Executive Summary

The objective of the assessment is to take stock of the performance of the Lao PDR’s PFM system, assess progress since the 2018 PEFA assessment, and inform the development of the Lao government’s new Public Finance Development Plan for 2026-2030.

Improvements to the PFM systems in Laos were slow during the last decade. Steps forward in some important areas have been partly offset by backward steps elsewhere. COVID-19 contributed to deterioration of performance in the areas of budget credibility and policy-based budgeting, as well as overall slowing down of reform implementation. A significant improvement has been the recent introduction of the Treasury Single Account (TSA).

Main strengths and weaknesses of PFM systems in Laos

Budget credibility at the macro level is adequate with aggregate expenditure and revenue outturns close to the budgeted amounts. Actual expenditures charged to the contingency reserve in the assessed years was less than 3% in each year.

Debt management has improved since PEFA 2018 thanks to stronger centralized debt oversight under MOF. Following the enforcement of the 2018 Public Debt Management Law, MOF has the sole authority to sign the loan agreements and to contract borrowing and issuing guarantees on behalf of the government, including on-lending and guarantees. Only the central government can undertake borrowing, although accumulation of arrears by provinces has contributed to issuance of bonds for their clearance. Annual borrowing plans for domestic and external debt are approved both by the government and legislature, including the limit of non-concessional external debt.

Establishment of the TSA at the Bank of the Lao PDR (BOL) has improved the quality of reporting and consolidated cash balances. MOF adopted a TSA in 2024, centralizing revenue at the headquarters of commercial banks and transferring balances to the BOL central account daily. In parallel, MOF sped up development of the IT systems required to enable the TSA, improving the availability and timeliness of information on revenue collection. Since July 2024, all revenues are paid directly into NT-managed accounts in commercial banks and then transferred to the TSA at the BOL daily. Information of these revenues is available in real time in the Lao Integrated Financial Management Information System (LIFMIS). The timeliness of revenue transfers has also improved.

The availability of performance information on service delivery is considered a relative strength. Most of the service delivery ministries (MOES, MOH, MPWT and MAF) have five-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. Information is published annually on the activities performed for the four main service delivery sectors.

Transparency of public finances remains limited. Budget documentation submitted to the National Assembly is limited. Revenues and expenditures of extrabudgetary funds, SOEs, PPPs and public investment projects are not public. The public is provided with access to only two basic elements of fiscal information but not within the defined timeframe. Public information on government procurement is not comprehensive. There is no consolidated and publicly available information or report on asset disposal. External audit reports are also not public.

Monitoring and reporting of fiscal risks is weak. Monitoring of SOEs is weak and fragmented. While SOEs are required to submit financial reports to MOF, many do not comply. Few SOE financial reports are audited and there is no consolidated reporting on SOEs. Additionally, there is no systematic monitoring of the financial performance of provincial governments by MOF. Data on contingent liabilities is not collected or monitored systematically by either MOF or MPI. The monitoring of public-private partnerships (PPPs) does not cover details of commitments, contingent liabilities, and potential foregone revenues.

A fragmented and public investment management (PIM) system not aligned with the budgeting process has contributed to the accumulation of arrears and debt. Economic analysis is provided by the Public Investment Law 2015, but it is not mandatory for all projects, and it is not systematically conducted. Investment project prioritization and selection is decentralized to line ministries and local authorities, but there are no standard criteria and central methodological guidance. The central entity - MPI - has a predominantly advisory and verification role. As a result, there is a significant backlog of arrears from past/ongoing projects, which limits fiscal space for new investment financing. Investment projects are not costed for the lifetime of investments and absence of medium-term budgeting does not support multi-year estimates of both capital and recurrent costs.

The budgeting system in Laos is based on the annual budget only. A medium-term budgeting process is expected to be rolled out in 2025-2026. Medium-term expenditure ceilings are prepared for the budget year and two following years, but only after the first budget circular is issued. Multi-year estimates are not part of the budget documentation. The link between strategic plans and the budget process is weak. While most ministries prepare five- year plans aligned with the National Socio-Economic Development Plan (NSEDP) timeframe, most of these are not costed.

Procurement monitoring and oversight is weak. Public procurement information is fragmented and while some records are maintained, data is not accurate and complete for the majority of procurement methods. MOF does not monitor procurements undertaken at provincial level and thus has no information on the value of procurement undertaken by provinces. Data on procurement methods is lacking and the total value of contracts awarded through competitive methods is unknown. Public access to procurement information remains limited. Procurement complaints are not independently reviewed.

Impact of PFM performance on budgetary and fiscal outcomes

Aggregate fiscal discipline in Laos remains limited despite recent improvement in debt management, cash management and budgeting process. The budget is realistic at the aggregate level, with actual expenditures close to the budgeted amounts. However, oversight of extrabudgetary units is weak, fiscal risk reporting is fragmented and incomplete, and expenditure outturn by government agency is volatile.

The strategic allocation of resources is undermined by the weak link between strategic plans and the budget process. Comprehensive and costed strategies exist for most sectors, but they are not aligned with the budgeting process. Medium-term budgeting is not in place yet and the current fiscal strategy has limitations, leading to an annual input focused budget process.

Public service delivery is not supported by the PFM system. Service delivery information is not consistently monitored, and limited fiscal transparency undermines the public's ability to engage with the government and understand how public resources are being used. Procurement weaknesses do not support improvement in value for money in service delivery.

Performance changes since the previous PEFA assessment

The overall performance remained stable with limited improvements since 2018. In 2023, there are 7 dimensions scored A (compared to 6 in 2018), 15 scored B (compared to 8 in 2018), 19 Cs (compared to 29 in 2018), 40 Ds (compared to 42), 7 D*s (compared to 6) and 6 NAs (compared to 3 in 2018). Figure 2 below shows the changes in scores per pillar. Table 1 provides an overview of all scores in 2023.