Lao People's Democratic Republic
Poverty Reduction Strategy Paper

This paper on the Poverty Reduction Strategy Papers (PRSPs) on the Lao People’s Democratic Republic (PDR) explains macroeconomic, structural, and social policies in support of growth and poverty reduction, as well as associated external financing needs and major sources of financing. The Lao PDR’s long-term national development goal is to be achieved through sustained equitable economic growth and social development, while safeguarding the country’s social, cultural, economic, and political identity. The government’s sustained effort to eradicate poverty will become a mass mobilization exercise, empowering local communities and providing a coherent framework for mutually supportive actions by all stakeholders.


This paper on the Poverty Reduction Strategy Papers (PRSPs) on the Lao People’s Democratic Republic (PDR) explains macroeconomic, structural, and social policies in support of growth and poverty reduction, as well as associated external financing needs and major sources of financing. The Lao PDR’s long-term national development goal is to be achieved through sustained equitable economic growth and social development, while safeguarding the country’s social, cultural, economic, and political identity. The government’s sustained effort to eradicate poverty will become a mass mobilization exercise, empowering local communities and providing a coherent framework for mutually supportive actions by all stakeholders.

PART I: The National Growth and Poverty Eradication Strategy: An Overview

The National Growth and Poverty Eradication Strategy (NGPES) is central to the national development agenda. The NGPES encapsulates the essence of the Lao PDR’s approach towards achieving the goal set in 1996 by the 6th Party Congress, namely, exiting the group of LDCs by 2020.

The Lao PDR’s long-term national development goal is to be achieved through sustained equitable economic growth and social development, while safeguarding the country’s social, cultural, economic and political identity. The foundations for reaching this goal have been laid during the past 28 years of peace and development in the country by:

  • Moving consistently towards a market-oriented economy.

  • Building-up the needed infrastructure throughout the country; and

  • Improving the well-being of the people through greater food security, extension of social services and environment conservation, while enhancing the spiritual and cultural life of the Lao multi-ethnic population.

At the 7th Roundtable meeting in November 2000, in Vientiane, the Government presented its strategic medium-term approach to poverty fighting, entitled “Fighting Poverty through Human Resource Development, Rural Development and People’s Participation”.

In March of 2001, the 7th Party Congress further refined the 2020 vision by specifying poverty reduction targets for 2005, 2010 and 2020 and highlighting industrialisation and modernisation priorities.

In June of 2001, the Prime Minister issued Instruction 010, identifying poverty criteria and clarifying the modalities for the preparation of an operational poverty eradication programme, based on the concept developed by the Government in the strategic approach presented at RTM 7.

The Party Congress sets the guidelines and defines the way forward. Through the 5-year National Socio-economic Development Plans, the Government translates these into specific targets and objectives and identifies strategic programmes and priorities by sector to achieve them. The Roundtable documents operationalise these plans according to resource mobilisation needs.

While each document has its particular purpose, together they form a coherent set of references that will lead the Lao PDR to the achievement of the 2020 goal. The NGPES is the Government’s operational response to this over-arching objective. It builds on the medium-term strategic approach to poverty eradication1, making it part of an overall “growth with equity” framework.

Since the adoption of the New Economic Mechanism and the open-door policy in 1986, considerable progress has been achieved. Key social and economic indicators have steadily improved. Economic growth rates were strong throughout the nineties, despite the Asian financial crisis. Growth since the start of the new millennium has been steady in a stable macro-economic climate. The Lao PDR has become an active partner in ASEAN and other regional co-operation initiatives.

However, much more remains to be achieved to sustain economic growth and eradicate poverty in the long term. In developing a coherent framework for growth and development - as the basis for sustainable poverty eradication - the NGPES emphasises a certain number of essential linkages between the four main sectors, several supporting sectors, cross sector priorities and specific national programmes. A community-driven and access-oriented rural development strategy will be at the base of poor-district development. Enhanced macro-economic stabilisation, private sector development, including foreign investment, public management for improved governance, and resource development, will form the basis for a sustainable long-term growth environment.

Successful implementation of the NGPES is critical. Embedded in a long-term comprehensive growth and development framework, the NGPES focuses on successive efforts to achieve the goal of poverty eradication by 2020.

The NGPES emphasises the promotion of sustainable growth, coupled with continuous social progress and equity. In this manner, the material conditions and quality of life of the multi-ethnic population will be improved and basic poverty eradicated. The Government’s strategic framework for the NGPES was based on a nation-wide consultation and participation process which highlighted the following inter-linked components:

  • An in-depth assessment of the poverty situation in the country, together with its causes, with a focus on poor districts (Part II of the NGPES).

  • The environment for sustainable economic growth (Part III).

  • National action plans for the main strategic sectors and trans-sector areas, as well as for specific national programmes, in response to poverty eradication priorities (Part IV).

  • Mobilising resources for optimal use consistent with national expenditure framework (Part V).

  • A participation and implementation strategy (Part VI).

Chapters 1-7 of Part I summarise the main tenets of the national development framework by following these components. This also reflects the structure of the NGPES document. The compact presentation of the NGPES’ main policy and strategy priorities and their organic inter-linkages emphasises the operational implications underlying the implementation of the NGPES as well as the intrinsic coherence of the Government’s policy reference for growth and poverty eradication. Part I can thus be considered as an executive summary of the NGPES.

Implementation will be achieved through the continuous strengthening of a favourable environment for sustainable growth and development and will have a particular focus on poverty eradication in the poorest districts.

Chapter 1: The National Goals and Priorities

The 7th Party Congress (March 2001) defined the following guidelines for poverty eradication and sustainable economic growth:

  • ⇒ The socio-economic development of the country must be balanced between economic growth, socio-cultural development and environmental preservation. These are the three pillars of the Lao PDR’s development policy.

  • ⇒ Socio-economic development must be harmoniously distributed between sector and regional development, and between urban and rural development, so as to fully and efficiently utilise human and natural resources.

  • ⇒ Socio-economic development must be based on sound macroeconomic management and institutional strengthening in order to enhance national solidarity and cohesiveness and to promote democracy within society.

  • ⇒ The national development potential and strengths must be combined with regional and global opportunities in order to enable the Lao PDR to participate in regional and international economic integration.

  • ⇒ Socio-economic development must be closely linked with national security and stability.

Within these guidelines, the main objectives of the long-term development strategy are:

  • To sustain economic growth with equity at an average rate of about 7 per cent, considered as the necessary rate for tripling per-capita income of the multi-ethnic Lao population by 20202.

  • To halve poverty levels by 2005 and eradicate mass poverty by 2010.

  • To eliminate opium production by 2006 and phase-out shifting cultivation by 2010.

To attain these objectives, the Government of the Lao PDR has outlined the following strategic priorities:

  • Maintain an appropriate level of economic growth for the medium and long-term period in response to demographic trends.

  • Enhance human resource development through education, particularly basic education at all levels and including the formal and informal sector as well as vocational training.

  • Develop and modernise social and economic infrastructure in order to facilitate economic development in each region of the country and to accelerate the Lao PDR’s regional and international economic integration.

  • Facilitate access to electricity for people in all areas and regions of the country in order to foster integrated economic development.

  • Promote industries utilising domestic natural resources, and actively promote small and medium-sized enterprises (SMEs) and handicrafts production.

  • Develop and promote all economic sectors, particularly the private sector, including foreign direct investment (FDI) in order to expand business opportunities, placing emphasis on export-oriented sectors that have a comparative advantage.

  • Enhance market linkages and trade facilitation.

  • Strengthen existing legal and regulatory frameworks.

  • Create favourable conditions and mechanisms for improving financial institutions and further capital market development.

  • Promote economic co-operation with all partners and countries.

This refinement of the objectives and strategies has helped in the implementation of the eight priority programmes of the Government: food production; commercial production; shifting cultivation stabilisation; infrastructure development; rural development; human resource development; service development, and; foreign economic relations.

The national development strategies are deeply anchored in the Government’s over-arching concern to create a positive future for the country’s youth who represent over half of the population.3

1.1 Defining Role of Poverty

The perception of poverty has a defining role regarding national objectives and strategic priorities. The National Poverty Assessment is the anchor piece of the NGPES as it determines the content and scope of the main components. Initiatives leading to a more conducive environment for sustainable growth and sector action plans are directly linked to the poverty analysis. In short, the pattern and determinants of poverty define the national strategy for eradicating poverty.

As documented in Part II, the Government’s and people’s efforts have led to a significant reduction in the national poverty level from about 45 per cent in 1992/93 to about 38 per cent in 1997/98. Preliminary data indicate a further reduction to about 30 per cent currently. However, income disparities appear to have increased.4

Poverty is evident in a variety of factors. The Prime Minister’s Instruction on the eradication of poverty provides an operational definition: ‘Poverty is the lack of ability to fulfil basic human needs such as not having enough food, lacking adequate clothing, not having permanent housing and lacking access to health, education and transportation services” (Instruction No 010/PM, June 25, 2001). The same decree outlines poverty indicators at the household, village, district, provincial and national levels. As Instruction 10 is still in the process of implementation, there are only preliminary poverty numbers available at the household and village levels.

The Government, in discussion with provincial authorities, line ministries and other stakeholders, has reached agreement that poverty reduction at the district level should be the priority focus. Districts are the most relevant and reliable level for data collection and poverty monitoring. Further, districts are the level where co-ordination, consultation and participation can best be achieved. Based on Instruction No 010/PM, the Committee for Planning and Co-operation (CPC) and the provinces have identified 72 districts as poor. A core group of the 47 poorest districts has been selected for priority investments for the period 2003-2005.

Chapter 2: An Enabling Environment for Growth and Development

Providing an enabling environment for growth and development continues to be a top priority of the Government as it is a prerequisite for eradicating poverty. The Government has reached agreement with the international financial institutions on the necessary reforms to achieve a sound environment for growth. The NGPES details these reforms and presents matrices for monitoring progress.

2.1 Macroeconomic Stability

Enhancement of the overall environment requires the maintenance of macro-economic stability. This includes: prudent monetary, fiscal, exchange rate and interest rate policies; improved taxation, trade and industrial policies, and; strengthening of open-door policies and implementation of ASEAN commitments.

An enhanced environment for growth also requires the reinforcement of the legal framework and a level playing field for all economic actors involved. Best corporate practice must be applied to the banking system to mobilise capital, especially in support of small and medium size enterprise and rural areas. Improvement of the financial sector (including a national strategy and action plan for micro-credit) is a high priority. Further reform is needed concerning state-owned enterprises and land use management.

2.2 Private Sector Development

The private sector, trade and domestic and foreign direct investment (FDI) are expected to be prime factors in driving the economy and every effort must be made to ensure a positive business environment for them. Consultation with the private sector will be enhanced and licensing and other regulatory concerns streamlined. Further, the transparency of the tax code will be improved and the corporate law framework strengthened. Greater effort will be made to ensure that Lao and English versions of all laws are made available after passage, and consultations with domestic and foreign private sector representatives will be conducted during drafting. Increased foreign investment in the Lao PDR will contribute to technology transfer and management expertise, as well as export growth; the procedures and incentives for FDI are being given priority attention. Policies and measures to encourage small and medium-sized enterprises particularly adapted to the Lao PDR are also given high priority.

2.3 The Role of Regional Integration

Regional integration, in the context of peace and security, is imperative for the Lao PDR. The NGPES outlines the appropriate conditions needed to further enhance our integration into the region - through the many initiatives of ASEAN, but also in the context of the Greater Mekong Sub-region (GMS) in which the Lao PDR is an active partner. The formulation of a “Growth Triangle Plan” between Laos, Vietnam and Cambodia illustrates the Government’s commitment to regional integration. So does the Lao PDR’s participation in the Mekong-Ganga Basin Commission and in the “Emerald Triangle” for the development of tourism between Laos, Cambodia and Vietnam. Agreements on border trade and the promotion of the Special Economic Zone in Savannakhet-Seno are further illustrations.

2.4 Resource Development and Growth

Resource development and growth initiatives are part of the further strengthening of an enabling macro-economic environment. Future growth enhancing investments and development priorities which reflect the economic potential of the country’s natural resource base have been identified by the Government as a vehicle for increasing national revenues and, thus, poverty eradication. Hydropower, mining, tourism and wood- and agro-processing industries are the highest priorities for investments leading to economic growth and increased revenues. Royalties and taxes to the Government will comprise the bulk of these revenues. Emphasis will be placed on the promotion of economic growth centres throughout the country in order to further develop the national resource base with its rich endowment of natural resources including water resources, land, forestry and bio-diversity.5 This includes the delineation of regions to better integrate economic, infrastructure, trade and services development6. Macro-economic stability, private sector development, trade facilitation and regional integration policies and strategies all feed into expanding this resource base to promote economic growth nation-wide.

Chapter 3: Governance and the Role of Government

With the transition to a more market-based economic system, the Government must be fully responsive to the needs of both public and private enterprise. At the same time, however, it must provide the policy and regulatory framework that conserves the environment and improves the livelihoods of the Lao people. Strengthening the rule of law in all areas and continuing policy reform is an integral part of the Government’s commitment to improved governance. Ensuring efficient public service delivery through improved organisational structures and procedures, and creating a productive and motivated professional civil service adhering to high ethical standards is a top priority. Improved governance is an integral part of the Government’s effort to strengthen the overall environment for growth and development.

3.1 Governance and Poverty Reduction

Improvements in governance are directly linked to poverty reduction for limited public resources must be used effectively and efficiently in reaching out to help the poor. Importantly, in the transition to a more market-based economy, the system of decision-making must be more community-based, transparent and accountable. For the past decade, the Government has embarked on wide-ranging public administration reforms, designed to create an effective, efficient and low-cost public administration, together with the requisite institutional and legal framework.7

Despite these reforms, public administration still suffers from duplication of mandates, insufficient co-ordination, inadequate management rules and procedures, and very low salaries. The latter in particular greatly weakens the ability of the public service to operate effectively. The Government is committed to strengthening the incentives for strong performance in all areas, especially in the delivery of basic services such as education and health care. It will continue to refine the organisational structure and role of government and enhance a framework conducive to further growth of all economic sectors, including the private sector. Most importantly, the Government is committed to a system of governance that ensures stability and respect for the social, cultural and environmental interests of the multi-ethnic Lao people. Only by ensuring stability and unity can the Lao PDR provide an efficient framework for economic growth with equity.

3.2 Strengthening the Capacity of the Government and Rule of Law

The NGPES outlines a wide range of measures to strengthen the capacity of the Government at all levels to better fulfil its vital role. Among these measures are strengthening of the public service, especially at the district level.8 The redefinition of central-local relations is an important initiative.

By being more community-based, the Government expects that public services will be more responsive to community needs. The Government places great importance on strengthening dialogue between central and local authorities, the population at large, and social organisations. Administrative reforms to improve the functioning of Government and the civil service will assist in strengthening accountability, transparency and ethical behaviour.

To help ensure that all citizens and particularly the poor and disadvantaged have effective legal rights, the Government will emphasise greater transparency of and access to the legal system. Of particular interest to rural people, a master plan for integrated land management is under preparation, highlighting community-led decision-making and resource allocation.

Sound, accountable and transparent financial management is an integral part of the Government efforts to increase efficiency of public management and resource allocation.

Chapter 4: The NGPES’ Operational Framework

Drawing on the national poverty assessments, the NGPES’ medium-term operational framework comprises four main sectors, various supporting sectors, several cross-sector priorities as well as specific national programmes addressing poverty eradication. Each sector has a nationwide mandate to contribute to build-up the country and its capacities and to foster its economic and social integration. The sector/supporting sector action plans mainly address their nation-wide mandate.

The four main sectors are agriculture/forestry, education, health, and infrastructure, especially rural roads.

The supporting sectors (potential growth sectors) comprise the emerging industrial development through energy and rural electrification, agro-forestry, tourism, mining and construction materials industries. Trade facilitation and market linkages pervade most sectors and have an important impact on poverty eradication. A sound financial sector is necessary to support broad-based sustainable growth, poverty eradication and macro-economic stability. Strong bank and non-bank financial institutions will channel financial resources to productive use and ensure wide access to financial services.

Cross sector priorities encompass environment, gender, information and culture, population and social security. An all-cross-cutting issue is capacity building.

Three poverty-related national programmes - the National Drug Control programme, the UXO Decontamination programme and the National Action Plan for HIV/AIDS/STD - complete the NGPES’ operational, ‘sector-based’ framework.

All sectors refer, in one way or another, to i) macro-economic requirements to improve their role and mandate, ii) private sector/market orientation/trade facilitation to enhance efficiency, iii) capacity building priorities, iv) environmental concerns, v) gender equity, vi) governance and institutional strengthening, and vii) co-ordination among sectors and agencies to achieve higher synergy.

These are important characteristics of the NGPES and as such represent a significant step to ensure its successful implementation.

4.1 Agriculture/Forestry Development

From a poverty eradication perspective, the most important policy-related objective regarding agriculture/forestry development is improvement of household food security. Contributing to this objective, and improved living standards more generally, market-based farming will be enhanced, disparities between lowland and sloping land farming reduced, and sustainable forest and watershed management enforced.

4.2 Education and Health Development

In education, the priorities are increased access to education for all people, especially for the under-privileged, strengthening of non-formal education, vocational training, improvement of teachers’ qualifications and the relevance of school curricula, and improved management of the education sector.

In the health sector, priorities include strengthening and improving of the quality of health care at the grassroots level, particularly in under-served areas. Safe drinking water, sanitation systems and improved nutritional standards are equally urgent priorities.

4.3 Infrastructure Development

Road infrastructure priorities include maintaining the existing primary and rural road networks, through increasingly decentralised road management, and further developing of the rural road network and all-weather road provincial/district linkages.

Investments in infrastructure continue to be an essential component in promoting economic growth nation-wide and enhancing the country’s integration into the region and complementing investment efforts undertaken through the various regional corridors. Comprehensive infrastructure is essential to help farmers access improved services and local, national and regional markets.

A functional and well-maintained road network is a precursor to transport and trade services, and to the installation of electric power supply in rural areas.

4.4 Supporting Sectors

Supporting or accompanying sectors include rural electrification, tourism and industrial development (with an emphasis on small and medium-sized enterprises) as well as trade promotion and development. In particular, market linkages and trade facilitation is an essential factor for the expansion of key sectors such as agriculture, industry and tourism. Mainstreaming trade priorities into sector development has a powerful impact on poverty eradication. A positive trade environment is a priority. Likewise, a sound and competitive banking sector encourages savings and channels financial resources to productive use. It is the foundation for all economic sectors, including the private sector, to contribute to economic growth.

4.5 Cross-Sector Priorities

Environmental conservation and natural resource management are a high priority, for they are integral to poverty eradication. Accordingly, close attention is given to conserving the rich biodiversity of the land.

In addition, close attention is given to community-based forest management, upgrading deteriorated ecological areas, countering industrial pollution and other concerns.

Gender equality is an important national goal, which is reflected in the Constitution, in major international commitments and in the establishment of a National Commission for the Advancement of Women (NCAW). Ensuring equal access for women to basic services and productive resources is a matter of equity, efficiency and effectiveness.

Other cross-sector concerns that the NGPES addresses as important means to improve livelihoods include cultural and spiritual enhancement; national identity and cultural heritage; and strengthening the social security system and emergency relief.

In particular, the population policy9 including reproductive health, family planning, and hygiene, leading to a balanced population growth and distribution reflects a long-term development requirement to ensure sustainable poverty eradication.

Of the highest importance is capacity building across the board, but particularly for decentralisation management and development planning. These are two areas for which the Government envisages major initiatives responding to needs.

4.6 Selected National Programmes

The NGPES includes national programmes related to poverty eradication, several of which started some time ago. These programmes will be intensified, with particular reference to the 47 poorest districts.

The national programmes include those addressing drug control, UXO decontamination and HIV/AIDS. These programmes contribute to the national rural development programme, which aims to systematically reduce the number of poor districts. This effort coincides with and completes the focal development area approach.

Chapter 5: Rural Development and the Poor-District Focus

Rural development is central to the Government’s poverty eradication efforts as rural poverty is of prime concern and a community-based approach to its eradication is essential. The Government’s rural development strategy has two major components: improving access to essential factors of development; and strengthening a comprehensive, poverty-focused planning process at the district level to ensure all initiatives are mutually supportive and co-ordinated.

Improving access means improving access to production inputs, markets, human resources, social services and rural finance. These five categories include a wide range of factors, including rural infrastructure (roads, irrigation), technology, education and health services and natural resource management. Market information, market linkages and trade facilitation and other factors are needed to help the transition from subsistence to commercial farming, and from overwhelming dependence on agriculture to a more diversified economy (see Chart, next page).

However, improving essential factors of development will only be effective if all the factors are mutually supportive. Thus, the Government places a great deal of emphasis on enabling the rural poor to attack their own poverty.

A particular challenge is developing alternatives to pioneering shifting cultivation, hence the need to support initiatives for diversification into livestock, horticulture and cash crops. Also, forestry, agro-forestry and NTFPs offer alternatives. Poor households in rural areas must first and foremost secure their food supply, hence planning must start with this basic reality.

