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November 30 2006
1. Partners have operational national development strategies
a. Coherent long-term vision with medium-term strategy derived from vision
Action has been taken to develop a long-term vision reflecting broad
agreement within the country and constituting a reference point for policymakers. In
1996, the Sixth Congress of the People’s Revolutionary Party identified sustained growth
with equity as the main instrument to exit the group of low income countries by 2020. In
2001, the Seventh Party Congress emphasized poverty eradication as one of the
Government’s goals for 2020. The 1996 and 2001 Party Congress guidelines were
incorporated into the National Long-Term Development Framework for 2001-10, which
was adopted in March 2001 at the 7th Party Congress.
The Government has taken action to create effective links between its longterm vision and medium-term strategies. Every five years, it formulates the
constitutionally required National Socio-Economic Development Plan (NSEDP), aimed
at addressing development priorities including poverty alleviation. The 2006-10 NSEDP
builds on the National Long-Term Development Framework. It also incorporates the key
content of the National Growth and Poverty Eradication Strategy (NGPES), Lao PDR’s
first Poverty Reduction Strategy (PRS), which set out long-term development objectives
for 2005, 2010 and 2020.1 The 2006-10 NSEDP includes sectoral action matrices through
Some sectoral action plans have been prepared, such as the 2003-20 National
Environmental Strategy, the Integrated Agricultural Development Master Plan, the
Education for All National Plan of Action, the Health Sector Master Plan through 2020
and the Action Plan for Rural Roads and Road Infrastructure. Several sectors are
currently working on five-year plans following the NSEDP.
The 2006-10 NSEDP stresses the Government’s plans to decentralize
planning functions to local authorities. The Government is reviewing the relationship
between central and local authorities in the context of a revision to the Budget Law, to
improve service delivery at the local level. A NGPES focal development areas project,
under implementation since 2004, promotes local development planning at the level of
village clusters, known as focal areas or “Kumban.”
b. Country specific development targets with holistic, balanced, and well
sequenced strategy
The objectives set out in the 2006-10 NSEDP support the achievement of the
MDGs. Based on the declining trend in poverty incidence, it is expected that Lao PDR
would be able to achieve the MDG target of halving the proportion of people below the
poverty line by 2015 and the MDG target on child mortality. However, it may have
difficulty in meeting the other MDG targets.
A 2006-10 NSEDP was approved by Parliament in July 2006. The NGPES was finalized in June 2004.
November 30, 2006
The 2006-10 NSEDP considers agriculture, transport, health and education as
priority sectors and aims to (i) accelerate and sustain economic growth; (ii) further
develop a socialist-oriented market economy; (iii) enhance poverty reduction, generate
employment and eliminate social evils; (iv) improve the provision of social services, such
as education, healthcare, safe water and sanitation; and (v) strengthen socio-economic
infrastructure. It also addresses cross-cutting issues such as the need to protect the
environment and manage natural resources in a sustainable way, the necessity to protect
the population against unforeseen calamities such as natural disasters, the importance of
fostering private sector development and the promotion of gender equality.
c. Capacity and resources for implementation
The Government has established a 2005-09 Public Expenditure Management
Strengthening Program (PEMSP) to strengthen fiscal management, improve the
allocation of resources and enhance reporting of public finances. In addition, it is taking
initial steps to develop a Medium-Term Fiscal Framework and to effectively link it to the
NSEDP. The Ministry of Finance defined an expenditure framework with the 2004-06
budget plan, which is being updated for the 2006-10 period. The Government plans to
prepare sectoral MTEFs in the education and health sectors to help focus expenditures on
priority areas identified in the NSEDP.
Aligning public expenditure policies with pro-poor NSEDP priorities is a
challenge, due in part to limited capacity and insufficient time for dialogue between the
Ministry of Finance, sector ministries and provinces during the budget preparation
process. However, the Government plans to increase the share of budget expenditure
allocated to the priority areas of education, health, rural infrastructure and environmental
conservation. Some of the planned increases were introduced in the 2005-06 budget
allocations; although expenditure levels in some priority sectors, such as health, remain
low. The revision of the Budget Law, to be completed in November 2006, aims to
improve budget execution and reporting. This is laying the ground for program and
performance-based budgeting.
