This DSA was prepared jointly by the IMF and World Bank, in consultation with the Asian Development Bank (AsDB). The debt data underlying this exercise were provided by the Lao P.D.R. authorities.
The low-income country debt sustainability framework (LIC DSF) recognizes that better policies and institutions allow countries to manage higher levels of debt, and thus the threshold levels for debt indicators are policy-dependent. In the LIC-DSF, the quality of a country’s policies and institutions is measured by the World Bank’s Country Policy and Institutional Assessment (CPIA) index and classified into three categories: strong, medium, and weak. Lao P.D.R.’s policies and institutions, as measured by the CPIA, averaged 3.21 over the past three years, placing it in the “weak performer” category, defined as countries with a three year average CPIA below or at 3.25. The relevant indicative thresholds for this category are: 30 percent for the PV of debt-to-GDP ratio, 100 percent for the PV of debt-to-exports ratio, 200 percent for the PV of debt-to-revenue ratio, 15 percent for the debt service-to-exports ratio, and 25 percent for the debt service-to-revenue ratio. These thresholds are applicable to public and publicly-guaranteed external debt.
IMF Country Report No. 09/284.
The Soviet-era debt owed to the Russian Federation has been under negotiation since 2007. The Lao P.D.R.’s authorities reported significant progress in the negotiations since last year’s DSA. On this basis, and unlike the no-repayments assumptions used in last year’s DSA, this year’s DSA assumes that the debt to Russia will be serviced from 2011 onward.
The most extreme stress test is defined as the bound test resulting in the most extreme deterioration of the debt burden indicator after 10 years.
It should be noted that the improved revenue outlook results in a more benign time profile of the PV of debt-to-revenue ratio. In response to a 30 percent depreciation of the nominal exchange rate, the ratio would remain above the indicative threshold over the first half of the projection period as opposed to throughout the projection period in last year’s DSA.
Last year’s DSA did not include direct BoL lending in domestic debt. Hence, a comparison with last year’s DSA would require some adjustments.
Viable projects are projects in which the rate of return exceeds the cost of financing or the net present value of future income exceeds the net present value of borrowing.