Capacity building at the district and village level is urgently needed, including skills in determining land use and watershed management, as well as capacity for social/environmental impact analysis and mitigation regarding rural and other developments. Complementarity in all undertakings at the district level is necessary, including for the elimination of poppy cultivation and UXO decontamination.

Diagram 1.
Diagram 1.

Rural Poverty Eradication - Strategic Approach

Citation: IMF Staff Country Reports 2004, 393; 10.5089/9781451822458.002.A001

Together, accessibility and community-driven planning are the essence of the poverty eradication/rural development strategy of the Government. The chart below outlines the key factors determining accessibility, and the linkages between them which require careful planning -especially at the “grass roots” level.

To ensure that economic growth and modernisation benefits the poor, 47 districts have been selected for priority investments over the period to 2005. Following this, the remaining 25 districts (of the 72 poor districts identified) will receive priority attention. In this context, the focal development area approach, integrated watershed management and small towns development are important for they offer essential services and economic opportunities that do not reach the most remote and isolated communities.

The Government intends to encourage “development funds” for the poorest districts, particularly village and district funds, which will provide support to households and villages to enable them to engage in income generating activities. Income generation empowers people to undertake initiatives and to expand their range of choices to improve their livelihoods. In such a way, through the village and district funds, the present lack of capital, which has been identified as a major cause of poverty, will be addressed.

Thus, village development and district development funds will play an important role in enhancing local development. In channelling resources to these funds, the Government conveys its conviction that development should be community-driven and that Government funds should only be used for what people cannot do themselves to eradicate poverty. Conditions must be enhanced in such a way as to enable people to organise themselves and to improve their livelihoods according to their own initiatives and visions of the future.

Chapter 6: The Thammasat Way of Development

The Government of the Lao P.D.R. follows a harmonious “triangular” approach to development, where - as in the case of the traditional Lao kettle - balance depends on three legs: economic growth, social/cultural development, and conservation of natural resources.

Economic growth must be based on sound management of natural resources and enhanced social and cultural development. Likewise, social and cultural development has to be backed up by solid economic growth, while appropriate resource management is fundamental to improving living standards. The three “legs” are mutually supportive. The Government thus favours a balanced approach to poverty reduction. Socio-economic development, as mentioned earlier, has to be balanced with population growth.

The Lao PDR’s approach has much in common with the thammasat way of development,10 where local solutions are to be found respecting the natural context, productive forces, technology, values and traditions on which the country’s future is built. The implications of the thammasat way for national development are being studied.

Within the outlined national development framework food security, industrialisation and modernisation are particular concerns of the Government. Food security has always been a top priority. Achieving a basic level of food self-reliance does not mean food autarky. But it does mean that the national economic system, which is essentially based on agriculture, must be able to provide sufficient food for the population. Achievement in 2000 of national rice sufficiency, for the first time in the history of the Lao PDR, was a major milestone.

However, overall rice sufficiency does not necessarily mean that sufficient food is available everywhere. The task is to ensure that all people have access to sufficient food to meet their basic needs throughout the year. Food vulnerability has to be reduced if agricultural diversification is to be encouraged, if children are to be sent to school, and if opportunities for self-development are to be acted upon.

For this reason, the Government of the Lao PDR aims, through the district approach to poverty eradication, to ensure that all possible measures are undertaken to address food insecurity at the household, village and district level. A village focus, within an enabling district environment, is ideal as traditional villages function as unified entities for household development. Targeting the poorest districts during the period to 2005 will address food access most effectively and efficiently.

Development and growth of the national economy also depends on the successful achievement of a well-conceived industrialisation and modernisation policy.

The industrial sector, including the manufacturing sector, accounts for about 22 per cent of GDP and is growing at around 7-8 per cent annually. This is not enough, however, to respond to the need for employment to absorb the rising number of young people entering the labour market. Nor is this rate sufficient to ensure adequate growth of the national economy. The relatively low rate of industrial growth, including construction, hydro-electricity and manufacturing, indicates that the national resource base is less than optimally developed. The NGPES addresses the issues involved and it is expected that by 2010 the industrial share of GDP will have risen to about 32 per cent.

In order to achieve this objective in a manner benefiting all areas, and particularly poor people, priority investments must be directed towards the following industries: electricity (because energy is critical to development and living standards); agro-forestry (because of its impact on development consistent with local capacities, cultural values and traditional factors of production); tourism (especially eco-tourism and encouragement of handicrafts production); mining (for processing and export), and; construction materials (to accommodate the growing construction industry).

A condition enabling this to happen is the development of human resource capacities and scientific and technological development. The long, medium and short-term priorities in the education sector focus, as mentioned earlier, on improving access, quality and management at all levels. Research, science and technology development must be tailored to meet local conditions and requirements, especially in the field of agricultural, forestry and livestock research. Thus, all ODA programmes and projects must include capacity building activities.

Industrialisation in the Lao PDR must be respectful of the people’s values and their environment, and be on a human scale that creates the basis for employment and self-realisation. The Lao PDR has great resource potential.

The NGPES is the Government’s comprehensive operational programme to achieve the 2020 goal through sustainable growth and poverty eradication. It is important to understand that it is only within such a comprehensive growth and development strategy that it will be possible to modernise the country. Only in this way can the resource base be expanded, in an ecologically sustainable way, for the benefit of the people and future generations.

Diagram 2 summarises the main elements of the NGPES, and the inputs and process leading to its preparation.

Diagram 2.
Diagram 2.

NGPES Process

Citation: IMF Staff Country Reports 2004, 393; 10.5089/9781451822458.002.A001

Chapter 7: Mobilising and Allocating Resources

Coherence in mobilising and allocating public resources is a basic requirement to achieve the country’s development objectives, hence the importance of a medium-term expenditure framework. This framework will ensure that the implementation of the NGPES is reconciled with budget realities so that macroeconomic stability is not jeopardised and the fiscal deficit and external debt remain manageable. However, for the time being, it is not possible to fully estimate the cost of achieving the NGPES’ goals. An estimation of the full implementation cost of the NGPES will be made over the next two years. This will also enable a closer link with the macro-economic framework.

7.1 The Medium-Term Expenditure Framework FY 2003-2004 to FY 2005-2006

The medium-term public expenditure framework (MTEF) is an essential planning instrument and is based on a realistic projection of GDP growth rates, revenue flows to the budget and of expenditure needs.

The role of all economic sectors, including the private sector as a main engine for growth, has been stressed throughout the NGPES. Private sector development, including foreign direct investment (FDI), will provide part of the needed resources for national development. It will directly contribute to financing crucial growth investments, such as hydropower and telecommunications, and indirectly contribute by expanding the national taxable resource base through the creation of wealth as a result of a market-oriented, taxable transformation of the national resources.

The Government’s MTEF (2003-2004 to 2005-2006) is based on an estimated economic growth rate of 5.9 per cent for FY 2002-2003; 6.2 per cent for FY 2003-2004; 6.5 per cent for FY 2004-2005, and; 7.0 per cent for FY 2005-2006.

These estimates reflect the expected continued and vigorous expansion of the economy and bank on the positive long-term impact of the recent measures taken to encourage production and demand. Despite the economic difficulties experienced regionally and the drop in tourism revenues this year, economic growth has remained robust thanks to the encouragement of all economic sectors and, in particular, the private sector. Private sector investments in construction materials, transformation of agricultural produce and trade contributed in important ways to the creation of wealth and employment. Likewise, public investments in various areas have contributed to enhance growth nation-wide. In particular, farmer households increased their production for market.

Medium-Term Expenditure Framework up to FY 2005-2006 (Billion Kip)

article image

The growth rates expected for FY 2003-2004 to FY 2005-2006 are justified by i) the continued expansion of the private sector, including foreign investment, ii) the encouragement of small and medium-sized enterprises through planned policies and measures, and iii) the expected recovery of the regional economy now that the SARS threat seems to have retreated.

Economic growth rates of 7 per cent beyond FY 2005-2006 can be considered as the cruising speed that will characterise the Lao economy for years to come. This implies gross investment of around 26 per cent of GDP, of which private investment should be not less than 16 per cent of GDP (public investment: 10-11 per cent of GDP, of which 3.5 per cent of GDP from government budget and 7 per cent of GDP from ODA.

Annual revenue increases are estimated at 20 per cent for the coming years. The projected revenue growth will bring the revenue share of GDP up to 13.4 per cent in FY 2005-2006.

Efforts are being made to remedy the present weaknesses in capacity regarding revenue and expenditure management. In particular, monitoring of revenue and expenditure management at the central and provincial levels will be strengthened.

The measures needed to improve the institutional framework of fiscal management and to strengthen the legal and regulatory framework are being implemented, particularly the strengthening of revenue collection mechanisms through the adoption of standardised registration, accounting and auditing systems.

At the same time, the effectiveness of the Large Taxpayers’ Unit will continuously improve through the enhancement of capacities at the central and provincial levels. The strictest observance of the Budget Law, the Tax Law and the Customs Law is the basis for improved budget management. Fiscal management of the highest quality is essential for the achievement of the national development goals.

Increased revenues will come from improved tax administration and from investments, in particular private sector investments, including FDI. Projections regarding expected revenues from the mining and hydropower sector are encouraging. Increased revenues will allow the Government to progressively reduce dependency on official development assistance (ODA).

A cautious approach to revenue projections also means a cautious approach towards managing expenditure. Public expenditures must remain within the country’s financial possibilities. This implies a very strict expenditure management plan as well as clearly defined priorities with respect to the progressive implementation of the NGPES. The Government chose to favour an intermediate, short-term approach, while simultaneously preparing for an in-depth, longer-term approach concerning particular priority areas in terms of their costing.

For the 2003-2004 financial year, a top priority is to substantially increase the salaries of public servants and resolve outstanding debt issues. The further strengthening of the business environment as well as the improvement of the public enterprise sector are other top priorities for FY 2003-2004.

These are fundamental commitments. In response to obvious economic imperatives, revenues collected in FY2003-2004 will thus serve to resolve debt and increase the salaries of public servants as priority. Outstanding debts cloud the outlook of the economy. Increasing the salaries of public servants is fundamental to increasing motivation and enhancing performance.

A combination of fiscal restraint and a greater revenue collection effort will enable the Government to maintain prudent macroeconomic management of the economy, together with tight monetary policy. However, the tight fiscal situation leaves little room for flexibility; total revenues are now expected to reach 13.4 per cent of GDP by 2005/06.

The planned allocation of resources for FY 2003-2004 had to be made at the expense of productive investments. In FY 2003-2004, the amount allocated to the PIP will be reduced by at least 20 per cent. From this perspective, FY 2003-2004 will be a year of transition as there is a need to streamline many operational aspects in order to prepare for FY 2004-2005 and beyond.11

7.2 Resource Allocation for 2003-2004 FY to 2005-2006 FY

The Government is taking a carefully-considered approach to managing public expenditure. As public expenditure must remain within the country’s financial possibilities, the Government’s contribution to the Public Investment Programme (PIP) has been reduced by 20 per cent from 960 billion kip in FY 2002-2003 to 760 billion in FY 2003-2004, as already mentioned. This figure is expected to rise to 1,000 billion kip in FY 2004-2005, before reaching a high of 1,100 billion kip in FY 2005-2006.

However, the total projected PIP for these three fiscal years is 2,580 billion kip, 2,950 billion kip and 3,200 billion kip respectively. The Government seeks ODA support to bridge the PIP resource gap until budgetary revenues for the PIP have increased to a self-sustaining level. Thus, the resource gap remains large for the medium-term. In concert with the Lao PDR’s partners in development, it is hoped that 8,730 billion kip (approximately US $870 million) can be mobilised for the public investment programme for the period of FY2003/04 to FY2005/06. Domestic resources are expected to mobilise a third of this amount (2,860 billion kip or around US$ 290 million).

PIP Investment Structure - FY 2002-2003 to FY 2005-2006

(In Billion of Kip and Percentages)

article image

The public investment structure for FY 2003-2004 to FY 2005-2006 sees the share to the social sector steadily increasing to 33.6 per cent in FY 2005-2006. Health and education will together represent three quarters of social investments for FY 2005-2006. The economic sector remains most important and will absorb 56 per cent of the PIP in FY 2005-2006. As rural development is now under the responsibility of MAF, the agriculture/forestry sector’s relative share of economic sector investments is steadily rising. The transport sector remains at the same high level in absolute value, but its relative share will slightly decline.

The domestic contribution of 760 billion kip to the PIP for FY 2003-2004 will see 300 billion kip allocated to debts from past PIP investments; 200 billion kip allocated to on-going national projects; 160 billion kip to counterpart funds to ODA projects (both ongoing and new), and; 100 billion kip to poverty eradication through the enhancement of income generating activities. Of this latter amount, 40 billion kip are earmarked for the 47 poorest districts and 60 billion kip for the improvement of extension services throughout the country, enhancement of production for the market, income generation and capacity building.

Approximately two thirds of the PIP goes to the sectors (line ministries) and one third directly to the provinces. The latter is allocated sector-wise and concerns both district and provincial projects.

The Government has adopted a more district poverty-focused orientation in the PIP by progressively allocating a greater share of expected new budgetary revenues to the poor districts to ensure that they become increasingly integrated into the national economy, while maintaining the necessary investment for growth nation-wide.

While it is difficult to cost the NGPES and to predict future revenues available to the Treasury, the Government will undertake to cost the main expenditure components of the NGPES, mainly the sector goals (such as achieving universal basic education).

Government funds will go to enhancing capacity at all levels in fields such as planning, management and technical capacity-building. This will enable all levels to assume their fiscal and planning responsibilities. Particular emphasis will be given to the district level. Funds will be used in support of on-going projects to enhance their impact and to ensure their sustained success. For example, UXO-related activities and the development of alternative production schemes in support of drug elimination. Furthermore, population dimensions, with an emphasis on reproductive health, the prevention of HIV/AIDS and micro-credit and income generating activities are clear priorities for the Government.

All activities linked to rural development, access to markets (thanks to a major effort to develop rural infrastructure), access to health and education (as major development catalysts) and capacity building for local planning and decentralisation management, are major priorities, as is capacity building in all undertakings.

The Government’s expectations are that towards the end of 2003, 8 to 10 comprehensive district plans will be ready to enable an efficient allocation of resources to support district efforts to eradicate poverty. Such comprehensive district plans should be prepared for all 47 districts to guide and justify resource allocation for the coming years.

With regard to the 40 billion kip earmarked for the poorest districts, in addition to the projects supported through other areas of the PIP, the Government intends to use them as a “development fund” for the poorest districts. The 40 billion kip will be channelled through village and district funds which will provide support to households and villages to enable them to engage in income generation activities. Income generation empowers people to undertake initiatives and to expand their range of choices to improve their livelihoods. Thus, through the village and district funds the present lack of capital, which has been identified as a major cause of poverty, will be addressed.

In this way, village and district development funds play an important role in enhancing local development. In channelling resources to these funds, the Government conveys its conviction that development should be community-driven and that Government funds should not be substituted for what people can do by themselves to eradicate poverty. The national strategy, presently under preparation, and the action plan for the expansion of rural finance and micro-credit will provide an additional practical framework for the future use of these funds.

Conditions must be enhanced in such a way as to enable the people to organise themselves and to improve their livelihoods by themselves according to their own initiatives and visions of the future. Institutional and managerial requirements necessary to efficiently run these funds and initiatives obviously will be given highest priority.

Comprehensive investments in infrastructure continue to be an essential component in promoting economic growth nation-wide and enhancing the country’s integration into the region. Investments will complement investments already made in the various regional corridors, as well as help farmers access improved services and markets at the local, national and regional level.

With regard to the crucial issue of recurrent expenditure, an in-depth exercise to estimate the recurrent cost involved in projects, according to established sector ratios, has been carried out. The methodology that has been developed enables the systematic estimation of recurrent expenditure according to the various types of recurrent expenditures (maintenance, equipment replacement, repairs, electricity and water costs, training, etc.). Workshops have been organised to introduce this methodology to the different sectors.

The Government’s resources, based on the MTEF, will not be in a position to fully respond to these needs in the medium-term. For this reason, the Government intends to further consult with its partners in development in order to identify appropriate mechanisms which will enable the Government to gradually assume responsibility for recurrent expenditures, as has been the case with the Road Maintenance Fund.

7.3 ODA Management and Co-ordination

ODA is critical to implementation of the Government’s investment programme as it accounts for approximately four-fifths of total public investment. As such, ODA contributes importantly to building the necessary conditions for sustainable growth and poverty eradication. In 2001, new bilateral and multilateral ODA agreements amounted to US$ 393 million (of which grants were US$ 206 million). ODA disbursements amounted to US$ 380 million. The ODA component in the public investment programme, over the past years, varies between approximately 90 per cent for the communication and transport sector to about 60 per cent for rural development. The overall ODA contribution to the PIP amounted to 66 per cent in FY 2002-2003 (see Table above).

The present concentration of ODA in the communications and transport sector is justified because investments in basic infrastructure are still vital. Indeed, investment in transportation infrastructure has been an essential condition for growth and improvement of the livelihood of the Lao multi-ethnic population. However, as access throughout the country is improving, including access to the remote districts, investments in social sectors will see their share growing. The transport/communication sector will remain high in absolute value because of its importance for economic growth nation-wide, but it will see its relative share decline.

Aid co-ordination will be improved. Sector-wide planning, as mentioned, but also strengthened co-ordination and consultation between sectors as well as between the central, provincial and district levels, will greatly enhance aid co-ordination and efficiency. Increased and systematic use of the various sector co-ordination fora will enhance co-ordination and consultation between sectors and the donor community.

7.4 Participatory Planning, Implementation and Monitoring

Participatory Planning, Implementation and Monitoring are fundamental to the NGPES. For the Government, the NGPES is an on-going process; consultation will thus continue even after the adoption of the NGPES by the National Assembly. The essence of the NGPES is its “rolling character”, implying “post-NGPES” consultations and building on the approach that led to its preparation. The Government-launched Roundtable process has been an exhaustive consultation exercise with various segments of the Lao multi-ethnic population and with the international donor community (including bilateral, multilateral partners in development and international NGO). It is the Lao culture and tradition to continue intense consultations even after completion of a policy document so as to ensure its adaptation and implementation in the local context. This will also be the case for the NGPES.

All initiatives identified in the NGPES include important aspects of participatory planning, implementation and monitoring. Development planning will increasingly be based on local participation through appropriate planning manuals and participation processes.

Capacity building for these purposes is a priority, especially at the district level. The Government will continue to redefine central-local relations (“decentralisation”) by making villages implementation units, districts planning and fiscal units, and provinces strategic units. Appropriate monitoring criteria will be elaborated for each sector to ensure that measures to reduce poverty levels are being implemented and progressively refined.

Implementation of the NGPES will entail strengthening of capacities at every level so that participation becomes truly meaningful and a major tool for planning, implementation and monitoring. The Committee for Planning and Co-operation (CPC) will be in charge of the planning and investment aspects of the NGPES, and guide its implementation, with the active involvement of all Government agencies concerned and in co-ordination with local authorities. The National Statistical Centre will serve as the central agency for monitoring the poverty situation; it will co-ordinate regularly with all ministries, social organisations and local authorities and partners in development.

To ensure overall co-ordination regarding the NGPES’ implementation will be the task of a National Steering Committee, while resource mobilisation will be the task of the Ministry of Foreign Affairs.

A technical working committee, headed by the Director General of the Department of General Planning, and including most members of the former NPEP Committee, will work on the NGPES’ operationalisation, costing, and monitoring.

Among the first priorities leading to the NGPES implementation are the finalisation of an operational approach to participatory district planning and the consequent preparation of district plans to serve pro-poor and pro-growth investment in the poorest districts as well as the launching of a sector-wide approach in education and health, the further operationalisation and prioritisation of all sectors and sub-sectors programmes, and the consistent implementation of the various reform programmes.

PART II: Poverty Assessment of the Lao PDR

Poverty in the Lao PDR is complex and can be viewed from many perspectives. For the Lao multi-ethnic culture, poverty has a particular meaning, as it refers to those families that have been stricken by misfortune and/or are the least well-off in a given community.12 That is why household poverty is an important criterion for poverty assessment at the district level. Villages provide a measure of welfare, a natural safety net to compensate for shortcomings in livelihood within the village.

The understanding of ‘poverty’ in the Lao culture must be taken into account in designing sector programmes for eradicating basic poverty. Livelihood improvement has a series of manifestations highly relevant to identifying strategic approaches to poverty reduction. For this reason, the Government prefers to stress the improvement of livelihoods, focusing on people-centred, participatory development. These are positive and socially mobilising concepts, embracing all segments of society and not only those identified as poor.

There are many methods of poverty measurement and analysis, including: poverty lines; participatory poverty assessments; vulnerability indexes; and the Human Poverty Index.13 Poverty measurement in the Lao PDR is still in the initial stages. Poverty analysis in the Lao PDR has drawn heavily from the Lao Expenditure and Consumption Surveys (LECS), which take place every 5 years, starting in 1992/93. LECS II was conducted in 1997/98, just prior to the full impact of the Asian financial crisis. Data collection for the LECS III was completed in February 2003, and results from the survey will be available by year end. As noted in the Preface and Part I, the level of poverty has declined considerably since 1992/93 to date.