The bulk of public expenditure is currently managed at subnational levels of
Government. The Ministry of Finance, the Committee for Planning and Investment (CPI)
and sector ministries have limited influence over resource allocations determined by
provinces, even in priority sectors. However, the Ministries of Finance, Health and
Education have reached an agreement with provincial governments to develop guidelines
on minimum per capita budget allocations for education and health programs in every
province. Each provincial government is expected to introduce these minimum per capita
allocations for health and education as part of the 2007-08 budget.
d. Participation of national stakeholders in strategy formulation and
The Committee for Planning and Investment (CPI), led by a senior
government official, is in charge of formulation and implementation of the NSEDP. It
also led the preparation of the NGPES, and coordinates with line ministries through an
inter-ministerial committee, where the CPI is represented by its Planning Department.
Line ministries, in particular the four priority sector ministries for Agriculture and
Forestry, Education, Health and Infrastructure, were involved in NSEDP formulation
November 30, 2006
through their priority program costing exercises for 2006-10. The CPI undertook
extensive consultations with local authorities for NSEDP formulation. Specifically,
national, provincial and district authorities participated in a workshop held in
Savannakhet in May 2005 for the preparation of the NSEDP.
Stakeholder participation in strategy formulation and implementation is
increasing. NSEDP formulation was conducted in a highly participatory manner. Local
communities and stakeholders were consulted on the lessons learned from
implementation of the 2001-05 NSEDP and on the priority areas to be emphasized in the
2006-10 NSEDP. A participatory planning process involving the local communities
directly took place in ten of the 47 poorest districts to help identify priority programmes
for poverty reduction. Suggestions arising from this participatory process were
incorporated into a preliminary draft of the NSEDP, which was shared with stakeholders
during a series of workshops held in June 2005. A second round of consultations with
local communities was undertaken during July-September 2005.
Few steps have been taken to involve civil society in policy formulation.
National NGOs are not legally permitted, but civil society is growing more active. The
draft NSEDP highlights the Government’s intentions to develop a legal framework for
CSOs. National planning for poverty reduction is supported by an extensive network of
mass organizations such as the Lao Women’s Union, Lao Youth Organization, the Lao
Front for National Reconstruction and the Lao Federation of Trade Unions. These
organizations took part in the workshops organized by the Government in June 2005 and
carried out an important part of the participatory activities for NGPES formulation at the
grassroots level.
Private sector participation in policy formulation and implementation is
limited but slowly increasing. The private sector was involved in NSEDP formulation
through the June 2005 seminars, in which they participated actively.
Parliamentary involvement is substantial. The National Assembly approved
the NGPES in February 2004, examined the draft 2006-10 NSEDP in October 2005 and
approved the NSEDP in July 2006. The Constitution requires the National Assembly to
approve the strategic plans of socio-economic development and gives it the authority to
approve the annual budget proposals submitted by the Government. The Executive has
plans to involve the National Assembly more actively in strategy formulation and budget
preparation. Based on periodic reports from line ministries, the CPI compiles summary
reports and submits them to the National Assembly.
2. Reliable country systems
The Government is implementing a 2005-09 Public Expenditure Management
Strengthening Program to strengthen fiscal management, improve the allocation of
resources and enhance reporting of public finances. The Program covers the activities of
the four main Departments of the Ministry of Finance – Fiscal Policy, Budget, Treasury
and Accounting – as well as their counterparts at the local level. Progress in
implementing actions is contributing to reducing fiduciary risk which, however, still
remains high. A State Audit Organization, established in 1998 and reporting to the Prime
November 30, 2006
Minister, is expected to begin undertaking financial audits of state-owned enterprises
consistent with international standards and audits of the consolidated government
financial statements by 2009. In 2004-05, the Government introduced a standardized,
nationwide Chart of Accounts and Budget Nomenclature. However, this Chart of
Account system did not provide information by economic or functional classification and
was not consistent with the International Public Sector Accounting Standards (IPSAS).
