grown considerably this year due to the SEA Games events and the 450-year Vientiane Source: GOL (MPI) and staff estimates and projections. Anniversary as well as new construction of hotels * Yearly average for 2011-15 and other tourism facilities and private housing, and the ongoing development of several hydropower Figure 3. Real GDP Growth (at factor cost): projects. This also led to increased local production Contribution by Sector (percentage points) of cement and other materials. Mining and quarrying Electricity, gas and water 10 Services Agriculture, fishery and forestry With the expected global recovery (see global Manufacturing Construction economic outlook in Annex 1), real GDP growth 8 0.7 0.6 in Lao PDR will strengthen over the medium- 1.0 0.4 6 0.9 1.2 1.1 0.8 0.6 0.8 term although the recovery remains subject to 0.5 2.3 0.7 1.6 global commodity price changes (mainly metals 2.7 4 3.1 3.4 1.8 and agriculture). The economy is projected to 2 3.9 benefit from the recovery of tourism and the 3.5 2.3 2.3 2.0 2.5 implementation of large hydropower projects under 0 -0.5 0.5 construction and in the pipeline and further 2006 2007 2008 2009 2010 2015* expansion of the mining sector2. The total value of -2 electricity exports is projected to increase nearly Source: Staff estimates and projections twofold from 2009, reaching about US$ 300 million in 2010, driven by NT2. Furthermore, growth will also benefit from a projected increase in regional demand and recovery of the service sectors. Demand for Lao exports from the neighboring countries and from the European Union is projected to increase as those economies start to rebound from the global financial crisis. The service sector also has prospects of recovering through boosted wholesale 1 Resource sectors provide direct and indirect contribution to GDP growth. The direct contribution is the sector’s output from the production phase, which include mineral products from mining (copper, gold, silver and other) and electricity from the power sector, while the indirect contribution is mainly a contribution of the resource sectors to construction, manufacturing and services (transport and trade) during the construction period. 2 Major power projects under construction include NT2, Xeset2, Nam Ngum 2, Sekaman 3, Then-Hinboun Expansion, Nam Lik 1-2 and Nam Ngum 5; main power dams in pipeline are Hongsa Lignite coal-power plant (the power purchase agreement (PPA) has been signed and construction of the plant is expected to begin in 2010 and complete by 2015), Nam Ngum 3, NT1, Nam Ngiep 1 and Nam Ou hydropower projects (construction of these projects is likely to begin by 2011 and 2012). Investment in the mining sector is also expected to resume from 2010 with the expansion of the Sepon project (recently approved expansion plan of US$64 million in total). Lao PDR Economic Monitor 2009 – End-Year Update 7 Figure 4. Monthly Inflation (y-o-y percent change) and retail trade, hotels and restaurants. Transport and communication is also projected to experience 35 30 Total CPI Core CPI (excl. food and energy) growth due to the projected increase in foreign 25 20 Food CPI Energy CPI investment and market repositioning of some 15 10 companies including recent mergers and 5 acquisitions, which is expected to generate growth. 0 -5 -10 -15 After falling to just below zero during the past -20 -25 several months of 2009, the headline inflation -30 (year-on-year) started to rise again to 1.5 -35 percent in November as food and fuel prices Sep-08 Sep-09 Jan-08 Jan-09 Nov-08 Nov-09 Jul-08 Jul-09 Mar-08 Mar-09 May-08 May-09 recovered (Figure 4). Core inflation excluding food and energy has also climbed gradually during the past months from 0.4 percent in last June to 1.1 percent in September and 2.4 percent in November. Figure 5. Food Prices (y-o-y percent change) The yearly averaged inflation is expected to decline Food (40.9%) Rice (7.3) Meat (11.9) Vegetables (4.9%) to below 1 percent this year from 7.6 percent in 40 35 Fish (4.8%) Poultry (2.3%) 2008, but should increase slowly over the next year 30 with the recovery of prices for oil and food 25 combined with the recent impetus in public and 20 private spending in the economy. 15 10 5 Prices of rice, fish, and meat also began to rebound 0 last month after remaining at very low levels over -5 the past several months due to improved supply and -10 lower costs as a result of lower fuel and other Jan-08 Sep-08 Jan-09 Sep-09 Nov-08 Nov-09 Mar-08 Mar-09 Jul-08 Jul-09 May-08 May-09 commodity prices, and recent GOL’s measures to Source: Lao PDR authorities (MPI) and staff calculations. promote domestic food production. Nevertheless, this is the first time in the last few years that food prices have dropped below zero where traditionally it has been fairly high, above 10 percent (Figure 5). 1.2 GOVERNMENT’S REVENUE AND EXPENDITURE Figure 6. Quarterly Revenues (billion kip) After three years of exceeding budget targets, domestic revenues are estimated to fall short of Nontax revenue Indirect taxes target in FY2009 by about 8 percent due to a Direct taxes 3000 Total Domestic Revenue reduction in resource revenues and non-tax 2500 revenue. Although the tax collection has improved 2000 significantly in the second half of FY2009 (Figure 1500 6) - reaching about 12.4 percent of GDP in FY2009 1000 from 12.1 percent in FY2008 - the overall domestic 500 revenue is estimated to decline slightly to 13.8 0 percent of GDP in FY2009 compared to 13.9 Q1 FY08 Q2 FY08 Q3 FY08 Q4 FY08 Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 percent in FY2008 (Figure 7). At the same time, grants have gone up to about 1.7 percent of GDP Source: Lao PDR authorities (MOF) and staff calculations. from 1.3 percent in FY2008. Lao PDR Economic Monitor 2009 – End-Year Update 8 Figure 7. Domestic Revenues (percent of GDP) Pressure from the global crisis combined with commitments to host a series of major public Domestic revenues (% of GDP) events led to significant expansion of public 16 13.9 13.8 outlays in 2009. GOL’s expenditure grew rapidly 14 12.1 12.4 12 to 22.3 percent of GDP in FY2008/09 from 17 10 percent in FY2007/08 (Figure 8). A significant 8 increase in the public wage bill before the crisis 6 compounded with recent expansionary expenditure 3.1 2.8 4 1.8 2 1.4 policy (including off-budget spending) has 0 contributed to the rapid growth in public FY08 FY09 expenditures and fueled the budget deficit to 6.8 Domestic revenue Tax revenue percent of GDP in FY2008/09. However, it is Nontax revenue Resource revenue projected to narrow in the short to medium term due to the recovery of commodity prices, additional Source: Lao PDR authorities (MOF) and staff calculations revenues from NT2 operations, the reduction in government outlays following the series of major Figure 8. GOL’s Fiscal Performance (percent of GDP) public events, and the phasing out of off-budget spending through quasi-fiscal activities by end Total revenue and grants Total expenditure 2009 as announced by the Bank of Lao PDR Overall budget balance Off-budget spending (BOL). 25 22.3 20.0 20 18.3 17.0 15.1 15.2 15.5 15.6 After the NA approved the increase of wage index 15 in June 2008, public wage and benefits grew 10 significantly to about 5.6 percent of GDP in 5 FY2008/09 from 4.5 percent in FY2007/08. At the 0 -1.8 -1.2 same time, capital expenditure and lending grew to -5 -3.1 -2.7 -6.8 -4.5 8.7 percent of GDP from 7.1 percent in FY2007/08 -10 due to increased spending on infrastructure (Figure FY07 FY08 FY09 FY10 9). Interestingly, domestically financed expenditure Source: Lao PDR authorities (MOF) and staff projection (FY10). also grew rapidly from 1.6 percent of GDP in FY2007/08 to 3.5 percent in FY2008/09 largely because of quasi-fiscal activities, which accounted Figure 9. Key Government Expenditures (percent for about 2.7 percent of GDP. of GDP) 25 22.3 20 18.3 17.0 15 10.9 10.0 9.1 10 8.3 8.7 7.1 5.0 5.6 4.5 5 0 2006/07 2007/08 2008/09 Current expenditure Wages and benefits Capital expenditure Total expenditures Source: Lao PDR authorities (MOF) and staff calculations. Lao PDR Economic Monitor 2009 – End-Year Update 9 Public Debt Figure 10. Lao PDR: External Public Debt Indicators While Lao PDR has made progress in reducing at End-2008 (percent) its external public debt burden, it still faces a End-2008e 2009p Indicative Thresholds high risk of debt distress because of its large 300 debt stock.3 Total public debt (both domestic and 250 external) was recorded at 55.2 percent of GDP at end 2008. Nevertheless, public debt service remains 200 manageable, as much of the debt is contracted on 150 concessional terms (Figure 10). The NPV of 100 external public and publically guaranteed debt is 50 expected to increase marginally from 34.9 percent 0 of GDP in 2008 to about 35 percent by end-2009, NPV of debt to GDP NPV of debt to Exports NPV of debt to Revenue Debt service to Exports Debt service to Revenue and slightly over 26 percent of GDP in the medium- term due to expected government need to finance Source: Debt Sustainability Assessment 2009. equity holding in large investment projects. 1.3 EXTERNAL BALANCE Lao Exports and Imports In dollar terms, Lao’s exports and imports are this year, an increase of nearly 10 percent compared expected to fall this year due to lower to the same quarter of the previous year, due to the commodity prices (especially during the first recent rebound of copper and gold prices, in half of 2009), smaller imports for large addition to increased production. With expected infrastructure projects and weaker global recovery of global and regional demand – Annex 1, demand. Exports are projected to drop by about Lao exports are projected to rise steadily in the 7.2 percent in 2009 (to around US$1,325 million) medium term. Hydro power sales, particularly from which brings the share of exports to GDP down NT2 and other, are expected to drive overall from about 26 percent in 2008 to approximately 22 exports growth from 2010 onwards. The total value percent in 2009. However, mining sector exports, of electricity exports is projected to increase which make up more than 50 percent of total Lao twofold from 2009, reaching about US$340 million exports, seemed to recover in the third quarter of in 2010. Figure 11. Exports and Imports (US$ million) Imports have fallen by a faster rate than 4000 exports. In 2009, total imports are expected to drop Total exports by 9.6 percent compared to last year (or to about 3000 US$ 2,078 million) largely due to reduced prices 2000 Total imports for capital goods and fuel. However, import volume 1000 is likely to increase this year due to recent Trade Balance expansionary expenditure of the GOL and rapid 0 Trade Balance growth in bank credits. With the expected recovery (excluding -1000 resource imports) of FDI, particularly in the resource sector, as well -2000 as expected higher prices of fuel and other capital 2007 2008 2009 2010 2011 2012 2013 2014 goods, Lao imports are projected to climb in the medium term. As a result, the overall trade deficit is Source: Lao PDR authorities (MOIC) and staff estimates and projections. likely to increase over coming years. 3 This DSA was prepared jointly by the IMF and World Bank, in consultation with the Asian Development Bank (ADB). The debt data underlying this exercise were provided by the Lao P.D.R. authorities. Lao PDR Economic Monitor 2009 – End-Year Update 10 Current Account Balance Figure 12. Balance of Payments (percent of The current account deficit is projected to GDP), 2006-12 narrow to about 7.9 percent of GDP in 2009 CAB (% of GDP) from 12.7 percent in 2008 (Figure 12). This Non-resource CAB (% of GDP) Capital account balance (% of GDP) smaller deficit mainly results from lower imports, Overall balance (% of GDP) from 41 percent of GDP in 2008 to about 35 20 15 percent this year, coupled with a slower drop in 10 exports. In 2010, the current account deficit is 5 projected to fall further to 6 percent of GDP as 0 export values are expected to expand faster than -5 -10 imports. The operation of large hydro projects, -15 particularly NT2, is expected to accelerate growth -20 of exports earnings. Assuming large resource and 2006 2007 2008 2009 2010 2011 2012 non-resource projects4 resume and capital imports Source: BOL and staff estimates and projections. rebound, the current account deficit is expected to widen over the medium term. Figure 13. FDI in Lao PDR, 2006-14 (US$ million) The capital account balance is projected to 1250 record a surplus equivalent to 8.1 percent of GDP in 2009, down from almost 16 percent last 1000 year. This is largely due to the reduction in FDI inflows this year to $614 million from $771 million 750 in 2008 (Figure 13). As a result, net foreign assets 500 are projected to record a decline of $175 million between June 2008 and 2009, but still remain at a 250 comfortable level of $805 million, while official 0 reserves are estimated to decline slightly to around 2006 2007 2008 2009 2010 2011 2012 $600 million (or 5 months of non-resource imports) Source: Lao authorities (MPI) and staff estimates and projections. compared to US$636 million at the end of 2008. 