Part I also provided a summary of Prime Ministerial Instruction No. 10 on poverty reduction. More fully, the Degree states the following: “Poverty is the lack of ability to fulfil basic human needs, such as: not having enough food [i.e. less than 2,100 calories per day/capita], lack of adequate clothing, not having permanent housing, not capable of meeting expenses for health care, not capable of meeting educational expenses for one’s self and other family members, and lack of access to transport routes”. Instruction 10 specifies that “there is to be a systematic accounting of village and district poverty levels. Thereafter, these findings must be incorporated into the poverty eradication planning.

To assess poverty in the Lao PDR, both quantitative (Chapter 1) and qualitative measures (Chapter 2) have been employed.

Quantitative measurement using poverty lines: The poverty line methodology is the result of joint efforts by the National Statistics Centre, SIDA, ADB, and the World Bank. The Lao Expenditure and Consumption Surveys have provided the data for the analysis.

There are two poverty lines: (1) the food poverty line, and (2) an overall poverty line. These are equivalent in the first instance to a lack of food security, and in the second to lacking the combination of food and non-food necessities.

The food poverty line threshold is 2100 calories per day per person, which WHO and other international organisation have determined as the basic requirement for people in Lao PDR.14 Those with less than this daily calorie intake are considered to be living below the food poverty line. The cost of acquiring this intake, plus 20 per cent for non-food necessities (e.g., shelter, clothing), determines the overall poverty line.

Qualitative Assessment: Qualitative analysis of poverty in the Lao PDR started in 1997, based on “Rapid Poverty Assessment (RPA)” techniques developed by the then State Planning Committee.15 RPAs were undertaken in three provinces (Luang Namtha, Bolikhamxay and Attapeu). Together with a series of regional consultation workshops on poverty, the information gathered played an important role in preparing a National Poverty Alleviation Action Plan.16

Qualitative analysis nation-wide began with the Participatory Poverty Assessment (PPA)17 in 2000, which emphasised causation and perceptions of poverty throughout the multiethnic population. The PPA recorded the experiences and concerns of the people in order to identify and initiate appropriate actions to reduce poverty. This was accomplished by combining information on poverty (statistical, cultural, anthropological, institutional, economic, etc.) with an understanding of the views of poor people.

Chapter 1: Poverty Situation in the Lao PDR

1.1 From a Quantitative Perspective

Quantitative poverty analyses carried out in the Lao PDR during the 1990s and recent years employ several key methodological features:

  • ♦ Use of the data of the 1992/93, 1997/98, and 2002/03 Lao Expenditure and Consumption Surveys (LECS I, II and III)

  • ♦ Use of an absolute definition of poverty (as distinct from a relative definition of poverty)

  • ♦ Use of an income-based (cost of basic needs) approach to the measurement of poverty

  • ♦ Use of consumption as the measure of individual income

  • ♦ Use of two poverty lines, a lower poverty line based on minimum food needs and a more comprehensive and higher poverty line that includes provision for non-food necessities.

LECS III has been completed, and results from the survey will be available by the end of year 2003. The third LECS is more comprehensive compared to the previous surveys. It includes expanded modules on health, education, the labour force and other interests. The survey of how time is used applies to each household member above nine years of age (the previous LECS provided data for only one household member). LECS III also has a price questionnaire concerning 121 commodities in village markets, as well as other fields relevant to assessing economic and social development in the Lao PDR as a whole. However, the sample size is too small to allow for in-depth analysis below the provincial level. It will, however, enable analysis of poverty from an urban/rural perspective.

Annex 1 provides a detailed discussion of poverty measurements, including the distinction between consumption and expenditure.

1.2 Trends in Poverty Reduction

As shown in Table 1, in terms of real per capita consumption Vientiane Municipality is the wealthiest region in the country while the North is the poorest. Per capita consumption in Vientiane Municipality increased at an average annual rate of 10.8 per cent between 1992/1993 and 1997/1998. This was more than twice the rate of increase in per capita consumption in other regions. For the Lao PDR as a whole, the average annual increase in real per capita consumption was 5.8 per cent. Households have clearly benefited from economic growth.

Table 1.

Per Capita Real Consumption by Region

(In Kip; March 97 to Feb 98=100

article image
Source: N. Kakwani, Bounthavy Sisouphanhthong and Phonesaly Souksavath: Poverty in Lao PDR (May 2001).

During this period, real per capita consumption in the rural areas increased by 5.4 per cent per year while urban consumption increased by 9 per cent. Thus, the disparity between urban and rural consumption has increased, as shown in Table 2.

Table 2.

Per Capita Real Consumption by Regions and Rural and Urban Areas

(In Kip; March 97 to February 98=100 (Lao urban areas)

article image
Source: N. Kakwani, Bounthavy Sisouphanhthong and Phonesaly Souksavath: Idem

As shown in Table 3, the head count index18 or incidence of poverty was 38.6 per cent in 1997/98, compared to 45 per cent in 1992/93. The North had the highest incidence of poverty, at 52.5 per cent. Some 830,000 people in the North are below the poverty line and they account for about 45 per cent of the total number of poor in the Lao PDR. There were considerable variations in the rate of progress in poverty reduction. The North not only is the poorest region, it has experienced the slowest rate of reduction in poverty.

Table 3.

Percentage of Poor by Regions and Provinces

article image
Source: N. Kakwani, Bounthavy Sisouphanhthong and Phonesaly Souksavath: Idem

In contrast, Vientiane Municipality, the wealthiest of the regions, experienced a 50 per cent drop in poverty between the two surveys. The Central Region also experienced a slow rate of poverty reduction, but the incidence of poverty is still lower than in the South.

As also shown in Table 3, Houa Phanh province in the North is the poorest province, with 74.6 per cent of people below the poverty line in 1997/1998. There are many provinces with a poverty head count higher than 50 per cent. In the Central Region, Xaysomboun Special Zone has the highest incidence of poverty (31,500 poor people - see Annex 1, Table 1.4), while Savannakhet is the province with the highest absolute number of poor (264,000) (idem). Champasak province has the highest number of poor people in the South (189,000), while Sekong has the highest poverty incidence.

1.3 Poverty in Urban and Rural Areas

Table 2 shown earlier indicated the significant differences in per capita consumption between urban and rural areas. In 1997/98, the level of poverty in urban areas was 27 per cent, compared to 41 per cent in rural areas. Poverty in urban areas decreased much more than in the rural areas in the five-year interval between the 1992/93 and 1997/98. Nevertheless, living conditions in some urban areas are difficult, especially as poor people must live on a cash basis.

Most urban poor have a low level of education and no permanent jobs, which increases their vulnerability (defined as lack of food security, in the first place).

To date, there is no study on urban poverty in the country as a whole19. However, a PPA was carried out for Vientiane Municipality where the nature, causes and linkages of poverty were investigated20. Key findings included i) the diversity of poor people, ii) an interdependence between households within poor communities, iii) uncertainty in tenure and frequent flooding as causes of poverty. The PPA also found particularly vulnerable groups and individuals whose conditions contributed to, and were often a cause of, their poverty. Table 4 summarises the most vulnerable groups.

Table 4.

Vulnerable Groups in Vientiane Municipality

article image
Source: VUDAA/ADB Study, Poverty in Vientiane, 2000.

1.4 Socio-Economic Aspects of Poverty

Table 5 indicates the relationship between poverty and access to basic infrastructure. Clearly, the poor have much less access to infrastructure, compared to the less-poor. For example, only 38 and 17 per cent of poor people have access to an all-weather road or electricity, respectively. In terms of distance, the poor are on average 13 kilometres from a road, compared to 9 kilometres for the less-poor. Access to piped water is also limited. Complete primary schools are not as available to the poor as to the less-poor people, but - as found by the PPA - this factor is not considered an important cause of poverty. Basic health services are very deficient in areas where the poor people mostly reside. Disparities in rural areas are marked, although less so than in urban areas.

Table 5.

Percentage of Poor and Less-poor People with Access to Infrastructure

article image
Source: LECS II *Less than 6 hours away
Sector Perspectives on Poverty

For the poor people, education is not usually perceived as a possibility for poverty alleviation. School-related expenses (including fees) and the need to have all family members help in securing basic necessities discourage enrolment or continued schooling. Nonetheless, there is a strong correlation between poverty and education. The incidence and severity of poverty is greatest among preliterate households. A multivariate analysis of household poverty21 shows that every extra year of education of the head of household raised welfare by two per cent. Thus, even though lack of education may not be considered as a direct cause of poverty, increasing the level of education is shown to be one of the necessary factors for poverty reduction.

Improving access to education for all, enhancing the quality of education and strengthening management of the sector are thus priority areas for public investment as are non-formal education and vocational training.


Health remains a pressing social issue. Mortality and morbidity rates are high, particularly among ethnic groups in mountainous areas where poverty is severe.

The fertility rate is 4.6 and the population growth rate is 2.8 per cent (2000). Maternal morbidity is 530 deaths per 100,000 live births, and infant mortality is 82 deaths per 1,000 live births. Communicable diseases such as malaria, dysentery, cholera, haemorrhagic fever (dengue), intestinal parasites, tuberculosis, acute respiratory infections and measles are still common.

Life expectancy remains low at 59 years. While the health indicators have improved substantially over the past ten years, they compare unfavourably by regional standards.

Poverty leads to health problems, and health problems lead to further poverty. Poor access to medical care and poor conditions such as the lack of clean drinking water are major factors affecting health in the Lao PDR. Improving health care on an equitable and nation-wide basis and providing access to clean water for all are priorities for public investment.


Agricultural systems in the Lao PDR are usually classified based on major production systems and topography, as influenced by the Mekong watershed. Lowland areas are made up of alluvial plains located primarily along the Mekong and its tributaries. The bulk of the nation’s food is produced in the lowland areas22.

On rolling hills and in lower and mid-level mountain slopes, shifting cultivation is practised. In these areas, subsistence farming is still the norm; there is also heavy reliance on forests for plant and animal food, medicinal plants, and wood for fuel and shelter. Poverty is increasing in some areas, as population growth competes for limited arable land and shorter fallow periods limit shifting cultivation, resulting in lower yields.

While an over-simplification23, progress in poverty reduction has been much more intense in the Mekong corridor or lowlands than in the uplands. In addition to differing agricultural potential, this reflects differences in the quality and availability of basic services. Because roads are better, access to markets for lowland farmers is easier. Banking and other services are also better. Diversification and commercialisation have progressed considerably. For the most part, uplands farmers continue their traditional ways and practices, and face many hardships.

The area-based development (focal area) approach, which is at the basis of the Government’s rural development strategy, places a high priority on improved services, more sustainable land use, and increased incomes among the rural poor. Investment in rural development needs to be greatly intensified, especially in the poorest districts.


As noted earlier, there is close correlation between the absence of essential transportation and communication infrastructure and poverty, especially for remote areas. Many districts are not linked to the main national transportation network and most villages are not linked to the main district or provincial roads. Economic growth is therefore hampered and poverty persists. The development and improvement of rural roads is a poverty alleviation objective in itself, but it is also a basic condition for the creation of an enabling environment for a market economy.

Gender Dimensions of Poverty

Women and men experience poverty differently in the Lao PDR, even within the same ethnic group or community. Women tend to work much longer hours than men do as they are primarily responsible for their families’ food security, a responsibility that is especially difficult in the case of upland families that have relocated to lowland areas.

If families cannot grow sufficient rice in their new location, they may return to their old shifting cultivation fields, which could be a considerable distance away. The heavy workload of minority women involved in opium production, and the burden on them of addicted household members, is a major cause for concern.

Lao women have lower literacy rates than men (59.1 per cent, compared with 81.7 per cent).24 Women on average have had 3 years of school (2 years in rural areas), compared to 4 years for men. However, there has been improvement, especially in urban areas: young rural women aged 15-19 have now 4 years of school compared to 5 years for young rural men, and both young women and men in urban areas have now an average of 7 years of schooling. Several reasons for the low school attendance of poor girls in rural areas, especially in higher grades, have been identified. They include the girls’ household responsibilities, the cost of clothing and school supplies, the distance to the nearest school, language barriers for ethnic minority girls, and questions about the quality and relevance of formal education for these girls.

As more young women and men migrate from remote areas to towns and cities for work, young ethnic minority women with little education and limited knowledge of Lao language will have few opportunities and will be at greater risk of exploitation. In the majority of ethnic groups, women do not speak Lao, which severely limits their ability to engage with health care workers, extension workers, traders and others outside the village. They are doubly disadvantaged by limited access to family planning services; in combination with high fertility rates there is very high risk of health complications or death for both mother and child.

Recommendations to improve the position of women include the following:25 (1) reduction of women’s heavy workload through appropriate technologies and improved access to water supply; (2) improvement of women’s and girls’ educational levels; (3) improvement of maternal and child health, including family planning; (4) more income generation opportunities (e.g., rice mills, handicraft production) for women through skills training and micro-finance; and (5) more budgetary resources for programmes addressing women’s needs. There is an urgent need to address gender disparities.

1.5 Evaluating Poverty Using Vulnerability Index

Rather than consumption as a measure of poverty, the vulnerability index is constructed using social and economic indicators deemed as the key determinants of food insecurity and vulnerability. It examines risk factors at the household and village level, as well as the coping responses to these factors. The main objective of this research has been to help delineate poor districts.26 The vulnerability or poor district index includes four indicators relating to income and food production (such as rice production per person, large livestock per person, forested area per family, and use of roads (distances up to 6 kilometres), and two which relate to social development (maternal and infant mortality rates and the percentage of illiteracy).

The analysis indicates that of the 142 districts so far assessed, 37 are identified as very poor since they are satisfying less than 2 of the 6 indicators included in the index. Another 25 districts (considered as poor) met only 2 of the criteria. There are 23 districts that satisfy 5 or 6 of the indicators, while the majority, 58 districts (considered as medium), met 3-4 of the criteria. In summary, some 40 per cent of the districts in Lao PDR are considered poor and very poor.

The analysis complements the quantitative analysis, especially since both it and the vulnerability index are primarily based on the LEC surveys.27 However, differences in time periods and perspective result in some non-uniformity. In particular, the vulnerability analysis addresses human security concerns by identifying, in a very participatory way, threats and risks at the local levels that could hinder poverty reduction.

1.6 Inequality and Economic Growth

Income inequality is another dimension of poverty. Table 6 shows that income disparities, as measured by real consumption, widened between 1992/93 and 1997/98. The lowest income quintile accounted for only 8 per cent of total consumption in 1997/98, compared to 9.3 per cent in 1992/93. In contrast, the highest quintile accounted for 44.4 per cent of total consumption in 1997/98, compared to 38.4 per cent in 1992/93. During this period, the Gini coefficient (a measure of inequality) rose to 35.7. While this coefficient is low relative to the degree of inequality that prevails in other countries in the region, the rise in the coefficient indicates that the benefits of economic growth accrued more to the rich than the poor people.

Table 6.

Income Inequality

article image
Source: LECS I and II

To some extent, increases in income inequality are difficult to avoid in the early stages of development. Infrastructure and other investments inequitably benefit most those closest to new investment development. Those in remote areas are relatively unaffected. Progressively, however, the economy is becoming more integrated. The Government of the Lao PDR aims at achieving high economic growth within a context of equity. The very purpose of the NGPES is to outline an operational approach leading to this objective.

Chapter 2: Qualitative Participatory Approaches to Poverty Analysis

Qualitative poverty analysis focuses on listening to the subjective ideas of people who are defined as poor or who consider themselves to be poor.28 In other words, qualitatively, one wants to understand how each poor group understands and experiences poverty.

The Participatory Poverty Assessment (PPA), first undertaken in 2000 and extended in 2002, set out to answer the following questions:

  1. Who are the Poor?

  2. Where are they located?

  3. When did they become poor?

  4. What is poverty in the eyes of the poor?

  5. Why did they become poor?

  6. In the view of the poor, how may poverty be alleviated?

It was found that the poor people are primarily ethnic minority swidden cultivators. While poverty occurs throughout the country, it is less severe in Xayaboury, Vientiane Province and Vientiane Municipality than elsewhere. However, as found by the PPA, the poor people do not view themselves as being in an endemic state of poverty. Villages were subsisting in relatively stable agro-ecosystems, the outside perception of endemic poverty has been created by reliance on a numerical definition of poverty. In the minds of villagers, poverty is an issue of livelihood; as long as the villages are able to meet their consumption needs, they do not consider themselves poor. When agro-systems are disrupted or other upheavals occur, poverty may follow.

2.1 Causes of Poverty

Again based on the PPA, the main indicator of poverty - as determined by the poor themselves - is the degree of rice sufficiency. Thus, commonly cited causes of poverty include insufficient amounts of land for cultivation, and natural disasters, such as flooding or drought.

Basic aspects of poverty include the following:

  • The indicator of poverty is rice sufficiency; the indicator of wealth is livestock.

  • The main problems (related to rice sufficiency) include the reduction of land available for swidden cultivation, livestock disease, ill-health, hiring out labour, lack of necessary technical knowledge, lack of access to roads, lack of clothing, and poor housing.

  • The main causes of poverty are (in order of importance): (i) problems associated with land; (ii) livestock loss because of lack of veterinary services; (iii) lack of cash investment to make livelihood improvements; (iv) natural disasters; (v) environmental problems; and (vi) lack of water for agriculture.

  • Other causes are: lack of local leadership; relocation29; lack of health services; too many children; lack of knowledge of the market; lack of government services; low agricultural prices; addiction to opium; and UXO.

As is to be expected, there are regional variations in the importance of these various causes of poverty. Land allocation and soil depletion problems appear to be especially important to the northern and eastern regions, while for the southern region natural disasters are a major concern. Large family size is cited as top concern for people in the central region. Opium addiction is cited only in the case of the north. Lack of roads and pests and livestock diseases are problems common to all regions.

2.2 Follow-up to the PPA

In 2002, there was a follow-up to the original PPA which enabled tracking developments over the two-year interlude in 55 representative villages in 13 provinces.30

In general, the study showed that most villages experienced improvement over the two-year period. However, some showed no improvement or had become worse off.

Villages that showed progress benefited from improved roads, enabling access to paddy land and markets. They also benefited from donor-assisted projects such as the construction of schools and health clinics and provision of medicine kits. Some benefited from improved irrigation and UXO removal.

In the villages where overall income increased, implying a decrease in poverty, it was found that increases in production were being realised by only a few households, and in many cases the majority of households had remained the same or were worse off than in 2000. That is to say, an inequality gap has appeared within villages, both in villages of the same ethnicity, and in villages where several ethnic groups have been consolidated.

With respect to villages that remained the same between 2000 and 2002, problems encountered included repeated moves, lack of land (especially paddy fields), and UXO preventing cultivation. With respect to villages that had become worse off, lack of land was again a major problem. In particular, the reduction of traditional fallow cycles following new land allocation regulations is causing soils to deplete and yields to decrease. Despite its overall high level of poverty, the Northern Region appears to be more dynamic. The Southern Region showed less change over the two-year period.

2.3 Public Investment Programme Poverty Impact Study

Very recently, the Government has adopted a participatory monitoring approach concerning the contribution of Public Investment (PIP) projects to assess poverty reduction. The review is still in progress and to date selected northern provinces have been visited (Louang Prabang, Oudomxay, Louang Namtha, and Houa Phanh). The findings include the following:

  • - Most people say they are better off because of infrastructure investments, especially roads that allow access to the sale and purchase of goods and access to health and education services. However, forest products are being depleted.

  • - Agricultural production has not improved; village relocations often result in insufficient produce for sustainable livelihoods.

  • - Livestock disease remains a major problem and has not been resolved.

  • - Infrastructure projects tend to result in a few individuals becoming wealthy.

Chapter 3: Poverty Criteria and District Poverty

Criteria have been developed in order to assist local authorities in monitoring changes in poverty, especially in poor households and districts, and to help the district and provincial authorities themselves to better understand the poverty situation at the grassroots level. These officially used criteria are divided into three levels as follows:

  • Household level: Households considered as poor are households with an income (or the equivalent in kind) of less than kip 85,000 kip (100,000 kip for urban and 82,000 kip for rural) per person per month (at 2001 prices). This sum allows the purchase of about 16 kilograms of milled rice per person per month; the balance is insufficient to cover other necessities, such as clothing, shelter, schooling and medical costs.

  • Village level: Villages considered as poor villages are:

    • Villages where at least 51% of the total households are poor.

    • Villages without schools or schools in nearby and accessible villages.

    • Villages without dispensaries, traditional medical practitioners or villages requiring over 6 hours of travel to reach a hospital.

    • Villages without safe water supply.

    • Villages without access to roads (at least trails accessible by cart during the dry season).

  • District level: Poor districts are:

    • ▪ Districts where over 51% of the villages are poor.

    • ▪ Districts where over 40% of the villages do not have local or nearby schools.

    • ▪ Districts where over 40% of the villages do not have a dispensary or pharmacy.

    • ▪ Districts where over 60% of the villages without an access road.

    • ▪ Districts where over 40% of the villages do not have safe water.

