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Lao People’s Democratic Republic: Staff Report for the 2012 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund. Asia and Pacific Dept
Published Date:
October 2012
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Annex I. Fund Relations

(As of July 31, 2012)

A. Membership Status

Joined: July 05, 1961; Article XIV

B. General Resources Account

SDR MillionPercent of Quota
Quota52.90100.00
Fund holdings of currency52.90100.00
Reserve position in Fund0.000.00

C. SDR Department

SDR MillionPercent Allocation
Net cumulative allocation50.68100.00
Holdings51.07100.78

D. Outstanding Purchases and Loans

SDR MillionPercent of Quota
ECF arrangements1.813.43

E. Latest Financial Arrangements

In millions of SDRs (mm/dd/yyyy)

Date ofExpirationAmountAmount
TypeArrangementDateApprovedDrawn
ECF104/25/200104/24/200531.7018.12
ECF106/04/199305/07/199735.1935.19
SAF09/18/198909/17/199220.5120.51

F. Projected Payments to Fund

In millions of SDRs (based on existing use of resources and present holdings of SDRs)

Forthcoming
20122013201420152016
Principal0.910.91
Charges/interest0.000.000.000.00
Total0.910.910.000.000.00

G. Exchange Arrangement

The exchange rate arrangement is classified as “stabilized.” The de jure arrangement is floating. 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 Bank of the Lao P.D.R. (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).

H. Article IV Consultations

The last Article IV consultation discussions were held in Vientiane during May 11–24, 2011 and were concluded by the Executive Board on July 8, 2011. The staff report (Country Report No. 11/257) was published on August 2011.

I. Technical Assistance

Over the past three years, Lao P.D.R. has received technical assistance in the areas of customs and tax revenue administration; price statistics; and the national accounts. A new IMF office that will facilitate technical assistance to Lao P.D.R. as well as Myanmar was announced in July 2012. The office will be based at the Bank of Thailand.

J. Resident Representative

Mr. Sanjay Kalra assumed the Senior Resident Representative post for Vietnam and Lao P.D.R., based in Hanoi, on October 16, 2011.

Annex II. IMF-World Bank Collaboration

The Bank and the IMF country teams for Lao P.D.R. met on July 3, 2012 to identify macro-critical structural reforms and to coordinate the two teams” work for FY13. The teams were led by Ms. Keiko Miwa (Country Manager, EASPR, World Bank), Mr. Sudhir Shetty (Director, EASPR, World Bank) and Mr. Dennis Botman (IMF Mission Chief for Lao P.D.R.).

The teams agreed that Lao P.D.R. had made impressive progress and that the key challenge going forward is to maintain macroeconomic and financial stability, achieve more diversified growth, and ensure that the country’s natural resource wealth is developed in a sustainable way that benefits the entire population.

Prudent fiscal and monetary policies and a strengthening of policy frameworks, including financial sector supervision and regulation, are essential to preserve banking sector soundness and replenish international reserves. Reforms to public financial management will need to be strengthened further—on both the tax and spending side—along with improvements in the enabling environment for private sector development to help ensure that Lao P.D.R.’s resource wealth is not the only source of economic progress and that economic development results in a generalized improvement in living standards and reduction in poverty.

Lao P.D.R.: Bank and Fund Planned Activities in Macro-Critical Structural Reform Areas, June 2012–May 2013
TitleProductsProvisional Timing of MissionsExpected Delivery Date
1. World Bank ProgramNew series of Poverty Reduction Support Operations (PRSOs)Preparatory work and missions throughout fiscal year 2012–13 (identification mission tentatively scheduled in September 2011)Board discussion expected in August 2012 and July 2013
Customs and Trade Facilitation Project (CTFP) and Trade Development Facility (TDF)OngoingImplementation throughout fiscal year TDF2 expected in December 2012
New IDA and Multi-Donor Trust-Fund Project supporting the Government Public Financial Management Strengthening Program (PFMSP)OngoingNew IDA approval expected in February 2013
Hydro-Mining Technical Assistance ProjectOngoingImplementation throughout fiscal year 2013
Lao Statistical Capacity Building Project (LAOSTAT)OngoingApproval expected in November 2012
Analytical work: macroeconomic monitoring (Lao economic monitors), investment climate, human resource development and skills reportsOngoingReports available by May 2013
2. IMF Work ProgramPeriodic staff visits by IMF resident representative based in HanoiJuly 2012July 2013.
Article IV ConsultationJuly 2012Board discussion including on the JSAN August 2012
Article IV ConsultationJuly 2013Board discussion on a Lapse of Time Basis
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 AnalysisJuly 2012

