## The Lao People’s Democratic Republic’s (Lao P.D.R.) National Growth and Poverty Eradication Strategy (NGPES)

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---

### Overview and background
- The NGPES is the first full poverty reduction strategy prepared by the government; builds on the I-PRSP (approved March 2001) and the National Poverty Eradication Program (NPEP).
- Timeline and approvals:
  - First NPEP draft discussed at a Mini-Round Table Meeting on May 30, 2003.
  - NPEP reviewed and upgraded to NGPES; approved by the National Assembly in February 2004.
  - Transmitted to the World Bank and IMF in September 2004.
- Strategy basis: 2001-05 National Socio-Economic Development Plan.
- JSAN purpose: provide staffs’ advice to strengthen NGPES, highlight policy areas that may undermine implementation, and propose issues for Board discussion.

### Participatory process and recommendations
- Process features:
  - Government-led NGPES Committee with members from key ministries, agencies, and mass organizations.
  - Participation Action Plan supported by UNDP and other donors.
  - Intensive consultation: 7th Roundtable (November 2000) and 8th Roundtable (September 2003).
  - Broadened consultations to include civil society, private sector, academics, provincial representatives.
- Recommended further actions:
  - Incorporate NGPES policies into the next Five Year Plan (2006-2010) via continued policy dialogue, sector working groups, and short policy briefs.
  - Increase stakeholder participation, greater use of local languages, and earlier involvement of Parliament/National Assembly.

### Poverty diagnosis — key findings
- Incidence and growth:
  - Poverty incidence reduced from 46 percent in 1992/3 to an estimated 32 percent in 2002.
  - Economy grew at an annual average rate of more than 6 percent in the 1990s.
- Contributors to poverty reduction: agricultural growth in traditional farm products, cash crops, and timber/wood products.
- Social indicators:
  - Improvements in adult literacy rates, net enrollment rates, ratio of girls to boys in school, infant/under 5/maternal mortality rates, and life expectancy — but indicators remain below averages for low-income countries and East Asia.
  - Education system problems: lower enrollment and completion rates than neighboring countries, unequal access, low quality, inefficient allocation of public expenditure.
  - Health system problems: high maternal and child mortality and morbidity, low health care utilization, poor quality of services, inefficient public expenditures.
- Vulnerability: high vulnerability for upland and ethnic minority communities; concerns include food insecurity, unexploded ordnance (UXO), natural disasters, and deforestation.
- Targets realism:
  - Long-term poverty reduction goals: appropriately ambitious.
  - Short-term target of reducing poverty to under 25 percent: judged optimistic.
  - Targeted eradication of mass poverty by 2010: viewed as challenging.
- Analytical gaps and recommendations:
  - Further disaggregation of poverty diagnostics using survey and administrative data.
  - Additional analysis of household income sources, coping strategies, ethnic and gender-specific gaps, and regional disparities.
  - Use results of the 2002/03 household survey as a baseline for consumption-based poverty monitoring.

### Main pillars and macro-structural framework
- Three pillars:
  - (i) fostering economic growth with equity;
  - (ii) developing and modernizing social and economic infrastructure;
  - (iii) enhancing human resource development.
- Macroeconomic and structural commitments:
  - Prudent monetary and fiscal policies; structural reforms to promote private sector-led development.
  - Emphasis on attracting foreign direct investment via improved competitiveness, structural and governance reforms, and better business environment.
  - Priority on mobilizing revenue to fund public sector programs for poverty alleviation.
  - Medium-term macro framework assumes inflation will continue subsiding to single-digit levels.
  - Policy matrix addresses state-owned banks and enterprise reform.
- Infrastructure and land administration:
  - High priority on rural infrastructure and equity between upland and lowland communities.
  - Long-term goals for a nationwide land administration system and secure tenure.
- Human development:
  - Strong agenda for basic education with focus on inclusiveness and equity.
  - Health strategy comprehensive but insufficiently focused on the poor and not adequately prioritized.
  - Cross-cutting issues integrated: population, gender, social security, information and culture, capacity building.

