Lao PDR 2023

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Two of the last three years considered in the assessment have outturns of 93% of budget

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Variance in expenditure composition by administrative classification was less than 15 percent in two of the last three years.

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Variance in expenditure composition by economic classification was less than 15% in at least two of the three years. The variance by economic head ranged from 5.6% to 12.2%.

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Actual expenditure charged to the contingency vote was less than 3% in each year.

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Actual revenue was between 94% and 112% of budgeted revenue in at least two of the last three years

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Variance in revenue composition was greater than 15 percent in 2021 and 2022.

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The budget classification is comprised of administrative and economic classifications and is comparable to GFS standard at 2- digits level. The classification is applied in a consistent way for budget formulation, execution and reporting.

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2 basic and 1 additional element are presented in budget documentation

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There is insufficient information to score the dimension.

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There is insufficient information to score the dimension.

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EBUs submit reports to the government usually less than six months at the end of the fiscal year but less than the majority of EBUs’ reports are detailed.

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There are no subnational entities independent of central governm

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There are no subnational entities independent of central governm

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Information is published annually on policy or program objectives, key performance indicators, and outputs and outcomes to be produced for most ministries. Most of the service delivery ministries (MOES, MOH, MPWT and MAF) have 5-year strategic plans which contain objectives, targets, activities, programs, projects and KPIs, covering outputs and outcomes. KPIs and annual reports of most ministries are published on various websites and made available in print.

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Information is published annually on the activities performed for the four main service delivery sectors (health, education, agriculture and forestry, and public works and transport). Annual progress reports with KPIs are published on the ministries’ websites and disseminated in print.

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Using IT systems and Excel sheets, MOH and MOES are able to track spending down to the individual units that deliver services at the central, provincial and district level, but there is no comprehensive report on this

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Evaluations do not consistently cover effectiveness and efficiency. Performance audits are not being carried out currently. The World Bank’s Public Expenditure and Institutional Review of Education focused on budgeting and strategic planning rather than service delivery and KPIs.

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2 basic elements are published but not within the defined timeframe.

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Monitoring of public corporations is weak. The government did not receive financial reports from most public corporations in a timely manner. The MOF received financial reports from a few public corporations at the central level only. There is no overall consolidated report.

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There are no subnational entities.

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Beyond the one-page summary in the Debt Bulletin, there is no quantification of contingent liabilities and other fiscal risks in government financial reports, as no data on this is being systematically collected either by the MOF or MPI.

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Economic analysis is provided for by the Law, but it is not mandatory for all projects. Guidelines on conducting economic analysis exist, but it is not conducted in practice. Of the 10 major projects in 2022 only 1 has had an economic analysis which was not published.

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There are no standard criteria for project selection and the prioritization of projects is not done by a central entity. MPI has only an advisory role and checks if projects have the necessary documents, but it does not decide on which projects are included in the budget or not.

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While a project proposal specifies the capital costs of the project, these are included in the budget only for one year. Recurrent costs related to a project should be included by a spending ministry if the project is completed and operational within the budget year, but this is not consistently done. As the budget is yet to be transformed into a medium- term budget, future running costs are not planned for.

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There is a template for reporting which includes both cost and physical progress. Monitoring reports are produced quarterly and annually and monthly reports are produced for large projects. These project monitoring reports are not published but a sample was reviewed.

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The main financial assets held by government are cash, equity in state owned enterprises and debt related financial assets from on-lending. The government maintains a record of its holdings in major categories of financial assets, but registers are fragmented, some records are manual and there is no systematic tracking and valuation system.

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Management of non-financial assets is fragmented as different ministries maintain registries and databases which are not linked to each other. There is no public information on non-financial assets.

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Procedures and rules for the transfer or disposal of non-financial assets don’t exist beyond general provisions of the Law on State Assets, a PM Decision and related manual on disposal of vehicles. Only information on revenues from sales of assets is included in budget documents. There is no consolidated information or report on asset disposal.

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Updates of debt payments (in and out) are recorded when they are made. All reconciliation and reporting is done on an annual basis, even though it could be done more frequently through DMFAS.

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The primary legislation (Public Debt Management Law 2018) grants authorization to borrow, issue new debt, and issue loan guarantees on behalf of the central government to a single responsible debt management entity (the MOF). Annual borrowing plans for domestic and external debt are approved both by the government and legislature, including the limit of non-concessional external debt.

