The 9th National Socio-Economic Development Plan Financing Strategy (2023-2025)

1 Government of Lao PDR, National Agenda on Economic 3 UN, Addis Ababa Action Agenda of the Third and Financial Difficulties, (2021). Note: two translations of International Conference on Financing for Development, the document (by ADB and the UNRCO) are used. (2015)

2 OECD and UNDP, Closing the SDG Financing Gap in the 4 UNDESA and UNDP, Integrated national financing COVID-19 era, (2021) frameworks: A short and practical Introduction, (2022) Page 10 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Table 1 – INFF classification Domestic International ▪ Tax revenue ▪ ODA ▪ Non-tax revenue Public ▪ Other Official Flows ▪ Debt ▪ South-South cooperation ▪ SOEs revenues ▪ Foreign Direct and Foreign ▪ Private investment Portfolio Investments Private ▪ Credit ▪ Illicit finance ▪ National NGOs ▪ Remittances ▪ International NGOs ▪ approach cannot efficiently address the effectiveness of all available variety of institutions and financial development finance flows7. constraints faced by countries with different ▪ Implementation, monitoring and socioeconomic systems, levels of evaluation8, to deliver upon the course development, and vulnerabilities. outlined by the Financing Strategy and ▪ Favouring collaboration and consensus in a ensure that agreed actions unlock structured process with four phases: resources and development results. ▪ Inception, to mobilise and familiarise ▪ By emphasizing robust governance and relevant national and international coordination mechanisms as essential stakeholders with objectives, processes, success criteria, as formulation and and methodologies, and set up relevant implementation should be based on and efficient processes and consensus on priorities between all sectors coordination mechanisms5. and all parties (government, DPs, civil society), in preparation for a multi- ▪ Diagnostics, providing stakeholders with stakeholder implementation, with clearly a platform to discuss (1) the main delineated roles and responsibilities for impediments to the mobilisation and maximal efficiency and effectiveness9. spending effectiveness of resources ▪ The INFF lends itself to being a flexible and (2) the costs (i.e., financial needs) mechanism which can be used to facilitate of national development priorities6. action and follow-up as well as periodic ▪ Financing Strategy, to define clear policy updates of the diagnostics, and suggested directions and concrete actions that course of action in the Financing Strategy, would increase the volume and in line with changing circumstances, new

5 Inter-Agency Task Force on Financing for Development, 8 Inter-Agency Task Force on Financing for Development, Inception phase, (2020) Monitoring and review, (2021)

6 Inter-Agency Task Force on Financing for Development, 9 Inter-Agency Task Force on Financing for Development, Assessment and diagnostics: Overview, (2020) Governance and Coordination, (2021)

7 Inter-Agency Task Force on Financing for Development, Financing Strategy, (2021) Page 11 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) priorities and forthcoming national plan, and due to delays resulting from the development plans. COVID-19 pandemic, the Financing Strategy was finalised in 2022. In spite of this one-year delay, MPI remains Objectives committed to the initial objective. This implies At the 2021 High-Level Round Table Meeting that the timelines for the policy objectives and (RTM), H.E. Deputy Minister of Planning and actions contained in the Financing Strategy are Investment Ms. Phonevanh Outhavong set out of at most three years. Priorities will need to be the objectives and scope of the 9th NSEDP achieved by the end of the planning cycle (i.e., Financing Strategy10. The scoping process 2025), even if they often represent the first followed six months of research and steps of a longer and more sustainable change assessments to reach a shared understanding in the governance and management of of the Lao PDR financing landscape (presented development finance. in the next chapter), a daylong consultation with However, while the 9th NSEDP Financing government and DPs (28 October, 2021) on Strategy is timebound, the INFF as an approach priority policy areas for inclusion in the strategy, is not. This approach indeed suggests regular and a dedicated structured dialogue for consultations on planning and financing for validation (10 November, 2021)11. The development through cycles of synchronised objectives of the Financing Strategy are national plans and financing strategies. The summarised below before the list of financing future NSEDP should either be directly costed policy areas. and resourced or accompanied by a new Financing Strategy, to ensure progress through ► Financing national development priorities cycles of financially sound planification. As mentioned, the 9th NSEDP Financing In the context of macroeconomic instability, as Strategy is entirely dedicated to the financing of September 2022, with rising inflation and and achievement of the priorities contained in currency depreciation, it is important to note the national plan (2021-2025). that the Financing Strategy does not contain specific policies and actions, beyond debt Aligned with the SDGs, the Nationally management, to improve macroeconomic Determined Contributions (NDCs), and other stability. The sound management of inflation, of key international commitments of Lao PDR, the the exchange and interest rates, and broader 9th NSEDP was prepared by MPI in close monetary policy, will nonetheless be a consultation with central local governments, precondition for the achievement of the policies DPs, and civil society. Updated to consider the and actions of the Financing Strategy. multidimensional impacts of COVID-19 in late 2020, it is the overarching framework to which sectoral and sub-national strategies and DPs’ ► An overarching framework for action strategies must align. The Financing Strategy does not replace or Despite an agreement on the development of a compete with other national policy frameworks dedicated Financing Strategy for the national (e.g., the LDC Graduation Smooth Transition

10 UN in Lao PDR, Press release: Lao PDR’s Development Consultation on the 9th NSEDP under the Roundtable Policy Priorities for the Next 5 Years: High-Level Process, (2020)

11 MPI, High-Level RTM calendar, (2021) Page 12 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Strategy (STS)) and more specific plans (e.g. This prioritization effort was thoroughly the Health Financing Strategy). Instead, it builds consulted to adequately appraise what is on these, and the directions of the 9th NSEDP financially and technically possible, rather than and the National Agenda on Economic and only focusing on what is desirable. Financial Difficulties, to understand which policies and actions need to be accelerated and properly sequenced, and gaps that need to be ► Enhanced collaboration and streamlined filled, to ensure the achievement of both technical assistance planning and financing policy objectives. A secondary but still important set of objectives of the Financing Strategy has been to structure and coordinate stakeholders, programmes, and ► Rapidly implementable priorities projects to maximise the efficiency and The core objective of the Financing Strategy – effectiveness of actions, in line with the financing the 9th NSEDP for the achievement of strategy’s objective to increase returns of every its priorities within the next three years – Lao Kip (LAK) or USD invested in development. implies that the focus is on rapidly Financing for development being by nature a implementable policies and actions. cross-cutting and systemic topic, the Throughout the formulation process, successful implementation of the strategy stakeholders have prioritised “low-hanging requires the formulation of shared priorities fruits”12: actions that, while not derailing long- beyond the traditional planning and financing term financial sustainability, can best and ministries. Including the relevant officials of line rapidly increase the volume of resources and/or ministries offered a chance to strengthen inter- better align currently available finance with ministerial cooperation for a whole-of- national development priorities, to get back on government approach capable to consider track with the SDGs. multiple financial challenges and potential actions with synergies and trade-offs (e.g., what In addition to this focus on rapidly does higher debt servicing mean for the implementable policies, consensus emerged on financing of social sectors?). the necessity to further prioritize. The Financing Strategy is not exhaustive. It acknowledges that Similarly, by mobilising relevant DPs, the the country is in a challenging financial strategy aimed at coordinating the most situation, that absorptive capacity of relevant expertise for an evidence-based government remains constrained, that DPs strategy. cannot readily mobilise all needed technical Moreover, by identifying concrete and forward- assistance and are insufficiently coordinated, looking actions with stakeholders, the strategy and that shared priorities and actions are also attempts to set the foundations for needed for sustainable and transformational coordinated future programmes and projects – change. While staying true to the holistic INFF to link planning and financing more closely, approach and its four sources of finance, the improve PFM, or accelerate the transformation strategy therefore followed a thorough process of the investment promotion regime – reducing to progressively select policy areas, policies, and actions, that could be best implemented.

12 Inter-Agency Task Force on Financing for Development, Financing Strategy, (2021) Page 13 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) redundancy, increasing allocative efficiency, 2.1 ODA predictability, efficiency, and and facilitating synergies. effectiveness 2.2 Accessing LDC specific funds until The process was therefore designed to graduation formulate a shared plan for effective and

3 Domestic private finance efficient interventions. To reflect this objective, 3.1 Business environment for MSME the Financing Strategy includes detailed action development matrices with clearly defined lead entities, 3.2 Financial inclusion responsibilities, roles, and timelines.

4 International private finance 4.1 Foreign Direct Investments ► A statement of policy change 4.2 Illicit financial flows 4.3 Remittances In a context marked by general market and DPs’ 5 Financing priority sectors concerns with Lao PDR’s budget management 5.1 Health Finance and socio-economic development planning, 5.2 Education Finance negatively impacting Lao PDR’s ability to attract 5.3 Green and Climate Finance ODA and investments and secure affordable borrowing, the strategy also serves as a signal of Lao PDR’s policy plans to address this. It is A multi-stakeholder formulation process hoped that the Financing Strategy is understood The formulation of the 9th NSEDP Financing as the signal of a credible policy shift capable Strategy has been the first attempt at to initiate substantial progress towards stable, implementing the INFF approach in Lao PDR. sustainable, and financially sound development After the finalisation of the 9th NSEDP in planning. This explains the long focus on December 2020, the process has progressed diagnostics, for evidence-based financial through the first three phases of the INFF (see planning, and the addition of an figure 1 at the end of the chapter): Implementation, Monitoring, and Governance chapter, for measurability and accountability. ► Inception (December – May 2021): to create the conditions for the successful formulation of a Financing Strategy, Scope: selected policy areas agreeing governance and coordination The Financing Strategy is structured against mechanisms, setting processes and five core chapters, which reflect the INFF timelines, and reviewing concepts and approach, tailored to the Lao PDR context. methodologies was crucial. A technical Under each chapter, policy areas were selected working group was created at the initiative by the Government of Lao PDR following of the Deputy Prime Minister, facilitating the several rounds of consultations. They were inclusion of core government entities, such presented at the second structured dialogue as the Ministry of Finance (MoF), the Bank and endorsed at the 2021 High-Level RTM, as of the Lao PDR (BoL), and DPs. An inception follows: workshop took place in Vang Vieng on 6-7 April, 2021, to discuss the INFF

1 Domestic public finance methodology and begin discussions on 1.1 Domestic revenue mobilisation financial constraints to development. 1.2 Expenditure management ► Diagnostics (May – November 2021): this 1.3 Sustainable debt management research phase primarily aimed to provide

2 International public finance Page 14 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) all involved parties with a shared A zero draft of the Financing Strategy was understanding of the main financing circulated to all government entities ahead of a challenges to overcome and investment writeshop, which took place on 1-2 September, needs, in preparation for policy formulation. 2022 . An advanced draft was circulated ahead The broad scope of the INFF approach also of a High-Level Consultation with involved justified the strengthening of the multi- ministries and DPs, which took place on 16 stakeholder approach. Line ministries and a September, 2022. technical assistance team composed of a A final draft was circulated ahead of a third and growing number of DPs13 helped to refine final structured dialogue, which took place on general and sectoral analyses for a more

28 September, 2022. MPI then submitted the accurate diagnostic of the financing draft Financing Strategy to higher leadership, on landscape of Lao PDR. Findings were XXX for endorsement. presented and discussed in a dedicated structured dialogue (14-15 October, 2021) [Placeholder for any final steps] and endorsed at the High-Level RTM, As mentioned, acknowledging the chaired by the Prime Minister (PM) (15 responsibilities and functions of a wide range November, 2021). of stakeholders in development planning and ► Policy formulation (November 2021 – financing, and the necessity to formulate a well- September 2022): this phase ran in parallel consulted plan for an efficient implementation, to the finalisation of the diagnostics, to MPI led a multi-stakeholder effort. facilitate evidence-based financial planning. A core team composed of government officials A scope and outline, with selected sections from the Department of Planning, supported by and policy areas were discussed in a technical specialists from the UN led progress second structured dialogue (10 November, through the various phases of the INFF, with 2021) and endorsed at the High-Level RTM. regular consultations between H.E. Deputy A detailed workplan and methodology to Minister of Planning and Investment Ms. discuss policy objectives and concrete Phonevanh Outhavong, the Resident actions was agreed at the beginning of Coordinator to Lao PDR and the UNDP 2022. This included a series of technical- Representative, to provide directions and keep level workshops, as follows: track of progress. ▪ Public finance (covering domestic and international public flows) was Government entities and an ever-growing discussed on 6-7 June, 2022. number of DPs provided specific insights and ▪ Private finance (covering domestic and relevant technical expertise to the 9th NSEDP international private flows) was Financing Strategy. These stakeholders were discussed on 23-24 June, 2022. mobilised through sequenced meetings and ▪ Specific financing options for workshops facilitating small group discussions environmental, climate, health, and and debates between experts on challenges, education priorities were discussed on opportunities, policy shifts, and options for the

11-12 August, 2022. financing of national development priorities. ▪ Implementation arrangements and At critical junctions, across all sources of monitoring and evaluation were finance and sectors, structured dialogues were discussed on 1-2 September, 2022. organised to collect final technical inputs and 13 incl. the WB Group, IMF, ADB, EU, and UN Agencies. Page 15 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) facilitate consensus on priorities and next ▪ The Ministries of Natural Resources and steps. Environment (MoNRE), of Agriculture and Forestry (MAF), and Energy and Mines The list of other closely involved stakeholders (MEM) to curb unsustainable investments include: and ensure the financing of green growth, ▪ MPI’s Investment Promotion Department biodiversity, and climate change priorities in and Special Economic Zone (SEZ) Office, line with Lao PDR’s Nationally Determined for an investment promotion regime aligned Contributions. with national development priorities, the ▪ The Ministry of Labour and Social Welfare International Cooperation Department, to (MoLSW), to facilitate and reduce the costs improve ODA’s efficiency and effectiveness, of remittance flows. and the Development Research Institute, for ▪ The Lao Academy of Social and Economic technical advice across all policy areas. Sciences (LASES), to provide academic ▪ MoF’s Departments of Tax, Fiscal Policy expertise for evidence-based policies and and Law, Budget, State Owned Enterprises, actions. Customs, External Finance, and Debt ▪ The private sector, represented by the Lao Management, to relink the budget with Chamber of Commerce and Industry national development priorities and alleviate (LNCCI), Information, Communication and Lao PDR’s debt burden. Technology, Young Entrepreneurs and SME ▪ Bank of Lao PDR’s Departments of Associations. Monetary Policy, Anti-Money Laundering, Technical assistance to the formulation of the Commercial Banks Supervision, and Financing Strategy was led and coordinated by Financial Institutions Departments, to the UN Resident Coordinator’s Office with improve the sustainability and productivity technical assistance: of the financial sector, curb illicit financial flows (IFF), increase remittances, and ▪ The UN Country Team, in particular the UN enhance FDI quality, and consider Joint Programme on Financing Efficiency14, macroeconomic stabilisation. which was officially launched in March ▪ The Ministry of Foreign Affairs (MoFA), to 2021, the World Health Organisation (WHO) take advantage of Lao PDR’s current LDC on health finance, the UN Children's Fund status and align the formulation of the LDC (UNICEF) on education finance, the UN STS with the Financing Strategy. Office on Drugs and Crime (UNODC) on IFF, ▪ The Ministry of Commerce and Industry and the UN Department for Economic and (MoIC) to facilitate MSME development and Social Affairs (UNDESA) and the UN improve the business environment. Environment Programme (UNEP) on green ▪ The Ministries of Health (MoH) and and climate finance. Education and Sports (MoES) to finance ▪ The WB Group and the EU, which provided critical priorities for human capital technical expertise and quality assurance progress. across all chapters.

14 Led by the UN Resident Coordinator and her office, and assistance to the Ministry of Finance on tagging budget funded by the UN SDG Joint Fund, the JP brings together expenditures against the SDGs, and the UN Population the UN Development Programme (UNDP), supporting MPI Fund (UNFPA), developing with MoH an investment case to develop the Financing Strategy, the UN Capital to identify priority health investments. Development Fund (UNCDF), providing technical Page 16 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) ▪ The Asian Development Bank (ADB) and the document contains detailed action International Monetary Fund, which matrices. These were first filled with contributed to the diagnostics. existing actions that required acceleration ▪ The Global Green Growth Institute (GGGI) before gaps were identified and filled with and the OECD on policy objectives and new proposed actions. These matrices are concrete actions to finance environmental the most important part of the Financing and climate priorities. Strategy, specifying the objectives and ▪ The Department of Foreign Affairs and modalities of each agreed action, including: Trade of Australia (DFAT) on FDI screening. ▪ their type, with the following typology: laws and regulations (e.g., new decree); financing instruments (e.g., new bond Methodology issuance); tools and information To summarise, the Financing Strategy aims to technology (IT) systems (e.g. rollout of support the achievement of national the Integrated Financial Management development priorities within the next three Information System (IFMIS)); capacity years, building upon and complementing building (e.g. training of civil servants); existing policy frameworks, through priority governance and coordination (e.g. new policies and actions of scale, led by INFF committee); data and analytics multistakeholder implementation, in an effort to (e.g. improved cost estimates for restore confidence in Lao PDR’s ability to plan national planning); policy definition (e.g. and finance development. To achieve these a new FDI mobilization strategy). clear objectives and prepare implementation, ▪ responsibilities and roles for the core chapters of the Financing Strategy government leads, at department level, were prepared following a detailed and associated entities. methodology summarised in figure 2: ▪ the coordination mechanism, and. ▪ their timeframe. ► Under each policy area, one or several specific policy objectives were first defined. Certain actions are emphasized in the They indicate the government’s desired Financing Strategy. Due to their potential outcomes and the directions of the changes impacts on several financing flows, some are that need to occur. These were prepared found under several policy objectives. They are considering existing policy frameworks, only added once in the action matrix, under the notably the 9th NSEDP and the National most related policy objectives, but with Agenda, as well as the shared findings on columns indicating links to other policy the Lao development finance landscape. objectives. ► In line with the specific objectives and scope of the Financing Strategy, the Page 17 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Figure 1 - Formulation process Figure 2 - Defining policy objectives and actions Page 18 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Diagnostics development of the Financing Strategy. This study, prepared by an international expert, in close consultation with national authorities and DPs, estimated the volume and Between April and October 2021, the distribution of financing flows that could diagnostics phase saw the development of a contribute to development objectives. shared understanding of financial challenges ▪ This assessment was paired with another and opportunities. Led by MPI, this effort was joint analysis of the financial costs of supported by a coalition of Government entities national development priorities to assess and development partners, which provided data the financing gap (“the costing report”17). and quality assured the research, most notably Due to data limitations, and challenges in MoF and BoL, international financial the sequencing of national planning18, the institutions, the EU, and the UN. The research initially planned development of statistical design and findings are summarised in this estimates of the financial needs of the 9th chapter but more can be found in the High-Level NSEDP outcomes and outputs was replaced RTM Handbook15. by reviews of national (e.g., costed sector plans) and international (e.g., average cost Research design and process of mitigation efforts for LDCs) studies on the financial costs of development Most studies used mixed methods, including progress. Guidelines for the realisation of a desk research, analysis of financial data costed national plan in the next iteration of provided by relevant government entities, the planning cycle, in alignment with interviews, and statistical modelling. international best practices, were also The findings presented in this chapter were prepared. discussed at a technical-level at the first The financing and costing reports were structured dialogue (October 14th-15th) and supplemented by more specific studies, endorsed with modifications at the High-Level including: RTM (15th November). They now represent the analytical basis against which the evidence- ▪ A study to appraise costs and socio- based Financing Strategy was prepared. economic benefits of health interventions in Sexual and Reproductive Health (SRH) and Two research pieces were of specific relevance Nutrition, Maternal, New-Born, Adolescents, for all chapters of the Financing Strategy: and Child Health (NMNCAH) (“the health ▪ A joint UN assessment of the financing investment case”19). This study informs the landscape (“the financing report”)16, health financing section of the Financing integrated in the High-Level Round Table Strategy, but also provides methodological Handbook, to better understand the four tools to increase the allocative efficiency of sources of finance of the INFF prior to the 15 13th High-Level Round Table Meeting Handbook: quarter of 2021, and many indicators had missing data Consolidated Background Documents, (2021) and baseline. The existence of a finalised M&E framework

16 MPI and UN, Structured Dialogue 1: Diagnostics – is a prerequisite for the production of statistical cost Financing National Development Priorities, (2021) estimates.

