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ANNEX
MID-TERM REVIEW DOCUMENT
2009
LAO PDR
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TABLE OF CONTENTS
1 Executive Summary ............................................................................................................. 7

2 Analysis of Policy Framework and Country Strategy.......................................................... 8
2.1 Existing Country Strategy 2007-13 and Indicative Programme 2007-10 ..................... 8
2.2 The Country Strategy in light of political and socio-economic changes ...................... 9
2.3 Relevance of new EC/EU policy initiatives and commitments .................................. 11
2.4 Results, performance and lessons learnt ..................................................................... 13
2.5 Quality Improvements in EU Country Assistance ...................................................... 15
2.6 Conclusion...…………………………………………………………………………16
3 MIP 2011-2013 .................................................................................................................. 16
3.1 MIP Summary ............................................................................................................. 16
3.2 Budget ......................................................................................................................... 18
3.3 Focal area: Support to the GoL’s reform agenda ........................................................ 18
Strategic context/justification..................................................................................... 18
General objective ....................................................................................................... 19
Results ........................................................................................................................ 19
Activities .................................................................................................................... 19
Implementation .......................................................................................................... 19
Risks and conditions .................................................................................................. 19
Indicators.................................................................................................................... 20
Financial envelope ..................................................................................................... 20
3.4 Additional action 1: Support to sustainable development in the uplands and policy
dialogue on relocation ................................................................................................ 21
Objectives................................................................................................................... 22
Results ........................................................................................................................ 22
Activities .................................................................................................................... 22
Implementation .......................................................................................................... 22
Risks and conditions .................................................................................................. 23
Indicators.................................................................................................................... 23
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3.5 Additional action 2: Governance — rule of law and human rights............................. 24
Strategic context/justification ……………………………………………………... 24
Objectives................................................................................................................... 24
Results ........................................................................................................................ 24
Activities .................................................................................................................... 25
Implementation .......................................................................................................... 20
Risks and conditions ………………………………………………………………. 20
Indicators.................................................................................................................... 20
3.6 Additional action 3: Trade........................................................................................... 26
Objectives................................................................................................................... 26
Results ........................................................................................................................ 26
Activities .................................................................................................................... 27
Implementation .......................................................................................................... 27
Risks and conditions ………………………………………………………………. 27
Indicators.................................................................................................................... 28
3.7 Complementarity with regional and thematic budget lines......................................... 28
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Annex 1a:
Lao PDR at a glance — Macro-economic indicators ………………………………... 30
Annex 1 b:
Lao PDR at a glance — Indicators derived from MDGs …………………………….. 32
Annex 2:
Summary tables MIP 2007-10 and MIP 2011-13 …………………………………… 33
Annex 3:
Donor matrix — disbursements in 2007 …………………………………………….. 35
Annex 4:
CSP 2007-13 Logical Framework Matrix …………………………………………….. 39
Annex 5:
Description of the MTR document drafting process …………………………………. 53
Annex 6:
Budget support in Lao PDR ………………………………………………………….. 56
Annex 7:
Overview of trade ……………………………………………………………………. 61
Annex 8:
Country Environment Profile …………………………………………………………. 62
Annex 9:
Impact of the global financial crisis on Lao PDR …………………………………... 68
Annex 10:
Map of Lao PDR ……………………………………………………………………… 70
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ACRONYMS
ADB Asian Development Bank
AHIF Avian and Human Influenza Facility (a World Bank trust fund)
AFD Agence Française de Développement
AFTA ASEAN Free Trade Area
ASEAN Association of South East Asian Nations
AusAid Australian Agency for International Development
CfP Call for Proposals
CBO Community-Based Organisation
CSP Country Strategy Paper
DP Development Partner
DTIS Diagnostic Trade Integration Unit
EBA Everything But Arms
EC European Commission
EIF Enhanced Integrated Framework (see IF)
FLEGT Forest Law Enforcement Governance and Trade
FTA Free Trade Agreement
GBS General Budget Support
GFATM Global Fund to Fight AIDS, Tuberculosis and Malaria
GTZ Gesellschaft für Technische Zusammenarbeit (German Technical

Cooperation)
GoL Government of Lao PDR
INGO International Non-Governmental Organisation
IF Integrated Framework (for Trade-Related Assistance to LDCs)
LDC Least Developed Country
MIP Multiannual Indicative Programme
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MRC Mekong River Commission
MTR Mid-Term Review
NDS National Development Strategy
NGPES National Growth and Poverty Eradication Strategy
NGO Non-Government Organisation
NNGO National Non-Governmental Organisation
NRM Natural Resource Management
NSA Non-State Actor
NSEDP National Socio-Economic Development Plan
NUDP Northern Uplands Development Programme
PEMSP Public Expenditure Management Strengthening Programme
PFMSP Public Finance Management Strengthening Programme
PRSO Poverty Reduction Support Operation
RTIM Round Table for Implementation Monitoring
SDC Swiss Agency for Development and Cooperation
SELNA Support for an Efficient Lao National Assembly
SME Small and Medium-sized Enterprise
SPS Sanitary and Phyto-Sanitary (issues)
SWG Sector Working Group
TDF Trade Development Facility
UXO Unexploded Ordnance
WB World Bank
WTO World Trade Organisation
WREA Water Resources and Environment Administration
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1. EXECUTIVE SUMMARY
The 2007-2013 CSP for Laos concentrates on one focal area and three non-focal areas, as
described below. In line with the principles of EU development policy the number of
cooperation areas was reduced compared with the previous CSP while the financial envelope
and flexibility in allocation has been increased.
An evaluation of EU cooperation in Laos carried out in 2008 confirmed the relevance of the
strategy and performance of the programme on the basis of the existing CSP. The EU has
played a prominent role with its general budget support operation (Poverty Reduction Support
Operation — PRSO) in the focal area under the MIP 2007-10. Furthermore, improved
coordination and the establishment of joint programmes with other donors complement and
support the implementation of reforms agreed under the PRSO, thus reflecting the aid
effectiveness agenda formulated by the Government of Laos (GoL) and development partners
on the basis of the Vientiane Declaration on Aid Effectiveness. The economic crisis unfolding
after 2008 and the impact of the many changes taking place in rural Laos may widen
inequality and exacerbate poverty and food shortages in remote areas. Furthermore,
environmental degradation may also impact on rural populations. The government’s
achievement of the Millennium Development Goals (MDG) by 2015 and the target of leaving
Least Developed Country status by 2020 could be in jeopardy.
The MTR confirmed that the existing CSP, with its thematic scope and mix of instruments,
provides an adequate and flexible platform to address most of the issues related to the GoL’s
development policy agenda as well as new EU priorities. The MIP 2011-2013 fully reflects
these considerations and will retain the same focal and non-focal areas (building on
achievements and lessons learned during the MIP 2007-10).
The focal area under the MIP 2011-13 will continue to support the pro-poor objectives and
policies of the GoL’s reform agenda defined in the context of the Poverty Reduction Support
Operation (PRSO), which the EU started to support in 2007. The PRSO articulates a GoL
policy reform programme within a sound macro-economic framework with strengthened
public revenue and expenditure management.
The first non-focal area will continue to be sustainable development in the uplands and
policy dialogue on relocation. The Northern Uplands Development Programme (NUDP)
established jointly with the EU Member States Germany and France and with Switzerland
under the MIP 2007-10 provides a platform for a coherent area-based, multi-sector approach.
In view of the persistent development problems caused by high UXO contamination in Laos,
and acknowledging the proactive political role played by the country in formulating and
ratifying the Oslo Convention on Cluster Munitions, support for UXO clearance is added as a
new bilateral activity under this thematic area in the MIP 2011-13, with a coherent linkage to
the NUDP.
The second non-focal area will be good governance and human rights. Activities will be
defined by the Working Group on Institution Building and Administrative Reform,
Governance and Human Rights. While the MIP 2007-10 had a focus on legal reform and
institutional strengthening, activities under this MIP will also aim to deepen and strengthen
human rights dialogue between the EU and Laos.
The third non-focal area will be trade and economic development. Building on the joint
approach between the World Bank, the EU and AusAid with the Trade Development Facility
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(TDF), the EU will continue to support trade, preferably through a joint programme-based
approach led by the Ministry of Industry and Commerce.
A total EU grant of € 36 million is proposed for the period covered by the MIP for 2011-13.
The indicative breakdown of this amount is as follows:
Share € million
(t.b.c.)
Focal area: Support for the GoL’s reform agenda 50-55 % 18-20
Non focal areas 45-50 % 16-18
1. Sustainable development in the uplands and policy dialogue on relocation, UXO 25-30 % 9-11
clearance
2. Good governance and human rights 5-10 % 2-4
3. Trade and economic development 5-10 % 2-4
TOTAL 100 % 36
2. ANALYSIS OF POLICY FRAMEWORK AND COUNTRY STRATEGY

