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Lao People’s Democratic Republic: Staff Report for the 2011 Article IV Consultation—Informational Annex

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

(As of May 31, 2011)

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
Holdings50.6299.88

IV. Outstanding Purchases and Loans:

SDR millionPercent Quota
ECF Arrangements4.538.56

V. Latest Financial Arrangements:

AmountAmount
ApprovalExpirationApprovedDrawn
TypeDateDate(SDR million)(SDR million)
ECF 1/4/25/014/24/0531.7018.12
ECF 1/6/04/935/07/9735.1935.19
SAF9/18/899/17/9220.5120.51

Formerly PRGF.

Formerly PRGF.

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

Forthcoming
20112012201320142015
Principal1.362.270.91
Charges/interest0.000.010.000.000.00
Total1.362.270.910.000.00

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

Not applicable.

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI)

Not applicable.

IX. Implementation of Post-Catastrophe Debt Relief (PCDR)

Not applicable.

X. 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.

XI. Exchange Arrangement

According to AREAER, the de jure regime is a float, and the de facto regime stabilized. 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 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. 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).

XII. Last Article IV Consultation Discussions

The last Article IV consultation discussions were held in Vientiane during June 2–15, 2010. The staff report (Country Report No. 11/44) was completed on July 14, 2010 and was published on February 7, 2011.

XIII. Technical Assistance During the Past 18 Months

FAD: Peripatetic expert in customs administration, January 2011 and July to August 2010

FAD: Customs Administration Mission, March 28 to April 6, 2011

FAD: Reforms in Tax Administration, March 28 to April 6, 2011

XIV. 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.: World Bank-IMF Collaboration

The Bank and the IMF country teams for Lao P.D.R. met on March 23 and May 19, 2011, to identify macrocritical structural reforms and to coordinate the two teams’ work for FY12. The teams were led by Ms. Keiko Miwa (Country Manager, EASPR) and Mr. Gerard Almekinders (IMF Mission Chief for Lao P.D.R.).

The teams agreed that Lao P.D.R.’s main macroeconomic challenges are to maintain macroeconomic and financial stability, and ensure that the country’s natural resource wealth is developed in a sustainable way that benefits the entire population. Prudent fiscal policies and a strengthening of the monetary policy framework, both aimed at addressing potential pressures on the external position and ensure inflation remains contained, are key. Vigilance in financial sector supervision will also be needed to meet these challenges. Ongoing reforms to the public financial management will need to be strengthened further—on both the tax and spending side—to ensure that Lao P.D.R.’s resource wealth not only sustains the pace of economic development, but ensures that this economic development results in a generalized improvement in living standards and reduction in poverty.

Lao P.D.R.: Bank and Fund Planned Activities in Macrocritical Structural Reform Areas, June 2011-May 2012
TitleProductsProvisional Timing of MissionsExpected Delivery Date
1. Bank Work ProgramCountry Partnership Strategy 2011–15Preparatory work is ongoingBoard discussion expected in October 2011
New series of Poverty Reduction Support OperationsPreparatory work and missions throughout fiscal year 2011–12 (identification mission tentatively scheduled in September 2011)Board discussion expected in July 2012
Customs and Trade Facilitation Project (CTFP)OngoingImplementation throughout fiscal year 2011–12
Analytical work, technical assistance, and possibly lending operations in the area of social services and social safety net (including education, health, and pensions systems)OngoingImplementation throughout fiscal year 2012
2. Fund Work ProgramStaff visit/assessment letter for WBFebruary 2012February 2012.
Article IV ConsultationMay 2012Board discussion in July 2012
TA on customs revenue administration and modernizationFY2012, peripatetic expert visit and/or an FAD missionBTO/TA report in FY12
3. Joint Work ProgramExternal Debt Sustainability AnalysisMay 2011 May 2012June 2011 June 2012
Joint Staff Advisory NoteAugust-September 2011October 2011

Annex III. Lao P.D.R.: Relations with the Asian Development Bank1

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, 6th five-year plan)), and seeks to promote pro-poor sustainable growth, social inclusiveness, and improved governance. The country assistance program evaluation, 2000–09, concluded that the AsDB’s assistance was successful, relevant, and effective. The AsDB is currently preparing its next country partnership strategy (CPS) for the period 2012-16. The CPS will be designed to support the implementation of the 7th five-year plan.

