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Staff Report for the 2010 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund
Published Date:
February 2011
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Annex I. Lao P.D.R.: Fund Relations

(As of June 30, 2010)

I. Membership Status: Joined 7/05/61; Article VIII

II.General Resources Account:SDR millionPercent Quota
Quota52.90100.00
Fund holdings of currency52.90100.00
III.SDR Department:SDR millionPercent Allocation
Net cumulative allocation50.68100.00
Holdings51.07100.78
IV.Outstanding Purchases and Loans:SDR millionPercent Quota
PRGF Arrangements8.1515.41

V. Latest Financial Arrangements:

AmountAmount
ApprovalExpirationApprovedDrawn
TypeDateDate(SDR million)(SDR million)
PRGF4/25/014/24/0531.7018.12
PRGF6/04/935/07/9735.1935.19
SAF9/18/899/17/9220.5120.51

VI. Projected Obligations to Fund (SDR million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20102011201220132014
Principal1.813.172.270.910.00
Charges/interest0.000.000.000.000.00
Total1.813.172.270.910.00

VII. Implementation of Heavily Indebted Poor Countries Initiative (HIPC)

Not applicable

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI):

Not applicable

IX. Safeguards Assessments

A safeguards assessment of the Bank of Lao P.D.R. (BoL) was completed in April 2003 in the context of an ECF arrangement (Country Report Nos. 03/308 and 05/08). Progress on implementing the safeguards assessment recommendations has been slow. The authorities indicated that they were not in a position to implement an earlier agreement to undertake a joint audit of the BoL’s 2003 and 2004 accounts by the state auditor and an international audit firm. The state auditor has since completed these audits, but the joint audit issue remains unresolved.

X. Exchange Arrangement

The de jure regime is a managed float. The de facto regime is stabilized. The 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 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 and for other currencies, a margin of 2 percent applies.

On May 28, 2010, Lao P.D.R. accepted the obligations under Article VIII, Section 2, 3, and 4, following the elimination of one restriction subject to Fund jurisdiction under Article VIII arising from a requirement to obtain tax payment certificates for some transactions. Lao P.D.R. now maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions, except for restrictions imposed solely for the preservation of national or international security notified to the Fund pursuant to Decision No. 144-(52/51).

XI. Last Article IV Consultation Discussions

The last Article IV consultation discussions were held in Vientiane during May 13-27, 2009. The staff report (Country Report No. 09/284) was discussed by the Executive Board on July 10, 2009 and was published on September 11, 2009.

XII. Technical Assistance During the Past 18 Months

STA: Government Finance Statistics (May 2009)

FAD: Peripatetic expert in customs administration

XIII. Resident Representative

Mr. Benedict Bingham assumed the Senior Resident Representative post for Vietnam and Lao P.D.R., based in Hanoi, on October 17, 2007. The IMF’s local office in Vientiane was closed in July 2010. Contacts with the authorities are henceforth handled by the Hanoi office.

ANNEX II. Lao P.D.R.: Relations with the World Bank Group1

The Bank’s country partnership with the Lao P.D.R. is guided by a country assistance strategy (CAS), which comprises of four pillars: sustaining growth, improving social outcomes, capacity development and partnerships, and supporting Nam Theun 2 (NT2) implementation. The initial CAS for Lao P.D.R. was approved on March 31, 2005, along with two flagship operations for the Lao P.D.R.: the first Poverty Reduction Support Operation (PRSO-1) and the NT2 hydroelectric project. On May 4, 2007, the Bank board approved an extension of the initial CAS period (FY05-FY07) by two years, to end in FY11.

CAS Pillar 1: Sustaining Growth

The Bank group’s engagement under Pillar 1 aimed at private sector development, improved access to finance, and widening of trade opportunities. Major operations in FY08-FY11 comprised of (i) trade facilitation projects; (ii) financial sector projects—for example, IFC investment in private banks, IFC advisory work on credit infrastructure, and support on the commercial banking law implementation; (iii) a continued, sharply-focused PRSO series; (iv) and Greater Mekong Subregion (GMS) Power, Water, and Trade Projects.

CAS Pillar 2: Improving Social Outcomes

The Bank continues to focus on public finance management (PFM). Priorities are (i) supporting the government’s efforts to establish a more transparent and equitable inter-governmental fiscal transfer system; (ii) assisting centralization of the national treasury in a bid to improve execution, disclosure, monitoring, and management of the budget; and (iii) determining priority programs for health and education sectors, rural roads, and environmental conservation. Advisory services on tax reform and tax simplification is also provided, and the engagement in works in areas such as external auditing and public procurement is being strengthened.

CAS Pillar 3: Strategic Approach to Capacity Development and Partnerships

The Bank provides support to the Public Administration and Civil Service Authority (PACSA) in civil service reform. The IFC is also advising the government on small scale rural electrification. The IDA continues to provide practical and operational support toward enhancing aid effectiveness, and the Bank will engage more systematically with stakeholders, promoting community participation and information sharing, particularly through a planned multi-donor Public Information Center.