2.1. Existing Country Strategy 2007-13 and Indicative Programme 2007-10
The CSP 2007-13 has the overall objective of supporting the Government’s poverty reduction
strategy through a shift towards general budget support and increased use of country systems
on the basis of the country’s own medium-term socio-economic development planning. It
places great emphasis on concentration of activities, country ownership, and coordination
with EU Member states and other donors. Structural reforms, policy dialogue and aid
effectiveness in line with the Paris Declaration on Aid Effectiveness and the EU Consensus
on Development are at the centre of this strategy. It concentrates on one focal area and three
non-focal areas of development aid. The focal area is support for the Government’s National
Poverty Reduction Strategy, as expressed in the National Socio-Economic Development Plan
(NSEDP), a rolling plan updated at five-year intervals (6th Plan 2006-2010; 7th Plan 2011-
15). The three non-focal areas are: i) support for sustainable development in the uplands and
policy dialogue on relocation, ii) good governance and human rights, and iii) trade and
economic development.
The centrepiece of the MIP 2007-10 is a general budget support operation (PRSO) linked to
NSEDP goals and targets, jointly monitored with other development partners. In this
approach, the EU supports local policy making and planning mechanisms and uses local
systems for their implementation. At the same time, the EU maintains a strong independent
monitoring framework (see Annexes 4 and 6) and provides technical support and capacity
building for improved public finance management, social service delivery, and trade and SME
policy.
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Activities in the three non-focal areas also have a coherent linkage with the NSEDP: i) the
Northern Uplands Development Programme (NUDP) contributes to poverty reduction,
particularly in rural areas, and offers a hub for the EU’s dialogue with the GoL on the issue of
village relocation and human rights issues for specific ethnic groups; ii) EU-supported
activities in the area of good governance and human rights are coherently linked to issues of
institutional reform, while public service and public finance management is addressed and
monitored under the focal area; iii) EU support for trade and economic development is
implemented through a joint programme with other development partners aimed at fostering
economic growth, strengthening the tax base, improving public services for the business
sector and furthering tax and customs reforms.
2.2. The Country Strategy in the light of political and socio-economic changes
The political situation — Historically, Laos has been subject to the political and economic
influence of neighbouring countries, particularly China, Vietnam and Thailand, and the
relationship with these neighbours still determines much of the present-day economic and
political agenda, also influencing trade and economic cooperation and development aid
relations with the European Union. Relations with the US, for years blighted by the
US/Vietnam war, have improved and the US has lifted the last embargoes on trade.
Since the formulation of the present CSP, the government (GoL) has become more open to
dialogue with development partners regarding human rights issues, and the ratification in
September 2009 of the International Covenant on Civil and Political Rights is encouraging.
However, it still remains very cautious on regional political matters and also certain domestic
policy matters, including questions regarding Hmong repatriation from Thailand and migrant
refugees. At the same time, the National Assembly is becoming more assertive on domestic
issues and is increasingly exercising its power as a political institution within the
constitutional context. Under the 2011-13 MIP, the EU can take advantage of governance
reforms and the new openness by linking its Working Group on Governance and Human
Rights more closely to its development cooperation activities.
In 2009 the GoL approved a new decree creating a legal framework allowing the formation
and registration of national civil society organisations, and drafted a decree with legal and
policy provisions for INGOs. These two decrees mark a significant change in GoL policy and
are expected to facilitate the formation and operation of NSAs and their relations with donors,
which may be reflected in EU development cooperation under thematic budget lines. The
Public Administration and Civil Service Authority has been leading governance reforms with
the creation of new agencies (WREA), new laws and regulations, and improved service
delivery at provincial level, as well as strengthening central-provincial relations in preparation
for the creation of local councils in 2011.
Another significant event was the signing and ratification by the GoL of the Oslo Convention
on Cluster Munitions. This is particularly important for a country which, per capita, is the
most heavily bombed in the world, and carries a legacy from the US/Vietnam war of 80
million UXOs. The GoL has integrated UXO clearance within the 7th NSEDP, and is seeking
additional support from donors.
The economic situation — The economic liberalisation policy of the GoL over the past 10
years has translated into an average annual real growth rate of 6 %. In 2008, this rate was 8 %,
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just before the global financial crisis unfolded. Average per capita income rose from US$ 456
in 2005 to about US$ 859 by 20081, but this has been accompanied by growing inequality
between urban and rural areas. At present, subsistence agriculture, dominated by rice,
accounts for about 40 % of GDP and provides 80 % of total employment. Agriculture is likely
to remain the economic backbone for the majority of the population over the intermediate
term.
However, as a result of major infrastructure projects such as hydropower, mining, and agro-
industries, including controversial plantation agriculture, a major transformation is taking
place in the rural areas. The impact of this process, along with rampant unregulated logging
and GoL policy to convert natural resources (including land) to capital, to end slash-and-burn
shifting agriculture, to relocate remote villages, and to eradicate poppy growing, is changing
the face of rural Laos and impacting on livelihoods at an unprecedented pace. Despite steady
economic growth there is increasing inequality between urban and rural areas, and the
nutritional status of the majority of the rural population has not improved in recent years.
Food insecurity still affects a large part of the population, particularly in the uplands.
The largely agrarian economy and lack of exposure to global financial markets helped spare
the country from the brunt of the 2008 banking crisis. However, there is mounting evidence
that the economic crisis has had an impact, with forecast growth rates significantly lower after
2008 (see Annex 9 for a detailed analysis). This has hit GoL budget projections, and will
materialise in a widening budget deficit, making it more difficult to meet the targets in the
NSEDP.
Trade remains primarily commodity-based, but manufacturing, agro-business and services are
expanding as the country modernises and tourism expands. Laos signed the Association of
Southeast Asian Nations (ASEAN) Charter in 2008 and is also progressing in its negotiations
for accession to the WTO. Trade and economic development at country level must be
increasingly seen in the context of regional and international integration. Due to its level of
economic development, Laos is not covered by the negotiating mandate for an EU-ASEAN
FTA, but does benefit from the EU Everything But Arms initiative. Garment products account
for 85 % of total exports to the EU. Exports of other products such as coffee, rice, handicraft,
or processed fruit are increasing gradually.
Despite recent achievements in improving the investment climate in the country, significant
constraints to doing business remain and greater coordinated effort by different sectoral
agencies is needed to promote investment in non-resource sectors. The initial findings of the
latest Investment Climate Assessment (ICA 2009) show that the top five binding constraints
for private sector in Laos are taxation, followed by access to finance, inadequate skilled
labour force, electricity, and access to land.
SME activities accumulate to 95% of total business operations in Laos. Dominant business
sectors are light manufacturing (food and wood processing, garment, light construction
material) and tourism. FDI constitutes 14 % of GDP in 2008. Foreign investment in natural
resources accounted for more than 80 % of the total FDI during the past few years although
investment in non-resource sectors has also increased steadily, particularly private investment
in the banking sector. The Lao Chamber of Commerce and Industry has expanded services to
its members but its capacity is still low and mainly limited to the capital, Vientiane. A public-
1
World Bank estimate 2009.
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private sector dialogue has been facilitated by the Lao Business Forum. The forum organises
two meetings a year to address the concerns of three private sector working groups on
Services and Trade, Mining, and Tourism.
Social situation — The UNDP HDI gives Laos a ranking of 131 out of 1792. The
government’s goal of graduating from the UN list of least developed countries by 2020, so far
considered not unrealistic, might be hampered by the impact of the global financial crisis.
Despite some significant improvements in the last decade, most social indicators are below
the average for both low-income and East Asian countries. Laos is at great risk of failing to
meet the MDGs. In the health sector, overall mortality and morbidity still remain very high,
especially among the rural population. Maternal mortality is an issue of special concern. In
the education sector, universal primary education is still far from being secured. Public
spending on both health and education is below the regional average, and the health sector in
particular appears to be critically under-funded. The ratio of recurrent to non-recurrent
expenditure is low in both sectors, giving the government insufficient leverage for
improvements in much-needed human resources for both sectors.
Supported by development partners, the GoL is formulating an MDG roadmap for inclusion
in the 7th NSEDP (2011-15), which will likely be presented to the National Assembly and
Party Congress in 2010. A key step will be the preparation of a health financing strategy. For
the education sector, a comprehensive framework with pro-poor priorities was approved in
2009.
Environment, disaster risk reduction, climate change and energy — The Mekong region,
in itself a very disaster-prone area, has been described as particularly vulnerable to global
climate change and related hazards, and Laos is always at risk of floods, flash floods and soil
erosion. Ecological sustainability is jeopardised by some of the land use changes taking place,
and there is strong evidence of degradation, loss of biodiversity and pollution. Unregulated
water use and excessive use of herbicides and pesticides threaten safe water access in rural
areas, particularly during the dry period. The Mekong floods in 2008 and particularly the flash
floods in the northern and southern uplands (in 2008 and 2009) demonstrated the country’s
vulnerability under changed weather patterns and deforestation, as well as its high exposure to
hazard threats. Extended drought periods aggravate the situation and add to food insecurity.
At the same time, the country still has a large area of tropical forest, which, if managed
sensibly, can play an important role in climate regulation and biodiversity conservation.
The GoL recognises the importance of a more protective strategy for natural resources
management to guard against disaster risks, and has enacted a series of laws and decrees to
this end. It is also preparing a Strategic National Action plan for Disaster Risk Management.
However, there is limited implementation and enforcement capacity, and unsustainable NRM
practices continue to cause significant environmental damage. Given Laos’s increasing
exposure to hazard and climate change risks, disaster risk reduction measures, including
climate change adaptation and resilience plans, will need to be integrated systematically
within programmes across sectors.
2.3. Relevance of new EU policy initiatives and commitments