On the basis of these criteria, 72 districts have been identified as poor (see accompanying map). As stated in Part I, at this juncture, the district level is the most relevant and reliable level for data collection and poverty monitoring. Furthermore, the district represents the level where co-ordination between all government services is best achieved. Of the 72 districts, 47 have been identified for priority intervention during 2003-5005.

In total for these 72 districts, there are 4,126 villages and 160,592 households that are classified as poor. In percentage terms, 76 per cent of the villages in these districts are poor and 50 per cent of the households are poor. Houa Phan province has the highest (absolute) number of poor villages and households, while Phongsaly province has the highest percentage of poor villages. Table 7 summarises the village and household data. Annex 1 (Tables 1.2 and 1.3) provides poverty-related information for each of the districts, including the number of poor villages and households. See also Map of the 72 poor districts on the following page.

Table 7:

Number and Percentage of Poor Villages and Households by Province using the Criteria of PM Decree No.10 (for the 72 Districts Identified as Poor)

article image
Source: National Statistical Centre, 2003

The identification of the 72 poorest district was made, as mentioned, on the basis of Instruction 010, LECS II and provincial information regarding the number of poor households. Table 1.2 and 1.3 of Annex 1 list these 72 districts according to village and household criteria. Out of the 72 districts, 40 have been identified as very poor districts. For reasons of national equity, 7 other districts (of the remaining 32) have been added to this number. The rationale in choosing the 40 poorest districts is reflected in Table 8. These districts have the highest incidence of poverty (70 per cent), calculated on the number of poor households (see Table 1.3). The remaining districts have a poverty incidence of 35 per cent. Together, the poverty incidence is 55 per cent for the 72 poorest districts, as compared to 23 per cent of the “non-poor” districts. The overall poverty incidence is the same (55 per cent) when dividing the group into 47 and 25 districts, as shown in Table 9. However, the Government’s priority appears clear: it is where the poverty incidence is deepest that priorities will be set even if the target group (the 40 poorest districts) represent only 20 per cent of the population. In other words, in the 70 “less poor” districts, poverty concerns 19 per cent of the population, while in the 72 poorest districts more than half of the population is poor.

Table 8.

Poverty and Poor District Classification

article image
Source: National Statistical Centre, Poverty Statistical Reports, Provincial Committees/Authorities as of March 2003 (Compiled from Table 1.3Annex 1)
Table 9:

Education Indicators (2000) in percentage of total population

article image
Source: NHDR 2001

Chapter 4: Poverty and Social Indicators

The National Statistical Centre is charged with the establishment of national social indicators. Tables 9-12 indicate the present status of the main social indicators related to poverty eradication. Most of the social indicators have seen marked improvements over the 1995-2000 period, even though many of them still remain relatively low by world standards. For example, there has been a significant increase in literacy, for both men and women. However, the situation of some ethnic minorities remains of concern, especially for groups like Hmong-Mien women. In 1995 (the latest information available until the next census), their literacy rate was only 8 per cent. Generally, ethnic disparities are greater than gender disparities.

The NGPES poverty eradication objectives are in line with the country’s commitment to achieve the Millennium Development Goals (MDG) as well as the Brussels LDC Action Plan. The improvement of the social situation as reflected in the social indicators has always been in the centre of the national socio-economic development plans. The Lao PRD being a party to the Millennium Development Declaration underlines this commitment.

Table 10:

Literacy rates by Ethno-linguistic Groupings (1995)

article image
Source: NSC 1995 Census.
Table 11:

Health Indicators by regions (2000) and for the Lao PDR (1995 and 2000)

article image
Source: NHDR 2001; NSC 2000. *included in Central figure
Table 12:

Gender Status Indicators (2000)

article image
Source: NHDR 2001, Lao Reproductive Health Survey 2000, LECS II, MOE.

Chapter 5: Poverty Research and Monitoring

On-going research on the poverty situation in the Lao PDR is needed to incorporate all factors relevant to poverty reduction, including variables resulting from geography, ethnicity and culture. Poverty research and monitoring is also important in guiding the redefinition of central-local relations and for formulating the Public Investment Program; in both cases central and local officials will need training so as to effectively address the needs of the poor.

Capacity building at the national, provincial and district levels is a major concern. Increasing capacity at the district level will de facto enable village participation in the planning process; questionnaires are being structured to enhance interactions between district officials and villagers for data collection and planning purposes. The result will be improved targeting of projects for poverty alleviation, more efficient allocation of resources within the framework of the ‘decentralisation’ programme and the PIP and, most importantly, local ownership of the project planning process.

New approaches to poverty research and monitoring will be required, including combining participatory exercises with traditional household surveys. This approach combines quantitative and qualitative analyses of poverty measurement, leading to better poverty eradication strategies.

Poverty monitoring is the task of the National Statistics Centre (NSC). This includes monitoring of the NGPES with regard to its poverty eradication priorities. For an appropriate monitoring of the NGPES’s implementation, the NSC will strengthen the linkages between quantitative and qualitative analyses, building on three steps, as outlined in the following 3 sections.

5.1 Poverty Monitoring of Households via Village Level Statistical Data

There is a need for reliable data on districts and villages, especially within the context of districts being the planning and fiscal units and villages the implementing units. The “Village Statistics Book” is a useful instrument for monitoring of the socio-economic profile of villages. The implementation of the “Village Statistics Book” is progressing, with 11 provinces having completed the first round of household poverty monitoring. This will become the basis for locating household poverty nation-wide. Procedures regarding poverty monitoring at the local level must still be strengthened.

5.2 Quantitative Poverty Monitoring Using the LECS III 2002/03 Survey

The LECS III 2002/03 survey has been modified and expanded to better analyse poverty. Improvements include: rural prices; questions relating to household assets and income from agriculture and business; and questions relating to housing, education, health, and use of time of all household members. Data collection has been completed; a preliminary report will be completed by the end of 2003.

5.3 Qualitative Poverty Monitoring Using Participatory Methods

Quantitative research on poverty must be carried out in unison with qualitative research. Participatory monitoring and evaluation of poverty is important, which includes listening to the poor express their needs and gaining a thorough understanding of the gender, cultural and livelihood dimensions of their circumstances.

Finally, monitoring of sector programmes and initiatives is important. Again, this requires data and measurement tools so as to evaluate the contribution to poverty reduction. Projects supported by donor agencies should be reviewed from this perspective.

5.4 Linkages between national and international efforts

The NGPES reflects the Lao PDR’s on-going commitment to sustainable growth and poverty eradication. This is perfectly consistent with the internationally defined goals regarding poverty reduction through the MDG Declaration and the LDC Brussels Summit.

Monitoring progress in implementing the NGPES objectives and programmes will also serve to help the Government monitor progress in implementing its international commitments. To this effect, a national steering committee and national data bank have been established to specifically monitor progress towards meeting international goals of poverty reduction, in particular the MDGs.

Chapter 6: Poverty Vulnerability Assessments and Coping Strategies

The Government believes that, in order to overcome poverty, individual households must be responsible for taking self-help initiatives - within an enabling context that is the State’s responsibility. The participatory poverty assessments have reinforced the Government’s conviction that the best way to proceed in fighting poverty is to improve the enabling environment at the grassroots level. This means: improving access to all rural and remote areas; developing rural infrastructure; implementing various economic reforms for increased market integration of the rural areas (market linkages, trade facilitation); enhancing people-centred resource management; facilitating access to quality health and education services; provision of credit; and other measures.

It also means addressing human security concerns; that is, threats and risks at the local level. For this reason, the Government undertook human security surveys or vulnerability assessments on an experimental basis in three provinces (Savannakhet, Luang Prabang and Vientiane provinces)31. Vulnerability analysis identifies risk patterns within a specific area and assists planners and local representatives in developing appropriate responses. Also, vulnerability analysis identifies coping responses to risk, together with possible options.

The vulnerability assessments carried out in the three provinces yielded important insights32. Women and men in the surveyed households expressed four areas of vulnerability - economic, environmental, social, and cultural. Vulnerability is expressed from the villagers’ point of view, hence at times identified risks and threats varied from conventional views of poverty. External risks are perceived as greater than internal risks. Where there are well-developed coping strategies, vulnerability is perceived as less of a worry.

The most vulnerable, vulnerable and least vulnerable were determined according to their degree of ownership, access to assets and gender of household head. Generally, the most vulnerable are those who experience rice shortages, are landless, or the household is headed by a woman with no means of alternative livelihood. Those living at the very edge of subsistence in fragile environments and those experiencing health and addiction problems are also most vulnerable.

Moderately vulnerable households are those that experience economic, environmental, social or cultural threats but have some means to cope - such as assets or an alternative livelihood. The least vulnerable households are those facing few threats and risks, and who have assets to rely on when their primary means of livelihood is compromised.

On the basis of the three provinces surveyed, households in remote villages with poor road access are highly vulnerable, as are resettled households that lack assets. Smaller villages are found to experience greater vulnerability than larger ones, as they tend to be more dependent on subsistence agriculture and lack alternative means of livelihood to generate a cash income. Poverty is essentially a question of food vulnerability.

6.1 Sources of Vulnerability

Annex 1 includes the results from the three provinces surveyed, indicating both women’s and men’s perceptions of vulnerability. Generally, women expressed more economic threats to their security than men. Both women and men identified low income and shortage of capital or credit as serious economic threats. Shortages of rice are of greater concern to women while shortage of cultivable land is of greater concern to men. Other sources of economic vulnerability are landlessness, lack of employment opportunities, debt, and too many children to support.

In terms of environmental threats, both women and men are concerned with the impact of weather changes and natural disasters (floods and droughts) on crops. Women are more concerned with water shortages and water quality than men. Poor soil quality and the prevalence of pests and livestock disease are also threats. For some villages, the presence of unexploded ordnance (UXO) is a threat, as is deforestation.

Regarding social threats, women are most concerned with poor health and low education and skills, concerns shared by men who also identified weak village authorities as a source of vulnerability.

While cultural and social threats often overlap, households surveyed in all three provinces identified drug abuse as a serious concern. Women are concerned with loss of tradition and both women and men identified problems with youth. Theft and domestic violence are seen as threats in some cases. Drugs and lack of income generating opportunities are identified as factors contributing to the vulnerability of the country’s youth. Lack of income generation opportunities can lead to young people migrating to urban areas in search of work. This in turn can leave ageing families without support, increasing their vulnerability.

In terms of seasonality, vulnerability to health problems and livestock disease is highest in the wet season, while vulnerability to crop failure is highest in the dry season. In terms of life cycle, vulnerability of children is a concern, reflecting their lack of education and skills. In some villages, aged persons without family support are found highly vulnerable.

The most significant aspects of the vulnerability assessments can be summarised as follows:

  • Larger villages with good access are less vulnerable.

  • Resettled populations, even in larger villages, are more vulnerable.

  • Many of the perceived threats are external, that is, beyond the control of the villagers.

  • Stronger households, and in particular women, have a keener perception of threats.

  • Vulnerability is directly related to the range and quality of assets owned/controlled by a household.

  • The link between resource mismanagement and natural disasters, and hence vulnerability, is not perceived.

  • Ethnicity and vulnerability are directly related, as certain ethnic groups have a limited range of assets and mechanisms to manage them.

6.2 Coping Strategies

When faced with economic, environmental, social and cultural threats, people adopt “coping strategies”. The CPC/UNCRD study classified these into three categories:

  1. Coping strategies that decrease vulnerability in the short and long terms;

  2. Coping strategies that decrease vulnerability in the short term but increase vulnerability in the long term; and

  3. Coping strategies that increase vulnerability in the short and long terms.

Coping strategies need to be incorporated into the planning process, especially at the village and district levels. Clearly, it is the first category that should be encouraged. Annex 1 includes tables indicating the coping strategies of the first category being used in the villages surveyed. Further, the tables distinguish between the strategies of women and men.

Women in almost all surveyed villages in the three provinces use a wider range of positive coping strategies than men. The differences in coping strategies between women and men indicate differences in exposure to vulnerability and access to assets, as well as the gender division of labour. Common positive coping strategies used by women are reducing expenses, raising livestock and poultry, and gardening. Those commonly engaged in by men are growing alternative crops and raising livestock. Other positive coping strategies are handicraft production, vending, and encouraging and co-ordinating with neighbours for joint activities. To address social concerns, villagers access health care and encourage and counsel children. Making alcohol and fishing are other ways of coping. Men mention requesting authorities for help as a coping strategy, which can be useful if there is an appropriate response by local authorities.

In the future, local planning will give increased attention to these coping strategies.

6.3 Policy Implications

From the vulnerability and coping analysis, the Government has drawn the following conclusions:

  1. While it is essential that most poverty reduction programmes and projects should focus on agriculture, education and health services, and provision of infrastructure, more effort is needed to reduce vulnerability at the local level and to enhance coping strategies.

  2. Four areas appear critical to strengthening positive coping strategies and to reducing negative coping strategies:

    • Human resources development through provision of a wide range of skills related to economic activities, community organisation, and environmental protection and management.

    • Environmental management of land, water, and forests resources. Traditional techniques need to be studied as well as new techniques for improvement of land quality, management of water during floods and droughts, and protection and replenishment of forest resources, starting at the village level. Dependence on the vast but dwindling environmental resources is a primary coping strategy with dangerous implications in the long term if the resources are depleted and degraded.

    • Access to credit seems to be the key to initiating alternative means of livelihoods to reduce vulnerability and food shortages.

    • Community mobilisation for participation in planning and implementation of projects for livelihoods, infrastructure, environmental resource management, and cultural preservation.

  3. While applying strategies to achieve the above, the peculiarities of each district have to be taken into account such as the geographic location, natural resources endowment, asset ownership and management patterns of local communities, as well as their cultural and lifestyle patterns.

The vulnerability and coping analyses have provided the Government with important new insights that will further enhance its approach to poverty eradication. Vulnerability assessment techniques have already been incorporated in management and training courses,33 with the result that many local planning officials are now able to undertake vulnerability assessments related to economic, environmental, social and cultural concerns.34 These training programmes must now be extended throughout the country.

One essential aspect has been stressed again and again and that is the vulnerability created by food insecurity. For this reason, the Government intends to intensify its co-operation with programmes such as those of the World Food Programme (WFP), which promotes ‘food for work’ (e.g., food for schools). Food security must be ensured while the people and communities engage in development activities that help them to achieve longer-term sustainable development.

The Government’s policy priorities concerning the implementation of a coherent approach to poverty eradication are summarised below:

Diagram 3.
Diagram 3.

Strategic Linkages of the NGPES

Citation: IMF Staff Country Reports 2004, 393; 10.5089/9781451822458.002.A001

PART III: Strengthening the Overall Environment for Sustainable Growth and Development

The National Long-Term Development Framework (NDF) builds on progress since 1975 to realise the Government’s goal of poverty eradication by 2020. The NDF incorporates the guidelines of the 6th and 7th Party Congresses (1996 and 2001, respectively). Table 13 provides a summary of the main elements of the NDF, including the long-term development indicators regarding living standards of the Lao multi-ethnic population. The main objectives and targets for the period 2001-2010 and for 2001-2005 are also presented. The NGPES is the NDF’s operational strategic format.

Table 13:

ELEMENTS OF THE 2020 DEVELOPMENT VISION Sustained Economic Growth with Equity

article image
Source: CPC - 2000

The Government’s development vision and strategies will continue to be refined through broad-based participation and refinement of short and medium-term plans by sector ministries and agencies. Training and capacity building will be strengthened at all levels, in order to deepen understanding of the policy issues and to better ensure that development plans and programmes are adapted to local conditions and needs. ‘Post-NGPES’ consultation will generate new analysis and insights. Realising the development vision will not be easy. Many intermediate steps will be needed. Five and ten-year objectives have been formulated so as to systematically improve the people’s material, social, cultural and spiritual well-being, resulting from continuous economic growth and focus on the poorest districts. Box 1 below outlines the objectives and targets to 2010.


  • ♦ Nationally balanced and sustainable social/economic development, and transformation of the country towards modernisation and industrialisation.

  • ♦ Enhance human resource development through: improved and extended education, training and health systems; create a favourable environment for the Lao multi-ethnic people to adapt to and manage the country in a global context: and improve the quality of life and increase community participation in the national development process.

  • ♦ Eradicate basic mass poverty and phase out slash-and-burn cultivation by 2010:

    • Strive for a GDP growth rate of not less than 7 per cent per annum, focusing on industrialisation and modernisation, resulting in the following sector shares of GDP: agriculture 36.6 per cent (2001: 51.3 per cent), industry 31.5 per cent (2001: 26.6 per cent) and services 31.9 per cent (2 001: 26.1 per cent). In order to achieve this objective, an investment/GDP ratio of 25 per cent per annum must be obtained.

    • Continue to build sectoral and regional economic structures, in order to effectively use natural and human resources in each region of the country.

    • Improve gradually the living standards of the multi-ethnic people.

    • Encourage food and commercial production, to establish food security by ensuring rice and food supply to the whole country.

    • Promote export of agricultural commodities.

    • Spur rural development, in order to progressively reduce mass poverty in rural areas. Slash-and-burn cultivation should be transformed by encouraging farmers to take up new occupations and se dentary productive activities.

    • Continue developing socio-economic infrastructure in order to facilitate the expansion of other se ctors, and increased exports.

    • Pay more attention to the cultural and social issues and human resource development by improving the quality of education in all branches and at all levels so as to be able to cope with the next step of development.

    • Control serious illnesses such as malaria and dysentery and prevent an HIV/AIDS epidemic.

    • Provide clean water for everybody by the year 2010.

    • Continue implementing ongoing priority projects and study the implementation of new projects deemed necessary.

  • ♦ And by doing so, to enhance peace and integration, national security and stability.

Source : CPC - 2000

The NGPES, as mentioned, translates the NDF’s development objectives for 2005, 2010, and 2020 into an operational format.35

Part III addresses one of its main strategic thrusts, namely macro-economic stability, strengthening the business environment, and public management consolidation. These are top priorities for the Government, both from the longer-term perspective of building-up the country and economy and the short-and medium-term goals of poverty eradication.

Chapter 1: Macroeconomic Stability as a Fundamental Requirement for Growth and Poverty Eradication

A stable macroeconomic framework is critical. The Asian financial crisis had a very negative impact on the Lao economy. High rates of inflation, steep depreciation of the currency and large fiscal and trade deficits occurred in Lao PDR during the crisis period (1997-2000). Geopolitical tensions (the 9/11 terrorist attack and Iraq war) and the SARS crisis hampered recovery, especially since the promising tourism industry and trade have been so seriously affected.

1.1 Overview of Macro-economic Performance During the Past Decade

Nevertheless, the overall performance of the economy has remained strong, as reflected in the annual average rate of growth of GDP of 6.3 per cent during the past 10 years (1992-2002). In particular, the industry and service sectors grew very strongly. The agriculture sector - all-important from an employment perspective - has maintained steady growth in recent years, bolstered by an extensive irrigation investment programme launched by the Government just prior to the Asian crisis. In 2003, industry accounts for about 24 per cent of GDP, up from 16.7 per cent in 1992. The service sector share edged up to around 26 per cent, while agriculture’s share fell from 58 per cent to 50 per cent.36

Prior to the Asian financial crisis, foreign direct investment (FDI) also contributed strongly to growth of the economy. FDI disbursements were US $128 million in 1997, but - as elsewhere in many parts of Asia - have dropped to much lower levels since the crisis.

The net result of these developments was that the 2000 target for GDP per capita could not be achieved. Instead of increasing over the 1996 level, GDP per capita actually fell by almost one-fifth to US $331. High inflation and sharp depreciation of the national currency (kip) severely undermined income when expressed in US dollars.

Inflation rose to 134 per cent in 1999; stabilisation measures quickly reduced inflation to 30 per cent in 2000 and to single digit levels in 2001 and 2002. However, the high inflation contributed to a steep decline in the exchange value of the national currency (kip), from 900 kip to the US dollar just before the crisis to about 10,500 kip to the dollar currently.

In addition to the impact of the Asian financial crisis, internal financial imbalances (notably high fiscal, trade and current account deficits) chronically affected macroeconomic stability. In October 1999, the Government took a series of important policy measures, including enhancement of tax and non-tax revenue collection and tightening of expenditure management. Also, budget financing through the banking sector was stopped. Trade reform and export promotion contributed to a more sustainable current account deficit.

These and other measures have supported a markedly improved macroeconomic environment since 2000. In that year, as a guide to monetary and fiscal management, the Government released its Macroeconomic Policy and Reform Framework. This framework is being progressively implemented and is an integral part of the NGPES. It includes three main reform programmes: the Poverty Reduction and Growth Facility (PRGF - IMF); the Financial Management Adjustment Credit (FMAC - WB) and the associated Financial Management Capacity Building Credit (CB-FMAC); and the Banking Sector Reform Programme (BSRP - ADB). A recent Public Expenditure Review has contributed further to the reform process.37

The PRGF supports the Government in strengthening macroeconomic stability through encouraging credit restraint, fiscal prudence, and a flexible exchange rate regime. More particularly, components of the PRGF include improvement of the treasury system, enhanced fiscal reporting and accountability, and tax measures to increase revenues. Trade and the role of the private sector are yet other areas included in the programme.