### Priority actions — sustain growth and ensure macro-fiscal sustainability
- Growth targets and drivers:
  - Government long-term growth goal: raise economic growth to 6-7 percent; staffs consider this achievable given large mining and hydroelectric projects in the pipeline.
  - Sustaining growth through trade liberalization, higher agricultural productivity, foreign direct investment, and private sector development.
  - Further liberalization consistent with ASEAN Free Trade Agreement (AFTA) commitments; accession to the WTO intended to advance this process.
  - Authorities encouraged to develop time-bound plans to eliminate remaining quantitative trade restrictions and undertake an investment climate assessment.
- Natural resource management:
  - Sound management of hydroelectric power and mining resources (including Nam Theun 2) is critical; need for a transparent, clearly defined framework for investment decisions and public revenue management.
- Fiscal and revenue mobilization:
  - Revised revenue targets seek to increase the revenue-to-GDP ratio to 12 percent of GDP by 2005/06.
  - Achievement requires acceleration of reforms: restore an effective national revenue administration and establish a sound framework for implementing the value-added tax (VAT).
  - Decline in revenues in 2002/03 led to revised, more realistic revenue targets in the NGPES.
- Budget and expenditure concerns:
  - 2004/05 budget plan (approved by the National Assembly in October) deviates from the NGPES revised budget framework:
    - Proposes to raise revenues faster than envisaged in the NGPES (not realistic without additional measures).
    - Proposes a large increase in personnel expenditures.
  - Staffs recommend reviewing the budget plan to ensure achievable revenue targets and sustainable expenditure plans, particularly regarding civil service remuneration.
- Financial sector and SOE reform:
  - Lasting reform of state-owned banks and enterprises (SOEs) essential to a sustainable fiscal outlook.
  - Needs: put state banks on a sound commercial footing; strengthen bank supervision; enhance bank competition; avoid directed lending.
  - SOEs: majority marginally profitable or loss making; account for a large share of state banks’ nonperforming loans; public sector arrears to private contractors remain a problem.
  - Need to reinvigorate SOE reform program and implement agreed restructuring plans.
- External financing and debt:
  - Assumptions on availability of external financing are reasonable; mechanisms needed to align resources with NGPES priorities.
  - Stock of public and publicly guaranteed debt is high; uncertainty over exact debt service burden due to requests for further discussion on terms of Lao P.D.R.’s Russian debt.
  - Future borrowing must be carefully managed to keep debt service flows manageable and maintain concessionality.
  - Annual Progress Report should emphasize securing grant financing where possible and maintaining high concessionality in new borrowing.
  - Mobilizing increased revenues and steady fiscal consolidation needed to reduce the public sector’s borrowing requirement over time.

### Strengthen public financial management and governance
- Main PFM priorities:
  - (a) strengthen treasury controls by bringing provincial sub-treasuries under central treasury authority;
  - (b) improve information through implementation of a revised chart of accounts and budget nomenclature based on international standards;
  - (c) improve timeliness and quality of reporting via preparation and publication of budget execution reports and financial statements;
  - (d) strengthen oversight through improvements in audit quality, audit of consolidated financial statements, and submission of audit reports to the legislature.
- Implementation and capacity:
  - PEM implementation schedule in the NGPES needs updating and translation into annual action plans.
  - Effective implementation requires extensive capacity building for financial management personnel.
  - Monitor impact of reforms using key performance indicators given decentralized expenditure management systems.