1.4 MONETARY SECTOR Exchange Rate Figure 14. Kip Exchange Rate (Index Dec-2006 =100) The kip nominal exchange rate has been relatively stable against the US dollar. This de Kip/USD Kip/Baht 110 facto peg against the US dollar has led to a 105 weakening of the kip against the Thai baht. The 100 kip has appreciated only slightly by 0.5 percent against the U.S. dollar and depreciated by 95 3.1 percent against the Thai baht during the last six 90 months (Jun-Nov 2009), see Figure 14. A strong 85 kip has contributed in the past to low inflation, to 80 people’s confidence in the national currency and Mar-07 Jun-07 Mar-08 Jun-08 Mar-09 Jun-09 Dec-06 Sep-07 Dec-07 Sep-08 Dec-08 Sep-09 lower dollarization rate of the economy, and to reduce the external debt burden. On the other hand, Source: Lao PDR authorities (BOL) and staff calculations. 4 Major resource projects include large mines (such as Sepon, Phubia and other SME mines) and power dams in pipeline, such as Hongsa Lignite coal-power plant, Nam Ngum 3, NT1, Nam Ngiep 1 and Nam Ou hydropower projects. Key non-resource projects refer to those large investment activities in agro-processing industries, plantations, and tourism-entertainment related projects. Lao PDR Economic Monitor 2009 – End-Year Update 11 Figure 15. Lao PDR: Gross Official Reserves a prolonged strong kip would undermine the competiveness of export-oriented industries, Gross Official Reserves (US$ m) especially manufacturing (garments, processing 700 industries), agribusinesses, and tourism related 600 industries. 500 400 300 In the midst of an economic slowdown, the 200 exchange rate stability comes at the cost of 100 falling reserves. In the first 6 months of 2009, 0 reserves were recorded at US$587 million compared to US$636 million at the end of 2008. It was estimated to increase to about US$636 million by September and is projected to stay at around Gross Official Reserve US$600 million by the end of 2009, representing a (Q-to-Q percent change) 30 modest drop of about 6 percent compared to the end of 2008, and covering nearly 5 months of non- 20 resource imports. Despite the falling reserves, this number has been fairly stable during the past three 10 years (Figure 15). 0 -10 Mar-06 Jun-06 Mar-07 Jun-07 Mar-08 Jun-08 Mar-09 Jun-09 Sep-06 Dec-06 Sep-07 Dec-07 Sep-08 Dec-08 Sep-09 Dec-09 Source: BOL’s early estimates and staff projections. Bank Lending Figure 16. Contribution to Bank Credit Growth Rapid and accelerating credit growth has (y-o-y percentage points) become a source of concerns for macroeconomic Credit to private sector (percentage points) and banking sector stability. Credit growth Credit to SOEs (percentage points) accelerated from 84 percent a year in 2008 to 98 Credit to the economy (% change) 120 percent as of end June 2009, of which a significant 98 100 85 share (30 percentage points) came from the BOL’s 80 19 22 direct lending to local governments to finance local 60 public infrastructure projects. How this direct 40 76 lending will be reimbursed in the future remains to 21 66 20 7 3 be clarified. This rapid credit growth has translated 2 -7 18 into a relatively modest 22 percent monetary (M1) 0 6 -2 growth, and a decline in net foreign assets of 20 -20 -9 percent. Total lending as a percent of GDP 2005 2006 2007 2008 Jun 2009 amounted to 16.3 percent of GDP in mid-2009. The Source: Lao PDR authorities (BOL) and staff projections Government has committed to reining in credit growth by end 2009, as a response to increasing concerns for macroeconomic and banking sector stability. Lao PDR Economic Monitor 2009 – End-Year Update 12 Figure 17. Bank Lending (percent of GDP) Monetary growth has remained fairly strong as Credit to the economy (% of GDP) total deposits increased by 24 percent by June and Broad money - M2 (y-o-y % change) have almost reached BOL target for 2009 while Total deposits (y-o-y % change) broad money (M2) grew by 25 percent y-o-y by 40 June 2009 (Figure 18). However, it is expected to 35 slow in the second half of the year. 30 25 20 NPLs have reportedly dropped over the past 15 three years. NPLs have fallen from approximately 10 10 percent at the end of 2006 to about 4.4 percent 5 in May 2009. The percentage of NPLs to total loans 0 in State Owned Commercial Banks (SOCBs) 2005 2006 2007 2008 Jun 2009 dropped from 13 percent in 2006 to 1.7 percent in 2008. It remains however unclear whether these Source: Lao PDR authorities (BOL) and staff projections NPL reductions have originated from improvements in loans portfolios or from the rapid increase in new loans since June 2008. PART II. STRUCTURAL AND POLICY REFORMS 2.1 PUBLIC EXPENDITURE POLICY AND MANAGEMENT Public finance management reforms continue to be implemented within the overall umbrella of the Public Finance Management Strengthening Program (PFMSP). Since 2008, PFMSP has covered reforms on both the revenue and expenditure sides as mandated by the Budget Law 2007. After success in two phases of the centralization of the Treasury, Customs, and Tax functions, the third phase covering eight northern provinces has been completed. It is expected that the three functions will be fully centralized by the end of 2009. There has also been progress in the development of a new fiscal transfer system, establishment of greater control of public finance resources, and alignment of policies to the budget. The new Audit Law was promulgated by the national assembly (NA) in July 2007. The new law allows the State Audit Organization (SAO) to directly report to the NA instead of the Executive branch of Government; the SAO has performed the audit of the FY2006/07 and FY2007/08 budget execution reports which were submitted to the NA. Some of the recommendations of the FY2007/08 budget execution report were incorporated into the NA’s Resolution in the June 2009 session. In order to fully implement the PFMSP, the Government will require significant capacity enhancement, continued political commitment, and technical assistance, a 3-5 year updated implementation action plan, and a revenue sharing framework. Currently, advisory services are being provided by the World Bank to the Ministry of Finance on the design of the revenue sharing framework and on preparations for the implementation of the Value Added Tax (VAT), which is currently planned for January 2010, Successful VAT introduction will require close coordination between the Tax, Customs, and Treasury Departments. Key Reform Progress Some measures have been taken to reduce tax financial crisis and the revenue shortfall were to leakages, improve revenue collection and adjust fuel prices to be consistent with the falling counter the impact of the global economic crisis. world market price; to raise excise tax and taxes on Traders have been required to disclose the luxury goods such as alcohol, cigarettes, and beer; identities of purchasers and an electronic tax return improve collection of revenue from import tariffs; submission system has been introduced for large and limit the number of tax exemptions including tax payers. Initial Government responses to the those on motor vehicles. Lao PDR Economic Monitor 2009 – End-Year Update 13 The operationalization of the new Budget Law is Preparation for the implementation of the Value progressing, through the implementation of the Added Tax (VAT) in January 2010 has been PFMSP FY2008/09 work plan. The GOL has advancing. After postponement of the VAT completed the centralization of the Treasury, implementation from 2009 to 2010 due to the Customs, and Tax Departments in Savannakhet, global economic crisis, GOL has a VAT team Khammuane, Bolikhamxay, Vientiane Capital and within the Tax Department to work full-time with Vientiane province, and eight more Northern an international VAT advisor. The Implementation provinces are expected to be fully centralized in all Decree of the VAT Law has been drafted and three functions by the end of 2009. The revenue approved by the Prime Minister recently. Several sharing and distribution framework has been ministerial instructions, such as on registration and designed and is being finalized while budgetary refund, and forms have been prepared to be norms are being prepared. Implementation of new submitted to MOF minister’s approval. Capacity revenue assignments between central and local building activities (massive training) for VAT levels (based on the implementing decree of the officers, tax-payers, and other stakeholders are Budget Law) started in FY2008/09A multi-donor being conducted with donor technical assistance. trust fund was launched in February 2009 to All training, information sharing and awareness provide financial support to PFMSP. A Public building for all stakeholders and the public are Expenditure and Financial Accountability (PEFA) critical to the success of VAT implementation. assessment was launched in April 2009 and the assessment report will be finalized by December Implementation of new Customs Law has shown 2009. The PEFA assessment will establish a progress. The general Instructions for baseline for monitoring the performance of Lao implementing the Customs Law were prepared and PDR PFMS system over time. approved by Finance Minister in October 2009 and preparation of the operations manual is near Deployment of the revised Chart of Accounts completion. The next step is to further simplify (COA) has started and audit reforms have been import and export procedures by introducing progressing. Ministries and equivalent agencies streamlined import and export and transit processes, and provinces started to apply the revised COA in including the application of the single FY2008/09 for formulating their budget plans. The administrative document consistent with ASEAN capacity development plan for the State Audit requirements before the deployment of an Organisation (SAO) was prepared and approved by automated system. the SAO President in April 2009. The plan aims at strengthening SAO capacity for performing their Significant progress has been made in improving external audits more effectively. The audit of the the timeliness of civil servants’ salary payments FY2007/08 budget execution report was completed and strengthening public sector performance. in May and endorsed by the NA in June 2009. The GOL piloted an electronic salary payment system (ESPS) in 2008 to replace manual cash Progress in the introduction of budgetary norms payment. So far, salaries of all civil servants at the for the education and health sectors has been central level and six provinces have been deposited slow, mostly on account of the lack of clear to their individual bank accounts and can be expenditure assignments between central and local withdrawn through ATMs. The expansion of ESPS governments in these sectors, the lack of adequate to another three provinces is expected to be data for base-line information, and the need for completed by the end of this year and the rest by changes in the management of the budget planning 2010. processes that are essential to implementing such reforms. This issue also relates to effective coordination between MOF, MPI, and PACSA because norms include non-wage and wage expenditures, and also capital-recurrent ones. Lao PDR Economic Monitor 2009 – End-Year Update 14 Key Priority Sector Spending Table 1. GOL’s four priority sectors expenditures 2005/06 2006/07 2007/08 Priority spending has shown a mixed Overall Spending (billions of kip) trend. The total expenditure in the GOL’s four priority sectors has declined Four sectors 3,279 3,329 3,066 during the last few years due to a Recurrent 564 649 812 reduction in capital spending, while the Capital 2,715 2,679 2,254 aggregated recurrent expenditure has Agriculture 477 365 471 increased as a percentage of total Infrastructure 1,551 1,561 1,236 spending and GDP (see Table 1). Education 1,026 1,173 1,067 The recurrent spending of the social Health 226 229 293 (percent of total expenditure) sectors (education and health) as a Four sectors 52.4 45.8 39.1 share of the total budget has increased Recurrent 9.0 8.9 10.4 notably in FY2007/08: education about 7 Capital 43.4 36.9 28.8 percent, up from 6.1 percent in Agriculture 7.6 5.0 6.0 FY2006/07 and the health sector around Infrastructure 24.8 21.5 15.8 1.9 percent, slightly up from 1.5 percent Education 16.4 16.1 13.6 in FY2006/07. However, recurrent Health 3.6 3.2 3.7 spending on education as a share of total (percent of GDP) recurrent expenditure declined modestly Four sectors 9.6 8.4 6.6 during the same period from 13.1 Recurrent 1.6 1.6 1.8 percent in FY2006/07 to 12.8 percent in Capital 7.9 6.7 4.9 FY2007/08, while in the health sector it Agriculture 1.4 0.9 1.0 climbed from 3.3 percent to 3.5 percent. Infrastructure 4.5 3.9 2.7 Education 3.0 2.9 2.3 The capital expenditure of the four Health 0.7 0.6 0.6 priority sectors has declined during Recurrent Spending (percent of total expenditure) FY2006/07-2007/08 partly due to a Four sectors 9.0 8.9 10.4 decline in donors’ contributions as well Agriculture 1.0 0.9 1.0 as reduced public investment (PIP) in Infrastructure 0.5 0.4 0.5 infrastructure and construction. The Education 6.0 6.1 7.0 share of donor funding for all public Health 1.5 1.5 1.9 investment programs (PIPs) dropped to (percent of total recurrent expenditure)* 76 percent in FY2007/08 from 85 Four sectors 19.8 19.3 19.1 percent in FY2006/07. Agriculture 2.2 1.9 1.9 