## _cr08343

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---

### NSEDP 2006–2010: scope, timing, and process
- Sixth National Socio Economic Development Plan (NSEDP) 2006–2010 (PRSP) approved in June 2006, finalized October 2006, presented to development partners November 2006.
- Builds on National Growth and Poverty Eradication Strategy (NGPES), first PRSP presented to IMF and IDA Boards in November 2004.
- Government issued a separate annual report in November 2007 reviewing first-year progress.
- Staffs asked to consider NSEDP and Annual Progress Report alongside IDA’s second series of Poverty Reduction Support Operations.

### Strategic pillars and priorities
- NSEDP anchors:
  - (i) human development- and private sector-driven economic growth;
  - (ii) enhanced competitiveness, trade promotion, and regional integration;
  - (iii) social development and focused poverty reduction interventions;
  - (iv) sound economic governance and gender and ethnic equality.
- Plan is more poverty- and result-focused than NGPES, sets more realistic targets in many areas, and presents sector priorities and policy actions consistently.
- Consultations broader than previous plans, including donor community and private sector participation for the first time.

### Staffs’ assessments and identified gaps
- Positive assessments:
  - More realistic targets than past plans in many sectors.
  - Greater role for private sector development and strengthening public financial management.
- Weaknesses identified:
  - Inadequate discussion of links between policy actions, intermediate indicators, and final targets and outputs in a number of areas.
  - Resource implications of policy actions not fully developed.
  - Monitoring and evaluation framework considered incomplete.
  - Lack of a comprehensive macroeconomic framework raises concerns about fiscal sustainability and potential vulnerability to financing gaps.
- Recommendation:
  - Better define intermediate indicators and provide a comprehensive macroeconomic framework.

### Poverty diagnosis and MDGs
- Agreement with NSEDP’s poverty diagnosis; achieving the Millennium Development Goals (MDGs) will require major efforts.
- Key poverty statistics:
  - Poverty headcount declined from 46 percent in 1992/93 to 34 percent in 2002/03.
  - Expected to reach the related MDG target of 25 percent by 2010.
- Sectoral outlook:
  - Targets on access to water and sanitation likely to be achieved.
  - Targets on hunger reduction, universal primary education, and immunization unlikely to be realized without larger scale interventions.
- NSEDP poverty strategy elements:
  - Expand economic activity, improve access to basic services, increase internal and health security, and empower decision-making of the poor.
  - Recognizes roles for gender equality, good governance, legal reforms, private sector development, and natural resource management.
- Geographic targeting:
  - Strategy targets poverty reduction programs to the 47 poorest districts.
  - Over the last decade, poverty declined faster in the poorest (priority) districts than in other (non-priority) districts.
  - Gaps in accessing health and education between priority and non-priority districts have grown since the early 1990s.

### Macroeconomic policies and fiscal management
- Growth targets and drivers:
  - NSEDP sets a growth target of 7.5–8.0 percent each year to 2010—so far in line with performance in 2006 and 2007, but more than two percentage points higher than decade average preceding the Plan.
  - External demand is main driver, with substantial foreign direct investment in the resource sector fueling mining and hydropower exports.
  - Domestic demand expected to contribute via employment and investment growth in non-resource sectors.
- Staffs’ recommendations and concerns:
  - Develop a more comprehensive macroeconomic and fiscal framework to ensure soundness and consistency of policies and objectives.
  - Discuss fiscal sustainability given potential volatility in resource revenue (and with some linked to nonrenewables) and continued reliance on external financing.
  - Produce a well-developed accounting of the fiscal envelope and a more detailed breakdown of the ODA pipeline and needs.
  - Strengthen links between NSEDP policy priorities and actual budget expenditure (2006 PER found weak association between priorities and spending).
- Public Financial Management (PFM) progress:
  - Implementation of Public Expenditure Management Strengthening Program (PEMSP) with World Bank (IDA) support.
  - Measures: publication of general budgets and outturns in the Official Gazette since 2002 (albeit with a significant delay); publication of more detailed budgets starting with priority sectors; efforts to upgrade budget monitoring, develop quarterly budget execution reports, and introduce a Chart of Accounts according to international standards.
  - Expected benefits: improved accountability, transparency, and monitoring and evaluation of fiscal operations.
- Central-local fiscal issues:
  - Over 75 percent of spending on priority sectors executed at the local level.
  - 2006 Budget Law aims to reassert central fiscal authority; implementation regulations delineate roles, facilitate centralization of Treasury management and customs and tax administration, and establish apportionment rates for shared taxes.
  - Local progress needed on government accountability, revenue collection, and spending efficacy.
- Public investment and debt sustainability:
  - Government prepared a prioritized list of public investment projects; mainly financed through concessional facilities; Plan mentions possible commercial borrowing for large projects.
  - Joint Bank-Fund Debt Sustainability Analysis stressed new borrowing should be on concessional terms; external debt remains at elevated levels.
  - Financing plan reflects comprehensive view of investment needs without due consideration to aid availability; recommendation to prepare prioritized sector spending programs to guide investment decisions in event of aid shortfalls.
- Energy sector cautions:
  - Long list of energy sector projects requires careful attention to funding availability, implementation capacity, and debt sustainability.
  - Advice to:
    - Prioritize investment list to align with Electricité du Laos financial capacity.
    - Review implementation capacity.
    - Reassess government direct equity participation in mining and hydropower to limit debt-creating obligations.
    - Establish mechanisms to review links between hydroelectric projects and irrigation potential.
    - Build capacity for evaluating hydropower investments.
    - Strengthen social and environmental safeguards.
- Monetary management:
  - NSEDP should recognize need for capacity building in monetary management, including technical assistance.
  - As economy opens and financial sector develops, use of more market-based instruments will enable Bank of Lao P.D.R. (BoL) to better manage inflows and ensure price stability.
  - Need for improved quality, frequency, and availability of monetary and financial market information.

