“ Fiscal Governance for Sustainable Growth and Development in Asia Pacific region ” Mr. sakounseng Sengkhamyong Technical Official Fiscal Policy and Law Department, Ministry of Finance April 25, 2019 1
Presentation Outline 1. Overview of Lao PDR 2. The role of Fiscal governance in improving the effectiveness of fiscal policy 3. Conclusion 2
Capital city: Vientiane Capital Total area: 236,800 sq Km Population: 6.8 million (2016) Currency: Kip 3
Lao Economic Development GDP Growth and GDP per capita (%) (USD) 8.2 3,000 8.02 8.03 8 2,408 2,500 2,226 7.8 1,949 7.61 7.6 2,000 1,806 1,569 7.4 7.27 1,500 7.2 7.02 7 1,000 6.8 500 6.6 6.4 - 2012 2013 2014 2015 2016 GDP Growth Rate GDP per Capita 4 Source: Ministry of Planning and Investment
Lao Economic Development Growth 5
Lao Economic Development (% of GDP) Government Revenue 20.0% 18.9% 18.4% 18.3% 17.7% 17.5% 18.0% 2.9% 14.9% 15.8% 16.4% 2.5% 2.7% 2.2% 2.6% 16.0% 1.7% 14.9% 1.9% 13.9% 14.0% 1.7% 13.4% 13.1% 1.9% 12.9% 1.6% 11.8% 2.4% 11.5% 11.6% 12.0% 1.9% 2.5% 2.1% 2.0% 2.0% 10.0% 8.0% 13.1% 13.9% 16.0% 15.8% 15.7% 15.5% 14.9% 14.7% 13.0% 6.0% 12.3% 6.5% 6.6% 6.0% 6.1% 11.0% 11.0% 5.3% 10.6% 5.7% 9.7% 9.6% 9.5% 4.0% 3.2% 2.9% 2.8% 3.2% 2.4% 2.3% 2.0% 1.8% 1.7% 1.4% 1.1% 0.0% 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Tax revenue Nontax revenues Domestic revenue Grants Budget revenue during the past 10 years (2001-2016) average 16% of GDP. In which, domestic revenue, average 14% of GDP and ODA average covered 2% of GDP, the State budget execution has tendency to get better and better, the ratio of domestic revenue compare to GDP increased from 14% of GDP in FY 2000-2001 to 17.5% of GDP in FY 2015-2016. 6
Government Overall Balance (% of GDP) 35.0% 30.8% 29.1% 28.9% 30.0% 25.6% 25.5% 24.7% 24.4% 25.0% 22.2% 21.1% 20.9% 24.6% 24.4% 20.7% 24.2% 23.7% 19.9% 19.9% 19.1% 22.4% 22.4% 20.0% 18.2% 15.7% 19.3% 17.8% 17.3% 15.0% 16.8% 16.6% 16.0% 14.5% 14.1% 13.3% 12.6% 10.0% 5.0% 0.0% -1.5% -2.3% -3.1% -3.1% -2.0% -3.1% -5.0% -3.4% -3.8% -4.5% -4.6% -4.9% -5.2% -5.5% -6.2% -6.3% -6.9% -10.0% Revenue Expenditure Overall Balance
GOVERNMENT OVERALL BALANCE (PLAN VIII) 25.0% 22.0% 21.7% 21.5% 21.2% 20.1% 20.0% 17.3% 17.3% 16.6% 15.0% 16.5% 16.1% 10.0% 5.0% 0.0% 2015/16 2017 2018 (PLAN) 2019 (PLAN) 2020 (PLAN) -2.8% -5.0% -4.0% -5.0% -5.4% -5.6% -10.0% Revenue Expenditure Overall Balance
First generation of PFM reform - Revised legislations - Centralized treasury, tax and customs administration - Fiscal decentralization (Sam-sang) - PFM assessment: - PER - PETS - PEFA 9
Key achievements in first generation of reforms Example Treasury Reforms Closing of bank accounts & Hundreds of bank accounts on all consolidation to a single, zero levels of government balance account Centralized Treasury with cash No centralized treasury function management division Basic GFIS functions, manual Upgrade of GFIS system and roll- processes, no connection to local out to provincial treasuries levels → Supported by a sound legal framework (Budget Law, Accounting Law, Tax/VAT Law, SAO, etc.)