Infrastructure 1.0 0.9 0.8 Education 13.3 13.1 12.8 Health 3.4 3.3 3.5 Source: Lao authorities (MOF) and staff calculations. * Note: Total recurrent expenditure includes salaries and benefits, transfers, administrative expenses, and other recurrent spending. Lao PDR Economic Monitor 2009 – End-Year Update 15 2.2 FINANCIAL SECTOR REFORM The formal financial sector remains dominated by State Owned Commercial Banks (SOCBs), but signs of competition have been seen recently due to the role that joint-venture and private banks have been playing in the very recent past. The financial system is dominated by banks, with non-bank financial institutions (NBFI) representing only 3% of overall financial sector assets. SOCBs are still dominant with around a 60 percent share of total banking sector assets, but this share is declining. The assets of private and joint venture banks have increased recently as new private banks emerged. In the past year, 5 new commercial banks commenced operations in Lao PDR and brought the total number of banking institutions to 20, consisting of 4 SOCBs, 3 joint-ventures, 1 private and 12 foreign bank branches. Increased competition by recent entries of new private banks has provided an incentive for SOCBs to improve their performance, risk management, governance, and products and services. The regulatory framework for the financial regulatory and supervisory framework for capital sector has improved. Promulgated in 2007, the markets. However, the lack of necessary Commercial Banks’ Law helps develop a level infrastructure to support a vibrant capital market, playing field for all commercial banks by allowing such as payment and clearance systems, could have them to open branches outside Vientiane. The a negative impact on the success of the new stock Implementation Decree on the Commercial Bank exchange. Law was approved on September 25, 2009. It clarifies a number of issues and further strengthens The rapid credit growth in 2008 and 2009 may the overall financial sector legal regime. Under the jeopardize the already fragile position of the direction of the BOL, the first Financial Sector banking sector. At the end of June 2009, total Strategy (FSS) was approved by the government in lending to the overall economy grew by 98 percent February 2009. The government plans to year on year (or to 8,242 billion kip from 4,158 implement this strategy next year after the billion kip in June 2008 – see Figure 18) and the completion of each subsector’s action plan. The ratio of private sector credit to GDP also increased implementation decree of the Secured Transaction to 15 percent from 8 percent in June 2008. The Law was submitted for government’s consideration banking sector increased its loan portfolio by about in October 2009. 60 percent and contributed 62 percentage points to the overall credit growth. If the new loans were not Steps to develop the country’s first stock carefully assessed for risk, they could result in exchange are underway despite a number of future quasi-fiscal liabilities. Over the same period, challenges. With support from the Korean and Thai BOL accelerated its policy lending to public Stock Exchanges, the Lao Government plans to infrastructure projects through local Government open its first stock exchange on October 10, 2010. agencies by 184%, with the objective of boosting The Government sees the development of its the local economy during the global economic capital markets as an avenue to fund its socio- turmoil. Most of the government policy lending economic development plan, and hopes the security was targeted to construction projects for the 25th market will be able to facilitate long term funding SEA Game and for the celebration of the 450th for the business sector. It is expected that several anniversary of the proclamation of Vientiane as the SOEs such as Electricite Du Laos (EDL) and national capital. Rising concerns over central bank Banque Pour Le Commerce Exterieur Lao (BCEL) lending have led the Government and BOL to will be selected as the pioneers to test the new announce the phasing out of BOL quasi-fiscal market. The recently appointed Lao Securities lending. Exchange Commission has been developing the Lao PDR Economic Monitor 2009 – End-Year Update 16 Figure 18. Credits to Economy and Government The recent high and accelerating credit growth (billion kip) has raised concern over future nonperforming loans (NPL). The percentage of NPLs to total loans 10000 dropped from 10.5% at the end of 2006 to a low of 4.4% in May 2009. However, it is unclear whether 8000 these NPL reductions are the result of improvement 6000 in loan quality or simply a reflection of the rapid 4000 growth in new loans over the last 12 months and NPL write-offs. This concern is heightened due to 2000 what is considered the poor risk management 0 capacity of the sector. The possible deterioration of Dec-07 Jun-08 Dec-08 Jun-09 the balance sheets of banks may accelerate further to Private to SOE to Gov if the global economic crisis does not recover as expected and, eventually, this could affect the Source: Bank of Lao PDR profitability of the real sector. In addition to the concern over a possible deterioration in the quality of the loan portfolios of banks, BOL also has a limited ability adequately to assess risk and supervise the banking sector. 2.3 TRADE REFORM Lao PDR has been gradually integrating into the world economy through the accession to regional and multilateral trade organization such as ASEAN and WTO. The country initially applied to join the WTO in 1997, and has recently made accelerating progress. However, as its integration is still at an early stage, evidence suggests that Lao exports are less affected by the global financial crisis than initially expected. The GOL is implementing a sector-wide approach to trade- related reforms based on the 2006 DTIS/IF Action Matrix 5, to help address the supply-side constraints that inhibit export competitiveness. Key Reform Actions Taken Progress in the WTO accession process appears Lao PDR is progressively complying with to be accelerating. The fifth meeting of the Lao requirements to reduce tariffs under AFTA WTO Working Party (WP) took place on July 14, Common Effective Preferential Tariff. As of 2009, at which the Lao delegation reported the August 2009, all remaining products on the progress on substantial legislative reforms. These sensitive list were brought into the inclusive list, of include the adoption of the new Law on Livestock which 71 percent of products have a zero tariff. Lao Production, Veterinary Law, Law on Plant PDR is required to reduce tariffs to zero on all Protection adopted in 2008, and a new National inclusive list products imported from ASEAN Food Safety Policy. The Decree on Import-Export countries by the year 2015. Eventually Lao PDR’s Licensing, facilitating the introduction of automatic accession to the WTO would depend on the import licensing procedures, was also adopted. The agreement with all WP members on goods and Decree on Import and Export Management, which services. The GOL has begun to draft elements of unprecedentedly introduces the “national the Working Party report, the final version of which treatment” concept into the Lao legal system, is will be submitted to the WTO Ministerial being revised. At the same time, a draft Decree on Conference or General Council by the WP. The Rules-of-Origin is being finalized. final report will recommend that Laos be admitted as a member. The next Working Party meeting is planned for early 2010. 5 The action matrix was formulated based on the recommendations of the Diagnostic Trade Integration Study (DTIS) and is implemented under the National Integrated Framework (IF) Governance Structure. Lao PDR Economic Monitor 2009 – End-Year Update 17 Important work on trade facilitation is structure and clear responsibilities for lead agencies progressing but challenges remain. Following the as well as pre-defined performance indicators. finalization of the Trade Facilitation Master Plan, a Along with the commencement of the deployment Trade Facilitation Action Plan is currently in the of the new customs IT system (ASYCUDA) to preparation and consultation process and expected modernize and streamline customs systems, a Time to be finalized by the end of 2009. It will identify a Release Study is underway as part of efforts to strategic agenda for improving trade facilitation establish a baseline assessment of trade facilitation with a proposed implementation costs. 2.4 PRIVATE SECTOR DEVELOPMENT The Lao PDR Constitution of 1991 protects state, collective, and private forms of ownership. During the 1990s an active legislative program laid the foundations for developing market based rules and institutions to support private sector development. Today, agricultural production and most manufacturing production are in private hands, and SOEs only cover around one percent of employment. Nearly 97 percent of manufacturing units are small (less than 10 employees). Of the medium and large units, 35 percent are privately owned by Lao PDR citizens and 55 percent are joint ventures with foreigners. The remainder is owned by government. Foreign investment inflows have increased rapidly, in both resource and non-resource sectors (mainly hydropower, mining, agriculture, processing industries, and tourism). Between 2003 and 2008, actual investments increased from US$110m to about US$770m. The main foreign investors are from Thailand, China, Vietnam, Australia, Malaysia, Singapore, South Korea, Taiwan, India, France, the Netherlands, and the United States. The National Social and Economic Development Plan recognized the need to improve the business environment and promote domestic and foreign private investments to foster growth, reduce poverty, and achieve the Millennium Development Goals. Key Reform Progress In order to further improve the investment Several mechanisms for public-private dialogue climate in the country, the National Assembly to identify and address business constraints have has approved a new unified Investment been established and are operational at both the Promotion Law in July 2009 to replace two central and provincial levels, such as the Lao existing investment laws. Among other measures, Business Forum, Provincial Public-Private the new law has abolished very lengthy and Dialogues, and direct dialogues between LNCCI cumbersome licensing approval procedures for and various business associations and the GOL. general investment activities, and created a level However, the efficiency and effectiveness of these playing field for both domestic and foreign dialogues need to be enhanced further as several investors by harmonizing business entry procedures issues raised in past dialogues still have not been and investment incentives. However, this Law as resolved, such as the tourist arrival fee, investment well as the new Minerals Law (endorsed by the NA incentives, procedures for importing assistance in December 2008) has not yet been officially goods funded by ODA, and other issues. promulgated. Implementation of the Enterprise Law and the Law on Processing Industry is continuing. Several important steps have recently been taken by GOL to simplify business entry, such as elimination of a minimum capital requirement for starting a business, introduction of a simplified business registration system in major provinces as part of the Enterprise Law implementation, and abolishment of establishment licenses for general manufacturing firms based on the Law on Processing Industry. Lao PDR Economic Monitor 2009 – End-Year Update 18 Investment Climate Assessment (ICA 2009) The initial findings of new Investment Figure 19. Lao PDR – Major Constraints to Investment (ICA 2009) Climate Assessment (ICA 2009) show that the top five binding constraints for private sector in Lao PDR are taxation, followed by access to finance, inadequate skilled labor force, electricity, and access to land (Figure 19). Despite recent achievements made in improving the investment climate in the country, significant constraints to doing business remain and greater coordinated effort by different sectoral agencies is needed to promote investment in non-resource sectors. Source: The World Bank (ICA 2009) Foreign Direct Investment (FDI) Figure 20. Actual FDI in Lao PDR (US$ m) FDI inflows to Lao PDR are expected to fall considerably in 2009 due to the impact of the Hydropower Mining Non-resource sectors global economic crisis. As discussed above, the 1500 nominal FDI value is expected to decline from 1250 about $771 million in 2008 to $614 million in 2009 1000 (or by about 20 percent) due to recent delays of 750 new hydropower and mining projects, as well as 500 slow growth in the non-resource sectors (Figure 250 20). Assuming the global economy continues to 0 recover - Annex 1), FDI to Lao PDR is expected to 2006 2007 2008 2009 2010 2011 2012 2013 2014 rise considerably in the medium term, as large resource and non-resource projects resume, Source: MPI and staff estimates and projections. compounded with the expected recovery of regional and global demand. Figure 21. Share of accrual FDI by country (% of total, as of August 2009) The majority of FDI goes to natural resource sectors. Foreign investment