consultation: country partnership framework
TRANSCRIPT
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Consultation: Country Partnership Framework
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Consultations on SCD and CEM held September 22-24, 2021
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LAO PDR COUNTRY ECONOMIC MEMORANDUM
Leveraging Strategic Location and Natural Wealth for Inclusive and Sustained Growth
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THE LIMITS OF LAO PDR’S
GROWTH MODEL HAVE BECOME
APPARENT
Resource-driven growth has created few jobs, while leading
to significant environmental and macroeconomic pressures
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Natural resources a key driver of fast growth over the past two decades
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Growth not been sufficiently inclusive, no high job-creation
(a) Total employment growth, value added per worker
and share of employment by sector, 2012-18
(b)Wage and non-wage employment by sector: 2012-18
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The growth model resulted in severe environmental pressures
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Without leading to significant increase in public revenues
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While fiscal and external vulnerabilities increased
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LAO PDR IS NOT THE USUAL
LANDLOCKED COUNTRY
It has the advantages of natural wealth, young population
and geographic location
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Geography is more an asset than a constraint
(a) World view (b) Asia and Pacific view
Source: The world Bank and United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) database
2015-2018 averages. Note: The figure maps the bilateral trade costs between any two countries using WB-UNESCAP trade cost
data. The thicker the border, the larger the wedge between producer prices in the exporting country and consumer prices in the
importing country. The estimated trade costs capture all factors from trade policy measures (tariffs and NTMs) to behind-the-
border measures such as the quality of trade facilitation services or inland transport costs, impossible to quantify on a large-scale.
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Laos links to commodity GVCs but has recently diversified
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Export-oriented manufacturing FDI linked to local economic development
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Agri-food exports have potential to grow both regionally and overseas
Can contribute to poverty reduction, especially given resilience to COVID-19 shock
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Scope to improve manufacturing competitiveness
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Global value chains thrive on predictable business environment
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A sound vision, but deeper policy changes needed to realize potential
Kunming (CN)
Vientiane (LA)
Lao-China
Railway
Thai-Sino RailwayCompletion: End of
2025Bangkok (TH)
▪ Expected completion 2021
▪ 414-kilometer railway (10 stations) from Vientiane Capital to Kunming, China
▪ Connect to Thai-Sino Railway Vientiane to Bangkok by 2025
• < 4 hours from Vientiane to China compared to 15h drive• 30-40 percent reduction in transport costs for transit cargo • Up to 1.5 million tons of trade between China and ASEAN and
2.0 million tons of trade between China and Lao PDR could be shifted from maritime routes to the railway
• Opportunities for further tourism development
Source: World Bank 2020. From Landlocked to land-linked.
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THE WAY FORWARD:
PRIORITY AND IMPLEMENTATION
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Policy leads for more inclusive and sustainable growth
1. Engineering a return to macro-fiscal stability=> Negotiate credible and transparent debt restructuring with large creditors to reduce the debt
service burden over the medium term.
2. Leveraging on Natural Capital while ensuring Social and Environmental Sustainability=> Renegotiate Power Purchase Agreements to reduce tariffs paid to IPPs and recalibrate take-or-pay
clauses, and adjust domestic electricity tariffs to reflect costs
3. Making Domestic Markets Work for Job Creation=> Implement one-stop business registration service to cut burdensome process and encourage
formalization
4. Leveraging Strategic Location to Diversify into Export-Oriented Manufacturing,Agri-Food and Services=> Advance trade policy reforms, with a focus on NTMs to support quality upgrades in business
5. Building Skills and Capacity for Effective reforms=> Improve data and knowledge to support effective policy making
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Changing Faces and Geography of Poverty
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Poverty reduction continues but inequality is rising
46.0%
39.0%
33.5%
27.6%23.2%
18.6%
24.6%
18.3%
0
200
400
600
800
1000
1200
1400
1600
1800
20001
992
/93
19
97/9
8
20
02/0
3
20
07/0
8
20
12/1
3
20
18/1
9
GDP per capita (constant 2010 US$)
Povety headcount (1997/98 poverty methodology)
Povety headcount (2018/19 poverty methodology)
30.5
34.8
32.6
3536.2
36
38.8
19
92/9
3
19
97/9
8
20
02/0
3
20
07/0
8
20
12/1
3
20
18/1
9
Gini index (1997/98 poverty methodology)
Gini index (2018/19 poverty methodology)
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Rapid GDP growth has not translated into an equally high rate of poverty reduction
*Poverty rates are based on USD3.2 a day in 2011 PPP.