### Structural reforms and private sector development
- Reform agenda:
  - NSEDP agenda for structural reform described as ambitious but achievable; welcomed focus on private sector role.
  - Emphasis on improving investment climate via property rights protection and streamlining business regulatory framework.
- Recent and planned actions:
  - Approved new Enterprise Law; drafted SME development strategy; established an SME office and a one-stop-shop for investment licensing.
  - Piloted one-stop service at border posts; issued directives to remove all but Customs, Quarantine, and Immigration agencies from borders; streamlined import and export licensing.
  - Priority: move from business licensing to registration system; harmonize related laws (domestic and foreign investment laws) with the Enterprise Law.
  - Other priorities: improve business services, reform banking system to enhance credit access, and implement SME strategy speedily.
- Financial sector issues:
  - Commitment to reform legal framework for banking and credit organizations and create level-playing field between SOCBs and privately-owned banks.
  - New Commercial Bank Law approved in 2006; full implementation requires renewed impetus given slow pace of banking reform.
  - Identify strategic partners for larger SOCBs to strengthen financial conditions and upgrade operational capacity.
  - Improve BoL’s bank supervisory capacity; encourage micro-finance institutions and ensure regulations support sustainability.
- State-owned enterprises (SOEs):
  - NSEDP reaffirms aim to limit direct assistance to SOEs; efforts to terminate direct government lending to SOEs or underwriting loans from SOCBs.
  - Plan calls for reorganizing, consolidating, or dissolving SOEs in agriculture and forestry sector.
  - Plan remains vague on resolving problems associated with other ineffective SOEs; notes intent to revive legal framework to ensure state enterprises are open to fair competition.
- Trade liberalization:
  - Reaffirms commitment to trade liberalization and export promotion; supports implementation of commitments under ASEAN and other agreements and steps toward WTO accession.
  - Recommended further reductions in tariff and non-tariff barriers, modernization of customs, and implementation of ASEAN’s single window and rules of origin.

### Poverty interventions: sectoral strategies and resource implications
- Education:
  - Education strategy generally sound; universal primary enrollment prioritized in line with Education for All Program (EFA).
  - Concern: declining level of teacher salaries relative to per capita GDP; need to reverse trend and accompany with civil service reform.
  - Recommendation: set indicative per capita budget allocations for basic education and improve financial management information.
- Health:
  - Health strategy focuses on expanding primary and preventive care, improving maternal and child health, and recognizing cross-sectoral determinants like clean water and sanitation.
  - Recommendation: make health-related spending top priority in annual budgets and consider a transparent, needs-based formula for resource allocation across districts.
- Agriculture and rural development:
  - Strategy prioritizes increasing farmers’ capabilities and competitiveness, promotion of commercial agriculture and exports, product diversification, off-farm diversification, new technology adoption, strengthening extension services, and skills training.
  - Emphasizes improving market access and competition through rural roads.
  - Need for improved resource allocation, better financial management, and stronger analytical base for understanding poverty reduction approaches and challenges related to relocation program.
- Infrastructure, electricity, water, and roads:
  - Road strategy balances regional and national connectivity, aligns donors to a sector-wide approach and a prioritized and costed public investment plan.
  - Government encouraged to implement medium-term road maintenance and investment program, including promoting private sector participation.
  - Access to electricity expanded from around 16 percent of households in 1995 to almost 50 percent by 2006; delivery to remote rural communities remains a challenge.
  - Rural power supply to be addressed through public-private delivery models and the newly established Rural Electrification Fund.
  - Government cautioned not to allow heavy investment program in electricity exports by Electricité du Laos to crowd out domestic rural electrification.
  - Progress in safe water and sanitation over the last decade noted; reaching 2010 targets will require decentralized delivery through community participation and cost sharing and continued donor support.