Given the geographic conditions of Laos (predominantly mountainous and forested) and its
mainly agrarian economy, EU policy commitments in areas such as disaster risk reduction,
2
Reference year: 2008.
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climate change, tropical forests, and food security are highly relevant. The CSP provides a
coherent linkage particularly with the focal area of support for socio-economic reforms and
the non-focal area of sustainable development in the uplands and policy dialogue on
relocation. Laos is also increasingly involved in regional cooperation (ASEAN, Greater
Mekong Sub-Region, cross-border water management and MRC), which provides a hub for
EU regional cooperation instruments from which Laos could benefit.
The Government has prepared a Drug Control Master Plan for the period 2009-2013 to
combat the production, distribution and trafficking of drugs. While poppy eradication
campaigns have been successful in the past, the GoL recognises the risk of resurgence in the
production and use of drugs, sparked by increased production and trafficking in neighbouring
countries and volatile prices for other cash crops, and is seeking support to provide
economically viable alternatives to communities previously producing opium. For the EU,
this offers an important entry point for its rural development and food security activities,
particularly in the northern uplands, offering alternative livelihoods to replace the opium
cultivation previously concentrated in this area, but potentially also for the use of thematic
budget lines like the Instrument for Stability.
The EU’s envisaged response to climate change in the run-up to Copenhagen foresaw a role
for developing countries in limiting the growth of their emissions by 25-30 % by 2020. Laos
has a significant regional role to play in view of its hydropower prospects. To the extent that it
might be possible to tap the Climate Facility, the new agency WREA could be a partner. The
main linkage in the CSP is with the non-focal area for sustainable development in the uplands
and policy dialogue on relocation.
The adoption of ‘due diligence regulation’ by the EU, the progress with Voluntary
Partnership Agreements elsewhere, and increased efforts by the European Commission and
certain EU Member States to help countries in Asia tackle unregulated logging could raise the
profile of the EU Action Plan for Forest Law Enforcement Governance and Trade (FLEGT)
in Laos. The country still has some of the largest tracts of forest in the region, but all of these
are under serious threat. FLEGT can be addressed under the rural development and trade
cooperation areas.
The Food Facility as an EU response to soaring food prices in developing countries is relevant
in view of the persistent food insecurity in the poorest districts of the country. However, as a
one-off exercise, it may raise expectations that cannot be followed through in the longer term
without future reflection at the level of the country support strategy.
With a rather small population and low population density, migration, whether inward or
outward, is not so much a quantitative problem for Laos, but there are political aspects of
migration owing to the country’s recent history, which the EU can address in its human rights
dialogue and using thematic instruments. This also applies to human trafficking, mainly
related to regional drug production and trafficking. The non-focal areas of governance and
uplands rural development provide a policy linkage within the CSP. Given particular
sensitivities between Thailand and Laos on the issue of illegal labour migration and the status
of certain ethnic groups like the Hmong, close cooperation is necessary between the
Delegations in Laos and Thailand, at the level of political dialogue but also in terms of aid
coordination.
The international aid effectiveness agenda, based on the Paris Declaration and the Accra
Agenda, the European Consensus on Development, and the EU Code of Conduct on Division
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of Labour in Development Policy, is already reflected in the Commission’s cooperation with
Laos, but still needs to be taken further. The government has established a country-level
framework for donor coordination in the form of the Vientiane Declaration on Aid
Effectiveness, with emerging country ownership over the coordination process. The EU has
significant responsibilities under this process. It provides technical assistance to improve the
capacity of the government to lead and manage the aid effectiveness process.
2.4. Results, performance and lessons learnt

All activities implemented under the MIP 2007-10 in the different areas of support are based
on logical frameworks with specific targets, and indicators are regularly monitored. The
results achieved with the MIP are at this stage considered satisfactory, although quantitative
result indicators could not be measured in all areas, particularly where activities have recently
started. At this stage of CSP implementation, the main qualitative outcomes of EU’s
cooperation are at the institutional level, in the form of legal and regulatory reforms. Under
the overall objective of facilitating the attainment of the Government of Laos’ national
development policy objectives, EU cooperation activities have contributed mainly to macro-
economic stability, economic reforms (e.g. trade liberalization and the transition from a
centralized, planned economy), and improved public finance management (e.g. improved
fiscal transparency and discipline). With regard to the social sectors and progress towards the
MDG, the EU managed to establish a good policy dialogue and support relevant line
ministries in improving their sector planning and budgeting capacities. Support activities in
the area of governance and human rights helped GoL in aligning with international law
standards and incorporating them into national legislation, complementary to ongoing
economic reforms. Capacities of staff in relevant line ministries and agencies were
strengthened, under the MIP 2007-10 mainly at central level. The National Assembly was
strengthened inter alia in its oversight and control functions over the executive. Ongoing
project activities in rural development and support coming from thematic budget lines
provided assistance and support for the establishment of sustainable rural livelihoods (e.g. by
facilitating the shift from swidden cultivation to animal husbandry) and the fight against food
insecurity as a persisting development issue in Laos. A systematic overview of results
achieved but also of risk mitigation measures under the MIP 2007-10 is contained in Annex 4.
The Government’s capacity to manage the initiated reforms, and the expected commitment to
social development and poverty reduction, with clear quantitative progress indicators, along
with the related EU contributions, need to be closely monitored during implementation of the
MIP 2011-13.
An evaluation of European Commission development cooperation with Laos was carried out
in 2008-09, offering the Commission the following main conclusions for ongoing
cooperation:
• “The Commission should continue to provide budget support with strong emphasis on
improving public sector financial management. It should continue to strengthen
institutions capable of monitoring the budgetary process. In its ongoing support, the
Commission already targets institutions capable of monitoring the budgetary process
and ensures that budget resources are aligned with pro-poor policies, in combining the
budget support operation with specific measures for PFM and for sector management
and planning capacity building in health and education.
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• The EC should change the way it approaches the issue of social sector development in
Laos to place the sources and uses of resources, specifically financial flows (including
out-of-pocket payments), in the foreground. Ongoing Commission budget support
tackles social sector development and its financial sustainability. For both sectors a
variable tranche is promoting an increase of government recurrent allocations. In the
health sector, the PRSO includes the promotion and expansion of health security
schemes as well as support for a proper health financing strategy. In the education
sector, the Commission supported the formulation and adoption of a new sector
framework with pro-poor priorities in early 2009.
• The increasing willingness of the Government of Laos to engage in dialogue has

created opportunities to improve the implementation of relocation so as to minimise
its negative poverty impacts. The Commission should follow a two-pronged strategy
regarding relocation, combining political dialogue and development cooperation, to
ensure that human rights issues are not sidelined. The Northern Uplands Development
Programme will be a key element in collecting direct and indirect information on
(forced) relocations, as well as on the way the GoL addresses issues of human rights in
the context of relocation. The informal working group between Government of Laos
and European Commission on Governance and Human Rights is used as a platform for
the political dialogue on relocation.
• In its assistance related to trade and enterprise development, the Commission should
take greater account of low competitiveness, failure to add value, and human resource
development. The current bilateral trade and economic cooperation has so far
contributed to simplifying business start-up procedures and access to finance for the
private sector. The ongoing trade programme helps simplify import-export procedures
and facilitates trade. With limited resources, it can only contribute to developing
human resources in specific sectors like the garment industry, agribusiness, and wood
production.
• In consultation with its partners, especially the EU Member States, the Commission
should define what coordination role it wishes to play in Laos vis à vis the Member
States as well as other donors. On behalf of all EU donors, the Commission was a key
participant in the process leading up to the adoption of the Country Action Plan on Aid
Effectiveness. Good progress has already been made in increased EU co-ordination
and harmonisation for aid-effectiveness under the MIP 2007-10. Work continues on
the implementation of the EU Division of Labour through an established EU
Development Cooperation Meeting format. “
For its aid programming and implementation under the new MIP 2011-13, the Commission
has taken the following lessons from the country evaluation and from Results-Oriented
Monitoring (ROM) missions at programme and project level:
• While the PRSO has so far triggered regulatory reforms in several areas and
encouraged macro-economic stability, progress in the social sectors, particularly
regarding budget allocations, is yet to be seen (see Annex 6). However, including the
social sectors in the PRSO matrix and linking progress to a results-based disbursement
scheme and its continuous review have resulted in an intensive dialogue with
government. The main conclusion for the MIP 2011-13 is that policy dialogue and
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support to reform in the social sectors needs to be intensified within the context of the
present support strategy to the NSEDP on the basis of a performance-oriented
dialogue until the end of the present CSP, when general policy lessons can be drawn.
• Trade and economic development support is closely linked to the PRSO agenda. A
joint Trade Development Facility has been set up by the European Commission,
Australia and WB to support the GoL in implementing the DTIS under the Integrated
Framework. It is increasingly seen by the Government as a vehicle for policy review
and dialogue with development partners in a context of intense preparations for WTO
accession. There is potential for strengthening this partnership and expanding the
programme to extend support to private sector development, in particular for SME
development.
• Support for governance also complements the PRSO reform agenda, particularly with
regard to public finance management reforms and civil service reforms. The EU is one
of the main donors in the governance sector, and its role will increase still further after
Sweden phases out its activities in the sector at the end of 2009. While there is
generally limited financial absorptive capacity in this sector, activities can be
continued and possibly be extended.
• Based on lessons learned from previous cooperation, the MIP 2007-10 initiated a shift
from a previously scattered project-based approach in agriculture towards a joint
programme-based approach with a geographic focus on the northern uplands, which
provides the vehicle for the EU’s dialogue on rural development and village
relocation, in addition to the existing human rights dialogue. This shift is embedded in
a wider dialogue between the government and several development partners active in
agriculture and rural development. The mid-term review also pointed to parallel
policies in the implementation of EU activities in agriculture and food security as a
result of different budget lines. As food security constitutes the most important sector
supported by thematic budget activities, closer alignment with the EU country strategy
for agriculture and rural development will be sought for the future. The global
economic crisis starting in 2008 will most likely translate into a resurgence of
subsistence agriculture and a greater risk of food insecurity.
2.5. Quality improvements in EU country assistance

