April 25, 2019

“Fiscal Governance for Sustainable

Growth and Development in Asia

Pacific region”

1

Mr. sakounseng Sengkhamyong

Technical Official

Fiscal Policy and Law Department, Ministry of Finance

1. Overview of Lao PDR

2. The role of Fiscal governance in improving

the effectiveness of fiscal policy

3. Conclusion

Presentation Outline

2

Capital city: Vientiane Capital

Total area: 236,800 sq Km

Population: 6.8 million (2016)

Currency: Kip

3

Lao Economic Development

4

GDP Growth and GDP per capita

Source: Ministry of Planning and Investment

(%)(USD)

1,569

1,806

1,949 2,226

2,408

8.02 8.03

7.61

7.27

7.02

6.4

6.6

6.8

7

7.2

7.4

7.6

7.8

8

8.2

-

500

1,000

1,500

2,000

2,500

3,000

2012 2013 2014 2015 2016

GDP Growth Rate GDP per Capita

Growth

5

Lao Economic Development

11.0% 10.6% 9.7% 9.5% 9.6%11.0%

12.3% 13.0%13.1%

13.9%14.7% 15.5% 15.8% 16.0% 15.7% 14.9%

2.4% 2.5%2.1% 2.0% 2.0%

1.9%1.6%

1.9% 1.7%1.9%

1.7%2.2% 2.5% 2.9% 2.7%

2.6%

13.4% 13.1%11.8%

11.5% 11.6%

12.9%13.9%

14.9% 14.9%15.8%

16.4%17.7%

18.3%18.9% 18.4%

17.5%

3.2%

1.4%2.3%

1.1%1.7%

3.2% 2.8% 2.9%2.4%

6.6% 6.0% 6.5% 6.1%5.7% 5.3%

1.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

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

Government Revenue

Tax revenue Nontax revenues Domestic revenue Grants

(% of GDP)

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

Lao Economic Development

16.6%

14.5% 14.1%12.6%

13.3%

16.0%16.8%

17.8% 17.3%

22.4% 22.4%

24.2% 24.4% 24.6%23.7%

19.3%

22.2%

19.1%

21.1%

15.7%

18.2%

19.9% 19.9%20.9% 20.7%

24.7% 24.4%25.6%

30.8%29.1% 28.9%

25.5%

-5.5%-4.6%

-6.9%

-3.1%

-4.9%-3.8%

-3.1% -3.1%

-3.4%

-2.3%

-2.0%

-1.5%

-6.3%

-4.5%-5.2%

-6.2%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Government Overall Balance

Revenue Expenditure Overall Balance

(% of GDP)

16.5% 16.1% 16.6% 17.3% 17.3%

21.5% 21.7% 22.0% 21.2% 20.1%

-5.0% -5.6% -5.4%-4.0%

-2.8%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2015/16 2017 2018 (PLAN) 2019 (PLAN) 2020 (PLAN)

GOVERNMENT OVERALL BALANCE

(PLAN VIII)

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

Hundreds of bank accounts on all

levels of government

Closing of bank accounts &

consolidation to a single, zero

balance account

No centralized treasury functionCentralized Treasury with cash

management division

Basic GFIS functions, manual

processes, no connection to local

levels

Upgrade of GFIS system and roll-

out to provincial treasuries

→ Supported by a sound legal framework (Budget Law,

Accounting Law, Tax/VAT Law, SAO, etc.)