### Public expenditure management, civil service, and territorial administration (paras 24–25)
- Key findings and recommendations:
  - Absence of specific measures on civil service or public administration reform is an important weakness of the NGPES (para 24).
  - Develop a strategy and financing plan to restore civil service pay to competitive levels over the medium to long-term (para 24).
  - Link civil service and territorial administration reforms closely to PFM improvements so that:
    - (i) revenue and expenditure assignments and inter-governmental transfers align with functional responsibilities;
    - (ii) national policies are supported by all administration levels;
    - (iii) provincial administrations comply with financial management regulations, particularly regarding transfer of funds to central administrations (para 24).
  - MTEF issues (para 25):
    - Extend the MTEF to cover recurrent expenditures and link it to the budget process (current forward estimates focus exclusively on the public investment plan).
    - Strengthen information on public expenditure allocations for both economic and functional classifications.
    - Advance expenditure policy analysis including costing of key policy objectives; preliminary work underway but unlikely ready for the first annual report.
    - Use planned expenditure tracking surveys and existing surveys (e.g., the household survey) to examine links between poverty and expenditure in subsequent NGPES updates.

### Improve social outcomes and reduce vulnerability (paras 26–28)
- Main priorities (para 26):
  - (i) improve access, targeting, and efficiency of service delivery;
  - (ii) develop adequate pay and employment policies in the social sectors as a starting point for broader civil service reform;
  - (iii) explore alternative service delivery options for remote communities;
  - (iv) take an integrated approach to improving upland rural livelihoods, including access to land and natural resources.
- Resource allocation and service delivery constraints (para 27):
  - Need to direct more resources to education and health and redirect to ensure greater access of the poor to quality basic services.
  - Impediments: slow progress on civil service reform constraining competitive salaries for teachers and health care providers; untimely and uneven budget disbursements hindering planning.
  - Consequence: schools and health centers have relied on user fees to cover operational costs.
  - Recommendation: improvements in cash management and PFM are essential; more analytical work needed to clarify links between public expenditure and social outcomes and to develop an action plan to address regional and ethnic inequalities.
- Focal sites review (para 28):
  - NGPES proposal to use “focal sites” needs review in light of implementation; relocation of remote communities can have negative livelihood consequences.
  - Explore approaches based on consultations, including traditional land management and communal tenure; sustainable rotational agriculture and upland livelihoods; cost-effective services and on-site development to remote upland villages; institutional strengthening for government agencies and mass organizations.

### Natural resource and environmental management (paras 29–31)
- Forestry and participatory management (para 29):
  - Give greater prominence to initiatives to bring forestry management under greater control and integrate it into poverty reduction efforts.
  - Planned action: establish a system of National Production Forest Areas (NPFA), beginning with eight areas totaling 500,000 hectares, and commit to expanding it to at least half of the commercially valuable forest outside the National Biodiversity Conservation Areas. This would directly benefit about 1.5 million people.
- Transparency and revenue use (para 30):
  - Timber and wood products responsible for an increasing share of growth amid increasing natural resource degradation and poor governance.
  - Recommendations: increase transparency in management of forests and other natural resources (e.g., mining); improve allocation of forestry concessions and use of natural resource revenues to mitigate negative impacts on current and future generations.
  - Priority forestry issues for the coming year:
    - (i) independent certification of ongoing participatory forestry management areas;
    - (ii) development of timber royalty and revenue sharing arrangements that provide incentives for local communities to support sustainable utilization practices;
    - (iii) capacity building at national, provincial and district levels in support of participatory forestry.
- Environmental legal and institutional framework (para 31):
  - Challenges: weak institutions, poor coordination, weak enforcement; environmental trends have declined.
  - Progress: enactment of an environmental assessment law; creation of an agency for the Nakai Nam Theun Watershed; decentralizing environmental functions to provinces; improving water and air quality monitoring; establishing third-party monitoring and reporting on environmental impacts.
  - Recommendation: consolidate and scale up reforms to establish credibility in managing hydropower and mineral development impacts and exploit natural resource potential sustainably.