17 MPI and UN, Structured Dialogue 1: Diagnostics – 19 UNFPA, Health Investment Case: Prioritising Health Costing National Development Priorities, (2021) Investments for Human Capital Development, (2022)

18 The monitoring and evaluation framework of the 9 th NSEDP was only finalised towards the end of the first Page 19 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) investments, which can be replicated in the These numbers must be interpreted health sector and beyond. carefully. Indeed, with development ▪ An analysis, led by UNCDF, of the Thai priorities requiring between investments market appetite for Lao PDR bond issuance between 20-30% of GDP23, Lao PDR may through an analysis of disclosed repayment appear to have enough resources to achieve commitments and additional data from the 9th NSEDP. This number reflects all capital markets (“the bonds report”20). The financing flows. While ODA or remittances study informed debt management can be confidently considered as challenges, in particular Lao PDR’s potential “development finance”, importantly, the financing through commercial debt financing report found that the State budget issuance. is currently misaligned with national ▪ An analysis, led by UNDESA, of the available development priorities, with debt climate finance and constraints to the repayments squeezing out development mobilisation of additional resources from investments, and inadequacies between international funds to finance climate budget allocations and desired outcomes, priorities (“the climate finance report”21). while private sector investments have the potential for greater alignment to national development priorities. In particular, the Overarching findings financing report considers that private Two important findings are relevant across all sector resources could be progressively sources of finance, as they shed light on varying realigned to national development priorities contributions across financial flows. These, and with a more adequate regulatory and policy their implications for the Financing Strategy, are frameworks, business environment and presented below. investment promotion regime. Therefore, while the potential of ▪ The financing report found that, in 2020, development finance in Lao PDR appears to financing flows amounted to 47.3% of 2020 exceed the costs of national development Gross Domestic Product (GDP)22, with the priorities, the volume of available following estimated distribution: development finance is in fact relatively low. Table 2 – Distribution of financial flows This is a central finding of the costing report: the financial needs of the 9th NSEDP Domestic International far exceed available resources, justifying the formulation of a Financing Strategy to Public 15.7% of GDP 3.1% of GDP increase the volume of development finance and the alignment of existing financing flows to the national plan24. Private 21.7% of GDP 7.5% of GDP ▪ In part due to the nature of most costs associated with development progress – investments in social sectors, financing of

20 UNCDF, Lao PDR bonds: A Stocktake and Analysis of 22 MPI and UN, Structured Dialogue 1: Diagnostics – Lao PDR Bonds, (2021) Financing National Development Priorities, (2021)

21 UNDESA, Developing the strategic guidelines for climate 23 Due to strong data limitations, confidence in this financing, considering possible linkages between climate bracket is limited. financing and post COVID-19 agricultural development in 24 MPI and UN, Structured Dialogue 1: Diagnostics – Lao PDR, (2021) Financing National Development Priorities, (2021) Page 20 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) public goods, administrative reforms investment needs are considerable, with limited (specified in the below section) – the State confidence that with around 20-30% of GDP of budget and ODA will remain the drivers of development investments27, Lao PDR could development progress, at least until a more achieve the 9th NSEDP, (2) the key role of the favourable business environment is in State budget in driving development progress, place, which should begin within the 9th requiring both notable increases in State NSEDP cycle, but will most likely deliver revenues and focused expenditures, (3) results with a lag25. With Lao PDR’s seemingly underfunded outcomes, notably expected graduation (= in 2026), it will be outcome 2 (health, education, and social important to anticipate and prepare for the protection) and outcome 4 (green growth, likely impacts during the NSEDP period, environmental protection, and climate change particularly given the relatively low revenue management). mobilization rates and the burden of debt More specific findings, organised by 9th NSEDP payments. This explains why the Financing outcome, are summarised below28: Strategy is primarily focused on concrete and rapidly implementable actions to ► For Outcome 1, Sustainable Economic increase State revenues and improve the Growth: efficiency and efficacy of both public ▪ The financial cost of administrative reforms, expenditures and ODA, and legal and PFM, and systems enhancement are likely regulatory updates for a more SDG-aligned to be relatively modest, although business environment and trade and implementation of State-Owned Enterprises investment promotion regime. (SOEs) reforms can be costly, and technically challenging. ▪ Realising the objectives set out in Outcome The costs of development 1 will require many investments beyond the As it was not possible to derive statistical State budget, given the predominant role of estimates of the costs of the 9th NSEDP private sector investment in driving growth. outcomes and outputs, literature reviews were Historical measures to influence prepared. investments have had specific financial implications for the State’s budget and These were focused on appraising the financial attempts at mobilising private sector costs26 of outcomes and outputs to understand resources will need to consider the where funding would be most needed, and necessity to limit fiscal costs. which financing flow(s) would be most likely to ▪ More recent and accurate estimates of contribute, through national and international aggregate investment are required to model estimates. Overall, these studies reveal that (1) the historical relationship between

25 MPI and UN, Structured Dialogue 1: Diagnostics – number of additional deaths through extreme weather Costing National Development Priorities, (2021) events).

26 The literature reviews dealt with financial costs, or 27 MPI and UN, Structured Dialogue 1: Diagnostics – investment needs. These are the monetary values of the Costing National Development Priorities, (2021) costs of achieving a specific policy priority (e.g., achieving 28 References, for all of these literature reviews, are the country’s mitigation targets will cost 2% of GDP). The accessible in: MPI and UN, Structured Dialogue 1: reviews do not review economic costs (e.g., climate Diagnostics – Costing National Development Priorities – change costs X% of GDP of Lao PDR every year), Investment Needs across the 9th NSEDP - References, opportunity costs or costs of inaction (e.g., not investing in (2021) climate change mitigation will cost X% of GDP), or socioeconomic costs (e.g., climate change leads to X Page 21 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) investment and growth, and thereby two key education finance benchmarks for approximate investment needs. Governments: to allocate 4-6% of GDP to ► For Outcome 2, Human Capital: education and/or to allocate 15-20% of ▪ Sector plans for health and education, public expenditure to education31. aligned to the 9th NSEDP, provide estimates of anticipated costs to implement initiatives ► For Outcome 3, People’s Wellbeing: designed to achieve priority outcomes. ▪ UNFPA found that the scale-up of SRH and Together, health and education investment NMNCAH interventions could cost an needs make up approximately 4.4% of GDP additional USD 109.0 million more than per year29. This figure is well below global business as usual over 2021-203032 (see estimates of resources required to achieve box 1). the corresponding SDGs. For countries in ▪ While financial resources are important, Asia-Pacific, on average, 4.7% of GDP alone most strategies for achieving gender is estimated to be needed for health30. The equality require a mix of financial Education Framework for Action 2030 sets investments and political commitment Box 1 – The Health Investment Case During the diagnostic phase of the Financing Strategy, UNFPA supported the development of an analysis estimating the costs and the socio-economic benefits of investing in SRH and NMNCAH. • This study demonstrates that reaching full coverage targets for Family Planning and Nutrition, Maternal, Newborn, Child, and Adolescent Health interventions in Lao PDR by 2030 is affordable and can generate six dollars in economic returns for every dollar invested (USD 6:1). • The analysis recommends simultaneous implementation of the most cost-effective interventions in the provinces with the worst maternal, infant and child survival indicators. This approach is recommended due to the limited fiscal space and the need to enhance efficiency in allocating resources across provinces and districts. • The greatest return on investment is in making rights-based family planning methods available in all provinces to reduce unintended pregnancies. Averting unintended pregnancies can further decrease the cost requirements for other health interventions and lead to economic benefits from increased workforce participation, additional years of education for adolescents, and increased lifetime earnings for women. Family planning scale-up can also significantly contribute to reducing maternal and child deaths and improving other health and nutrition indicators (stunting) due to the decline in fertility risks from spacing and improved birth outcomes such as adequate birth weight. • Even though the interventions included in this study have different benefit-cost ratios, with some having higher ratios than others, all interventions are required to reach the SDGs health targets. An essential next step to optimising the allocation of limited financial resources will be identifying the most cost-effective mix of interventions required for each province based on their relevant health indicators, using the methodology adopted in this analysis.

29 These two sector plans were designed with the 31 UNESCO et al., Incheon Declarationand Framework for assumption that their resources envelope would be low Action for the implementation of SDG 4, (2016) and could be further decreasing. 32 UNFPA, Health Investment Case: Prioritising Health

30 Stenberg et al., Financing transformative health systems Investments for Human Capital Development, (2022) towards achievement of the Health Sustainable Development Goals (…), (2017) Page 22 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) coupled with changes in legislation, political ▪ Technical assistance and knowledge and administrative rules, social attitudes, transfers are crucial in support of dedicated and norms. financial resources, which mostly originate ▪ A costing of social protection objectives in from the public sector. Lao PDR undertaken by ILO found that the planned rollout would cost around 0.1- ► For Outcome 5, Regional Cooperation and 0.15% of GDP annually33. Integration: ▪ Unexploded ordnances clearance require ▪ The costs of realizing the priorities set out 105 million a year, which roughly amounts under this Outcome are amongst the most to 0.5% of GDP per year34. expensive in the 9th NSEDP. ▪ The likely cost of Outcome 5 alone far ► For Outcome 4, Environmental Protection exceeds Government capital expenditure and Climate Change Management: and ODA that is likely to be available. ▪ According to global estimates, green and Various global estimates suggest that total resilient infrastructure investment could infrastructure investment needs for Lao reach an average 4-5% of GDP for low and PDR would be from USD 1 billion or 5% of middle-income countries annually. In Lao 2020 GDP (lower WB estimate38) to USD 2 PDR, this would represent around USD 1 billion or 10% of GDP (higher International billion a year35. Monetary Fund (IMF) estimate39) per year ▪ Biodiversity protection costs amount, over the course of the 9th NSEDP. However, globally, to 0.3% of GDP per year, which the nature of these costs allows scope for applied to Lao PDR, would represent USD 60 greater involvement of private funds, and million a year of investments in 202036. therefore the full cost is not expected to fall ▪ Lao PDR’s 2021 NDCs, aligned with the 9th exclusively on the public budget. NSEDP objectives, estimated that mitigation ▪ Trade-offs exist between concessions to investment needs amount to USD 4.8 billion attract private investment, and the need for by 2030, which is around USD 500 million a macroeconomic stabilization set out in year (around 2.5% GDP per year)37. Outcome 1, and sustainability, set out in ▪ Outcome 4 also includes legislative and Outcome 4. regulatory changes and investments to promote a shift in production and ► For Outcome 6, Good Governance and consumption patterns, which may have Administration more limited financial costs and help to (1) ▪ Improving public sector efficiency and internalize the costs of pollution and (2) effectiveness implies a heavy reliance on unlock private sector finance for public sector investment (domestic and sustainability objectives. international), as has historically been the case. Global estimates suggest that

33 Economic Policy Research Institute, Costing of social 36 Sustainable Development Solutions Network, SDG protection programmes to support the 9th NSEDP in Lao Costing and Financing for Low Income Developing PDR, (2020) Countries, (2019)

34 Calculated as part of the costing report. 37 Government of Lao PDR, Nationally Determined

35 WB, Beyond the Gap: How Countries Can Afford the Contributions, (2021) Infrastructure They Need while Protecting the Planet, 38 WB, Understanding the Cost of Achieving the (2019) Sustainable Development Goals, (2020)

39 IMF, Fiscal Policy and Development: Human, Social, and Physical Investment for the SDGs, (2019) Page 23 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) governance priorities, across all outcomes, estimates undertaken for the financing require 6% of GDP of annual investments, report, revenues, notably tax revenues, need which amount to USD 1.2 billion in 2020 in to grow from around 9% in 2020 to around Lao PDR40. 16% of GDP by the end of the planning ▪ For low-income countries, achieving justice cycle42. The 9th NSEDP and the National targets would cost USD 20 per person to Agenda (with a 2023 target) aim to reach provide access to basic justice services, the 15% WB-recommended threshold43. while for middle-income countries the cost Such rapid increase will require investments would increase to USD 64 per person. In Lao in tax administration and efficiency and PDR, this would amount to USD 146-467 substantial fiscal policy shifts to broaden million a year, which represents around 0.7- the tax base and subject large foreign and 2.5% of GDP41. domestic investment projects to taxation, ▪ Many policy priorities are considered to as proposed in the National Agenda. require relatively low investment needs as ▪ On the spending side, there are important they consist in legislative and regulatory inconsistencies between current public improvements but will require targeted allocations and the 9th NSEDP policy technical assistance. priorities that will need to be resolved. Public resources dedicated to (1.6% of GDP) and public works (2.2% of GDP) still amount The resources envelope to more than 20% of all public expenditure Findings for each source of finance were in 2020. Resources dedicated to discussed and refined through multi- environmental protection and water stakeholder dialogues, in order to facilitate the resources represent less than 1% of total identification of most relevant policies and expenditure (0.8%) and only a fraction of actions. These are summarised below. GDP (0.2%). In parallel, allocation to social sectors and public investments in human capital remain limited and in contradiction ► Domestic public finance with the 9th NSEDP policy priorities. Total resources spent on sociocultural sectors Four main findings were identified through the amount to 4.1% of GDP, with education and financing report and UNCDF’s bond report, sports (1.8% of GDP) and health (1.0% of which were debated and refined with relevant GDP) being the most financed sectors44, but stakeholders through workshops and a well below recommended standards, dedicated structured dialogue: Association of South East Asian Nations ▪ Increasing the volume of State revenues (ASEAN) peers, and even the country’s should be the most important objective of needs. the Financing Strategy. State revenues are ▪ Transparency is insufficient and will be currently insufficient to drive the necessary for evidence-based policies and achievement of 9thNSEDP. According to to restore confidence. Currently, the publicly

40 Sustainable Development Solutions Network, SDG 43 Junquera-Varela and Haven, Getting to 15 percent: Costing and Financing for Low Income Developing addressing the largest tax gaps, (2018) and Gaspar et al., Countries, (2019) Tax Capacity and Growth: Is There a Tipping Point?, (2016)

41 The Task Force on Justice, Justice for All, (2019) 44 MoF data provided for: MPI and UN, Structured Dialogue

42 Calculated as part of: MPI and UN, Structured Dialogue 1: Diagnostics – Financing National Development 1: Diagnostics – Financing National Development Priorities, (2021) Priorities, (2021) Page 24 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) disclosed State budget, reports nearly 50% upcoming LDC graduation in 2026. of expenditures under “other Representing 3.3% of Gross National organisations”45. Similarly, the bond report Income (GNI) in the latter part of the showed that there is weak confidence in previous cycle50, ODA is a significant driver Lao PDR’s ability to repay debt, significantly of development investments in Lao PDR, limiting debt refinancing at a reasonable often more than its theoretical role as a cost46. targeted supplement to State Budgets ▪ The bond report found that debt servicing allocations. squeezes out development investments ▪ For better ODA targeting, efficiency, and from the State budget. Research estimated effectiveness, accurate ODA data is that USD 1,700 million is due to be serviced required. The ODA Management by the government during the 9th NSEDP47. Information System (ODA-MIS) Dashboard With increased pressure on revenues, there of MPI needs to be rehauled and regularly is mounting pressure from debt servicing. updated. Resource allocation decisions and With Moody’s August 2020 and 2022 workplans of Ministries and DPs will be downgrades of Lao PDR credit rating to better informed where the ODA-MIS Caa2 and then Caa3 (from B3)48, and Fitch’s Dashboard data sets are complete, accurate CCC- rating49, the country now has the and valid. This is vital in light of upcoming lowest credit rating in Asia without being in graduation and the potential shifts to less default. Analysis indicates that there is no concessionary sources of finance. market demand for a Caa2-rated Asian ▪ The Government of Lao PDR’s absorptive sovereign bonds in Thailand, Singapore, and capacities and shortcomings in Hong Kong, limiting the scope of borrowing development partner’s coordination and as a potential source of development collaboration are important limitations to finance. Finally, sentiment for new Lao PDR ODA’s potential development returns. Many debt is weak, due to the current credit departments are overwhelmed by multiple, rating, and potential for default. Although sometimes redundant, and often debt is available, its high cost must be insufficiently coordinated projects51. considered in the context of debt Therefore, any additional ODA project sustainability. should consider the absorptive capacities of national and sub-national facilities responsible for delivering those targets. One ► International public finance strategy may be to focus any additional ▪ ODA heavily contributes to social sectors ODA on only high-impact development and will likely continue to be a driver of activities that demand fewer inputs from development progress throughout the 9th national and sub-national facilities. Another NSEDP even as a transition strategy should strategy may be to outsource ODA delivery be put in place in anticipation of Lao PDR’s to qualified entities, including from civil

45 MPI and UN, Structured Dialogue 1: Diagnostics – 48 Trading Economics, Laos Credit Rating, [accessed Financing National Development Priorities, (2021) 20/09/2022]

46 UNCDF, Lao PDR bonds: A Stocktake and Analysis of 49 Laotian Times, Top Credit Rating Agency Plans to Lao PDR Bonds, (2021) Withdraw its Rating for Laos, (2022)

47 The figure does not include unlisted bonds issued by the 50 MPI and UN, Structured Dialogue 1: Diagnostics – government and other SOEs besides EDL-Gen, see UNCDF, Financing National Development Priorities, (2021) Lao PDR bonds: A Stocktake and Analysis of Lao PDR 51 MPI, Mid-term review of the implementation of the Bonds, (2021) VDCAP 2015-2025, (2021) Page 25 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) society. Moreover, government and DPs ▪ Efforts need to be made to stimulate remain driven by resources availability and domestic private investment through an project delivery. The government should improved business environment and more ensure programmes and projects have clear robust access to credit for MSMEs. The WB governance mechanisms to ensure timely reported that the ratio of non-performing and high-quality delivery, while build the loans (NPL) increased due to COVID-19, and capacity to appraise new project proposals, that while bank capitalization has increased, answer strategic needs, and are the financial system remained fragile52. coordinated through SWGs to maximise Previous financing reports reported that efficiency. there were few credit options for MSMEs, in ▪ Lao PDR has not accessed LDC-specific particular in rural areas, echoing the funds as much as it could. Moreover, Enterprise Survey’s findings that 36% of graduation may impact the country’s ability MSMEs cited access to finance as their to access ODA and measures need to be biggest obstacle53. Moreover, the 2nd edition taken during the 9th NSEDP cycle. Capacity of the Provincial Facilitation for Investment should be built, and technical support and Trade (ProFIT) survey reported the provided to increase access to LDC-specific prevalence of informal charges and funds within the 9th NSEDP timeline, and practices and administrative difficulties that the LDC Graduation STS led by MoFA limiting private sector development54. and the 9th Financing Strategy are well However, access to finance policies to linked. unlock domestic private investments will need to consider macroeconomic stabilization priorities. ► Domestic private finance ▪ More research into the domestic private ▪ The domestic private sector has significant sector is required. Notably, the financing potential as a source of development report found that assessments could be finance but is largely untapped. The improved with more reliable proxies to financing report found that Lao PDR measure these investment flows55. A better investment promotion policies primarily proxy than pre-COVID Gross Fixed Capital focuses on the attraction, retention and, Formation (GFCF) data should be identified growth of FDI, not domestic investments. ahead of further research on policy options Policy shifts to facilitate MSME to grow this source of finance. Further, the development and Lao private companies’ analytics and insights for potential SDG and contributions to national development NSEDP-aligned investment opportunities priorities should begin during the 9th NSEDP can be strengthened through dialogues with cycle but will only deliver results with a the private sector and financial institutions. substantial lag, as they require important regulatory reforms and the achievement of substantial progress on human capital ► International private finance development priorities. ▪ Significant policy reforms will be needed to redirect future FDI to priority sectors in the

52 WB, Lao PDR Economic Monitor August 2021, (2021) 55 MPI and UN, Structured Dialogue 1: Diagnostics –

53 WB, Enterprise Survey 2018, (2020) Financing National Development Priorities, (2021)

54 ADB, Provincial Facilitation for Investment and Trade Index, 2022 Page 26 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) 9th NSEDP, which calls for FDI “in line with environment, transparency, and technical socio-economic development goals”, that assistance58. “target the distinct potential of different ▪ FDI inflows are likely to continue in line with sectors and regions”, “are efficient, effective, regional economic growth prospects, and sustainable”, “help alleviate poverty, underpinned by investments from China, improve social sector development and which has become Lao PDR’s largest single utilise natural resources carefully while source of investors. The financing report protecting the environment”56. Currently, the recommends exploring investment country has been able to attract FDI promotion from other sources in addition, to primarily in resource extraction, with diversify partnerships and minimise concerns over sustainability and climate exposure to economic risks59. change, only generating limited job ▪ By curbing IFF, Lao PDR’s can reduce opportunities for the Lao workforce, and challenges to the achievement of the 9th making limited contributions to state NSEDP, increase revenues, and improve Lao revenue. Limited alignment with the 9th PDR’s investor profile. IFF, which could NSEDP is a key concern, with existing FDI to account to 14.4% of GDP60, impact the the social sub-sectors of Health (0.3%) and achievement of national development Education (0.0%) being almost nil57. The priorities for three main reasons: they Financing Strategy should address the reduce the budget envelope (tax evasion reform of the trade and investment and corruption), affect investor’s promotion regime and the business confidence, and finance activities running environment and fiscal policy reforms side counter to national development priorities61. by side, reconsidering tax exemption ▪ Remittances provide support to poverty schemes, to concretely unlock progress on alleviation and household well-being these two major sources of finance. This is objectives of the 9th NSEDP, contributing to also critical in the context of planning for a sizeable share of the budget of 10% of the LDC Graduation anticipated in 2026. households. Despite an important reduction ▪ Reforms of the business environment in remittance levels during the COVID-19 towards simplification, predictability, outbreak, it is expected that flows will transparency, and incentives for restart with the country’s reopening. investments in priority sectors can improve Ensuring safe migration pathways and investors’ confidence, in the context of LDC digital transfer options will reduce the costs Graduation. In particular, Foreign Portfolio of remittances would increase the potential Investment (FPI), which have fluctuated of this development finance flow62. significantly over the 8th NSEDP 2016- 2020, are complex operations that require strong ► Additional findings confidence in a country’s business ▪ Important data limitations will need to be resolved to develop evidence-based policies

56 Government of Lao PDR, 9th NSEDP official translation, 59 Data calculated for: MPI and UN, Structured Dialogue 1: (2021) Diagnostics – Financing National Development Priorities,

57 Data provided by BoL for: MPI and UN, Structured (2021). See assumptions. Dialogue 1: Diagnostics – Financing National 60 UNODC, Conducting corruption and financial Development Priorities, (2021) investigations in Lao PDR, (2017)

58 Ibid. 61 WB, Illicit Financial Flows brief, (2017)

62 MPI and IOM, Remittance Landscape in Lao PDR 2022, (2022) Page 27 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) and actions. While more investments in growth and the demographic transition, data collection and data systems are human capital development through the needed to appraise what drives each achievement of health and education investment flow, certain obstacles can be outcomes, and investments to mitigate and more readily overcome. In particular, adapt to climate change and environmental transparency and public reporting on critical challenges, were identified as at risk of not public finance issues (budget composition, being achieved due to underfunding. Both debt repayment schedules) would open the the health – in the health Financing Strategy door for more thorough analyses, leading to – and education – in the Education and improved solutions. Sports Sector Plan – sectors point to ▪ Government and DPs identified critically low budget allocations forcing shortcomings in coordination and them to significantly downscale information management, impeding the ambitions63. Looking ahead, a recalibration alignment, efficiency, and effectiveness of of budget allocations to social sectors will all investments. Within government also be needed in preparation of the specifically, challenges in the sequencing, forthcoming youth bulb, to ensure governance, and coordination of the approximately the creation of approximately national planning and budgeting cycles 82,000 jobs annually until 203064. Nearing were identified as constraining the the demographic transition, Lao PDR will alignment and development returns of all have to ensure poverty reduction and investments. The formulation of national meaningful employment among a growing development priorities led by MPI, the population to enjoy the potentials for an development of national budget expenditure acceleration of socio-economic growth and frameworks and ceilings, and the various benefits associated with a larger share of planning and budgeting processes taking population in working-age65. Failing to do place at ministry and provincial levels to so, on the other hand, may lead to higher prioritise investments, were identified as social costs and social instability. While insufficiently coordinated. Reengineering there has not been a costed climate change processes to strengthen integrated and and environment plan, the literature review coordinated planning and financing for of the costs of achieving the related sustainable development was seen as outcome, based on Lao PDR 2021 NDCs crucial to both the increase in the volume of and global estimates revealed that the 9th development finance and the alignment and NSEDP Outcome 4 – Environmental returns of existing investments. Protection and Climate Change ▪ Throughout the diagnostics phase, there Management – was also judged severely were concerns regarding the financing and underfunded. These findings justified the achievement of certain priorities, which are inclusion of a dedicated chapter further of particular importance for Lao PDR’s exploring health, education, and continued development progress. In environmental and climate finance. particular, in the context of population