Implementation Challenges

• Limited technical knowledge and skills

• Staff rotations slowed down reform process

11

• Multiple reform efforts at the same time

• Ambitious scope of reforms

• Reforms stalled with change in MoF

management and commitment

Public Finance Development Strategy to 2025 and Vision to 2030

12

Challenges for Lao PDR

• Fluctuation of commodity prices

• Country capacity (HR, legal framework and

finance systems) is low

• Need to enhance business environment and

regional trade

• Natural disasters

Lao PDR and the International Context

External opportunities

• Uprising Asian economies

• Access to international markets

through ASEAN

• Rapid development of science and

technology

• 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

• Abundant natural resources (water

forestry, mineral resources)

Challenges for Lao PDR

• Lao PDR remains in the group of LDC countries

• 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 high14

PFM challenges over the past 15 years

• Budget Preparation not based on credible data

• Planning and execution did not strictly follow the Law

• Fiscal reporting was delayed and incomplete

• off-budget spending

Revenue and expenditure management

• Shortage of qualified personnel

• Coordination between entities only sporadic

• No systematic and regular monitoring mechanisms

• Debt management not centralized

Institutional and personnel

management

15

Public Finance Management Vision 2030

Provinces covering their

own expenditure

sound

By 2030, PFM is/has …

self-reliant

self-strengthening

A legal framework in line

with international

standards

aligned with the regional and

global integration

a single State

budget plan Bond, capital and money

market are strong and

stable sources for funding

Public finance entities as

the engine of economic

development

16

Public Finance Development Strategy 2025 in

the country’s broader development path

Public Finance Development

Strategy

National Socio-Economic Development

Plan

Guidelines on delegating

responsibilities to local levels (Sam Sang)

Increase global and regional integration

Party Guidelines

17

Macro Targets

• at least 7,2% (per year)Annual GDP

growth

• doubled since 2016 rates

GDP/capita

• below economic growth rate

Inflation rate

• within ± 5% per yearUSD Exchange rate fluctuation

• between 18-20% of

GDP

Public revenue

• below 65% of GDPPublic debt

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Some Targets for the Public Finance Development Strategy 2025

Prudent PFM by strictly adhering to the State Budget Law

Implement the State Budget Plan as approved by the National Assembly

Ensure public servants are equipped with sound political ideology and sufficient technical capacity

Develop a comprehensive modern legal framework

Limit revenue leakages and expenditure loopholes to ensure sound planning and fiscal disciplines

Apply modern systems in line with international standards

Manage public debt prudentially19

Strategies 1-3

Strategy Goal

1. Macro-

economic

stability

• Dynamic, stable, balanced economic growth

• Strong PFM foundation to control budget deficit and reduce public

debt

• Development of stable government reserve funds

2. Revenue

policy and

collection

• Maximize revenue collection

• Setting fair tax and customs policies

• Efficient revenue collection

• Effective ODA management

• Use of proceeds from natural resources for sustainable development

3.

Expenditure

policy and

rational

spending

• Enhanced efficiency of budget expenditure management and

transparency

• modern and systematic expenditure management

• Delegation of responsibilities to the local level

20

Strategies 4-7

Strategy Goal

4. Public debt

management

• Centralized management of external and domestic borrowings

• Effective debt management and minimization of costs

5. Personnel

strengthening

• Effective delegation of responsibilities to the local level

• Capacity building of civil sector

• Development of training and educational institutions

6. Strong

accounting,

audit and

financial

control

• Alignment of public/private accounting systems, audit and reporting to

international standards

• Enhance financial control and anti-corruption measures

• Impose measures for violators of fiscal disciplines

7.

Modernization

of public

finance entities

• Alignment to regional and global practices

• Development and application of technology for revenue collection and

expenditure management

21

Strategies 8-10

Strategy Goal

8. Legal Framework

• Improvement of the fiscal regime according to the Party

and Government guidance

• Revision of public financial framework

• Improve Investment Promotion Laws

9. International

Integration and

Cooperation

• Implementation of international agreements

• Increase regional and global economic financial

cooperation

10. Management and

Development of State-

Owned Enterprises

• Manage government investments for sustainable

economic revenues

• Strengthening of SOEs Joint Ventures

• Development of financial services 22

Ministry of Finance

• Translation of PFM Strategy into Annual Work Plans

Public Finance Entities

• Integration into

• Allocation of

Master Plans Programs Projects Activities Targets

Human Resources Budget

Funding 2018 – 2020 2021 - onwards

External Internal External Internal

Human Resources Capacity Building Plan

Coordination with development partners > Optimization of resources

• Results

• Areas for

improvement

• Recommendations

Reporting

AdjustmentMonitoring

ImplementationFinal

Evaluation

Implementation/Monitoring/Reporting/Coordination

23

Implementation Plan for the Public

Finance Management Reform

Stage 1 Phase II (2018-2020)

