Front Matter Page
© 2003 International Monetary Fund
October 2003
IMF Country Report No. 03/308
Lao People’s Democratic Republic: Third Review Under the Poverty Reduction and Growth Facility, and Requests for Waiver of Performance Criterion and Extension of the Arrangement—Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Lao People’s Democratic Republic
In the context of the third review under the Poverty Reduction and Growth Facility, and requests for waiver of performance criterion and extension of the Arrangement, the following documents have been released and are included in this package:
the staff report for the third review under the Poverty Reduction and Growth Facility, and requests for waiver of performance criterion and extension of the Arrangement, prepared by a staff team of the IMF, following discussions that ended on August 6, 2003, with the officials of the Lao People’s Democratic Republic on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on August 28, 2003. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a Press Release summarizing the views of the Executive Board as expressed during its September 12, 2003 discussion of the staff report that completed the requests and review.
a statement by the Executive Director for the Lao People’s Democratic Republic.
The document (s) listed below have been or will be separately released.
Poverty Reduction Strategy Paper Preparation Status Report
Joint Staff Assessment of the Poverty Reduction Strategy Paper
Preparation Status Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
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Front Matter Page
INTERNATIONAL MONETARY FUND
LAO PEOPLE’S DEMOCRATIC REPUBLIC
Third Review under the Poverty Reduction and Growth Facility, and Requests for Waiver of Performance Criterion and Extension of the Arrangement
Prepared by the Asia and Pacific Department (In consultation with the Finance, Fiscal Affairs, Legal, Monetary and Financial Systems, Policy Development and Review, and Statistics Departments)
Approved by Masahiko Takeda and Mark Allen
August 28, 2003
Discussions for the third review under the Poverty Reduction and Growth Facility (PRGF) were held in Vientiane during October 23-November 6, 2002, February 25–March 5, 2003, and July 28–August 6, 2003.
The staff team comprised, at various times, Messrs. Winglee (head), Hussain, Botman, and Nozaki (all APD), Mr. Kock (PDR), and Ms. Majaha-Jartby (MFD). Ms. Indrawati and Duriyaprapan (OED) joined some of the policy discussions. The team was assisted by Mr. Sidgwick (resident representative) and coordinated closely with various AsDB and World Bank missions.
The mission met with Deputy Prime Minister and President of the Committee for Planning and Cooperation (CPC) HE. Thongloun Sisoulith, Minister of Finance Chansy Phosikham, Bank of the Lao P.D.R. Governor Phoumi Thipphavone, CPC Vice President Mme. Khempheng Pholsena, and other senior officials.
The government has agreed to publish the Letter of Intent and attachments.
A three-year PRGF arrangement in the amount of SDR 31.7 million (60 percent of quota) was approved by the Executive Board on April 25, 2001.
The first review was completed on February 25, 2002 (EBS/02/23); the second review and the 2002 Article IV consultation were completed on August 26, 2002 (EBS/02/223).
The main authors of this report were Messrs. Peter Winglee and Qaizar Hussain.