CAS Pillar 4: Supporting Nam Theun 2 Implementation

The focus is to help Lao P.D.R. to maximize opportunities, while containing risks, brought by mushrooming investment proposals in the hydro and mining sectors, following the NT2 approval. Toward this end, the Bank advises that natural resource management focus more on the quality of investments, macroeconomic and governance implications of natural resource revenue growth, and sustainability of the exploitation. The Bank is deepening its work in natural resource management with a proposed Country Economic Memorandum. Technical assistance is also being undertaken, with the newly approved Hydro and Mining Sector Technical Assistance Project. A partnership in hydro power with the private sector is also being explored through equity participation and guarantees (MIGA, IFC).

IMF-World Bank Group Collaboration

The IMF takes the lead in advising the government on macroeconomic policy. The World Bank Group takes the lead in supporting the government to formulate a growth and poverty reduction strategy and implementing structural reforms.

IDA: Commitments and Disbursements to Lao P.D.R., 1977-2009 (In millions of U.S. dollars)
Fiscal Year (to June 30)CommittedDisbursedRepayments 1/
1977-93335.2180.71.5
199448.445.10.6
199519.231.40.6
199660.728.60.6
199748.065.20.6
199834.726.51.3
199929.827.81.5
20000.018.13.0
200141.729.93.6
200244.830.54.9
200324.741.26.1
200435.746.77.3
200576.036.08.4
200637.036.38.7
200728.053.49.6
200825.050.912.5
200928.032.513.4
Total916.9780.884.2

Note: repayments include principal repayments and do not include commitment or service charges.

Note: repayments include principal repayments and do not include commitment or service charges.

Annex III. Lao P.D.R.: Relations with the Asian Development Bank2

The Asian Development Bank (AsDB)’s current Country Strategy and Program (CSP) 2007-11 is aligned with the government’s development strategy (National Socio-Economic Development Plan (NSEDP)), and seeks to promote pro-poor sustainable growth, social inclusiveness, and improved governance. A mid-term review of the CSP, completed in August 2009, confirmed that the CSP’s strategic thrusts remain valid and in line with the government’s priorities. The AsDB is currently preparing its next country partnership strategy for the period 2012-16. The CSP will be designed to support the seventh NSEDP implementation.

At the Third Greater Mekong Subregion (GMS) Summit, the GMS leaders discussed ways to deepen economic cooperation and improve connectivity to expand markets, improve access to social services, and protect the environment. The AsDB aims to maximize benefits from this cooperation and the CSP aims to foster connectivity, promote large-scale foreign direct investment, and create regional public goods. The AsDB will focus primarily on the poor northern provinces and the East-West corridor that links Thailand to Lao P.D.R. and Vietnam.

The net resource transfer from the AsDB to Lao P.D.R. was negative US$5.9 million in 2009, from US$13.8 million in 2008. The national loan/grant pipeline for 2009-12 indicates a US$20 million increase from 2005-08 to about US$60 million annually. Support through subregional operations (GMS) has similarly increased from an annual average of US$16 million to US$85 million. The active technical assistance (TA) portfolio at the end of March 2010 comprised a total of 21 TA projects amounting to US$15.4 million, excluding regional TAs.

Since 2007, AsDB program operations shifted to 100 percent grant. Five new grants in total of US$102.8 million were approved in 2009, comprising of sustainable natural resources management and productivity enhancement project, small towns water supply and sanitation, strengthening higher education project, private sector and SME development program, and health sector development program. In 2010, the AsDB expects to approve four projects (US$37.6 million), five GMS projects (US$99.0 million), and 11 TA projects (US$7.6 million).

Lao P.D.R.: Asian Development Bank Commitments and Disbursements, 2001-09 (In millions of U.S. dollars)
2001200220032004200520062007200820092010/1
Commitments65.043.234.954.887.056.143.730.824.152.7
Disbursements44.748.654.748.578.776.073.949.037.063.4
Source: Data provided by the Asian Development Bank.

Planned figures.

Source: Data provided by the Asian Development Bank.

Planned figures.

Annex IV. Lao P.D.R.: Statistical Issues As of July 2, 2010

I. Assessment of Data Adequacy for Surveillance
General: Macroeconomic and financial data provided to the IMF have shortcomings that significantly hamper surveillance. Strengthening balance of payments and national accounts statistics is a priority.
National Accounts: National accounts comprise annual estimates of GDP by activity at current and constant 2002 prices, broadly following the System of National Accounts 1968. Despite some improvements following the implementation of annual enterprise and household surveys, unresolved gaps and inappropriate data collection and compilation methodology continues to undermine the coverage and reliability of the GDP estimates.

