This DSA was prepared jointly by the IMF and World Bank (WB), in consultation with the Asian Development Bank (AsDB). The debt data underlying this exercise were provided by the Lao P.D.R. authorities, the AsDB, and the WB, combined with IMF staff’s estimates.
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 3.29 over the past 3 years. Since its average CPIA has been above the 3.25 mark for two years in a row, Lao P.D.R.’s policy performance has been reclassified from weak to medium according to the “Staff Guidance Note on the Application of the Joint Fund-Bank Debt Sustainability Framework for Low-income Countries (www.imf.org/external/np/pp/eng/2010/012210.pdf).” Therefore, the relevant indicative thresholds for this category are: 40 percent for the PV of debt-to-GDP ratio, 150 percent for the PV of debt-to-exports ratio, 250 percent for the PV of debt-to-revenue ratio, 20 percent for the debt service-to-exports ratio, and 20 percent for the debt service-to-revenue ratio. These thresholds are applicable to public and publicly guaranteed external debt.
See the joint IMF-WB DSA for 2011: IMF Country Report No.12/165.
Lao P.D.R.’s CPIA index was raised from 3.28 in 2010 to 3.4 in 2011.
Stress tests include sharp exchange rate depreciation, more adverse terms of additional foreign financing, and reductions in GDP growth among others shocks.
The kip appreciated 3 percent per year on average during this period.
The staff maintained the US$600 million of projected disbursements from China between 2012–2017, which is based on information collected by previous missions. These disbursements do not, however, result in a material change in the overall assessment of debt distress.
In a customized scenario where commodity prices decline by 20 percent in 2013 and 2014, debt stock indicators approach or even reach their policy-dependent thresholds, illustrating the vulnerability of Lao P.D.R. to commodity price shocks. However, this customized scenario poses less of a threat to debt dynamics than the historical scenario.