The FMAC addresses three areas: public sector reform (budget accounting and control, natural resource management); reform of state-owned enterprises (strengthening oversight capacity, enterprise restructuring, rate charges); and financial sector reform (banking, micro-finance). The CB-FMAC focuses on capacity building to help implement these reforms.

The BSRP addresses restructuring of the SOCBs, including of areas critical to proper banking practices (strengthening of the legal framework and the commercial court) as well as capacity building and policy development.

All these reform programmes are well underway and are yielding good results. Through time, they will contribute strongly to economic growth and poverty reduction.

1.2 Macro-economic Policy Measures and Poverty Reduction

In addition to the above, the Government has defined detailed macroeconomic policy measures for the following areas: i) fiscal policy, ii) monetary and exchange rate policy and iii) investment promotion policy. In combination, these measures will have a highly positive impact on the real sector, particularly the agriculture, industry and service sectors.38

Transparent and consistent implementation of fiscal policy is essential. A number of steps are presently implemented such as the improvement of debt management, both internal and external, the strengthening of the revenue system, the tightening of expenditure management tightened with a longer-term view to gradually balance current and capital expenditures, substantially increase wages and salaries and strengthen social security. Public investment must be more effective and resources safeguarded for the social sectors - particularly for the poorest districts. Management and co-ordination of ODA must also be strengthened to maximise its effectiveness.

Sufficient budgetary resources must be mobilised to coherently implement the NGPES. All economic sectors, including the private sector as the main engine for growth, must be encouraged to produce wealth and thus expand the taxable resource base. Private sector development, including foreign direct investment (FDI), will provide part of the needed resources for national development. It will directly contribute to financing crucial growth investments, and indirectly by expanding the national taxable base through the creation of wealth as a result of a market-oriented, taxable transformation of the national resources.

A strict Medium-Term Expenditure Framework (MTEF) will preside over revenue and expenditure management, and define the country’s financial possibilities. A well-mastered MTEF is also a guarantee for strengthened macro-economic management and thus poverty eradication.39

The Government is striving to achieve a much stronger national revenue base through i) continuous improvement of revenue collection and modernisation of the tax system, ii) the enhancement of private sector development, including foreign direct investment, and iii) increased revenue flow to the Treasury from investments undertaken through the valuing of the national resource base (such as mining, hydropower, plantation industry).

In particular, the Government will address the major structural weaknesses that presently constrain the fiscal system. These weaknesses include a lack of ability and competence, inexperience, insufficient mastering of fiscal decentralisation and a less than optimal monitoring of revenue and expenditure management at the provincial level. Among the measures taken are the improvement of the institutional framework for fiscal management and the strengthening of the legal and regulatory framework. The Government redoubles its efforts to enhance capacity at all levels, to expand the use of appropriate management technology and a better clarification of institutional responsibilities and job descriptions.

To further enhance a sound macroeconomic framework, the Government is giving heightened and urgent attention to price stability and reform of the financial sector. Thus, sound monetary and exchange rate policy, and banking require appropriate measures for creating the conditions for sustainable growth and poverty reduction. Monetary policy will focus on restraining inflation, and the Bank of the Lao PDR (BOL) will refrain from deficit financing and excessive expansion of the money supply. The exchange rate will continue to be managed on a floating basis, while ensuring that the spread with the parallel market rate remains small.

Reform of the banking system includes establishing and enforcing prudential lending practices, as well as stopping credit to bad borrowers. Credit will be extended on a commercial basis, ensuring that market discipline is instituted and maintained. Financial services will be extended throughout rural areas, and to the private sector. 40

Governance of the SOCBs will be strengthened and a more effective banking environment, through strengthened corporate management, will strongly enhance sound banking practices. La Banque pour le Commerce Extérieur Lao and the newly merged Lao Development Bank will, thanks to improved management, allow for rationalisation in their branch banking and head office operations.

Governance agreements with the BOL, the Ministry of Finance and the SOCBs boards and management define the principles and responsibilities underlying the restructuring programme, and make provision for independent audits. Defaults in the repayment of loans will be pursued vigorously, including through new prudential regulations and supervision and a revamped legal and judicial system concerning commercial cases. The high levels of non-performing loans, especially of SOEs, must be redressed. Limitations on asset growth will apply to SOCBs with high ratios of non-performing loans. Phased recapitalisation will ensure greater soundness. Increased competition among banks, including by private banks, will lead to a commercially-based banking system.

A revamped legal and judicial system for commercial cases will include improvement of the documentation requirements for loan applications and greater understanding of contract provisions. The introduction of a commercial division in the court system will expedite rulings on creditor/debtor disputes. In turn, this will provide the leverage needed to force compliance by enterprises with the contract provisions of loans extended to them by the banking system. Credit discipline is essential to mobilise financial resources and to facilitate proper intermediation.

The third area of macro-economic priorities is the promotion of an investment climate conducive to a strengthened business environment.

Chapter 2: An Enabling Business Environment for Enhancing Growth and Eradicating Poverty

The targeted economic growth rate of 7 per cent per annum over the next decade is necessary in order to achieve the 2020 goal of exiting the status of a least developed country. Achieving this target will require high levels of investment and savings. The necessary investment level has been estimated at 26-28 per cent of GDP, some 10-11 per cent of which will be by the public sector while some the remaining 16-17 per cent will be by the private sector, including FDI. In part, this high level of investment will be achieved through the implementation of large-scale projects such as the Nam Theun 2 hydropower project and mining projects.

All sectors must perform strongly in order to achieve an increase in domestic savings to help finance future investment requirements. In particular, the private sector must grow continuously, bringing with it new technologies and know-how, and competitive products.

The business environment for enhancing growth and eradicating poverty is thus critical. Investment policies and incentives will contribute to improving the business environment, notably for export production. Development of the natural resource-based industries will directly and indirectly create new job and income opportunities, including in poor and remote areas.

2.1 Macro-economic Stability and Financial Flows to the Private Sector

As elaborated upon in earlier chapters, macroeconomic stability is fundamental to creating a positive environment for business enterprise, especially private sector enterprise. Fiscal, monetary, and exchange rate policies must be in harmony, including credit limits consistent with price stability. An efficient and effective public sector is also fundamental; business enterprise -and again especially private sector enterprise - is dependent on the economic and social services provided by Government.

The banking and financial sector reforms outlined earlier are vital to encouragement of the private sector. Resource mobilisation and financial intermediation are the market means for guiding and supporting the private sector. A sound financial system, based on strong corporate management, will also encourage small and medium-sized enterprises to engage in productive activities. In this way, the private sector will increasingly become the link between growth and poverty reduction. In this way, too, the gap between rural and urban areas will be narrowed.

Of course, there are many dimensions to supporting the private sector; the identification of these dimensions has been greatly assisted by close consultation with the private sector, including foreign investors.

2.2 Specific Measures to Accelerate Private Sector Development

Meetings with the domestic private sector as well with foreign investors (First Foreign Investment Forum, May 2002) have identified four major areas contributing to enhancement of the business environment: information and consultation; legal, regulatory and administrative streamlining; macroeconomic management as well as co-ordination and management capacity.41

Information and consultation are key factors for a harmonious relationship with the private sector. Accordingly, the following steps will be taken: acceleration of the publication of English versions of all laws and regulations with regard to investment; publication of a newsmagazine on investment activities; and regular publication of important economic documents such as the national budget.

Direct consultation will be regularised with the Department for the Promotion and Management of Domestic and Foreign Investment, the Lao Chamber of Commerce and Industry (LCCI) and the GMS Business Forum Secretariat. The Ministry of Industry and Handicrafts held a widely attended meeting on industrial policy with the private sector in May 2003, follow-up meetings with the private sector will be held at regular intervals.42 The National Steering Committee for the Production of Commercial Goods will be strengthened to serve as a high-level body for co-ordinating economic policies and private sector development.

With regard to legal, regulatory and administrative streamlining, measures include the following: licence renewals; the ceilings on tax-deductible investment expenditures, the approval system for imports and exports; and business registration and licensing. Further, the establishment of a central register of all legal documents instruments related to private sector development is a high priority.43

Macroeconomic reform priorities focus on the restructuring of the financial sector. Improved credit risk management is a priority. Complementary measures presently under study include the enforcement of the Secured Transaction Law, and amendments to the Decree on Commercial Banks, which will permit the establishment of foreign bank branches outside Vientiane.

Improvement of co-ordination and management capacity includes enforcement of laws concerning bankruptcy, secured lending, dispute resolution and debt recovery. Enforcement of the new Tax Law will contribute to transparency and fairness, and will facilitate collection at the local level.

Additional measures include phasing-out the lump sum tax method for small businesses, and training of tax officials to improve overall administration. Strict penalties now apply to businesses and individuals that do not comply with the Tax Law.

As a matter of principle, the Government of the Lao PDR has increasingly involved the private sector in areas that until recently have been public responsibilities or areas of state enterprise.44 This trend will continue, as highlighted in the sector action plans (Part IV).

Chapter 3: Consolidating Public Sector Governance

As part of the drive for macroeconomic stability, and the conditions for economic growth with equity, it is important that there be efficiency, transparency and accountability in public sector management.

Since the establishment of the Lao PDR, governance issues have played an important role in the country’s efforts to foster national unity and establish the basis for sustainable and equitable development. The Government’s policy document on governance issues45 provides a comprehensive approach for improving public sector management, and has been fully integrated into the NGPES. Sound governance is essential to achieving a stable and open society, where the rights of the people are guaranteed by an efficient administration of the law.

The Government’s policy document on governance issues stressed four priority areas, regarding the consolidation of public sector management, namely i) public service improvement, ii) central-local relations, iii) legal framework and iv) socio-economic management.

3.1 Public Service Improvement

Improved public service, realistically applied, requires increasing the knowledge, ability and qualifications of civil servants in accordance with short and long-term needs. It also requires preventing negative social phenomena, to ensure that the country has a peaceful society and a stable political situation. Finally, and most importantly, it requires meeting the needs of the multi-ethnic Lao people in the most effective and efficient manner possible. Improved governance means, among other benefits, that scarce public resources are not wasted in unnecessary procedures and costly expenses - that are borne with most difficulty by the poor.

Increased transparency and streamlined government decision-making are necessary elements in improving the functioning of the public sector in the Lao PDR. Accordingly, the Government has established a Committee for Governance and Public Administration Reform, under the direct supervision of the Prime Minister. While the Government has no plans to fundamentally change the structure of the Government organisation, it is constantly striving to ensure that the lines of authority and division of responsibility best meet the needs of the country. In order to ensure that ministries are correctly fulfilling their functions and to support the Decree on Anti-Corruption (Decree No.193/PM, 2/11/1999), the Government has established Departments of Inspection in each ministry.

Since the Asian financial crisis in 1997/98, budgetary constraints have caused the Government to face particular difficulties in attracting and retaining qualified and motivated staff. Internal macroeconomic instability and high rates of domestic inflation resulted in serious erosion of civil service salaries. The Government recognises that this has undermined the motivation of civil servants (including teachers and medical personnel) and has caused absenteeism and in some cases the levying of unofficial fees or other charges. Consequently, the Government has been reviewing the pay and compensation system; salary levels have been increased (significantly in 2000) to the extent possible within existing budget constraints. It is also gradually introducing a merit-based appointment and promotion system to ensure a more highly qualified civil service at all levels.

In summary, the following are priorities:

  • Development of a lean, responsive and cost-effective public administration.

  • Modernisation of civil service personnel management, including job descriptions and merit-based recruitment and promotion, and the use of PMIS.

  • Development of a productive and highly motivated and customer-oriented civil service

  • Development of an honest and ethical civil service.

  • Training and development to enhance professionalism in the civil service.

  • ICT to facilitate, streamline and create communication networks across the Government.

3.2 Central-Local Relations

Poverty is greatly affected by the lack of accessibility of public services affordability, and their poorer quality in many instances. Much of this is related to the cost and difficulty of extending services to all areas of the country, especially to remote villages in mountainous terrain. But poor access to services is also exacerbated by lack of knowledge of rights and information about how the Government works, contributing to exclusion from decision-making. This hampers community participation and creates gaps between policy and practice.

The Government is committed to ensuring that the Lao people are closely consulted in all areas of decision-making and that they participate fully in the economic, social, cultural and political development of the country. To this end, the Government is redefining central-local relations. Instruction No.01/PM (11/3/2000) streamlines the responsibilities by the following designations: ‘the provinces as the strategic units, the districts as the planning and fiscal units, and the villages as the implementation units’. Within this framework, each ministry is gradually defining the central, provincial, district and village levels of responsibility, as part of a fully integrated approach to improving the management and delivery of public services.

The Government is also experimenting with a new form of local administration. The Urban Development Administrative Authorities, currently responsible for urban services in five urban areas, will soon be expanded to a further six towns across the country.46 The UDAAs will be able to respond more efficiently to the needs of urban areas.

To help supply essential social and economic services, and to help overcome budgetary limitations, the Government is encouraging the participation of the private sector and mass organisations. The Government has paid particular attention to studying methods of co-ordination between the state and society to ensure that all sectors have an opportunity to participate in the development process.

Redefinition of central-local relations can only be undertaken on a step-by-step basis, according to the capacity of local level officials to assume new responsibilities and the ability of the Central Government to monitor compliance with national priorities. In this context, therefore, the Government will proceed with the following priorities:

  • Improving communication with the people, especially in the remote areas.

  • Clarification of responsibilities for each level of government.

  • Redeployment of human resources from centre to local level.

  • Improving capacity for participatory planning and implementation at the local level, and

  • Improving the monitoring capacity of the central government.

By bringing local authorities, particularly from the village level, more into the decision-making and implementation process, the needs of the poorest areas will be better met.

3.3 Legal Framework for all People

The Government is committed to ensuring that all people are equally treated before the law, and that all laws reflect the real needs and priorities of the Lao people. The Government recognises that not all people in the society have equal access to and knowledge of their legal rights and responsibilities. Further, some people need to be given special consideration. Accordingly, top priority with respect to the legal framework is to ensure justice for the remote and disadvantaged peoples, especially in the poorest areas of the country. Special attention is being given to justice for children, young people and women.

Continued improvements in transportation, communications, and education systems are essential to securing ‘justice for all’. Other measures are also needed. Language barriers to the legal system must be resolved. The Government is discussing the best means to provide legal assistance for the multi-cultural (and multi-lingual) population generation. The provision of translation services by the Ministry of Justice is necessary, even if the variety of different languages in our country makes the financial costs very high.

The strategic objectives to improve the legal sector in favour of the poor are to:

  • Ensure the establishment of a clear, well-integrated legal framework.

  • Strengthen the capacity of all institutions in the legal and justice sectors.

  • Strengthen formal and informal methods of dispute resolution.

  • Ensure predictable and transparent mechanisms for legal enforcement, and

  • Improve the ability of all the peoples of Lao PDR to access the justice system.

3.4 Socio-economic Management: Land Use and Administration

While earlier chapters have already addressed key socio-economic management issues, including financial sector reform, another key issue is land use and administration. Improved land management and administration is a prerequisite for the sustained economic growth with equity, especially for the all-important agriculture/forestry sector. Accordingly, a National Land Use Planning and Land Development Department has been established in the Prime Minister’s Office. This Department is the Government’s lead agency concerning land use policy; it is preparing a master plan for integrated land management and land planning, which is expected to form part of the Roundtable process’ policy dialogues.47

Chapter 4: Sustainable Revenue Development

The revenue position of the Government is critical, for unless its position strengthens it will be very difficult to provide the public services essential to enhancing social development and livelihoods, to support business enterprise and overall economic growth. Nor will the Government be able to fulfil all the measures designed to eradicate poverty, including in the most remote and poorest areas of the country. Economic growth leads to both revenue growth and poverty reduction, prompting the Government to be very active in building-up and strengthening the conditions for economic growth. Nonetheless, in the medium-term, to keep the momentum for growth and poverty eradication, the Government continues to experience a large resource gap, despite tax reforms and enhanced collection efforts. The international community has been very generous in extending official development assistance to the Lao PDR.

The long-term goal will be to close the revenue gap and reduce the dependency on ODA. The Government expects to progressively reduce both through improved revenue collection and tax administration and expansion of the national revenue base. To expand the national revenue base, sustained growth of private sector enterprise will be vital.

To have a clear view on how the revenue base will evolve over time, the Government will strengthen its capacity to prepare medium to long-term public revenue and expenditure projections that include the following elements:48

  • A realistic base case projection of GDP, with high and low case alternatives in the event that the base case proves too conservative or too optimistic.

  • Revenue projections based on the GDP projections, disaggregated to show growth in each of the revenue sources (e.g., imports re customs duties).

  • Supplementary revenues expected from tax reforms (e.g., introduction of a value-added tax) and improved administration (e.g., from the Large Taxpayers’ Unit).

  • Revenue losses expected from phasing in of AFTA/CEPT.

This will be completed with case projections of expenditure according to sector requirements (sector-wide planning, for instance) and particular priorities (wage and salary increases, for instance) to assess options with regard to available revenues. A task force will be needed to prepare such public expenditure framework, and time and resources will be needed to do the task properly - especially in terms of estimating the resource needs associated with the NGPES goals, such as universal primary education and health services for all.

The Government is working to ensure that revenue increases from tax reforms and administrative measures are both efficient and equitable, and in a manner that supports the goal of poverty alleviation. Recent income tax changes and the new Tax Law are designed to be consistent with these objectives. The progressive tax structure reflects the principle that taxes should not be levied on citizens who have little tax paying capacity. The Land Tax is set at a low rate, in acknowledgement that most farmers are in this category. Several of the exemptions from the Turnover Tax have been introduced to assist the poor, such as the exemption from tax on family-based sales of agricultural and handcraft products by farmers and co-operative members.

Revenue projections will be based on sound assumptions. In addition to macroeconomic simulations and trend analysis, the prospects of the main sectors of the economy will be assessed, in particular agriculture. Modernisation and commercialisation of the agriculture sector is projected to result in steady growth of 4-5 per cent annually. A well-managed forestry will enhance the overall growth of the sector. The increasing integration of the economy means that the agro-industries and other sectors will benefit from these developments, cumulatively building up the Government’s revenue base.

Another source of growth relates to the recent surge in approvals for proposed foreign direct investment projects. Eighty-four projects were approved in FY 2001-02, totalling $494 million. This represents a tenfold increase over approvals the previous year, even though actual disbursements remained about the same ($74 million). This development is linked to the gradual improvement in the regional economy, but also to the more positive environment for FDI in the Lao PDR. The expected boost in FDI inflows will greatly spur economic growth, and growth in the revenue base for the Government.

This link is well illustrated by the Nam Theun 2 hydropower project. Indicative revenue flows to the Government from this project, over 25 years of operations, are estimated to be at least US$ 1.8 billion, of which royalties represent US$ 776 million, income tax US$ 423 million and dividends US$ 622 million.49

FDI in the mining industry is already starting providing a healthy injection of revenues for the Government. Over the next ten years (2003-14) total earning from the mining industry are projected to be more than US$ 1.5 billion, of which approximately US$ 500 million will accrue to the Government in the form of royalties (US$ 40 million) and taxes (US$ 460 million).50 It is estimated that newly opened or about to open copper and gold mines will create more than one thousand jobs for local people, and lead to even more jobs through the multiplier effect. Investments in the tourism and tree plantation sectors are also generating economic growth and growth in the revenue base against which tax and non-tax revenues can be drawn.

The Lao PDR’s strategic location as a land link for the GMS countries should act as yet another boost to economic growth. The GMS Subregion (Cambodia, Lao PDR, Cambodia, China/Yunnan Province, Myanmar, Thailand, and Vietnam) is one of the most dynamic in the world, with a population soon approaching 300 million. Completion of transport corridors and other projects linking the Subregion offer great benefits for the Lao PDR. The transport corridors will include special economic zones (SEZ) and industrial estates, such as the SEZ proposed for Savannakhet-Seno. These investments will further increase the Government’s revenue base.

The regional approach to development is incorporated in the Five-Year Socio-Economic Plan. Four regions have been distinguished to better target and implement the Plan: the Northern Region, the Central Region, the Southern Region, and Border areas. The latter are of strategic importance for strengthening the safety and security of the nation, and they play an important role in enhancing trade and tourism. At the same time, the border areas require attention because of the need to stop illegal trade (wildlife, timber, drugs etc.), the trafficking of women and children, and the HIV/Aids endemic, and other concerns.

There are no particular administrative structures as such for these regions, but the Government considers them appropriate planning and investment co-ordination entities. Despite differences in development levels among the provinces forming a region, each region faces a common set of needs, such as trade facilitation with adjacent provinces in neighbour countries. Such considerations make the region an appropriate reference point from which to plan development and help eradicate poverty.

The Government is increasingly promoting regional development planning and investment. This is illustrated by preparation of a Northern Region Development Strategy and the formulation of a “Growth Triangle” between the Lao PDR, Vietnam and Cambodia. Membership in ASEAN and the AFTA, and active involvement in the GMS Program, underscore the Lao PDR’s commitment to regional co-operation and integration.51 The Lao PDR’s participation in the Mekong-Ganga Basin Commission and the “Emerald Triangle” for the development of tourism between Laos, Cambodia and Vietnam further demonstrates the Lao PDR’s involvement in regional development.