### Capacity building for implementing and monitoring the NGPES (paras 32–35)
- Capacity needs (para 32):
  - Substantial capacity building needed, with priority to strengthen public financial management and improve service delivery.
  - Address needs at points of service rather than only in central administration; pay reform critical to sustained institutional capacity.
- Donor coordination (para 33):
  - Donor working groups aligned with NGPES priority sectors organized to support implementation; implementation arrangements will include improved coordination of donors’ activities.
- Institutional capacity assessment (para 34):
  - Conduct an assessment of institutional capacity constraints using a consistent framework identifying capacity challenges related to specific results at macro, sectoral, or cross-sectoral levels in terms of institutional incentives, organizational competencies, and individual skills.
  - Local learning and training entities should undertake the assessment and monitor capacity enhancement, shifting focus from only skills improvement to building organizational competencies and incentives.
- Monitoring and statistical capacity (para 35):
  - Data system: annual village and household surveys, quarterly and annual establishment surveys, a 5-yearly expenditure and consumption survey, various health surveys, administrative data — but comprehensive improvement in statistical capacity needed.
  - Recommendations:
    - Define key NGPES indicators and targets, levels of disaggregation, responsible agencies for each indicator, and a reporting cycle aligned with NGPES reporting requirements.
    - Include a commitment in the Annual Progress Report to participate in the General Data Dissemination System.
    - Target and track changes in poverty by income group, gender, district, and ethnic group.
    - Accelerate efforts to set up an institutional framework for monitoring NGPES implementation.

### Conclusions, risks, and staffs’ priority areas (paras 36–39)
- Overall assessment (para 36): NGPES is an important step toward sustaining economic growth and poverty reduction, with enhanced consultation, but shortcomings and implementation risks remain.
- Key risks (para 37):
  - (i) severe capacity constraints in the civil service related in part to lack of incentives;
  - (ii) lack of clear assignment of responsibility and accountability for policy implementation between institutions and levels of administration;
  - (iii) a weak public expenditure management system.
  - Additional concerns: shortcomings in the governance framework (effectiveness of the judiciary and oversight institutions) and a gap between public pronouncements and pace of reform achievements that could hamper credibility, donor assistance, and economic growth.
- Staffs’ five priority areas for further elaboration and effective implementation (para 38):
  - (i) sustaining growth and private sector development, and ensuring macroeconomic and fiscal sustainability, through enhanced revenue mobilization;
  - (ii) strengthening public financial management to improve governance and service delivery;
  - (iii) improving social outcomes and reducing vulnerability;
  - (iv) enhancing natural resource management and the environment;
  - (v) building management capacities, partnerships, and monitoring for NGPES implementation.
- Issue for discussion (para 39): Do the Executive Directors concur with:
  - (i) the broad direction of the proposed strategy as outlined in the NGPES three pillars;
  - (ii) staffs’ characterization of implementation risks;
  - (iii) priority areas identified by the staffs for strengthening the poverty reduction strategy and its implementation.

*Source: Excerpt from _cr04394 (paras 24–39) on NGPES implementation and priorities.*

### 1. The Lao People’s Democratic Republic’s (Lao P.D.R.) National Growth and

### 1. The Lao People’s Democratic Republic’s (Lao P.D.R.) National Growth and Poverty Eradication Strategy (NGPES)

### Overview and background
- The NGPES is the first full poverty reduction strategy prepared by the government and builds on the I-PRSP (approved March 2001) and the National Poverty Eradication Program (NPEP).
- Timeline and approvals:
  - First NPEP draft discussed at a Mini-Round Table Meeting on May 30, 2003.
  - NPEP reviewed and upgraded to NGPES; approved by the National Assembly in February 2004.
  - Transmitted to the World Bank and IMF in September 2004.
- The strategy is based on the 2001-05 National Socio-Economic Development Plan.
- The JSAN provides staffs’ advice on strengthening the NGPES, highlights areas where current policies may undermine implementation, and proposes issues for Board discussion.

