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Lao People’s Democratic Republic: Staff Report for the 2017 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund. Asia and Pacific Dept
Published Date:
March 2018
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Information about Asia and the Pacific Asia y el Pacífico
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Fund Relations

(As of December 31, 2017) Membership Status: Joined on July 5, 1961. General Resources Account:

SDR MillionPercent Quota
Quota105.80100.0
Fund holdings of currency (Exchange Rate)92.5887.50
Reserve Tranche Position13.2312.50

SDR Department:

SDR Million% Allocation
Net cumulative allocation50.68100.00
Holdings37.8374.65

Outstanding Purchases and Loans: None

Latest Financial Arrangements:

TypeDate of ArrangementExpiration DateAmount ApprovedAmount Drawn
ECF104/25/200104/24/200531.7018.12
ECF106/04/199305/07/199735.1935.19
SAF09/18/198909/17/199220.5120.51

Projected Payments to the Fund2

(SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20182019202020212022
Principal
Charges/Interest0.100.100.100.100.10
Total0.100.100.100.100.10

Exchange Rate Arrangement

The de jure arrangement is a managed float. Since September 2016, the kip has followed a depreciating trend against the U.S. dollar. Therefore, the de facto exchange rate arrangement was reclassified to a crawl-like arrangement from a stabilized arrangement, effective September 2, 2016. The authorities’ objective is to limit currency fluctuations vis-à-vis major currencies, including the U.S. dollar and Thai baht, within ±5 percent per annum. The Bank of the Lao P.D.R. (BOL) sets a daily official reference rate, which is calculated as a weighted average of the previous day’s interbank rates. Commercial banks and foreign exchange bureaus are required to maintain their buying and selling rates within ±0.25 percent of the BOL’s previous daily reference rate for the U.S. dollar. For the euro and baht, the buying and selling rates may not exceed a margin of 0.5 percent. For other currencies, a margin of 2 percent applies.

Lao P.D.R. has accepted the obligations under Article VIII, Sections 2(a), 3 and 4 and maintains an exchange system free of restrictions on the making of payments and transfers on current international transactions, except for restrictions imposed solely for security reasons and notified to the Fund under the Decision No. 144-(52/51).

Article IV Consultation

The last Article IV consultation discussions were held in Vientiane during September 19–30, 2016 and were concluded by the Executive Board on January 30, 2017. The staff report (Country Report No. 17/53) was published February 2017.

Technical Assistance

Over the past five years, Lao P.D.R. has received technical assistance in the areas of: banking supervision and interbank market development; monetary operations; customs administration; tax and natural resource revenue administration; tax policy; public financial management; macroeconomic management; price statistics; external sector statistics; government finance statistics; and the national accounts. A Bangkok-based IMF office, TAOLAM, was set up in September 2012 to facilitate technical assistance to Lao P.D.R. (as well as Cambodia, Myanmar and Vietnam) and has provided technical assistance in macroeconomic analysis and forecasting, monetary operations, government finance statistics, external sector statistics, and public financial management.

Resident Representative

Jonathan Dunn assumed the Resident Representative post for Vietnam and Lao P.D.R., based in Hanoi, on October 16, 2015.

IMF-World Bank Collaboration

The World Bank and the IMF country teams for Lao P.D.R. met on December 4, 2017 to discuss economic issues and outlook and to coordinate the two teams’ work for FY2018. The teams were led by Mr. Evgenij Najdov (Senior Country Economist, Macro and Fiscal Management Global Practice, World Bank), and Mr. Geoffrey Bannister (IMF Mission Chief for Lao P.D.R.).

The teams agreed that although Lao P.D.R. has made progress on macroeconomic stabilization, significant vulnerabilities remain. More efforts could be made to reduce external vulnerabilities and restore fiscal sustainability. Improved tax base, tighter fiscal, a more flexible exchange rate and strengthened banking supervision will be needed to build international reserves and ensure macrofinancial stability. In the longer run, a key challenge is to promote inclusive growth and poverty reduction through more diversification into non-resource sectors, non-electricity sector, and sustainable development of natural resources. Progress has been made in recent years on product and labor market openness and poverty reduction. Further trade integration will improve the business climate, and promote private investment and institutional reform. Upgrading health and education infrastructure and improving outcomes will raise the growth potential and help reduce inequality. IMF-World Bank collaboration remains good with frequent and productive consultations and engagement between the teams.

