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The views expressed in this presentation are the views of the author and do not

necessarily reflect the views or policies of the Asian Development Bank Institute
(ADBI), the Asian Development Bank (ADB), its Board of Directors, or the
governments they represent. ADBI does not guarantee the accuracy of the data
included in this paper and accepts no responsibility for any consequences of their
use. Terminology used may not necessarily be consistent with ADB official terms.

“Fiscal Governance for Sustainable


Growth and Development in Asia
Pacific region”
Mr. Sakounseng Sengkhamyong
Technical Official
Fiscal Policy and Law Department, Ministry of Finance

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April 25, 2019
Presentation Outline

1. Overview of Lao PDR

2. The role of Fiscal governance in improving


the effectiveness of fiscal policy
3. Conclusion

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Capital city: Vientiane Capital
Total area: 236,800 sq Km
Population: 6.8 million (2016)
Currency: Kip

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Lao Economic Development
GDP Growth and GDP per capita
(USD) (%)
3,000 8.2
8.02 8.03 8
2,500 2,408
2,226 7.8
1,949
2,000 7.61 7.6
1,806
1,569 7.4
1,500 7.27
7.2

1,000 7.02 7

6.8
500
6.6

- 6.4
2012 2013 2014 2015 2016

GDP Growth Rate GDP per Capita

Source: Ministry of Planning and Investment 4


Lao Economic Development

Growth

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Lao Economic Development
(% of GDP) Government Revenue
20.0% 18.9%
18.3% 18.4%
18.0% 17.7% 17.5%
16.4% 2.5% 2.9% 2.7%
15.8% 2.2% 2.6%
16.0% 14.9% 14.9% 1.7%
13.9% 1.9%
14.0% 13.4% 13.1%
12.9% 1.6% 1.9% 1.7%
11.8%
12.0% 2.4% 2.5% 11.5% 11.6% 1.9%
2.1% 2.0% 2.0%
10.0%
8.0% 13.9% 15.8% 16.0% 15.7% 14.9%
13.1% 14.7% 15.5%
6.0% 12.3% 13.0% 6.6% 6.0% 6.5% 6.1%
11.0% 10.6%
9.7% 9.6%
11.0% 5.7% 5.3%
9.5%
4.0% 3.2% 2.8% 2.9%
3.2%
2.3% 2.4%
2.0%
1.4% 1.7% 1.8%
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.
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(% of GDP)
Government Overall Balance
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% 20.7% 24.2% 24.4% 24.6% 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% 16.6% 16.8%
16.0%
14.5% 14.1%
13.3%
12.6%
10.0%

5.0%

0.0% -1.5%
-3.1% -2.3%
-3.1%
-2.0%
-5.0% -3.1% -3.4%
-4.6% -3.8% -4.5%
-5.5% -4.9% -5.2%
-6.3% -6.2%
-6.9%
-10.0%
Revenue Expenditure Overall Balance
GOVERNMENT OVERALL BALANCE
(PLAN VIII)
25.0%
21.5% 21.7% 22.0% 21.2% 20.1%
20.0%

15.0% 16.5% 16.1% 16.6% 17.3% 17.3%

10.0%

5.0%

0.0%
2015/16 2017 2018 (PLAN) 2019 (PLAN) 2020 (PLAN)
-2.8%
-5.0% -4.0%
-5.0% -5.6% -5.4%
-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

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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

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Public Finance Development Strategy to 2025 and Vision
to 2030

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Lao PDR and the International Context

External opportunities Challenges for Lao PDR

• Uprising Asian economies • Fluctuation of commodity prices


• Access to international markets • Country capacity (HR, legal framework and
through ASEAN finance systems) is low
• Rapid development of science and • Need to enhance business environment and
technology regional trade
• International and regional integration • Natural disasters

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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 Challenges for Lao PDR
• 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
expenditure • Planning and execution did not strictly follow the Law
management • Fiscal reporting was delayed and incomplete
• off-budget spending

• Shortage of qualified personnel


Institutional and • Coordination between entities only sporadic
personnel
management • No systematic and regular monitoring mechanisms
• Debt management not centralized
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Public Finance Management Vision 2030

By 2030, PFM is/has …


A legal framework in line self-reliant Provinces covering their
with international own expenditure
standards
sound aligned with the regional and a single State
Bond, capital and money global integration budget plan
market are strong and
stable sources for funding
self- Public finance entities as
strengthening the engine of economic
development

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Public Finance Development Strategy 2025 in
the country’s broader development path
National Socio-
Economic Development
Plan

Guidelines on
Public Finance delegating
Party Guidelines responsibilities to local
Development levels (Sam Sang)
Strategy

Increase global and


regional integration

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Macro Targets
Annual GDP
growth • at least 7,2% (per year)

GDP/capita • doubled since 2016


rates
Inflation • below economic growth
rate rate
USD Exchange
rate fluctuation • within ± 5% per year
Public • between 18-20% of
revenue GDP

Public debt • below 65% of GDP


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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


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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


2. Revenue • Setting fair tax and customs policies
policy and • Efficient revenue collection
collection • Effective ODA management
• 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
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Strategies 4-7
Strategy Goal

4. Public debt • Centralized management of external and domestic borrowings


management • Effective debt management and minimization of costs

• 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
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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

9. International • Implementation of international agreements


Integration and • Increase regional and global economic financial
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 Human Resources Budget

2018 – 2020 2021 - onwards


Funding
External Internal External Internal

Human Resources Capacity Building Plan

Coordination with development partners > Optimization of resources

Reporting
Monitoring Final
Implementation • Results
Adjustment
• Areas for
improvement
Evaluation
• Recommendations

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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


Phase I set of public finance management
infrastructure such as policies, legislation,

(2018-2020)
organizational structure, personnel and
management tools

• The objective is to develop fiscal stability


and step up to international standards
Phase II
(2021-2025)

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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
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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

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

 Improve legislation
 Improve revenue management collection
 Tax modernization
 Improve human capacity and Institution

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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.
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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

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

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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
2. Prepare Job Description and Criteria of each Position

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.
3. Human Development

 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.
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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