in natural resources Vietnam, 21 accounted for more than 80 percent of the total FDI France, 5 during the past few years although investment in Japan, 4 non-resource sectors has also picked up substantially but still at a low scale. Private Korea, 5 investment in the banking sector is expected to China, 23 India, 4 increase substantially in 2009. Interestingly, while Australia, 3 banking sectors in other countries have been severely affected by the global economic crisis, Others, 8 several new private banks have been established in Thailand, 27 Lao PDR this year (Booyoung, Indo China and ST banks). Major FDI to Lao PDR in recent years Source: Lao authorities (MPI) and staff calculation. comes from the region, mainly from Thailand, Note: The accrual FDI is based on approved FDI data from MPI. China, Vietnam, Australia, India, Japan, and Korea. Lao PDR Economic Monitor 2009 – End-Year Update 19 PART III. DONOR ASSISTANCE ON REFORMS Lao PDR is highly dependent on external support, policy reform agenda. This information has been some of which flows into considerable technical provided by donors and has been collated by the assistance. This Part examines technical assistance Monitor. and other donor-funded support to the Goverment’s 3.1 SUMMARY OF DONOR ASSISTANCE TO KEY REFORM AGENDA IN LAO PDR Public Sector Governance. Governance attracted management process across the country, continues donor assistance in the areas of public to be supported by GPAR. The national ICT Policy administration reform, decentralization, civil was approved by the Government this year and service capacity development, public financial over a hundred offices are now linked through the management, and legal and judicial reform. In government’s Intranet; the backbone fiber-optic 2009, the GOL reviewed the implementation of the infrastructure linking most provinces is also decree on district restructuring, further instructing completed. The study on pay and compensation of the classification of districts into three categories civil servants, lead by PACSA and supported by the (urban, rural, and rural-poor). It is expected that the World Bank, has been finalized and the report is restructuring will increase efficiency by being prepared. A study on gender in governance rationalizing the number of offices. The Prime supported by UNDP in collaboration with PACSA Minister’s Office (PMO) has instructed the and the Lao National Commission for the assessment of the One-Door-Service Centre Advancement of Women has also been drafted. In (ODSC) modality carried out under the direction of addition, the establishment of a PACSA civil the Public Administration and Civil Service service training centre to complement the work of Authority (PACSA) and supported by the the National Academy for Politics and Public Governance and Public Service Administration Administration has been approved by PACSA. Reform Program (GPAR). In relation to fiscal decentralization, the pilot District Development During 2009, the Lao PDR has adopted a Legal Sector Master Fund (DDF) supported by UNCDF/UNDP is now Plan 2020 outlining a sectoral reform program for the legal and operational in 18 districts and 5 provinces judicial sector. Two studies have started led by the Ministry of (Houaphan, Oudomxay, Xiengkhouang, Saravane Justice and the Lao Bar Association with the support of UNDP: and Sekong). The Poverty Reduction Fund (PRF) the nation-wide Access to Justice Survey, and a survey on customary rules and practices. Five new laws were approved supported by the Swiss Development Cooperation by the National Assembly in 2009: the Unified Law on (SDC) and the World Bank, has completed its Investment Promotion, the Media Law, the Law on the Lao seventh cycle of operations and has expanded to 21 Front for National Construction; the Law on Water supply; and districts during 2009. It now operates in 7 the Law on Fisheries. The PMO issued fourteen decrees, provinces. Discussions have begun to develop it including the Decree on Executive Positions of the Lao Civil Service, the Decree on the National Committee for Business into a national program. Efforts to improve Promotion, the Decree on Associations, and the Decree on the feedback from service-users to the government National Committee for Environment. The decree on have been made through the Citizen Report Card. recruitment and retention of civil servants in remote areas is being revised; the decrees on e-governance, asset declaration, The development of a Personnel Information and foundations are currently being drafted. In 2009 the Lao Management System (PIMS), which is expected to PDR has ratified a number of international treaties: the UN Convention Against Corruption, the International Covenant on provide a platform for a unified human resource Civil and Political Rights, and the Convention on the Rights of People with Disabilities. Lao PDR Economic Monitor 2009 – End-Year Update 20 Banking Sector and SOEs. Key donors supporting Private Sector Development. Key donors active in banking sector reform include ADB, IMF, and PSD include ADB, EC, Germany, Japan, ILO, WB/IFC. Recently the government has taken India, SNV, UNIDO, World Bank Group (IFC and several important measures to strengthen the legal World Bank) and others. The government is regulatory framework for banking and making important progress in simplifying business microfinance. However, progress on transformation entry regulations for both domestic and foreign of SOCBs has been slow. In the short to medium investors through implementation of the Enterprise term more external support will be needed to Law, the Law on Processing Industry, and further strengthen banking regulation and preparation of the new unified Investment supervision, continue ongoing efforts to restructure Promotion Law. However, to make Lao PDR a SOCBs, and improve financial infrastructure better place for doing business, more concerted including establishing a credit information bureau, efforts will be required to further streamline collateral registries, a payment system, and others. licensing procedures administered by technical SOE reform outside the banking sector has been agencies, simplify the investment incentive regime, supported mainly by WB and JBIC. Substantial improve tax administration (especially for SMEs), progress on this front can only be achieved by improve Contract Law and enforcement, improve adopting a clear SOE reform strategy, which also competition policy, and strengthen commercial clearly defines role and responsibilities of relevant dispute resolution. agencies. Tourism Development. Tourism is another area Trade Development. The trade development that received substantial donor support. Key donors agenda is seen by the GOL as the driver of include ADB, EC, Germany, IFC, Japan, economic growth and poverty alleviation, while Luxembourg, New Zealand, and SNV. Donor regional integration and WTO accession are seen as assistance is targeted at a wide range of areas key motivating factors for reform in such areas as including strategy development, physical trading rights, customs valuation, rules of origin, infrastructure, marketing and branding, eco- subsidies, sanitary and phytosanitary measures (i.e. tourism, community based tourism, skills upgrading food safety, animal and plant health), technical for service providers, and others. barriers to trade (i.e. product standards, labeling, etc), investment measures, and intellectual property. Trade-related assistance is coordinated via the government’s National Integrated Framework Governance Structure, with priorities determined according to the DTIS Action Matrix. Several donors have committed to support government’s implementation of the Action Matrix by establishing a multi-donor trust fund – the Trade Development Facility – administered by WB, and now at the end of its first year of implementation. Other donors active in trade related assistance include ADB, Australia, EC, Germany, ITC, Japan, SECO, UNCTAD, UNDP, UNIDO, US, and WB. A description of these and other assistance projects is provided in Annex 2 Lao PDR Economic Monitor 2009 – End-Year Update 21 ANNEX 1 – GLOBAL ECONOMIC OUTLOOK Some positive changes took place recently in the outlook and the length of the global recession still global economy with a positive sign of initial remain uncertain at this time. This paper bases its recovery, especially in EAP region (led by China) country-level projections for Lao PDR's FDI and including an unexpected increase in durable and export demand on IMF (WEO Oct-2009) and the capital goods orders in recent months, as well as World Bank's projections (EAP Update Nov-2009) several positive rallies in the stock markets and for the regional and global economic outlook and revival of commodity prices. However, the global commodity prices, presented in Annex Table 1. Annex Table 1. The Global Economic Outlook In Summary (percentage change from previous year, unless otherwise specified) 2007 2008 2009e 2010f 2014f Global conditions World Output 5.2 3 -1.1 3.1 4.5 World trade volume 7.3 3.0 -11.9 2.5 6.4* Consumer prices Advanced Economies 1/ 2.2 3.4 0.1 1.1 1.9 United Sates 2.9 3.8 -0.4 1.7 2.2 Emerging and Developing Economies 6.4 9.3 5.5 4.9 4 Developing Asia 5.4 7.5 3.0 3.4 2.8 Commodity prices (percentage change of USD terms) Non-oil commodities 14.1 7.5 -20.3 2.4 0.9* Agriculture 20.1 27.2 -14.8 -6.1 0.2 Food 25.7 33.9 -17.6 -5.0 0.4 Metals and minerals 6.2 -2.1 -24.9 16.0 -6.5 Copper 5.9 -2.3 -28.1 10.0 -10.0 Oil price 10.7 36.4 -36.6 24.3 2.6* Interest Rates Real six-month LIBOR 2/ 2.4 0.9 -0.4 -0.1 2.7* World real long-term interest rate 3/ 2.0 0.4 2.9 2.5 3.4* Real GDP growth World 5.2 3.0 -1.1 3.1 4.4* Advanced Economies 2.7 0.6 -3.4 1.3 2.4 United States 2.1 0.4 -2.7 1.5 2.1 Euro Area 2.7 0.7 -4.2 0.3 2.1 Japan 2.3 -0.7 -5.4 1.7 1.8 United Kingdom 2.6 0.7 -4.4 0.9 2.9 Central and Eastern Europe 5.5 3.0 -5.0 1.8 4 Emerging and Developing Economies 8.3 6.0 1.7 5.1 6.4* Developing Asia 10.6 7.6 6.2 7.3 8.5 China 13.0 9.0 8.5 9.0 9.5 India 9.4 7.3 5.4 6.4 8.1 Indonesia 6.3 6.1 4.0 4.8 6.3 Thailand 4.9 2.6 -3.5 3.7 6 Africa 6.3 5.2 1.7 4.0 5.3 Source: IMF (WEO, October 2009) Note: 1/ United States, Euro Area, Japan, United Kingdom, Canada, Korea, Australia, Taiwan Province of China, Sweden, Switzerland, Hong Kong SAR, Czech Republic, Norway, Singapore, Denmark, Israel, New Zealand and Iceland 2/ London interbank offered rate on U.S. dollar deposits minus percent change in U.S. GDP deflator. 3/ GDP-weighted average of 10-year (or nearest maturity) government bond rates for United States, Japan, Germany, France, Italy, United Kingdom, and Canada. * this figure is the four-year average 2011-14 Lao PDR Economic Monitor 2009 – End-Year Update 22 ANNEX 2 – LIST OF DONOR ASSISTANCE ON REFORM AGENDA 1-PUBLIC SECTOR GOVERNANCE Australia/AusAID  Asia Regional Trafficking in Persons Project – ARTIP (A$21m for Lao PDR, Cambodia, Myanmar, Thailand, Indonesia and Vietnam 2006-2011). Working with the General Police Department of the Ministry of Public Security, the goal of the project is to contribute to the prevention of human trafficking in the ASEAN region. The purpose of the project is to facilitate a more effective and coordinated approach to people trafficking by criminal justice systems of governments in the Asia region.  Support to PEMSP Multi-Donor Trust Fund (A$2m, 2008-2011). The MDTF will support critical interventions focusing on strengthening the public financial management systems and capacity at central and provincial levels.  Poverty Reduction Support Operations - PRSO (See project description under the World Bank section). Canada  Canada Asia Regional Emerging Infectious Disease Project (CAREID) (CDN$15m for Indonesia, Cambodia, Lao PDR, Malaysia, Philippines, Thailand, Timor-Leste and Vietnam, 2005-2011). The project in Southeast Asia and China interlinks components related to public health security on emerging infectious diseases and establishes regional collaboration while strengthening capacity of national public health systems in the region to prevent, detect and respond to emerging threats.  Asia Regional Cooperation in Human Development (SEARCH) (CDN$9.25m for Indonesia, Cambodia, Lao PDR, Philippines, Thailand, Timor-Leste and Vietnam, 2004-2010). The project develops capacity of selected non-governmental and governmental institutions in the implementation of the Rule of Law and in influencing policy makers on related issues.  Support to the Implementation of the Convention on the Elimination of the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW) (CDN$10.5m for Thailand, Timor-Leste, Vietnam, Indonesia, Cambodia, Lao PDR and Philippines, 2003-2009). The program aims to realize substantive changes at the level of laws and policy. European Union (EU)  Second General Budget Support to Lao PDR (PRSO4-7) (Euro 13m, 2008-2011). Four-year support to Government's NSEDP implementation and reform agenda under the PRSO with Euro 12m in the form of budget support and Euro 1m for complementary capacity development to education and health. Program coordinated with WB, Australia and Japan.  Support to Public Finance Management Strengthening Programme (PFMSP) (EUR 3m, 2008-2011). Multi-Donor Trust Fund (with funds from EU, Australia, Switzerland, Sweden managed by the WB) to support Ministry of Finance reforms and capacity enhancement.  