Lao PDR

About Lao PDR

Lao PDR is a small, mountainous, landlocked country bordering Burma, Cambodia, China, Thailand, and Vietnam.

Subsistence agriculture accounts for about half of GDP and involves over 80% of the country’s labor force. About 18% of GDP comes from manufacturing.  The majority of the population (82.9%) live in rural and remote areas without access to basic infrastructure and services.

Child mortality indicators are gradually improving. According to the Millennium Development Goals progress report of 2004 infant mortality between 1990 and 2000 had been reduced from 132 to 82 per thousand, and under-five child mortality had come down to 106 from 170 per thousand live births.

Women make up almost half the adult labour force, but are poorer, less educated and have fewer opportunities than men. This is in part due to cultural attitudes to women and a high average fertility rate of 6.6 children per female. Women have less access to land, credit and paid employment, and are more likely to be illiterate than men. Things are however changing. For instance, the net enrolment in schools rose from 58% in 1991 to 83 % in 2002.

Because up to 80 percent of the Lao population lives in rural areas, many people depend on forests for timber, medicinal plants and wildlife for their livelihoods. Lao PDR boasts an environment rich in natural resources, natural beauty and biological diversity. The country provides a habitat for an estimated 10,000 species of animals, fish, insects and plants. At least 25 of these are listed by the World Conservation Union as “endangered” and the country's once expansive forests are dwindling rapidly.

Lao PDR is a land-locked Least Developed Country (LDC), which is in transition to a market economy. Since the country’s New Economic Mechanism (NEM) policy was introduced in 1986, the government has implemented various reforms to better support the transition process. The economy has been growing at around 6% in the recent past. The overall rate of poverty fell from 46% in 1992/93 to 32% in 2002/03. The UNDP Global Human Development Index (HDI) has shown consistent improvement since 1993; Lao PDR is currently ranked 133rd out of 177 countries, and is classified in the “Medium Human Development” category. The country used to be the third largest producer of opium globally but was declared opium free in 2005.

Inequity levels, as measured through the Gini coefficient, have increased from 28.6 in 1992 to 35.7 in 1997. This latest figure is still valid, according to a 2002/03 survey. Poverty in rural areas is twice as high as in urban areas. The rise of the Gini index indicates that a significant part of the population have not partaken in the benefits accruing from a relatively high GDP growth in the recent years. Disparities are particularly marked among the rural poor, women and ethnic groups. The population is growing at the rate of 2.0 per cent with 55% of the population being under 20 years of age. The challenges that such demographic trends pose, both in terms of employment prospects and human development advances, are further compounded by the tribulations of unexploded ordnance (UXO) remnants from the Indo-china War. Fifty per cent of the country is contaminated by UXO and still poses enormous challenges for development and the personal safety and security of people. There is a strong correlation between the areas that are contaminated by UXO and the location of the poorest districts, as identified by the Government. Additionally, major challenges pertaining to the environment <environment at a glance 2004> are becoming evident. The economic expansion combined with population growth intensifies utilization of land and other natural resources and increases pressures on the environment.

The Government formulated its localized PRSP, the National Growth and Poverty Eradication Strategy (NGPES), in 2003. This document identifies the private sector as the main engine of growth and focuses on four key sectors, agriculture, infrastructure, education and health. It also highlights cross-cutting themes such as capacity development, UXO, HIV/AIDS, gender and the environment. Prominent features of the strategy include a direct channeling of funds to the poorest districts, augmented by incremental increases in the national budget for the social sectors, particularly education and health. In 2004, the Government set up its localized targets and relevant indicators within the framework of the Millennium Development Goals (MDGs) and published its first National MDG Report , which went a long way in establishing solid baselines to track the country’s progress towards the achievement of the MDGs by 2015. The Government is currently finalizing its sixth National Socio-economic Development Plan (NSEDP) for 2006-2010, which incorporates the main elements of both the NGPES and the MDGs. This pro-poor and MDG-based plan is expected to form the basis of future alignment of ODA to the country.

The Lao PDR has been playing an active role as a member of the ASEAN since its membership in 1997. The ASEAN Free Trade Area (AFTA) is set to be established by 2008. With the tariff reduction scheme that this entails, trade is expected to be further accelerated within the Region. The Lao PDR is also working towards WTO accession in the foreseeable future. Further regional integration and globalization have emerged as key priorities of the NSEDP. It is predicted that hydro-electricity and mining exports will start generating significantly increased national revenue in the coming years. With a view to building a more robust economy, exports would need to be further diversified both in terms of export items and markets. These positive economic prospects and trade opportunities may pose the danger of widening disparities, leading to further inequity.  While the incidence of HIV/AIDS remains low in the Lao PDR, rapid regional developments and cultural changes are being translated into increasing vulnerabilities.

At present, the country is heavily dependent on ODA, with around 70% of its public investment being financed by external resources. The current ratio of national revenue against GDP stands at 11%, which is one of the lowest in the Region.  It is therefore important that due attention be given to increasing domestic resources for financing development, including the provision of better public services for the people. The poverty impacts of fiscal management, including taxation, warrants deeper analyses in the long run. The NSEDP emphasises the central role of the domestic private sector and foreign direct investment (FDI) in promoting economic growth. Recent policy reviews indicate the importance of good governance as a precondition to fostering private sector development. The Government would need to play a proactive role and take decisive actions in order to facilitate easier business entry and expansion through less control by the government, greater promotion of the rule of law, more efficient tax and customs administration and the protection of property rights. Additionally, the capacity of civil servants, particularly at the decentralized levels, would also need to be strengthened, for the purposes of stronger public financial management and the provision of better public services.