Table 1.Lao P.D.R.: World Bank Group and Fund Planned Activities in Macro-Critical Structural Reform Areas, November 2017–December 2018
TitleProductsProvisional Timing of MissionsDelivery Date
1. World Bank ProgramGreen Resilient Growth Development Policy Operation (GGDPO)Development policy operations series of three operations (GGDPO2 identification mission proposed in March 2019)Implementation throughout fiscal year. GGDPO1 approved in May 2017, GGDPO2 Board discussion expected in FY19
Lao PDR second Trade Development Facility project (TDF2), Advisory Services to support Investment Climate, Lao PDR Competitiveness and Private Sector Development Project (under preparation)OngoingTDF2 received additional financing and extension to September 2018; Advisory Services planned until December 2019; Competitiveness and Private Sector Development Project Board approval expected in FY19
Public Finance Management Modernization Program (TA), including support on tax administration issues.OngoingImplementation throughout September 2018; follow-up TA activity being considered.
Hydro-Mining Technical Assistance ProjectOngoingImplementation throughout FY18 with project closing in September 2018, follow-up TA on Sustainable Energy and Extractive Development combined with a Lao-Vietnam Interconnector project being considered for FY20
Technical assistance to the financial sector on improving: the regulatory framework, financial soundness indicators, financial infrastructure including payment systems, accounting & auditing standards, deposit insurance, and insolvency & creditor rights.OngoingImplementation throughout FY18
SME Access to Finance lines of credit and technical assistanceOngoingImplementation throughout FY18
Lao Statistical Capacity Building Project (LAOSTAT) (focus on economic statistics and macro framework in coordination with IMF TA below)OngoingProject closing in February 2018; follow-up project considered with potential Board approval in FY19.
Analytical work: macroeconomic monitoring (Lao economic monitors, Public Expenditure Analysis looking at debt management, civil service management and expenditure arrangements in health and education)OngoingImplementation throughout FY18
2. IMF Work Program3Periodic staff visits by IMF HQ team and resident representative based in HanoiOngoingTwice a year for HQ team and monthly for resident representative
Technical Assistance on monetary policy operationCompletedSeptember 2016
Technical Assistance on bank-supervision and regulationsCompletedNovember 2016
Technical Assistance on national accounts statisticsCompletedJanuary 2017
Technical Assistance on consumer prices/producer pricesCompletedMarch 2017
Technical Assistance mission on Customs administrationOngoingImplementation throughout FY18
Technical Assistance mission on tax administrationOngoingImplementation throughout FY18
Technical Assistance on government financial statisticsOngoingImplementation throughout FY18
Technical Assistance on external sector statistics compilationOngoingImplementation throughout FY18
Article IV ConsultationSeptember 2016Board discussion January 2017
TAOLAM assistance on Government Finance Statistics (GFS)Regular staff visitsImplementation throughout FY18
TAOLAM on public financial management – implementation of the cash-based IPSASRegular staff visitsImplementation throughout FY18
TAOLAM on macroeconomic managementRegular staff visitsImplementation throughout FY18

Relations with the Asian Development Bank

The Asian Development Bank (ADB) country partnership strategy (CPS), 2017–2020 for the Lao People’s Democratic Republic is in line with strategic directions of the government’s eighth National Socio-Economic Development Plan 2016–2020. It will support inclusive and sustainable growth through three strategic priorities: (i) infrastructure and private sector development to support employment and income generation, (ii) enhanced human development, and (iii) sustainable natural resource management and climate resilience. Gender equity and governance are crosscutting themes. The focus will shift from sector selectivity toward more value added strategic interventions that build synergies across operations. The CPS aims to maximize efficiency and sustainability through larger operations implemented over a longer period; maximize synergies with the implementation of Greater Mekong Subregion (GMS) strategic framework 2012–22; and also increase responsiveness to emerging issues in a rapidly changing economy. The biannual allocation for 2017–2018 is $236.6 million grant, including $89.0 million from regional set aside and $9.36 million from Disaster Risk Reduction Fund.