### Governance, rule of law, and anti-corruption
- NSEDP focus: improving public service delivery, enhancing transparency and participation in policy-making, and strengthening the rule of law.
- Legislative and institutional steps:
  - A new anti-corruption law has been passed.
  - The State Inspection Agency (SIA) has been strengthened.
- Staff recommendations:
  - Complete and implement supporting regulations related to the anti-corruption law.
  - Allow the SIA to operate with appropriate authority.
- Access to justice and legal awareness:
  - NSEDP aims to improve public knowledge of rights and obligations, including women’s legal awareness and access to the judiciary.
  - Legal literacy programs to be conducted in schools and villages, with emphasis at the local level.
  - Government will create legal basis for progressive public circulation of court decisions and judgments.

### Mining sector governance and natural resource management
- Rationale: mining sector’s significant contribution to growth makes improving its governing framework an important priority.
- NSEDP objectives for mining:
  - Expand mining sector operations and move Lao P.D.R. up the value-added chain in the mining industry.
  - Ensure greater transparency in investment regulations and consistent application of relevant laws.
- Staff recommendations and concerns:
  - Government should clearly spell out sector strategy and policy framework for mining and for improving the business investment climate overall.
  - Urgent review of fiscal regime governing natural resource revenue, including respective roles and terms of public and private financing of such projects, with greater transparency and accountability.
  - Strengthen public financial management and accountability at the central level and ensure systems at the provincial level so mining royalties collected there are used as intended.
  - Clarify whether resource revenue accrues to local or central government.
  - Build sustainable natural resource management on ongoing good practices in transparency and environmental and social sustainability.

### Capacity building for plan implementation
- NSEDP identifies capacity building as a critical area and specifies actions for most sectors.
- Priority interventions:
  - Macroeconomics and public financial management.
  - Community participation and private sector development.
  - Legal and judicial areas.
  - Natural resource and road/transport management.
- Staff advice:
  - Devote sufficient attention to improving organizational capacity as well as individual skills.
  - Prepare sectoral capacity development frameworks coordinated with institutional-level interventions.
  - Apply such frameworks to health, education, agriculture, and forestry.
  - Accompany strategies with baselines and needs assessments.

### Participation, ownership, and dissemination
- Consultations and participants:
  - MPI and line ministries led consultations with local communities, focusing on the poorest districts.
  - Private sector, donor community, and foreign NGOs consulted via the semi-annual Private Sector Development Forum and mini-Round Table Meetings (RTM) for the first time.
  - Other participants included National Assembly members and mass-organizations like the Lao P.D.R. Women’s Union.
  - Cooperation across government was strong, led by the CPI with frequent technical meetings with the Ministry of Finance and line ministries.
- Gaps noted:
  - NSEDP describes participatory process but does not report on comments received, making it difficult to determine how consultations shaped the Plan.
- Dissemination suggestions:
  - Develop a comprehensive NSEDP dissemination strategy and progress reports.
  - Extend communication by translating the NSEDP into minority languages and creating a NSEDP-dedicated website.
  - Report results on an ongoing basis and seek regular stakeholder feedback.
- Current dissemination: NSEDP is posted on the RTM website and disseminated via the press and local government workshops.

### Monitoring and evaluation (M&E)
- Core concerns:
  - Further improvements needed in monitoring implementation and evaluating outcomes under the NSEDP.
  - NSEDP should be underpinned by a comprehensive macroeconomic framework; lacking this makes it difficult to assess policy consistency and budgetary resource availability, raising potential for large financing gaps and fiscal sustainability concerns.
- Ongoing actions and staff urgings:
  - Authorities developing medium-term macroeconomic, fiscal, and expenditure frameworks; staffs urge finalization as earliest possible.
  - Development partners, including the World Bank, signed the Vientiane Declaration of Aid Effectiveness in November 2006 to align donor assistance with government priorities and establish sound M&E frameworks.
- M&E framework gaps and recommendations:
  - NSEDP presents an MDG-based summary targets table but lacks a full-fledged M&E framework.
  - A comprehensive M&E framework could build on the MDG-based table and include other relevant and quantitative targets.
  - Framework should link input, output, and impact indicators for each sector to allow proper monitoring and evaluation.
  - Strengthening M&E will improve accountability and provide feedback to policy makers.
- Capacity and data issues:
  - Need to build human and institutional capacity in M&E, especially skills in data analysis and processing in the public sector at lower administrative levels.
  - Improve communication between administrative units.
  - Line ministries need to regularly collect and provide appropriate data to the National Statistics Center.
  - Broader need to improve the breadth and quality of statistics:
    - Lack of timely and reliable statistics on the national accounts and balance of payments and fiscal accounts limits monitoring of welfare indicators and key economic activities.
    - Annual poverty indicator data in areas such as food intake, housing and education, and health care needs improvement.
    - The National Statistics Law planned for 2008 aims to increase the autonomy of the National Statistics Center.
    - Additional training programs for statisticians will be required.

