The Lao PDR’s fiscal system is currently not enabling the government to fulfil its policy commitments or maintain economic stability, reports released by the World Bank today said. While a high debt burden, poor revenue collection, limited financing options, and low foreign currency reserves are undermining development prospects, fiscal reforms could provide some immediate relief and help build a more equitable and sustainable system.
Public and publicly guaranteed debt is at over 100% of GDP, one of the highest levels in the world, contributing to a rapid fall in the value of the kip since 2021, according to the reports, a Public Finance Review, Forging Ahead: Restoring Stability and Boosting Prosperity, and a Fiscal Incidence Analysis entitled Raising the Bar: Toward an Equitable and Inclusive Fiscal Policy. With revenue collection declining significantly as a share of GDP since 2013, the government has tightened spending on health and education, which are critical for development.
Insufficient investment in education, training, and healthcare undermines long-term inclusive development and denies people the skills and good health that they need to escape poverty. The reports examine Lao public finances, present an analysis of government revenue and spending, and make recommendations on generating sufficient resources to invest in health, education, and other sectors critical to development and prosperity.
“Changes in fiscal policy could help address economic instability, protect affected families, stimulate growth, and reduce poverty and inequality,” said Mariam Sherman, the World Bank Country Director for Myanmar, Cambodia, and Laos. “The current fiscal position is making it difficult for the Lao government to help citizens, but these reports offer solutions that would bring immediate gains.”
The Public Finance Review finds that Laos’ current economic instability largely results from low revenue and accumulated debt. There is moreover a need to improve the efficiency of public expenditure and tackle the potential costs of state-owned enterprises and public-private partnerships.
The Fiscal Incidence Analysis, which looks at how the Lao system distributes the money that it raises, finds that after taxes are paid and transfers made through government spending, income is more equally distributed than beforehand. However, revenue collection is weak, and social spending is low, so the impact of the fiscal system on poor families is limited and the effect of government policies on poverty reduction and inequality is minimal.
The reports conclude that there is considerable scope for improving revenue collection and the effectiveness and equity of public spending. They detail measures for enhancing tax collection, reforming the management of state-owned enterprises and public-private partnerships, and targeting public spending more efficiently. The analyses follow close cooperation between the World Bank and the Ministry of Finance, as well as engagement with the Ministry of Planning and Investment and other public institutions.