Support to UXO clearance: 5 projects to support the operations of the National Regulatory Authority (NRA) and UXO LAO (Total EUR 1.4m, 2008-2011). Funds are provided directly to the NRA and UXO LAO as well as through NGOs in order to support UXO clearance operations and capacity building of the national and regional NRA offices. France  Strengthening the capacity of the Mekong River Commission - MRC (US$0.975m, 2007–2011). This project provides two advisors on the implementation of the sector based approach programs for the secretariat of the MRC. Germany (GTZ)  Rural Development in Mountainous Areas (2008-2011; US$9.7m), RDMA supports the implementation of NSEDP in 10 districts, in 8 by close cooperation with IFAD. Institutional capacity development at National (MPI), provincial (PDPI) and District level for integrated area-based development planning enables GoL to improve its management function in economic development.  MRC regional programme 'Sustainable Development of Watershed Areas in the Lower Mekong Basin' (US$26.8m, 2002-2013). This programme assists the development of watershed management concepts and supports the local working groups of member states as well as the Secretariat of MRC in its technical, organisational and logistical tasks. In addition it helps the cooperation and coordination efforts of the member states and the Secretariat of MRC.  Integrated Experts Programme for Lao PDR (2009: US$0.5m): CIM supports provincial Departments of Planning and Investment (DPI) in Champasak and Luang Namtha, the National Geographic Department (NGD), as well as the National Assembly (NA) with the placement of international so-called Integrated Experts who support their organisations mostly with capacity building measures in a complementary approach to the GTZ-RDMA programme. Lao PDR Economic Monitor 2009 – End-Year Update 23 Japan  Project for Capacity Building for Public Investment Program Management (US$6m, JICA: Technical Cooperation Project 2004-2011). This project aims to improve overall management of the domestic Public Investment Program (implemented by the Lao PDR budget) in cooperation with the Ministry for Planning and Investment.  Local Administration Capacity Building Support to PACSA (US$0.6m, JICA: Advisor, 2007-2010). This technical cooperation aims to assist the review of central and local government relationships and to ensure the structural improvement of local administration. New Zealand/ NZAID  English Language Training for Officials (US$2.74m, Ongoing since 1995). ELTO is a long standing project that is providing English language training to mid level officials.  New Zealand Development Scholarship (US$0.83m, ongoing since 2006). NZDS programme provides support to both public and open candidates on postgraduate study in New Zealand.  Mekong Institute (US$13.9m, ongoing since 1997) MI provides support on human resource development and economic integration in the Greater Mekong Sub-region (GMS) - themes are: tourism, public sector reform, rural development, project management and Regional Research Development and Methodology. Luxembourg  Bolikhamxay Livelihood Improvement and Governance Programme (US$8.4m, 2009-2012) improves the rural livelihoods in Bolikhamxay Province based on a client responsive local authority-lead planning and implementation process, on investments in social and productive infrastructure and on the promotion of income generating activities.  Lao-Luxembourg Health Sector Support Programme (Luxembourg contribution US$20.2m, Belgian Contribution US$3.1m, 2009-2013) assist the Ministry of Health in implementing and operationalising its long-term Health Sector Strategy 2000-2020, Primary Health Care Strategy and Health Sector Development Plans, emphasizing its eight Priority Programmes, with a view to implement quality health services for reaching a larger share of the population, especially the poorest, those at risk and living in more remote areas. Singapore  Human Resource Capacity Building Programmes (US$10.9m, ongoing since 1992). Lao PDR has been an active participant of the Singapore Cooperation Programme (SCP). As of September 2008, more than 5,800 Lao PDR officials have been trained under the SCP in fields such as English language, public administration, IT, trade promotion and hospitality. Singapore has also initiated a series of courses/workshops under the SCP with the aim of assisting the Lao PDR to prepare for the 2009 SEA Games, and expanded our English language training to National Assembly officials and the provinces.  Singapore Cooperation Programme (Ongoing since 1992). More than 57,000 government officials from 169 developing countries have attended the SCP programmes spanning various fields such as public administration, civil aviation, education, environment, urban development, IT, trade facilitation, health and disaster management, port management and law. Sweden/Sida  Provincial Radio – (US$1.6m, 2005-2009) The project objectives are: 1) enhanced ability of management and staff of Lao PDR National Radio and five provincial radio stations to deliver good quality interactive, public service radio, 2) sustainable training capacity built to ensure continued support in interactive public service radio broadcasting, and 3) improved institutional framework for the media sector through exchange views on the role of the media in society between Lao PDR and Sweden.  Faculty of Law – (US$4.5m, 2003-2009). The specific objectives are to improve technical capacity and pedagogical knowledge among teachers faculty, to improve capacity in management and administration, and to improve students’ motivation.  National Agriculture and Forestry Research Institute, NAFRI - (US$12m, 2007-2012) The objectives are to develop productive and sustainable upland technologies and land management recommendations for poverty alleviation and to generate socio-economic knowledge relevant for national level policy making; to strengthen NAFRI to fulfill its mandate through capacity development encompassing institutional development; and to improve management, sharing and dissemination of information to researchers and other stakeholders, particularly National Agriculture and Forestry Extension Services (NAFES).  Strengthening Environment Management (SEM) – (US$8.7m, 2005-2010). The project objective is to strengthen STEA’s position to fulfill its mandate to implement laws and regulations, with particular regard to environmental and social impact assessment. The project also focuses on implementation and enforcement at national and provincial level of Environment Impact Assessment and Environmental Education and Awareness raising activities.  Forestry Strategy 2020 Implementation Promotion Project, FSIP – (supported by Sida and JICA for 2006-2011. Sida’s contribution: US$1.2m). This support aims to strengthen MAF’s capacity to carry out and coordinate Forestry Strategy 2020 implementation together with its partners (line ministries, donors, investors, provincial and district governments and civil society). Lao PDR Economic Monitor 2009 – End-Year Update 24 SNV Netherlands Development Organization  SNV supports the UNDP project “Gender Empowerment for Poverty Reduction” to build capacity for stronger polic y practice. The has the medium term goal of building pro-poor and gender sensitive advocacy, planning and resource allocation skills within the Lao PDR Government in support of decision making processes, policy formulations and planning forums. Switzerland (SDC)  Support the establishment of the UXO National Regulatory Authority (NRA) and support the Operation of the UXO Lao Programme (US$3.9m, 2006-2009). Supports the National Regulatory Authority (NRA) to strengthen the coordination and management of the UXO Sector, and supports the National UXO Lao clearance operator to further expand its operations and increase overall organisational efficiency and productivity.  Poverty Reduction Fund – PRF (Total US$6.22m, 2008-2011,). The support aims to strengthen local capacity in respect of village development by financing small-scale investment and services.  Rights-LINK: Rights-Land, Information, Networking and Knowledge in Laos (Total US$1.5m, 2008-2012): The project aims to improve stakeholders (government, civil society, private sector, local communities particularly women and ethnic groups) capacity, knowledge, and participation in decision-making on land-related issues so that rural communities can exercise their rights to manage the land they use in a sustainable and equitable manner. UNDP  Governance and Public Administration Reform Programme (GPAR) (Total approximately US$20m over 2005-2011. UNDP/UNV: US$4m, UNCDF: US$2.6m, SDC: US$5m, Luxembourg: US$4m, Sida: US$2.5m, EU: US$0.6m). The GPAR programme strengthens the capacity of the Lao Government at both central and local levels in strategic planning, financing, human resource management and monitoring of governance and public administration reforms for more effective, accountable and transparent delivery of public services. It has pilot initiatives in Luang Prabang (delivery of basic services for rural households, primarily in the health and education sector, and pro-poor business development), Xieng Khouang (more effective and participatory services in the agricultural sector and support to financial management); Saravan (support to inclusive and pro- poor planning and budgeting at local levels; effective and transparent implementation of local infrastructure and service delivery; financing and financial management of local public service delivery functions; organizational strengthening at provincial, district and sub-district levels; human resource management and capacity development; Sekong (The project aims to improve people’s access to public services though improved oversight, management and planning capacity at district level, and strengthened capacities of village and Kumban leadership.  Support to an Efficient Lao National Assembly – SELNA (Total US$ 4.13m. UNDP: US$ 0.75m, EC: US$ 1.375m, UNODC: US$ 0.01m, UNFPA: US$ 0.05m, UNICEF: US$ 0.09m, UNIFEM: US$ 0.1m, 2009-2012) SELNA is a UN Joint Programme involving six UN agencies alongside contributions from the EC and in-kind contributions from the German Government and Singapore Government. It is a comprehensive programme of support to the National Assembly that is focused on further strengthening its legislative, oversight and representational capacity through initiatives targeted for assembly members, the committees, their support staff, and the assembly secretariat.  Support to capacity building in the legal sector (Total US$5m, 2008-2012. Finland: US$2.250m, EC: US$0.625m, France: US$0.046m, UNDP: US$1.6m). Support to the Ministry of Justice and stakeholders to establish a national coordination mechanism for the implementation of the Legal Sector Master Plan. Capacity building to enhance the participation of the Lao PDR in the international legal system by developing a comprehensive capacity development for the country to meet the demands of its increasing participation in treaties and in international law generally. Capacity development for the Lao Bar Association, public legal education and legal aid. Mapping exercise of customary law practices in Lao PDR to enable the Government to develop a national strategy on customary law  Enhancing Government Partnership with Social Organizations for Poverty reduction (US$ 0.4m - UNDP, 2007-2009). - The project aims to contribute to greater people’s participation in public policy, local development and nation bui lding through the project goal of enhanced government partnership with social organizations to deliver services in the public interest towards poverty reduction.  Enriching the Round Table Process for Increased Aid Effectiveness and Development Results (US$ 2.5 m; ADB US$ 0.5 m, Luxembourg US$ 0.5 m, US$ 1.5 – UNDP). The project aims to help the GOL to exercise a more effective leadership role in coordinating aid at macro, sectoral and cross-sectoral levels, and for aid to be: more transparent and predictable; aligned with and integrated into national planning and budgeting frameworks; and to contribute more effectively to achieving development results.  Support for Implementation of the Sixth Five-Year Plan (US$2.4m: UNDP: US$0.8m, 2006-2010) – The project aims to assist the GOL in the implementation of the Sixth Socioeconomic Development Plan (2006-2010) including the constituent poverty reduction strategy and the MDGs; and in monitoring and evaluating the results.  Support to the UXO National Regulatory Authority (NRA) and the UXO Lao Programme (SDC: US$3.9m, 2006-2009; AusAID: US$2.1m, Belgium: US$ 0.5m, Canada: US$ 1.2m, Denmark: US$5.5m, Finland: US$1.6m, Germany: US$2m, Ireland: US$1.3m, Italy: US$.16m, Japan: US$5.7m, Luxembourg: US$2.7m, Netherlands: US$2.9m, NZ: US$1.7, Norway: US$2.9m, Poland: US$.1m, South Korea: US$.14m, UNDP: US$2.9m, UK: US$1.4m, USA: US$3.2m, 2006-2008). Supports Lao PDR Economic Monitor 2009 – End-Year Update 25 the National Regulatory Authority (NRA) to strengthen the coordination and management of the UXO Sector, and supports the National UXO Lao clearance operator to further expand its operations and increase overall organisational efficiency and productivity.  