July 2013
July 2012

July 2013

Annex III. Relations with the Asian Development BANK

The Asian Development Bank’s (AsDB) current Country Partnership Strategy (CPS) 2012–2016 is aligned with the government’s development strategy (National Socio-Economic Development Plan (NSEDP, 7th Five-Year Plan)), and seeks to promote inclusive and sustainable economic growth and poverty reduction. The country assistance program evaluation, 2000–09, concluded that the AsDB’s assistance was successful, relevant, and effective. The CPS is designed to help the government diversify the economy in a sustainable and inclusive manner through agriculture and natural resources, education, energy, urban development, and public sector management. The CPS aims to maximize efficiency and sustainability through larger operations implemented over a longer period; maximize synergies with Greater Mekong Subregion program; and increase responsiveness to emerging issues in a rapidly changing economy. It highlights four thematic areas that will influence the design and focus of activities, including private sector development, governance, gender equity, and regional cooperation and integration. The CPS focuses on four core sectors: education, agriculture and natural resources, water supply and other municipal infrastructure and services, and energy. Strengthening public sector management is a crosscutting issue, key to efficient and effective development in Lao P.D.R. The performance-based allocation of the Asian Development Fund (ADF), based on the country performance assessment (CPA) 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. The CPA for the next allocation period (2013–2014) will be finalized by the end of 2012.

As of end-2011, cumulative loans/grants approved stood at US$631.48 million, out of which a cumulative amount of US$266.66 million was awarded for contracts. During 2011, US$73.2 million of grants were disbursed and US$53.2 million of contracts were awarded. Seven new technical assistance (TA) projects for a total of US$7.6 million were approved in 2011, including project preparation; TA projects related to transport and renewable energy; and capacity building TA to improve management and operational effectiveness.

Lao P.D.R.: Asian Development Bank Commitments and Disbursements, 2001–11 1/(In millions of U.S. dollars)
20012002200320042005200620072008200920102011
Commitments65.043.234.954.887.060.747.446.681.255.353.20
Disbursements44.748.654.748.578.776.874.856.975.961.573.23
Source: Data provided by the Asian Development Bank.

Annex IV. Statistical Issues

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 (BOP) 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 continue to undermine the coverage and reliability of the GDP estimates. Lao P.D.R. participates in the IMF’s Statistics Department (STA) project to implement the SNA and International Comparison Project (ICP), funded by the government of Japan, and has received technical assistance (TA) to improve annual national accounts and develop quarterly national accounts (QNA). Following the TA mission of December 12–21, 2011 under this project, the authorities launched the updating of the base year of their national accounts from 2002 to 2007 and this is planned for release in late 2012. It is expected that the QNA and parts of the 2008 SNA will be released in October 2014.

Prices 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. A TA mission was held on June 4–15, 2012 to improve the CPI and begin developing a PPI. The authorities have begun to develop a new PPI for LAO. It is expected that the new PPI will be released in July 2013. The mission was funded through the authorities’ 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 statistics, the classification of data by institutional sector and by financial instrument as well as valuation principles need to be strengthened. The Standardized Report Forms (SRFs), which embody the IMF-recommended framework for compiling monetary statistics need to be introduced. Financial soundness indicators should also be compiled and published. An STA mission to introduce the SRFs has been proposed, however, the authorities have not taken this up yet.

External sector statistics: The last TA mission was conducted in 2002. Lao P.D.R would be one of the beneficiaries of the recently approved Japan Administered Account (JSA) Project on the improvement of external sector statistics in the Asia and Pacific region. A TA mission on balance of payments statistics may take place in FY 2013.

Data Standards and Quality

Lao P.D.R. is not a General Data Dissemination System participant. No data ROSC is available.

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. Lao PDR reports quarterly and annual summary budget data in the GFSM 2001 format for publication in IFSand the GFSYearbook, with a time lag of six months or more, and on an irregular basis.

The reporting of monetary data is very irregular and also with long delays. Quarterly BOP data are reported once a year in a highly aggregated format. The last published data in the IFS and the Balance of Payments Statistics Yearbook correspond to 2010.

Table of Common Indicators Required for SurveillanceAs of July 13, 2012
Date of

Latest

Observation
Date

Received
Frequency

of

Data1
Frequency

of

Reporting1
Frequency

of

Publication1
Exchange Rates06/29/1206/29/12DDD
International Reserve Assets and Reserve Liabilities of theApr 201207/06/12MIQ
Monetary Authorities2
Reserve/Base MoneyApr 201207/06/12MIQ
Broad MoneyApr 201207/06/12MIQ
Central Bank Balance SheetApr 201207/06/12MIQ
Consolidated Balance Sheet of the Banking SystemApr 201207/06/12MIQ
Interest Rates3Q4 201106/29/12MMQ
Consumer Price IndexJun 201207/12/12MMM
Revenue, Expenditure, Balance and Composition ofQ2 FY1206/14/12III
Financing4-General Government5
Revenue, Expenditure, Balance and Composition ofQ2 FY1206/14/12QIM
Financing4—Central Government
Stocks of Central Government and Central Government-Guaranteed Debt6NANANA
External Current Account BalanceQ4 201107/12/12QII
Exports and Imports of Goods and ServicesQ4 201107/12/12QII
GDP/GNP2010/1106/29/12AAA
Gross External DebtDec 201106/29/12MMI
International Investment Position7NANANA

Extended Credit Facility (ECF), formerly PRGF.

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