6 prioritised programmes

Technical team has suggested 2 implementing phases:

• The main objective is to develop a complete set of public finance management infrastructure such as policies, legislation, organizational structure, personnel and management tools

Phase I(2018-2020)

• The objective is to develop fiscal stability and step up to international standards

Phase II(2021-2025)

25

Implementation Plan includes

6 Programmes:

1. Fiscal Policy Improvement

2. Legal Framework Development and

Improvement for Public Finance Sector

3. Revenue Management Reform

4. Expenditure Management Reform

5. Modernization of Public Finance Sector

6. Organizational Structure and Human Resource

Development

26

Programme 1: Fiscal Policy Improvement

➢ Research and improve financial policies in all aspects based on Vision to 2030 and Public Finance Development Strategy to 2025 by focusing on improving the State budget structure for the right balance in 2020 (fiscal deficit of not more than 3% of GDP)

➢ Revise revenue policies:• Revise Tax rate

• Improve Tax structure

➢ Revise Expenditure policies:

▪ Develop Medium-Term Fiscal Framework (improve State fiscal statistic as a comprehensive system)

▪ Develop Medium-Term Expenditure Framework

▪ Develop annual budget plan (ceiling)

▪ Develop Public Debt Management Strategy

27

Programme 2: Legal Framework Development and Improvement for Public Finance Sector

➢ Review Tax policies:

Most of the work completed in 2017: value-added tax, consumption tax, which are being improved and developed into Tax Law and Consumption Law;

Plan for 2018 is to review Land Tax and Assets Tax policies to move to the development of Assets Tax Law in 2019.

➢ Will complete 100% the development of secondary legislation

In the Public Finance sector Laws, 65% of secondary legislation was developed and the remaining of 35% will be developed in FY 2018-2019;

➢ In some Laws, although secondary legislation could not be made, implementation instructions have been identified in different Categories and Articles.

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Programme 3: Revenue Management

Reform

29

➢ Implement Tax Development Plan:• 4 development plans, 11 priorities

➢ Improve legislation

➢ Improve revenue management collection

➢ Tax modernization

➢ Improve human capacity and Institution

11 prioritiesed for 2018-2020

1. Review existing legislation and develop new ones 2. Follow Laws, rules 3. Identify Large Tax Payers 4. Expand the implementation of VAT 5. Improve services for Tax payers 6. Improve the usage of technology 7. Improve the current information to be an information centre

based in Tax Department 8. Promote international cooperation 9. Improve internal inspection, transparency and honesty 10.Increase Tax staff capacity and skills 11.Carry out duties based on technicality and organizational

functions of the Tax Department

➢ Implement Tax Development Plan:

– Implement the Compliance Program to prepare for the future

implementation of the Authorized Economic Operator (AEO) project

– Develop National Single Window (NSW) for Costumes clearance

➢ State Owned Enterprises Reform:

– Develop SOEs Development Strategy Plan;

– Develop monitoring, report and evaluation plan for SOEs implementation;

➢ Implement State Assets Development Strategy and

Management Plan

Programme 4:Expenditure Management Reform

➢Budget Reform:– Develop budget based on State Budget Law revised in 2015, develop medium-

term fiscal framwork, change budget preparation from COA to baseline budgeting, prepare budget plan in the suggested timeframe and policies;

– Enhance budget allocation by creating mechanisms to consult with local level for each prioritized task;

– Implement Procurement Law and apply it in the public investment projects, administrative expenses;

– Develop rules and set up regularly inspection exercise;

– Coordinate with Ministry of Planning and Investment to build payment system with full information and follow up the implementation of State investment projects;

– Reseach on technical revenue management for centralized revenue collection and implement state budget based on the National Assembly approval.