Support for Disaster Risk Management, emergency assistance and recovery in the Lao PDR (UNDP: US$1.5m, 2008-2010). Support capacity development of government in disaster risk management and implementation of Flood recovery activities linking to longer term development processes. The World Bank (WB)  Support to PEMSP and Budget Law Implementation (through the Financial Management Capacity Building Project, US$11 million, 2002-2011). The project supports three main areas of reform: financial and banking sector, SOE, and public financial management capacity building. The project assists the GOL in implementing the new Budget Law, specifically on: (i) developing a new revenue sharing framework; (ii) implementation of the revised Chart of Accounts and Budget Nomenclature; (iii) support to Treasury Centralization and (iv) strengthening External Audit capacity.  Poverty Reduction Support Operations (PRSO) - The second programmatic series for 2008-2011 (PRSO4, 5, 6, and 7) with yearly financing from the WB of about $10 million and another $10 million roughly from potential co-financiers, such as EU, Japan, and Australia -- about US$20 million for the total operation. The main objectives of this programmatic operation are to support NGPES/NSEDP implementation and provide additional contributions to the government budget and to policy reforms in public financial management, banking and financial sector, SOE reform, health, education, and revenue management.  Support to Capacity Building for Hydropower and Mine Development (through the Technical Assistance for Capacity Building in the Hydropower and Mining Sectors, US$10.45 million, 2010-2013). The objective of the project is to increase human capacity and improves the performance of Government oversight institutions for the two sectors. The project supports capacity building in three main areas: (i) advanced education and professional training systems for human capacity development; (ii) development planning, concession management and enforcement of Government policies and regulations to ensure sustainability of hydropower development; and (iii) improvement of governance, government oversight and enabling environment and promotion of minerals development. 2-REFORMS OF STATE OWNED ENTERPRISES AND FINANCIAL SECTOR ADB  Rural Finance Sector Development Program (US$7.7m, 2006-2009). The Program Loan will support: (i) creating an enabling policy framework for public and private provision of rural and microfinance; (ii) creating a sound prudential regulatory and supervisory environment for public and private rural and microfinance institutions; (iii) transforming the Agriculture Promotion Bank (APB) into a financially self-sustainable, market-oriented rural finance institution; (iv) creating a supportive non- prudential regulatory environment for rural and microfinance.  Rural Finance Sector Development Program (US$2.3m, 2006-2009). The Project Loan will support: (i) building the Bank of Lao PDR’s (BOL) supervision capacity of microfinance institutions (MFIs), (ii) supporting APB to complete the risk management, accounting, and MIS components of its Restructuring Plan, and (iii) upgrading the ICT system of the Agriculture Promotion Bank (APB).  Institutional Strengthening for Rural Finance (US$0.7m, 2007-2009). The TA will assist the GOL to (i) coordinate and integrate rural and microfinance policy reforms and program implementation, (ii) carry through the policy lending phase out plan and performance-based recapitalization of APB to ensure its full transition to a commercially-oriented operations within three years; and (iii) formulate and document a simplified mechanism, policies and procedures for residual on-budget policy lending; and (iv) assist APB to build capacity in its human resources management.  Upgrading of ICT and MIS at the Agriculture Promotion Bank (US$0.472m; 2007-2009). The TA will assist APB (i) plan and execute the bidding, selection, and contracting processes to procure IT hard and software systems and communication infrastructure financed under the Project Loan; (ii) strengthen APB’s ICT human resources to manage the ICT systems upgrade; and (iii) plan and implement the rollout of ICT systems to the whole APB branch network.  Catalyzing Microfinance for the Poor (US$1.980m; 2007-2010). The JFPR TA will assist the development of a network of microfinance institutions (MFIs) in Lao PDR. Particularly, the TA will (i) create a Microfinance Fund (MFF) to provide matching grant funds for MFIs that focus on best practices, sustainability, and poverty reduction that are unlikely to be achieved without the support of the MFF; (ii) assist the Bank of Lao PDR strengthen its capacity in prudential monitoring and supervision of microfinance activities; and (iii) disseminate microfinance best practices through workshops and training activities for MFI practitioners and Government officials. Germany (GTZ, DED, KfW)  AFP - Improved access to finance for the poor households and micro and small enterprises in rural areas (2009-2011; US$8.2m). AFP will be implemented in 2 components: one is capacity development for microfinance services in a systemic approach at national, provincial and village levels by GTZ and DED and a grant of US$ 4m to GoL by KfW for refinancing. Lao PDR Economic Monitor 2009 – End-Year Update 26 International Monetary Fund (IMF)  Annual surveillance reviews (Article IV consultations) and semi-annual macroeconomic assessments (Assessment Letters).  2009 General SDR allocation (39.2 million SDR) and Special SDR allocation (2.1 million), in total US$ 61.95 available to the bank of Lao PDR.  Technical assistance in government finance statistics, and in customs.  Training. Short-term courses for government officials on economic and financial issues in IMF Institute (Washington, DC) and regional training institutes (Singapore, Vienna), and scholarships in Japan. Japan  Capacity Building Project for Public Financial Management Strengthening Programme (US$2m, JICA: 2009-2011). This project aims to establish a mechanism to improve capacity of the MOF officials in central and local level especially in the area of treasury and accounting by making HRD Strategy, HRD Planning of MOF and conducting of training. This project is conducted in cooperation with Organization and Personnel Department, MOF. Luxembourg  Banking and Finance Training (EUR 2m, 2009–2010). The project aims at enhancing the overall efficiency of the banking sector in the Lao PDR in line with goals set out in the NSEDP. The Lao B anking Institute’s physical, managerial and academic capabilities will be strengthened. A modular banking diploma and certification system will be developed to cater for the ambitions and abilities of all banking staff. UNDP  Capacity Development for National Implementation [NIM]: (USD$ 2.0m, 2009-2011. UNDP: US$ 1.5m, funding shortfall USD$0.5m). The project is aimed at developing the institutional and management capacities of the Implementing Partners of UN/UNDP-supported nationally implemented projects, in key areas ranged from results-based management to financial management, human resources management, procurement and asset management, to international standards. The project is also intended to contribute to harmonization of donor practice on project management for better aid effectiveness and greater national ownership. The World Bank Group-WBG (WB, IFC)  Poverty Reduction Support Operations - PRSO (See project description in section 1- World Bank PRSO)  Financial Management Capacity Building Program – FMCBP (See project description in section 1– World Bank)  Financial Accountability (IDF grant $0.30m). This grant aims at improving Financial Accountability in SOEs and Private Enterprises. The project focuses on capacity building and introduction of international accounting and auditing standards and related training. The project also supports strengthening of LICPA and improvement of legal framework for accounting and auditing particles.  IFC: Financial Sector Development: (US$0.8m, 2008-2010). IFC’s Access to Finance Program aims to (i) build strong and diversified financial markets with a range of financial institutions and (ii) construct the regulatory infrastructure necessary to ensure financial institutions are successful. Under this program, IFC continues to assist the GOL in (a) drafting implementing regulations for the new Law on Commercial Banks, and (b) drafting the implementing decree for the Law on Secured Transactions and establishing the secured transactions registry system (c) in partnership with the European Commission’s (EC’s) SME Development Program to assist the BOL to develop a workplan and to undertake a feasibility study, aiming at creating a conducive environment to share credit information by commercial banks with BOL and between other non- commercial bank credit providers. 3-TRADE REFORM Australia/AusAID  Support for the Role of Integrated Framework Facilitator (A$1.1 million, 2008-2011). Australia funded an expert to support GOL in implementing the DTIS Action Matrix and continues to work with the GOL’s IF Secretariat and Focal Point and other key donors (World Bank, EU, UNDP and others) under the Enhanced IF framework.  Trade Development Facility (A$3.05 million, 2008-2011). This is a multi-donor trust fund designed to support the implementation of GOL’s trade-related reform activities under the DTIS AM. The TDF is managed by WB and co-financed by EU and Australia. Canada  Asia-Pacific Economic Cooperation (APEC) Economic Integration Project (EIP) (CDN$9.95m for Indonesia, Philippines, Thailand, Vietnam, Cambodia and Lao PDR, 2003-2010). The purpose of the program is to assist 6 countries in Southeast Asia to comply with WTO obligations and/or WTO accession requirements and to strengthen their capacity to take advantage of their WTO rights. Lao PDR Economic Monitor 2009 – End-Year Update 27 European Union (EU)  The ASEAN-EU Programme of Regional Integration Support II (APRIS II) aims to further the process of ASEAN integration (Euro 7.8m, 2007-2009). It is mostly directed towards ASEAN Member States and ASEAN collegial bodies responsible for dealing with economic integration issues relating to conformance and standards, customs administration, investment, and legal issues surrounding compliance to various ASEAN agreements. About 80% of the resource is going to the standards & conformance, and customs & trade facilitation areas.  Open Resource on Conservation Agriculture for Trade and Development (ORCATAD) (Euro 0.3m, 2007-2009). The action aims to further the integration of Lao PDR in to the global information society by enhancing the export capabilities of Lao PDR in eco-friendly cash crops by promoting best practices in conservation agriculture aided by modern ICT. The action aims to also reinforce institutional capabilities of intermediary business organisations such as LNCCI by focussing on the niche market and new business opportunities for eco-friendly agriculture related products in the international markets.  Trade Development Facility (Euro 4.2m, 2007-2010) – Multi-donor trust fund (with funds from EU and Australia, managed by the World Bank) to support the implementation of the DTIS Action Matrix (AM) of Integrated Framework covering Trade Facilitation, SPS-TBT, Export Competitiveness, Capacity Building on Trade Policy, Trade Agreements, and Global Opportunities and Strengthening of National Implementing Unit. The facility will be executed by the MOIC under a supervision of Lao IF Secretariat. In addition, EC carried out two complementary studies in 2007 and 2008 to support this facility: i) Import- export procedure review and ii) Needs assessment to formulate Trade capacity component. Germany (InWent, DIE)  InWent: Capacity building for Lao-WTO membership (US$0.4m, 2006-2008), Training of Lao officials through seminars and workshops in Laos and Germany.  DIE (US$ 0.2m): WTO accession study on opportunities for high-value agricultural exports by the German Development Institute (DIE). Japan  Advisor on Investment Promotion to MPI (US$0.9m, JICA, 2007-2008/2009-2011). This technical assistance aims to promote smooth investment and provide proper advice on the problems of investment situation in Lao PDR.  Project on Support to Trade Promotion (US$1.5m, JICA, 2009-2012). This project is a technical cooperation project to Department of Production and Trade Promotion (DPTP), MoIC. The project aims for capacity development of DPTP staff on providing better trade information and promoting effective participation to trade fairs and business matching. New Zealand/ NZAID  Trade and Development (US$3.4, ongoing since 2000/01) provides support to GMS countries through phytosanitary capacity building, food safety/quality, metrology capacity building and development of the SME sector in the Mekong region through Mekong Private Sector Development Facility (MPDF). Singapore  Trade related courses (US$1.8m, ongoing since 1992). During the period, trade/economic courses were conducted at the Lao- Singapore Training Centre in the fields of business communication, international trade finance, consumer protection and export competitiveness strategies. Lao PDR officials also attended other trade related courses conducted in Singapore, including courses in trade and investment promotion, trade negotiation, national payment and settlement systems, and Central Bank accounting. Switzerland (SECO)  Support to Trade Promotion and Export Development (US$2.05m, 2004-2009, implemented by ITC). The project is to build up export development capacities of Government, trade support institutions and enterprises by developing (1) export strategies, (2) a trade support network, (3) institutions to train export enterprises, (4) trade information capacity at the national level. The focus in 2009 will be on building up and strengthening Lao supply capacity of organic agriculture products; developing community based tourism and, broadening trainings of councillors.  