### Progress report on the NSEDP (first-year assessment)
- Government annual progress report:
  - Title: Achievements, Constraints and Future Direction Within the Implementation of the NSEDP 2006-2010.
  - Prepared in consultation with working groups jointly chaired by the government of Lao P.D.R and development partners.
  - Presented at the Round Table Implementation Meeting in November 2007 and published on the government’s Round Table meeting website.
- Report scope and focus:
  - Assesses implementation in the first year and sets out main priorities in the second year.
  - Focus areas: (i) macroeconomic performance; (ii) three cross-cutting issues—the MDGs, poverty reduction, and governance; (iii) four sectoral areas—agriculture and forestry, education, health, and transport; and (iv) donor coordination and ODA management.
  - Compares achievements and developments against select NSEDP targets to assess progress.
- Key first-year outcomes noted:
  - Macroeconomic targets for the first year broadly met or exceeded—particularly for the budget and growth.
  - For the 2006/07 budget:
    - Lists measures underpinning budget performance, including improvements to the public financial management framework and adoption of a new Budget Law.
    - Government more than achieved its budget deficit target in the NSEDP for 2006/07 on substantially higher than projected revenue, financed through external concessional loans and grants.
  - Performance in the first half of 2007/08 suggests the government will outperform again on its NSEDP deficit target in the current fiscal year.
  - Planned increases in budgetary allocations were made in key sectoral areas, including in education and health.
  - Better than expected real GDP growth in most sectors in 2006/07, with the notable exception of agriculture.
- Reported limitations and staff suggestions:
  - Report could expand on causes of agricultural output shortfalls and how NSEDP can improve sector prospects.
  - Progress on several MDGs has not been adequate to reach NSEDP targets; while government expects halving poverty and reducing child mortality by 2015, reaching other MDGs may be more challenging.
  - Recommend practical approaches to accelerate MDG progress and greater attention to reducing child malnutrition and reporting in this area.
  - Urge improved annual reporting in social sectors, using data consistent with line ministries’ internal reporting mechanisms (Education Monitoring Information System, Health Monitoring Information System, and the Multi-Indicator Cluster Survey).
  - Progress report should include more systematic comparison of targets versus outcomes and links to specific policy actions, and more discussion on M&E of trade-related, financial sector, and state enterprise reforms.

### Issues for discussion and identified implementation priorities
- Overall assessment:
  - NSEDP provides a good basis for continued growth and poverty reduction, with interventions in macro-fiscal management, structural reforms, and human resource and infrastructure development.
  - Recognizes the private sector as a driving force for accelerating growth and reducing poverty and articulates policies for a more supportive investment climate.
  - More discussion needed on links between policy actions, intermediate indicators, and final targets and outputs, supported by a stronger M&E framework.
  - Incorporating a comprehensive macroeconomic framework would clarify the Plan’s impact on fiscal sustainability and consistency with available financing.
- Five priority implementation areas identified by staffs:
  - (i) Maintaining macroeconomic stability and promoting private-sector led growth by improving the investment climate, reforming the banking sector, and continuing trade liberalization.
  - (ii) Elaborating macroeconomic and fiscal frameworks (including in the context of preparation of the 2008/09 budget), an NSEDP dissemination strategy, and a comprehensive monitoring and evaluation framework.
  - (iii) Strengthening public financial management, especially by fully implementing the new Budget Law.
  - (iv) Creating stronger links between NSEDP objectives of poverty reduction and actual budget policy.
  - (v) Improving transparency and accountability, especially at the local level, and the breadth and quality of statistics.
- Questions posed to Executive Directors:
  - Whether the NSEDP has (i) incorporated the necessary elements of the poverty reduction strategy (PRS) principles and presents a good basis to deliver growth and poverty reduction; (ii) adequately characterized implementation risks; and (iii) identified the priority areas for implementing a poverty reduction strategy.
  - Whether the first-year progress report provides an adequate overview of implementation so far and whether PRS and future progress reports could benefit from more systematic presentation, monitoring, and evaluation of macroeconomic and sector-specific indicators to ensure better targeted outcomes over the Plan period.