As of end-2017, active loans/grants were worth US$769.972 million, of which US$291.951 million had been disbursed. During 2017, contract awards totaled US$95.971 million and disbursement was US$64.506 million. ADB approved two new loan projects and three new technical assistance (TA) projects for a total of US$45.6 million and US$3.8 million in 2017 respectively, including Northern Rural Infrastructure Development Project (additional financing), Trade Facilitation: Improved Sanitary and Phytosanitary Handling in Greater Mekong Subregion Trade Project (additional financing); TA projects related GMS Northern Cross-Border Power Trade and Distribution, Sustainable Rural Infrastructure and Watershed Management Sector Project and Support Economic Policy for Enhancing Productivity and Employment.

Lao P.D.R.: Asian Development Bank Commitments and Disbursements 2005–2017 1/(In millions of U.S. dollars)
2005200620072008200920102011201220132014201520162017 2/
Commitments87.060.747.446.681.255.353.273.7102.680.167.765.796.0
Disbursements78.776.874.856.975.961.573.268.676.478.965.856.165.4
Source: Data provided by the Asian Development Bank.

Starting from 2006, the commitments and disbursements included both loans and grants.

The commitment and disbursements were estmiated for 2017.

Source: Data provided by the Asian Development Bank.

Starting from 2006, the commitments and disbursements included both loans and grants.

The commitment and disbursements were estmiated for 2017.

Statistical Issues

(As of January 17, 2018)