If the impact of economic growth on poverty reduction had been like that in Indonesia,
Lao PDR would have almost eliminated extreme poverty
($1.9 per day in 2011 PPP terms)Lao PDR
(2012-18)
Indonesia (2012-18)
Philippines (2012-15)
Thailand (2014-18)
Vietnam (2012-18)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
Gro
wth
ela
stic
ity
of
po
vert
y
Annualized per capita GDP growth
Effect of economic growth on poverty
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Due to two reasons:
1. Large gap between GDP growth and household consumption growth
2. Consumption growth was not pro-poor
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
Per capita GDP – consumption gap (Circa 2010- 2017)
Lao PDR
3.28%
0
1
2
3
4
5
6
0 10 20 30 40 50 60 70 80 90 100
AN
NU
AL
GR
OW
TH R
ATE
CONSUMPTION DECILE
Growth incidence curve, 2012 – 2018
Consumption growth Mean consumption growth
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Geography of poverty is changing, shifting from north to central
7.9%
31.4%
2.5%
31.0%
23.5%
29.9%
7.0%
23.8%
5.0%
20.7% 21.5%17.7%
Urban Rural VientianeCapital
North Central South
Poverty rate
2012/13 2018/19
Changes in poverty rate (2012 – 2018)
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Poverty remains higher among non Lao-Tai ethno-linguistic groups, but Chinese-Tibetan groups are catching up. Hmong-Mien groups, however, are lagging
0 10 20 30 40 50 60
Paid worker
Self-employed, non-farm
Self-employed, agriculture
No formal education
Some primary
Completed primary
Completed lower secondary
Completed upper secondary
Completed vocational training
University degree
Lao-Tai
Mon-Khmer
Chinese-Tibetan
Hmong-Mien
Pri
mar
yem
plo
ymen
tH
igh
est
com
plt
ed e
du
cati
on
leve
lB
road
eth
no
-lin
guis
tic
gro
up
Poverty headcount rate (%)
2012/13 2018/19
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The poor in Laos can be classified into three groups
14%
45%
41%
Non-farm based livelihoods, low education
Agricultural households, low education, non-remote
Agricultural, low education, remote
COVID-19 is expected to increase the share of this group
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Systematic Country Diagnostic
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What is a Systematic Country Diagnostic (SCD)?
• Country Economic Memorandum
• Poverty Assessment
• Other thematic reports
Analytical work
• Identifies priorities to achieve the poverty reduction and shared prosperity goals
Systematic Country Diagnostic • Integrated and
selective framework for the WBG’s partnership with the country
Country Partnership Framework
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Key risks identified in the 2017 SCD have materialized:
• Increasing macroeconomic instability, aggravated by pandemic.
• Jobless growth with rising inequality.
• Vulnerability to climate change, environmental degradation,
and shocks (e.g. health-related).
Recommendations:
• Stabilize the economy (macro-financial risks).
• Share growth benefits equitably (through better jobs).
• Sustain progress by protecting environment and mitigating shocks.
Stabilize
Share
Sustain
SCD Findings
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Stabilize
Securing macroeconomic stability will require measures to tackle rising public debt,eroding fiscal space, declining reserve buffers, and growing financial sector risks.
Public debt service and foreign reserves (USD million) Exchange rate (kip/USD)
8,000
8,500
9,000
9,500
10,000
10,500
11,000
11,500
12,000
7-Ja
n-2
0
6-F
eb-2
0
7-M
ar-2
0
6-A
pr-
20
6-M
ay-2
0
5-Ju
n-2
0
5-Ju
l-20
4-A
ug-
20
3-S
ep-2
0
3-O
ct-2
0
2-N
ov-
20
2-D
ec-2
0
1-Ja
n-2
1
31-J
an-2
1
2-M
ar-2
1
1-A
pr-
21
1-M
ay-2
1
31-M
ay-2
1
30-J
un
-21
Parallel market rate Commercial banks rate
0
200
400
600
800
1000
1200
1400
2016 2017 2018 2019 2020 2021P
Public debt services Reserves (million USD)
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Fostering inclusive growth will require a stronger effort to improve the business climate,develop connective infrastructure, and enhance human capital (education and health).