*Source: IMF staff discussion of Lao P.D.R. NSEDP 2006–2010 and November 2007 Annual Progress Report (excerpt).*

### 1. The government of Lao People’s Democratic Republic (P.D.R.) approved the

### _cr08343 - 1. The government of Lao People’s Democratic Republic (P.D.R.) approved the

### NSEDP 2006–2010: scope, timing, and process
- The Sixth National Socio Economic Development Plan (NSEDP) 2006–2010 (PRSP) was approved in June 2006, finalized by the government in October 2006, and presented to development partners in November 2006.
- Builds on the National Growth and Poverty Eradication Strategy (NGPES), the first PRSP presented to the Boards of the IMF and IDA in November 2004.
- Government issued a separate annual report in November 2007 reviewing progress during the first year of the NSEDP.
- Staffs were asked to consider the NSEDP and Annual Progress Report alongside IDA’s second series of Poverty Reduction Support Operations.

### Strategic pillars and priorities
- NSEDP anchors:
  - (i) human development- and private sector-driven economic growth;
  - (ii) enhanced competitiveness, trade promotion, and regional integration;
  - (iii) social development and focused poverty reduction interventions;
  - (iv) sound economic governance and gender and ethnic equality.
- NSEDP is more poverty- and result-focused than the NGPES, sets more realistic targets and objectives in many areas, and presents sector priorities and policy actions consistently.
- Consultations were broader than previous plans, including donor community and private sector for the first time.

### Staffs’ assessments and gaps
- Positive assessments:
  - More realistic targets than past plans in many sectors.
  - Greater role envisaged for private sector development and strengthening public financial management.
- Identified weaknesses:
  - Inadequate discussion of links between policy actions, intermediate indicators, and final targets and outputs in a number of areas.
  - Resource implications of policy actions not fully developed.
  - Monitoring and evaluation framework considered incomplete.
  - Lack of a comprehensive macroeconomic framework raises concerns about fiscal sustainability and potential vulnerability to financing gaps.
- Recommendation: better define intermediate indicators and provide a comprehensive macroeconomic framework.

### Poverty diagnosis and MDGs
- Agreement with NSEDP’s poverty diagnosis; achieving the Millennium Development Goals (MDGs) will require major efforts.
- Key poverty statistics:
  - Poverty headcount declined from 46 percent in 1992/93 to 34 percent in 2002/03.
  - Expected to reach the related MDG target of 25 percent by 2010.
- Sectoral outlook:
  - Targets on access to water and sanitation likely to be achieved.
  - Targets on hunger reduction, universal primary education, and immunization unlikely to be realized without larger scale interventions.
- NSEDP poverty strategy elements:
  - Expand economic activity, improve access to basic services, increase internal and health security, and empower decision-making of the poor.
  - Recognizes roles for gender equality, good governance, legal reforms, private sector development, and natural resource management.
- Geographic targeting:
  - Strategy targets poverty reduction programs to the 47 poorest districts.
  - Over the last decade, poverty declined faster in the poorest (priority) districts than in other (non-priority) districts.
  - Gaps in accessing health and education between priority and non-priority districts have grown since the early 1990s.

### Macroeconomic policies and fiscal management
- Growth targets and drivers:
  - NSEDP sets a growth target of 7.5–8.0 percent each year to 2010—so far in line with performance in 2006 and 2007, but more than two percentage points higher than decade average preceding the Plan.
  - External demand is the main driver of growth, with substantial foreign direct investment in the resource sector fueling mining and hydropower exports.
  - Domestic demand expected to contribute via employment and investment growth in non-resource sectors.
- Staffs’ recommendations and concerns:
  - Develop a more comprehensive macroeconomic and fiscal framework to ensure soundness and consistency of policies and objectives.
  - Discuss fiscal sustainability in light of potential volatility in resource revenue (and with some linked to nonrenewables) and continued reliance on external financing.
  - Produce a well-developed accounting of the fiscal envelope and a more detailed breakdown of the ODA pipeline and needs.
  - Strengthen links between NSEDP policy priorities and actual budget expenditure (noting the 2006 PER found weak association between priorities and spending).
- Public Financial Management (PFM) progress:
  - Implementation of Public Expenditure Management Strengthening Program (PEMSP) with World Bank (IDA) support emphasized.
  - Measures taken: publication of general budgets and outturns in the Official Gazette since 2002 (albeit with a significant delay); publication of more detailed budgets starting with priority sectors; efforts to upgrade budget monitoring, develop quarterly budget execution reports, and introduce a Chart of Accounts according to international standards.
  - Expected benefits: improved accountability, transparency, and monitoring and evaluation of fiscal operations.
- Central-local fiscal issues:
  - Over 75 percent of spending on priority sectors executed at the local level.
  - 2006 Budget Law aims to reassert central fiscal authority; implementation regulations delineate roles, facilitate centralization of Treasury management and customs and tax administration, and establish apportionment rates for shared taxes.
  - Local progress needed on government accountability, revenue collection, and spending efficacy.
- Public investment and debt sustainability:
  - Government prepared a prioritized list of public investment projects; mainly financed through concessional facilities, Plan also mentions possible commercial borrowing for large projects.
  - Joint Bank-Fund Debt Sustainability Analysis stressed new borrowing should be on concessional terms; external debt remains at elevated levels.
  - Financing plan reflects comprehensive view of investment needs without due consideration to aid availability; recommending prioritized sector spending programs to guide investment decisions in event of aid shortfalls.
- Energy sector cautions:
  - Long list of energy sector projects requires careful attention to funding availability, implementation capacity, and debt sustainability.
  - Advice to prioritize investment list to align with Electricité du Laos financial capacity, review implementation capacity, reassess government direct equity participation in mining and hydropower to limit debt-creating obligations, establish mechanisms to review links between hydroelectric projects and irrigation potential, build capacity for evaluating hydropower investments, and strengthen social and environmental safeguards.
- Monetary management:
  - NSEDP should recognize need for capacity building in monetary management, including through technical assistance.
  - As economy opens and financial sector develops, use of more market-based instruments will enable Bank of Lao P.D.R. (BoL) to better manage inflows and ensure price stability.
  - Need for improved quality, frequency, and availability of monetary and financial market information.