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A debt management strategy is being developed and is planned to be completed in 2025.

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The government prepares macroeconomic forecasts for key indicators, such as GDP growth, inflation, interest rate, exchange rate for the budget and two following years. Forecasts are updated annually. Macroeconomic forecasts are not disclosed and are for internal use.

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The MOF’s “High-level State Budget Plan 2021-2025” document referred to in 14.1 contains forecasts for revenues and expenditures for five years and it is updated annually internally

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The macro-fiscal forecasts prepared by the government include a qualitative assessment of the impact of alternative macroeconomic assumptions.

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The Government prepares limited estimates of the fiscal impact of some proposed changes in revenue and expenditure policy. The MOF estimates the impact of some policy proposals on revenues but not on expenditure and does not prepare a consolidated document on the fiscal impact of policy proposals.

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The government prepares and submits to the NA annually its budget execution report along with the budget plan for the next year, which contains numerical targets for revenues, expenditures and deficit.

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As part of the annual budget documentation, the government submits to the NA a report on the implementation of the budget for the previous year which provides an explanation of the reasons for any deviation from the objectives and targets set.

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Annual state budget includes expenditure estimates for the budget year only

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Aggregate and ministerial level ceilings for the budget year and two following years are prepared and approved by MOF but only after the issuance of the first budget circular.

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The link between strategic plans and the budget process is weak. While most ministries prepare five- year plans aligned with the NSEDP timeframe, most of these are not costed. These strategies could influence the annual budget but there is a disconnect, as the annual budget does not include medium-term expenditure estimates. Budget year expenditure estimates are constrained by ceilings, which are constrained by availability of revenues and do not take into account medium-term strategic plans.

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As a detailed MTBP is yet to be developed and there are no medium-term estimates. There is some explanation about the differences between approved estimates and actual outturns for the previous year or likely outturn for the current year but only at an aggregate level.

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An annual budget calendar exists, and it is defined by SBL 2021 and the PM Decree No.254. However, not all budgetary units comply with it and meet the deadlines for completing

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A budget circular is issued to budget units. Ceilings are approved after circulars are issued and only for recurrent budget. Most budget units submit their requests in excess of ceilings.

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The government submitted the annual budget proposal to the NA two months before the start of the fiscal year in the last two years.

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NA does not review details of budget revenues and expenditure.

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Procedures for legislative scrutiny are adopted in advance. They include organizational arrangements, committee hearings, negotiation arrangements and are adhered to. Committees have technical support. There is no arrangement for public consultations.

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Annual budget was approved before start of new fiscal year in all cases.

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Rules provide the executive with power for extensive reallocation. The rules are said to be adhered to in most instances, however, there is no evidence to support this.

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The laws and regulations are available in the Official Gazette and on the MOF website. Entities collecting most revenues (TD and Customs) provide payers with access to information on the main revenue obligation areas and on rights including redress processes and procedures. However, the information is not always comprehensive, up to date and timely, and it is not customized to the needs of key payer segments. Appeal procedures exist but are not used in practice

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Risk management is at an introductory stage at both TD and CD. The TD has not yet adopted a comprehensive risk management framework. A risk-based analysis unit has been established, and a risk-based audit approach has been piloted but it has not been mainstreamed. The risk management function in TAXRIS is not used. CD uses some risk management in managing high risk commodities and economic operators. CD recently reviewed and uploaded risk profiles in ASYCUDA reducing red channel selections from over 80 percent to less than 60 percent. However, to increase revenues, CD conducts physical inspections of over 85 percent of imported cargos.

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Only 24 per cent of planned audits were carried out by TD. The CD conducted post-clearance audits on about 5 percent of the total imports, although it had planned to conduct more, but it could not due to capacity constraints.

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CD reported no revenue arrears associated with Customs clearance. There are systemic issues with tax revenue arrears. TD doesn’t have a systematic approach to managing and preventing revenue arrears, which undermines revenue collection efforts. While TD confirmed that it has information on arrears and that the amounts are significant, this information was not provided to the assessors.

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A central agency (NT) obtains revenue data at least monthly from entities collecting all central government revenue. All revenues (98%) are paid directly into NT’s managed bank accounts in commercial banks and then transferred to NT’s central accounts (TSA) at BOL daily. This information is broken down by revenue type and is consolidated into a report.