63 Ministry of Health of Lao PDR, Health Financing Strategy 65 The demographic dividend is the economic growth 2021-2025 and Vision 2030, (2021) and Ministry of potential that can result from shifts in a population’s age Education and Sports, Education and Sports Sector structure, mainly when the share of the working-age Development Plan 2021-2025, (2020) population (15 to 64) is larger than the non-working-age

64 UNFPA, Window of Opportunity for Realizing a share (14 and younger, and 65 and older). Demographic Dividend, (2020) Page 28 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) 1. Domestic public finance growth scenario considering the current volatility of the global economy (4% average growth p.a.)67. The achievement of priorities in many critical sectors (human capital, climate Without significant fiscal, expenditure change, environmental protection, governance) management, and debt management policy is directly linked with the State’s resources, as shifts, Lao PDR will not achieve the 9th NSEDP was mentioned in the diagnostics chapter. and the SDGs. The challenges with financing Therefore, the Financing Strategy’s first and development, on account of critically low foremost priority is to urgently increase revenues, limited and inefficient expenditures, government revenues through a fiscal policy and the rising burden of debt repayments, are that does not compromise on Lao PDR’s amongst the biggest impediments to priorities to reduce inequality (i.e. considering development progress. the progressivity of the tax system) and the This chapter specifies the policy directions and transition towards a low-carbon and actions that are to be taken to increase rapidly sustainable development pathway the country the volume, efficiency, and effectiveness of the has committed to (e.g. limiting resource- State’s development investments. Under the generating but also polluting and three policy areas of this financing flow (1.1 environmentally degrading projects). revenue mobilisation, 1.2 expenditure Two objectives structure the Financing management, and 1.3 debt sustainability), Strategy’s domestic revenue mobilisation policy policy objectives and contributing actions are area. The first one is concerned with presented. A full action matrix specifying terminating investment promotion policies that responsibilities and timeline is available at the have generated important fiscal costs and led end of the Financing Strategy. to reduced revenues even as the economy has grown. Broadening the tax base should not be Policy area 1.1.: domestic revenue done at the expense of Lao PDR’s inclusivity mobilisation and equality priorities, implying few and limited increases in consumption tax rates for The State of Lao PDR does not currently have households, and instead, a focus on increasing enough revenues to finance its development the currently minimal contribution of the priorities. The tax to GDP ratio, in 2020, was the corporate income tax (CIT) to revenues. The lowest of 28 selected Asia-Pacific economies, second policy objective reflects Lao PDR’s at 8.9% according to the OECD66, more than 6 revenue structure. With an important share points below the IMF-expected level for originating from resource extraction, the developing countries. country is at risk of compromising its The financing report estimated that the tax to environmental and climate priorities when GDP ratio was, in 2020, at a similarly low level, encouraging natural resources extraction68. The at 9% of GDP. It simultaneously found that, for a State should therefore only promote revenue balanced budget, the ratio needed to increase generation-projects with ”minimal by 7.3 points, to 16.3%, under an optimistic environmental impacts yet generat(ing) more

66 OECD, Revenue Statistics in Asia and the Pacific – Lao 68 OECD, Lao PDR: Details of non-tax revenue, (2021) and PDR, (2022) Detail of Public Revenue – Lao PDR, (2022)

67 MPI and UN, Structured Dialogue 1: Diagnostics – Financing National Development Priorities, (2021) Page 29 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) economic benefits”, as suggests the National growth. MoF estimated that 3,000 to 4,000 Agenda69. billion LAK per year are lost to tax exemptions (200-270 million USD), which amounts to almost 2% of GDP72. ► Policy objective 1.1.1: State revenues In line with the national frameworks and primarily increase through a fiscal policy international practices, broadening the tax base shift to broaden the tax base, in line with by eliminating fiscal costs – i.e., strictly limiting inclusive growth priorities new tax exemptions – is therefore a central The 9th NSEDP and the National Agenda measure of the 9th NSEDP Financing Strategy, prioritise an urgent increase in tax revenue via supported by other measures to modernise and the broadening of the tax base and a modern capacitate the tax administration and systems tax administration. This approach is consistent and review the investment promotion regime. with international practices. The OECD, in a The National Agenda orders, under Core Action paper entitled Tax Design for Inclusive 1, to “avoid entering into agreements that are Economic Growth70, explains that taxation for inconsistent with laws and regulations, that inclusive economic growth can go through four request exemptions of provisions stipulated in main avenues: (1) broadening tax bases while laws”, suggesting that the broadening of the tax keeping tax rates low (2) strengthening the base should go through a strict limitation of overall progressivity of the tax system, (3) new tax exemptions. It further states that affecting pre-tax behaviours and opportunities, “should there be additional provisions not and (4) enhancing tax policy and stipulated in the law and regulations, concerned administration. Points (1) and (4), which are sectors must uniformly agree or attain more accessible for developing countries, are endorsement from the National Assembly prior key priorities of the 9th NSEDP and the National to signing the investment agreement”73. Agenda. The Tax Administration Law provides four Looking at Lao PDR’s tax composition clarifies rationales for exemptions on tax obligations, through which avenue the broadening of the tax namely the implementation of (1) international base should take place. The structure of tax treaties, (2) the Law on Investment Promotion, revenue was significantly different than in other (3) projects of national importance, and (4) regional economies according to the OECD71. special exemption policies in the case of force Most notably, taxes on goods and services majeure or natural disasters. Therefore, represented a total of 45% of tax revenue, reviewing the Law on Investment Promotion against 27% on average in the region. The (and other laws: the Mineral Law, the Law on contributions of personal income tax and CIT Land, the Customs Law) and MPI’s instructions, were significantly lower in Lao PDR which specify eligibility and priorities for tax (respectively 10 and 13%) than in the region (17 exemptions, is critical to efficiently reverse tax and 20% on average). A large number of base-eroding policies. The National Assembly’s corporate tax exemptions have been granted to oversight role of new investments, as stated in domestic and foreign investors to stimulate

69 Government of Lao PDR, National Agenda on Economic 72 Shared in discussions at technical workshops, 6-7 June, and Financial Difficulties, (2021) 2022.

70 Brys et al., Tax Design for Inclusive Economic Growth, 73 Government of Lao PDR, National Agenda on Economic (2016) and Financial Difficulties, (2021)

71 OECD, Lao PDR: Details of non-tax revenue, (2021) and Detail of Public Revenue – Lao PDR, (2022) Page 30 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) the National Agenda, should also be Moreover, under the MoF Instruction No. 4490 strengthened so that parliamentarians assess and Notification No. 4491, certain importers of effectively large investment projects’ expected goods, notably fuel, will be given special rights development and financial returns. regarding VAT and excise tax on importation at the border. Such reduced rates are common. This important shift in fiscal policy and the Reviewing and harmonizing consumption tax review of the investment promotion regime (see and excise rates and exemptions according to 4. International Private Finance) are interlinked. best international practices would help to The Financing Strategy calls for these two minimise costs and maximise returns based on important priorities are simultaneously incentives for private sector development. The addressed by MoF (collect taxes), MPI (guiding MoF was already planning to resume to a 10% national planning and investment promotion), VAT rate in the last years of the 9th NSEDP75. with technical assistance from international financial institutions. Discussions between stakeholders, finally, revealed that laws and regulations in emerging The broadening of the tax base alone is not sectors (e-commerce, cryptocurrency) may be sufficient. Measures to increase the capacity of insufficient and that revenue collection from the administration, support simplification and these should be explored, following best digitalisation of revenue collection, and raise international practices. The government has for awareness of businesses and households are instance been encouraging cryptocurrency complementary. Efforts to increase value- mining, in line with the National Agenda’s added tax (VAT) registration, which MoF has request to explore new sectors. Eleven been leading through the Tax Registration companies have signed agreements on Information System (now covering 76% of cryptocurrency mining with the Ministry of businesses)74, can yield additional revenues. Technology and Communications, at USD Making businesses and citizens register to pay 500,000 per license (9 companies have paid for their taxes has been challenging, despite their licenses). Two have signed agreements to multiple attempts by the Tax administration operate cryptocurrency exchange with BoL’s through awareness raising and incentives. Department of Payment Systems76. Technical assistance, building on international practices, to enhance dissemination and Agreed actions to support the rapid increase of increase societal awareness of taxation for State revenues are: development should also be envisaged. ➔ The assessment of fiscal costs and review, An increase of tax rates is not considered in the harmonisation, and update of the laws, 9th NSEDP and the National Agenda. This is regulations, and processes, to broaden the broadly consistent with international tax base and abolish and renegotiate CIT recommendations on tax designs for inclusive and other fiscal exemptions (also found growth, as mentioned before. However, under 4.1.1). considering Lao PDR’s low VAT rate by regional ➔ The multi-stakeholder formulation of a standards, the Financing Strategy calls for a comprehensive FDI attraction and restoration (from 7 to 10%) of the tax rate, promotion strategy, which would contain (1) which will need to consider recent inflationary a FDI policy statement that clarifies Lao trends weighing on livelihoods. PDR’s strategic vision for FDI promotion and

74 Shared in discussions at technical workshops, 6-7 June, 75 Ibid. 2022. 76 Ibid. Page 31 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) attraction, (2) the review of the Investment reform (e.g., carbon tax), sin taxes, and Promotion Law and SEZ regulations (3) the other pre-market interventions, to cost-benefit analysis and proposed reforms simultaneously influence behaviours and of the current incentive regime’s laws and development outcomes, and generate regulations, prioritising targeted fiscal resources for priority sectors, with careful incentives for priority sectors (social consideration of the current capacity of the sectors and green growth) and non-fiscal tax administration and centralisation of the incentives and (4) reforms of the business budget process (also found under 5.1.1 and environment, notably for facilitated entry 5.3.1). and increased investor protection, all guided ➔ The regulation of revenues from rapidly by international standards through technical growing sectors, such as e-commerce and assistance (also found under 4.1.1 and 5.). cryptocurrency mining and trading. ➔ The strengthening of inter-ministerial processes and capacity of the National Assembly, MoF, and MPI to review large ► Policy objective 1.1.2: revenue generation investment projects’ financial schemes and does not compromise the 9th NSEDP expected fiscal implications (also found environmental sustainability directions and under 1.2.2 and 4.1.1). priorities ➔ The acceleration of projects to modernise PM’s Order No. 61 authorised the excavation, and digitalise tax systems, facilitating e- processing, and export of minerals against the registration and e-payment, and facilitate payment of fees and royalties to the State at formalisation to improve the performance about USD 2 million per hectare, per company. of tax collection (also found under 3.1.1 So far, fifty companies have registered under and 3.2.1). this scheme. As mentioned under policy ➔ The acceleration of tax administration objective 1.1.1, the government has been capacity development to increase revenue encouraging cryptocurrency mining, for which collection. environmental implications are important: the ➔ The dissemination of tax law and demand for energy consumption from the regulations of businesses and broader eleven registered companies amounts to over societal awareness raising of tax for 1,100 MW77. development. ➔ The harmonisation of tax rates to optimise These examples show that, during the 9th revenue generation while fostering private NSEDP, as per its policy directions and those of sector development and investments in the National Agenda, revenue from resource priority sectors and green growth, including sectors is expected to increase significantly. the assessment of expected revenues However, the 9th NSEDP and National Agenda generated, business registrations, also prioritise a less resource-intensive administrative feasibility, and impacts on development pathway, highlighting the current livelihoods of a potential restoration of the VAT rate to 10%(also found under 3.1.1 and in 5.). ➔ The study of the costs, benefits, feasibility, and relevance of environmental fiscal

77 Ibid. Page 32 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) limited contribution of large mining and energy improve institutional and human capacity to projects to inclusive growth and employment78. curb and prosecute environmental trafficking (also found under 4.2.1 and The 9th NSEDP recalls that “the Government had 5.3.1). previously suspended mining concessions to improve policies and regulations to ensure national interests and manage environmental impacts” and that “the country will still need to Policy area 1.2: expenditure management use natural resources for economic and social There is a broad consensus on the development but will use them responsibly in misalignment between national development line with sustainable and green growth priorities on the one hand, and budget directions”79. allocations and public investments on the other In line with the priority given to broadening the hand. Solving this inadequacy for the remainder tax base (see policy objective 1.1.1) and of the 9th NSEDP is an important priority of the sustainability considerations, new revenue Financing Strategy. Meanwhile, improving generating resource-extraction projects should processes and capacity to maximise allocative be a secondary objective. Instead, the focus efficiency and development returns, and efforts should be on improving the capacity of the tax to synchronise the planning and budget cycles, administration to collect higher revenues from can put the State on the right trajectory to drive existing projects, reinforce and enforce development progress again. This policy area is environmental and socioeconomic safeguards, therefore structured against two policy and the strengthening of laws and regulations objectives: one concerned with the urgency to to prevent the illegal extraction (to boost reallocate the limited resources available environmental revenues) and trade (to boost (1.2.1.), and the other to accelerate PFM custom duties) of environmental revenues. reforms (1.2.2.). Agreed actions to manage the environmental sustainability of revenues include: ► Policy objective 1.2.1: 2023-2025 budget ➔ The temporary halt on new resource allocations and public investments, at the extraction projects combined with the national and local level, and in all sectors, update of legislation, regulation, and support the achievement of the 9th NSEDP processes for the future implementation of The financing report80, as well as the 8th NSEDP natural resources extraction projects in line review81, found a long-lasting inconsistency with the inclusive, sustainable, and climate- between budget allocations and investment resilient development pathway of the 9th projects, and national development priorities. NSEDP (also found under 1.2.2, 4.1.1 and Indeed, the 9th NSEDP prioritises public 5.3.1). investments in “rural infrastructure, human ➔ A capacity needs assessment to assess resource development, (…) governance and challenges and opportunities to strengthen administration, (…) research” but not “highways, enforcement of (fiscal, environmental, railways, and transmission lines”82. forestry, wildlife) laws and regulations and

78 Government of Lao PDR, National Agenda on Economic 80 MPI and UN, Structured Dialogue 1: Diagnostics – and Financial Difficulties, (2021) & Government of Lao Financing National Development Priorities, (2021) PDR, 9th NSEDP official translation, (2021) 81 Government of Lao PDR, 9th NSEDP official translation,

79 Government of Lao PDR, 9th NSEDP official translation, (2021) (2021) 82 Ibid. Page 33 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) However, In the 2020 State Budget, public authorities to prioritize investments to directly resources dedicated to energy and mines (1.6% support the 9th NSEDP, limited large-scale of GDP) and public works (2.2% of GDP) still projects, suspended disbursement for amount to more than 20% of all public unnecessary technical activities, and promoted expenditure in 2020. Resources dedicated to cost-effective investments. The Department of environmental protection and water resources Planning of MPI is also working with the represent less than 1% of total expenditure Japanese International Cooperation Agency (0.8%) and only a fraction of GDP (0.2%). In (JICA) on a Public Investment Management parallel, allocation to social sectors and public Action Plan 2022-2030. A 3-year public investments in human capital remained investment rolling plan is being developed to insufficient. Total resources spent on align with the MOF’s PFM expenditure sociocultural sectors amount to 4.1% of GDP, framework to inform budget ceilings. with education and sports (1.8% of GDP) and Agreed actions to urgently align the remaining health (1.0% of GDP) being the most financed years of budget allocations with the 9th NSEDP sectors83, but well below recommended priorities include: standards and ASEAN peers84, not fully considering efforts needed to achieve national ➔ The simultaneous mid-term review of the 9th commitments including to Universal Health NSEDP, update of the Public Investment Care (UHC) and broadening of skillsets through Plan currently being developed, and formal education and technical and vocational alignment of the medium-term expenditure training aimed at the diversification of the framework, reviewing 2024 and 2025 workforce. budget ceilings and yearly allocations (also found under 5.). Moreover, allocation ceilings fixed for several ➔ The reassessment and possible termination planning cycles – 35% social, 35% economic, of all public and public-private investment 30% others – are now obsolete and misaligned projects that are not in line with the 9th with the 9th NSEDP85. NSEDP priorities or are experiencing There is a clear alignment between the 9th increasing costs and delays weighing on the NSEDP, the National Agenda, and the State budget (also found under 1.3.1). diagnostics on the necessity to ensure full ➔ The temporary halt on new resource alignment of budget decisions, at all levels and extraction projects combined with the in all sectors, with the national development update of legislation, regulation, and priorities. This policy objective is therefore processes for the future implementation of concerned with the pressing reorientation and natural resources extraction projects in line alignment of both recurrent and investment with the inclusive, sustainable, and climate- expenditures on national development priorities resilient development pathway of the 9th notably in human capital (health, education, and NSEDP (also found under 1.2.2, 4.1.1 and social protection) and green growth. 5.3.1). MPI has already initiated this effort. To strengthen the alignment of public expenditures with the 9th NSEDP objectives, it has issued notifications to line ministries and local

83 MPI and UN, Structured Dialogue 1: Diagnostics – 85 Shared in discussions at technical workshops, 6-7 June, Financing National Development Priorities, (2021) 2022.

84 See diagnostics. Page 34 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) ► Policy objective 1.2.2: transparent and ministries and subnational levels of modern public financial management government. Strengthening capacity to improves the allocative efficiency and 9th undertake cost/ benefit analyses – such as NSEDP-alignment of the budget the health investment case – to determine where, when, and how to spend limited Improved alignment of public investments with resources is critical in the current context. national development priorities will, in the long Additionally, capacities to assess run, originate from marked changes in PFM. socioeconomic returns and broader The 9th NSEDP prioritises PFM efficiency, “more environmental implications and select modern, transparent, and agile (…) ensuring that investment projects require attention. MPI budget allocation is in line with the development issues instructions to line ministries in line priorities”86. As in most developing countries, with the Law on Public Investment and uses planning and budget cycles are not sufficiently a scorecard for project selection. These synchronised. processes and tools should be urgently Adjusting the budget cycle to the rhythm of reviewed for investment projects national planning processes would facilitate contributing to national development allocation decisions that support development priorities. Limiting and maximising the priorities. efficiency of recurrent expenditures is also ▪ The budget preparation has historically needed. The National Agenda estimated been annual in Lao PDR. MoF fixes budget that in the current context, “implementing ceilings for line ministries and provincial the amended decree on frugality and tackling governments, in light of revenue projections extravagance focused on prudent and within broad constraints for sectors. administrative expenditure” was a priority87. Line ministries then share with MoF and ▪ Budget monitoring and evaluation lacks MPI their financial plans under these capacity. Processes currently cannot constraints. This short-term focus also does appropriately support budget reviews and not allow for concrete discussions on preparation. Ongoing projects to revise the prioritization and sequencing of spending Chart of Accounts (CoA), tag the budget for maximal allocative efficiency and against the SDGs and outcomes of the 9th alignment to national development NSEDP, need to be accelerated. priorities. The current attempt by MoF to ▪ Throughout, budget transparency is also a develop medium-term expenditure concern. The financing report only analysed frameworks will need to be synchronised half of all public expenditures, as the other with the multi-year investment plan currently half is combined under “other being developed by MPI. The same needs to organisations” in the State budget. take place for annual planning and One additional difficulty is inherent to the budgeting processes. division of labour within government, with MoF ▪ Budget execution is also marked by tasked with revenue forecasting and recurrent significant challenges. The allocative expenditures, while MPI is in charge of efficiency is constrained by limited macroeconomic forecasting and public technical capacities for evidence-based investment. Strengthened coordination planning and budgeting within line mechanisms are needed to further integrate

86 Government of Lao PDR, 9th NSEDP official translation, 87 Government of Lao PDR, National Agenda on Economic (2021) and Financial Difficulties, (2021) Page 35 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) planning and budgeting processes: costed progress towards an evidence-based national plans equipped with financing budget cycle and expenditures aligned with strategies, aligned public investment plans and national development priorities. medium-term expenditure frameworks, and ➔ The strengthening of inter-ministerial synchronised NSEDP implementation plans and processes and capacity of the National yearly budget allocations. Assembly, MoF, and MPI to review large investment projects’ financial schemes and Actions agreed to increase allocative efficiency expected fiscal implications (also found of public investments and accelerate the under 1.1.1 and 4.1.1). integration of planning and budgeting ➔ The temporary halt on new resource processes at all levels of government are: extraction projects combined with the ➔ The acceleration of projects to synchronise update of legislation, regulation, and and sequence the quinquennial, multi-year, processes for the future implementation of and annual national planning and budgeting natural resources extraction projects in line processes, for cycles of financially sound with the inclusive, sustainable, and climate- national planning as per the INFF approach. resilient development pathway of the 9th ➔ The update of the State Budget Law, Public NSEDP (also found under 1.1.2, 4.1.1, and Investment Law, Public Procurement Law, 5.3.1). and related regulations such as Decree ➔ The exploration of the relevance and 599/PM on austerity measures, and institutional feasibility of increased budget adoption of the PM Decree on Budget autonomy for the National Health Insurance Formulation, to facilitate the formulation, Bureau, towards a semi-autonomous status execution, and monitoring of budget and (also found under 1.2.2). investment plans in line with national ➔ The exploration of specific changes development priorities (also found under required to the laws, regulations, processes, 5.). and CoA to facilitate centralised planning, ➔ The review and update of regulations and prioritisation, and budgeting of the processes to appraise public and private education sector and improved allocative investment proposals, including the update efficiency of public funding, in the context of the investment scorecard, the of limited fiscal space (also found under systematisation of cost-benefit analyses 5.2.1). and other evidence-based methodologies ➔ The development of procurement guidelines through training and technical assistance, for line ministries, and the systematisation and improvements of PPP governance and of green procurement practices across all regulations (also found under 4.1.1). government, as well as capacity ➔ The acceleration of all PFM projects – e.g., development (also found under 5.3.1). IFMIS rollout, SDG, and 9th NSEDP budget- tagging, green and gender budgeting, CoA revisions – to integrate national Policy 1.3: sustainable debt management development priorities in all stages of the budget cycle (also found under 2.1.2 and Lao PDR was considered at high risk of debt 5.). distress in the 2019 IMF Article IV and trends ➔ The convening of a National Conference on PFM to disseminate recent legal and regulatory updates and take stock of Page 36 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) suggest that the situation has worsened88. Debt repayments and services are weighing MoF’s 2021 Public Debt Bulletin (providing data considerably on the budget’s ability to finance to 2020) reveals a debt to GDP ratio of 72%, development. In 2022 for the first time, the cost with high levels of external debt (67% of GDP, of debt service will exceed resources available 92.1% of total debt denominated in foreign for health and education combined. currencies), making the current depreciation of The 9th NSEDP states that “the accumulation of the LAK a threat to the country’s financial domestic and foreign debt has increased stability (exchange rate used amounted to less pressure on the budget” and prioritises than LAK 10,000/USD 1, whereas the official increases in revenues and debt consolidation to exchange rate has reached 15,000/1 in August alleviate this burden. Contingent liabilities, in 2022). In addition to the foreign exchange risk, particular, need to be addressed: “most state- the refinancing risk was high, with more than owned enterprises operate at a loss and are 11% of 2020 debt to be repaid by the end of heavily indebted” 91. The National Agenda adds 2021, and with similar projections every year. that new debt issuance must be limited, that During the rest of the 9th NSEDP (2022-2025), debt renegotiations must be explored, that the country will need to repay and service USD contingent liabilities are reduced, and 5.1 billion, or 48% of its total debt stock. For the equitization and the selling of assets is full 9th NSEDP cycle (2020-2025), this amounts accelerated92. to USD 8.6 billion89. Most of these efforts are however severely From available sources, the largest single constrained. With the credit rating downgrades creditor was by far China (57% of all of Lao PDR, making the country the lowest concessional debt, 47% of all debt), followed by sovereign rating in Asia without being in default, creditors with less than 10% of debt (ADB, appetite for bonds is limited, making new bond International Development Association, issuance costly, therefore limiting prospects for Thailand, Korea, Japan, etc.). Commercial debt consolidation93. creditors represented 7% of all debt. Of all debt, 9.8% was publicly guaranteed debt owned by While restoring a balanced budget supporting SOEs90. national development priorities will appear to primarily go through higher revenue This policy area is split between the pressing mobilisation and more aligned expenditure need to address immediate debt challenges management, concrete steps to alleviate the (1.3.1), while setting the scene for sustainable debt burden are urgently needed. A thorough debt issuance as a financing tool for assessment of the debt payment schedule, development, through increased transparency identification of potential substitution of and improved debt management (1.3.2). commercial loans with high interest rates with more concessional loans, negotiations with foreign creditors, and careful consideration of ► Policy objective 1.3.1: immediate debt relief SOEs (the Agricultural Promotion and Lao is needed to free fiscal space for Development Banks were recently reformed) development investments are pressing.