To address these issues, the Government is engaged in further refining the Chart of
Accounts and the Budget Nomenclature. It is expected that a Chart of Accounts and
Budget Nomenclature fully consistent with the IPSAS will be piloted in certain sectors in
2007/08 and applied across the budget by 2008/09. Detailed budget breakdowns by
administrative classification were introduced in February 2006. A Government Financial
Management Information System (GFIS) introducing computerized processing and
accounting systems is being implemented across the central Government and in fourteen
of seventeen provinces. Once fully rolled out to all provinces, the GFIS is expected to
improve financial recording and management, and facilitate timely preparation of
quarterly budget execution reports. The 2005 World Bank Country Policy and
Institutional Assessment (CPIA) performance criterion that assesses the quality of
budgetary and financial management places Lao PDR at 2.5 on a scale of 1 (very weak)
to 6 (very strong).
The Government has put in place a sound legislative and regulatory
framework for procurement through the adoption of a 2004 Procurement Decree and
Implementing Rules and Regulations. In addition, it has approved a Charter for the new
Procurement Management Office (PrMO), charged with overseeing procurement across
Government. The PrMO issued a National Procurement Manual and Standard Bidding
Documents, and shared them with key external partners. It developed a procurement
capacity building program, initiated a baseline assessment and started to develop a
performance monitoring and evaluation system for public procurement. The PrMO has
plans to create an e-procurement website and bulletin to increase competition and
transparency in public procurement.
Lao PDR ranks 111th of 163 in the Transparency International 2006
Corruption Perceptions Index; on a scale from 0 (highly corrupted) to 10 (highly clean), it
received a score of 2.6. In order to improve public sector management, the Government
issued an anti-corruption decree in 1999. An anti-corruption law was approved by the
National Assembly in May 2005. In addition, the Government is implementing a
governance reform program developed in April 2003 which focuses on four priority
areas: i) public service reform; ii) people’s participation; iii) rule of law; and iv) sound
financial management. Efforts are underway to improve the management of public
administration through the introduction of merit-based recruitment procedures on a pilot
3. Aid flows are aligned on national priorities
a. Government leadership of coordination
The Department of International Cooperation within the Ministry of Foreign
Affairs is increasingly taking the lead in development assistance coordination. The
Government plans to rely on Sector Working Groups – led by the Government with the
November 30, 2006
support of a co-chair from a leading external partner – to enhance coordination between
sectors and with development assistance agencies. It builds on an Aid Coordination
Mechanism established in 2004 by external partners, where one development assistance
agency acted as facilitator for each of eight working groups aimed at exchanging
information, carrying out a policy dialogue and reaching agreements on common sector
strategies. The Government, represented by the Ministry of Agriculture and Forestry and
with the support of France, began leading the Joint Sector Working Group on
Agriculture, Rural Development and Natural Resources Management with the first
inaugurating plenary session on February 2006. It also took leadership of working
sessions of the three thematic sub-working groups operational since May 2006, in
irrigation, forestry and agro-business. The Government is expected to take leadership of
the other Sector Working Groups in the second half of 2006.
The Government and UNDP jointly chair Round Table Meetings (RTM).
Leading up to the last RTM held in September 2003, line ministries, external partners,
international NGOs and other stakeholders launched a set of workshops and discussed the
first draft of the NGPES at a mini RTM in May 2003. A mini RTM was also held in
January 2006 to discuss NSEDP drafts, and a full RTM took place in Vientiane on
November 28-29, 2006.
b. Partners’ assistance strategy alignment
External partners have taken action to align their assistance strategies with
country objectives outlined in the NGPES and to update their country strategies based on
NSEDP objectives. The five major external partners are Japan, ADB, the World Bank,
Sweden and France, accounting for approximately 81 percent of gross ODA in 2003-04.