Taken together, these initiatives will strengthen economic growth and the revenue base for the Government. However, revenue mobilisation remains one of the most difficult and important challenges facing the Government. Much rests on meeting the challenge successfully. Donor assistance and advice in this regard is needed.

PART IV: National Sector Plans to Promote Sustainable Growth and Poverty Eradication

In its Report to the 7th RTM (November 2000), the Government highlighted, within a “growth with equity’ framework, the main sectors, supporting sectors, cross-sector priorities, and national programmes vital to sustainable growth and poverty eradication. The NGPES incorporates and elaborates upon these areas of focus:

  • The “main sectors” of agriculture/forestry, education, health, and transport (esp. road infrastructure).

  • The “supporting sectors” include trade, tourism, manufacturing and energy.

  • Cross-sector priorities, including environment, gender, population and capacity building.

  • National poverty-related priority programmes such as drug control, UXO decontamination and HIV/AIDS.

The various sectors, national programmes and cross-sector concerns have been chosen in consideration of the country’s development obstacles, needs and opportunities, but also in response to the poverty assessments described in Part II. By careful investment and support for each policy area, and by sound macroeconomic management and improved governance, the Government expects the following results:

  • Food security, which is perceived as an essential accomplishment for poverty reduction.52

  • Human resource development, enabling diversification and modernisation of the economy, together with effective participation by the people.

  • National integration, leading to reducing regional and rural/urban income gaps by facilitating a more equal sharing of resources and access to public goods.

  • Social progress, leading to quality education and healthcare for all, improved status of children, women and ethnic minorities; and other social services.

Each sector ministry has a nation-wide mandate to help build an integrated economy, while at the same time focusing on initiatives and programmes that benefit poor districts. One cannot be achieved at the expense of the other; a balance must be struck between investments that are needed to build the country as an essential condition for sustainable long-term poverty eradication, and those investments that have an immediate impact on reducing poverty.

As noted earlier, the 47 poorest districts and a further 25 less-poor districts have been identified through a consultation process and PM Instruction 010. Most of these districts, particularly the poorest villages within them, are difficult to access. This has discouraged investment and hindered international assistance. With improving access, following extensive investments in roads, communications and other infrastructure, all sector strategies are better able to contribute to the Government’s top priority - meeting the 2020 goal of exiting the status of least-developed country. In this way, solidarity within the Lao PDR’s multi-ethnic society will be strengthened.

The following chapters summarise the sector and supporting sector strategies, cross-sector priorities and national programmes designed to both strengthen economic growth and eradicate poverty.

Chapter 1: Poverty-Focused Agriculture/Forestry Development Plan: Policy and Investment Priorities

A top priority for the Government of the Lao PDR is to modernise the agriculture and forestry sector in a manner that fully meets sustainable practices and that achieves food security and better livelihoods for all Lao people. The goal of poverty eradication and graduation from LDC status by 2020 depends on a more productive agriculture and forestry sector. Farming defines the character of the country, and working the soil and raising of livestock and fishery are second-nature to the Lao multi-ethnic population. It is a character that the Government is committed to protecting. In addition to strengthening the quantity and quality of agricultural output, this requires management of the Lao PDR’s forests in a manner that both conserves this essential resource and encourages sustainable forestry practices.

The agriculture and forestry sector provides the economic, social and cultural base for more than 80 per cent of the population, and accounts for more than 50 per cent of GDP. Subsistence farming is still widespread, characterised by low inputs (little use of fertilisers or quality seeds) and low outputs (yields), with the result that farming incomes are very low, especially in the poorest districts. The Government is firmly of the view that more progress in modernising the sector can and must be made, while respecting the traditions of the Lao way of life and the rich diversity of its ethnic minorities.

All levels of government and all stakeholders will exercise great care in this endeavour. The marked differences between the lowlands and uplands of the Lao PDR call for very different approaches to agricultural reform. Transition from central planning to a more market-based economy calls for much greater reliance on the private sector, and a more supportive role for the Government. The marked differences between pioneer and rotational shifting cultivation call for different approaches. Ethnic sensitivities and language barriers call for highly localised policy and programme responses.

There are many challenges but also many opportunities ahead. The Government is committed to a fully participatory process, from the village level up, in meeting these challenges and realising opportunities. The Lao PDR is strategically situated in a huge and ever growing regional market, offering trade and investment opportunities that can lift the agricultural sector into the new millennium. The Government’s development plan for the agricultural sector builds on these opportunities in a comprehensive and compelling manner.

1.1 Goals for the Agriculture and Forestry Sector

The Government has clear development objectives for the agricultural and forestry sector to 2020, designed to contribute to the overarching goal of poverty alleviation:

  • Ensure food security for all Lao people.

  • Maintain a growth rate in agricultural output of 4-5 per cent annually.

  • Promote commodity production, especially for export.

  • Stabilise shifting cultivation and eradicate poppy cultivation.

  • Diversify and modernise the agricultural and forestry sector.

  • Conserve the natural environment and protect threatened species and habitats.

  • Maintain a healthy and productive forest cover as an integral part of the rural livelihood system, and generate a sustainable stream of forest products.

  • Improve rural livelihoods.

The Government recognises that these are ambitious goals; public and private sector partnership, together with support from its international partners in development, will be needed to meet them.

1.2 Situation Analysis

The agricultural/forestry sector has been extensively analysed.53 Some highlights from this analysis include the following:

  • An estimated 620,000 households depend on agriculture, of which some 490,000 rely on subsistence farming.

  • The Lao agriculture is dominated by three main farming systems: dry-land rice cultivation, employing shifting cultivation techniques in the northern and eastern mountain regions; paddy rice cultivation along the Mekong River; and the cultivation of horticulture crops in the highland areas of the south.

  • Rice is the single most important crop, accounting for 40 per cent of agricultural output; in addition to paddy rice, rural households obtain their basic food needs from raising livestock and fishery and gathering non-timber forest products (NTFP).

  • Agricultural output has risen steadily over the past decade, by 4-5 per cent annually on average; rice output has increased following irrigation investments and other initiatives since the mid 1990s; livestock production has increased by 50 per cent, and fishery by 160 per cent.

  • While the country’s food needs are currently being met from domestic production, a stable supply remains uncertain because of inappropriate farming and domestic marketing systems.

  • The crop sub-sector is characterised by low use of improved varieties of rice, fertilisers or pesticides; irrigation and double cropping are also quite limited; agricultural support (e.g., extension services) remains inadequate due to budget and technical limitations; crop yields per hectare are below average for the region; and harvest and post-harvest technologies are weak.

  • Agricultural development is closely interwoven with rural development; poor market access reflects lack of all-weather roads linking rural areas to domestic and international markets; distribution networks have yet to be established in most areas.

  • Relative to the uplands, the lowland areas are more mechanised and make more use of agricultural inputs (improved seeds, fertiliser); because of better transport links, they are also more market-oriented and commercialised.

  • Reassessment of the land-forest allocation programme54 is needed, particularly as it applies to upland areas where shifting cultivation is widespread; shortened fallow periods, together with population pressures, have resulted in declining yields and hardship in some upland areas.55

  • Preliminary results from the most recent survey (2000-2002) suggest that forest cover has further diminished from the level in 1992, due to a number of causes under assessment.

1.3 Strategic Responses

The Government of Lao PDR is pleased with progress to date in modernising and strengthening the agriculture sector. As shown by participatory poverty analysis, progress in improving food security is of utmost importance for the poor.

The Government’s strategy for maintaining this progress combines building on success to date while introducing new thrusts to speed modernising and strengthening of the sector. Since the needs and circumstances of lowland and upland cultivation are unique, the Government has differentiated its strategic responses. Table 14 illustrates a market-based approach for the lowlands. However, due to the lack of basic infrastructure and other services, and the widespread poverty and lack of capacity of people in upland areas to break out of poverty, the Government must and will take a more proactive approach to helping them.

Table 14.

Alternative Agricultural Development Strategies56

article image

The Government’s Strategic Vision for the Agricultural and Forestry Sector, which has guided progress in recent years, includes seven key themes, as summarised below:

  1. Participatory Planning, so as to ensure sensitivity to local needs and circumstances, and to support preparation of district plans for lowland areas and the preparation of integrated watershed plans for upland areas; village and district level action is the main catalyst for growth of the agricultural sector.

  2. Lowland Transformation, whereby the strengths of lowland farmers (market access, more modern farming techniques) help expand exports of commodities (the Commodity Production Programme).

  3. Sustainable Development of Sloping Lands and Environmental Management, including protection of National Bio-Conservation Areas (NBCAs), regulation of harvesting of NTFPs, and a multi-sector and community-based approach to land allocation and management.

  4. Stabilisation of Shifting Cultivation, the Government aims to stabilise shifting cultivation by 2005, through the promotion of on-farm and off-farm activities, facilitated by district extension workers knowledgeable in alternative rural livelihoods.

  5. Expansion of Irrigation, projects are being managed more effectively and new projects are expanding the area under irrigation.

  6. Human Resource Development, emphasis is being given to upgrading MAF staff, especially at the district level, to improve participatory planning, extension techniques and understanding of the market system and role of the private sector.

  7. An Enabling Environment for Business Development, this is central to promoting economic growth with equity, as stated in Part III of the NGPES.

The Government has adopted an area-focused development approach, which places a high priority on more sustainable land use and the identification and designation of agro-ecological classifications. Forest conservation is integral to this approach. In particular, the river basins and watersheds must be better managed and protected, otherwise the country will lose control of its vast hydrological resources, resulting in flooding or drought, soil erosion and other highly damaging consequences for the agricultural sector and the hundreds of thousands of dependent households. Further, the Lao PDR’s rich bio-diversity will be lost, again at great cost to the people, especially the poorest. Most rural households gather food, medicine, firewood and other products from the forests; for those in mountainous areas, forest products frequently serve as the main source of income.

In particular, area-focused development aims at providing a whole range of alternatives to remote communities. Area-focused development opportunities include livestock-based farming, non-timber-forest-products-based upland farming systems and others already devised upland development strategies, including more viable land allocation systems. In this way, people have options to choose from in order to improve their livelihood locally without having to move.

The area-based approach thus addresses directly or indirectly the issue of the dynamics of population mobility in Laos. Most of Laos’ population has always been a population on the move for a number of reasons: in the past, as a consequence of 60 years of wars (the establishment in 1975 of the Lao PDR brought peace to the country), but also through shifting cultivation and poppy cultivation (people move to new places as a consequence of declined land fertility) and of other factors (road development, available development zones and/or markets, population pressure, and so forth). As a fact of life, people who move in search of improved conditions for livelihood and access to social services are in general poor, living in remote, scattered communities, with very fragile livelihood systems and without access to the needed social services. The development, both in the upland and lowland regions, of flatland areas is another development alternative pursued by the Government in response to movements of villages from areas where there is not enough carrying capacity. The Government does its utmost to prepare these focal areas in a systematic and organised manner to ensure that such moving villages, on a spontaneous or participatory and planned basis, have a chance to ‘consolidate’ in the best possible way. The Government’s policy of providing development options in targeted areas (‘area-focused development’), be it in the plains or the mountainous areas, that have economic potential is a sound policy. Villages, and especially the poorer ones, have a great deal of resilience in addressing the complexities of the uplands, including moving to more favourable areas to have better lives, to opt for new survival strategies from own initiatives.

Thanks to the area-focused development approach, people/communities have a possibility to establish themselves in their chosen territories as this approach aims to provide the necessary conditions for strengthening livelihood and food security and access to essential services (roads, electricity, schools, medical facilities, water, and sanitation). With a successful implementation of a focused, harmonised area-based development approach, the impact of wide-spread voluntary movements of people, undertaken without preparation and at great risks, can be mitigated successfully. For this reason, the Government gives great importance, in order to avoid people hardship, to discuss with them their movements and to prepare them in a participatory and consultative way. Systematic emphasis on community participation will help realise positive outcomes. Thus, the area-focused development approach tries to respond to the peoples’ aspirations. It also helps to reduce shifting cultivation and poppy cultivation while enhancing local development potential, through provision of local infrastructure, access to basic social services, encouragement of food and commodity production as well as income-generating activities. In this way, the area-focused approach will help foster and achieve transition from subsistence level rural activities to more market-oriented production favouring accumulation of wealth and private initiatives. However, given limited public resources, both financial and human, implementation faces constraints. This approach implies close co-ordination between all sectors involved to work together in order to focus resource allocation in specific areas or territories as part of a coherent and integrated district development plan.

The participatory poverty assessments carried out since 2000 have drawn attention to the need to ensure that these focal development areas can support the new inhabitants, and that issues related to livelihood, ethnicity and others, including immediate access to basic services and food security, are properly addressed. The Government’s priority is thus to improve the implementation of these policies in order to respond to people’s aspirations to improving their livelihood and access to services while having an opportunity to settle down, if they wish so.

Chapter 8 of Part IV of the NGPES elaborates on the area-focused rural development approach and in particular on district planning to ensure coherence and co-ordination for focused resource allocation.

1.4 Poverty-Focused Agriculture/Forestry Development Priorities

The Government’s development plan for the agriculture and forestry sector is both national and local in its application. National policies and programmes must address factors that apply throughout the country, such as the trade regime under which agricultural products are exported and imported. Such policies, together with the national transportation network and other framework infrastructure, play a vital role in helping to modernise and commercialise the agricultural sector. As such, they play a vital role in helping to reduce poverty. The Government is constantly reassessing its policies and programmes that bear upon the agriculture and forestry sector, to ensure they serve the sector effectively and efficiently while favouring the interests of both the poorest and less poor people.

While the economy is progressing towards the stage where transformation and growth will be possible, it is important that national policies and programmes be adapted to changing circumstances. In this spirit, for instance, the Government is reassessing the Land-Forest Allocation Programme. A policy dialogue process for this purpose has been established.

The first and foremost concern is improving conditions and opportunities in the 47 poorest districts. The second priority concern must be the other 25 districts identified as poor. Once the circumstances of these districts are more satisfactory, remaining pockets of poverty will need to be resolved. The agriculture-related aspects of poverty will be addressed following the principles of sustainable resource utilisation and land-use planning:

Food security and Food self-sufficiency: Through the Food Production Programme, the Government is committed to meeting its obligation made at the 1996 World Food Summit (FAO, Rome): to reduce the number of undernourished people by 50 per cent of the 1996 level by no later than 2015. From the point of view of Lao villagers, the fundamental causes of their poverty are those that affect rice yields and numbers of livestock.57

In direct response, the Government’s poverty-focused agricultural development includes the following measures, with special emphasis on poor households:

  • Participatory surveys in districts and villages, to clarify local needs and adjust extension services in response to socio-economic/agro-ecological conditions.

  • Distribution of improved paddy seed to increase yields.

  • Training district level extension agents/farmers on improved cultivation techniques.

  • More effective use of existing irrigation systems.

  • Strengthening the animal health control system through distribution of vaccines and training farmers in their use.

  • Strengthening livestock and fisheries extension systems, and

  • Strengthening information networks on productivity, disease, and markets.

Reduction in vulnerability: This includes minimising risks to rural households from drought and flood damage and livestock diseases. Also, risks associated with the market-based system are being addressed. Specific measures include:

  • Controlling unsustainable harvesting and export of NTFPs.

  • Improving agricultural practices and land management to ensure sustainable use, together with disease and pest control.

  • Rehabilitating and improving the operation and maintenance of irrigation schemes, and development of groundwater resources.

  • Construction of flood protection structures in flood prone areas.

  • Improvement of access roads and access to credit.

  • Improvement of information on local and regional market conditions.

Increasing the value of outputs: Through the Commodity Production Programme, the Government is promoting agricultural exports. Specific measures include:

  • Market incentives for farmers, including private sector contract farming.

  • Establishment of a grading and classification system to improve product quality.

  • Participatory land use planning and resource management.

  • New crops based on agro-zoning and market-based private sector investment.

  • Application of area-based applied technology.

  • Strengthening of the participatory agricultural extension system; also private sector extension services, farmer vocational training and model family farms.

  • Livestock health and fisheries promotion programs.

  • Development and distribution of area-based applied technology.

Strengthening of rural communities to ensure increased earnings from value-added processing activities: Programmes for strengthening community-based institutions, rural finance and credit programmes, market data collection and dissemination, and the organisation of farmer groups will contribute to the strengthening of rural communities.

The Government’s development plan includes support for access to and availability of market and price information. Land use rights and villagers’ ownership of land use rights are being strengthened through review of procedures for land allocation to farmers and land titling. Additional measures include the following:

  • Formation and training of farmer organisations, including water users/irrigation associations, and joint liability credit and contract farming producer groups.

  • Construction of district feeder roads and improvement of market access roads.

  • Rural finance mobilisation, tailored to meet farmer needs (i.e., credit for improved seeds, fertilisers, agricultural chemicals, draught animals, etc.), based on market determined interest rates and open competition.

  • Training for villagers in organisation and management of contract farming and village savings and credit groups; also, support for Village Development Funds.

  • Facilitating agro-processing at the household, community, and rural levels.

1.5 Agriculture Policy Priorities

The above outline provides the main elements of the Government’s development plans for the agriculture sector. However, there is much more in the details of market orientation, participation, human resource development, decentralisation, diversification, technology transfer, sustainability, and integrated watershed management. Forestry is addressed in a subsequent section.

Market Orientation

Market principles are being blended with community-based initiatives to facilitate the transformation from subsistence to commercial farming. In this context, farmers are being assisted to diversify into cash crops, horticulture, livestock, fishery and NTFP, based on socioeconomic and agro-ecological considerations in each region. Applied research and district extension services support these initiatives. The principal elements of the market orientation include:

  • Removal of distortions for agribusiness development in the functioning of factor markets, such as subsidised credit and fertiliser, and clarification of laws and regulations (e.g., licensing) to reduce impediments and transaction difficulties experienced by the private sector.

  • Increased credit availability through a strengthened Agriculture Promotion Bank and other financial institutions; structured loans to meet farmers’ needs and facilitate micro-finance.

  • Facilitation of land occupancy entitlement, land tenure, titling and village management.

  • Training of MAF staff at all levels in principles of market-based agricultural system.

  • Strengthening the ability of communities to compete in local and regional markets, including through establishment of a market information system.

  • Establishment of a grading and certification system for commercial crops and NTFP.

  • Support for establishment of agro-processing by private sector and farmers’ groups.

  • Trade facilitation and regional economic integration; expand the Common Effective Preferential Tariff Inclusion List.

  • Formalising cross-border trade flows.

Participation and Human Resource Development

Community-based participation is viewed as the catalyst for diversifying and modernising the agricultural sector. Indeed, community-based participation is fundamental to the area-focused development approach that forms the core of the Government’s strategic plan for the agriculture sector. For participation to be effective, a long-term commitment is needed to build capacity at the local level. The main elements include the following:

  • Fully decentralised “bottom-up” participatory planning.

  • Strengthen capacity of communities to participate in development planning and to take responsibility for natural resources management.

  • Extend and improve the quality of the school system, as an investment in upgrading the skills of farmers and their ability to participate effectively in community interests.

  • Extend and improve the informal education system, to improve literacy in rural areas, especially in the poorest districts.

  • Introduce farmer vocational training and on-the-job training, particularly in the poorest districts.

  • Support women’s groups to participate in the review of training and extension services.

  • Train provincial and district agricultural personnel in planning, monitoring and evaluation, project formulation and implementation.

  • Review of the Land-Forest Allocation Programme to make it more participatory and community-led, including by the following measures:

    • Technical assistance to improve the land allocation process.

    • Develop capacity at provincial and district levels to better address land allocation.

    • Undertake periodic reviews of allocation procedures concerning NBCAs.

  • Promote community-based irrigation plans and farmer organisations.


Consistent with a more market-based approach and an area-focussed development approach, the Government is redefining central-local government relations: “the provinces as the strategic units, the districts as the planning and fiscal units, and the villages as the implementation units”. Accordingly, the Ministry of Agriculture and Forestry is reviewing responsibilities at each level to develop a fully integrated yet highly responsive system to local needs and opportunities. The MAF will:

  • Develop procedures and capabilities for participatory land-use planning within area-based programmes and projects.

  • Strengthen the overall capacity of PAFOs and DAFOs, especially the latter.

  • Transform MAF to become a farmer-service organisation, capable of responding quickly to farmers’ needs in a market-based economy.

  • Continue to expand upon decentralisation of development planning, research and extension functions; also, community-managed irrigation systems.

  • Regarding integrated management of watersheds and the transformation of lowlands, the responsibilities are:

    • Provincial level:

      • Ranking of watersheds.

      • Strategic development options.

      • Priorities for sub-watersheds.

    • District level:

      • Watershed zoning.

      • Specific development interventions.

      • Identification of buffer zones and conservation areas.

    • The village level is the implementing unit.