### Participatory process
- Key elements:
  - Process led by government via an NGPES Committee with members from key ministries, agencies, and mass organizations.
  - A Participation Action Plan supported by UNDP and other donors.
  - Intensive consultation through the 7th and 8th Roundtable meetings (7th Roundtable in November 2000 endorsed the government’s medium-term strategy; final draft presented at the 8th Roundtable Meeting in September 2003).
  - Consultations broadened to include civil society, private sector, academics, and provincial representatives.
- Further actions recommended:
  - Incorporate NGPES policies in the next Five Year Plan (2006-2010) through continued policy dialogue, sector working groups, and short policy briefs.
  - Increase participation of all stakeholders, including greater use of local languages and earlier involvement of Parliament/National Assembly.

### Poverty diagnosis — key findings
- Poverty incidence and growth:
  - Incidence of poverty reduced from 46 percent in 1992/3 to an estimated 32 percent in 2002.
  - Economy grew at an annual average rate of more than 6 percent in the 1990s.
- Contributors to poverty reduction:
  - Agricultural growth in traditional farm products, cash crops, and timber/wood products.
- Social indicators:
  - Improvements in adult literacy rates, net enrollment rates, ratio of girls to boys in school, infant/under 5/maternal mortality rates, and life expectancy — but indicators remain below averages for low-income countries and East Asia.
  - Education system problems: lower enrollment and completion rates than neighboring countries, unequal access, low quality, inefficient allocation of public expenditure.
  - Health system problems: high maternal and child mortality and morbidity, low health care utilization, poor quality of services, inefficient public expenditures.
- Vulnerability:
  - High vulnerability, especially for upland and ethnic minority communities; concerns include food insecurity, unexploded ordnance (UXO), natural disasters, and environment links such as deforestation.
- Targets realism:
  - Long-term poverty reduction goals are appropriately ambitious; short-term target of reducing poverty to under 25 percent is judged optimistic and targeted eradication of mass poverty by 2010 is viewed as challenging.
- Analytical gaps and recommendations:
  - Further disaggregation of poverty diagnostics using survey and administrative data to analyze causal links between growth and poverty reduction.
  - Additional analysis of household income sources, coping strategies, ethnic and gender-specific gaps, and regional disparities.
  - Use results of the 2002/03 household survey as a baseline for consumption-based poverty monitoring.

### Main pillars of the strategy
- The three pillars:
  - (i) fostering economic growth with equity;
  - (ii) developing and modernizing social and economic infrastructure;
  - (iii) enhancing human resource development.
- Macroeconomic and structural framework:
  - Commitment to sound macroeconomic policies: prudent monetary and fiscal policies, structural reforms to promote private sector-led development.
  - Emphasis on attracting foreign direct investment through improved international competitiveness, structural and governance reforms, and better business environment.
  - Priority on mobilizing revenue to fund public sector programs for poverty alleviation.
  - Medium-term macro framework assumes inflation will continue subsiding to single-digit levels.
  - Policy matrix addresses state-owned banks and enterprise reform.
- Infrastructure and land administration:
  - High priority on rural infrastructure and equity between upland and lowland communities.
  - NGPES outlines long-term goals for a nationwide land administration system and secure tenure.
- Human development:
  - Strong agenda for basic education with focus on inclusiveness and equity.
  - Health strategy comprehensive but insufficiently focused on the poor and not adequately prioritized.
  - Adequate emphasis on reducing vulnerability and social exclusion; cross-cutting issues (population, gender, social security, information and culture, capacity building) integrated throughout.

### Priority actions — critical areas for success
- Five main challenges identified:
  - i) sustain growth and ensure macro-fiscal sustainability, particularly by enhancing revenue mobilization;
  - ii) strengthen public financial management and governance;
  - iii) improve social outcomes and reduce vulnerability;
  - iv) strengthen natural resource and environmental management;
  - v) build capacity for implementing and monitoring the NGPES.