88 IMF, Article IV Consultation Staff Report, (2019) 92 Government of Lao PDR, National Agenda on Economic

89 MoF, Annual PPG Debt Statistics Bulletin, (2020) and Financial Difficulties, (2021)

90 Ibid. 93 See diagnostics.

91 Government of Lao PDR, 9th NSEDP official translation, (2021) Page 37 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Innovative solutions, such as debt swaps (in confidently borrow on more affordable terms particular for investments in the protection of while maintaining sustainable debt levels, in nature or in climate adaptation and mitigation), order to finance national development. Creating which facilitate bilaterally negotiated debt the conditions for sustainable debt issuance alleviation in exchange for investments to will entail many actions listed under the first accelerate development, should also be and second policy areas of this chapter, to raise explored. revenues and make better use of available resources, towards a more balanced budget. Against this backdrop, specific technical assistance in managing debt distress is needed However, improved debt analytics, debt to accompany the MoF’s efforts. management capacities, coordination within government and with DPs, and transparency will Three actions to urgently alleviate Lao PDR’s help to restore creditors’ confidence currently debt burden are agreed: affecting Lao PDR’s borrowing costs. ➔ The study and exploration of multilateral Transparency, in particular, is key. Indeed, one debt alleviation and suspension initiatives of the key findings of the sovereign bonds to free fiscal space in support of report was the reported loss of confidence of development investments and provide Lao commercial creditors in Lao PDR’s ability to PDR with sufficient time to increase the service debt, generating higher interest rates94. revenue to GDP ratio. Similarly, several partners have also ➔ The continuation of debt consolidation implemented a ban on budget support, such as through renegotiations to (1) cancel or the EU and Member States, due to concerns reduce debt repayments and/or lengthen over Lao PDR’s financial management. the maturity of loans to the second half of the 2020s without losing access to future In the 9th NSEDP, lack of transparency is listed loans and (2) explore debt swaps with as one of the main shortcomings of the major creditors (also found under 5.3.1). previous planning cycle and is one of the key ➔ The reassessment and possible termination directions of the output 1.2, under outcome 1, of all public and public-private investment on robust and stable macroeconomic projects that are not in line with the 9th management95. The National Agenda is even NSEDP priorities or are experiencing more forthcoming: “the transparency principle increasing costs and delays weighing on the will inform the success in the implementation of State budget (also found under 1.2.1). the national agenda as well as instil society and international community’s confidence and trust in the Government’s effort of addressing economic-financial difficulties”96. ► Policy objective 1.3.2: transparent and evidence-based debt management will While debt issuance is not a priority to finance progressively create the conditions for development investment now, the 9th NSEDP sustainable debt issuance cycle can see significant improvements creating an enabling environment for later This policy objective is complementary to 1.3.1, sustainable bond issuance. looking at ways to improve Lao PDR’s ability to

94 UNCDF, Lao PDR bonds: A Stocktake and Analysis of 96 Government of Lao PDR, National Agenda on Economic Lao PDR Bonds, (2021) and Financial Difficulties, (2021)

95 Government of Lao PDR, 9th NSEDP official translation, (2021) Page 38 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Agreed actions to manage public debt ➔ The acceleration of all development sustainably and progressively improve its role projects to increase the MoF’s capacity on in financing development include: data collection, analysis, reporting, and software use. ➔ The acceleration of projects to increase ➔ The pursuit of ongoing work to reform debt transparency in line with international SOEs, focusing on large companies standards, through the more frequent presenting contingent liabilities. publication of disaggregated debt data, ➔ The preparation of a medium-term debt including for SOEs, and an annual issuance and management strategy, publication reviewing the debt portfolio, including the long-term exploration of green analysing, and modelling repayment trends, bonds, assuming the progressive return to a and associated risks. more manageable financial situation ➔ The review of the Public Debt Management allowing for debt issuance (also found Law and associated regulations against under 5.3.1). best international practices. Page 39 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) 2. International public finance Policy area 2.1: ODA predictability, efficiency, and effectiveness Optimising ODA’s contribution to development ODA has historically been used to support can go through two main avenues: the more critical dimensions of the country’s evidence-based planning of development aid, development progress, often more than its for targeted projects and maximised synergies expected role to strategically complement the (2.1.1), and the improved delivery of ODA, State budget, in key sectors such as health, through simplified and harmonised procedures nutrition, education, social protection, or and capacity development of recipients to climate change. In a context marked by fiscal efficiently manage ODA (2.1.2). difficulties, maximising the volume and the allocative efficiency of ODA is critical, to support a transition towards fiscal ► Policy objective 2.1.1: the efficiency and sustainability97 and the emergence of a more effectiveness of ODA increases through SDG-aligned private sector98. The 9th NSEDP enhanced planning, monitoring, and has, accordingly, ambitious targets for ODA coordination mobilisation. Under the Outcome 1 “Continuous The diagnostics show that despite the quality, stable and sustainable economic growth substantial contribution of ODA in financing achieved”, Output 3, ‘Investment quality and development in Lao PDR (3.1% of GDP), and the effectiveness enhanced’, the target is 18% of strong partnership that the Government has total investment for the period 2021-2025. with DPs, the predictability of ODA remains This chapter specifies the policy directions and low99. A mid-term review of the VDCAP found actions that will be taken to increase rapidly the that in Lao PDR, only 70% of ODA was volume, efficiency, and effectiveness of disbursed as scheduled in 2019 (LDC average is development aid, in line with the policy 84%). Medium-term predictability is even lower, directions of the Vientiane Declaration on with only 32% of ODA available in expenditure Partnerships for Effective Development plans for the next three years (LDC average is Cooperation 2015-2025 (VDCAP) and the INFF, 66%). Aid alignment to country priorities was which suggests a transition from aid as a driver only moderate (65%), and the share of of development to aid as a catalyser of public development co-operation recorded on budgets and private investments. subject to parliamentary scrutiny was insufficient, at 24% 100. Under the two policy areas of this financing flow (2.1 ODA predictability, efficiency, and The limited use of the ODA-MIS database has effectiveness, 2.2 mobilise LDC-specific made flows difficult to predict, track, and finance), objectives and contributing actions are analyse. The financing report found that the presented. A full action matrix specifying database was not viable for analytical and responsibilities and timeline is available at the planning purposes, with most of the 436 project end of the Financing Strategy. entries annotated as “not submitted”101. The VDCAP review also indicated challenges in terms of accessing standardized information,

97 See Domestic Public Finance. 100 MPI, Mid-term review of the implementation of the

98 See Domestic and International Private Finance. VDCAP 2015-2025, (2021)

99 MPI and UN, Structured Dialogue 1: Diagnostics – 101 MPI and UN, Structured Dialogue 1: Diagnostics – Financing National Development Priorities, (2021) Financing National Development Priorities, (2021) Page 40 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) particularly with respect to ODA flows from non- for the remainder of the 9th NSEDP (2023- OECD DPs102. 2025), structured against the national plan’s outcomes and outputs (also found under In the same way that the formulation of aligned 5.). budget and investment plans is needed, multi- ➔ The multi-stakeholder review of the RTP and stakeholder and evidence-based planning and SWGs, for inclusive partnerships budgeting of ODA can improve the mobilisation mechanisms facilitating the joint evidence- and targeting of these flows. based strategic planning and delivery of Governance issues are critical. Improving ODA programmes contributing to the 9th development coordination mechanisms and NSEDP outcomes, anticipating transition for forums such as the Sector Working Groups ODA-reliant sectors (also found under (SWGs), as the VDCAP suggests, is needed to 2.1.2). reduce aid fragmentation and develop Programme-Based and Sector Wide ODA strategies, through complementary or joint ► Policy objective 2.1.2: ODA delivery can programmes and projects103. Improving the accelerate through harmonization and current institutional architecture, will require simplification of regulations and the capacity development of the SWGs secretariat management of the absorptive capacity of for cross-sectoral coordination, and of leads for national entities intra-sectoral coordination, as well as the The VDCAP mid-term review found insufficient revision of the scope and sequencing of the harmonisation and simplification impedes ODA RTP, for more strategic and multi-stakeholder delivery. planning and efficiency of development cooperation. A report prepared in 2021 by the International Non-Governmental Organisations (NGOs) The four agreed actions to increase the network specifically highlighted challenges in strategic planning of ODA and other the approval of Memorandums of development aid flows are: Understanding (MoU). It was found that no ➔ The review and publication, on a semi- MOU was approved within the sixty days annual basis, of the ODA-MIS database, for stipulated in the guidelines for project improved strategic planning (also found approvals, that most MOUs are taking up to under 5.). twelve months, that approval delays are causing ➔ The multi-stakeholder formulation of a 80% of projects to experience delays on medium-term ODA strategic mobilisation implementation, and that 14% of INGOs have plan (2024-2025), aligned with the 9th had donors cut or cancel funding NSEDP mid-term review, 2030 ODA strategy consequently104. The VDCAP review highlighted and medium-term expenditure framework, the need to streamline the MoU process105. highlighting priority sectors for ODA, and Discussions during technical-level workshops encouraging joint approaches. revealed that administrative capacity was a key ➔ The coordination of the annual production constraint in managing MOUs. and publication of a forward-looking matrix The financing report noted that ‘ODA delivery with all planned ODA and other aid projects, rates in Lao PDR can be improved with more

102 MPI, Mid-term review of the implementation of the 104 INGO Network, MoU survey, (2021) VDCAP 2015-2025, (2021) 105 MPI, Mid-term review of the implementation of the

103 Ibid. VDCAP 2015-2025, (2021) Page 41 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) attention to donor liaison and administration mechanisms facilitating the joint evidence- capacity in Ministries’106. Different processes based strategic planning and delivery of governing programme design, implementation, ODA programmes contributing to the 9th and reporting generate pressures on the NSEDP outcomes, anticipating transition for capacity of government entities which are often ODA-reliant sectors (also found under solicited by several DPs. 2.1.1). Insufficient PFM reforms also limit the use of the government’s own budget processes for Policy area 2.2: LDC finance ODA delivery (only 42% of projects according to the VDCAP review). Challenges stated in the On 26th February 2021, the UN Committee for VDCAP review mentioned slow progress on Development Policy (CDP) recommended Lao PFM reforms and limited donor confidence in PDR for graduation from LDC status with an the national budget process107. extended 5-year preparatory period reflecting the severe and ongoing impact of COVID-19108. Streamlining both government and DPs’ procedures for ODA funded projects, accelerate The 9th NSEDP fully recognizes the importance PFM reforms, and strengthened coordination of preparing for LDC graduation: “the can reduce absorptive capacity challenges and Government must continue to prioritise and accelerate ODA delivery. prepare comprehensively for LDC graduation over the extended 5-year preparatory period Agreed actions to improve the implementation (2021-2026) to ensure that graduation is smooth of ODA and other development aid programmes and sustainable”109. and projects include: In light of upcoming graduation, the Financing ➔ The acceleration of all PFM projects - e.g., Strategy takes a dual focus on (1) maximising IFMIS rollout, SDG, and 9th NSEDP budget- access to LDC-specific multilateral funds for tagging, green and gender budgeting, CoA the second half of the implementation of the 9th revisions – to integrate national NSEDP and (2) prioritising fiscal sustainability development priorities in all stages of the and mitigation of impacts on ODA in the STS. budget cycle (also found under 1.2.2 and 5.). ➔ The multi-stakeholder review of the MoU ► Policy objective 2.2.1: urgently mobilise approval process leading to regulatory LDC-specific funds to finance national updates and the development and development priorities dissemination of clear procedures and templates. The financing report highlighted that “current ➔ The multi-stakeholder review of ODA fiscal revenue constraints caused by the COVID- processes and procedures towards 19 pandemic signal that Lao PDR is likely to seek harmonisation and simplification (also additional ODA support to meet 9th NSEDP social found under 5.). ➔ The multi-stakeholder review of the RTP and SWGs, for inclusive partnerships

106 MPI and UN, Structured Dialogue 1: Diagnostics – 108 UN, Lao PDR is recommended to graduate in 2026 from Financing National Development Priorities, (2021) the Least Developed Country Category with an extended

107 MPI, Mid-term review of the implementation of the preparatory period, (2021) VDCAP 2015-2025, (2021) 109 Government of Lao PDR, 9th NSEDP official translation, (2021) Page 42 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) sub-sector development targets and specific graduation impacts and use the opportunity technical assistance needs”110. offered by graduation to strengthen existing cooperation with multilateral, regional and Therefore, making the most of existing eligibility bilateral partners. Consequently, MoFA periods for LDC-specific support is needed, as announced at the High-Level RTM in 2021 that explained the assessment of the impacts of it would be leading and coordinating the graduation led by UNDESA. formulation of a STS. A well-prepared STS can After applicable transition periods, Lao PDR will help guide a sustainable and irreversible lose access to the LDC Fund (LDCF- managed graduation process, enhanced and more by the Global Environment Facility) for climate coordinated support by DPs, as well as change, although projects approved before identifying investment and capacity graduation would still be funded. Similarly, after development priorities. a transition period of five years, Lao PDR would The main purposes of the STS are to: no longer have access to the LDC Technology Bank, which provides support to LDCs on ▪ Identify pathways of graduation; science, technology and innovation, or the ▪ Summarise existing information on the Investment Support Programme for LDCs, impacts of losing LDC-specific international which provides on-demand legal and support measures; professional assistance to LDC governments ▪ Identify parameters that will require and eligible SOEs or private sector entities for management; investment-related negotiations and dispute ▪ Identify mitigation measures; settlement111. ▪ Determine prioritized transition measures. To tap LDC-specific funds, one action was Building on 2.2.1, this policy objective provides agreed: directions for the development and implementation of a STS, coordinated by MoFA, ➔ In preparation for the LDC V Conference (5- with support from the UN Country Team.

9 March 2023), the assessment of challenges, opportunities, and best To prepare for sustainable and irreversible practices to mobilise ODA from multilateral graduation during the 9th NSEDP cycle: funds, Technology Bank, and Investment ➔ The STS prioritises (1) the mobilisation of Support Programme. technical assistance for the sustainable and resilient financing of development, (2) to adapt to and mitigate impacts for continued ► Policy objective 2.2.2: prioritise financing strategic mobilisation of development aid, sustainability in the forthcoming LDC (3) and finance priority sectors of green Graduation STS growth, climate change management, and UNDESA’s Graduation Assessment for Lao PDR social sectors (also found under 5.). calls for the formulation of a STS to mitigate

110 MPI and UN, Structured Dialogue 1: Diagnostics – 111 UN, Lao PDR Graduation Assessment, 2020), UNDESA, Financing National Development Priorities, (2021) LDC Graduation Assessment for Lao PDR, (2020), and UNCTAD, Lao PDR Vulnerability Profile, (2021) Page 43 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) 3. Domestic private finance ► Policy objective 3.1.1: improve the business environment to unlock domestic private finance flows in priority sectors The central finding of the financing report, with The 9th NSEDP prioritises MSME development, regards to domestic private finance, is that it which is a specific output (under Outcome 1, has by far the greatest potential to make output 4), focusing on “Better quality, robust, greater contributions to national development and regionally and internationally competitive priorities. micro, small and medium-sized enterprises”113. The 9th NESDP acknowledges this, targeting the The National Agenda requests to “improve a mobilisation of 19.4% of GDP for the period more facilitative business environment and 2021-2025 from the private sector, representing speedily reduce unnecessary barriers”. As the 49% of total investment112. recent ProFIT survey showed, improvements on Improving the business environment is a priority the costs of business registration improved, but of both the 9th NSEDP and the National Agenda. informal practices remain highly prevalent114. Reviewing a business environment currently The 9th NSEDP also recognizes the importance focused on attracting FDI through tax incentives of improving the ease of doing business (with a will lead to significant results, albeit with delays, focus on the ease of doing business ranking, due to the scope of regulatory reforms needed. now discontinued) to increase private Moreover, when most businesses report access investments. Under Outcome 1 ‘Continuous to finance as their most important constraint, quality, stable and sustainable economic growth attention must also be given to the financial achieved’, Output 3 focuses on strengthening sector and its role as a catalyser of private coordination between the concerned sectors to investments. implement the PM’s Orders No. 02 and 03. MoIC has been leading efforts to implement This double focus on the enabling environment these regulations. Successes include the for MSME development and financial inclusion drastic reduction in the expected number of structures this chapter. Under 3.1 (a business procedures and the time required to start a environment for MSME development) and 3.2 business (from 173 days to 7), but constraints (sustainable financial inclusion), objectives and remain, notably the registration to social contributing actions are presented. security115. The 9th NSEDP also highlights the need to Policy area 3.1: a business environment for ‘create incentives for both domestic and foreign MSME development private investment’ in priority sectors such as green growth, healthcare, trade, and skills This policy objective is concerned with the development. Indeed, most of the domestic transformation of the business environment, private investments remain poorly aligned with which needs to be reformed to adequately the 9th NSEDP priorities, as they historically support MSME development. went into mining, electricity and in the tourism sector116. Ways to strengthen alignment and

112 Government of Lao PDR, 9th NSEDP official translation, 115 Shared in discussions at technical workshops, 24-25 (2021) June, 2022

113 Ibid. 116 Government of Lao PDR, 9th NSEDP official translation,

114 Ibid. (2021) Page 44 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) public-private dialogues for NSEDP-aligned VAT rate to 10%(also found under 1.1.1 and business creation could be catalytic, identifying 5.). practical ways to incentivise Lao businesses in priority sectors. Policy area 3.2: financial inclusion Moreover, formalisation of businesses can facilitate their integration into more complex Improvements in the business environment are value chains and the financial system. Steps necessary, but as the Enterprise Survey showed, mentioned under 1.1.1 to formalise businesses access to finance was seen as the biggest – integrating them to the tax base in particular constraint to business creation by 36% of – should therefore be encouraged. MSMEs117. More generally, the financial sector remains underdeveloped in Lao PDR, and steps Actions agreed to facilitate MSME development to strengthen the role of credit as a catalyser in priority sectors are: for additional private investments should be ➔ The acceleration of the implementation of taken. While 3.2.1 focusses on access to the PM’s Orders 02 and 03 to simplify the finance for MSMEs, 3.2.2 looks at increasing business environment, especially current sustainability and resilience of the financial efforts to disseminate recent regulatory sector for continued support to growth. changes and steps to obtain a business license through user-friendly digital platforms, and reduce informal charges ► Policy objective 3.2.1: increase access to ➔ A public-private dialogue to increase finance for MSME development research and policies on an enabling Limited access to finance is recognised as an environment and incentives for MSME (1) important impediment for the development of a development in priority sectors, (2) dynamic private sector in Lao PDR. Corrective integration with regional and international measures under Core Action 1 of the National value chains, and (3) responsible business Agenda prioritise the strengthening of the SME practices. fund and the expansion of financing modalities ➔ The acceleration of projects to modernise in agriculture, processing, tourism, or and digitalise tax systems, facilitating e- handicraft, in line with Decree No. 299. registration and e-payment, and facilitate Corrective measures under Core Action 4 also formalisation to improve the performance encourages specific actions to encourage of tax collection (also found under 1.1.1 commercial banks and microfinance and 3.2.1). institutions to facilitate MSME development118. ➔ The harmonisation of tax rates to optimise revenue generation while fostering private The SME Promotion Fund will soon be sector development and investments in amended, in line with the Law on Promotion of priority sectors and green growth, including SMEs (recently considered by the National the assessment of expected revenues Assembly, at the end of June 2022). The Fund generated, business registrations, remains however limited in its ability to finance administrative feasibility, and impacts on MSME development, with only LAK 500 billion livelihoods of a potential restoration of the per year (around USD 33 million), and practical