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Revenue payments are made directly to NT accounts in commercial banks and then transferred to the TSA account at BOL daily. If there is cash payment in a remote area, the payment goes to the NT account directly next day.

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The TD reconciles payments against assessment after the 20th of the month a payment is due. CD reconciles payment against timing of imports and against the deposit lodged. However, the reconciliation process is incomplete due to the lack of reconciliation of tax arrears.

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NT receives and recognizes all balances in each bank daily through emails from the banks and consolidates them into NT’s Excel consolidation reports. However, this does not include expenditure reports from districts without the GFIS. This incomplete coverage of accounting and transaction data from districts impacts the full consolidation of cash balances in real-time and undermines the accuracy of cash position reports. Full consolidation of cash balances, and reporting is completed weekly.

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Budgetary unit commitments and cash flows are not effectively monitored by the MoF and there is no cash flow forecast for the fiscal year. There are only monthly and weekly cash plans. The NT bases its forecasts on quarterly expenditure plans prepared by budgetary units and approved by SBD, based on the approved annual budget, without consideration of available cash.

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Budgetary units can plan expenditures monthly only, even though there is a plan of spending capacity by quarter. The MoF maintains that payments will be made based on the approved budget while in reality, it does not confirm the ceilings of funds available for payment ahead of a month or a quarter. Capital ceilings are confirmed by MPI with significant delays. The priority payment scheme, delays that may result in processing payments due to cash unavailability and processing partial payments against bills due indicate an absence of credible information on future cash releases of commitment ceilings.

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Significant in-year adjustments to budget allocations take place no more than twice in a year and are done in a fairly transparent way. Article 59 of SBL 2021 stipulates that amendments of the State Budget Plan may take place only once in a fiscal year as a result of revenue under or overcollection, any modification to policies, or unexpected circumstances that affect annual budget revenues and expenditures. In 2022, there was one such adjustment for provinces that exceeded their revenue plans for 2021, and it was approved by the NA.

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The stock of expenditure arrears is no more than 6% of total expenditure in two of the last three completed fiscal years (2021 and 2022).

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There is some monitoring of expenditure arrears, particularly on the stock of arrears, but not on their composition. Monitoring is not systematic, and the numbers might be underreported, as potentially large amounts of arrears may remain unaccounted for and unverified. Data on arrears is manually compiled based on fragmented data which impacts accuracy and hinders effective monitoring.

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Payroll and personnel records are established by MOHA, MOF and line ministries and are reconciled quarterly. There is no direct link between personnel systems and GFIS. Staff levels are approved at the beginning of the budget year. New staff can only be hired at the beginning of Quarters 1 and 3. Appointments and promotions are controlled against approved staff quotas by MoHA and budget allocations by MoF. MoHA, NT and ministries validate the information on personnel and payroll in PIMS as well as the budget, quarterly, before salaries are paid by the NT.

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Payroll and personnel data are updated quarterly and require few retroactive adjustments. While the exact amount of retroactive adjustments cannot be estimated, it is confirmed to be insignificant and amounting to less than 25% of salary payments, due to the strict process of managing payroll changes.

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Payroll controls are not comprehensive and there are manual processes prone to mistakes. Access to PIMS is secure but system weaknesses compromise internal controls. A significant portion of the payroll (for police and armed forces) is managed separately under different arrangements and controls.

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Staff surveys were completed by MOHA in all three completed fiscal years considered, to verify civil servants’ information as well as to identify any ghost workers.

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Procurement monitoring is weak. While databases and records are maintained for contracts including data on what has been procured, value of procurement, and who has been awarded contracts, data is not accurate and complete for the majority of procurement methods for goods, services and works.

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While PPMD and line ministries collect some information on procurement methods and value of contracts, due to the fragmentation of information and the weak monitoring function, the total value of contracts awarded through competitive methods in the last completed fiscal year is unknown and could not be inferred reliably based on the existing data. Therefore, this dimension cannot be scored.

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More information on public procurement has been made public since the launch of the PPMD website, intended as a central depository. However, the website was launched only in late 2022 and it is underutilized. Only one of the key procurement information elements is complete and reliable and made available to the public, three elements are partially complete, one is not applicable, and one is not fulfilled.

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The PPL and the Instruction on implementation provide the legal basis for the complaint handling, and an ad hoc committee has been set up for complaint resolution. However, the procurement complaint system does not meet criterion (1), although it meets three other criteria.