Coherence — The main aim is to support the government’s poverty reduction strategy with
emphasis on improving basic social services, in line with government priorities set out in the
NSEDP. The three non-focal sectors complement this objective.
Concentration — EU aid to Laos has moved away from fragmented projects in different
sectors and now concentrates on one single focal sector and three complementary non-focal
sectors. Reflecting the EU aid effectiveness agenda, activities are aligned with other donors as
well as with the government’s development strategy.
Coordination and division of labour — Activities are aligned with other donors where
possible, as well as with the government’s development strategy. EU programmes under the
CSP 2007-13 support country ownership and reinforce the use of country systems.
Programme formulation for the MIP 2011-13 will be part of an EU roadmap for closer
coordination and enhanced aid effectiveness in Laos. In practical terms, the EU has moved
towards joint programmes in all sectors covered by the CSP.
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2.6. Conclusion
The CSP remains relevant overall in the light of the EU’s policy towards Laos, the economic
and political situation in the country, and implementation to date. The MIP 2011–2013 will
take forward programme activities started under the previous MIP, which has so far shown a
satisfactory implementation history and results. The recent developments highlighted above
can be adequately addressed within the framework of the existing CSP.
The shift from the previous to the present CSP has significantly improved the quality and
delivery of EU development support to Laos. The overall setup of the CSP offers the EU a
platform for dialogue and cooperation where reforms, targets and milestones can be
negotiated at macro-level on the basis of the country’s own national development planning.
To the extent possible, the EU already uses country systems for implementing activities. The
EU has engaged in joint planning, monitoring and financing mechanisms with other
development partners, using country systems and direct budget support where appropriate and
possible.
The impact of the global economic crisis on government revenues as well as on social sectors
and rural areas may seriously threaten the achievement of the MDGs by 2015. Consequently,
it is important that the EC maintain and even strengthen its policy dialogue with government
on the macro economy and public finances. There is scope for the EU to enhance its support
to social sector reforms and to engage in supporting pro-poor policies of the NSEDP.
As the risk of increased food insecurity must be expected over the coming years, the EU
should continue its support using thematic instruments while seeking closer linkage with its
agriculture and rural development activities, as well as improved integration of disaster risk
reduction and climate change adaptation approaches. In this context, support could also be
considered for remote upland communities previously dependent on opium.
Recognition should be given to the GoL initiative on banning cluster munitions. EU support
for UXO clearance should be significantly increased given its importance for poverty
reduction and agricultural productivity, and should be incorporated in the policy dialogue.
Given the opportunities that exist for better natural resource management and the implications
this will have for the environment, climate change and energy, the EU should consider how to
assist this using the Climate Facility and FLEGT, and consider the potential role of regional
organisations in tackling these issues.
3. MIP 2011-2013
3.1. MIP summary
The MIP 2011-13 will support the GoL in the areas defined in the CSP 2007-13 by continuing
the activities started under the MIP 2007-10, most of which are joint activities with other
development partners and increasingly using government systems. The focal area under the
MIP 2011-13 will continue to support the pro-poor priorities and policies of the GoL’s
reform agenda, defined in the context of the Poverty Reduction Support Operation (PRSO),
which the EU started to support in 2007. The PRSO articulates a GoL policy reform
programme within a sound macro-economic framework with strengthened public revenue and
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expenditure management. It is designed to assist the government to manage the expected
increased revenues from hydropower and mineral exports. The programme is structured
around two components aligned with the National Development Strategy (NDS):
(i) Sustaining growth though improvement of the investment climate, facilitation of trade
and management of natural resources;
(ii) Protecting the poor and improving social outcomes through better public financial
management systems and service delivery.
The EU supports the NDS goals by providing the GoL with financial and technical support for
implementing key policy reforms on the basis of an agreed matrix, monitored through a joint
review mechanism with the government and the other PRSO partners, the World Bank and
AusAid. Within this joint approach, and supported by the other partners, the EU has
established a close linkage under the MIP 2007-10 with progress in the social sectors,
monitored on the basis of an agreed set of indicators. The focus on social sectors will be
continued under the MIP 2011-13. Moreover, experience with the MIP 2007-10 has
confirmed the importance of complementing financial support with support to capacity
development and sector dialogue in order to build up and strengthen policy making and result-
oriented management capacities. The combination of financial support and institutional
strengthening will be continued and expanded under this MIP.
The first non-focal area will continue to be sustainable development in the uplands and
policy dialogue on relocation. The Northern Uplands Development Programme (NUDP),
established jointly with EU Member States Germany and France and with Switzerland under
the MIP 2007-10, provides a platform for a coherent area-based multi-sector approach. The
programme focuses on the upland regions in the north of Laos, where subsistence farmers
with different ethnic backgrounds have often been the target of relocation efforts by the
government, aiming to eliminate ‘slash and burn’ agricultural practices, eradicate opium
poppy cultivation and bring people closer to government services and markets. These
objectives have not always been achieved, and experience shows that relocated villages are at
considerable risk of being worse off than they were before moving. The preparatory phase for
the NUDP took several years in order to establish a coherent inter-sector dialogue between
government agencies and among different development partners. This shows that the difficult
political dialogue on relocation is best addressed within a wider programme, in which the EU
can play a prominent role. Against the background of persisting food insecurity in Laos, and
the significant support for food security from thematic budget lines, the EU will seek a more
coherent linkage between uplands rural development and food security activities under this
MIP.
Following the ratification of the Oslo Convention on Cluster Munitions by Laos in 2008, and
acknowledging the fact that Laos is one of the countries most affected by unexploded cluster
bombs worldwide, the EU sees a strong need to support the country in clearing unexploded
ordnance, which severely affects rural populations and limits the availability of arable land,
particularly in the upland areas in the north and south of Laos. The EU sees a strong thematic
linkage with its non-focal area for sustainable development in the uplands and policy dialogue
on relocation, and immediate benefits from the coordination of UXO clearance activities with
other activities for agriculture and rural development with the same geographic coverage.
However, given the specific nature of the required works and services, UXO clearance will
most likely have to be addressed as a stand-alone activity under the thematic umbrella of
uplands rural development.
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The second non-focal area will be good governance and human rights. Activities will be
defined by the Working Group on Institution Building and Administrative Reform,
Governance and Human Rights. While the MIP 2007-10 focused on legal reform and
institutional strengthening, activities under this MIP will also aim to deepen and strengthen
the human rights dialogue between the EU and Laos. Support could be considered in response
to the GoL decree to legalise and register civil society organisations.
The third non-focal area will be trade and economic development. Building on the joint
approach between the World Bank, EU and AusAid for a Trade Development Facility (TDF),
the EU will continue to support trade, preferably through a joint programme-based approach
led by the Ministry of Industry and Commerce. Through the sector working group, the EU
will also advocate a stronger linkage between the policy dialogues on trade-related assistance
and on SME development.
3.2. Budget
A total EU grant of € 36 million is proposed for the period covered by the MIP for 2011-13.
The indicative breakdown of this amount is as follows:
Share € million
(t.b.c.)
Focal area: Support for the GoL’s reform agenda 50-55 % 18-20
Non focal areas 45-50 % 16-18
1. Sustainable development in the uplands and policy dialogue on relocation, UXO 25-30 % 9-11
clearance
2. Good governance and human rights 5-10 % 2-4
3. Trade and economic development 5-10 % 2-4
TOTAL 100 % 36
3.3. Focal area: Support for the GoL’s reform agenda

Strategic context/justification
In the past four years, the policy agenda of the GoL has shifted decisively towards targeting
poverty reduction within a strategic, long-term development framework, on the basis of the
sixth five-year NSEDP. It integrates plans drawn up earlier, including the 2003 Growth and
Poverty Eradication Strategy (NGPES). In 2009, the government undertook a mid-term
review of the sixth NSEDP and started formulating the seventh five-year plan for 2011 to
2015. This plan, coinciding with the 2015 MDG milestone, will be the framework that the EU
will support through this MIP.
In implementing the MIP 2007-10, EU support for the Government’s poverty reduction policy
as part of a wider reform agenda has taken the form of budget support in the context of the
PRSO, in combination with specific support for public finance management reforms and
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technical assistance for capacity building to improve sector planning and monitoring in health
and education. This mix of policies and instruments has led to concrete results and reforms
(see Annexes 4 and 6) and is generally considered to have been successful. Building on
achievements and lessons learned, the EU will continue under the MIP 2011-13 to provide
financial and technical support to the pro-poor priorities of the NSEDP, through continued
budget support if that remains feasible... An enhanced focus on (pro-poor) social service
delivery will be reflected in the policy dialogue and technical and financial support for to the
health and education sectors under the new MIP.
General objective
The overall objective is to support poverty reduction policies. To achieve this objective, the
specific purpose of this focal area is to support key government economic and social reforms
set out in the NSEDP with the aim of improving the business environment, trade conditions,
the management of public finances, and social sectors.
Results
Expected results of the programme include positive effects from the introduction of key
reforms in the context of a medium-term development strategy, including sustainable growth,
efficient management of public sector resources and increased social service delivery,
contributing to reducing poverty in line with the country’s MDG goals.
Activities
Specific activities will be determined by the government’s reform agenda and the relevant
sector-specific agendas. Annual policy actions will be outlined in an agreed
programme/performance framework closely aligned with the 2011-15 NSEDP. Policy
dialogue, policy matrix and performance assessment framework will seek to build on the
achievements of the previous years, deepening structural reforms in public financial
management, and extend reforms in two broad categories:
(i) Investment climate, competitiveness, and business development;
(ii) Public finance management and improving service delivery (which will be given
increased attention).
Implementation
Implementation will build on the experience gained through supporting the NSEDP in the
framework of the PRSO process and the existing policy dialogue, particularly in the areas of
public finance, private sector development, trade, health, and education. This has already
strengthened the EU’s position and brought into the dialogue a focus on the pro-poor impact
of the PRSO. Any future EU support, whether delivered in the form of budget support or
otherwise, will include financial monitoring indicators and reporting systems to avoid
corruption and prevent fraud with the aim of emphasising increased access for the poor to
social services, fostering government policy implementation capacities and strengthening pro-
poor service delivery mechanisms.
Risks and conditions

