November 30, 2006
Lao PDR
November 30, 2006
Ownership
1. Partners have operational national development strategies
a. Coherent long-term vision with medium-term strategy derived from vision
1. 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.
2. The Government has taken action to create effective links between its long-term 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 2010.
3. 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.
4. 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
5. 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.
6. 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
7. 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.
8. 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.
9. 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 implementation
10. 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 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.
11. 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.
12. 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.
13. 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.
14. 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.
Alignment
2. Reliable country systems
15. 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 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).
16. 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.
17. 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 basis.
3. Aid flows are aligned on national priorities
a. Government leadership of coordination
18. 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 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.
19. 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
20. 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
21. 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-to-day 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 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.