Implementation Challenges • Multiple reform efforts at the same time • Ambitious scope of reforms • Limited technical knowledge and skills • Staff rotations slowed down reform process • Reforms stalled with change in MoF management and commitment 11
Public Finance Development Strategy to 2025 and Vision to 2030 12
Lao PDR and the International Context Challenges for Lao PDR External opportunities • Fluctuation of commodity prices • Uprising Asian economies • Country capacity (HR, legal framework and • Access to international markets finance systems) is low through ASEAN • Need to enhance business environment and • Rapid development of science and regional trade technology • Natural disasters • International and regional integration 13
Lao PDR at a glance Potentials • Political stability, peace & security • GDP/capita: US$ 2,408 • Stable macro-economy and exchange rate Challenges for Lao PDR • Abundant natural resources (water • Lao PDR remains in the group of LDC countries forestry, mineral resources) • Abundance of natural resources has not been utilized efficiently • Inefficient use of public resources and donor aid • Need to improve government capacity • Public debt levels remain high 14
PFM challenges over the past 15 years • Budget Preparation not based on credible data Revenue and • Planning and execution did not strictly follow the Law expenditure management • Fiscal reporting was delayed and incomplete • off-budget spending • Shortage of qualified personnel Institutional and • Coordination between entities only sporadic personnel • No systematic and regular monitoring mechanisms management • Debt management not centralized 15
Public Finance Management Vision 2030 By 2030, PFM is/has … self-reliant A legal framework in line Provinces covering their with international own expenditure standards aligned with the regional and a single State sound budget plan global integration Bond, capital and money market are strong and stable sources for funding Public finance entities as self- the engine of economic strengthening development 16
Public Finance Development Strategy 2025 in the country’s broader development path National Socio- Economic Development Plan Guidelines on delegating Public Finance Party Guidelines responsibilities to local Development levels (Sam Sang) Strategy Increase global and regional integration 17
Macro Targets Annual GDP • at least 7,2% (per year) growth • doubled since 2016 GDP/capita rates Inflation • below economic growth rate rate USD Exchange • within ± 5% per year rate fluctuation • between 18-20% of Public revenue GDP • below 65% of GDP Public debt 18
Some Targets for the Public Finance Development Strategy 2025 Prudent PFM by strictly adhering to the State Budget Law Develop a comprehensive modern legal framework Implement the State Budget Plan as approved by the National Assembly Ensure public servants are equipped with sound political ideology and sufficient technical capacity Apply modern systems in line with international standards Limit revenue leakages and expenditure loopholes to ensure sound planning and fiscal disciplines Manage public debt prudentially 19
Strategies 1-3 Strategy Goal • Dynamic, stable, balanced economic growth 1. Macro- • Strong PFM foundation to control budget deficit and reduce public economic debt stability • Development of stable government reserve funds • Maximize revenue collection • Setting fair tax and customs policies 2. Revenue • Efficient revenue collection policy and • Effective ODA management collection • Use of proceeds from natural resources for sustainable development 3 . • Enhanced efficiency of budget expenditure management and Expenditure transparency policy and • modern and systematic expenditure management rational • Delegation of responsibilities to the local level spending 20
Strategies 4-7 Strategy Goal • 4. Public debt Centralized management of external and domestic borrowings • Effective debt management and minimization of costs management • Effective delegation of responsibilities to the local level 5. Personnel • Capacity building of civil sector strengthening • Development of training and educational institutions 6. Strong • Alignment of public/private accounting systems, audit and reporting to accounting, international standards audit and • Enhance financial control and anti-corruption measures financial • Impose measures for violators of fiscal disciplines control 7. • Alignment to regional and global practices Modernization • Development and application of technology for revenue collection and of public expenditure management finance entities 21
Strategies 8-10 Strategy Goal • Improvement of the fiscal regime according to the Party and Government guidance 8. Legal Framework • Revision of public financial framework • Improve Investment Promotion Laws • Implementation of international agreements 9. International • Increase regional and global economic financial Integration and Cooperation cooperation • Manage government investments for sustainable 10. Management and economic revenues Development of State- • Strengthening of SOEs Joint Ventures Owned Enterprises • Development of financial services 22
Implementation/Monitoring/Reporting/Coordination Ministry of Finance • Translation of PFM Strategy into Annual Work Plans Public Finance Entities • Integration into Master Plans Programs Projects Activities Targets • Allocation of Budget Human Resources 2018 – 2020 2021 - onwards Funding External Internal Internal External Human Resources Capacity Building Plan Coordination with development partners > Optimization of resources Reporting Final Monitoring Implementation • Results Adjustment • Evaluation Areas for improvement • Recommendations 23
Implementation Plan for the Public Finance Management Reform Stage 1 Phase II (2018-2020) 6 prioritised programmes
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