There are five risks for continued budget support in Laos:
(i) Lack of GoL commitment to some of the reforms; continuing ambiguity regarding
accountability between institutions.
(ii) Diversion of funds away from poverty reduction priorities, particularly due to fiscal
stress resulting from the global financial crisis.
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(iii) Severe capacity constraints and skills shortages in the civil service, making the policy
dialogue with development partners more difficult.
(iv) Provincial autonomy without adequate supervision and accountability mechanisms,
hampering implementation of national policies and equitable distribution of resources.
(v) Potential deterioration in the macroeconomic situation in the wake of the global
financial crisis, which may lead to a sharp increase in contingent liabilities in the state-
owned financial sector and arrears owed to utility companies and private contractors.
Based on the first experiences with PRSO, these risks seem to be mitigable (see Annexes 4
and 6) and the GoL has shown a strong reform will and commitment.
Public Financial Management risks are closely monitored by the Delegation. PFM risks are
still considered high although ongoing reforms triggered under the PRSO framework and the
technical assistance of the PFMSP have contributed to improving PFM risk mitigation. The
preparation and the efforts for implementing the revised budget law with all its implications
for enhancing the controls of revenues collection and budget execution as well as the changes
on central-local transfers gives concrete evidence. In line with the 2009 EC Guidelines for
General Budget Support, the audit of national accounts was left to the responsibility of the
partner country. Recognizing however the weaknesses of the existing system, a project to
strengthen the institutional and staff capacities of the State Audit Office is under preparation
and will be aligned with the PRSO and PFMSP framework matrices. Respecting the
institutional independence of the State Audit Office, it will be pursued separately from the
PFMSP.
Indicators
The Ministry of Planning and Investment (MPI) is leading the preparation of an action plan to
strengthen the monitoring and evaluation framework (M&E) for the NSEDP. However, this
framework is not yet strong enough to be fully incorporated within the PRSO. Nevertheless,
the present parallel monitoring systems for the NSEDP and PRSO share the majority of
outcome indicators, and their sector focus conforms to the EU’s approach of monitoring the
results of reforms and poverty reduction. The PRSO policy matrix includes end-of-series
outcomes expected under each sub-component of the PRSO programme . An assessment
under the Public Expenditure and Financial Accountability (PEFA) performance measurement
framework is being undertaken to develop the baseline for indicators against which progress
can be evaluated for the PFM component.
The EU introduced a performance-based approach in the ongoing second budget support

operation, linked to supporting and accelerating progress in the health and education sectors
as measured by specific indicators. Based on positive first experiences, this approach will be
continued and wherever possible enhanced under the MIP 2011-13. There will be a gender-
disaggregated analysis of outcomes.
Financial envelope
€18- 20 million [to be confirmed]
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3.4. Additional action 1: Support for sustainable development in the uplands and
policy dialogue on relocation
This action is being taken within the context of the government’s broad rural development
policy of ‘stabilising’ settlement. The policy incorporates land allocation directives,
eradication of slash-and-burn agriculture and elimination of poppy cultivation, an increase in
agricultural productivity, and attempts to bring people closer to services such as education,
health care, and water and sanitation.
The government has in the past faced two major constraints in implementing its strategy:
firstly, the cost of preparing sites for relocation has far exceeded the government’s means;
secondly, suitable unoccupied land has been lacking in the quantities required. As a result,
access to agricultural land, forests and government services has in several cases been
inadequate to meet the needs of the relocated communities. Studies have demonstrated that
food security, health and the traditional culture of ethnic minority groups can suffer seriously
as a result. The allocation of land concessions to private investors has also had a significant
impact in farmers losing their land or being relocated, and has negatively affected
conservation areas and forests, biodiversity, and income from non-timber forest products.
Furthermore, the economic crisis may aggravate rural poverty as a result of the return of
migrants, and may make it difficult for farmers to find viable alternatives in former opium-
growing areas.
Social, economic and environmental benefits can be gained from better management of
development in the uplands. Allocating more resources will allow specific participatory
assessments of localised and adapted options for sustainable development. This approach
could significantly ease the difficult process of deciding whether villages should move or not
and, when they do, improve the outcomes of the transition.
Following a long preparatory process, the GoL has embraced the idea of joint programme-
based approaches to rural development in the northern and southern upland regions. While the
programme for the south is implemented by the ADB and IFAD, the GoL has invited the
European Commission, AFD, SDC and GTZ to join forces for a programme-based approach
for the north. The GoL’s long-term vision is to bring both programmes together under a
common development framework. For the EU, the focus on the north is of specific strategic
importance, as the northern uplands have been affected by major village relocation campaigns
in the past. The joint Northern Uplands Development Programme (NUDP) was formulated in
2009 and will be co-financed by the EU in its initial phase, with funds from the MIP 2007-10.
Following an assessment, this support might be continued under the MIP 2011-13. At the
same time, the GoL has acknowledged UXO contamination as a major hindrance to increased
agricultural productivity and rural development, and has played a leading international role in
bringing about a ban on cluster bombs. The GoL has invited development partners to support
its efforts for a major UXO clearance campaign in the coming years. The EU identifies
involvement in UXO clearance as a key element in its support for sustainable development in
the uplands, and will address this issue as a separate programme under the non-focal support
area for uplands rural development. If possible, it will establish a close linkage with the
NUDP.
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Objectives
The overall objective of EU support for this non-focal area is to contribute to rural poverty
reduction and to achieve sustainable development in the uplands. Specifically, the actions to
promote uplands rural development seek to secure, improve and sustain the livelihoods of the
rural poor in these areas, to create a constructive dialogue on current policy reform, and to
establish a programme-based approach based on GoL priorities, policies and implementation
systems. The actions relating to UXO clearance seek to increase the availability of safe land
and to reduce the number of UXO accidents related to farming and land cultivation.
Results
(i) Introduction of participatory and decentralised planning in villages in priority districts
using pro-poor methods;
(ii) Improved social infrastructure and rural livelihoods in highland villages with good
potential for economic and environmental sustainability in situ;
(iii) Improved health and livelihoods in recently relocated or consolidated villages;
(iv) Improved planning, use and management of land, including protection and sustainable
use of natural resources;
(v) Participatory preparation of new locations for voluntary village relocation, where
remaining in situ is not a viable option;
(vi) Better and more conducive economic environment for the poorest farmers;
(vii) Enhanced ability of poor households to negotiate market issues, to defend their rights
and to organise themselves;
(viii) Improved capacity of GoL staff at provincial, district, kumban and village level in needs
assessments, planning, and services delivery;
(ix) More safe arable land available to farmers, reduced risk of accidents due to UXO,
specifically in rural farming areas.
Activities
Activities under the NUDP are decided by the GoL and the EU in coordination with the other
development partners involved in the programme, on the basis of the joint programme
framework formulated in 2009.
UXO activities will be determined in line with the National UXO Strategy, which is currently
being updated, and with the main recommendations of the International Conference on UXO
due to take place in Laos in 2010. They should encompass de-mining activities, capacity
building for Lao personnel and institutions, and specific care for mine-affected people and
locations.
Implementation
The NUDP is scheduled to start in 2010 for a period of four years and can, subject to a
positive assessment by the EU, be continued using funds from this MIP. The EU will place
particular emphasis on respect for the rights of the ethnic groups living in the uplands regions
of Laos, with a particular focus on the status of women in the rural context.
The NUDP will initially be implemented in nine districts of three Northern provinces, where
lessons will be learned and fed into a programme based-approach for the agricultural sector in
all Lao uplands. The Ministry of Agriculture and Forestry (MAF) will implement the
programme, which will be financed by the EU, France, Switzerland and Germany. Synergies
and close coordination, as well as later integration, with other initiatives and programmes will
be sought.
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In addition, the EU will seek increased synergy and complementarities between the NUDP
and other EU-funded projects, particularly on food security. Under this MIP, UXO-related
actions will be given due attention and will seek to maximise the results obtained under EU-
funded rural development and food security projects. The appropriate implementation mode
for UXO activities will be defined in close consultation with the GoL and other development
partners.