### Structural reforms and private sector development
- Reform agenda:
  - NSEDP agenda for structural reform described as ambitious but achievable; welcomed focus on private sector role.
  - Emphasis on improving investment climate via property rights protection and streamlining business regulatory framework.
- Recent and planned actions:
  - Approved a new Enterprise Law; drafted an SME development strategy; established an SME office and a one-stop-shop for investment licensing.
  - Piloted one-stop service at border posts; issued directives to remove all but Customs, Quarantine, and Immigration agencies from borders; streamlined import and export licensing.
  - Priority: move from business licensing to registration system; harmonize related laws (domestic and foreign investment laws) with the Enterprise Law.
  - Other priorities: improve business services, reform banking system to enhance credit access, and implement SME strategy speedily.
- Financial sector issues:
  - Commitment to reform legal framework for banking and credit organizations and create level-playing field between SOCBs and privately-owned banks.
  - New Commercial Bank Law approved in 2006; full implementation requires renewed impetus given slow pace of banking reform.
  - Identify strategic partners for larger SOCBs to strengthen financial conditions and upgrade operational capacity.
  - Improve BoL’s bank supervisory capacity; encourage micro-finance institutions and ensure regulations support sustainability.
- State-owned enterprises (SOEs):
  - NSEDP reaffirms aim to limit direct assistance to SOEs; efforts to terminate direct government lending to SOEs or underwriting loans from SOCBs.
  - Plan calls for reorganizing, consolidating, or dissolving SOEs in agriculture and forestry sector.
  - Plan remains vague on resolving problems associated with other ineffective SOEs; notes intent to revive legal framework to ensure state enterprises are open to fair competition.
- Trade liberalization:
  - Reaffirms commitment to trade liberalization and export promotion; supports implementation of commitments under ASEAN and other agreements and steps toward WTO accession.
  - Recommended further reductions in tariff and non-tariff barriers, modernization of customs, and implementation of ASEAN’s single window and rules of origin.

### Poverty interventions: sectoral strategies and resource implications
- Education:
  - Education strategy generally sound; universal primary enrollment prioritized in line with Education for All Program (EFA).
  - Concern: declining level of teacher salaries relative to per capita GDP; need to reverse trend and accompany with civil service reform.
  - Recommendation: set indicative per capita budget allocations for basic education and improve financial management information.
- Health:
  - Health strategy focuses on expanding primary and preventive care, improving maternal and child health, and recognizing cross-sectoral determinants like clean water and sanitation.
  - Recommendation: make health-related spending top priority in annual budgets and consider a transparent, needs-based formula for resource allocation across districts.
- Agriculture and rural development:
  - Strategy prioritizes increasing farmers’ capabilities and competitiveness, promotion of commercial agriculture and exports, product diversification, off-farm diversification, new technology adoption, strengthening extension services, and skills training.
  - Emphasizes improving market access and competition through rural roads.
  - Need for improved resource allocation, better financial management, and stronger analytical base for understanding poverty reduction approaches and challenges related to relocation program.
- Infrastructure, electricity, water, and roads:
  - Road strategy balances regional and national connectivity, aligns donors to a sector-wide approach and a prioritized and costed public investment plan.
  - Government encouraged to implement medium-term road maintenance and investment program, including promoting private sector participation.
  - Access to electricity expanded from around 16 percent of households in 1995 to almost 50 percent by 2006; delivery to remote rural communities remains a challenge.
  - Rural power supply to be addressed through public-private delivery models and the newly established Rural Electrification Fund.
  - Government cautioned not to allow heavy investment program in electricity exports by Electricité du Laos to crowd out domestic rural electrification.
  - Progress in safe water and sanitation over the last decade noted; reaching 2010 targets will require decentralized delivery through community participation and cost sharing and continued donor support.

