The World Bank In Lao PDR

The Lao PDR made rapid development progress in the first decade of the 2000s, halving poverty, reducing malnutrition, and improving access to education and health. However, economic growth has steadily slowed since 2013. Given the economic effects of the COVID-19 pandemic, and rising global prices, there is a danger that previous gains could be reversed.

The growth of the past two decades was predominantly driven by large-scale investments in capital intensive sectors, particularly in mining and hydropower. However, these investments have failed to support job creation, and some have entailed considerable environmental costs. Moreover, public investment in the power sector has been mostly financed by external debt, often on commercial terms, gradually jeopardizing macroeconomic stability.

The economic slowdown has been exacerbated by the effects of the COVID-19 pandemic, which has highlighted how vulnerable Laos is to external shocks. Measures to contain the virus resulted in job and livelihood losses and loss of foreign exchange earnings. Economic activity virtually stagnated in 2020, with GDP growing by only 0.5%. The second wave of the pandemic in 2021 dented hopes of a strong rebound, with a growth rate of just 2.5% estimated for 2021. The cumulative effects of these setbacks mean the country faces macroeconomic instability and heightened financial risks. Three negative trends are evident in state expenditure: as public debt service obligations rise and revenues decrease, spending on crucial social services such as education, health care, and social protection is down.

The Lao government moved quickly to avert the most pressing dangers of COVID-19 when the virus first appeared, and has also adapted to the changing economic situation. In 2021 the new prime minister announced seven priorities, vowing to tackle public debt and revenue leakages, boost exports, counter corruption, and create more job opportunities. The government has also pledged to foster quality growth and reduce reliance on the natural resource sector, to increase access to basic public services, especially health and education, and to place more emphasis on human resource development.

Structural reforms are needed to support a more inclusive growth pattern. A child born in Laos today will only be half as productive as she could be if she enjoyed full health and education. Malnutrition continues to be a critical issue affecting people’s physical and cognitive development, with stunting affecting over 30% of children under five. The maternal mortality rate is also high, at 185 per 100,000 births (2017). While a Lao child goes to school for 10.8 years on average, she only receives the equivalent of 6.4 years of learning. The effects of COVID-19 have made the situation worse. At the national nutrition forum in February, the deputy prime minister said malnutrition had increased during the pandemic. Moreover, at least 70% of Lao children have been unable to access online classes during the pandemic.

Last Updated: Apr 06, 2022

The World Bank Group works with the Lao government to reduce extreme poverty and boost shared prosperity, supporting the Ninth National Socio-Economic Development Plan 2021-25, to which the Bank and other development partners contributed.

As the Country Partnership Framework (CPF) 2017-2021 between Laos and the World Bank Group draws to an end, consultations have been held to establish agreement on the most promising options that could develop a resilient economy that brings about poverty reduction and shared prosperity. The Systematic Country Diagnostic is being updated and a Country Economic Memorandum prepared to help shape the next CPF. These two reports will be available in April 2022.

The World Bank has an ongoing portfolio of 25 projects in Laos, with a funding value of $706 million. These include 20 projects financed by the International Development Association (IDA), the World Bank’s fund for the most in-need countries. The largest sectors by total financing are natural resources and the blue economy (21%), transport (nearly 13%), education (11%), and health, nutrition, and population (11%).

The International Finance Corporation (IFC) is also active as one of the five institutions that make up the World Bank Group, and the largest global development institution focused exclusively on the private sector in developing countries. Since 2000, IFC has invested and mobilized more than $98 million in Laos mainly in the power, banking, manufacturing, and services sectors. IFC is currently implementing five advisory projects valued at $12.2 million to improve the business environment, expand access to finance for SMEs, boost sustainable economic growth, and create more jobs.

Last Updated: Apr 06, 2022

The Poverty Reduction Fund (PRF) is a large multi-sector local development project that the World Bank has supported through three phases of IDA financing worth over $123 million. The PRF has improved access to basic services for 1.2 million rural people through more than 5,000 community infrastructure projects in the poorest districts of the country. In target villages, access to an improved water source increased by nearly 60%, and travel time to the nearest village was reduced. Under the latest World Bank support, the PRF has scaled up production and consumption of nutritious foods in four northern provinces (Oudomxay, Phongsaly, Houaphan and Xieng Khouang) where the incidence of child stunting is high. A recent impact evaluation of the PRF’s Road Maintenance Groups found these groups have significantly increased women’s engagement in paid work. a particularly relevant finding as options are examined for economic recovery after the COVID-19 pandemic.