To encourage cash crops, horticulture and livestock as supplements and alternatives to rice cultivation diversify, the Government is relying primarily on market incentives and better services (e.g., rural roads and access to credit) to assist farmers willing to diversify. As noted earlier, in the case of uplands areas the Government is taking a more proactive approach, in recognition of the special hardships they face. In addition, the Government’s objective to phase out shifting and poppy forms of cultivation requires special assistance. The Government will:

  • Strengthen multi-sector approach to reduce shifting agriculture.

  • Indicative planning based on comparative advantage and rural socio-economic indicators.

  • Assist shifting cultivation farmers to become successful sedentary farmers.

  • Assist poppy growers to develop alternative livelihoods.

  • Strengthen and extend irrigation systems, for both sloping and lowland areas.

  • Design and implement pilot groundwater irrigation schemes.

  • Promote seed multiplication services.

  • Strengthen the animal health control system and livestock extension system.

  • Introduce a meat inspection system.

  • Provide technical assistance to private sector for animal improvement and breeding.

  • Establish participatory extension systems to promote inland fisheries.

  • Promote private sector participation in plantation forestry and agroforestry.

  • Promote cultivation of NTFPs.

Technology Transfer

Available technologies offer the potential to greatly increase crop yields, horticulture produce and livestock production. Also, domestic research can contribute significantly to raising agricultural output. According, the Government’s development plan for the agriculture sector includes the following:

  • Develop an integrated extension system to transfer agricultural production technologies to the poor people and upgrade the capacity of NAFES in extension, particularly for uplands areas.

  • Ensure that research (NAFRI) and extension services (NAFES) are demand-driven.

  • Extension programme for adaptive research and demonstrations on farmers’ fields.

  • Introduce basic post-harvest handling and processing methods to farm families and communities.

  • Develop area-based applied technology and agro-zoning.

  • Develop suitable technologies for overall improvement in livestock production.

  • Develop applicable technology for inland fisheries, including pond management and feeding. Also, develop improved varieties of inland fish.


The Government’s development plan for the agricultural sector balances growth and conservation concerns, taking into account the socio-economic and agro-ecological conditions of each region. Long-term sustainability of the Lao PDR’s natural resource base is essential for poverty eradication. The Government’s commitment to finding and maintaining the proper balance is reflected in points already raised. Further measures include the following:

  • Raise awareness of government officials and farmers regarding need for sustainable practices.

  • Strengthen the capacity of provincial and district offices to undertake natural resource planning and management.

  • Education and training in modern agricultural technology, and in local farming techniques and knowledge.

  • Promote farming systems that are best suited to soil and hydrologic structures, to prevent degradation and minimise siltation and runoff.

  • Prevent encroachment, illegal activities and bio-diversity degradation in NBCAs by law enforcement, capacity building and village participation in conservation.

  • Control unsustainable harvesting and exporting of NTFPs.

  • Map flood risk areas and strengthen and extend flood control structures.

  • Identify and conserve local aquatic resources.

  • Sustainable forestry management is addressed separately.

Integrated Watershed Management

The Government recognises that the Lao PDR’s watersheds have an essential role in natural resource conservation. They also play an essential role in maintaining a healthy agriculture and forestry sector. In co-operation with the Mekong River Commission, MAF has developed a multi-sector and community-based process for area-based socio-economic and integrated agricultural development. Accordingly, in addition to measures listed above, the Government is committed to rebuilding the watershed through integrated management methods, including the following:

  • Decentralise responsibilities, as indicated earlier.

  • Implement integrated area-based natural resources management centred on watersheds.

  • Pilot projects (three conducted so far) in integrated watershed management.

  • Develop integrated watershed management models, adapted to different geographical locations and reflecting different socio-economic and biophysical conditions.

  • Develop IWM plans for 8 northern provinces (location of the priority watersheds).

1.6 Sustainable Forestry Management

The Government is committed to reversing deforestation and to achieving 60 per cent forest coverage by 2020. The Lao PDR is blessed with valuable, productive and ecologically unique forests. They are an important source of food, medicine, energy, and income for the people, particularly for the poor people and ethnic minorities in remote mountainous areas. Forests contribute 7-10 per cent of the GDP, and 15-20 per cent of the non-agricultural GDP. The forestry industry accounts for about one-third of total exports; forest royalties account for about 11 per cent of total government revenues.

Employment in the wood processing industry makes up one-quarter of all manufacturing jobs. Forests also conserve the country’s rich bio-diversity and protect its soils, watersheds, and water resources. Conservation of the forests, while at the same time building a strong forestry industry, is a difficult challenge. It must be met.

The 1st National Conference on Forests in 1989 called for establishment of a comprehensive forestry legal system, urgent actions for ecosystem/wildlife conservation and strengthening of forest institutions and human resource development. More recently, the 7th Party Congress in 2001 set the development targets for 2005, 2010, and 2020, which were subsequently endorsed by the National Assembly. In addition to the goal of 60 per cent forest cover noted above, these targets included stabilising shifting cultivation by 2005 and phasing it out completely by 2010. Tree plantations for commodity production are to be strongly promoted, with the aim of rehabilitating and reforesting approximately 1.5 million hectares. The 7th Party Congress also called for accelerated classification and delineation of forests for protection, conservation and production purposes. As stated earlier, maintenance of a healthy and productive forest cover is integral to the rural livelihood support system.

The Government has taken a series of actions to realise these objectives. National Conservation forests have been established throughout the Lao PDR, and now cover more than 12 per cent of the total land area. The legal framework has been strengthened, including by promulgation of the Forestry Law and related laws and the issuance of implementing regulations. Several Prime Minister Orders and Decrees now control harvesting and sales of forest products. The Government has sharply reduced the annual harvest of logs, from a peak of 734,000 m3 in 1999 to some 260,000 m3 in both 2000/01 and 2001/02. Over the past ten years there has been a noteworthy reduction in the area under shifting cultivation. Establishment of the National Agriculture and Forestry Research Institute and the National Agriculture and Forestry Extension Service now provide co-ordinated and field-oriented research and extension services, contributing to developing alternatives to shifting cultivation. Over the past five years some 113,000 ha have been planted with trees.58 Over the five years to 2000, land and forest allocation was carried out in more than 5,300 villages; this included the allocation of degraded land for farming and tree plantations, and the allocation of forests for protection or other uses.

Still, more action is needed to conserve the forests and put the forest industry on a sustainable basis. The Government is presently completing an analysis of recent survey material compiled from satellite data during 2000-02, in order to update the status of forest cover in the Lao PDR. However, forest cover is clearly much less than it was in the mid-1960s (about 70 per cent) and it appears to be somewhat less than in 1992 (47 per cent). In many areas, forest degradation is as serious as deforestation. The Government is deeply concerned by this situation.

Management of forests needs to be strengthened to deal with such issues as lack of an integrated land and forest management system, insufficient law enforcement, weak institutional capacity and the lack of funds and resources.

The Government will take strong measures to ensure that the forests are revitalised and that the forestry industry operates within allowable harvest limits. A strategy paper has been drafted under the leadership of MAF, supported by SIDA and JICA, and is being considered by the cross ministerial steering committee assigned to guide the strategy’s development.59

It incorporates the lessons learned from numerous production, conservation, reforestation, and forestry plantation projects. The Government is anxious to complete the dialogue process and recognises the need for extensive consultation with community groups and all other stakeholders.

Lessons learnt include the success of participatory forest management.60 A Sustainable Forestry and Rural Development programme is under consideration that will further develop models for participatory management of production forests and community forestry, and reform timber royalties and prices. In addition, a Tree Plantation for Livelihood Improvement project is currently being formulated at the Department of Forestry. Both projects aim to develop alternative sources of income for rural households and contribute to the reduction of poverty.

Consistent with these initiatives, the Government strives to implement the following measures to alleviate poverty and to ensure more sustainable management of Lao forests:

  • ♦ Enhance village-based natural resource management for poverty alleviation.

  • ♦ Revise the system for harvest determination, from focus on capacity of the wood industry to focus on sustainable supply.

  • ♦ Restructure the wood industry in Lao PDR to bring processing capacity into closer accord with a sustainable raw material supply.

  • ♦ Control unsustainable harvest and export of NTFPs by unregulated traders and promote sustainable participatory management and processing of NTFPs.

  • ♦ Promote tree planting; formulate mechanisms (through collaboration among MAF/DOF, NAFRI, and STEA) for certifying sustainably managed tree plantations.

  • ♦ Prevent encroachment, illegal activities and bio-diversity degradation by effective law enforcement, capacity building, and the participation of villagers in conservation activities.

  • ♦ Formulate a national land use policy and introduce land use planning at both the macro and field levels.

The Government is committed to a reform agenda for the Lao forestry sector. The improved forest management and utilisation program seeks to bring the production forest under long-term, scientific-based management through implementation of the following measures:

  • Define forest management units and prepare management plans.

  • Strengthen the legal and regulatory framework.

  • Increase reliance on market approaches and mechanisms.

  • Restructure state-owned enterprises.

  • Complete the decentralisation process and capacity building at local level, facilitating community-based forestry management, and

  • Effective mobilisation of resources and international co-operation.

As stated in the Strategic Vision for the Agriculture Sector, the Government is fully committed to preserving significant areas of natural forests to conserve biological diversity and to protect its many regional environmental assets. To this end, MAF is employing an area-based and decentralised development approach, centred on integrated watershed/river basin management, with the environmental benefit of providing protection to natural forests.

The establishment of agro-ecological zones nation-wide will delineate land for lowland/flatland and sloping land agriculture, bio-diversity conservation, and watershed and sloping land suitability classification. Using this approach, the MAF will promote the wide replication of community-managed natural resources, including the participatory management of production forests. The Land and Forest Allocation Programme is being modified to be more community-led.

Support for increased private sector participation in plantation forestry and agroforestry is being intensified to relieve pressure on natural forests. Improved environmental management of natural forests will be demonstrated by an expansion of forest cover, reduction of soil erosion, and other biophysical indicators.

1.7 Priority Programmes for Agriculture and Forestry

In the course of preparing a master plan for agricultural development to the year 2020, MAF has identified numerous projects that will enhance agricultural productivity, upgrade product quality, and reduce the vulnerability of poor communities. The proposed projects are detailed in the master plan and are being considered by the Government.61

The first group of eleven projects includes activities related to fisheries, livestock, non-timber forest products (NTFP), seed multiplication, horticulture, and rural finance. These are high priority activities because they can be implemented almost immediately, have a significant impact on value added, and most importantly generate increased income and create employment opportunities for poor households in rural areas. The projects with the highest priority are listed on Table 15.

Table 15.

Poverty-Focused High Priority Projects

article image

The most important short- and medium terms factors to be addressed through implementation of these high priority projects include the following:

Aquaculture projects

  • Insufficient investment in freshwater fisheries activities.

  • Lack of knowledge and technical capacity to practice alternative livelihoods.

  • Lack of knowledge of integrated fish-paddy farming system.

  • Low protein intake of rural people due to dependency on diminishing wildlife.

Livestock projects

  • High mortality rates of livestock from ordinary and epidemic diseases.

  • Limited knowledge among farmers of livestock diseases.

  • Low level of investment compared to the importance of the subsector.

  • Limited coverage and low quality of animal health activities.

  • Low protein intake of the general population.

Non-timber forest products projects

  • Income from NTFPs is largely derived from unprocessed primary products, due to lack of knowledge of processing possibilities, and

  • Lack of awareness of the need for harvesting of NTFPs on a sustainable basis.

Seed projects

  • Lack of private sector investment in seed technology.

  • Absence of private sector traders in seed varieties suitable to local conditions.

  • Small local market for hybrid seed varieties.

  • High cost, low quality, and poor suitability of imported seeds.

  • Lack of local sources of improved varieties of basic seeds, and

  • Lack of research and extension services re improved varieties of rice.

Micro-finance projects

  • Only a small percentage of the rural population has access to credit.

  • Credit for irrigation, rural access roads, crop storage, processing facilities etc. is limited.

  • Guidelines and procedures for borrowing are not readily available.

  • Financial institutions are inexperienced in managing micro-finance programmes, and,

  • Borrowers (farmers and SME investors) have little experience in financial management.

Outer City Horticulture Programme

  • Tracts of land nearby towns suitable for horticulture remain under-utilised.

  • Migrants from rural areas to towns are unable to access these tracts.

  • Urban employment often does not meet the needs of poor households in suburban areas.

  • Migrants lack access to credit for investment in peri-urban agricultural activities.

  • Suburban horticultural crop producers lack knowledge of urban marketing techniques.

The projects with the second highest priority are listed on Table 16. Priority in this group is given to research, extension, and crop diversification initiatives. The proposed projects are expected to facilitate increased diversification of the agriculture sector and offer livelihood alternatives (such as sericulture) for rural poor people.

Table 16:

Poverty-Focused Second Level Priority Projects

article image

1.8 Overall Coherence, Institutional Development and Capacity Building

The poverty-focused agricultural/forestry development plan is a major component of the Government’s overall strategy of economic growth with equity. The essence of the plan is the application of the seven thematic approaches for agricultural development, and area-specific development that reflects local socio-economic and agro-ecological conditions. In this way, the Government will ensure food security while diversifying agriculture, thereby reducing poverty through income generation and the creation of employment opportunities. Further, the plan will strengthen the capacity of farmers, provincial and district agriculture officers, and agricultural researchers and technicians, enabling them to modernise the agriculture sector and compete in a market-oriented economy.

The promotion of agro-industrial development, including SMEs, will be concentrated in lowland/flatland areas and selected borderland areas, where agriculture has reached a certain level of sophistication and where producers are more market-oriented. An important element in the promotion of agribusiness and agro-industries is the establishment of a positive business environment, while promoting ecologically sound development (Cf. Part III, Chapter 2 and 3). In addition to an improved regulatory and overall business environment, the Government will strengthen the financial system (notably the Agriculture Promotion Bank) and streamline lending procedures (Cf. Part III, Chapt.2). A mobile credit network will be established to circulate among rural villages to bring banking services to farmers. The Government views credit access as critical to facilitating the growth of small-scale enterprises, leading to value-added agricultural products.

Many elements of the Government’s comprehensive approach to growth and poverty eradication bear importantly upon the agriculture/forestry sector, including initiatives for the transportation, education, energy, and trade sectors. In all cases, care has been taken to ensure that there is a coherent, well integrated and co-ordinated approach - reinforcing the policies and programmes described in this Chapter. In particular, care has been taken to reduce if not eliminate impediments to the growth and competitiveness of the agricultural/forestry sector.

The Government is especially concerned that the capacity of its staff to serve and support the agricultural/forestry sector is strengthened, and that the capacity of farmers and other participants in the sector have the skills and techniques to compete effectively and efficiently in open market conditions. The Government’s objective is to have farming system generalists at the grassroots level capable of providing adaptive research-based extension services to farmers. Accordingly, the Government will reassess the education and training systems, together with the research and extension services, to ensure that human resource development is “fast-tracked”62. Initial efforts will focus on the training of trainers and a core research staff in vital areas such as seed multiplication and fish breeding, followed by further training of research technicians and district extension agents. Vocational training schools will be established. Gender priorities are set forth in Part IV, Chapter 6.63

Chapter 2: Poverty-focused Education Development Action Plan: Policy and Investment Priorities

Education is a major determinant in meeting the goals of poverty eradication. The people of Lao PDR must be literate and possess knowledge about modern agricultural methods and other skills, to be able to meet international competition and standards. A special effort will be made to further realise the social and cultural requirements of all ethnic groups so that the education system promotes equality. An improved education system will ensure girls and boys will have equal chances to succeed. The Government places great emphasis on individual and community initiative, and the need for strong leadership at the local level. Strong leadership is needed to take charge and help realise the opportunities that will arise as the country becomes increasingly integrated both nationally and regionally. Besides being fundamental to strengthening the capacity of people to work efficiently and to expanding their horizons, improvements in education will generate important health and good governance benefits for the country as a whole.

Participatory poverty assessments indicate that education is a low priority for the poor people64 Many poor villagers view education as unavailable, unaffordable and/or secondary to securing their livelihood. The Government is determined to change this view, through improving the education system and showing its real value in a modernising economy. The proper design and management of increased investments in education will make a significant contribution to reducing poverty.

The Government’s three principles of increased equitable access, improved quality and relevance, and strengthened management provide the framework for achieving “education for all”. Further, the Government’s efforts aimed at redefining central-local relations (decentralisation) will enable greater efficiency and effectiveness in providing education services. Nonetheless, the task ahead is very demanding, both because there is so much to do to upgrade the existing system and so much to do to extend the system to remote villages. The young age structure of the population adds to the challenge. The Government will gradually increase the share of education in the national budget and encourage support and active participation of all stakeholders.

2.1 Goals for the Education System

The Government’s goals for education and training include the following:65

  • Universalisation of quality basic education at the primary level66 and continued expansion of participation at lower secondary level, ensuring that all people have the opportunity to apply their education to serve the socio-economic program.

  • Eradication of illiteracy, thus providing poor people with a means of helping to improve their quality of life.

  • Expansion of vocational, technical and higher education to meet the demands of the new labour market and to improve economic rates of return on human capital investment.

  • Training of skilled workers, technicians, professionals, and intellectuals to have the capacity to apply modern science and technology to serve development needs.

  • Gradual improvement of the quality of national education to international standards.

  • Establishment of education as a core of human resource development and the planning and management of appropriate invest in education, and

  • Establishment of education as a right and responsibility of all people in the society.

Specific targets for education and training to the year 2020 are shown in Table 17 below:

Table 17:

Selected Education Targets

article image

Additional targets include:

  • Reduce repetition and drop-out rates by 2-3 per cent per annum.

  • Upgrade untrained teachers to achieve basic qualifications, and

  • Improve management of the education sector.

2.2 Current Education Status

There have been very significant achievements over the past decade in extending and improving the education system. For example, the net enrolment rate (NER) for primary school rose from 58 per cent to nearly 80 per cent during the 1990s. As another indicator of growing participation in the school system, the net intake rate (NIR) has been steadily rising.67 Also, the proportion of formally qualified teachers has risen considerably. Reflecting improving access and quality, repetition and dropout rates have fallen significantly, contributing to greater internal efficiency of the school system.68 Increasing percentages of children are completing all five grades. The LECS 3 2002/03 household survey is expected to show further improvements in enrolment rates and qualifications of teachers. Since the early 1990s, development assistance has provided extensive support in strengthening all aspects of the education system, especially for school construction.

Despite these achievements and overall progress, there are many weaknesses and deficiencies in the education system. Highlighted below are the most serious problems that need to be redressed:

  • 15 per cent of villages in the Lao PDR are without a primary school, and most villages lack a complete primary school (i.e., all five grades); the situation in the Northern Region is of particular concern; nation-wide, 90 per cent of schools in the poorest districts are incomplete, and more than 40 per cent of students attend an incomplete school; urban areas have much better school facilities than rural areas.

  • Based on national school census data over the past five years, differences in access between the poorest districts and the less-poor districts are lessening, but differences in quality appear to be widening; the proportion of trained teachers is rising steadily in the less-poor districts, but it is falling in the poorest districts.

  • Shortages of qualified teachers are acute in many districts; approximately 20 per cent of primary school teachers are unqualified to teach.

  • Divergence is also evident for textbooks; there one textbook per 2.3 pupils in the 47 poorest districts, compared to one textbook per 1.5 pupils in the less-poor districts.

  • Net enrolment rates vary widely, from almost 100 per cent in Vientiane to little more than 50 per cent in some northern and southern provinces; primary school age children are twice as likely to be out of school in the poorest districts as in the less-poor districts.

  • Gender disparities in enrolment are significant in some areas, notably in the Northern Region where the economic cost of sending girls to school is considered high - especially by some ethnic groups - given the priority for food security and household needs; gender differences have not diminished in the 47 poorest districts; for the country as a whole, the girl/boy share of primary school students is 45 per cent versus 55 per cent.

  • Language is a serious barrier to school enrolment, with the result that ethnic minorities have much lower net enrolment rates and much higher dropout and repetition rates.

  • Late school entry is common; some 60 per cent of six-year olds in the 47 poorest districts are not enrolled in school.

  • Only about 50 per cent of children complete primary school, about 20 per cent enrol in secondary education, and about five per cent complete the full six years; vocational training opportunities are limited; less that 2 per cent of Lao children go to university.

  • As noted in the introduction, many poor families do not see the relevance of formal education for improving their livelihoods; lack of interest by parents discourages children from attending school.69

  • Overall adult literacy is about 70 per cent; some 70 per cent of the labour force have either no education or never completed primary school.

Table 18 provides an overview of the education system in the Lao PDR, showing the number of schools (private and public) and the number of students for each level of schooling (pre-school, primary, secondary, vocational, technical and university). In total, about 1.2 million children and young people were enrolled in the education system in 2001/02. That is, some 23 per cent of the total population were enrolled in the school system, reflecting the young age structure of the population. In terms of the under 19 age group, some 50 per cent of school age children and young persons were enrolled in school. The role of the private sector is noteworthy, as it has financed schools and training institutes at all levels, especially at the secondary level. In 2002, the number of high school graduates reached 29,000 (1975: 440).

Table 18.