Lao PDR WTO Accession Support (US$ 0.37m, 2007-2010). The project aims to facilitate timely accession to the WTO through the provision of international level policy advice and negotiating strategy, and through ensuring timely and sequenced internal policy reform coordination, in line with Lao PDR’s development policy and Prefer ential Trade Agreements.  Linking Trade Demand and Sustainable Forest Management (US$0.2m, 2007-2010, implemented by WWF) The project aims to provide export trade driven to reduce illegal and unsustainable logging in production forests in Laos by (1) motivating changes in forest land use through long term financial incentives provided by trade and selective export market and (2) facilitating the linkage of producers and buyer. Lao PDR Economic Monitor 2009 – End-Year Update 28 UNDP  Enabling more effective Integration of Lao PDR into ASEAN Phase II (UNDP – US$0.57m, 2006-2009). The project aims to (i) increase national commitment to the process of ASEAN integration (ii) improve capacity to coordinate ASEAN affairs within the Government of Lao PDR and (iii) enhance national capacity to assess policy implications of regional integration.  Capacity Building and Technical support to Lao PDR in the WTO accession negotiation (IF Window II funds - US$0.3m, 2007-2009). The objective of the project is to: (i) Improve capacity of the GOL to prepare and negotiate a pro-poor and pro- growth WTO accession agreement (ii) improve capacity of the GOL to negotiate market access in the goods and services sectors and (iii) ensure WTO accession negotiations are widely disseminated at central and provincial level.  Institutional strengthening of the IF coordination and implementation structures (IF Window II funds - US$0.22million, 2007-2008). The key objectives of the project are to enhance (i) institutional capacity to coordinate and implement trade related policies and projects within the GOL (ii) coordination management capacity with relevant line ministries involved in the IF process and (iii) national capacity to assess the policy implication of trade on growth, economic development, and poverty alleviation.  Capacity Building for MOIC’S Department of Import and Export (DIMEX) in Rules of Origins (ROO), Product Specific Rules (PSR) and Operational Certification Procedures (OCP) (IF Window II funds - US$0.15m, 2007-2009). The project focuses on building capacity of DIMEX and on strengthening technical capacity on export procedures, specifically on ROO, PSR and OCP.  Support the shift of the Garment Industry from contract manufacturing to direct export (Phase 1) (IF Window II funds - US$0.32m, 2007-2008). The project aims to support the Lao Garment Industry to address the challenges that the garment sector is facing in the market and to operate smoothly its shift from contract manufacturing to direct export. The World Bank (WB)  Trade Development Facility (TDF) (US$ 8.5m, 2008-12). This is a multi-donor trust fund designed to support the implementation of GOL’s medium-term trade-related reform activities under the DTIS AM. The TDF is managed by WB and co-financed by the EC and Australia. Other donors are also expected to join. The TDF has now completed a first year of implementation.  Customs and Trade Facilitation Project (US$6m, 2007-2013). The project is support Lao PDR customs in facilitating cross- border trade, modernization and streamlining of customs procedures. In particular, through implementation of a computerized customs system (ASYCUDA), long-term technical assistance, change management, and support for WTO accession related to Customs. 4-PRIVATE SECTOR, TOURISM DEVELOPMENT AND LAND REFORM PRIVATE SECTOR DEVELOPMENT European Union (EU)  Legislation and European experience on the subject of ADR procedures: possible replication model in the Cambodia and Lao PDR (Euro€0.31m 2007-2009). This assistance intends to develop the knowledge and application of the Alternative Disputes Resolution (ADR) procedures in Cambodia and Lao PDR, with particular respect to SMEs, in order to more effectively and rapidly settle international disputes that may arise from business relations through training, seminars and study tours.  Small and Medium-sized Enterprise Development Programme (Euro€3m; 2007-2010). The programme aims to develop national capacity for the implementation of the SME Development Strategy and to support the Government to meet the policy reform requirements under the Private Sector/SME Development Programme provided by the Asian Development Bank (ADB) particularly on regulations concerning business registration and licensing, investment, trade and finance.  Establishing a Sustainable Production System for Rattan Products in Cambodia, Laos and Vietnam (Euro€2.4m; 2009-2011) co-financed and implemented by WWF. To contribute to a more reliable and resource efficient supply chains, modern manufacturing techniques and technologies, easy access to investment capital and enhanced marketing capacity, hence improving competitiveness and better business opportunities - Laos: Bolikhamxay, Vientiane and Sekong provinces. Germany (GTZ, DED, KfW, CIM)  GTZ - Human Resource Development for a Market Economy Program – Phase 2 (HRDME-2) (August 2007 – July 2011: US$8.9m) supports MPI, MoE, SMEPDO/MoIC and LNCCI to jointly improve the regulatory, institutional, and human resource conditions for private sector/SME development through vocational training; SME promotion; streamlining of investment procedures; support to research; and public-private dialogues in 4 provinces.  CIM – Integrated Experts Programme for Lao PDR (2009: US$0.6m), CIM supports SMEPDO, LNCCI, NUoL (Faculty of Forestry and Faculty of Engineering) and provincial Departments of Planning and Investment (DPI) in Champasak and Luang Namtha by placing international so-called Integrated Experts who support these organisations mostly with capacity building in a complementary approach to the GTZ-HRDME programme. Lao PDR Economic Monitor 2009 – End-Year Update 29  KfW – Vocational School Programme (Phase 1&2) (US$ 12.7m) building, expanding, and equipping 6 vocational schools in Northern Laos.  DED – Technical Advisors in Sustainable Tourism Development for the LNTA and for Provincial Tourism Departments in 4 provinces until 2012 (approximate date) (In 2009: US$ 0.28m); PPP-Programme with 2 Technical Advisors beyond 2012 (in 2009: US$ 0.2m for TAs and 0.16m for projects). Japan  Lao-Japan Human Resource Cooperation Center (LJC) (US$10m, JICA: 2000-2010). In cooperation with the National University of Laos (NUOL), this technical cooperation aims to provide a consistent supply of human resources for a market economy. The main courses and activities which LJC provides are (1) business management, (2) Japanese language, (3) information and cultural exchange between Lao PDR and Japan, and (4) basic computer course.  ODOP (One District One Product) Pilot Project in Savannakhet and Saravanh Provinces (US$2.6m, JICA: 2009-2012). In cooperation with the Ministry of Industry and Commerce (MoIC), the objectives of the project are to raise awareness and importance of the ODOP concept, to support relevant exciting products as a pilot product, and to create good practice.  Preparatory Survey on Industrial Zone Development (US$3.3m, JICA: 2009-2010) This survey conducts basic plan for industrialization in whole Lao PDR and conceptual plan of industrial development in Vientiane, Savannakhet and Pakse and Feasibility Study of Vientiane Industrial Estate. SNV - Netherlands Development Organization  Private Sector Development Program SNV aims at improving market access in order to create economic opportunities for the rural poor. The program consists of three service market combinations: 1) access to financial services, 2) value chain development (e.g. eco tourism, non timber forestry products and handicrafts) and 3) enabling environment for business development.  Non Timber Forest Products: Advisory services in the field of non timber forest products (NTFPs) focus on developing best field practices for sustainable NTFP production and use, NTFP market development (including Marketing Information Systems), human resource development and supporting and institutionalizing networking and information exchange. Switzerland (SDC)  The Agrobiodiversity Initiative (TABI) in the Lao PDR (phase II, US$4.95, 2009-2012) The overall objective of the program is to support the government of the Lao PDR to implement the specific CBD Conference of Parties (CoP) decision on agricultural Biodiversity related to food, income, nutrition, dietary diversity, hunger and poverty at the local and policy levels. The initiative clearly aligns with and support the key elements of the Lao PDR National Socio-Economic Development Plan ( NSEDP) 2006- 2010, the National Biodiversity Strategy and Action Plan.  Lao PDR Extension for Agriculture Project– LEAP (phase IV,US$4.7m from 07.2009-06.2012 ). The overall objective of the project is to assist Ministry of Agriculture (MAF) and National Agricultural and Forestry Ext. Services (NAFES) in developing a sustainable national agricultural extension strategy and to assist an institutional strengthening of NAFES at all levels. The "Lao extension Approach" has been officially introduced by MAF to all 17 provinces. Project Phase IV will focus on how to better reach the poor, women and ethnic minorities in particular, through more relevant extension messages through its support to the new structures introduced by MAF.  Northern Upland Rice Farming System Research Project - NURIFAR, the continuation of Lao-IRRI project (US$3.5 m phase 1 from 10.2008 to 09.2012) The overall objective of the programme is to assist male and female pilot farmers (from low- and middle income households) and other stakeholders voluntarily adopt the research recommendations for improved and sustainable rice-based production system in uplands”. The project clearly aligns with current government policies in term of improvement of household food security in northern uplands as mentioned in the Lao poverty reduction strategy and Ministry of Agriculture and Forestry.  Support to the Reform of the Agriculture and Forestry College - SURAFCO in Luang Prabang (US$4.7m, 09.2009- 08.2012), the overall objective of the project is to improve skills and management of college for skills-based education and training in upland farming systems through skilled-based curriculum development, capacity building for teaching staff, infrastructure system and building network with private sector. The project is very much aligned with the needs of MAF for agricultural technical education reform as mention in the strategy toward 2020. Switzerland (SECO)  Promotion of Cleaner Industrial Production in Lao PDR (US$ 0.72m, 2003-2009). The program aims to support the Government of Lao PDR in poverty eradication and environmental sustainability by improving the productivity and competitiveness of its growing industries, as well as its access to international and local markets, through application of cleaner production techniques and technology.  Co-financing the IFC-MPDF Mekong Region Program (US$ 4.0m, 2008-2013: The program aims to bring about an improvement in the investment climate; and in firm level competencies through the following program areas (1) Business Enabling Environment; (2) Access To Finance; (3) Access To Infrastructure; (4) Sustainability; and (5) Supply Chain Linkages. Lao PDR Economic Monitor 2009 – End-Year Update 30 UNDP  Poverty Environment Initiative (PEI): Investment in Lao PDR, Minimizing the social and environmental impacts : (PEF USD$0.49m, UNDP USD$0.6m; 2009 – 2011). This project aims to strengthen the capacity of national and provincial authorities to plan and manage investment in a manner that seeks to maximize pro-poor and pro-environmental outcomes. The project works with the Investment Promotion Department in the Ministry of Planning and Investment and provincial authorities to strengthen skills to design, negotiate, plan, monitor and enforce appropriate investment contracts.  Poverty Environment Initiative (PEI): Environment and Social Impact Assessment, reducing negative social and environmental impacts of investments in Lao PDR: (UNDP: USD$0.3m, funding shortfall USD$1.2m). This project aims to support the Environment and Social Impact Assessment (ESIA) Department of the Water Resource and Environment Administration (WREA) at the national and provincial level in order to address growing environmental threats and to prevent and minimize negative environmental and social impacts of the rapid development activities in key sectors.  