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 foreign direct investment, and create regional public goods. The next CPS is likely to focus on infrastructure, education, public sector financial management, agriculture and natural resources, and urban development.

The performance-based allocation of the Asian Development Fund (ADF), based on the country performance assessment finalized in 2010 provided Lao P.D.R. with an ADF allocation in the amount of US$152 million for the biennial period 2011–12. This represents a significant increase from US$115 million in grants for 2009–10. Also starting in 2011, the AsDB provides a loan (56 percent) and grant (44 percent) mix for the next two years (2011–12).

As of end-2010, cumulative grants approved stood at US$339 million, out of which a cumulative amount of US$111 million was awarded for contracts. During 2010, US$35 million of grants were disbursed and US$41 million of contracts were awarded. Eleven new technical assistance (TA) projects for a total of US$10 million were approved in 2010, including project preparation TA projects related to transport and rural access, capacity building TA related to social and environmental needs, and policy and advisory TA related to private sector development.

Lao P.D.R.: Asian Development Bank Commitments and Disbursements, 2001–11 1/(In millions of U.S. dollars)
2001200220032004200520062007200820092010/11 2/
Commitments65.043.234.954.887.060.747.446.658.170.7 / 5.0
Disbursements44.748.654.748.578.776.874.856.966.776.6 / 11.7
Source: Data provided by the Asian Development Bank.

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

The commitments and disbursements in 2011 are as of April 2011.

Source: Data provided by the Asian Development Bank.

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

The commitments and disbursements in 2011 are as of April 2011.

Annex IV. Lao P.D.R.: Statistical Issues

As of June 7, 2011

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 base year 2002 prices, broadly following the System of National Accounts (SNA) 1993. 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. Lao P.D.R. participates in the “Statistics (STA) Project to Implement the SNA and ICP,” funded by the government of Japan, and has requested technical assistance (TA) to improve annual national accounts and develop quarterly national accounts.

Price statistics: Lao P.D.R. compiles a monthly CPI (December 2010=100) using weights based on the 2007/08 Lao Expenditure and Consumption Survey. To date no PPI has been developed. Technical assistance on improving the CPI and developing a PPI has been requested by the authorities through their participation in the “STA Project to Implement the SNA and ICP.”
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. STA plans to propose a mission to introduce the SRFs during this financial year.
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 are related to many concerned parties, and there is no completed data that can be provided yet.” STA plans to propose a TA mission during this financial year.
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 (IFS) 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 reporting of monetary data is very irregular and with long delays. The authorities recently submitted data for 2009 and 2010.

Quarterly balance of payments data are reported once a year in a highly aggregated format. The last published data in the IFS and Balance of Payments Statistics Yearbook correspond to 2009.
Lao P.D.R.: Table of Common Indicators Required for Surveillance(As of June 7, 2011)
Date of

Latest

Observation
Date

Received
Frequency

of

Data1
Frequency

of

Reporting1
Frequency

of

Publication1
Exchange Rates05/18/1105/18/11DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities2Feb 201105/11/11MIQ
Reserve/Base MoneyFeb 201105/11/11MIQ
Broad MoneyFeb 201105/11/11MIQ
Central Bank Balance SheetFeb 201105/11/11MIQ
Consolidated Balance Sheet of the Banking SystemFeb 201105/11/11MIQ
Interest Rates3Dec 20105/18/11MMQ
Consumer Price IndexMar 201104/28/11MMM
Revenue, Expenditure, Balance and Composition of Financing4—General Government5Q2 FY1105/06/11III
Revenue, Expenditure, Balance and Composition of Financing4—Central Gvernment5Q2 FY1105/06/11QIM
Stocks of Central Government and Central Government-Guaranteed Debt 6NANANA
External Current Account BalanceQ1 201105/16/11QII
Exports and Imports of Goods and ServicesQ1 201105/16/11QII
GDP/GNP2009/1005/16/11AAA
Gross External DebtDec 200905/13/11MMI
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.

1Prepared with support from the Asian Development Bank.

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