Major risks are associated with the poor outcome of past efforts by the government to stabilise
the location of villages and to make their agricultural practices sedentary. These activities
have often resulted in a decline in the food security and health status of relocated villagers.
In the past the government has been reluctant to discuss its rural development policy and in
particular the issue of ‘stabilisation’. However, this is progressively changing, and the GoL is
showing more openness on the subject. Donor and NGO approaches to this issue differ
widely. Many international NGOs would prefer to support efforts to bring development
services to remote villages rather than bring the villages to the services. The administrative
environment needed for INGOs, NNGOs and CBOs to operate in an adequate and timely
manner is not yet in place, although significant regulatory changes were made in 2009. As a
mitigation strategy, the EU needs to remain involved in civil society issues through support
from thematic budget lines to foster the dialogue between the GoL and civil society.
The increasing effects of climate change pose a significant risk to rural communities,
particularly in relation to food security, infrastructure, protection against natural disasters, and
health. Appropriate adaptation, mitigation and risk management measures will need to be
incorporated into programmes wherever relevant.
Indicators
Indicators for the NUDP and a joint monitoring framework will be developed by MAF, in
close coordination with the development partners and covering all the programme
components. Indicators will relate to the objectives and expected results as specified above,
and could include e.g. regional economic growth and exports, establishment of free market
zones, establishment of kumban (cluster of villages) -level planning mechanisms, registration
of land titles and established settlement procedures for dispute, transparent and participatory
relocation decisions, mitigation processes for economic and social consequences of
relocation.
Indicators for UXO clearance will be developed with future implementation partners and
could include: quantities of removed ordnance, size of cleared areas (including arable land),
existence of qualified clearance teams, number of accidents, type of support for UXO victims.
Financial envelope
€ 9 – 11 million (to be confirmed), of which indicatively € 3 million for UXO clearance.
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3.5. Additional action 2: Governance — rule of law and human rights
Support for good governance is a core priority for EU development cooperation. While the
rule of law and the strengthening of human rights are important development goals in
themselves, good governance has an important cross-cutting dimension as it will help
implement reforms leading to desired results in other sectors as well.
In the context of cooperation with Laos, good governance was introduced with the CSP 2007-
13 as a non-focal area of cooperation. Concrete areas of cooperation under the MIP 2007-10
resulted from the policy dialogue in the informal Working Group on Institution Building and
Administrative Reform, Governance and Human Rights, which was established in 2005 and
has met regularly since then. Under the MIP 2007-10, activities focused on aligning local
legislation with existing international law, ensuring its better understanding by the National
Assembly, judiciary and administration, and institutional strengthening of the National
Assembly as a working parliament, in addition to an existing project to support
decentralisation efforts at province level. Activities were implemented under joint
management with UNDP, the leading development partner in the sector. Tangible results of
European Commission support include increased awareness among Lao lawmakers and legal
experts of existing international law and law standards, and some progress in the discussion
on the ratification of international law, including the International Criminal Court. The Lao
National Assembly has recently exercised its power to scrutinise government decisions. By
2009, a reduced master plan for the legal sector outlining the most crucial legal reforms and a
roadmap for 2020 was formulated and should provide a basis for future EU cooperation in the
sector. Under the MIP 2011-13, the EU will continue to support good governance mainly on
the basis of existing activities and established cooperation mechanisms. However, while the
focus of the MIP 2007-10 has been on capacity building and strengthening of government
institutions, the new MIP should provide an additional impetus to the strengthening of human
rights dialogue and the fostering of a civil society culture on the basis of new government
regulations introduced in 2009Consultations with CSOs and side-activities (such as seminars,
workshops and study tours) linked to the Working Group on Governance and Human Rights
can also be envisaged.
Objectives
The general objective for this area under the MIP 2007-10 is to support the GoL in its
activities in the fields of governance, rule of law and human rights. Specifically, EU support
aims to i) support the development of a civil society culture and local NSA activities in
development cooperation based on new regulatory frameworks introduced in 2009, and ii)
assist the GoL to develop a coherent, credible and predictable legal, financial and
administrative framework for all its citizens and to promote and protect all human rights,
including the specific rights of women and children,
Results
(i) The human, institutional, legal and organisational capacity of the GoL to address key
justice, rule of law and human rights issues will be enhanced.
(ii) Laos will effectively comply with the international treaties to which it is a signatory.
(iii) The Laos parliament is empowered and effectively represents and defends Lao citizens.
(iv) Lao civil society is empowered and contributes to the development of the country.
(v) The human rights dialogue between the EU and Laos is strengthened.
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Activities
Activities will be based on the possible areas of cooperation identified in consultation with the
government and with other DPs, civil society and the informal European Commission-Laos
working group on Institution Building and Administrative Reform, Governance and Human
Rights.
Implementation
Building on the experience under the MIP 2007-10, the EU will seek close coordination with
other development partners in this sector, specifically with a view to continuing existing
cooperation mechanisms and support activities.

The government has to be fully committed to and accountable for the reform process over the
long term, especially as wide-ranging reforms will be necessary. The active involvement of
the targeted institutions is crucial for the success of the programmes. Coordination between
and commitment of the different donors has to be assured.
Indicators
For the objective of developing a coherent, credible and predictable legal, financial and
administrative framework for all Lao citizens and the promotion and protection of all human
rights, the following indicators may be used:
• Improved participation in the legislative process;

• Parliamentary inquiries and fact-finding missions becoming routine;
• Increased public understanding of the role and function of the National Assembly;
• Staff of MoFA and other line ministries particularly Ministry of Justice (MoJ) and
students have received training;
• Up-to-date equipment and information sources are available and used in relevant
libraries;
• Legislation passed/reviewed in the field of human rights/good governance;
• Ratification of international treaties, number and type of international treaties and
conventions signed by GoL specifically related to Human Rights and good
governance;
• Frequency and level of participation in international/regional meetings dealing with
good governance/human rights.
For the objective of the development of a civil society culture and increased local NSA
activities in development cooperation, the following indicators may be used:
• number of Human Rights oriented civil society organizations obtaining their

registration
• number of meetings/discussions between authorities and civil society groups on
Human Rights and governance topics
• frequency and level of CSOs' participation to consultation with GoL on Human Rights
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Financial envelope
€ 2 - 4 million (to be confirmed)
3.6. Additional action 3: Trade

Trade generally has a high priority in EU development cooperation, recognising the role trade
can play in generating pro-poor growth. The Government of Laos emphasises the importance
of trade and private-sector development for sustainable economic growth in its NSEDP. The
EU will continue to play an active role in this area by building on the ongoing policy
dialogues under the PRSO and the activities of the previous MIP, particularly to support WTO
accession and SME development.
On the basis of the MIP 2007-2010, a multi-donor trust fund for a Trade Development
Facility (TDF) co-financed by the EU and Australia and administered by the World Bank was
set up in August 2008 to support implementation of the Integrated Framework’s DTIS Action
Matrix and the establishment of a National Integrated Framework Governance Structure for
coordinating trade-related assistance. The TDF has made satisfactory progress during its start-
up period and has the potential to achieve its objectives.
Assistance provided through the TDF and the SME Development Programme is consistent
with and complementary to the PRSO policy dialogue on trade and private sector
development (PSD), in addressing Laos' priority in the AFTA and WTO commitments. The
TDF provides direct technical assistance to support the reforms as specified in the PRSO
policy matrix related to trade facilitation. In addition, the SME Development Programme is
supporting the simplification of business registration, licensing and investment procedures.
TDF and SME Development Programme interventions supporting SPS/TBT regulatory
frameworks, capacity of the public/private sector and business intermediate will further
improve Lao business environment and competitiveness.
Objectives
To build on the achievements under the MIP 2007-10 to further enhance the capacity of the
GoL and the private sector to improve integration within regional and international trade
systems, leading to economic growth and in turn contributing to poverty reduction.
Results
The action will build on the MIP 2007-2010 and further strengthen the capacity of the private
sector, particularly SMEs, to participate in a globalised economy.
Specific results will be:

(i) Reduced poverty and sustained growth through enhanced trade performance and
private sector expansion as a consequence of the reduction of trade barriers and the
creation of an enabling business environment linked to the PRSO policy matrix.
Laos participating effectively and becoming more integrated in regional and
international trade systems;
(ii) Greater capacity for trade policy formulation and implementation, including
customs and border measures, trade facilitation, and ‘behind-the-border’
regulatory issues;
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(iii) Improved knowledge of Lao officials and improved legal and regulatory
framework (in particular on customs and SPS issues) and administrative capacity
to ensure compliance with WTO requirements;
(iv) Improved trade facilitation, leading to increased import/export flows and control
over transit flows;
(v) Stronger expertise on the part of Lao officials on subjects and issues covered under
comprehensive FTAs;
(vi) Strengthened capacity of the Lao private sector, in particular SMEs, to optimise
global trade opportunities.
Activities
The EU will continue supporting the implementation of the current DTIS Action Matrix,
covering the areas of trade facilitation, customs, SPS, and technical barriers to trade. Details
of additional activities will be agreed upon and further defined when the DTIS is reviewed in
2010. From the lessons learnt, the TDF can be a main resource of capacity building and
technical assistance to support the achievement of PRSO-related policy reforms. Strategic
linkages between TDF and PRSO can be further developed and expanded.
Implementation
Building on the foundations of the TDF, the EU will continue to support trade through this
joint programme-based approach. Further analysis of national capacity is needed to assess
whether a national system can be used by the future programme, taking into account the
efficiency and fiduciary risks in order to move forward on the aid effectiveness agenda. The
EU will also advocate a stronger linkage between the policy dialogues on trade-related
assistance and on SME development through a sub-sector working group. Possible support for
SME development might form part of the programme activities. The private sector will be
consulted during preparation and will be involved as much as possible during implementation,
including through support for government/private sector dialogue. This will also entail
reflection on economic opportunities for women.