Germany and Australia also provide significant levels of support. Net ODA accounted for
11.7 percent of GNI in 2004.2 ADB is completing a Country Strategy and Program for
2007-11 which will be aligned with the NSEDP. The NGPES constitutes the platform for
the Country Assistance Strategy prepared by the World Bank in March 2005 and the
2004-08 Sida Country Strategy for Development Cooperation. It also constitutes the basis
for EC assistance, France’s Partnership Framework Document 2006-10 and Japan’s
Country Assistance Program to Lao PDR. The UN Country Assistance Framework,
which provides the overarching operational framework for all the UN agencies in the Lao
PDR, is also aligned with government priorities.
c. Partnership organization
Some development assistance agencies are increasing their presence in the
country to be more involved in day-to-day decision-making. The ADB Country Director
is stationed in Vientiane, and many core functions including country programming,
portfolio management and increasing responsibility for project administration have been
decentralized to the Resident Mission. While the World Bank Country Director is
stationed in Thailand, the Country Manager based in Vientiane is responsible for day-today operations. Most of the UN agencies have a significant office in Vientiane. Japan has
also strengthened functions at the field level mainly through a country-based ODA Task
See OECD/DAC Aid Statistics at
November 30, 2006
Force that includes the Embassy of Japan and JICA Lao Office. The AFD, AusAID, Sida
and GTZ programs are managed by offices based in Vientiane.
4. Strengthen capacity by coordinated support
Coherent and coordinated capacity support
Capacity building is largely fragmented and not always consistent with
national priorities. There is no forum to date that has emerged to tackle this problem.
Several external partners including UNDP, Germany, and Japan have undertaken
assessments of Government capacity and provide capacity support. The ADB’s
independent evaluation unit recently completed a review of the ADB’s capacity building
activities in the Lao PDR. However, there is no overall capacity-building umbrella
program, and these assessments were not undertaken jointly. Capacity needs are featured
throughout the NSEDP, but it does not articulate an integrated strategy to address
capacity bottlenecks. Some coordination is taking place at the sector level. For example,
the Ministry of Education and the key external partners in the sector decided, in June
2006, to formulate a Capacity Development Framework around which all partners can
coordinate to provide support. Capacity development is a key component of the
Government’s Public Expenditure Management Strengthening Program, which provides
a comprehensive capacity-building strategy for public financial management and is being
supported jointly by ADB, the AFD, the EC, JICA, UNDP and the World Bank. UNDP
has been providing assistance to the National Assembly to help it carry out its legislative
and representative functions effectively by improving understanding and skills needed for
legislative drafting, capacity for budget review and public consultations.
5. Use of country systems
Donor financing relying on country systems
Only a small proportion of development assistance is provided in the form of
budget support. According to the last available data (2002-03), 8 percent of development
assistance is provided by external partners as budget support. In 2005, the Government
and other development assistance agencies, including the EC, Japan, Sida and the World
Bank, jointly prepared a proposal for a series of budget support operations aimed at
making monitorable progress in realizing NSEDP objectives. The second World Bank
Poverty Reduction Support Operation was approved in April 2006. In December 2005,
the EC sponsored a Government-external partner workshop on budget support and
several development assistance agencies, including the EC, indicated interest in cofinancing future World Bank Poverty Reduction Support Operations.
The Government is taking the lead in promoting harmonization, requesting
that development assistance agencies focus on harmonizing procurement, financial
management, M&E, social and environmental safeguards around existing Government
regulations and systems. ADB, AFD, Sida and the World Bank have started to rely on
national procurement systems in some of their operations.
6. Strengthen capacity by avoiding parallel implementation structures
PIUs progressively phased out
November 30, 2006
A number of external partners are moving away from the use of separate PIUs
and are increasingly relying on existing Government structures for project
implementation. For example, following the adoption of the Action Plan for Rural Roads
and Road Infrastructure, external partners have agreed to disband multiple PIUs, shifting
responsibility for implementation, including procurement, financial management,
disbursement and reporting, to different divisions within the Department of Roads, in the
Ministry of Construction, Transport, Post and Communications. A Project Monitoring
Division is expected to act as a single window, delegating tasks to the appropriate
division. In June 2006, the Ministry of Education requested external partners to explore
ways of further integrating project implementation within the ministry structure, as did
the Ministry of Health in September 2006. Substantial efforts are still needed in other line
agencies, and the Ministry of Agriculture and Forestry has indicated some initial interest
in this. Sida no longer relies on parallel PIUs, and all the projects it finances are managed
by government agencies.
7. Aid is more predictable
Disbursements aligned with annual budgetary framework
Disbursements of development assistance are not yet aligned with the annual
budgetary framework.