Participatory Wetland Management in Attapeu (support to the Lao PDR Water and Wetland Policy): (UNDP: USDS1.7m). This project aims to strengthen capacities for sustainable use of Lao PDR wetlands. It focuses on strengthening wetland planning approaches at village, sub-village, village cluster and district/provincial levels will be applied in Attapeu Province. To improve communities’ livelihoods, the project also supports village funds and training on wetland resources conservation and sustainable use for poor households; marketing and processing of wetlands and non-timber forest products; and income generation opportunities based on improvement of agricultural activities.  Mainstreaming biodiversity in Lao PDR’s agricultural and land management policies, plans and programmes: (USD$0.17m for project formulation). With support from UNDP, FAO and the Global Environment Facility (GEF), a large agrobiodiversity programme of support to MAF is currently being designed. The aim will be to provide farmers with the necessary incentives, capabilities and supporting institutional framework to conserve agro-biodiversity within the farming systems of Lao PDR. The programme is being elaborated together with FAO and the Ministry of Agriculture and Livestock, and will have a total budget of about USD$7 million. It will be formulated in close consultation with the SDC-funded TABI (“The Agrobiodiversity Initiative”).  Global Environment Facility Small Grants Programme (GEF-SGP) (US$0.7m, 2009-2010). The GEF-SGP provides a critical source of finance in the form of small grants Lao community based organizations, not-for-profit associations, and mass organizations to implement projects that conserve biodiversity, reduce the risks of climate change and persistent organic pollutants, address land degradation and improve the management of international waters. Launched in 1992, GEF SGP is rooted in the belief that global environmental problems can best be addressed if local people are involved and direct community benefits and ownership are generated. SGP Lao PDR focuses on empowering small and rural associations to play a role in finding local solutions to environmental issues. The implementation of this programme in Lao PDR provides an important opportunity to strengthen the capacity of emerging mass organizations, not-for-profit and civil society associations. UNDP –UNIDO  Promoting Private Sector Development through Strengthening of Lao Chambers of Commerce and Industry and Business Associations (US$2.33m, 2006-2010). The project seeks to support the development of the private sector in Lao PDR, in particular SMEs, by (i) optimising the use of research findings and recommendations in the areas of private sector development (ii) strengthening the capacities of LNCCI and BA’s so that they can become independent, self -reliant and self-financing organizations. The World Bank Group (WB, IFC)  Poverty Reduction Support Operations - PRSO (See project description in section 1- World Bank PRSO).  IFC: Private Sector Development Activities. (US$0.8m, 2005-2010). Following on from the support provided to draft the Enterprise Law, IFC is continuing its technical assistance to GOL in the areas of enterprise registration and licensing, preparation of a new unified Investment Promotion Law, which was endorsed by the National Assembly in July 2009, and its implementing regulations, as well as enhancement of MPI’s capacity with regard to investment generation and facilitation.  IFC: Lao Business Forum. (US$1.0m, 2005-2010). The Lao Business Forum has proven an effective mechanism for enabling the private sector to raise their concerns to GOL. IFC assists GOL to facilitate the Lao Business Forum by providing a secretariat to support its operations and provided support to revise the Mining Law and prepare the implementing decree for the Law on Tourism. The latest Lao Business Forum (LBF5) was held in February, 2009. TOURISM ADB  GMS Sustainable Tourism Development Project (US$10m, 2009-2014). The project aims to (i) develop model sustainable tourism development projects protecting the environment and cultural heritage; (ii) establish pro-poor community-based and supply-chain tourism projects;(iii) develop GMS tourism corridors; and (iv) improve human resource capacity of public and private tourism stakeholders. The project covers 9 provinces in Lao PDR. Lao PDR Economic Monitor 2009 – End-Year Update 31 Australia/AusAID  Child Wise: Combating child sex tourism in South East Asia (A$0.5m, 2007-2009). The aim of this project is to develop a 5 year plan for a sustainable response to child sex tourism in South East Asia. The plan will determine training needs for national tourism organizations and private sector, help position the ASEAN Tourism Committee to assume responsibility for oversight of anti-CST work, and establish a framework for a public-private partnership. European Union (EU)  Asia Invest-Marketing Responsible Tourism in Lao PDR (Euro€0.3m, 2006-2009). Co-financed with SNV. Aims to enable the Lao Association of Travel Agents and its members to develop and increase the volume and quality of their high yield European sales and to engage more directly and constructively in sustainable tourism policy management and institutional frameworks. Germany (GTZ – CIM)  CIM – Integrated Experts Programme for Lao PDR (2007 - 2010: US$0.43m), CIM supports the Lao National Tourism Administration (LNTA) with the placement of an Integrated Expert, who is supporting LNTA to develop a national tourism strategy with a focus on ecofriendly tourism and to establish international relations in the field of tourism. Japan  Tourism Development in the East-West Corridor Project (US$1.5m, JICA: 2008-2011). In cooperation with the Lao National Tourism Administration (LNTA) and Savannakhet Province, this technical cooperation project aims to encourage tourism development through capacity building in order to contribute sustainable economic development in East-West corridor. Luxembourg  Strengthening of Human Resources in the Hospitality and Tourism Industry in the Lao PDR (EUR5.5m, 2009 – 2013). The project aims at strengthening the human resources in the Hospitality and Tourism Industry in the Lao PDR. It will assist the Lao National Tourism Administration to developing and operationalize a long-term HRD Strategy and Action plan to meet the current and future employment needs of the sector. New Zealand/ NZAID  Fighting Poverty at the Plain of Jars Project, Xieng Khouang Province (US$1.197, 2006-2011) The project focuses on UXO clearance, pro-poor tourism and sustainable resource management in seven target villages. The Lao National Commission of UNESCO is the main implementing body working in collaboration with Lao National Tourism Authority (LNTA), Ministry of Information and Culture and Provincial Tourism Department, UNESCO and MAG.  National Tourism Strategy Implementation Support Programme (NTSISP) The programme aims to facilitate the work of the LNTA in implementation of the National Tourism Strategy through capacity building for LNTA and Provincial Tourism Departments/Offices as well as developing of the Tourism Development Plan for four pilot provinces. SNV Netherlands Development Organization  In the field of pro-poor sustainable tourism, a team of 11 advisors is delivering advice on policy, strategy, management and product development issues to a range of clients. At the national level, these include the Lao National Tourism Administration (LNTA), the National University of Laos (NUOL), and the Lao Association of Travel Agents (LATA). At the provincial level, provincial tourism offices are assisted, as are many other relevant governmental departments (including at district level). The ultimate aim is to promote tourism that benefits livelihood improvements to the poor. LAND World Bank and Australia  The Second Land Titling Project (US$23.92m: WB-US$14.82m, AusAID-US$8.85m and GOL–US$2.27m, 2003-2009). The objectives of the project are to (i) improve the security of land tenure; (ii) develop transparent and efficient land administration institutions at the national and provincial levels; and (iii) improve the government's capacity to provide social and economic services through broader revenue base from property related fees and taxes. Germany  Land Policy Development Project II (LPDP II) (US$3.7m, 2008-2011). This project aims to strengthen the policy and legal framework of land management and land tenure in Lao PDR. The overall objective is to increase land tenure security for individuals, groups and public administration. This project represents the German contribution to the Lao PDR Land Titling Phase II (see above). Lao PDR Economic Monitor 2009 – End-Year Update 32 ANNEX 3 - ACRONYMS AND ABBREVIATIONS ADB Asian Development Bank ODA Official Development Assistance AFTA ASEAN Free Trade Area ODSC One-Door-Service Centre APB Agriculture Promotion Bank PACSA Public Administration and Civil Service Authority ASEAN Association of Southeast Asian Nations PEFA Public Expenditure and Financial Accountability ATM Automatic Teller Machine PFMSP Public Finance Management Strengthening Program AusAID Australian Government’s Overseas Aid Program PIMS Personnel Information Management System BCEL Banque Pour Le Commerce Extérieur Lao PIP public investment programs BOL Bank of Lao PDR PMO Prime Minister Office COA Chart of Accounts PRF Poverty Reduction Fund CPI Consumer Price Index PSD Private Sector Development DDF District Development Fund SAO State Audit Organization DP Development Partner SDC Swiss Development Cooperation DTIS Diagnostic Trade and Integration Study SME Small and Medium Enterprise EAP East Asia & Pacific SNV Netherlands Development Organization EC European Commission SOCBs State Owned Commercial Banks EdL Electricité du Lao SOE State-Owned Enterprise ESPS Electronic Salary Payment System SPS Sanitary and Phyto-Sanitary EU European Union UN United Nations FDI Foreign Direct Investment UNCDF UN Capital Development Fund FM Financial Management UNCTAD UN Conference on Trade and Development FSS Financial Sector Strategy UNDP UN Development Program FY Fiscal Year UNIDO UN Industrial Development Organization GDP Gross Domestic Product UNODC UN Office on Drugs and Crime GOL The Government of Lao PDR VAT Value Added Tax GPAR Governance and Public Service Administration WB World Bank Reform Program ICA Investment Climate Assessment WEO World Economic Outlook ICT Information and Communication Technology WTO World Trade Organization IF Integrated Framework IFC International Finance Corporation ILO International Labor Organisation IMF International Monetary Fund LDB Lao Development Bank LNCCI Lao National Chamber of Commerce and Industry LNTA Lao National Tourism Administration MOF Ministry of Finance MOIC Ministry of Industry and Commerce MPI Ministry of Planning and Investment MPI Ministry of Planning and Investment NA National Assembly NBFI Non-Bank Financial Institution NPL Non-Performing Loan NPV Net Present Value NSEDP National Socio-Economic Development Plan NT2 Nam Theun 2 Project LAO PDR ECONOMIC MONITOR 2009 END-YEAR UPDATE The information presented in the Lao Economic Monitor covers economic developments that have occurred in Lao PDR in the last six months (between June- November 2009). It is issued twice a year (in Spring – Mini Update and Autumn – Main Report) in both Lao and English by the World Bank team in Lao PDR. It reports on recent economic performance (Part I), progress in the implementation of the Government’s policy reform agenda (Part II), and donor activities in the relevant reform areas (Part III). This issue of the Monitor was prepared by Somneuk Davading (Task Team Leader) under overall supervision of Genevieve Boyreau (Senior Country Economist) and Mathew Verghis (Lead Economist, South East Asia). It is based on inputs from Saysanith Vongviengkham (Public Finance Specialist), Shabih Mohib (Senior Economist), Sengxay Phousinghoa (Private Sector Specialist), Ratchada Anantavrasilpa, Keomanivone Phimmahasay (Research Analyst), Richard Record (Trade Specialist), Konesawang Nghardsaysone (Trade Analyst), Veronica Mendizabal Joffre (Capacity Development Specialyst) and comments from other colleagues. We are grateful to the Government and the donors for providing information and other inputs, as well as for sharing their views with the team. We thank Robert Robert Van den Bosch for editing this issue of the Monitor and Thalavan Vongsonephet for designing the cover page. Great thanks go to Vattana Singharaj and other staff in the World Bank Vientiane Office for their assistance in printing and dissemination. THE WORLD BANK TEAM APPRECIATES FEEDBACK ON THE STRUCTURE AND CONTENT OF THE MONITOR. THE WORLD BANK OFFICE, VIENTIANE P.O Box UN 345, Patou Xay Nheru Road Vientiane, Lao PDR Tel: (856-21) 450010-11, 414209 Fax: (856-21) 414210 www.worldbank.org/lao Lao PDR Economic Monitor — End-Year Update THE WORLD BANK OFFICE 1818 H Street, N.W. Washington, D.C. 20433 Tel: (202) 472-1653 Fax: (202) 522-1560/1557 www.worldbank.org LAO PDR ECONOMIC MONITOR 2009 FREE COPY (NOT FOR SALE)