Education System in Lao PDR

Number of Schools and Enrolled Students: 2001/02

article image
Source: MOE - Statistics Handbook 2003

In summary, although considerable progress has been achieved, the current status of education in the Lao PDR is still below what is needed to lift the country out of poverty. A very large investment is needed to ensure that the younger generation receives complete primary education, and that growing numbers of students gain secondary, vocational, technical and university education. In addition to universal literacy and basic numeracy, the country needs skilled and highly knowledgeable people to adapt new technologies and to be the leaders of tomorrow.

2.3 Poverty-focused Education Priorities

The Government is committed to increasing the resources available for the education system, in recognition that improved education is fundamental to eradicating poverty. Past allocations, especially following the outbreak of the Asian financial crisis in 1997, have been insufficient, reflecting very tight fiscal circumstances. This has resulted in difficulties in meeting recurrent expenditures (e.g., teachers’ salaries). There is a serious imbalance between recurrent and capital expenditures; whereas the ratio is now about 55:45, the Government is targeting a ratio of 70:30 by 2008. The Government is also committed to raising the share of the consolidated (central plus provincial) budget for the education sector; from 10.1 per cent (planned) for 2001/02 to 15 percent by 2005/06.70

Somewhat less than 50 per cent of total public recurrent expenditure on education is allocated to primary education. The proportion varies substantially among the provinces. In light of the importance of primary education in helping to break the cycle of poverty, the Government is committed to a target of 50 per cent by 2004. Some 16 per cent of the education budget is allocated to lower secondary education, 8 per cent to upper secondary education, and 7 per cent to higher education.71

The Government’s education development plan will focus on the 47 districts identified as the poorest districts in the country. Table 17 indicated targets for these 47 districts, namely: to achieve a 70 per cent enrolment rate for primary education, and 42 and 20 per cent enrolment rates for lower secondary and upper secondary education, respectively. Also, the literacy rate will be raised to 65 percent.

2.4 Strategic Framework for Development of the Education Sector

The strategic framework for the development of the education sector in the long term rests on three major pillars: (a) Increasing equitable access; (b) Improving quality and relevance; and (c) strengthening education management and improving efficiency.

Increasing Equitable Access to Education

Inequities in Access. In Lao PDR, access is broadest at the primary level, more constrained at the lower secondary level, and still more constrained at other levels. There are several reasons for constraints on access, including:

  • Poverty: the poor participate less at every level of education than the non-poor;

  • Location: those who live in accessible areas participate more than those in remote areas;

  • Population density: urban populations participate more in formal education than rural or remote populations;

  • Gender: males participate more than females in most sub-sectors; and

  • Language: those who speak Lao as a first language participate more than others.

These reasons are inter-related. Remote communities tend to be poor and populated by ethnic minorities. Poor families are less likely to send their children to school than less poor families. Socio-economic differences in educational participation increases with each stage in the education system. The Government aims to widen access patterns to include those groups who do not now participate fully.

Balanced Sector Development. The sequential nature of formal education implies that increasing participation in upper secondary or post secondary education must begin at basic education or before. What is needed is balanced development of the education sector.

The most important target for increasing equitable access is universal quality primary education by 2015, with equitable access and completion as medium-term objectives. This is a very large undertaking, involving extensive construction of new classrooms, training of new teachers, and production of new instructional materials. It also involves addressing geographic and gender disparities, delays in school entry, incomplete schools, internal efficiency, and quality and relevance, especially for the remote, poor, and ethnic minority communities.

The introduction of multi-grade teaching at the provincial level responds to a situation where the number of student is relatively low and the ratio teacher/student is low.

Candidates for the large numbers of additional primary school teachers required should normally be at least lower secondary school graduates and preferably upper secondary school graduates. They will attend teacher-training colleges (TTCs). The teachers of these future teachers should normally be at least TTC graduates and (for upper secondary school teachers and TTC teachers) university graduates.

More equitable access must be extended beyond primary school to other levels. Non-formal education and training in literacy, numeracy, and livelihood skills directly support community development, leading to improved living standards. Similarly, vocational, technical, and formal education and training directly support improved productivity and lead to higher living standards. Structural changes are needed in the vocational and technical education and training sub-sector to make it more responsive to emerging labour market demands.

The expansion of primary education is driving the demand for secondary schooling, supported by the community, GOL, ODA and the private sector. Expansion of primary, secondary, and higher education is phased sequentially. The resource requirements for universal primary education and expansion of higher levels of the education system must be realistically evaluated, including not only costs to the Government but also costs to families and communities.

Improving the Quality and Relevance of Education

Quality and Relevance. Increasing access to education must go together with relevant high quality learning outcomes. The gradual transition of the Lao economy from subsistence agriculture to a technology and service base requires a workforce that is at least literate and numerate. There will be a gradually increasing labour market demand for specialisation in commercial, technical, and professional skills. In addition to the socio-economic dimension, education must also fulfil personal needs for meaningful growth and development.

Perceptions and Participation. The perception of education held by parents and the community is crucial for promotion of participation. If they regard schooling as irrelevant to their own situation or their children’s expected situation in the future, they are less likely to make the sacrifices necessary to ensure the education of their children.72

The participation of out-of-school youth and adults in formal or non-formal education and training (for example in literacy training or livelihood training) is also dependent on perceptions of relevance and utility. This reality underscores the Government’s commitment to improving the quality and relevance of the education system.

Content and Methods. Quality and relevance of education and training are influenced by the content and methods of delivery. The curricula and syllabi content of instruction must reflect priority outcomes for the Lao education system and be perceived by the community as meaningful and useful. Equally, the teachers and the instructional materials must be capable of effectively supplying the content in a manner and language that students can efficiently assimilate.

The Government’s goal of universal basic education by 2015 requires the voluntary participation of virtually all school age children and the acceptance by their families. Making the curriculum and instructional materials and methods meaningful, relevant, and useful in the perception of the children, their parents, and the community must proceed in parallel with implementation of the Compulsory Education Decree. The Government is committed to this two-track approach.

Local Needs and Local Options. The primary school curriculum is flexible and can be adapted to the situation according to the context as long as it remains within Ministry guidelines. It specifies that “about 20 per cent of local curriculum can be added”.73 This 20 per cent of local content is seldom if ever applied. The Government will encourage district and village education authorities to exercise this option in order to improve the relevance of the curriculum. The Government will also instruct district and village education authorities to exercise their authority in applying the Compulsory Education Decree, particularly their responsibility for the implementation and resourcing of primary education.74 In combination, these steps by the Government will help make schooling more relevant to local needs.

Quality of the Teaching/Learning Process. The Government is committed to strengthening the quality of the teaching/learning process is order to strengthen the quality of instruction. Accordingly, the Government will pursue the following: (a) measures to steer teachers to teach in remote areas; (b) measures to provide teacher training to persons from remote and ethnic minority communities who will return to their communities and teach; and (c) measures to improve the efficiency and effectiveness of the teaching/learning processes in ethnic minority communities.

In addition, the Government continues to strengthen the role of the pedagogical advisers at all levels.

The Government provides salary incentives for teaching in remote and mountainous areas. This incentive salary supplement ranges from 15 - 25 per cent of gross salary and is not subject to taxation. In addition, since small remote communities often have too few children of school age to make it economically feasible to provide one teacher for each grade, the Government provides a salary supplement for multigrade teaching. It ranges from 25 - 50 per cent of the base salary. In combination, these two supplements provide a typical primary school teacher with an incentive increment in take-home pay of approximately 70 per cent. Graduates from teacher colleges receive an additional bonus of 10 per cent.

The Government recognises, however, that salary incentives may not be sufficient to attract qualified teachers to remote areas. MOE policy is to increase the number of qualified ethnic minority teachers, especially at the primary level. This policy is supported by several development co-operation projects targeted specifically on poor districts.75 Over the past three years, the proportion of ethnic minority primary school teachers has risen gradually, at approximately the same rate as the proportion of ethnic minority students.76

An important measure to improve the efficiency and effectiveness of the teaching/learning process involves the language of instruction. The ethno-linguistic complexity of the Lao PDR poses great difficulties in providing effective educational services, especially for ethnic minority children entering primary school who do not speak or understand the Lao language of instruction. The Government has recently approved an Ethnic Group Development Plan as part of its ongoing consideration of how best to respond to the education needs of the multi-ethnic Lao population.77

Strengthening Education Management

Decentralised Management. The Government’s third strategic thrust for improving the education system is strengthening education management, importantly through the decentralisation of management. Under the Government’s decentralisation process initiated in 2000, MOE delegates and shares responsibilities with the Provincial Education Services (PES) and the District Education Bureaus (DEB).78 Decentralised management covers:

  • Planning management.

  • Budget formulation and financial management.

  • Personnel management.

  • Management of property, equipment, and materials, and

  • Academic and technical management.

Decentralised management will make the education system, especially the primary and lower secondary levels and non-formal education, more responsive to the needs of communities. In turn, this will improve the relevance of the education system to the needs of the poor. Because the poor are often marginalised, however, education officials must increase their “poverty awareness”. In multi-ethnic, multi-linguistic communities, this “poverty-awareness” will need to include sensitivity to the cultural needs of ethnic minorities.

Management Development, Organisational Development. In order to implement the changes needed to improve access of the poor to quality education, the Government is committed to strengthening the administrative and management capacity at all levels (central, provincial, district, community, and institutional). This includes information-based planning, finance and procurement management, personnel management, management of property and equipment, and academic and technical management.

The Government is reviewing capacity development needs at the institutional level. Lines of reporting and authority need to be clarified to ensure that the Government’s education goals and guidelines are adhered to at all levels.79

Information-Based Policy Development. Related to consistency in policy, the Government will strengthen the capacity of MOE, the PESs, the DEBs, the communities, and institutions to develop policy, gather resources, develop strategic priorities, and implement change. In support of improved, information-based policy analysis and decision making, a Policy Analysis Division will be created within MOE. This unit will be responsible for providing policy support, management of the policy analysis program, and staff development in policy analysis. Financial resources will also be provided for a series of policy studies, including education sector financing and language policy and practice concerning teaching non-Lao speaking primary grade students.

Management will be further strengthened by enhancing the capacity of the Ministry to use tools such as education management information system (EMIS), geographic information system (GIS) and information and communication technology (ITC) within the local area network. (LAN). The reform of the inspection system aims to provide more systematic support by developing and conducting annual training courses for school staff in order to strengthen both the academic and management performance.

2.5 Poverty-focused Application of the Strategic Framework

The Government’s actions to strengthen the education system, especially the primary level, will contribute importantly to poverty reduction. To ensure that its actions benefit the poor, the Government will undertake additional steps on behalf of the 47 districts identified as requiring priority attention over the next two years. These steps are summarised in the Tables 19-21 below. More detailed information is provided in the background document to the NGPES.

Table 19.

District-Focused Education Priorities Improving Equitable Access

article image
Table 20.

District-Focused Education Priorities Improving Quality and Relevance of Education

article image
Table 21.

District -Focused Education Priorities Strengthening Education Management

article image

2.6 Emerging and Cross-Sector Issues

In addition to increasing equitable access to quality education for all Lao people, especially the poor, the Government must address a number of emerging and cross-sector issues that importantly involve the education system. These include the following:

  • HIV/AIDS: This pandemic needs to be treated as a social issue, not just as a health issue. MOE will develop instructional and reading materials on life skills for preventing spread of the disease.

  • Drugs and Drug Control: In collaboration with MOH and other ministries, MOE will develop awareness programmes to help eradicate drug use among school students.

  • Information and Communications Technology (ICT): The Government will encourage investment in computer technology and facilitate use of the internet, particularly in remote and poor areas. Education and training in ICT will be promoted.

  • Distance Education: The Government is planning to create a distance education centre at the National University of the Lao PDR.

  • Unexploded Ordinances (UXO) Decontamination: UXO awareness is mainstreamed into standard teaching schedules.

  • School Feeding Programme: MOE promotes primary school participation of poor and vulnerable children, especially girls, in food-insecure areas through a school feeding programme.80

  • Population: MOE is strengthening its research and instructional capacity to support the Government’s policy of balancing population growth and socio-economic development;

  • Health Education: MOE aims to integrate health education and promotion into the primary and secondary curriculum, and to expand school sanitation;

  • Gender Equity: MOE mainstreams gender equity into virtually all its activities; it also has a number of specific “pro-girls” activities.

  • Children with Special Needs. For children with special needs, MOE focuses on inclusive education.

2.7 Roles and Responsibilities for Sector Development

As noted earlier, the Ministry of Education is responsible for formal and non-formal education at all levels. As also indicated, this responsibility is now shared with the Provincial Education Services and the District Education Services, with provincial authorities responsible for secondary and vocational education and district authorities responsible for pre-school, primary and informal education. MOE is responsible to higher education, technical schools and teacher training colleges.

Individual communities also play a strong role in development of the education sector. They often support primary education, including through the construction and maintenance of school facilities, the employment of teachers, and the payment of teacher salaries (or forms of assistance such as land and housing).

The private sector is a further participant. Over the past decade there has been impressive growth in private sector education activity. As indicated in Table 18, there are numerous private schools at the pre-school, primary, and secondary levels. There are also private vocational schools, especially for language courses, computer skills, and business administration and management. Private colleges have emerged in urban areas. The Government welcomes the participation of the private sector, for it enhances educational opportunity and enables public funds to be used in support of the poor, remote areas where the private sector is unlikely to be active.

The Government also welcomes, of course, the very generous support of the international community. In the early 1990s, very little international support was extended to the education sector but the growing recognition of its importance - both by the Government and the international community - in fighting poverty has resulted in a major shift in priorities.

In 2001/02, $38 million was disbursed to the education sector by multilateral, bilateral and NGO organisations. This represented slightly more than 10 per cent of total international assistance to the Lao PDR. Remarkably, 20 per cent of assistance from international NGOs was directed to the education sector; bilateral and multilateral agencies directed 12 and 8 per cent, respectively, of their assistance to the education sector. Collectively, international assistance financed more than 70 per cent of capital expenditures (mainly schools) for education.

To strengthen its partnership with the international community in support of the education sector, the Government has welcomed establishment of the MOE-Partner Co-ordination Forum. Dialog with development partners is essential in order to ensure that development of the education sector is sound and well-balanced, including between recurrent expenditures and investment in capital facilities. Partnership and dialog among all stakeholders is a recurrent theme of the NGPES, but it merits special emphasis concerning the education sector.

A five-year policy/programme development matrix for the education sector is attached in Annex 3 (Table 3.2).

Chapter 3: Poverty-focused Health Development Plan: Policy and Investment Priorities

The Government of Lao PDR began the new millennium with a vision of health care to 2020, setting out goals and programmes in response to the needs and priorities of the Lao people81. Since formulation of the 2020 vision and strategy, the Government has made further progress in developing a sector wide approach to health care. Over the past two years, the Ministry of Health, together with the support and advice of Japan and other stakeholders, has prepared a master plan for achieving basic health care for all and for meeting the millennium goals.82

Health care is a vital dimension of the National Growth and Poverty Eradication Strategy, both because it so importantly affects the welfare of the Lao people and because it bears importantly upon the ability of young people to learn and for those in the labour force to work productively. Investment in health care is a long-term commitment, requiring expansion of the health system and improvements in the quality of service. Through time, effective and efficient use of resources devoted to the sector will yield very large material and non-material benefits to the Lao people. The contribution to poverty reduction will be significant.

The Government is determined to achieve high health standards. The NGPES sets out in summary form the agenda for the next 5-10 years, and the general course of action to 2020. More work is required to focus the agenda consistent with budget constraints, and the assistance of the Lao PDR’s partners in development in this regard will be important. In particular, detailed costing of the programmes necessary to achieve the health goals must be undertaken. The Government’s resources are extremely limited and there is a great deal at stake in ensuring that resources for the health sector are employed as effectively and efficiently as possible. Primary health care will be the focus. If life styles are consistent with good hygiene principles, then much of the burden of disease and ill-health is preventable.

3.1 Goals for the Health Sector

The Government has a comprehensive set of goals and objectives for the health sector. The overarching goals are as follows:

  • A nation-wide health service that is fair and equal according to gender, age, social rank, tradition, religion, ethnicity, and geographic location.

  • Basic health services that respond to people’ needs and expectations and that gain people’s trust.

  • Substantial improvement in people’s health status, especially of the poor.

To achieve these goals, the priorities are “access with quality” while emphasising preventive health care. The Government is committed to meeting the Millennium Development Goals, which includes meeting a number of health-related targets - as shown in the accompanying table.

Table 22:

Health-Related Millennium Development Goals (MDGs)*

article image

As based on the UN Millennium Declaration.

3. 2 Current Health Status

Considerable progress has been achieved over the past ten years in improving the health system in the Lao PDR and, more importantly, in improving the health of the Lao people. For example, life expectancy at birth has increased from less than 50 years before the 1990s to about 59 years currently. Still, Laos’ health status is among one of the less favourable in the region.

Communicable diseases, such as malaria, diarrhoea, cholera, dengue haemorrhagic fever, intestinal parasitism, tuberculosis, acute respiratory infection, measles, and STD/AIDS, remain common or are serious threats. At the same time, non-communicable diseases and health issues are emerging, such as drug addiction, cancer, diabetes, hypertension, cardiovascular diseases, neuralgic diseases, and mental illness, as well as traffic accidents. The Lao PDR is in transition to a more modern society, inheriting new health problems while yet to fully control more traditional problems - including the very high infant and maternal mortality rates stemming from weak health services. The following sub-sections illustrate what has been accomplished and the challenges ahead.

Progress in Improving the Health System and Health Indicators
  • The number of health facilities has increased by 75 per cent compared to five years ago;

  • The Lao PDR has been declared free of poliomyelitis since 2000.

  • Other target diseases such as neonatal tetanus, measles, pertussis, and diphtheria have substantially decreased.

  • Mortality from malaria has been reduced by 60 per cent in rural areas (compared to 1996).

  • Leprosy has decreased from 1.5/10,000 in 1995 to 0.6/10000 currently.

  • Access to clean water in rural areas has increased from 31.8 per cent in 1995 to 56 per cent currently.

  • Access to latrines has increased from 29.6 per cent in 1995 to 36.3 per cent currently.

  • Maternal, infant and under five infant mortality rates (MMR, IMR and U5MR, respectively) have dropped significantly:

article image
Challenges Ahead
  • As noted earlier, the health status of Lao people compares poorly by regional standards.

  • Recent surveys and reports indicate serious disparities in health indicators and in access to and in the quality of health services.83

  • Infant and under five mortality rates are twice as high in rural areas compared to urban areas, while maternal mortality rates are more than three times higher; in remote mountainous areas and among ethnic minorities the disparities are even more marked.

  • Limited access to health services is one of the reasons for these disparities; almost 30 per cent of the population in the north (the poorest region of the Lao PDR) live 16 km from a health centre; language is also a serious barrier to use of health services.

  • Severe poverty, malnutrition, illiteracy, superstition, non-hygienic lifestyles and opium growing are other causes for low utilisation of public health services.

  • The low quality of services is yet another cause.

  • Availability of four essential drugs (chloroquine, paracetamaol, antibiotics and ORS) is much less in rural areas; only 40 per cent of villages have ready access to these drugs; the drug revolving funds are poorly managed.

  • Health personnel are limited, especially doctors who concentrate in urban areas; the shortage of female health workers discourages women from using health centres.

  • Only a third of the population makes use of public health services; households meet more than 50 per cent of their health costs through out-of-pocket expenses - mainly for drugs; Government financing accounts for only 10 per cent of total health expenditure.84

  • The heavy reliance on private health care drives the poor deeper into poverty.

As this illustrates, there are many health challenges ahead. They reflect the LDC status of the Lao PDR and the budget constraints facing the Government as it endeavours to meet the diverse needs of the Lao people. In addition, new diseases and ailments have begun to afflict the Lao people, reflecting the transition to a more modern society. This very transition, however, brings with it the potential to generate the income and resources required to meet health needs.

3.3 Poverty-focused Health Priorities

Increased support for the health sector, especially for recurrent expenditure, is a priority. Per capita expenditure on health care is about US$12; most health expenditure in the Lao PDR is privately financed. In 2001/02, the health sector was allocated 5.5 per cent of the national budget; this was equal to 1.3 per cent of GDP.

Health priorities will focus primarily on the 47 poorest districts. For these, the Ministry of Health has set the following targets for 2005:

  • 80-85 per cent of the population will have access to PHC.

  • 60-65 per cent have access to clean water.

  • 45 per cent have access to sanitation.

  • Infant mortality will fall to 60/1000 live birth, the under-five mortality rate to 80/1000 live births, and the maternal mortality rate to 350/100,000 live births.

  • Availability of essential drugs at reasonable prices and of safe quality.

For all 72 poor districts, the MOH has set the following targets for 2010:

  • 100 per cent of the population in all the 72 poor districts will have access to PHC.

  • 75 per cent will have access to clean water and 55 per cent to sanitation.

By 2010, the MOH expects that the national IMR will have dropped to 40/1000 LB, the U5MR to 50/1000LB, and the MMR to 200/100,000.

3.4 Strategic Responses for Poverty-focused Health Development

To achieve the public health goals, objectives and targets outlined above, the Government, through the MOH and other supporting ministries and agencies at all levels, will focus on the implementation of 12 major strategic programmes:

article image
article image