#### Sustain growth and ensure macro-fiscal sustainability
- Growth targets and drivers:
  - Government’s long-term growth goal: raise economic growth to 6-7 percent — staffs consider this achievable given large mining and hydroelectric projects in the pipeline.
  - Growth to be sustained through trade liberalization, higher agricultural productivity, foreign direct investment, and private sector development.
  - Further liberalization consistent with ASEAN Free Trade Agreement (AFTA) commitments; accession to the WTO intended to advance this process.
  - Authorities encouraged to develop time-bound plans to eliminate remaining quantitative trade restrictions and undertake an investment climate assessment.
- Natural resource management:
  - Sound management of hydroelectric power and mining resources (including large projects such as the Nam Theun 2 hydroelectric dam) is critical; need for a transparent and clearly defined framework governing investment decisions and public revenue management from these sectors.
- Fiscal and revenue mobilization:
  - Revised revenue targets seek to increase the revenue-to-GDP ratio to 12 percent of GDP by 2005/06.
  - Achievement of revised targets requires acceleration of reforms, including restoration of an effective national revenue administration and establishment of a sound framework for implementing the value-added tax (VAT).
  - The decline in revenues in 2002/03 led to revised, more realistic revenue targets in the NGPES.
- Budget and expenditure concerns:
  - The 2004/05 budget plan approved by the National Assembly (October) deviates from the NGPES revised budget framework:
    - Budget plan proposes to raise revenues faster than envisaged in the NGPES (not realistic without additional measures).
    - Budget plan proposes a large increase in personnel expenditures.
  - Staffs recommend reviewing the budget plan to ensure achievable revenue targets and sustainable expenditure plans, particularly regarding civil service remuneration.
- Financial sector and SOE reform:
  - Lasting reform of state-owned banks and enterprises (SOEs) is essential to a sustainable fiscal outlook.
  - Improvements needed: put state banks on a sound commercial footing; strengthen bank supervision; enhance bank competition; avoid directed lending by banks.
  - SOEs: majority marginally profitable or loss making; account for a large share of state banks’ nonperforming loans; public sector arrears to private contractors remain a problem.
  - Need to reinvigorate SOE reform program and implement agreed restructuring plans.
- External financing and debt:
  - Assumptions on availability of external financing are reasonable, but mechanisms are needed to align resources with NGPES priorities.
  - Stock of public and publicly guaranteed debt is high; uncertainty over exact debt service burden due to requests for further discussion on terms of Lao P.D.R.’s Russian debt.
  - Future borrowing must be carefully managed to keep debt service flows manageable and maintain concessionality.
  - Annual Progress Report should emphasize securing grant financing where possible and maintaining high concessionality in new borrowing.
  - Mobilizing increased revenues and steady fiscal consolidation needed to reduce the public sector’s borrowing requirement over time.

#### Strengthen public financial management and governance
- Main priorities to improve public expenditure management:
  - (a) strengthen treasury controls by bringing provincial sub-treasuries under central treasury authority;
  - (b) improve information through implementation of a revised chart of accounts and budget nomenclature based on international standards;
  - (c) improve timeliness and quality of reporting via preparation and publication of budget execution reports and financial statements;
  - (d) strengthen oversight through improvements in audit quality, audit of consolidated financial statements, and submission of audit reports to the legislature.
- Implementation and capacity:
  - The PEM implementation schedule in the NGPES needs updating and translation into annual action plans.
  - Effective implementation will require extensive capacity building for financial management personnel.
  - Impact of reforms should be monitored using key performance indicators, given the decentralized expenditure management systems currently in place.