117 WB, Enterprise Survey 2018, (2020) 118 Government of Lao PDR, National Agenda on Economic and Financial Difficulties, (2021) Page 45 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) steps to ensure better replenishment and ► Policy objective 3.2.2: improve the maximal allocative efficiency are needed119. financial sector’s sustainability and credit Moreover, as mentioned in the policy objective availability for priority investments in line above, formalisation of businesses can with macroeconomic stabilisation priorities facilitate their integration into the financial Strengthening the resilience and sustainability system and increase access to finance. of the financial sector are core objectives of The financing report, which concluded that both the 9th NSEDP and the National Agenda, there was limited policy support to domestic which can be summarised in three policy investment, supports those existing policy directions as follows: directions, which would require acceleration. It ▪ The implementation of international also specifies that credit options are limited, standards in financial and risk management, especially in rural areas, and that while in particular with regards to financial microfinance has expanded, it remains a limited consumer protection and the management source of finance, only representing 0.8% of of NPL, through reformed financial SOEs, GDP in 2020 (against 0.3% in 2015)120. improved capital adequacy ratios and Actions agreed to facilitate MSME access to streamlined procedures to approve loans. finance are: ▪ Digitalisation to support more secure and reliable electronic payments and ➔ A public-private dialogue on financial transactions. inclusion to improve financial services and ▪ Development of more appropriate financial products, access to finance, notably through instruments to support production and the standardisation of credit history and consumption. As mentioned, the financing collaterals management and potential report noted that the offer of financial minimum requirements for financial services remained underdeveloped, inclusion, digitalisation, and financial especially in remote areas. literacy (also found under 3.2.2). ➔ The assessment of the SME Promotion The sustainability of the financial sector has Fund’s performance over the last 10 years been a long-lasting challenge – and has to inform strategic planning and justified the reforms of the Lao Development replenishment. and Agricultural Promotion Banks – but COVID- ➔ The acceleration of projects to modernise 19 exacerbated this challenge. The WB noted and digitalise tax systems, facilitating e- that the NPL ratio increased from 3 to 3.2% and registration and e-payment, and facilitate that bank profits declined. However, the Capital formalisation to improve the performance to Risk-Weighted Assets Ratio increased from of tax collection (also found under 1.1.1 11.8% in Q4 2019 to 13.2% in Q4 2020, and 3.1.1). following updated risk regulations, demonstrating the necessity to strengthen financial regulations considering current global financial trends121. In parallel, access to credit is an important policy direction in Lao PDR, as mentioned under

119 Shared in discussions at technical workshops, 24-25 120 MPI and UN, Structured Dialogue 1: Diagnostics – June, 2022. Financing National Development Priorities, (2021)

121 WB, Lao PDR Economic Monitor August 2021, (2021) Page 46 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) 3.2.1, which will require efforts from the collaterals management and potential financial sector, in a tightening monetary minimum requirements for financial environment with increasing policy rates. inclusion, digitalisation, and financial literacy (also found under 3.2.1). The policy objective therefore focuses on matching simultaneous priorities to strengthen ➔ The formulation of policy recommendations to improve the environmental sustainability the financial sector, facilitate access to credit, of the financial sector (also found under and enhance macroeconomic stabilisation. 5.3.1). Actions agreed to improve the financial sector ➔ The revision of the National Payment sustainability and credit policies are: System Law and other financial regulations ➔ The acceleration of projects to strengthen to facilitate reliable, affordable, and safe financial risk management regulations and remittance transfers (also found under procedures and consolidate the banking 4.3.1). sector, considering current macroeconomic ➔ Multi-stakeholder research to understand and monetary risks. and define a policy framework to lift ➔ A public-private dialogue on financial constraints and reduce the costs of safe inclusion to improve financial services and and reliable remittance transfers through an products, access to finance, notably through updated policy, regulatory, and financial the standardisation of credit history and environment, looking at best international practices (also found under 4.3.1). Page 47 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) 4. International private finance Policy area 4.1: Foreign Direct Investments ► Policy objective 4.1.1: quality FDI contributing to national development International private financial flows have priorities increase through a focused already been mentioned several times in the investment promotion strategy based on Financing Strategy. Under domestic public non-fiscal incentives and reforms of the finance, the investment promotion regime, business environment which has mainly consisted in the granting of The Investment Reform Map found that FDI fiscal exemptions to attract foreign investors, represent a large source of investment in Lao has generated important fiscal costs. IFF, which PDR, accounting for 48% of GFCF by the private in addition to financing activities directly sector in 2017. Since 2012, FDI are the largest threatening development progress, escape the source of external finance, above ODA and tax administration’s reach. Under domestic remittances. As mentioned in the diagnostics private finance, it was acknowledged that the chapter, FDI have so far largely been current investment promotion regime was more concentrated in the resource sector designed towards attracting FDI, while MSME (hydropower, representing 80% of all renewable development was still constrained by an energy investments, mining, 15% of capital inadequate business environment. investment, and construction), with limited The Financing Strategy calls for stronger investments in knowledge-intensive industries. alignment of all financing flows to national FDI mostly originate from Thailand, China, development priorities. Therefore, this chapter, Vietnam, and other ASEAN countries, with a is primarily concerned with the update of the weak geographical diversification compared to policies, laws, and regulations to strengthen the regional peers. Overall, the International link between growth and revenues as well as Finance Corporation (IFC) argues that Lao PDR diversify FDI, and attract investments in priority “is not attracting the type of FDI that promotes sectors, such as health, education, or green skills upgrading, generates knowledge spillovers, growth sectors and the promotion of export and and creates ample job opportunities” 122. trade (4.1). As mentioned earlier, in line with the The financing report findings echo those of the State budget’s crucial role in financing Investment Reform Map. FDI are currently development, restoring a larger revenue base is largely destined to five sectors (85%) that an important priority that has implications for provide limited qualified employment the incentive’s regime. opportunities: construction (32%), electricity This crucial policy area is complemented by two and gas (26%), agriculture, forestry, and fishing more specific sections looking at the curbing of (13%), manufacturing (9%) and mining and IFF (4.2) and the facilitation of remittance quarrying (6%). FDI to health (0.3%) and transfers (4.3), which have historically education (0%) are practically non-existent. contributed to livelihoods. Moreover, the financing report argued that fiscal exemptions generated important fiscal costs for the State budget, impeding the financing of national development priorities123.

122 MPI and IFC, Investment Reform Map: A Foundation for 123 MPI and UN, Structured Dialogue 1: Diagnostics – a New Investment Policy and Promotion Strategy, (2021) Financing National Development Priorities, (2021) Page 48 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) The 9th NSEDP and the National Agenda are environmental sustainability have been clear on the necessity to continue attracting thoroughly identified127. FDI, which have had a historical contribution to Moreover, while the National Agenda highlights Lao PDR’s growth but call for their improved the role of SEZs to attract FDI, it also orders to alignment to national development priorities, improve the revenue system, closing “high including their contribution to the State’s leakages”, “reviewing tax policies and budget, sustainability, and opportunities for legislations”, “reform public revenue decent employment. mechanism” and provide the National Assembly According to the 9th NSEDP, FDI must be “in line with an oversight role for large investment with the direction of socio-economic projects128. development goals” (quality), target “the distinct The Investment Reform Map provides key potential of different sectors and regions” directions for necessary reforms throughout the (focused), be “efficient, effective, and investment life cycle to ensure Lao PDR moves sustainable” (green) and “help alleviate poverty, from being the recipient of resource-seeking improve social sector development, and utilise FDI, which generates limited decent natural resources carefully, while protecting the employment and improvements in livelihoods, environment” (sustainable). FDI, “a major source to efficiency-seeking FDI. These include the of development funding”, should “create jobs” necessity to develop a vision or “Investment and “promote technology transfer and capacity Policy Statement” and efforts to simplify the building”124. The Green Growth strategy, a business environment, including for trade and guiding framework for the 9th NSEDP, specifies export, notably reducing ”restrictions on FDI that “incentives for both domestic and foreign entry and establishment in the country”. The private investments in priority sectors with green Reform Map also proposes to review the growth potential” should be developed125. current investment regime, in particular to The 9th NSEDP Outcome 4 further prioritises “replace current incentives instruments with environmental sustainability in economic incentives that are more targeted and less development, highlighting that “it is important to harmful and expensive than tax exemptions”129. improve legislation and management of the use Against this backdrop, and in line with the of land and natural resources to ensure the Investment Reform Map’s recommendations, sustainability of investment projects and the an investment promotion regime that management of pollution and waste promote simultaneously supports FDI attraction, national green growth through targeted investments in development priorities, and contributes to green sectors, which will help diversification and resolving Lao PDR’s fiscal challenges is shifting towards a more circular economy”126. prioritised. The National Agenda calls for FDI that contribute to regional integration and export Actions agreed to attract quality, sustainable, objectives, but whose economic benefits and and aligned FDI are:

124 Government of Lao PDR, 9th NSEDP official translation, 127 Government of Lao PDR, National Agenda on Economic (2021) and Financial Difficulties, (2021)

125 MPI, National Green Growth Strategy of the Lao PDR till 128 Ibid. 2030, (2021) 129 MPI and IFC, Investment Reform Map: A Foundation for

126 Government of Lao PDR, 9th NSEDP official translation, a New Investment Policy and Promotion Strategy, (2021) (2021) Page 49 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) ► The multi-stakeholder formulation of a ► The acceleration of tax administration comprehensive FDI attraction and capacity development to increase revenue promotion strategy, which would contain (1) collection (also found under 1.1.1). a FDI policy statement that clarifies Lao ► The temporary halt on new resource PDR’s strategic vision for FDI promotion and extraction projects combined with the attraction, (2) the review of the Investment update of legislation, regulation, and Promotion Law and SEZ regulations (3) the processes for the future implementation of cost-benefit analysis and proposed reforms natural resources extraction projects in line of the current incentive regime’s laws and with the inclusive, sustainable, and climate- regulations, prioritising targeted fiscal resilient development pathway of the 9th incentives for priority sectors (social NSEDP (also found under 1.1.1, 1.2.2, and sectors and green growth) and non-fiscal 5.3.1). incentives and (4) reforms of the business ► Following the finalisation of the current pilot environment, notably for facilitated entry phase for hospital autonomy, the and increased investor protection, all guided development of a clear regulatory by international standards through technical framework and guidelines to ensure the assistance (also found under 1.1.1. and 5.). well-regulated mobilisation of private ► The assessment of fiscal costs and review, resources maintaining quality and inclusivity harmonisation, and update of the laws, of health care, as well as the exploration of regulations, and processes, to broaden the the costs, benefits, feasibility, relevance, tax base and abolish and renegotiate CIT and best practices to mobilise private and other fiscal exemptions (also found sector resources for quality and inclusive under 1.1.1). healthcare, which would inform policies and ► The development of foreign investment risk actions to improve the business assessment tools and associated capacity environment and investment promotion development, to strengthen the institutional regime (also found under 5.1.1). review of investments against national ► The assessment of the costs, benefits, development priorities (also found under feasibility, relevance, and best practices to 4.2.1 and 5.3.1). mobilise private sector resources for quality ► The review and update of regulations and and inclusive education, which would inform processes to appraise public and private policies and actions to improve the investment proposals, including the update business environment and investment of the investment scorecard, the promotion regime (also found under 4.1.1). systematisation of cost-benefit analyses ► The formulation of policy recommendations and other evidence-based methodologies to incentivise investments in green growth through training and technical assistance, and to create a clear taxonomy for and improvements of PPP governance and sustainable activities, which would inform regulations (also found under 1.2.2). policies and actions to improve the ► The strengthening of inter-ministerial business environment and investment processes and capacity of the National promotion regime (also found under 5.3.1). Assembly, MoF, and MPI to review large investment projects’ financial schemes and expected fiscal implications, through targeted technical assistance (also found under 1.1.1 and 1.2.2). Page 50 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Policy area 4.2: illicit financial flows ▪ Reduced fiscal envelope of the government for development investments: tax evasion ► Policy objective 4.2.1: completing the and corruption directly reduce government FATF’s Mutual Evaluation and revenue. UNCTAD, as part of its vulnerability implementing the associated action plan is assessment for Lao PDR’s LDC Graduation, a first step towards curbing illicit financial quoted a study pointing to evidence of flows, increasing government revenue, and mispricing in the mineral industry. A more improving Lao PDR’s international profile recent study by the National Institute for IFF were initially not studied as part of this Economic Research (NIER) supported these exercise but were found to require more initial results and highlighted that the attention at the first structured dialogue customs administration lacked capacity to (October 2021) and were included in the list of spot prices abnormalities. policy areas of interest by MPI ahead of the ▪ Illegal activities in Lao PDR negatively affect High-Level RTM (November 2021). While the 9th investors’ confidence, limiting the volume of NSEDP does not address comprehensively IFF, FDI in the country. A report by Gan Integrity, focusing more broadly on tackling corruption previously the anti-corruption portal, points and closing revenue leakages130, the National to challenges in the judicial system, lack of Agenda is more explicit. One of six core incentives to respect the rule of law within directions (“enhance rule of law efficacy government, and a heavy regulatory system especially strict enforcement of laws and sub- incentivizing corruption to fast-track laws, addressing corruption, improving investments. Such weaknesses in turn also business environment, and address risk further attraction of illicit flows which inappropriate use/abuse of power by officials”), can act as a disincentive for dedicated and is addressed in Core Actions 2 and 5, and pellucid FDI flows. requires a combination of improved regulations ▪ The activities themselves and their and capacity development of relevant consequences on people’s wellbeing and institutions131. the environment of these activities are in According to the WB, “Illicit financial flows refer direct contradiction with Lao PDR’s national to cross-border movement of capital associated development priorities. with illegal activity or more explicitly, money that Lao PDR is currently undertaking its Financial is illegally earned, transferred, or used that Action Task Force (FATF) 4th Mutual Evaluation crosses border”132. According to UNODC, IFFs Cycle, led by the Asia Pacific Group on Money could account for 14.4% of GDP in Lao PDR, Laundering (APG)134. The Lao PDR National more than its revenue to GDP ratio133. This Coordinating Committee for Anti Money includes the illegal acts of corruption or tax Laundering (AML) and Counter Financing of evasion, the results of illegal acts, such as Terrorism (CFT), through the Anti-Money smuggling and trafficking, or the use of funds Laundering Intelligence Office (AMLIO), is the for illegal purposes. The impacts IFFs are focal point of this Mutual Evaluation. The latter therefore threefold: assesses the country’s technical compliance and effectiveness in implementing the FATF’s

130 Government of Lao PDR, 9th NSEDP official translation, 133 UNODC, Conducting corruption and financial (2021) investigations in Lao PDR, (2017)

131 Government of Lao PDR, National Agenda on Economic 134 Financial Action Task Force, 4th Round Procedures, and Financial Difficulties, (2021) (2021)

132 WB, Illicit Financial Flows brief, (2017) Page 51 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) 40 recommendations, and its progress against curbing IFF and implement resulting

11 Immediate Outcomes. APG has now recommendations to improve the country’s completed its virtual desk-level collation of compliance and effectiveness information in relation to AML/CFT legislation, ► The acceleration of capacity development practices, and policies. The on-site visit was and training for the AML/CFT task force, line supposed to take place in May 2022 but was ministries, and law enforcement to support delayed and is schedule for 12-13 September FATF’s Mutual Evaluation and its follow-up 2022. If the APG determines that Lao PDR has procedures not satisfied all the technical and effectiveness ► The development of foreign investment risk criteria, it will provide Lao PDR with an action assessment tools and associated capacity plan to address deficiencies, identifying both development, to strengthen the institutional public and private sector activities Lao PDR will review of investments against national need to undertake to achieve a satisfactory development priorities (also found under level of technical compliance and effectiveness. 4.1.1 and 5.3.1). A continued unsatisfactory rating of Lao PDR’s ► A capacity needs assessment to assess technical compliance and effectiveness, within challenges and opportunities to strengthen the “observation period” (12-18 months) could enforcement of (fiscal, environmental, lead to the designation of Lao PDR as being forestry, wildlife) laws and regulations and subject to “increased monitoring”, known as improve institutional and human capacity to “grey listing”135, which could have a significant curb and prosecute environmental negative impact on Lao PDR’s international trafficking (also found under 1.1.2. and profile and its ability to attract new 5.3.1). investments. IFF therefore threaten the completion of the national development priorities: corruption and Policy 4.3: Remittances tax evasion reduce the government’s fiscal ► Policy objective 4.3.1: as the region envelope, and the illegal activities themselves, reopens, rapidly defining a policy from illegal trafficking, threaten the sustainable framework for remittances will help development of the country, and impact identifying actions needed to facilitate their confidence in Lao PDR as a credible destination contributions to livelihoods for investment. With limited data on IFFs, and a lack of a clear policy framework on the subject, With approximately 0.9 million Lao nationals the upcoming finalisation of the FATF Mutual outside of Lao PDR in 2019, migration is an Evaluation and its action plan can help the important livelihood strategy according to the country to take rapid and concrete actions to International Organisation for Migration. Close address IFF. to 10% of households receive remittances from migrant workers, which for the latter, constitute Agreed actions to curb IFF are: around 60% of their income. Remittances are ► The support to the completion of the FATF estimated to represent 2.3% of GDP per year mutual evaluation to assess Lao PDR’s between 2016 and 2021, according to the shortcomings in mitigating money Development Research Institute of MPI and the laundering and terrorist financing risks and

135 Financial Action Task Force, Methodology for Recommendations and the Effectiveness of AML/CFT Assessing Technical Compliance with the FATF Systems, (2021) Page 52 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) International Organisation for Migration mobile banking/systems (Mobile Money) (…) (IOM)136. and the development of the digital economy”. As the country reopened its borders at the ▪ The transition from informal to formal beginning of May 2022, it is expected that employment. The 9th NSEDP also states the remittance levels, which fell between 2019 and need to “promote the creation of favourable early 2022, will progressively increase. The conditions and a conducive environment, procedures put in place to accommodate labour such as having regulations on the use of migration, including vaccination requirements, labour, employment of contracts, decent will need to be studied appropriately, in the wages and welfare, and occupational safety context of a limited regulatory framework for and health to incentivize more workers to labour migration. The International Labour enter the formal labour market”138. Organisation (ILO) noted that although Formalisation of the migrant worker status domestic work is now a formal sector for would help them acquire the documentation regular migration to Thailand, regular channels often necessary to transfer resources from of recruitment have not been operating. This led abroad into Lao PDR. to the development of Thai recruitment agencies, 33 of 35 of which were allowed to Agreed actions to facilitate remittance flows recruit Lao workers to work in Thailand137. are: The 9th NSEDP does not refer to remittances, ► The revision of the National Payment but certain policy priorities would increase System Law and other financial regulations remittance flows, including: to facilitate reliable, affordable, and safe remittance transfers (also found under ▪ Safe and regular migration pathways would 3.2.2). facilitate remittance flows: “Improve the ► The acceleration of projects to increase management of border areas, ensure migrant registration and formalise the measures for systematic migration; combat migrant worker status and improve safe and transnational crime, and increase the regular labour migration pathways. capacity of border officials” (under Outcome ► The pursuit of ongoing multi-stakeholder 6, Public Governance and Administration, research to understand and define a policy Output 3, Ensure Political Stability, Peace, framework to lift constraints and reduce the and Order (…)). costs of safe and reliable remittance ▪ Improvements in the banking system would transfers through an updated policy, expedite transfers to Lao families. In regulatory, and financial environment, particular, the 9th NSEDP states: “modernise looking at best international practices (also the system of payments and revenue found under 3.2.2). collection through various systems such as

136 MPI and IOM, Remittance Landscape in Lao PDR 2022, 138 Government of Lao PDR, 9th NSEDP official translation, (2022) (2021)

137 ILO, Australian Aid, and Canada, Triangle in ASEAN Quarterly Briefing Note, (2022) Page 53 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) 5. Priority sectors finance Most often, and as a result of the multisectoral nature of the INFF approach, identified solutions are part of broader policies and actions mentioned under the previous chapters. The addition of a chapter delving deeper into The Financing Strategy for the 9th NSEDP was the financing of green growth, climate change considered most relevant when tackling large, adaptation and mitigation, and human capital multi-stakeholder, and pressing issues, such as development was agreed at the 2021 High- insufficient budget allocations, business Level RTM139. This decision reflected the environment transformation, or revenue importance given to the achievement of generation. These critical actions, of specific environmental, climate, and human capital relevance for these priority sectors, are listed outcomes in the 9th NSEDP, for sustainable and below. irreversible LDC Graduation and the achievement of the SDGs, in the context of the Then, under each policy area, objectives and COVID-19 socioeconomic impacts. contributing actions that are specific to the priority sectors are presented. Human capital development is a key national priority, found under the 9th NSEDP second Actions found in other sections of the Financing (improved quality of human resources) and Strategy which will require to integrate the third (enhanced well-being of the people) specific concerns of the priority sectors of outcomes. Health (output 1) and education health, education, and green growth and climate (output 2, outcome 2) are dedicated outputs. change management are: There are significant concerns regarding the ► The harmonisation of tax rates to optimise impacts of COVID-19 on the financial revenue generation while fostering private sustainability of the health and education sector development and investments in systems, in addition to the enormous priority sectors and green growth, including challenges posed to the provision of quality and the assessment of expected revenues inclusive access to healthcare and learning generated, business registrations, opportunities, which were already administrative feasibility, and impacts on underfinanced. livelihoods of a potential restoration of the Environmental and climate priorities, which are VAT rate to 10%(also under 1.1.1 and two of four key directions of the national plan, 3.1.1). as well as a dedicated outcome, also face ► The acceleration of all PFM projects - e.g., significant financing challenges, relying heavily IFMIS rollout, SDG, and 9th NSEDP budget- on limited ODA. Managing Lao PDR’s important tagging, green and gender budgeting, CoA climate vulnerability (the country ranks 137 out revisions – to integrate national of 180 countries in the 2020 ND-Gain Index140, development priorities in all stages of the assessing climate vulnerability and readiness to budget cycle (also found under 1.2.2 and adapt and mitigate impacts, ranking 38th in the 2.1.2). list of most vulnerable, and 142nd in the list of ► The simultaneous mid-term review of the most ready countries) will require the 9th NSEDP, update of the Public Investment significant scaling-up of green and climate Plan currently being developed, and finance, as emphasized in the diagnostics. alignment of the medium-term expenditure 139 13th High-Level Round Table Meeting Handbook: 140 Notre Dame Global Adaptation Initiative Index, Lao PDR, Consolidated Background Documents, (2021) (2022) [accessed 20 September 2022] Page 54 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) framework, reviewing 2024 and 2025 Promotion Law and SEZ regulations (3) the budget ceilings and yearly allocations (also cost-benefit analysis and proposed reforms found under 1.2.1 and 5.). of the current incentive regime’s laws and ► The update of the State Budget Law, Public regulations, prioritising targeted fiscal Investment Law, Public Procurement Law, incentives for priority sectors (social and related regulations such as Decree sectors and green growth) and non-fiscal 599/PM on austerity measures, and incentives and (4) reforms of the business adoption of the PM Decree on Budget environment, notably for facilitated entry Formulation, to facilitate the formulation, and increased investor protection, all guided execution, and monitoring of budget and by international standards through technical investment plans in line with national assistance (also found under 1.1.1 and development priorities (also found under 4.1.1). 1.2.2). ► The review and publication, on a semi- annual basis, of the ODA-MIS database, for Policy area 5.1: health finance improved strategic planning (also found ► Policy area 5.1.1: health priorities are under 2.1.1). financed through sustainably increasing ► The coordination of the annual production budget allocations for quality and inclusive and publication of a forward-looking matrix essential health services, enhanced with all planned ODA and other aid projects, allocative efficiency of all public funding, for the remainder of the 9th NSEDP (2023- and the regulated mobilisation of private 2025), structured against the national plan’s resources outcomes and outputs (also found under Health and nutrition (more inclusive and better- 2.1.1). quality healthcare) constitute a dedicated ► The multi-stakeholder review of ODA output under the second outcome (Improved processes and procedures towards quality of human resources), in which the harmonisation and simplification (also priority is to achieve the UHC goal by 2025, with found under 2.1.2). a dedicated focus on “Strengthen(ing) and ► The STS prioritises (1) the mobilisation of ensur(ing) the sustainability of the health technical assistance for the sustainable and financial system including small hospitals”141. In resilient financing of development, (2) to addition, health is a priority investment sector adapt to and mitigate impacts for continued as per the third output (Investment quality and strategic mobilisation of development aid, effectiveness enhanced) of Outcome 1 (3) and finance priority sectors of green (Continuous quality, stable and sustainable growth, climate change management, and economic growth achieved). social sectors (also found under 2.2.2). ► The multi-stakeholder formulation of a The 9th Health Sector Development Plan and comprehensive FDI attraction and updated Health Sector Reform Strategy both promotion strategy, which would contain (1) have a strong commitment towards achieving a FDI policy statement that clarifies Lao Universal Health Coverage through PDR’s strategic vision for FDI promotion and strengthening Primary Health Care. attraction, (2) the review of the Investment