*Source: IMF staff discussion of Lao P.D.R. NSEDP 2006–2010 and November 2007 Annual Progress Report (excerpt).*

### 23. The NSEDP recognizes better governance in Lao P.D.R. as critical to achieving

### 23. The NSEDP recognizes better governance in Lao P.D.R. as critical to achieving

### Governance, rule of law, and anti-corruption
- NSEDP focus: improving public service delivery, enhancing transparency and participation in policy-making, and strengthening the rule of law.
- Legislative and institutional steps taken:
  - A new anti-corruption law has been passed.
  - The State Inspection Agency (SIA) has been strengthened.
- Staff recommendations:
  - Complete and implement the supporting regulations related to the anti-corruption law.
  - Allow the SIA to operate with the appropriate authority.
- Access to justice and legal awareness:
  - NSEDP aims to improve public knowledge of rights and obligations, including women’s legal awareness and access to the judiciary.
  - Legal literacy programs to be conducted in schools and villages, with emphasis at the local level.
  - Government will create the legal basis for the progressive public circulation of court decisions and judgments.

### Mining sector governance and natural resource management
- Rationale: mining sector’s significant contribution to growth makes improving its governing framework an important priority.
- NSEDP objectives for mining:
  - Expand mining sector operations and move Lao P.D.R. up the value-added chain in the mining industry.
  - Ensure greater transparency in investment regulations and consistent application of relevant laws.
- Staff recommendations and concerns:
  - Government should clearly spell out sector strategy and policy framework for mining and for improving the business investment climate overall.
  - Urgent review of the fiscal regime governing natural resource revenue, including respective roles and terms of public and private financing of such projects, with greater transparency and accountability.
  - Strengthen public financial management and accountability at the central level and ensure systems at the provincial level so mining royalties collected there are used as intended.
  - Clarify whether resource revenue accrues to local or central government.
  - Build sustainable natural resource management on ongoing good practices in transparency and environmental and social sustainability.

### Capacity building for plan implementation
- NSEDP identifies capacity building as a critical area and specifies actions for most sectors.
- Priority interventions identified:
  - Macroeconomics and public financial management.
  - Community participation and private sector development.
  - Legal and judicial areas.
  - Natural resource and road/transport management.
- Staff advice:
  - Devote sufficient attention to improving organizational capacity as well as individual skills.
  - Prepare sectoral capacity development frameworks coordinated with institutional-level interventions.
  - Apply such frameworks to health, education, agriculture, and forestry.
  - Accompany strategies with baselines and needs assessments.

### Participation, ownership, and dissemination
- Consultations and participants:
  - MPI and line ministries led consultations with local communities, focusing on the poorest districts.
  - Private sector, donor community, and foreign NGOs were consulted via the semi-annual Private Sector Development Forum and mini-Round Table Meetings (RTM) for the first time.
  - Other participants included National Assembly members and mass-organizations like the Lao P.D.R. Women’s Union.
  - Cooperation across government was strong, led by the CPI with frequent technical meetings with the Ministry of Finance and line ministries.
- Gaps noted:
  - The NSEDP describes the participatory process but does not report on comments received, making it difficult to determine how consultations shaped the Plan.
- Dissemination suggestions:
  - Develop a comprehensive NSEDP dissemination strategy and progress reports.
  - Extend communication by translating the NSEDP into minority languages and creating a NSEDP-dedicated website.
  - Report results on an ongoing basis and seek regular stakeholder feedback.
- Current dissemination: NSEDP is posted on the RTM website and disseminated via the press and local government workshops.

### Monitoring and evaluation (M&E)
- Core concerns:
  - Further improvements needed in monitoring implementation and evaluating outcomes under the NSEDP.
  - NSEDP should be underpinned by a comprehensive macroeconomic framework; lacking this makes it difficult to assess policy consistency and budgetary resource availability, raising the potential for large financing gaps and fiscal sustainability concerns.
- Ongoing actions and staff urgings:
  - Authorities are developing medium-term macroeconomic, fiscal, and expenditure frameworks; staffs urge finalization as earliest possible.
  - Development partners, including the World Bank, signed the Vientiane Declaration of Aid Effectiveness in November 2006 to align donor assistance with government priorities and establish sound M&E frameworks.
- M&E framework gaps and recommendations:
  - NSEDP presents an MDG-based summary targets table but lacks a full-fledged M&E framework.
  - A comprehensive M&E framework could build on the MDG-based table and include other relevant and quantitative targets.
  - Framework should link input, output, and impact indicators for each sector to allow proper monitoring and evaluation.
  - Strengthening M&E will improve accountability and provide feedback to policy makers.
- Capacity and data issues:
  - Need to build human and institutional capacity in M&E, especially skills in data analysis and processing in the public sector at lower administrative levels.
  - Improve communication between administrative units.
  - Line ministries need to regularly collect and provide appropriate data to the National Statistics Center.
  - Broader need to improve the breadth and quality of statistics:
    - Lack of timely and reliable statistics on the national accounts and balance of payments and fiscal accounts limits monitoring of welfare indicators and key economic activities.
    - Annual poverty indicator data in areas such as food intake, housing and education, and health care needs improvement.
    - The National Statistics Law planned for 2008 aims to increase the autonomy of the National Statistics Center.
    - Additional training programs for statisticians will be required.