*The Lao People’s Democratic Republic’s (Lao P.D.R.) National Growth and Poverty Eradication Strategy (NGPES) — Joint Staff Advisory Note (JSAN) summary from the provided document.*

### 24. Over the medium-term, public expenditure management reforms have to be

### _cr04394 - 24. Over the medium-term, public expenditure management reforms have to be

### Public expenditure management, civil service, and territorial administration (paras 24–25)
- Finding: The absence of specific measures on civil service or on public administration reform is identified as an important weakness of the NGPES (para 24).
- Challenge: Develop a strategy and financing plan to restore civil service pay to competitive levels over the medium to long-term (para 24).
- Recommendation: Link civil service and territorial administration reforms closely to public financial management improvements so that:
  - (i) revenue and expenditure assignments and the system of inter-governmental transfers are aligned with functional responsibilities;
  - (ii) national policies are supported by all levels of administration; and
  - (iii) provincial administrations comply with financial management regulations, particularly regarding the transfer of funds to central administrations (para 24).
- MTEF issues (para 25):
  - Finding: More work is needed in developing a medium-term expenditure framework (MTEF).
  - Specific needs:
    - Extend the MTEF to cover recurrent expenditures and link it to the budget process (current forward estimates focus exclusively on the public investment plan).
    - Strengthen information on public expenditure allocations for both economic and functional expenditure classifications.
    - Advance expenditure policy analysis including costing of key policy objectives; preliminary work is underway but unlikely to be ready for the first annual report.
    - Use planned expenditure tracking surveys and existing surveys (e.g., the household survey) to examine links between poverty and expenditure in subsequent NGPES updates.

### Improve social outcomes and reduce vulnerability (paras 26–28)
- Main priorities (para 26):
  - i) improve access, targeting, and efficiency of service delivery;
  - ii) develop adequate pay and employment policies in the social sectors as a starting point for broader civil service reform;
  - iii) explore alternative service delivery options for remote communities;
  - iv) take an integrated approach to improving upland rural livelihoods, including access to land and natural resources.
- Resource allocation and service delivery constraints (para 27):
  - Finding: More resources need to be directed to education and health and redirected to ensure greater access of the poor to quality basic services.
  - Impediments identified by the NGPES:
    - (i) slow progress on civil service reform constraining competitive salaries for teachers and health care providers and reducing service delivery to rural areas;
    - (ii) untimely and uneven budget disbursements hindering planning and improvement processes.
  - Consequence: Schools and health centers have relied on user fees to cover operational costs.
  - Recommendation: Improvements in cash management and public expenditure management are essential; more analytical work is needed to (i) clarify links between public expenditure and social outcomes for better targeting, and (ii) develop an action plan to address regional and ethnic inequalities in social outcomes.
- Focal sites review (para 28):
  - Finding: The NGPES proposal to use “focal sites” needs review in light of implementation; relocation of remote communities can have negative livelihood consequences.
  - Recommendation: Explore new approaches based on consultations, including:
    - traditional land management and communal tenure;
    - sustainable rotational agriculture and upland livelihoods;
    - cost-effective services and on-site development to remote upland villages;
    - institutional strengthening for government agencies and mass organizations.

### Natural resource and environmental management (paras 29–31)
- Forestry and participatory management (para 29):
  - Recommendation: Give greater prominence to initiatives to bring forestry management under greater control and integrate it into poverty reduction efforts.
  - Planned action: Establish a system of National Production Forest Areas (NPFA), beginning with eight areas totaling 500,000 hectares, and commit to expanding it to at least half of the commercially valuable forest outside the National Biodiversity Conservation Areas. This would directly benefit about 1.5 million people.
- Transparency and revenue use (para 30):
  - Finding: Timber and wood products are responsible for an increasing share of the country's growth amid increasing natural resource degradation and poor governance.
  - Recommendations:
    - Increase transparency in the management of forests and other natural resources (e.g., mining).
    - Improve allocation of forestry concessions and the use of natural resources revenues to mitigate negative impacts on current and future generations.
    - Priority forestry issues for the coming year:
      - i) independent certification of ongoing participatory forestry management areas;
      - ii) development of timber royalty and revenue sharing arrangements that provide incentives for local communities to support sustainable utilization practices;
      - iii) capacity building at national, provincial and district levels in support of participatory forestry.
- Environmental legal and institutional framework (para 31):
  - Finding: Reform faces challenges including weak institutions, poor coordination, and weak enforcement; environmental trends have declined.
  - Progress noted: enactment of an environmental assessment law; creation of an agency for the Nakai Nam Theun Watershed; decentralizing environmental functions to provinces; improving water and air quality monitoring; establishing third-party monitoring and reporting on environmental impacts.
  - Recommendation: Consolidate and scale up reforms to establish credibility in managing hydropower and mineral development impacts and exploit natural resource potential sustainably.