8. Aid is untied
Many external partners are moving towards untied aid. For example, Sida funds
are untied, AFD funds have been untied since 2002, and the EC untied its aid at the
beginning of 2006.
9. Use of common arrangements or procedures
Partnerships in financial support are starting to materialize. The Government
is working towards SWAps in health and education, and it is considering them in
provincial and rural infrastructure, rural development and agriculture. Sida supported a
feasibility study on SWAps in the education sector, and the World Bank and ADB are
discussing joint support in a number of areas including the road transport sector. The
ADB and the AFD are providing joint financing of urban development, irrigation and
water resources management projects, and they are undertaking regular joint review
missions. The EC has begun developing common guidelines for EC countries on local
cost financing, per diem and salaries. The World Bank, the EC and Sida are considering
the establishment of a multi-donor trust fund to support the Government’s Public
Expenditure Management Strengthening Program. This arrangement is expected to
greatly advance harmonization of external partner support to public financial
management. A multi-donor trust fund is also being established for the trade sector, with
initial indications of support from the World Bank, EC and AusAID.
10. Encouraging shared analysis
a. Joint missions
Joint missions are becoming increasingly common where two or more
development partners have co-financing arrangements. For example, a joint mission of
November 30, 2006
the International Advisory Group and Panel of Environmental and Social Experts visited
Lao PDR in August 2005 and January/February 2006 and provided guidance on some
aspects related to the NamTheun 2 Hydroelectric Project financed by the World Bank,
including the location of the labor camps, resettlement, watershed management and
salvage logging. In January 2003, ILO and ASEAN conducted a joint mission which
focused on holding discussions with representatives of Government, employers and
workers organizations to improve cooperation on labor and employment issues. ADB has
conducted joint missions with many bilateral partners, including AFD, Sida and AusAID.
In 2006, the Government requested external partners to submit their mission plans to the
Ministry of Foreign Affairs on a quarterly basis.
b. Analytical partnership
Partnerships in analytical support are starting to materialize. The Government
has committed to conduct a joint Public Expenditure Review (PER) every two years with
external partners to examine public expenditure trends. The Ministry of Finance, the
World Bank, the IMF, the EC and the ADB are drafting a 2005-06 PER based on the
fieldwork undertaken between September 2005 and January 2006. An Investment
Climate Survey jointly undertaken by the ADB and World Bank was also released in
2006. A Diagnostic Trade Integration Study is a common assessment of the trade sector
undertaken by the Government and six development partners with the support of other
agencies. In November 2005, the Government, ADB, Sida and the World Bank undertook
a Joint Portfolio Effectiveness Review with the overall objective of improving the
development impact of the activities, projects and programs that they were financing to
support NGPES implementation. The resulting action plan is currently under
implementation. Other external partners have expressed interest in joining future editions
of this joint exercise. As of October 2006, external partners have posted 24 documents on
the Country Analytic Work website.3
11. Results oriented frameworks
a. Quality of development information
The Government is taking steps to improve the quality of development
information. The National Statistical Center (NSC), with support from Statistics Sweden,
has approved a Statistical Strategy to make production and dissemination of data
consistent with international standards. The NSC is taking measures to improve poverty
measurement and analysis with support from the World Bank, Sida and ADB. It has
drafted a 2006 Lao Poverty Assessment, which is expected to be finalized in September
2006. Insufficient staffing and budgetary resources have in the past limited the NSC’s
capacity to undertake business and household surveys regularly. In 2005, the NSC
completed a Reproductive Health Survey and a 2005 Multiple Indicator Cluster Survey.
A population and housing census is conducted every ten years, with the last one
completed in 2004. Expenditure and Income Surveys are conducted every five years, and
several Expenditure Consumption Surveys have been done over the years. The
November 30, 2006
Government is currently preparing a Public Expenditure Tracking Survey in primary
health and primary education; its findings will feed into a 2007 Public Expenditure
Review. In December 2005, the Government launched a database system, Lao Info,
providing access to national data across sectors.