0
5
10
15
20
25
2007 2012 2018 2020(est)
Unemployment
Non-seasonal unemployment
Non-seasonal youth unemployment
25
27
29
31
33
35
37
39
41
0
5
10
15
20
25
30
35
40
2002 2007 2012 2018
National poverty rate (LHS) Gini index (RHS)
Unemployment (%) Poverty and inequality (%)
Share
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Resource depletion, climate change, and vulnerability to shocks requires an improvedmanagement of natural resources, climate action, and measures to safeguard livelihoods.
20.4
7.1
11.7
19.2
20.6
69.9
5.5
Job loss
Non-farm business closure
Disruption in agricultural activities
Increased prices of inputs
Decreased prices of outputs
Increased prices of most consumergoods
Sickness
Households experiencing shocks (%, Mar-Jul 2020)
Sustain
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SCD Framework
Reemerged macroeconomic
instability
Jobless growth with rising inequality
Vulnerability to climate change, environmental
degradation and shocks
Stabilize Share Sustain
Strengthened governance and institutions
Inclusive, resilient, and sustained growth for reducing poverty and promoting shared prosperity
Weak governance and institutions
PATHWAYS
CHALLENGES
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High-Level Outcomes and Development Objectives
Ending Extreme
Poverty and Boosting Shared
Prosperity
Greater Macroeconomic Stability
Sustainable Debt Levels
Increased Fiscal Space
Stable Financial Sector
Broad-Based Human Productivity Improvements
Dynamic Private Sector
Improved Connective Infrastructure
Well-functioning labor market
Reduced Stunting
Enhanced Learning Outcomes
Equitable Access to Quality Health Services
Improved Resilience to Shocks
Improved Management of Natural Resources
Action on Disaster Risk and Climate Change
Well-Managed Urbanization
Comprehensive Social Protection
Improved Financial Inclusion
Improved Agricultural Productivity
Cro
ss-cuttin
g: Strength
ened
Go
vernan
ce & In
stitutio
ns
High-Level Outcomes (HLOs) Development Objectives (DOs)Twin goalsStab
ilizeSh
areSu
stainPathways
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Prioritization of Development Objectives
Top High Medium
Sustainable debt levels Stable financial sector Well-functioning labor market
Increased fiscal space Improved connective infrastructure Well-managed urbanization
Dynamic private sector Reduced stunting Improved financial inclusion
Enhanced learning outcomes Equitable access to quality health services
Improved management of natural resources Action on disaster risk and climate change
Increased agricultural productivity Comprehensive social protection
Strengthened governance and institutions
Top priorities High priorities Medium priorities
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Re-prioritization
SCD Update SCD 2017 Change
Sustainable debt levels Putting public debt on a sustainable path and strengthening financial sector stability -
Stable financial sector Revised down
Increased fiscal space New
Dynamic private sector Making it easier to do business and create good jobs Revised up
Improved connective infrastructure Investing in infrastructure for growth and inclusion -
Well-functioning labor market New
Reduced stunting Investing in improving nutrition to achieve children’s full potential Revised down
Enhanced learning outcomes Improving quality of education and keeping girls in school -
Equitable access to quality health services Improving access to and quality of health services for more productive people -
Improved management of natural resources Promoting strategic use of natural resources and responsible management of the environment -
Action on disaster risk and climate change Putting in place a strengthened DRM Expanded
Well-managed urbanization New
Comprehensive social protection Introducing a basic social protection system to lower vulnerability Revised up
Improved financial inclusion Improving inclusiveness of the financial sector to improve access to credit and lower risks -
Increased agricultural productivity Increasing agricultural productivity to support incomes -
Strengthened governance and institutions Enhancing governance and creating a rules-based environment Cross-cutting