➢ Treasury Reform:

– Continuing improving National Treasury Single Account;

– Improve and develop payment systems through the use of

modern tools and link to Budget, spending units at each level,

and banks;

– Implement Automated Clearing House (ACH)

– Continuing improving cash management and budget balance

– Improve on-time payroll system at Central level

– Improve information system and report on budget

implementation on timely manner.

➢ Debt management:

– Centralized domestic and external debt management

– Develop Debt Management Strategy and Medium Term

Loan Framework

– Develop manual for Loan Approval, Insurance, and

Impact analysis for Companies and the Nation.

Programme 5: Modernization of Public Finance Sector

➢ Complete the development of modern IT system to manage

public finance in 2021;

➢ Develop IT Strategy for Public Finance sector;

➢ Continue developing GFIS until the completion of FMIS

development;

➢ Continue developing ASYCUDA and DMFAS;

➢ Manage the development of TAXRIST and be able to use in

2019.

35

Programme 5: Modernization of Public Finance Sector (Cont.)

➢ Develop FMIS based on WYG recommendations and complete in FY

2018-2021;

➢ Continue improving Road Tax, SMART VAT, SMART TAX to be

more modern and comfortable;

➢ Research Tax collection system and fees for Land and tax payments

through the banking system;

➢ Apply E-OFFICE;

➢ Research on E-STAFF and E-ASSET

Programme 6: Organizational Structure and

Human Resource Development

37

Vision: Staff with knowledge and skills and are

appreciated by society

Mission: Effective and efficient fiscal and budget

management to enhance livelihood of

citizens

Moral: Honest, fair, modern and professional.

Ready to provide services

1. Organizational Structure

➢Continue improving the Organizational Structure in the Finance sector

to be in line with new development;

➢ Points to be addressed: legislation framework to 2020 will develop

15-16 Laws, Law impact assessment and conflict resolution on Laws

are not available;

➢ Procurement process based on Laws;

➢ Centralized domestic revenue collection;

➢ Sam Sang from District level particularly the Taxation sector;

➢ Security

Complete Job Description by dividing into civil servants and contractual

category. If this task is completed, it would contribute to staff stability

and reduce number of people in the ‘To be recruited list’.

Criteria set up will help to select the right candidates with the right

specialization and competent.

Develop modern legislation to manage staff.

2. Prepare Job Description and Criteria of each Position

➢ Conduct Capacity Assessment to support the training needs

preparation, may start in the main sectors;

➢ In Taxation sector, the lack of competent staff to manage in some

areas is the issue, such as in multi-businesses across countries,

electricity, mining, etc.;

➢ Develop specific and systematic training courses;

➢ Develop general training courses.

3. Human Development

Training systems for Finance staff at Central level

Training systems for Finance staff at local level

❑ Implementation, Monitoring and Evaluation Plan

for Public Finance Management Reform

➢ The Government appoints the Public Finance Management

Reform Steering Committee, led by the Minister of Finance

and consists of line Ministries and the relevant sectors;

➢ The Ministry of Finance appoints the Public Finance

Management Reform Implementing Committee led by Vice

Minister of Finance and consists of relevant Departments;

➢ Appoints Technical Team (Fiscal Policy and Law

Department) as Secretariat, develop Monitoring and

Evaluation Framework for each reform period;

❑ Implementation, Monitoring and Evaluation Plan for Public Finance Management Reform

❖ Ministry of Finance Management endorses

Implementation Plan for Vision to 2030 and Public Finance

Development Strategy to 2025 in Feb 2018;

❖ Organize Launching to start the Implementation Plan for

Vision to 2030 and Public Finance Development Strategy

to 2025 in June 2018;

❖ Disseminate the Implementation Plan for Vision to 2030

and Public Finance Development Strategy to 2025 at

Central and local levels.

Thank you !

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