The Lao PDR COVID-19 Response Project, approved in April 2020 and expanded in mid-2021, has a total project value of $33 million. The project helped Laos upgrade its target of vaccinating 50% of the population by the end of 2021 to a revised goal of 70%. By March 2022, over 5.9 million people – 70% of the population –  had received a first dose of vaccine, while 60% had received two doses and 13% three doses. In addition, almost 80% of children aged 12 and over had been vaccinated. The project delivers emergency medical equipment and supplies, enhancing the technical capacity of health professionals at the frontline, and building isolation facilities, intensive care units and laboratories. The Bank has also been conducting a series of COVID-19 Rapid Monitoring Phone Surveys across Laos since mid-2020, gathering and analyzing data on the social and economic impacts of the pandemic.

To address the urgent issue of nutrition, the World Bank finances a series of projects under the title “Nutrition Convergence,” taking a holistic approach towards the reduction of stunting among Lao children. In four northern provinces, projects support government efforts to improve water supply and sanitation, health and nutrition, social protection, education, and agriculture. The first phase (2019-24) targets households in the twelve poorest districts. In the first quarter of 2021, pregnant women in these districts started receiving cash transfers to supplement their children’s health and nutritional status.

At the same time, the Health and Nutrition Services Access Project, approved in March 2020, is working to strengthen the Lao health system and improve the quality and coverage of health and nutrition services by providing funds to health centers and departments using results-based instruments. It will help tackle childhood stunting by increasing access to and use of nutrition interventions.

The nationwide Global Partnership for Education (GPE) III Project supports learning activities in pre-primary and primary classrooms, allowing more children to enter school ready to learn, thanks to community child development groups, a reading readiness program, and screening to help provide extra resources to children with disabilities. The initiative incorporates features designed to make up for learning time lost due to the COVID-19 pandemic.

Since 2018, the Competitiveness and Trade Project has been supporting government efforts to simplify business regulations, facilitate trade, and improve the competitiveness of private firms. This is central to Laos’ economic development as a landlocked country reliant on trade and tourism. The project’s Business Assistance Facility helps private enterprises access business development services to improve management and innovation capacity, and has made particular efforts to ensure women entrepreneurs have good access to the benefits it provides. In June 2021, the project received additional financing of $6.5 million to improve the resilience of firms directly affected by the COVID-19 pandemic.

Supporting the government’s green growth strategy, the Scaling-Up Participatory Sustainable Forest Management Project is helping build a solid foundation for the strategically important forest sector in Laos. The project has worked with over 100,000 people, largely from ethnic minorities, in over 650 forest villages. Livelihood support and casual employment in forest restoration have reduced the deforestation rate and saved an estimated 1.8 million tonnes of carbon dioxide-equivalent emissions. Work on management plans for state production forests and third-party certification of wood products has helped to modernize the sector and to create the new Forestry Law of 2019. Complementing this effort, the Second Lao Environment and Social Project strengthens environmental management capacity by publicly disclosing air pollution data and environmental and social impact assessments, and by improving the management of 11 protected areas. The project promotes conservation-friendly livelihoods in 189 villages and is strengthening the capacity to curb the illegal wildlife trade, a critical factor in preventing future pandemics like COVID-19 arising from zoonoses.

These initiatives are now backed up by the Lao Landscapes and Livelihoods Project, which takes a comprehensive landscape approach to managing the forest estate. The initiative supports the creation of local green jobs in environmentally and socially sustainable timber plantations, while restoring degraded production forest areas. The promotion of nature-based tourism through a matching grant scheme for local tourism companies, helps ensure the financial sustainability of the growing protected area system, employing local and ethnic communities in conservation-oriented activities.

To tackle climate change, the Bank has helped the Lao government sign up to an Emission Reductions Purchase Agreement, through which the state can receive up to $42 million in results-based payments for cutting greenhouse gas emissions caused by deforestation and forest degradation. The scheme is being piloted in the six northern provinces through an active coalition of development partners and donors under the World Bank’s environmental and social framework.

Last Updated: Apr 06, 2022