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While segregation of duties is prescribed (such as high- level segregation of duties between primary ordonator and ordonators, segregation of responsibilities in the payment approval process) more precise definitions and stricter control of compliance is required, especially in the area of public procurement. There is no clear internal control framework, legislation or manuals. There is limited evidence of compliance with rules related to segregation of duties.

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There is a legal basis for commitment management in the Accounting Law, but a system of commitment controls has not been established yet. GFIS and GFIS+/LIFMIS do not have a commitment control module.

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There is insufficient information to score this dimension

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There is no internal audit function in Laos

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Given the absence of internal audit this is not applicable

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Given the absence of internal audit this is not applicable

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Given the absence of internal audit this is not applicable

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Bank account reconciliation has improved with the advancing of the TSA and the use of IT systems. However, challenges remain due to the limitations of the coverage and functionality of the GFIS and manual processes. Most revenues are reconciled daily and some monthly, the majority of expenditures are reconciled daily, some weekly and monthly, but accounts of donor-funded projects are reconciled only annually.

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There are no expenditure suspense accounts. In 2023, reconciliation of revenue suspense accounts occurred through RTIS daily, in most cases, and weekly, and monthly, depending on when information became available. Suspense accounts were cleared at the end of each fiscal year.

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Advance accounts are not reconciled systematically and within the specified deadlines. MOF recognizes that advance accounts have accumulated balances over many years and require urgent reconciliation and settlement.

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Access to the financial software is controlled by authorized user IDs and passwords, with different levels of clearance depending on role and duty with some system audits. However, the existence of multiple databases and data sources for financial data (GFIS, RTIS, Excel) and the manual data entry of district data undermine financial data integrity. Full system audit trail is not operational.

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In-year reports are produced monthly by SBD for MOF management. The format of in-year budget reports is directly comparable to the budget proposal presented to the NA before the start of the fiscal year, at an aggregate level by economic classification. However, in-year budget reports do not contain a breakdown by administrative headings, and they are thus not comparable to the detailed budget plan which is published in the Official Gazette.

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MOF Internal in-year budget execution reports are produced monthly on average three weeks after the end of the month. The delay in producing reports stems from manual compilation of data.

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Budget execution reports contain information on expenditure and revenues but not on commitments. There are concerns about data accuracy due to manual compilation of data and limited coverage of existing systems at subnational level. Recent digitalization efforts are likely to have impacted accuracy positively, but the systems are still not fully rolled out yet, especially for expenditure. The reports do not comment on data issues. The level of detail is not sufficient for a useful analysis of budget execution required for a higher score.

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Annual financial reports include revenue, expenditure and cash balances with limited and incomplete information on assets and liabilities. They are comparable with the domestic presentation of the approved budget.

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The annual financial report for 2022 was submitted for external audit to the SAO within 6 months of the end of the fiscal year, on June 27, 2023.

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Accounting standards applied to all financial reports are not consistent with the country’s legal framework, which stipulates IPSAS cash-basis. Further the standards used in preparing annual financial reports are not disclosed.

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Between 2020-2022, using national auditing standards, SAO audits covered less than 50 percent of total expenditures and revenues

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SAO reports for the past three completed fiscal years were submitted to the legislature within six months from receipt of the financial reports.

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Reporting on audit recommendations is provided by the law, but it is partially done and evidence on formal responses in the past three completed fiscal years was not provided to the assessors.

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The SAO does not operate independently from the executive with respect to the procedures for appointment as well as planning and execution of the SAO budget. The SAO has unrestricted access to requested records, documentation and information, to the majority of the requested records, documentation and information.

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Scrutiny of annual SAO reports on State Budget implementation by the NA occurred within one month of the formal submission of the final SAO reports to the NA between 2020 and 2022.

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While the NA scrutinizes the SAO audit report during its second session, it does not organize in-depth hearings on audit findings with representatives of the SAO and auditees.

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The National Assembly issues recommendations on actions to be implemented by the executive in the annual NA Resolution on the state audit report and follows up on their implementation, although it does not have an automated system to record and monitor the status of recommendations.

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The annual SAO reporting on the State Budget implementation is conducted in public through live TV broadcasts, and on social media. Committee reports are debated in the full chamber of the National Assembly but are neither published on the NA website nor available to the public.