Overview

Last updated: April 2017

Lao PDR, a lower-middle income economy with a GNI per capita of $1,740 in 2015, is one of the fastest growing economies in the East Asia and Pacific region and the 13th fastest growing economy globally. GDP growth averaged 8 percent over the last decade. Use of the country’s natural resources – mostly water, minerals and forests – contributed one third to growth. Construction and services also expanded, with growing regional integration boosting tourism and attracting foreign investment. The macroeconomic environment remains challenging, reflecting both domestic, and increasingly external risks, and needs careful management. Growth contributed to lowering the number of poor people to an estimated 23.2 percent of the population in 2012/13 from 33.5 percent a decade ago. However, poverty has been declining slowly compared with some regional peers.

The Lao economy is projected to expand at around 7 percent in 2017-19 supported by a healthy pipeline of power projects and growing opportunities for the non-resource sector resulting from closer ASEAN integration. In addition, some recovery in commodity prices can support mining and agriculture output, while improved connectivity facilitates tourism growth. However, the country continues to face a challenging macroeconomic situation. The fiscal deficit widened significantly in 2016 and brought public debt to close to 70 percent of GDP. The current account deficit narrowed in 2016, but is projected to widen as a few large infrastructure projects are launched, while foreign reserve buffers are low. Parts of the banking sector have weak capital buffers and deteriorating portfolios. Maintaining macroeconomic stability will require concerted efforts to reduce the fiscal deficit, strengthen public debt management and address weaknesses in the financial sector.

As a member of the Association of Southeast Asian Nations (ASEAN), Lao PDR is increasing its integration into the regional and global economy, and served as the chair of ASEAN in 2016. Lao PDR has been a member of the World Trade Organization since February 2013.

Lao PDR has made good progress on a number of Millennium Development Goals (MDGs), including halving poverty, reducing hunger, and improving education and health outcomes. However, certain MDGs remain off track, most crucially on nutrition, with an estimated 44 percent of under-five children being stunted. Total fertility rates are high, with a high unmet demand for family planning. Lao PDR still has a high maternal mortality rate and limited skilled birth attendants and could also do more to place gender equality at the center of its national development plans. The Sustainable Development Goals (SDGs) provide a framework for the Government to monitor and evaluate the progress in its development plan implementation and commitments. Lao PDR is one of the first countries in the world to localize the SDGs into the national development plan. 

Last updated: April 2017

The World Bank Group (WBG) continues to work with the Government of Lao PDR to eliminate extreme poverty and boost shared prosperity, supporting the Government’s 8th National Socio-Economic Development Plan 2016-2020. The World Bank Group’s Country Partnership Framework (CPF) 2017-2021 will be discussed by the WBG Board at the end of April 2017.

To develop the new CPF, WBG carried out public engagement meetings with a wide range of stakeholders on Lao PDR’s Systematic Country Diagnostic (SCD). The engagement included eight face-to-face meetings in four locations with around 350 stakeholders, including government officials in the capital and provincial authorities, private sector, civil society representatives and development partners. An online survey was also undertaken. Upon completion of the SCD, the World Bank Group worked with Lao PDR to develop the new CPF. 

Focus areas of the new CPF include:

Supporting Inclusive Growth: Putting public finances on a sustainable path and supporting financial sector stability, making it easier to do business, and investing in infrastructure for growth and inclusion.

Investing in People: Reducing the prevalence of malnutrition, improving quality of primary and pre-primary education and keeping girls in school, improving access to and quality of health services, reducing vulnerability and inclusive access to social services.

Protecting the Environment: Promoting environmental protection and sustainable natural resources management, putting in place enhanced disaster risk management and climate and disaster resilience.

Cross-cutting theme: Enhancing governance and creating a rules-based environment.

For each target of the Country Partnership Framework, the World Bank will provide customized development solutions combining knowledge and advisory services, convening capability, and financial services.  The World Bank expects to provide $240-270 million over the next three years for new programs in Lao PDR, on top of an ongoing portfolio of about $400 million. The International Finance Corporation—a part of the World Bank Group which provides finance to the private sector—is also active, with about $48 million currently in investments and advisory services.  The largest sectors are environment and natural resources (23%), energy and mining (19%), transport (18%), education and health (18%).