Contents
Executive Summary
I. Introduction
II. Recent Developments and Program Performance
Recent developments
Performance under the program
III. Program for 2003/04
Fiscal policy
Monetary and exchange rate policies
External debt management policies
Banking reform
State-owned enterprise reform
PRSP and links to broader reforms
IV. Staff Appraisal
Text Boxes
1. Summary of Performance under the Program for the Third Review
2. Structural Measures Supported by International Financial Institutions
3. Structural Conditionality
Figure
1. Selected Economic Indicators, 1998–2003
Tables
1. Phasing of Disbursements under the PRGF Arrangement
2. Fund Position and Indicators of Fund Credit, 2002–12
3. Selected Economic and Financial Indicators, 2000–2004
4. General Government Operations, 2000/01–2003/04
5. General Government Operations, 2000/01–2003/04
6. The Bank of the Lao P.D.R., 2002–2004
7. Monetary Survey, 2002–2004
8. Summary Macroeconomic Framework, 2000–2006
9. Balance of Payments, 1999–2006
10. Debt and Debt Service, 1999–2006
11. External Financing Needs and Sources, 1999–2006
Annexes
I. Fund Relations
II. World Bank-Fund Relations
III. Relations with the Asian Development Bank
IV. Statistical Issues
V. Social and Demographic Indicators
Attachments
I. Letter of Intent
II. Memorandum of Economic and Financial Policies
Appendices
I. Action Plan for Improving Public Expenditure Management
II. Technical Memorandum on Program Monitoring
Glossary of Abbreviations
| AsDB |
Asian Development Bank |
| BCEL |
Banque pour le Commerce Extérieur du Laos |
| BOL |
Bank of the Lao P.D.R. |
| BSRPL |
Banking Sector Reform Program Loan (AsDB) |
| CPC |
Committee for Planning and Cooperation |
| CPI |
Consumer price index |
| EDL |
Electricité du Laos |
| FAD |
Fiscal Affairs Department |
| FIN |
Finance Department |
| FMAC |
Financial Management Adjustment Credit (World Bank) |
| GDP |
Gross Domestic Product |
| HIPC |
Highly Indebted Poor Country |
| IAS |
International Accounting Standards |
| IBA |
International Bank Advisors |
| Lao P.D.R |
Lao People’s Democratic Republic |
| LDB |
Lao Development Bank |
| LMB |
Lao May Bank |
| LTU |
Large Taxpayer Unit |
| LXB |
Lane Xang Bank |
| MEFP |
Memorandum on Economic and Financial Policies |
| MOF |
Ministry of Finance |
| MFD |
Monetary and Financial Systems Department |
| NDASCB |
Net domestic assets of the SCBs |
| NIR |
Net international Reserves |
| NM3 |
Nam Mang 3 Hydroelectric Project |
| NPLs |
Nonperforming Loans |
| NPEP |
National Poverty Eradication Program |
| NT2 |
Nam Theun 2 Hydro-Electricity Project |
| PEM |
Public expenditure management |
| Phoudoi |
Bolisat Phathana Khet Phoudoi (BPKP) Highland Development Enterprise |
| PRGF |
Poverty Reduction and Growth Facility |
| PRSP |
Poverty Reduction Strategy Paper |
| SAA |
State Audit Authority (previously National Audit Office) |
| SCBs |
State commercial banks |
| SOEs |
State-owned enterprises |
| STA |
Statistics Department |
| THPC |
Theun Hinboun Hydroelectric Power Company |
| VAT |
Value-added tax |
Executive Summary
Program performance
The third review of the Lao P.D.R.’s PRGF-supported program has been delayed since January 2003. Although all but one performance criteria were observed for September 2002, the completion of this review was delayed by the need to take corrective measures for the misreporting of external debt and the resulting non-complying disbursement. Moreover, additional fiscal measures were necessary to offset the revenue shortfall in 2002/03 (October - September) due to a reduction in timber royalties, tax cuts, and continued weak tax administration.
Macro economic performance has been mixed. Real GDP growth slowed moderately to 5¼ percent in 2002/03 and is expected to pick up in 2003/04. However, policy slippages in mid-2002 sparked a major slide in the exchange rate and inflation rose, peaking at 18 percent in May 2003. Tighter fiscal control has stabilized the exchange rate for close to a year, and inflation is now on a downward path towards single digits.
Program for 2002/03 and 2003/04
During the delay in the third review, the authorities took stock of their reform program and have strengthened policies considerably in key areas.
To address the shortfall in budget revenue in 2002/03, the authorities implemented revenue and expenditure measures at end May, to steer the program back on track. These will be reinforced by structural changes in fiscal institutions in 2003/04, especially in the treasury and revenue departments.
Bank credit growth remains restrained as the start of bank restructuring and stronger banking supervision have made banks more cautious and focused on improving credit quality.
Although SOE price adjustments remain on schedule, other SOE reforms are lagging. Importantly, the restructuring plans for five large SOEs are delayed because discussions on the extent of asset sales and the role of joint ventures have been protracted.
The safeguards assessment has been completed, and the BOL has agreed to implement the high priority recommendations for correcting the identified vulnerabilities. In particular, the audit of the BOL’s 2003 accounts will be conducted jointly with an international audit firm, and will be fully compliant with international auditing standards.
Front Matter Page
Press Release No. 03/158
FOR IMMEDIATE RELEASE
September 15, 2003
International Monetary Fund
Washington, D.C. 20431 USA
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