b. Stakeholder access to development information
Access to development information is limited. However, the Government is
committed to disseminating more accurate development information and has plans to
publish important economic documents such as the national budget regularly. Current
data dissemination practices do not yet provide for the timely availability or accessibility
of data. Budgets have been published off-schedule in the past, and the coverage of both
the budget and end-year accounts are weak. The Government is planning to develop a
communication strategy to increase the use of local languages in its dialogue on the
NSEDP. The Government has not yet disseminated development information through the
internet, but it issues an annual report on Overseas Development Assistance, such as the
“Foreign Aid Report 2004-05” issued in August 2006.
c. Coordinated country-level monitoring and evaluation
A country-level M&E system to track progress in medium-term strategy
implementation is being developed. The Department of General Planning within the CPI
is in charge of NSEDP M&E. It relies on periodic reports – monthly, quarterly, semiannual and annual – from line ministries and localities to gather information on NSEDP
implementation progress. The Government has established a Taskforce to monitor
progress towards the MDGs, which aims to complement NSEDP and NGPES
The NSC is taking steps to establish a national database on economic, social
and governance indicators. It has prepared a list of about 100 core indicators to monitor
the impacts of the NSEDP, the NGPES, the MDGs and the Brussels Program of Action
for Least Developed Countries (2001-10). Many of these indicators have been
incorporated into Lao Info.
Development effectiveness assessment frameworks
Lao PDR has signed the Paris Declaration on Aid Effectiveness. In June 2006,
the Government prepared a Harmonization and Alignment action plan in line with the
Paris Declaration, which includes indicators for both Government and external
development partners to assess progress towards measures for increased aid
effectiveness. The Government is also developing a localized version of the Paris
November 30, 2006
ADB (2005), Country Strategy and Program Update (2006-2008). Manila.
AFD (2004), L’activité du groupe de l’Agence Française de Développement au Laos. Paris.
Agulhas (December 2004), Poverty Reduction Strategies in Difficult Environments. Case Study:
Lao PDR. Draft.
Aid Harmonization and Alignment (2006). Initiatives for Lao PDR.
Constitution of the Lao People’s Democratic Republic (1991). Vientiane.
Government of Lao PDR (2001), Interim Poverty Reduction Strategy Paper. Vientiane.
__________ (2002), Poverty Reduction Strategy Paper Preparation Status Report. Vientiane.
__________ (2003), Poverty Reduction Strategy Paper Preparation Status Report. Vientiane.
__________ (2004), National Growth and Poverty Eradication Strategy. Vientiane.
__________ (2006), Sixth National Socio-Economic Development Plan (2006-2010). Draft.
IMF and World Bank (2001), Lao PDR Joint Staff Assessment of the Interim Poverty Reduction
Strategy Paper. Washington DC.
__________ (2002), Lao PDR Joint Staff Assessment of the Poverty Reduction Strategy Paper
Preparation Status Report. Washington DC.
__________ (2003), Lao PDR Joint Staff Assessment of the Poverty Reduction Strategy Paper
Preparation Status Report. Washington DC.
Sida (2004), Country Strategy for Development Cooperation. Laos. January 2004 – December
2008. Stockholm.
VENRO (2004), PRSP-Watch. Länderprofile: Laos VR (Mai). Berlin.
World Bank (1999), Lao PDR Country Assistance Strategy. Public Information Notice.
Washington DC.
__________ (2002), Lao PDR - Financial Management Capacity Building Credit Project.
Project Information Document. Washington DC.
__________ (2002), Lao PDR - Public Expenditure Review and Country Financial
Accountability Assessment. Washington DC.
__________ (2003), Lao PDR - Country Procurement Assessment Report. Washington DC.
__________ (2004), Lao PDR: Launching of International Stakeholder Workshops for Nam
Theun. Board Report. Washington DC.
__________ (2005), Lao PDR: Country Assistance Strategy. Washington, DC.
__________ (2005), Lao PDR: First Poverty Reduction Support Credit. Washington DC.
__________ (2005), Technical Brief. Revenue and Expenditure Management. Nam Theun 2
Hydroelectric Project. Washington DC
__________ (2006), Lao PDR – Second Poverty Reduction Support Operation Project. Program
Document. Washington DC.
November 30, 2006
Related websites
Transparency International:
World Bank Country Policy and Institutional Assessment (CPIA):,,contentMDK:2093360