141 Government of Lao PDR, 9th NSEDP official translation, (2021) Page 55 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) The Health Financing Strategy 2021-2025 was • Financial sustainability through increased developed to provide strategic directions and domestic financing (implying an increase in priorities to resolve major issues affecting the broader revenue mobilisation) and improved sustainable financing of the health sector and ODA targeting and coordination; impeding progress towards health outcomes. • Financial accountability through improved Two issues are of significant importance for the PFM; 9th NSEDP Financing Strategy. • Enhanced efficiency in allocation of budget Firstly, domestic funding for health has been and human resources across health consistently below needs. It has never facilities and vertical programmes, and exceeded 3% of GDP, which is the lowest focus on primary health care; figures amongst ASEAN countries142. Simply • Equity to ensure access to health services achieving the regional average would require to all, with a focus on the poorest and most the tripling of domestic government health vulnerable. expenditure. With the economic downturns due It also has three core directions: to the impact of the COVID-19 pandemic, budget cuts to central (30%) and provincial • “Taking ownership”, for more sustainable (10%) levels from 2020 have worsened the domestic funding for health, and more situation143. Attempts at strengthening the accountable and transparent PFM. budget funding from the health sector have not • “Doing the right things”, for increased been successful. In a context of limited fiscal efficiency in allocation of resources. space affecting all sectors, the potential of a • “Doing things the right way”, for more tobacco tax to direct resources to the health efficient health service delivery and sector is challenged to the centralisation of the strategic purchasing of health services144. budget process, which does not allow for the The single most important priority of the Health allocation of specific proceeds from specific Financing Strategy is therefore to increase the taxes to specific budget lines. ODA remains a share and the volume of domestic public major contributor to health financing but faces funding, which will be dependent on the the prospect of key donor transitions, including expansion of the revenue base. Nonetheless, GAVI, the Vaccine Alliance, with regards to the steps to increase allocative efficiency are also immunization programme. Co-financing, which important in the context of limited fiscal space. would help to safeguard ODA, appears Improvements in the volume and returns of challenging in the current fiscal context. resources can help to mobilise ODA Secondly, lack of accountability in the health strategically, in the context of increasingly sector and suboptimal PFM have limited the tangible co-financing requirements. The allocative efficiency of health investments. mobilisation of complementary private resources through increased hospital autonomy Against this backdrop, the Health Financing is one priority for the health sector, although Strategy 2021-2025 was built on four guiding challenges to equitable and inclusive access to principles: healthcare for the poor and vulnerable should be addressed to achieve UHC. Developing a

142 WB, Current health expenditure (% of GDP) – East Asia 144 Ministry of Health of Lao PDR, Health Financing & Pacific, (2022) [accessed 20 September, 2022] Strategy 2021-2025 and Vision 2030, (2021)

143 Shared in discussions at technical workshops, 11-12 August, 2022. Page 56 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) clear guidance and regulatory framework for ➔ The systematisation and adaptation, in the mobilisation of private resources should be priority sectors faced with hard budget considered. constraints, of cost-benefit analysis and other methods to optimise the utilisation of Agreed policies and actions to finance health limited budget allocations (also found under priorities are: 5.2.1 and 5.3.1). ➔ The study of the costs, benefits, feasibility, and relevance of environmental fiscal reform (e.g., carbon tax), sin taxes, and Policy area 5.2: education finance other pre-market interventions, to ► Policy area 5.2.1: education priorities are simultaneously influence behaviours and financed through sustainably increasing development outcomes, and generate budget allocations, the enhanced allocative resources for priority sectors, with careful efficiency of all public funding, and the consideration of the current capacity of the regulated mobilisation of private resources tax administration and centralisation of the budget process (also found under 1.1.1 and In the 9th NSEDP, the education sector is 5.3.1). considered a priority investment sector in the ➔ Following the finalisation of the current pilot third output (Investment quality and phase for hospital autonomy, the effectiveness enhanced) of Outcome 1 development of a clear regulatory (Continuous quality, stable and sustainable framework and guidelines to ensure the economic growth achieved), and is listed as a well-regulated mobilisation of private focus area for private investments and PPPs. resources maintaining quality and inclusivity Education is the second output (improved of health care, as well as the exploration of quality and access to education) under the the costs, benefits, feasibility, relevance, second outcome (improved quality of human and best practices to mobilise private resources) of the 9th NSEDP and prioritises sector resources for quality and inclusive primary education. There is no specific focus healthcare, which would inform policies and on the financing of these priorities in the actions to improve the business national plan145. environment and investment promotion The 9th NSEDP is complemented by the regime. Education and Sports Sector Development Plan ➔ The exploration of the relevance and (ESSDP), which formulates eight high-level institutional feasibility of increased budget sectoral outcomes: autonomy for the National Health Insurance Bureau, towards a semi-autonomous status. • Increased number of graduates from early ➔ The conclusion of discussions with bilateral childhood education to upper secondary and multilateral partners for continued ODA education, including Non-Formal Education, and/or budget support during the 9th with improved learning outcome; NSEDP cycle, conditioned to marked • Increased number of knowledgeable and improvements to fiscal policy and PFM, competent teachers and principals; which would generate fiscal space for co- • All schools have sufficient financial and financing in the next planning cycle (also human resources and strengthened found under 5.3.1). management capacity;

145 Government of Lao PDR, 9th NSEDP official translation, (2021) Page 57 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) • Increased adult and youth literacy rates with with remaining disparities in access to quality reduced disparities; education and teacher training directly caused • Increased quality of students entering the by lack of resources, notably for wages to pay workforce; and train teachers. • Education sector is appropriately organised, MoES notes that desired outcomes may not be managed, and resources; realised “if the financing share of the • Disparities are reduced through a financing Government of Lao PDR budget to education plan that is responsive to real resource and remains at levels similar to that during the period capacity constraints; 2016-2020”148, and consequently prepared two • Lao citizens are healthy, both physically and budget plans (a steady state scenario and an intellectually146. enhanced quality scenario), reflecting The impacts of the COVID-19 pandemic on the uncertainty under a hard budget constraint. education outcomes have been significant. Additionally, the ESSDP has two clear policy Unequal disruptions of schools’ activities priorities regarding funding: “securing a fair across the country have exacerbated already share of the State budget”149, at 18% of the total suboptimal student learning outcomes, budget, in line with the law and internationally increased learning poverty that may never be recommended benchmarks, and “improving recovered, and reinforced gender inequalities, in allocative efficiency”150. ODA, which has particular in already vulnerable communities147. significantly contributed to education As most households point to financial outcomes, requires improved strategic planning constraints as the single most important and coordination between partners, to ensure explanation for school dropouts, ensuring that access to quality education progresses quality and inclusive education is a priority. everywhere in Lao PDR151. The addition of a dedicated policy area on The improvement of allocative efficiency within education finance is justified by these the education sector, which would support important impacts for a generation of Lao better returns on investment, is challenged by children and the simultaneous underfunding of the decentralisation, at the ministerial level and the sector, which was already unable to finance below, of expenditure management, and the education priorities pre-COVID-19, both shortcomings of the CoA and budget tracking acknowledged in the national statement of Lao systems. PDR to the Transforming Education Summit. In The development of private schools is identified fact, the ESSDP, aligned with the 9th NSEDP, by officials and specialists as positive, but not contains a dedicated costing and financing unlike privatisation dynamics in the health chapter, in order to address the chronic sector, requires careful regulation to ensure underfunding of a sector that employs the equitable access to education and learning largest number of civil servants and is critical opportunities. Currently, FDI in the education for LDC Graduation and the SDGs achievement. sector are almost zero. Previous education plans have fallen short of expectations due to the budget constraints,

146 Ministry of Education and Sports, Education and Sports 148 Ibid. Sector Development Plan 2021-2025, (2020) 149 Ibid.

147 World Bank, UNICEF, and UNESCO, The State of the 150 Ibid.

151 Shared in discussions at technical workshops, 11-12 Global Education Crisis – a path to recovery?, (2021) August, 2022. Page 58 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Agreed policies and actions to finance must minimise environmental impacts. These education priorities include: national directions are specified by the Green Growth Strategy154, the 2021 NDCs155, ➔ The exploration of specific changes specifying Lao PDR’s commitments against the required to the laws, regulations, processes, Paris Agreement, as well as the draft National and CoA to facilitate centralised planning, Strategy on Climate Change. prioritisation, and budgeting of the education sector and improved allocative Because the costs of green growth and climate efficiency of public funding, in the context of change are significant156, contributions from all limited fiscal space. sources of finance will be required. Required ➔ The assessment of the costs, benefits, changes to green domestic public finance are in feasibility, relevance, and best practices to particular significant: mobilise private sector resources for quality • With currently significantly lower budget and inclusive education, which would inform allocations to environmental protection and policies and actions to improve the climate change (MoNRE) compared with business environment and investment those provided to resources sectors promotion regime. (MEM)157, and many public investment ➔ The systematisation and adaptation, in projects in unsustainable sectors, reviewing priority sectors faced with hard budget the distribution and focus of expenditures constraints, of cost-benefit analysis and (both recurrent and capital) will be other methods to optimise the utilisation of imperative. In the overarching attempt to limited budget allocations (also found under relink planning and budgeting, green 5.1.1 and 5.3.1). budgeting can support the assessment of the environmental impacts of fiscal policy as well as facilitating costing of Policy area 5.3: green and climate finance environmental and climate priorities for • Policy objective 5.3.1: green growth and more evidence-based budget allocations. climate-resilient development are financed Additionally, green procurement can support through sustainably increasing budget the mainstreaming of sustainability allocations, improved green budgeting, priorities through the recurrent strategic mobilisation of ODA, and expenditures. increasing private investments in an • Revenue generation in Lao PDR (natural enabling business environment. resources royalties represented 5-10% of As mentioned, sustainability and climate total revenue) was also a source of change management are critical priorities of the environmental concern158. As identified in 9th NSEDP152. The National Agenda153, while the second policy objective of the Financing primarily concerned with pressing economic and financial difficulties, notes that all projects

152 Government of Lao PDR, 9th NSEDP official translation, 156 MPI and UN, Structured Dialogue 1: Diagnostics – (2021) Costing National Development Priorities – Investment

153 Government of Lao PDR, National Agenda on Economic Needs across the 9th NSEDP - References, (2021) and Financial Difficulties, (2021) 157 MPI and UN, Structured Dialogue 1: Diagnostics –

154 MPI, National Green Growth Strategy of the Lao PDR till Financing National Development Priorities, (2021) 2030, (2021) 158 Ibid.

155 Government of Lao PDR, Nationally Determined Contributions, (2021) Page 59 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Strategy159, fiscal policy changes will largely Curbing illegal environmental trafficking be based on the expansion of the revenue (e.g., wildlife, timber) would not only base, while revenue-generating resources generate revenues, but also improve extraction projects will require strict chances to safeguard biodiversity. environmental safeguards. With limited budget allocations, ODA has played • Moreover, the achievement of a crucial role. Maintaining important ODA levels environmental and climate priorities can be will be important in the context of limited fiscal supported by innovative approaches to space and will require more strategic planning fiscal policy. The Green Growth Strategy and predictability162. Lao PDR does not currently specifically prioritises environmental fiscal have any national accredited entity to the reform and pre-market interventions and international vertical funds. Accelerating the financial policies to support responsible ongoing process to establish the Environment production and consumption160. Protection Fund (EPF), and progressively, other Environmental fiscal reform, notably carbon national funds, as a national accredited entity taxation, is to be explored in the context of could support strategic planning of ODA. Lao PDR to internalise the cost of pollution Technical assistance to the EPF and MoNRE to and support the clean energy transition. directly access and develop project design, data Debt for nature swap proposals, which can production and analysis, and monitoring, unlock resources otherwise destined for reporting, and verifying capacity will be critical. interest repayments, can be integrated into However, due to the known challenges to meet broader negotiation strategies to alleviate requirements for proposals, it is unlikely that the debt burden161. Green bonds could later the EPF will be able to access vertical funds be explored as a tool to mobilise affordable within the 9th NSEDP cycle. Therefore, resources for specific activities, subject to strengthened collaboration and cooperation managing overall debt liabilities. In the between the various accredited DPs could short-term, budget support for climate- facilitate synergies and reduce redundancies resilient development, under conditions of between programmes and projects. credible macroeconomic policies and PFM, will be explored. Emissions trading While attracting private resources could only schemes could also generate significant represent a secondary objective in the health amount of revenues for Lao PDR, and education sectors, the costs of green monetising and marketing the right to growth and climate change mitigation lend pollute, but will require the development of themselves more easily to contributions from guidelines, procedures, systems, and the private sector (e.g., energy efficiency, capacity development, and should be renewable energy, or green infrastructure considered at the regional level to be cost- development)163. However, in addition to the effective. identified shortcomings of the current • As presented under 4.2 (IFF), potential investment promotion regime, lack of revenues escape from the State budget. appropriate incentives and of a clear taxonomy for sustainable activities, the weaknesses of

159 See 1.1.2 revenue generation does not compromise the 161 UNDP, Unlocking fiscal space for biodiversity and 9th NSEDP environmental sustainability directions and climate financing in Lao PDR, (2021) priorities. 162 See International Public Finance.

160 MPI, National Green Growth Strategy of the Lao PDR till 163 MPI and UN, Structured Dialogue 1: Diagnostics – 2030, (2021) Costing National Development Priorities – Investment Needs across the 9th NSEDP - References, (2021) Page 60 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) environmental standards and challenges to business environment and investment their enforcements, and the lack of a clear promotion regime (also found under 4.1.1). screening process for investments, were ➔ The study of the feasibility and relevance of considered obstacles to green FDI. carbon credits and emissions trading schemes, and potential policies and actions Agreed actions to finance environmental and to finance biodiversity protection. climate priorities are: ➔ A capacity needs assessment to assess ➔ The study of the costs, benefits, feasibility, challenges and opportunities to strengthen and relevance of environmental fiscal enforcement of (fiscal, environmental, reform (e.g., carbon tax), sin taxes, and forestry, wildlife) laws and regulations and other pre-market interventions, to improve institutional and human capacity to simultaneously influence behaviours and curb and prosecute environmental development outcomes, and generate trafficking (also found under 1.1.2 and resources for priority sectors, with careful 4.2.1). consideration of the current capacity of the ➔ The continuation of debt consolidation tax administration and centralisation of the through renegotiations to (1) cancel or budget process (also found under 1.1.1 and reduce debt repayments and/or lengthen 5.1.1). the maturity of loans to the second half of ➔ The temporary halt on new resource the 2020s without losing access to future extraction projects combined with the loans and (2) explore debt swaps with major update of legislation, regulation, and creditors (also found under 1.3.1). processes for the future implementation of ➔ The systematisation and adaptation, in natural resources extraction projects in line priority sectors faced with hard budget with the inclusive, sustainable, and climate- constraints, of cost-benefit analysis and resilient development pathway of the 9th other methods to optimise the utilisation of NSEDP (also found under 1.2.1, 1.2.2, and limited budget allocations (also found under 4.1.1). 5.1.1 and 5.1.2). ➔ The development of procurement guidelines ➔ The preparation of a medium-term debt for line ministries, and the systematisation issuance and management strategy, of green procurement practices across all including the long-term exploration of green government, as well as capacity bonds, assuming the progressive return to a development (also found under 1.2.2). more manageable financial situation ➔ The capacity development of national funds allowing for debt issuance (also found and establishment of the EPF as the first under 1.3.2). Accredited Entity for Lao PDR, combined ➔ The development of foreign investment risk with strengthened collaboration between assessment tools and associated capacity DPs currently accredited to vertical funds, development, to strengthen the institutional for strategic green ODA programmes and review of investments against national projects development priorities (also found under ➔ The formulation of policy recommendations 4.1.1 and 4.2.1). to incentivise investments in green growth ➔ The conclusion of discussions with bilateral and to create a clear taxonomy for and multilateral partners for continued ODA sustainable activities, which would inform and/or budget support during the 9th NSEDP policies and actions to improve the cycle, conditioned to marked improvements to fiscal policy and PFM, which would Page 61 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) generate fiscal space for co-financing in the ➔ The formulation of policy recommendations next planning cycle (also found under to improve the environmental sustainability 5.1.1). of the financial sector (also found under 3.2.2). Page 62 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Implementation arrangements Governance and coordination The Financing Strategy’s implementation is led by the Government of Lao PDR, and more In order to ensure a successful implementation specifically, by eight different ministries and of policies and actions in a multi-stakeholder entities (MPI, MoF, BoL, MoNRE, MoIC, MoES, setting, guided by the information provided by MoH, MoFA), and around twenty different the regular monitoring and evaluation of departments. progress, the Government of Lao PDR, with the Among 54 policies and actions: support of the UN, discussed and identified specific implementation arrangements (notably • 60% are new actions, while 40% are already at a dedicated workshop on September 1st and being implemented; 2nd 2022) based on the following criteria: • 60% are relevant for at least two policy areas (28% for more than two policy areas); • While the INFF guidance suggests the • 90% require the involvement of more than establishment of a dedicated INFF one government department; committee, linked to the national planning • Moreover, most actions receive financial coordination mechanism, the Government and technical assistance support, which will of Lao PDR preferred to use and repurpose require efficient coordination with DPs, and already existing coordination mechanisms, many under the Private Finance chapters to avoid the delays generated by the will require to associate the private sector. formulation of Terms of Reference, the identification of chairs, and of the adequate These figures emphasize the necessity to human and financial capacity to prepare define relevant governance and coordination agendas and meetings; mechanisms for a successful implementation. • For every policy and action, were identified: Moreover, the 9th NSEDP Financing Strategy’s o A single department lead, every time this dual objective – increasing the volume of was possible, for efficient management development finance or the alignment of of implementation within existing resources to national development priorities – configurations; is answered by several dedicated actions (a o Other government entities that need to quarter of the total) aiming at strengthened be involved; governance and coordination arrangements o The identification of the most relevant (Table 3), and some looking at the pursuit or coordination mechanism(s), with, as conclusion of negotiations, or the multi- relevant, recommendations for updates; stakeholder formulation of new policies, which o Means of verification and indicators must be supported by dedicated multi- (where relevant); stakeholder engagement (Table 4). MPI o The timeframe. identified, in this context, 7 existing These various elements are summarised in this coordination mechanisms best capable to chapter and detailed in the action and coordinate the implementation and monitor monitoring and evaluation matrices164. progress of the Financing Strategy (Table 5).

