This DSA has been prepared by IMF and World Bank staff, in consultation with 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 3.34 over the past three years. Since its average CPIA index has been above 3.25 for three years in a row, Lao P.D.R.’s policy performance remains classified as 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.
Lao P.D.R.’s CPIA index declined from 3.36 in 2014 to 3.29 in 2015 and averaged 3.34 over the past three years, not sufficient to change the classification of its policy performance, which remains moderate.
The installed capacity in Lao P.D.R.’s power system increased from around 600MW in early 2000 to above 6,000MW most recently with most of the generated electricity is exported to Thailand. The installed capacity is expected to reach above 10,000MW by 2020.