### Progress report on the NSEDP (first-year assessment)
- Government annual progress report:
  - Title: Achievements, Constraints and Future Direction Within the Implementation of the NSEDP 2006-2010.
  - Prepared in consultation with working groups jointly chaired by the government of Lao P.D.R and development partners.
  - Presented at the Round Table Implementation Meeting in November 2007 and published on the government’s Round Table meeting website.
- Report scope and focus:
  - Assesses implementation in the first year and sets out main priorities in the second year.
  - Focus areas: (i) macroeconomic performance; (ii) three cross-cutting issues—the MDGs, poverty reduction, and governance; (iii) four sectoral areas—agriculture and forestry, education, health, and transport; and (iv) donor coordination and ODA management.
  - Compares achievements and developments against select NSEDP targets to assess progress.
- Key first-year outcomes noted:
  - Macroeconomic targets for the first year broadly met or exceeded—particularly for the budget and growth.
  - For the 2006/07 budget:
    - Lists measures underpinning budget performance, including improvements to the public financial management framework and adoption of a new Budget Law.
    - Government more than achieved its budget deficit target in the NSEDP for 2006/07 on substantially higher than projected revenue, financed through external concessional loans and grants.
  - Performance in the first half of 2007/08 suggests the government will outperform again on its NSEDP deficit target in the current fiscal year.
  - Planned increases in budgetary allocations were made in key sectoral areas, including in education and health.
  - Better than expected real GDP growth in most sectors in 2006/07, with the notable exception of agriculture.
- Reported limitations and staff suggestions:
  - Report could expand on causes of agricultural output shortfalls and how NSEDP can improve sector prospects.
  - Progress on several MDGs has not been adequate to reach NSEDP targets; while government expects halving poverty and reducing child mortality by 2015, reaching other MDGs may be more challenging.
  - Recommend practical approaches to accelerate MDG progress and greater attention to reducing child malnutrition and reporting in this area.
  - Urge improved annual reporting in social sectors, using data consistent with line ministries’ internal reporting mechanisms (Education Monitoring Information System, Health Monitoring Information System, and the Multi-Indicator Cluster Survey).
  - Progress report should include more systematic comparison of targets versus outcomes and links to specific policy actions, and more discussion on M&E of trade-related, financial sector, and state enterprise reforms.

### Issues for discussion and identified implementation priorities
- Overall assessment:
  - NSEDP provides a good basis for continued growth and poverty reduction, with interventions in macro-fiscal management, structural reforms, and human resource and infrastructure development.
  - Recognizes the private sector as a driving force for accelerating growth and reducing poverty and articulates policies for a more supportive investment climate.
  - More discussion is needed on links between policy actions, intermediate indicators, and final targets and outputs, supported by a stronger M&E framework.
  - Incorporating a comprehensive macroeconomic framework would clarify the Plan’s impact on fiscal sustainability and consistency with available financing.
- Five priority implementation areas identified by staffs:
  - (i) Maintaining macroeconomic stability and promoting private-sector led growth by improving the investment climate, reforming the banking sector, and continuing trade liberalization.
  - (ii) Elaborating macroeconomic and fiscal frameworks (including in the context of preparation of the 2008/09 budget), an NSEDP dissemination strategy, and a comprehensive monitoring and evaluation framework.
  - (iii) Strengthening public financial management, especially by fully implementing the new Budget Law.
  - (iv) Creating stronger links between NSEDP objectives of poverty reduction and actual budget policy.
  - (v) Improving transparency and accountability, especially at the local level, and the breadth and quality of statistics.
- Questions posed to Executive Directors:
  - Whether the NSEDP has (i) incorporated the necessary elements of the poverty reduction strategy (PRS) principles and presents a good basis to deliver growth and poverty reduction; (ii) adequately characterized implementation risks; and (iii) identified the priority areas for implementing a poverty reduction strategy.
  - Whether the first-year progress report provides an adequate overview of implementation so far and whether PRS and future progress reports could benefit from more systematic presentation, monitoring, and evaluation of macroeconomic and sector-specific indicators to ensure better targeted outcomes over the Plan period.

*Source: IMF staff analysis in the provided NSEDP assessment document.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08343.pdf_