164 See Annexes 2 and 3. Page 63 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Monitoring and evaluation Development assistance The monitoring and evaluation system for the Many policies and actions already being 9th NSEDP Financing Strategy is to be implemented and prioritised through the undertaken at least annually and is threefold: Financing Strategy receive financial and technical support from a wide range of 1. Regular monitoring and evaluation of partners. To ensure the re-alignment, as progress is directly undertaken by the lead relevant, of existing programmes and projects, entities for the action(s) they are in charge and the development of new initiatives in of. This means that ministries and support of the achievement of this strategy, the departments are expected to integrate Government of Lao PDR is committed to: these policies and actions within their workplans; • As mentioned under the International Public 2. Annual or semi-annual evaluation of Finance chapter, using the SWGs and RTP progress is led by the 7 coordination to guide development work in line with the mechanisms listed above, most importantly country’s policy directions on development through the MPI-MoF meetings, which finance. oversee the implementation of the most • At the end of 2022 in particular, the important actions of the Financing Strategy; Government of Lao PDR will organise, under 3. The Financing Strategy, as part of the 9th the leadership of MPI, a Round Table NSEDP package, is to be evaluated Implementation Meeting, which will offer an systematically through the national planning opportunity to gather financial and technical cycle process led by the Department of support to implement the Financing Planning of MPI, in 2023 (through the Mid- Strategy within the next three years, in Term Review of the 9th NSEDP) and in 2025 particular from those DPs that expressed (through the final evaluation of the 9th interest in this work through the formulation NSEDP. phase. To facilitate the monitoring and evaluation • MoFA is also expected, as per the agreed process, the action matrix (annex 3) is equipped action under 2.2 LDC Finance, to mobilise with an addition column specifying means of DPs’ support in the context of upcoming verification and indicators (where relevant). LDC Graduation, including for the implementation of the Financing Strategy. Table 3 – Governance and coordination policies and actions of the Financing Strategy • The simultaneous mid-term review of the 9th NSEDP, update of the Public Investment Plan currently being developed, and alignment of the medium-term expenditure framework, reviewing 2024 and 2025 budget ceilings and yearly allocations • The acceleration of projects to synchronise and sequence the quinquennial, multi-year, and annual national planning and budgeting processes, for cycles of financially sound national planning as per the INFF approach • The convening of a National Conference on PFM to disseminate recent legal and regulatory updates and take stock of progress towards an evidence-based budget cycle and expenditures aligned with national development priorities Page 64 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) • The continuation of debt consolidation through renegotiations to (1) cancel or reduce debt repayments and/or lengthen the maturity of loans to the second half of the 2020s without losing access to future loans and (2) explore debt swaps with major creditors • The coordination of the annual production and publication of a forward-looking matrix with all planned ODA and other aid projects, for the remainder of the 9th NSEDP (2023-2025), structured against the national plan’s outcomes and outputs • The multi-stakeholder review of the RTP and SWGs, for inclusive partnerships mechanisms facilitating the joint evidence-based strategic planning and delivery of ODA programmes contributing to the 9th NSEDP outcomes, anticipating transition for ODA-reliant sectors • The multi-stakeholder review of the MoU approval process leading to regulatory updates and the development and dissemination of clear procedures and templates • The multi-stakeholder review of ODA processes and procedures towards harmonisation and simplification. Table 4 – Policies and actions with multi-stakeholder implementation • The continuation of debt consolidation through renegotiations to (1) cancel or reduce debt repayments and/or lengthen the maturity of loans to the second half of the 2020s without losing access to future loans and (2) explore debt swaps with major creditors • The multi-stakeholder formulation of a medium-term ODA strategic mobilisation plan (2024-2025), aligned with the 9th NSEDP mid-term review, 2030 ODA strategy and medium-term expenditure framework, highlighting priority sectors for ODA, and encouraging joint approaches • The STS prioritises (1) the mobilisation of technical assistance for the sustainable and resilient financing of development, (2) to adapt to and mitigate impacts for continued strategic mobilisation of development aid, (3) and finance priority sectors of green growth, climate change management, and social sectors • A public-private dialogue to increase research and policies on an enabling environment and incentives for MSME (1) development in priority sectors, (2) integration with regional and international value chains, and (3) responsible business practices • The acceleration of projects to strengthen financial risk management regulations and procedures and consolidate the banking sector, considering current macroeconomic and monetary risks • The multi-stakeholder formulation of a comprehensive FDI attraction and promotion strategy, which would contain (1) a FDI policy statement that clarifies Lao PDR’s strategic vision for FDI promotion and attraction, (2) the review of the Investment Promotion Law and SEZ regulations (3) the cost-benefit analysis and proposed reforms of the current incentive regime’s laws and regulations, prioritising targeted fiscal incentives for priority sectors (social sectors and green growth) and non-fiscal incentives and (4) reforms of the business environment, notably for facilitated entry and increased investor protection, all guided by international standards • The conclusion of discussions with bilateral and multilateral partners for continued ODA and/or budget support during the 9th NSEDP cycle, conditioned to marked improvements to fiscal policy and PFM, which would generate fiscal space for co-financing in the next planning cycle Page 65 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Table 5 – Coordination mechanisms for implementation Mechanism Role • To coordinate implementation and monitor progress of most actions MPI-MoF meetings under 1. Domestic Public Finance • Frequency of meetings increases from once to twice a year • To coordinate and monitor the integration of planning (NSEDP, PIP) and financing (MTEF, yearly allocations) frameworks NSEDP coordination (MPI) • To review progress of the entire Financing Strategy in 2023 (through the Mid-Term Review process) and 2025 (through the final evaluation of the 9th NSEDP) National Steering Committee on • To coordinate implementation of and monitor PFM reforms PFM (MoF) • Should be convened annually in the margins of the RTM • To offer a forum to consult DPs and coordinate ODA in support of the RTP/ SWGs (MPI) Financing Strategy implementation, through the 2023, 2024, and 2025 RTM • To coordinate implementation and monitor progress of efficiency and VDCAP Secretariat (MPI) effectiveness of ODA LDC Committee (MoFA) • To coordinate the formulation of the LDC STS • To coordinate implementation and monitor progress of most actions Lao Business Forum (MoIC) under 3. Domestic Private Finance, and 4. International Private Finance • To offer a forum to consult the private sector Page 66 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23)

Annex 1: Chapters, Policy Areas, and Objectives Source of finance Policy area Policy objective 1.1.1: State revenues primarily increase through a fiscal policy shift to broaden the tax base, in line with inclusive growth priorities 1.1 Revenue mobilisation 1.1.2: revenue generation does not compromise the 9th NSEDP environmental sustainability directions and priorities 1.2.1: 2023-2025 budget allocations and public investments, at the national and local level, and in all sectors, support the achievement of the 9th NSEDP 1. Domestic 1.2 Expenditure Public Finance Management 1.2.2: transparent and modern PFM improves the allocative efficiency and 9th NSEDP-alignment of the budget 1.3.1: immediate debt relief is needed to free fiscal space for development investments 1.3 Debt Management 1.3.2: transparent and evidence-based debt management will progressively create the conditions for sustainable debt issuance 2.1.1: the efficiency and effectiveness of ODA increases through enhanced planning, monitoring, and 2.1 ODA coordination predictability, efficiency, and 2. International effectiveness 2.1.2: ODA delivery can accelerate through harmonization and simplification of regulations and the Public Finance management of the absorptive capacity of national entities 2.2 LDC Finance 2.2.1: urgently mobilise LDC-specific funds to finance national development priorities Page 67 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) 2.2.2: prioritise financing sustainability in the forthcoming LDC Graduation STS 3.1 Business Environment for 3.1.1: improve the business environment to unlock domestic private finance flows in priority sectors MSMEs 3. Domestic Private 3.2.1: increase access to finance for MSME development Finance 3.2 Financial Inclusion 3.2.2: improve the financial sector’s sustainability and credit availability for priority investments in line with macroeconomic stabilisation priorities 4.1.1: quality FDI contributing to national development priorities increase through a focused 4.1 FDI investment promotion strategy based on non-fiscal incentives and reforms of the business environment 4. International 4.2.1: completing the FATF’s Mutual Evaluation and implementing the associated action plan is a Private 4.2 Illicit Financial first step towards curbing IFF, increasing government revenue, and improving Lao PDR’s international Finance Flows profile 4.3.1: as the region reopens, rapidly defining a policy framework for remittances will help identifying 4.3 Remittances actions needed to facilitate their contributions to livelihoods 5.1.1: health priorities are financed through sustainably increasing budget allocations for quality and 5.1 Health Finance inclusive essential health services, enhanced allocative efficiency of all public funding, and the regulated mobilisation of private resources 5. Priority 5.2.1: education priorities are financed through sustainably increasing budget allocations, the 5.2 Education Sectors enhanced allocative efficiency of all public funding, and the regulated mobilisation of private Finance Finance resources 5.3.1: green growth and climate-resilient development are financed through sustainably increasing 5.3 Green and budget allocations, improved green budgeting, strategic mobilisation of ODA, and increasing private Climate Finance investments in an enabling business environment. Page 68 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23)

Annex 2: action matrix GoL To Main Type of GoL Other involved Related No. Action Status department Coordination implement objective action Lead entity to lead(s) by 1.1 Revenue mobilisation 1.1.1: State revenues primarily increase through a fiscal policy shift to broaden the tax base, in line with inclusive growth priorities The assessment of fiscal Investment costs and review, Promotion harmonisation, and update of Increase the Fiscal Policy Department the laws, regulations, and volume of Laws and and Law MPI-MoF 1 New action MoF (MPI) Q4 2023 4.1.1 processes, to broaden the tax development regulations Department meetings Tax base and abolish and finance (MoF) Department renegotiate CIT and other (MoF) fiscal exemptions Planning, Financing and The strengthening of inter- Audit ministerial processes and Committee capacity of the National (NA) MPI-MoF Investment Increase NA Assembly, MoF, and MPI to External meetings Promotion 1.2.2 2 volume and Multiple New action MoF Q4 2025 review large investment Finance NA Department 4.1.1 alignment MPI projects’ financial schemes Department consultations (MPI) and expected fiscal (MoF) implications Planning Department (MPI) The acceleration of projects to modernise and digitalise Increase the tax systems, facilitating e- Tax volume of Tools and IT Being MPI-MoF 3.1.1 3 registration and e-payment, MoF Department Q4 2025 development systems implemented meetings 3.2.1 and facilitate formalisation to (MoF) finance improve the performance of tax collection Enterprise The dissemination of tax law Increase the Registration and regulations of businesses Tax volume of Capacity Lao Business and 4 and broader societal New action MoF Department Q4 2025 development development Forum Management awareness raising of tax for (MoF) finance Department development (MoIC) The harmonisation of tax Increase the Financing Fiscal Policy MPI-MoF Tax 3.1.1 5 New action MoF Q4 2024 rates to optimise revenue volume of instrument and Law meetings Department 5.1.1, Page 69 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) generation while fostering development Department Lao Business (MoF) 5.2.1, private sector development finance (MoF) Forum SME Fund and 5.3.1 and investments in priority Enterprise sectors and green growth, Registration including the assessment of and expected revenues generated, Management business registrations, Planning administrative feasibility, and (MoIC) impacts on livelihoods of a Planning potential increase of the VAT Department rate from 7% to 10% (MPI) The acceleration of tax Increase the Tax administration capacity volume of Capacity Being MPI-MoF 6 MoF Department Q4 2025 development to increase development development implemented meetings (MoF) revenue collection finance The regulation of revenues Increase the Fiscal Policy from rapidly growing sectors, volume of Laws and Being and Law MPI-MoF 7 such as e-commerce and MoF Q4 2023 development regulations implemented Department meetings cryptocurrency mining and finance (MoF) trading 1.1.2: revenue generation does not compromise the 9th NSEDP environmental sustainability directions and priorities The temporary halt on new resource extraction projects combined with the update of Planning legislation, regulation, and Department Investment MPI-MoF processes for the future Increase (MPI) 1.1.2 Laws and Promotion meetings 8 implementation of natural alignment to New action MPI Planning and Q4 2023 4.1.1 regulations Department NA resources extraction projects 9th NSEDP Finance 5.3.1 (MPI) consultations in line with the inclusive, Departments sustainable, and climate- (line ministries) resilient development pathway of the 9th NSEDP 1.2.1: 2023-2025 budget allocations and public investments, at the national and local level, and in all sectors, support the achievement of the 9th NSEDP The simultaneous mid-term review of the 9th NSEDP, Planning update of the Public Governance, Department DOP/MPI Planning and Increase 5.1.1, Investment Plan currently processes, MPI (MPI) coordination Finance 9 volume and New action Q4 2023 5.2.1, being developed, and and MoF State Budget MPI-MoF Departments alignment 5.3.1 alignment of the medium-term coordination Department meetings (line ministries) expenditure framework, (MoF) reviewing 2024 and 2025 Page 70 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) budget ceilings and yearly allocations The reassessment and State Budget possible termination of all Department public and public-private Increase Planning (MoF) investment projects that are Laws and MPI-MoF 10 alignment to New action MPI Department Planning and Q4 2023 1.3.1 not in line with the 9th NSEDP regulations meetings 9th NSEDP (MPI) Finance priorities or are experiencing Departments increasing costs and delays (line ministries) weighing on the State budget 1.2.2: transparent and modern public financial management improves the allocative efficiency and 9th NSEDP-alignment of the budget The acceleration of projects to synchronise and sequence Planning the quinquennial, multi-year, Governance, Department Planning and Increase and annual national planning processes, MPI (MPI) MPI-MoF Finance 11 alignment to New action Q4 2025 and budgeting processes, for and MoF State Budget meetings Departments 9th NSEDP cycles of financially sound coordination Department (line ministries) national planning as per the (MoF) INFF approach The update of the State Budget Law, Public Investment Law, Public Procurement Law, and related regulations such as Decree Planning 599/PM on austerity Department Planning and Increase 5.1.1, measures, and adoption of the Laws and Being MPI (MPI) MPI-MoF Finance 12 alignment to Q4 2023 5.2.1, PM Decree on Budget regulations implemented MoF State Budget meetings Departments 9th NSEDP 5.3.1 Formulation, to facilitate the Department (line ministries) formulation, execution, and (MoF) monitoring of budget and investment plans in line with national development priorities The review and update of regulations and processes to appraise public and private Planning investment proposals, Investment Department including the update of the Increase Promotion MPI-MoF (MPI) 13 investment scorecard, the volume and Multiple New action MPI Q4 2023 4.1.1 Department meetings State Budget systematisation of cost- alignment (MPI) Department benefit analyses and other (MoF) evidence-based methodologies through training and technical Page 71 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) assistance, and improvements of PPP governance and regulations The acceleration of all PFM Planning projects - e.g., IFMIS rollout, Department SDG, and 9th NSEDP budget- National 2.1.2 Increase State Budget (MPI) tagging, green and gender Being Steering 5.1.1, 14 alignment to Multiple MoF Department Planning and Q4 2025 budgeting, CoA revisions – to implemented Committee on 5.2.1, 9th NSEDP (MoF) Finance integrate national PFM 5.3.1 Departments development priorities in all (line ministries) stages of the budget cycle The convening of a National Conference on PFM to disseminate recent legal and Governance, National Planning and regulatory updates and take Increase State Budget processes, Steering Finance 15 stock of progress towards an volume and New action MoF Department Q3 2023 and Committee on Department evidence-based budget cycle alignment (MoF) coordination PFM (line ministries) and expenditures aligned with national development priorities The development of procurement guidelines for Planning and line ministries, and the Increase State Budget Being MPI-MoF Finance 16 systematisation of green alignment to Multiple MoF Department Q4 2023 5.3.1 implemented meetings Departments procurement practices across 9th NSEDP (MoF) (line ministries) all government, as well as capacity development 1.3 Debt Management 1.3.1: immediate debt relief is needed to free fiscal space for development investments The study and exploration of multilateral debt alleviation and suspension initiatives to Increase the Debt MPI-MoF free fiscal space in support of volume of Data and Management meetings 17 New action MoF Q3 2023 development investments and development analytics Department Macroeconomic provide Lao PDR with finance (MoF) SWG sufficient time to increase the revenue to GDP ratio The continuation of debt consolidation through renegotiations to (1) cancel or Increase the Debt MPI-MoF reduce debt repayments volume of Being Management meetings 18 Multiple MoF MoFA Q4 2025 5.3.1 and/or lengthen the maturity development implemented Department Macroeconomic of loans to the second half of finance (MoF) SWG the 2020s without losing access to future loans and (2) Page 72 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) explore debt swaps with major creditors 1.3.2: transparent and evidence-based debt management will progressively create the conditions for sustainable debt issuance The acceleration of projects to increase debt transparency in line with international standards, through the more Increase the Debt MPI-MoF frequent publication of volume of Being Management meetings 19 disaggregated debt data, Multiple MoF Q4 2025 development implemented Department Macroeconomic including for SOEs, and an finance (MoF) SWG annual publication reviewing the debt portfolio, analysing, and modelling repayment trends, and associated risks The review of the Public Debt Increase the Debt MPI-MoF Management Law and Planning volume of Laws and Management meetings 20 associated regulations New action MoF Department Q4 2023 development regulations Department Macroeconomic against best international (MPI) finance (MoF) SWG practices Debt Management The pursuit of ongoing work Increase the SOE MPI-MoF Department to reform SOEs, focusing on volume of Being Management meetings 21 Multiple MoF (MoF) Q4 2025 large companies presenting development implemented Department Macroeconomic Departments in contingent liabilities finance (MoF) SWG charge of SOEs (line ministries) The preparation of a medium- term debt issuance and management strategy, Increase the Debt MPI-MoF including the long-term Planning volume of Policy Management meetings 22 exploration of green bonds, New action MoF Department Q4 2025 5.3.1 development definition Department Macroeconomic assuming the progressive (MPI) finance (MoF) SWG return to a more manageable financial situation allowing for debt issuance 2.1 ODA predictability, efficiency, and effectiveness 2.1.1: the efficiency and effectiveness of ODA increases through enhanced planning, monitoring, and coordination Planning, The review and publication, on International Increase Finance, and 5.1.1, a semi-annual basis, of the Data and Being Cooperation 23 volume and MPI RTP/ SWGs Cooperation Q2 2023 5.2.1, ODA-MIS database, for analytics implemented Department alignment Departments 5.3.1 improved strategic planning (MPI) (line ministries) Page 73 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) The multi-stakeholder formulation of a medium-term ODA strategic mobilisation Planning, plan (2024-2025), aligned with International Increase Finance, and the 9th NSEDP mid-term Policy Cooperation 24 volume and New action MPI RTP/ SWGs Cooperation Q3 2023 review, 2030 ODA strategy definition Department alignment Departments and medium-term expenditure (MPI) (line ministries) framework, highlighting priority sectors for ODA, and encouraging joint approaches The coordination of the annual production and publication of a forward- Planning, looking matrix with all planned Governance, International Increase Finance, and 5.1.1, ODA and other aid projects, processes, Cooperation 25 volume and New action MPI RTP/ SWGs Cooperation Q3 2023 5.2.1, for the remainder of the 9th and Department alignment Departments 5.3.1 NSEDP (2023-2025), coordination (MPI) (line ministries) structured against the national plan’s outcomes and outputs The multi-stakeholder review of the RTP and SWGs, for inclusive partnerships mechanisms facilitating the Governance, International Increase VDCAP VDCAP joint evidence-based strategic processes, Cooperation 26 volume and New action MPI Secretariat Secretariat Q3 2023 2.1.2 planning and delivery of ODA and Department alignment coordination members programmes contributing to coordination (MPI) the 9th NSEDP outcomes, anticipating transition for ODA-reliant sectors 2.1.2: ODA delivery can accelerate through harmonization and simplification of regulations and the management of the absorptive capacity of national entities The multi-stakeholder review of the MoU approval process Governance, International Increase leading to regulatory updates processes, Organisations MoFA-INGO 27 volume and New action MoFA Q3 2023 and the development and and Department coordination alignment dissemination of clear coordination (MoFA) procedures and templates The multi-stakeholder review Governance, International of ODA processes and Increase VDCAP VDCAP 5.1.1, processes, Cooperation 28 procedures towards volume and New action MPI Secretariat Secretariat Q3 2023 5.2.1, and Department harmonisation and alignment coordination members 5.3.1 coordination (MPI) simplification Page 74 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) 2.2 LDC Finance 2.2.1: urgently mobilise LDC-specific funds to finance national development priorities In preparation for the LDC V Conference (5-9 March 2023), the assessment of challenges, International opportunities, and best Increase LDC Data and Organisations 29 practices to mobilise ODA volume and New action MoFA LDC Committee Committee Q2 2023 analytics Department from multilateral funds, alignment members (MoFA) Technology Bank, and Investment Support Programme 2.2.2: prioritise financing sustainability in the forthcoming LDC Graduation STS The STS prioritises (1) the mobilisation of technical assistance for the sustainable and resilient financing of development, (2) to adapt to International Increase LDC 5.1.1, and mitigate impacts for Policy Being Organisations 30 volume and MoFA LDC Committee Committee Q1 2023 5.2.1, continued strategic definition implemented Department alignment members 5.3.1 mobilisation of development (MoFA) aid, (3) and finance priority sectors of green growth, climate change management, and social sectors 3.1 Business environment for MSMEs 3.1.1: improve the business environment to unlock domestic private finance flows in priority sectors The quality implementation of the PM’s Orders 02 and 03 to simplify the business Enterprise environment, especially Increase the Registration accelerating current efforts to volume of Laws and Being and Lao Business 31 MoIC LNCCI Q4 2025 disseminate recent regulatory development regulations implemented Management Forum changes and steps to obtain a finance Department business license through user- (MoIC) friendly digital platforms, and reduce informal charges A public-private dialogue to LNCCI increase research and policies Planning and Department of Increase on an enabling environment Policy Cooperation Lao Business Planning (MPI) 32 volume and New action MoIC Q1 2024 and incentives for MSME (1) definition Department Forum Department of alignment development in priority (MoIC) Fiscal Policy sectors, (2) integration with and Law (MoF) Page 75 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) regional and international SME Fund value chains, and (3) (MoIC) responsible business Planning, practices Finance, and Cooperation Departments (line ministries) 3.2 Financial inclusion 3.2.1: increase access to finance for MSME development A public-private dialogue on financial inclusion to improve financial services and LNCCI products, access to finance, Financial Commercial notably through the Increase the Institutions Banks standardisation of credit volume of Policy Lao Business Supervision 33 New action BoL Supervision Q1 2024 3.2.2 history and collaterals development definition Forum and Monetary Departments management and potential finance Policy (BoL) minimum requirements for Departments financial inclusion, (BoL) digitalisation, and financial literacy State Budget The assessment of the SME Department Promotion Fund’s Increase SME Data and Lao Business (MoF) 34 performance over the last 10 volume and New action MoIC Promotion Q1 2024 analytics Forum Planning years to inform strategic alignment Fund (MoIC) Department planning and replenishment (MPI) 3.2.2: improve the financial sector’s sustainability and credit availability for priority investments in line with macroeconomic stabilisation priorities The acceleration of projects to strengthen financial risk Commercial management regulations and Increase the Lao Business Monetary Banks procedures and consolidate volume of Being Forum Policy 35 Multiple BoL Supervision Q4 2025 the banking sector, development implemented Macroeconomic Department Department considering current finance SWG (BoL) (BoL) macroeconomic and monetary risks 4.1 Foreign Direct Investments 4.1.1: quality FDI contributing to national development priorities increase through a focused investment promotion strategy based on non-fiscal incentives and reforms of the business environment The multi-stakeholder Investment MPI-MoF LNCCI 1.1.1 Increase formulation of a Policy Promotion meetings Department of 5.1.1, 36 volume and New action MPI Q4 2023 comprehensive FDI attraction definition Department Lao Business Planning (MPI) 5.2.1, alignment and promotion strategy, which (MPI) Forum Department of 5.3.1 Page 76 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) would contain (1) a FDI policy Fiscal Policy statement that clarifies Lao and Law (MoF) PDR’s strategic vision for FDI Monetary promotion and attraction, (2) Policy the review of the Investment department Promotion Law and SEZ (BoL) regulations (3) the cost- Planning, benefit analysis and proposed Finance, and reforms of the current Cooperation incentive regime’s laws and Departments regulations, prioritising (line ministries) targeted fiscal incentives for priority sectors (social sectors and green growth) and non- fiscal incentives and (4) reforms of the business environment, notably for facilitated entry and increased investor protection, all guided by international standards Department of Planning (MPI) Department of The development of foreign Fiscal Policy investment risk assessment and Law (MoF) Investment tools and associated capacity Increase Monetary Tools and IT Promotion MPI-MoF 4.2.1 37 development, to strengthen alignment to New action MPI Policy and Q4 2023 systems Department meetings 5.3.1 the institutional review of 9th NSEDP Commercial (MPI) investments against national Banks development priorities Supervision departments, and AMLI Office (BoL) 4.2 Illicit Financial Flows 4.2.1: completing the FATF’s Mutual Evaluation and implementing the associated action plan is a first step towards curbing IFF, increasing government revenue, and improving Lao PDR’s international profile A capacity needs assessment to assess challenges and opportunities to strengthen enforcement of (fiscal, Increase FATF focal environmental, forestry, Data and AMLI Office AMLI Office 1.1.2 38 alignment to New action BoL points Q1 2024 wildlife) laws and regulations analytics (BoL) coordination 5.3.1 9th NSEDP MAF, MoNRE and improve institutional and human capacity to curb and prosecute environmental trafficking Page 77 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) The support to the completion of the FATF mutual evaluation to assess Lao PDR’s shortcomings in mitigating Increase money laundering and Data and Being AMLI Office AMLI Office FATF focal 39 alignment to BoL Q4 2023 terrorist financing risks and analytics implemented (BoL) coordination points 9th NSEDP curbing IFF and implement resulting recommendations to improve the country’s compliance and effectiveness The acceleration of capacity development and training for the AML/CFT task force, line Increase Capacity Being AMLI Office AMLI Office FATF focal 40 ministries, and law alignment to BoL Q4 2025 development implemented (BoL) coordination points enforcement to support 9th NSEDP FATF’s Mutual Evaluation and its follow-up procedures 4.3 Remittances 4.3.1: as the region reopens, rapidly defining a policy framework for remittances will help identifying actions needed to facilitate their contributions to livelihoods Legal, Financial The revision of the National Increase the Commercial Institutions and Payment System Law and volume of Laws and Being Banks Lao Business Monetary 41 other financial regulations to BoL Q1 2024 3.2.2 development regulations implemented Department Forum Policy facilitate reliable, affordable, finance (BoL) Departments and safe remittance transfers (BoL) The acceleration of projects to increase migrant Increase the Social Welfare registration and formalise the volume of Being 42 Multiple MoLSW Department Q4 2025 migrant worker status and development implemented (MoLSW) improve safe and regular finance labour migration pathways The pursuit of ongoing multi- Social Welfare stakeholder research to Department understand and define a (MoLSW) policy framework to lift Commercial Increase the constraints and reduce the Development Banks, Legal, volume of Data and Being 43 costs of safe and reliable MPI Research Financial Q1 2024 3.2.2 development analytics implemented remittance transfers through Institute (MPI) Institutions and finance an updated policy, regulatory, Monetary and financial environment, Policy looking at best international Departments practices (BoL) 5.1 Health Finance 5.1.1: health priorities are financed through sustainably increasing budget allocations for quality and inclusive essential health services, enhanced allocative efficiency of all public funding, and the regulated mobilisation of private resources Page 78 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Following the finalisation of the current pilot phase for hospital autonomy, the development of a clear regulatory framework and guidelines to ensure the well- regulated mobilisation of private resources maintaining Planning and quality and inclusivity of Increase the Investment Cooperation Health SWG health care, as well as the volume of Policy Being Promotion 44 MoH and Finance Lao Business Q4 2023 4.1.1 exploration of the costs, development definition implemented Department Departments Forum benefits, feasibility, relevance, finance (MPI) (MoH) and best practices to mobilise private sector resources for quality and inclusive healthcare, which would inform policies and actions to improve the business environment and investment promotion regime The exploration of the relevance and institutional Planning and feasibility of increased budget Increase State Budget Cooperation Laws and 45 autonomy for the National alignment to New action MoF Department and Finance Q4 2023 1.2.2 regulations Health Insurance Bureau, 9th NSEDP (MoF) Departments towards a semi-autonomous (MoH) status The conclusion of discussions with bilateral and multilateral State Budget partners for continued ODA Department and/or budget support during (MoF) Increase the the 9th NSEDP cycle, International Planning, volume of Being 46 conditioned to marked Multiple MPI Cooperation RTP/ SWGs Finance, and Q2 2023 5.3.1 development implemented improvements to fiscal policy (MPI) Cooperation finance and PFM, which would Departments generate fiscal space for co- (MoH and other financing in the next planning line ministries) cycle The systematisation and adaptation, in priority sectors MoH faced with hard budget Increase Departments Data and MoES 47 constraints, of cost-benefit alignment to New action of Planning Q4 2025 analytics MoNRE analysis and other methods to 9th NSEDP and Financing MAF optimise the utilisation of limited budget allocations Page 79 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) 5.2 Education Finance 5.3.1: education priorities are financed through sustainably increasing budget allocations, the enhanced allocative efficiency of all public funding, and the regulated mobilisation of private resources The exploration of specific changes required to the laws, regulations, processes, and CoA to facilitate centralised Increase Department of Finance planning, prioritisation, and Laws and 48 alignment to New action MoF State Budget Department Q4 2023 1.2.2 budgeting of the education regulations 9th NSEDP (MoF) (MoES) sector and improved allocative efficiency of public funding, in the context of limited fiscal space The assessment of the costs, benefits, feasibility, relevance, and best practices to mobilise private sector resources for Investment Increase Department of quality and inclusive Data and Lao Business Promotion 49 volume and New action MoES Finance Q4 2023 4.1.1 education, which would analytics Forum Department alignment (MoES) inform policies and actions to (MPI) improve the business environment and investment promotion regime 5.3 Green and Climate Finance 5.3.1: green growth and climate-resilient development are financed through sustainably increasing budget allocations, improved green budgeting, strategic mobilisation of ODA, and increasing private investments in an enabling business environment. Financial Institutions Supervision The formulation of policy and Monetary Commercial recommendations to improve Increase Policy Data and Banks Lao Business 50 the environmental volume and New action BoL Departments Q1 2024 3.2.2 analytics Department Forum sustainability of the financial alignment (BoL) (BoL) sector Planning and Cooperation Department (MoNRE) The study of the costs, benefits, feasibility, and Planning, relevance of environmental Finance, and fiscal reform (e.g., carbon Increase Financing Fiscal Policy MPI-MoF Cooperation 1.1.1 51 tax), sin taxes, and other pre- volume and New action MoF Q1 2024 instrument and Law (MoF) meetings Departments 5.1.1 market interventions, to alignment (MoH, MoNRE, simultaneously influence MAF) behaviours and development outcomes, and generate Page 80 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) resources for priority sectors, with careful consideration of the current capacity of the tax administration and centralisation of the budget process The capacity development of national funds and establishment of the EPF as Department of the first Accredited Entity for Increase Planning and Lao PDR, combined with Being 52 volume and Multiple MoNRE Cooperation RTP/ SWGs National Funds Q3 2024 strengthened collaboration implemented alignment (MoNRE and between DPs currently MAF) accredited to vertical funds, for strategic green ODA programmes and projects The formulation of policy recommendations to incentivise investments in green growth and to create a Investment Planning and Increase clear taxonomy for Policy Promotion Lao Business Cooperation 53 volume and New action MPI Q1 2024 4.1.1 sustainable activities, which definition Department Forum Department alignment would inform policies and (MPI) (MoNRE) actions to improve the business environment and investment promotion regime Fiscal Policy and Law The study of the feasibility Departments and relevance of carbon Increase Development (MoF) credits and emissions trading Policy MPI-MoF 54 volume and New action MoF Research Planning and Q4 2025 schemes, and potential definition meetings alignment Institute (MPI) Cooperation policies and actions to Departments finance biodiversity protection (MoNRE and MAF) Page 81 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23)