### Capacity building for implementing and monitoring the NGPES (paras 32–35)
- Capacity needs (para 32):
  - Finding: Substantial capacity building is needed, with priority to strengthen public financial management and improve service delivery.
  - Recommendation: Address needs at points of service rather than only in central administration; pay reform is critical to sustained institutional capacity.
- Donor coordination (para 33):
  - Finding: Donor working groups aligned with NGPES priority sectors have been organized to support implementation; implementation arrangements will include improved coordination of donors’ activities.
- Institutional capacity assessment (para 34):
  - Recommendation: Conduct an assessment of institutional capacity constraints using a consistent framework identifying capacity challenges related to specific results at macro, sectoral, or cross-sectoral levels in terms of institutional incentives, organizational competencies, and individual skills.
  - Role: Local learning and training entities should undertake the assessment and monitor capacity enhancement, shifting focus from only skills improvement to building organizational competencies and incentives.
- Monitoring and statistical capacity (para 35):
  - Finding: Lao P.D.R. has a relatively comprehensive data collection system (annual village and household surveys, quarterly and annual establishment surveys, a 5-yearly expenditure and consumption survey, various health surveys, administrative data), but comprehensive improvement in statistical capacity is needed.
  - Recommendations:
    - Define key NGPES indicators and targets, levels of disaggregation, responsible agencies for each indicator, and a reporting cycle aligned with NGPES reporting requirements.
    - Include a commitment in the Annual Progress Report to participate in the General Data Dissemination System.
    - Go beyond population averages by targeting and tracking changes in poverty by income group (e.g., education and health disparities between the richest and poorest quintiles), by gender (e.g., health, education, employment and political participation), by district (reliable indicators for priority districts), and by ethnic group (e.g., health, education, employment, and participation).
    - Accelerate efforts to set up an institutional framework for monitoring NGPES implementation.

### Conclusions, risks, and priority areas for strengthening implementation (paras 36–39)
- Overall assessment (para 36): The NGPES is an important step toward sustaining economic growth and poverty reduction in Lao P.D.R., with enhanced consultation, but shortcomings and implementation risks remain.
- Key risks (para 37):
  - i) severe capacity constraints in the civil service related in part to lack of incentives;
  - ii) lack of clear assignment of responsibility and accountability for policy implementation between institutions and levels of administration;
  - iii) a weak public expenditure management system.
  - Additional concerns: shortcomings in the governance framework (effectiveness of the judiciary and oversight institutions) and a gap between public pronouncements and pace of reform achievements (strengthening the budget’s revenue base, public expenditure management, financial sector and SOE performance, and governance). These could hamper credibility, donor assistance, and economic growth.
- Staffs’ five priority areas for further elaboration and effective implementation (para 38):
  - (i) sustaining growth and private sector development, and ensuring macroeconomic and fiscal sustainability, through enhanced revenue mobilization;
  - (ii) strengthening public financial management to improve governance and service delivery;
  - (iii) improving social outcomes and reducing vulnerability;
  - (iv) enhancing natural resource management and the environment;
  - (v) building management capacities, partnerships, and monitoring for NGPES implementation.
- Issue for discussion (para 39): Do the Executive Directors concur with:
  - (i) the broad direction of the proposed strategy as outlined in the NGPES three pillars;
  - (ii) staffs’ characterization of implementation risks;
  - (iii) priority areas identified by the staffs for strengthening the poverty reduction strategy and its implementation.

*Source: Excerpt from _cr04394 (paras 24–39) on NGPES implementation and priorities.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04394.pdf_