Lao trade has not been severely affected by the 2008 global economic crisis. Preliminary data
suggest that exports in 2009 declined by 5-10 per cent compared to the same period of 2008,
mainly due to copper price variations. Trade is expected to pick up again in the coming years
thanks to a rebound in commodity prices and a quantitative increase in mineral, electricity and
agricultural production. However, the crisis confirms the need to accelerate the ongoing trade
reforms to improve the environment for private investment and trade. This has been
recognised by the Lao government.
The remaining risk related to TDF is the difficulty in coordinating technical assistance
activities in trade and private sector development due to the fact that Laos has still two
separate government structures implementing separate technical assistance programmes (IF
and SME). Donor coordination is challenging for IF implementations as there are many on-
going and pipeline projects assisting the implementation of the DTIS, including planned EIF
Tier 1 activities.3 The limited absorption capacity and a rapid increase in the implementing
3
EIF Tier 1 is a financing arrangement of the enhanced Integrated Framework (IF) aimed
specifically at strengthening country-level capacities for trade policy mainstreaming,
diagnostic studies, coordination of activities, etc.
EN 27 EN
agencies’ workload might have a negative impact on the quality of outcomes and the entire
process of aid coordination.
The government is well aware of this challenge. Hence it has established the Trade and
Private Sector Development Subgroup (TPSDSG) under the Round Table Process to serve as
a forum for coordinating trade and private sector development initiatives. Synergy among
different programmes is further ensured through the consultation and information sharing
among donors lead by the IF National Implementation Unit. The EU will continue supporting
the government to manage trade related assistance and assure that TDF is synergised with
new programmes of other developing partners. TDF has earmarked 11 % of the total funds for
strengthening the IF National Implementation Unit. Regular communication between EU
Delegation and related services in both DG AIDCO and DG TRADE will be maintained.
Indicators
The indicators identified in the MIP 2007-2010 remained unchanged:
(i) reduction in the cost and time needed for customs clearance;
(ii) increase in the value of official trade;
(iii) increase in customs revenue;
(iv) increase in the number of business operators registered;
(v) increase in the quality of inputs provided by the Ministry of Commerce in the WTO
accession process/AFTA.
Financial envelope
€ 2 - 4 million (to be confirmed).
3.7. Complementarity with regional and thematic budget lines

In terms of regional cooperation, Laos has so far benefited from the ‘Asia Programmes’ to
only a modest extent. The Mekong River Commission (MRC), as a regional organisation
based in Laos, has potential as a partner for the EU in the areas of natural resources
management and climate change.
Activities financed from several thematic budget lines will continue to complement the
bilateral cooperation activities under this MIP. Of particular relevance for Laos are:
• Health. EU support - mainly through the Global Fund to Fight AIDS, Tuberculosis and
Malaria (GFATM) and the Avian and Human Influenza Facility (AHI) contributions
and other regional and thematic budget lines - include the prevention and control of
communicable and non-communicable diseases in Laos and the implementation of
international health treaties to which Laos is a party.
• Food Security. As food insecurity is persistent in many rural areas, and since the EU
has been successful in establishing partnerships with several NGOs on the basis of
thematic budget line funding, this has become a financially significant complementary
measure to bilateral activities in agriculture and rural development. With funds so far
coming exclusively from thematic budget lines, the EU has become one of the most
important donors in this field.
• Non-State Actors / Local Authorities. Cooperation with non-state actors with funding
from relevant thematic budget lines has significantly increased under the present CSP
and has further potential. Reforms to the regulatory framework in Laos are expected to
EN 28 EN
make the establishment of new partnerships easier. Project proposals often focus on
food security, rural development and the provision of basic social services in remote
areas, thus representing important complementary actions to the EU’s bilateral
cooperation.
• Democracy and Human Rights. While relevant thematic budget lines have not yet
developed their full potential in Laos, the revised regulatory framework, particularly
for local associations, might offer more opportunities in the future. The refocusing of
the ‘governance’ non-focal area under the MIP 2011-13 might offer opportunities to
use the instrument more strategically.
• Thematic programmes for Natural Resources Management (e.g. FLEGT) and Climate
Change are of high relevance for Laos and dovetail with bilateral activities under the
MIP 2011-13 in several areas, e.g. agriculture, trade, governance.
These thematic activities are complementary to the strategic objectives pursued under this
MIP and form an important part of the policy dialogue with Laos, with financial resources
provided in addition to the MIP.
EN 29 EN
ANNEX 1A: LAO PDR AT A GLANCE - MACRO-ECONOMIC INDICATORS
source Basic data 2005 2006 2007 2008 2009e 2010e 2011f
A 1. Population (in million) 5,9 6,0 6,1 6,3 6,4 6,5 6,6
annual change in %
B 2. Nominal GDP (in billion $US) 2,8 3,6 4,3 5,4 5,8 n/a n/a
A 3. Real GDP (annual change un %) 7,1 8,1 7,9 7,2 4,4 4,7 n/a
4. Gross fixed capital formation (in % of GDP)
International transactions
F 5. Exports of goods and services (in % of GDP) 27.8 30.2 31.4 30.9 n/a n/a n/a
F 6. Trade balance (in % of GDP) -23 -13.6 -19.6 -22.4
A 7. Current account balance (in % of GDP) -17,2 -10,5 -18,0 -15,6 -11,7 -6,5 -10,7
B 8. Net inflows of foreign direct investment (in % of gross fixed capital formation) n/a 2,7 1,7 8,8 7,5 4,6 7,5
B 9. External debt (in % of GDP) n/a 97,1 104,5 96,6 97,8 n/a n/a
B 10. Service of external debt (in % of exports of goods) and non-factor services n/a 5,7 12,5 10,3 11,1 19,5 17,4
B 11. Forex reserves US$ m (in months of imports of goods and non-factor service) n/a 336 531 636 536 n/a n/a
EN 30 EN
Government
B 12. Revenues (in % of GDP) n/a 14,4 15,4 15,5 14,8 12,6 n/a
B of which: grants (in % of GDP) n/a n/a 1,7 1,3 1,6 1,6 n/a
B 13. Expenditure (in % of GDP) n/a 18,4 18,3 17 22,3 20 20,2
B of which: capital expenditure (in % of GDP) n/a 8,4 8,3 7,1 8,7 7,9 8,0
B 14a. Deficit (in % of GDP) including grants -3,8 -3,1 -1,8 -6,8 -4,5 -3,5 -3,3
B 15. Public Debt (in % of GDP) 63,1 59,1 53,1 54,5 55,7 54,8 53,4
Other
A 16. Consumer price inflation (annual average change in %) 7,2 6,8 4,5 7,6 0,2 2,6 4,0
E 17. Interest rate (for money, annual rate in %) [lending in local currency] 21.1 19 17.5 17.64 n/a n/a n/a
B 18. Exchange rate (annual average of kip per 1 US$) n/a 10,061 9,563 8,607 8,478 n/a n/a
D 19. Unemployment (in % of labour force, ILO definition) 1.36 n/a n/a n/a n/a n/a n/a
20. Employment in agriculture (in % of total employment)
Sources : A: International Monetary Fund; B: World Bank; c The Economist; D: Lao Population Census 2005; E: Annual Reports (2006-2008), Bank of Laos http://www.bol.gov.la , F:DG Trade, Laos-
EU Bilateral Trade and Trade with the World (2005-2009).
e: estimate ; f: forecast
EN 31 EN
ANNEX 1B: LAO PDR AT A GLANCE - INDICATORS DERIVED FROM MDGS
Key indicators 1990b 2006 2007 2008 2010e 2015t
1. Proportion of population below 1$/day in

46 n/a n/a n/a n/a 24
PPP (%)
2. Prevalence of underweight children (under

n/a 37 n/a n/a n/a 22
five years of age %)
170
3. Under 5 child mortality (rate deaths per 98
n/a n/a n/a 80
1000 live births) (2005)
(1995)
0,9 2
4. HIV prevalence rate of women aged 15-49
n/a n/a n/a <5
(commercial service women)
(in 2001) (2004)
14,0
5. Proportion of births attended by skilled 23
n/a n/a n/a 50
health personnel (2005)
(in 1994)
68
6. Proportion of 1 year old children immunised 69
n/a n/a n/a 90
against measles (%) (2005)
(in 1995)
58
7. Net enrolment ratio in primary education 84
n/a n/a n/a 98
(%) (2005)
(in 1991)
77
8. Ratio of girls to boys in primary education 97,9 n/a n/a n/a 100
(in 1991)
9. Primary school completion rate

48
62
n/a n/a n/a 95
(proportion of pupils starting grade 1 and (2005)
(1991)
completing grade 5 - %)
10. Proportion of population with using an

28 n/a 74 n/a n/a 80
improved water source (%)
1.6
11. Telephone land lines per 100 inhabitants 0.2 2 n/a n/a n/a
(2005)
12. Formal cost required for business start up n/a n/a n/a n/a n/a n/a
13. Time required for business start up (days) n/a 163 103 103 n/a n/a
4
14. GDP per person employed, annual %
4 n/a n/a n/a n/a
growth – [World Bank]
(2007)
15. Access of rural population to an all season

n/a n/a n/a n/a n/a n/a
road
16. Household electrification rate (%) n/a n/a n/a n/a n/a 80
1990b= baseline for MDGs ; 2010e= intermediate target / estimate ; 2015t= MDG target
Source: MDG 2008 report for Lao PDR, unless specified otherwise
EN 32 EN
ANNEX 2: SUMMARY TABLES MIP 2007-10 AND 2011-13
Table 1: Comparison of MIP 2007-10 and MIP 2011-13 Allocations
Allocations
Cooperation Areas MIP 2007-10 MIP 2011-13
€m % €m %
Focal Area: Support for GoL 19.2 58 20 56

reform agenda
Non-Focal Areas: 13.8 42 16 44
1 - Sustainable development in 8 24.2 11 31

the uplands / relocation
2 - Governance and Human 1.6 4.8 2 6

Rights
3 - Trade and Economic 4.2 12.7 3 8

Cooperation
Total 33 100 36 100
Table 2: MIP 2007-10 Implementation
Amount
Start End
€m
Focal Area: Support for GoL reform

19.2
agenda
Poverty Reduction Support Operation -

3.2 2007 2011
PRSO 3
Poverty Reduction Support Operation -

13 2009 2012
PRSO 4-7
PFMSP - Public Finance Management

3 2008 2012
Strengthening Programme
Non-Focal Areas: 13.8
1 - Sustainable development in the