Price statistics: The CPI basket only includes goods and services purchased in the market, and progress on compiling a producer price index has stalled.
Government finance statistics: Government finance statistics remain weak. The timeliness of fiscal reporting needs significant improvement. Off-budget activities are not included in the fiscal data, although they have expanded rapidly. Annual budget and outturn data formats do not follow international standards. Except for the annual data disseminated in the Official Gazette, no fiscal data are disseminated in the country.
Monetary statistics: Regarding the compilation of monetary financial statistics (MFS), the sectorization, classification, and valuation of data, and the chart of accounts need to be strengthened. The Standardized Report Forms (SRFs) need to be introduced. Financial Soundness Indicators should also be compiled and published.
Balance of payments: Overall, the quality of the balance of payments statistics is considered to be poor. Improvements are needed in all categories, including the current account, foreign direct investment, and private capital flows. A TA mission was proposed to the authorities to be conducted in July 2009 (the previous one was in 2002), however the BoL did not accept it stating that “the implementation of the knowledge transfer (from the 2002 mission) is not yet satisfactory, as data in this field is related to many concerned parties, and there is no completed data that can be provided yet.”
II. Data Standards and Quality
Not a General Data Dissemination System participant.No data ROSC is available.
III. Reporting to STA
Government finance statistics reporting for publication in the International Financial Statistics and the Government Finance Statistics Yearbook, which was initiated in early 2009, is limited to budgetary central government and has been irregular and with long delays.

The authorities did not submit MFS data for publication in the IFS in 2009.

Quarterly balance of payments data are reported once a year in a highly aggregated format. Moreover, data were not reported to STA in 2009; consequently, the last published data in the International Financial Statistics and Balance of Payments Statistics Yearbook correspond to 2007.
Lao P.D.R.: Table of Common Indicators Required for Surveillance (As of June 25, 2010)
Date of Latest ObservationDate ReceivedFrequency of Data1Frequency of Reporting1Frequency of Publication1
Exchange Rates06/24/1006/24/10DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities2March 201005/28/10MIQ
Reserve/Base MoneyMarch 201005/28/10MIQ
Broad MoneyMarch 201005/28/10MIQ
Central Bank Balance SheetMarch 201005/28/10MIQ
Consolidated Balance Sheet of the Banking SystemMarch 201005/28/10MIQ
Interest Rates3Dec 200902/17/10MMQ
Consumer Price IndexMay 201006/03/10MMM
Revenue, Expenditure, Balance and Composition of Financing4 —General Government5Q2 FY1005/24/10III
Revenue, Expenditure, Balance and Composition of Financing4 —Central Government5Q4/0805/29/09QIM
Stocks of Central Government and Central Government-Guaranteed Debt6NANANA
External Current Account BalanceQ4 200905/25/10QII
Exports and Imports of Goods and ServicesQ4 200905/25/10QII
GDP/GNP200901/26/10AAA
Gross External DebtDec 200903/01/10MMI
International Investment Position6NANANA

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.

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.

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

Annex V. Lao P.D.R.: Millennium Development Goals Indicators

Lao P.D.R.: Table of Common Indicators Required for Surveillance (As of June 25, 2010)
PreviousUpdateEvolution
Life expectancy at birth (years)East Asia & Pacific70 (2004)71 (2005)
Lao PDR55 (2004)56 (2005)
Low income countries59 (2004)59 (2005)-
Infant mortality

(per 1,000 live births)
East Asia & Pacific29 (2004)26 (2005)
Lao PDR77 (2000)70 (2005)
Low income countries80 (2004)75 (2005)
Maternal mortality

(per 100,000 live births)
East Asia & Pacific117(2004)--
Lao PDR405 (2005)--
Low income countries684 (2004)--
Child malnutrition, weight for age

(% of under 5)
East Asia & Pacific15 (2000)15 (2005)
Lao PDR40 (2000)38 (2006)
Low income countries39 (2004)--
Access to improved water source

(% of population)
East Asia & Pacific79 (2004)79 (2005)-
Lao PDR51 (2004)58 (2006)
Low income countries75 (2004)75 (2005)-
Access to improved sanitation facilities

(% of population)
East Asia & Pacific51 (2004)51 (2005)-
Lao PDR30 (2004)45 (2006)
Low income countries38 (2004)38 (2005)-
Literacy (% of population age 15+)East Asia & Pacific91 (2004)98 (2005)
Lao PDR73 (2005)84 (2005)
Low income countries62 (2004)74 (2005)
Children reaching grade 5

(% of grade 1 students)
East Asia & Pacific---
Lao PDR63 (2003)68 (2008)-
Low income countries72 (2003)76 (2005)
Primary completion rate, total

(% of relevant age group)
East Asia & Pacific98 (2004)98 (2005)-
Lao PDR74 (2004)76 (2005)
Low income countries78 (2004)74 (2005)
Source: World Bank data, and Population and Housing Census for 2005 (NSC).Note: Latest year available. Maternal mortality rates for East Asia & Pacific and Low Income Countries are adjusted. Primary completion rate is the total number of students successfully completing the last year of primary school in a given year, divided by the total number of children of official graduation age in the population.
Source: World Bank data, and Population and Housing Census for 2005 (NSC).Note: Latest year available. Maternal mortality rates for East Asia & Pacific and Low Income Countries are adjusted. Primary completion rate is the total number of students successfully completing the last year of primary school in a given year, divided by the total number of children of official graduation age in the population.
1Prepared by the staff of the World Bank. Contact person: Ms. Genevieve Boyreau, Senior Economist, Poverty Reduction and Economic Management Department, East Asia and Pacific Region, email: gboyreau@worldbank.org.
2Prepared by the Asian Development Bank.

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