I. Assessment of Data Adequacy for Surveillance
General: Data provision has serious shortcomings that significantly hamper surveillance, especially regarding national accounts, government finance, financial sector, and external sector statistics. These shortcomings are mostly due to lack of capacity which could be addressed through further efforts on the part of the authorities involved. The IMF is conducting technical assistance (TA) and training programs to address the specific needs with a focus to mitigate near-term risks, covering the areas of national accounts, prices, government finance statistics, monetary and financial statistics, and external sector statistics.
National Accounts: National accounts (NA) comprise annual estimates of GDP by activity at current and constant prices. Rebased national accounts (base year=2012) were released in early 2017 with the help of a World Bank expert, broadly following the System of National Accounts (SNA) 1993 (includes part of 2008 SNA). Lao P.D.R. participated in the IMF’s Statistics Department (STA) project to implement the SNA and International Comparison Project (ICP), funded by the government of Japan through the Japan Administered Account for Selected Activities (JSA), and has received technical assistance (TA) to improve annual national accounts and develop quarterly national accounts (QNA). Under this project, Lao PDR made some methodology improvements in the annual GDP by activity estimates, and has moved closer to completing a new annual expenditure measure of GDP and a preliminary GNI series. However, there are some weaknesses in data sources, particularly on intermediate consumption of businesses. Some progress had also been made toward the development of a new quarterly GDP series and is expected to be finalized by mid-2018, together with GDP by expenditure.
Price Statistics: The monthly consumer price index (CPI) for Lao P.D.R. was updated during 2016. Coverage was extended from 12 to all 18 provinces, the number of basket items increased from 245 to 485, and expenditure weights were updated using the results of the 2012 Lao Social Indicator Survey (LSIS). However, the full list of the updated weights has not yet been disclosed. To ensure that the index remains representative of current expenditure patterns, the Lao Statistics Bureau should prioritize the update of the expenditure weights using the results of the 2017 LSIS. The producer price index (PPI) has not been released due to low survey response rates but dissemination is expected by mid-2018.
Government Finance Statistics: Government finance statistics remain weak. The current GFS data compilation procedures use various secondary data sources, resulting in internal inconsistencies and a lack of detail. Off-budget activities are not included in the fiscal data, although they have expanded rapidly in recent years. STA appointed a Government Finance Statistics (GFS) Advisor to the IMF Technical Assistance Office for the Lao PDR and the Republic of the Union of Myanmar (TAOLAM) in September 2014, whose activities are funded by the government of Japan. The main focus of the advisor is to assist the Ministry of Finance (MoF) in upgrading the compilation and dissemination procedures of fiscal data in line with the IMF’s Government Finance Statistics Manual 2014 (GFSM 2014) and improve timely data dissemination to the IMF, as well as reduce fiscal data discrepancies. With assistance from the GFS expert, the authorities submitted quarterly fiscal data for FY2015 to the IMF in December 2016 for inclusion in the Government Finance Statistics Yearbook and International Financial Statistics, but the timeliness needs significant improvement.
Monetary and Financial Statistics: The classification of monetary data by institutional sector and by financial instruments as well as valuation principles need to be strengthened. In addition, the timeliness of reporting needs further improvement. The latest monetary data reported to STA refer to December 2010. The compilation of monetary data based on Standardized Report Forms (SRFs) have yet to be introduced. The authorities recently requested blank SRF templates but data is yet to be submitted to STA
Financial Sector Surveillance: Lao PDR is yet to compile and submit to STA financial soundness indicators as recommended in the IMF FSI Guide.
External Sector Statistics: STA appointed an External Sector Statistics (ESS) Advisor to the Technical Assistance Office for Lao P.D.R. and Myanmar (TAOLAM) in February 2014. While significant room exists for improving the quality and coverage of balance of payments and external debt statistics in Lao PDR and for compiling data on the international investment position. TA has helped the BOL in modifying their estimation models for (1) imports cost, insurance, and freight – free on board; (2) outbound travel; and (3) compensation of employees and workers’ remittances credits. Several components of balance of payments are missing due to the lack of source data. The BOL plans to disseminate the new time series in BPM6 format by March 2018. Implementation of the new international transactions reporting system (ITRS) is ongoing. The BOL does not yet compile an international investment position statement.
II. Data Standards and Quality
Lao P.D.R. is currently not a General Data Dissemination System (GDDS) participant. The government has expressed its intention to collaborate with the IMF in moving Lao’s macroeconomic statistics closer to the international standards, including to join the IMF’s GDDS, and use it as a framework for development of the national data compilation and dissemination practices.
Lao P.D.R.—Table of Common Indicators Required for Surveillance(As of December 29, 2017)
Date of Latest ObservationDate ReceivedFrequency of Data1Frequency of Reporting1Frequency of Publication1
Exchange Rates12/29/201712/29/17DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities209/29/201711/28/17MIQ
Reserve/Base Money09/29/201711/28/17MIQ
Broad Money09/29/201711/28/17MIQ
Central Bank Balance Sheet09/29/201711/28/17MIQ
Consolidated Balance Sheet of the Banking System09/29/201711/28/17MIQ
Interest Rates309/29/201711/28/17MIM
Consumer Price Index12/29/201701/12/18MMM
Revenue, Expenditure, Balance and Composition of Financing4—General Government509/29/201712/06/17III
Revenue, Expenditure, Balance and Composition of Financing4—Central Government09/29/201712/06/17III
Stocks of Central Government and Central Government-Guaranteed Debt612/29/201712/11/17NANANA
External Current Account Balance06/30/201711/28/17QII
Exports and Imports of Goods and Services06/30/201711/28//17QII
GDP/GNP12/29/201603/30/17AAA
Gross External Debt12/31/201711/28/17AAI
International Investment Position7NANANA

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

Any reserve assets that are pledged of otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency, but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency, but settled by other means.

Both market-based and officially determined, including discount rates, money market rates, and rates on treasury bills, notes and bonds.

Foreign and domestic bank, nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

Any reserve assets that are pledged of otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency, but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency, but settled by other means.

Both market-based and officially determined, including discount rates, money market rates, and rates on treasury bills, notes and bonds.

Foreign and domestic bank, nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Extended Credit Facility (ECF), formerly PRGF.

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

FY 2017, May 2016 – April 2017.

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