Last updated: April 2017

The Poverty Reduction Fund (PRF) is the largest multi-sector community-driven development project in the country. The PRF II project, with total funding of about $65 million including $37.6 million from IDA and $10 million from the Government of Lao PDR, has benefited more than 650,000 rural poor in about 1,400 villages. In PRF II target villages, access to protected water increased by nearly 60 percentage points, and travel time to the nearest village was reduced on average by 114 minutes in the dry season and about 70 minutes in the wet season. More than 90 percent of subprojects implemented 4 – 6 years ago are still in good or fair condition, and PRF investments are overall equally or more cost effective compared to similar investments financed under other sources. The third phase, PRF III, was approved in May 2016 and will continue to improve access to vital infrastructure including schools, health clinics, roads and drinking water systems in about 250 poor kumbans (village clusters) in 10 provinces, with funding from IDA of US$30 million and US$6 million from the Government of Lao PDR.

The Health Services Improvement Project (HSIP) closed in December 2015 and assisted the Government to increase utilization and quality of health services for poor women and children, particularly in the rural areas of five provinces—Attapeu, Champasack, Salavan, Savanakhet, and Sekong. Its preliminary results showed that 780,000 poor people were provided with access to a basic package of health, nutrition, or reproductive health service. Nearly 900,000 poor patients benefited through health equity funds, 424 health facilities were constructed and renovated, and more than 3,350 health personnel received training. 

Building on this is the Health Governance and Nutrition Development Project, which started in October 2015 and aims to improve the coverage of reproductive health, maternal health, child health and nutrition services for women and children in Lao PDR. Over five years, the project is expected to benefit approximately one million women and children across 14 provinces. The project uses an innovative approach of linking disbursement of funds to improve performance in the delivery of basic health services. In addition, children in high priority nutrition districts will benefit from improved counselling and follow up of their growth as well as changed behaviors and practices of their caregivers through a social and behavior change communication program. The project further includes support for strengthening information systems and technical assistance in improving the performance of health financing and health protection programs, with a view to progress toward Universal Health Coverage in Lao PDR.

The Second Education Development project focused on helping Lao PDR work towards universal primary education, and contributed to improving both enrollment and primary completion rates. The project focused specifically on poor and remote areas that were not supported by other development projects. The school construction model used under this initiative led to schools being substantially cheaper, even though they were located in remote areas. 2462 classrooms were built or rehabilitated at the primary level, serving 781 primary schools. Most of the schools have operated for 8-10 years without any major maintenance or renovation.

The NT2 Hydropower Social and Environmental Project is helping to finance health care and education in Lao PDR through the sale of electricity to Thailand and to the Lao grid. Government revenues generated by the NT2 project are used to finance priority poverty reduction, environmental management, and natural resource conservation projects in Lao PDR. Since the start of commercial operations in 2010, NT2 has consistently met or exceeded energy production targets.  NT2 is jointly implemented by the Nam Theun 2 Power Company and the Government of Lao PDR and is supported by financing from 27 parties, including the World Bank Group.

The Customs and Trade Facilitation Project is helping to make border clearances faster and more efficient. A computerized customs clearance system, which now operates in 21 official customs checkpoints, takes payments electronically and provides this information in real-time to the Government’s financial management system. The automated customs system—ASYCUDA World—covers 99% of formal trade at these checkpoints and has improved customs valuation, introductory risk management and trade statistics reporting. Customs clearance procedures have also been streamlined and modernized as part of the project.

The Second Trade Development Facility Project (TDF-2) assists the Lao PDR to implement trade and competitiveness priorities after its formal World Trade Organization accession in February 2013. It builds on the achievements of TDF-1, which established a permanent National Trade Facilitation Secretariat and launched an electronic Trade Portal making all trade-related information publicly available. Under TDF-2, all non-tariff measures affecting trade have been catalogued and published online, and assessments of regulations affecting trade in services and investment, as well as sector specific regulations for telecommunications, insurance and professional services, have been completed. A matching grant “Business Assistance Facility” is supporting individual firms in building their skills and experience, so as to become more competitive internationally.

The Scaling-Up Participatory Sustainable Forest Management project has been working to build a solid foundation of sustainable forestry in Lao PDR, and has contributed to 2,242,257 hectares of forest area currently brought under management plans, as well as supports to legislation and regulation reforms.  Complementing this effort, the Second Lao Environment and Social project is helping to strengthen environmental protection management systems, specifically for protected areas conservation, enforcement of wildlife laws, and environmental assessment management. This has led to 67 forest law enforcement patrols that have discovered wildlife crimes. 


LENDING

Lao PDR: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments

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