Annex 3: Monitoring and Evaluation matrix GoL department No. Action GoL Lead Means of Verification lead(s) The assessment of fiscal costs and review, harmonisation, and Fiscal Policy and Law 1 update of the laws, regulations, and processes, to broaden the tax MoF Revenue to GDP ratio (%) Department (MoF) base and abolish and renegotiate CIT and other fiscal exemptions Planning, Financing and Audit The strengthening of inter-ministerial processes and capacity of NA Committee (NA) Reporting at MPI-MoF meetings and NA 2 the National Assembly, MoF, and MPI to review large investment MoF External Finance Department consultations projects’ financial schemes and expected fiscal implications MPI (MoF) Planning Department (MPI) The acceleration of projects to modernise and digitalise tax 3 systems, facilitating e-registration and e-payment, and facilitate MoF Tax Department (MoF) Tax to GDP ratio (%) formalisation to improve the performance of tax collection The dissemination of tax law and regulations of businesses and 4 MoF Tax Department (MoF) Evaluation at Lao Business Forum broader societal awareness raising of tax for development The harmonisation of tax rates to optimise revenue generation while fostering private sector development and investments in priority sectors and green growth, including the assessment of Fiscal Policy and Law 5 MoF Assessment produced: Yes/No expected revenues generated, business registrations, Department (MoF) administrative feasibility, and impacts on livelihoods of a potential increase of the VAT rate from 7% to 10% The acceleration of tax administration capacity development to 6 MoF Tax Department (MoF) Reporting by MoF increase revenue collection The regulation of revenues from rapidly growing sectors, such as Fiscal Policy and Law 7 MoF Updated regulations: Yes/ No e-commerce and cryptocurrency mining and trading Department (MoF) Page 82 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) The temporary halt on new resource extraction projects combined with the update of legislation, regulation, and processes for the Investment Promotion 8 future implementation of natural resources extraction projects in MPI Updated regulations: Yes/ No Department (MPI) line with the inclusive, sustainable, and climate-resilient development pathway of the 9th NSEDP The simultaneous mid-term review of the 9th NSEDP, update of the Evaluation at MPI-MoF meetings Public Investment Plan currently being developed, and alignment MPI Planning Department (MPI) 9 Share of budget allocated to social sectors of the medium-term expenditure framework, reviewing 2024 and MoF State Budget Department (MoF) and green growth (%) 2025 budget ceilings and yearly allocations The reassessment and possible termination of all public and public-private investment projects that are not in line with the 9th 10 MPI Planning Department (MPI) Ongoing projects reassessments: Yes/ No NSEDP priorities or are experiencing increasing costs and delays weighing on the State budget The acceleration of projects to synchronise and sequence the Evaluation at MPI-MoF meetings quinquennial, multi-year, and annual national planning and MPI Planning Department (MPI) 11 Share of budget allocated to social sectors budgeting processes, for cycles of financially sound national MoF State Budget Department (MoF) and green growth (%) planning as per the INFF approach The update of the State Budget Law, Public Investment Law, Public Procurement Law, and related regulations such as Decree 599/PM on austerity measures, and adoption of the PM Decree on Budget MPI Planning Department (MPI) 12 Updated laws and regulations: Yes/ No Formulation, to facilitate the formulation, execution, and MoF State Budget Department (MoF) monitoring of budget and investment plans in line with national development priorities The review and update of regulations and processes to appraise public and private investment proposals, including the update of the investment scorecard, the systematisation of cost-benefit Investment Promotion Updated regulations and processes: Yes/ 13 MPI analyses and other evidence-based methodologies through Department (MPI) No training and technical assistance, and improvements of PPP governance and regulations The acceleration of all PFM projects - e.g., IFMIS rollout, SDG, and 9th NSEDP budget-tagging, green and gender budgeting, CoA 14 MoF State Budget Department (MoF) Evaluation at National Steering Committee revisions – to integrate national development priorities in all stages of the budget cycle Page 83 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) The convening of a National Conference on PFM to disseminate recent legal and regulatory updates and take stock of progress 15 MoF State Budget Department (MoF) Event took place: Yes/ No towards an evidence-based budget cycle and expenditures aligned with national development priorities The development of procurement guidelines for line ministries, and 16 the systematisation of green procurement practices across all MoF State Budget Department (MoF) Procurement guidelines: Yes/ No government, as well as capacity development The study and exploration of multilateral debt alleviation and Policy paper on debt alleviation initiatives suspension initiatives to free fiscal space in support of Debt Management Department 17 MoF potential: Yes/ No development investments and provide Lao PDR with sufficient (MoF) Debt to GDP ratio (%) time to increase the revenue to GDP ratio The continuation of debt consolidation through renegotiations to (1) cancel or reduce debt repayments and/or lengthen the maturity Debt Management Department Debt to GDP ratio (%) 18 MoF of loans to the second half of the 2020s without losing access to (MoF) Debt servicing/ budget (%) future loans and (2) explore debt swaps with major creditors The acceleration of projects to increase debt transparency in line with international standards, through the more frequent publication Debt Management Department 19 of disaggregated debt data, including for SOEs, and an annual MoF Evaluation at MPI-MoF meetings (MoF) publication reviewing the debt portfolio, analysing, and modelling repayment trends, and associated risks The review of the Public Debt Management Law and associated Debt Management Department 20 MoF Review undertaken: Yes/ No regulations against best international practices (MoF) The pursuit of ongoing work to reform SOEs, focusing on large SOE Management Department Evaluation at MPI-MoF meetings 21 MoF companies presenting contingent liabilities (MoF) Publicly guaranteed debt/ GDP (%) The preparation of a medium-term debt issuance and management strategy, including the long-term exploration of green Debt Management Department 22 MoF Strategy prepared: Yes/ No bonds, assuming the progressive return to a more manageable (MoF) financial situation allowing for debt issuance Page 84 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) The review and publication, on a semi-annual basis, of the ODA- International Cooperation Review: Yes/ No 23 MPI MIS database, for improved strategic planning Department (MPI) Publication: Yes/ No The multi-stakeholder formulation of a medium-term ODA strategic mobilisation plan (2024-2025), aligned with the 9th NSEDP mid- International Cooperation 24 term review, 2030 ODA strategy and medium-term expenditure MPI Strategy prepared: Yes/ No Department (MPI) framework, highlighting priority sectors for ODA, and encouraging joint approaches The coordination of the annual production and publication of a forward-looking matrix with all planned ODA and other aid projects, International Cooperation 25 MPI Matrix produced: Yes/ No for the remainder of the 9th NSEDP (2023-2025), structured Department (MPI) against the national plan’s outcomes and outputs The multi-stakeholder review of the RTP and SWGs, for inclusive partnerships mechanisms facilitating the joint evidence-based Multi-stakeholder review undertaken: Yes/ International Cooperation 26 strategic planning and delivery of ODA programmes contributing to MPI No Department (MPI) the 9th NSEDP outcomes, anticipating transition for ODA-reliant Update of RTP/SWG: Yes/ No sectors The multi-stakeholder review of the MoU approval process leading Multi-stakeholder review undertaken: Yes/ International Organisations 27 to regulatory updates and the development and dissemination of MoFA No Department (MoFA) clear procedures and templates Update of MoU procedures: Yes/ No The multi-stakeholder review of ODA processes and procedures International Cooperation Multi-stakeholder review undertaken: Yes/ 28 MPI towards harmonisation and simplification Department (MPI) No In preparation for the LDC V Conference (5-9 March 2023), the assessment of challenges, opportunities, and best practices to International Organisations Policy paper identifying opportunities for 29 MoFA mobilise ODA from multilateral funds, Technology Bank, and Department (MoFA) LDC finance: Yes/ No Investment Support Programme The STS prioritises (1) the mobilisation of technical assistance for the sustainable and resilient financing of development, (2) to adapt International Organisations 30 to and mitigate impacts for continued strategic mobilisation of MoFA STS prioritises (1), (2), and (3): Yes/ No Department (MoFA) development aid, (3) and finance priority sectors of green growth, climate change management, and social sectors Page 85 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) The quality implementation of the PM’s Orders 02 and 03 to simplify the business environment, especially accelerating current Enterprise Registration and 31 efforts to disseminate recent regulatory changes and steps to MoIC Management Department Evaluation at Lao Business Forum obtain a business license through user-friendly digital platforms, (MoIC) and reduce informal charges A public-private dialogue to increase research and policies on an enabling environment and incentives for MSME (1) development in Planning and Cooperation Public-private dialogue takes place: Yes/ No 32 MoIC priority sectors, (2) integration with regional and international value Department (MoIC) Policy formulated: Yes/ No chains, and (3) responsible business practices A public-private dialogue on financial inclusion to improve financial services and products, access to finance, notably through the Commercial Banks Supervision Public-private dialogue takes place: Yes/ No 33 standardisation of credit history and collaterals management and BoL Departments (BoL) Policy formulated: Yes/ No potential minimum requirements for financial inclusion, digitalisation, and financial literacy The assessment of the SME Promotion Fund’s performance over 34 MoIC SME Promotion Fund (MoIC) Assessment produced: Yes/No the last 10 years to inform strategic planning and replenishment The acceleration of projects to strengthen financial risk management regulations and procedures and consolidate the Commercial Banks Supervision 35 BoL Evaluation at Lao Business Forum banking sector, considering current macroeconomic and monetary Department (BoL) risks The multi-stakeholder formulation of a comprehensive FDI attraction and promotion strategy, which would contain (1) a FDI policy statement that clarifies Lao PDR’s strategic vision for FDI Multi-stakeholder formulation process: Yes/ promotion and attraction, (2) the review of the Investment No Promotion Law and SEZ regulations (3) the cost-benefit analysis Investment Promotion New investment promotion and 36 and proposed reforms of the current incentive regime’s laws and MPI Department (MPI) management strategy: Yes/ No regulations, prioritising targeted fiscal incentives for priority FDI (% GDP and broken down by sectors and sectors (social sectors and green growth) and non-fiscal 9th NSEDP) incentives and (4) reforms of the business environment, notably for facilitated entry and increased investor protection, all guided by international standards Page 86 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Foreign risk assessment tool produced: The development of foreign investment risk assessment tools and Investment Promotion Yes/ No 37 associated capacity development, to strengthen the institutional MPI Department (MPI) FDI (% GDP and broken down by sectors and review of investments against national development priorities 9th NSEDP) A capacity needs assessment to assess challenges and opportunities to strengthen enforcement of (fiscal, environmental, Capacity needs assessment prepared and 38 forestry, wildlife) laws and regulations and improve institutional BoL AMLI Office (BoL) disseminated: Yes/ No and human capacity to curb and prosecute environmental trafficking The support to the completion of the FATF mutual evaluation to assess Lao PDR’s shortcomings in mitigating money laundering 39 and terrorist financing risks and curbing IFF and implement BoL AMLI Office (BoL) Action plan prepared: Yes/ No resulting recommendations to improve the country’s compliance and effectiveness The acceleration of capacity development and training for the 40 AML/CFT task force, line ministries, and law enforcement to BoL AMLI Office (BoL) Evaluation by AMLIO support FATF’s Mutual Evaluation and its follow-up procedures The revision of the National Payment System Law and other Commercial Banks Department 41 financial regulations to facilitate reliable, affordable, and safe BoL Revision undertaken: Yes/ No (BoL) remittance transfers The acceleration of projects to increase migrant registration and Social Welfare Department 42 formalise the migrant worker status and improve safe and regular MoLSW Evaluation by MoLSW (MoLSW) labour migration pathways The pursuit of ongoing multi-stakeholder research to understand and define a policy framework to lift constraints and reduce the Development Research Institute 43 costs of safe and reliable remittance transfers through an updated MPI Policy paper produced: Yes/ No (MPI) policy, regulatory, and financial environment, looking at best international practices Page 87 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) Following the finalisation of the current pilot phase for hospital autonomy, the development of a clear regulatory framework and guidelines to ensure the well-regulated mobilisation of private resources maintaining quality and inclusivity of health care, as well Planning and Cooperation and 44 as the exploration of the costs, benefits, feasibility, relevance, and MoH Policy paper produced: Yes/ No Finance Departments (MoH) best practices to mobilise private sector resources for quality and inclusive healthcare, which would inform policies and actions to improve the business environment and investment promotion regime The exploration of the relevance and institutional feasibility of 45 increased budget autonomy for the National Health Insurance MoF State Budget Department (MoF) Recommendation issued by MoF: Yes/ No Bureau, towards a semi-autonomous status The conclusion of discussions with bilateral and multilateral partners for continued ODA and/or budget support during the 9th Outcomes of negotiations evaluated 46 NSEDP cycle, conditioned to marked improvements to fiscal policy MPI International Cooperation (MPI) through RTP and PFM, which would generate fiscal space for co-financing in the Volume of ODA in priority sectors next planning cycle MoH The systematisation and adaptation, in priority sectors faced with MoES Departments of Planning and Number of appraisals undertaken in each 47 hard budget constraints, of cost-benefit analysis and other MoNRE Financing Ministry methods to optimise the utilisation of limited budget allocations MAF The exploration of specific changes required to the laws, regulations, processes, and CoA to facilitate centralised planning, Recommendation issued by MoF: Yes/ No Department of State Budget 48 prioritisation, and budgeting of the education sector and improved MoF Update of laws, regulations, and CoA: Yes/ (MoF) allocative efficiency of public funding, in the context of limited No fiscal space The assessment of the costs, benefits, feasibility, relevance, and best practices to mobilise private sector resources for quality and 49 inclusive education, which would inform policies and actions to MoES Department of Finance (MoES) Policy paper produced: Yes/ No improve the business environment and investment promotion regime Page 88 of 89 9th NSEDP Financing Strategy Advanced Draft (September 23) The formulation of policy recommendations to improve the Commercial Banks Department 50 BoL Policy paper produced: Yes/ No environmental sustainability of the financial sector (BoL) The study of the costs, benefits, feasibility, and relevance of environmental fiscal reform (e.g., carbon tax), sin taxes, and other pre-market interventions, to simultaneously influence behaviours 51 MoF Fiscal Policy and Law (MoF) Policy paper produced: Yes/ No and development outcomes, and generate resources for priority sectors, with careful consideration of the current capacity of the tax administration and centralisation of the budget process The capacity development of national funds and establishment of the EPF as the first Accredited Entity for Lao PDR, combined with Department of Planning and 52 MoNRE Number of accreditations strengthened collaboration between DPs currently accredited to Cooperation (MoNRE and MAF) vertical funds, for strategic green ODA programmes and projects The formulation of policy recommendations to incentivise investments in green growth and to create a clear taxonomy for Investment Promotion 53 sustainable activities, which would inform policies and actions to MPI Policy paper produced: Yes/ No Department (MPI) improve the business environment and investment promotion regime The study of the feasibility and relevance of carbon credits and Development Research Institute 54 emissions trading schemes, and potential policies and actions to MoF Policy paper produced: Yes/ No (MPI) finance biodiversity protection Page 89 of 89