8
Uplands / relocation
Northern Uplands Development

8 2010 2013
Programme (NUDP)
2 - Governance and Human Rights 1.6
EN 33 EN
International Law Project Phase III
0.5 2009 2012
Support to an Efficient Lao National

1.1 2009 2012
Assembly - SELNA
3 - Trade and Economic Cooperation 4.2
Trade Development Facility – TDF

4.2 2008 2011
Total 33
EN 34 EN
ANNEX 3: DONOR MATRIX – DISBURSEMENTS IN 2007
infrastructures
Industry, mineral resources
and
and
Commodity aid and General
Administrative Costs of Donors

Government and Civil Society
Banking and financial system

Water Supply and Sanitation
Refugees in donor countries

Business and other services
Multi-sector/cross-cutting
Emergency assistance
Forestry
Programme Assistance
and mining costruction
Transport and storage
Action related to debt

Population policies
Trade and tourism

Total by
Support to NGOs
in US dollars million
Communication
donor
Other social
reconstruction
and services
Unallocated/
unspecified
Agriculture,
Education
Energy
Health
fishing
All Present 11,1 5,9 0,1 3,4 14,4 4,3 9,5 2,8 0,1 0,1 2,6 32,2 2,1 0,6 15,0 1,6 0,3 2,0 1,3 0,2 0,0 1,8 111,4
Belgium 1,1 1,1 0,1 0,5 0,2 0,2 0,2 1,1 4,5
Denmark -0,3 -0,3
EC 2,4 0,2 0,3 1,0 2,2 0,6 0,7 0,6 0,8 0,0 8,9
Finland 0,3 0,1 0,3 0,1 2,4 0,6 3,7
France 3,7 0,1 2,4 0,8 1,9 21,1 3,1 0,3 0,0 0,7 0,2 1,3 35,7
Germany 1,6 0,2 0,4 1,5 0,4 2,9 2,8 2,5 2,4 0,6 6,3 0,9 1,2 0,0 23,8
Ireland 0,2 1,5 0,5 2,2
Luxembourg 0,7 4,2 2,7 0,4 0,1 0,8 1,5 0,6 0,4 11,3
Netherlands 0,1 0,1
Sweden 1,2 0,3 0,0 4,5 1,2 6,4 0,0 2,8 1,5 2,0 0,1 19,9
United Kingdom 1,7 1,7
Major non-EU donors 6,9 10,6 0,9 6,3 18,2 2,7 28,0 0,7 1,9 1,2 5,7 8,7 1,4 1,4 8,2 9,6 0,0 0,0 0,0 2,5 0,0 1,3 116,4
Australia 1,3 3,0 4,2 0,0 5,7 1,3 0,8 3,9 20,3
Canada 0,5 0,0 0,3 0,3 1,1
China 0,0
EN 35 EN
EN
FAO
India
Other
Japan
UNDP
Others
UNIDO
UNFPA
Norway
UNDCP
Vietnam
UNICEF
UNAIDS
Thailand
UNESCO
Switzerland
Global Fund
South Corea
New Zealand
United States
International
Organisations
Education
0,4
0,4
0,8
0,3
4,4
Health
9,1
0,5
0,1
8,5
0,1
7,0 Population policies
5,4
0,4
1,4
0,2
0,2
3,1
0,0
0,1
0,8
0,3
0,3
0,6
5,7
3,5
0,2
3,3
0,8
1,5
0,5
0,5
10,6
Other social infrastructures
0,4
0,4
0,1
0,1
2,6
and services
0,3
0,3
28,0
Communication
0,0
0,4
Energy
0,0
0,1
0,5
1,3
36
0,0
1,2

0,0
Agriculture, Forestry and

0,0
2,5
0,2
0,6
4,2
fishing
0,0
0,0
0,0
1,4
Trade and tourism

0,0
0,1
0,5
0,8
0,4
0,5
0,2
1,4
0,1
0,1
2,3

0,6
0,6
9,6

0,0
Emergency assistance and

0,0
reconstruction

0,0
Support to NGOs
0,0
0,5
2,0

0,0
Unallocated/
0,0
0,1
1,2
unspecified
0,0
2,6
1,4
0,0
4,9
0,0
0,2
0,0
0,0
0,0
0,0
1,4
0,0
5,6
0,0
2,9
2,0
0,0
20,8
11,6
83,1
donor
Total by
EN
EN
% EC
Total by sector
Others
WB
OPEC
JBIC
IMF
ADB
Financial Institutions
WHO
WFP
Ministry of Planning, Department of International Cooperation, data non available. Data extracted from OECD website.
18,4
0,1
0,0
Education
25,6
0,0
0,0
Health
0,0
6,3
0,0
Population policies
10,0
0,0
0,0
36,2
0,0
0,0
Other social infrastructures

0,0
7,4
0,0
and services
37,8
0,0
0,0
0,0
3,5
0,0
Communication
0,0
1,9
0,0
Energy
37
0,0
1,3
0,0

0,0
8,3
0,0
Agriculture, Forestry and

41,0
0,1
0,0
fishing
0,2
3,5
0,0

0,0
2,0
0,0
Trade and tourism

24,0 11,8
0,0
0,0

0,1
0,0
0,0
0,3
0,0
Emergency assistance and

0,4
2,0
0,0
reconstruction
0,0
1,3
0,0

0,0
2,7
0,0
Support to NGOs
0,0
0,0
0,0
Unallocated/
0,0
3,0
0,0
unspecified
Total by
donor
248,6
0,9
0,0
0,0
0,0
0,0
0,0
0,0
0,0
0,0
0,0
EN
Net ODA Receipts (USD million) GNI/CAP (d) Population Current ODA/GNI
GNI
2003 2004 2005 2006 2007 2007 2007 2007 2007
USD million USD per cent

million
301 270 296 364 396 580 5,86 3 637 10,90
EN 38 EN
ANNEX 4: CSP 2007-13 LOGICAL FRAMEWORK MATRIX
(italic: comments on risk mitigation, achievement of results, and data on indicators under MIP 2007-10)
Overarching Objective:
Support to the Achievement of the MDGs and Poverty Reduction in Lao PDR
Focal Area: Support to the Government of Lao PDR's Reform Agenda
MIP 2007-10 MIP 2011-13
General Objective: to facilitate attainment of the Government's General Objective: to support poverty reduction policies underpinned
national development policy objectives in the NSEDP through a series of key government economic and social
reforms
Risks
• Failing GoL commitment to reforms, resulting in poor policy • Government’s uneven commitment to some of the reforms;
performance and unclear accountability between institutions;
GOL overall commitment to the PRSO reforms has been high during the last two
years; progress has been faster in certain areas receiving complementary specific • High fiduciary risks resulting in diversion of funds away from poverty
technical assistance. Institutional framework created by MOF for coordination reduction priorities;
has been critical to maintain reform impetus and to increase accountability.
• Severe capacity constraints and skills shortage in the civil service;
• Standard fiduciary risks in general budget support operations

Revision of Budget Law completed between 2007 and 2009. Institutional • Provincial autonomy without adequate monitoring and accountability
framework strengthenedBudget transparency decreased in the latest official mechanisms;
gazette where details on military expenses are not available anymore for the first
time.
• Potential deterioration of the macroeconomic situation in the wake of the
global financial crisis;
EN 39 EN
Results:
• Strengthening public financial management systems for revenue • Efficient management of public sector resources
collection as well as allocating, executing and monitoring public
expenditure, at both national and provincial levels. This includes
strengthening revenue collection, financial discipline and restructuring of • Creation of conditions to increase social service delivery with a view of
State-owned banks and enterprises, as well as a reform of public utilities reducing poverty in line with the country's MDG goals
such as electricity and water.
Public financial management has been improving during the implementation of
PRSO. Revenue collection and financial discipline have particularly received • Introduction of key reforms in the context of a medium-term development
attention as evidenced by the stable fiscal situation until 2008. The GOL has strategy in the public sphere to sustain growth
brought state-owned utilities into cost recovery levels and regular tariff levels
increases have been decided. State-owned banks (SOB) have been regularly
audited by independent and international companies. Two SoB have met
operational and financial targets and were eligible to be recapitalised by the
Ministry of Finance in 2006 and 2007.
• Increasing the impact of public spending in terms of poverty reduction

by aligning budget resources with pro-poor National Development
Strategy goals. Public expenditure will be redirected to basic services
that improve human development outcomes.
GOL commitment to rise funding to the social sectors is confirmed by the data on
budget allocation since 2005 showing steady increase. However deeper sectoral
reforms are needed to ensure an efficient allocation of resources and a translation
into better service delivery.
• Promoting sustained growth through a stronger private sector, a greater

volume of trade and sustainable management of natural resources. This
involves improving the business environment, making progress on
implementing AFTA commitments and managing forests and rivers more
sustainably.
Oversight of the State-Owned Enterprises strengthened and new Enterprise Law
adopted between 2007 and 2009 as important steps in continuing the shift from a
planned to a market economy.
EN 40 EN
Indicators
• PEFA indicators • Headcount poverty in Lao PDR (international $1.25 poverty line 27.6% and
national poverty line 37,4% in 2007/08)
(PEFA assessment ongoing currently and final results are expected tentatively in
May 2010)
• PI-1 Aggregate expenditure out-turn compared to original approved
Additional specific indicators to monitor reform progress and related effects on
budget
poverty reduction will be selected and agreed with the government at programme
• PI-24 Quality and timeliness of in-year budget reports formulation amongst the following sources and according to the areas of reform.
• PI-6 Comprehensiveness of information included in budget Some examples of indicators that could be included are listed below:
documentation
• PI-8 Transparency of Inter-Governmental Fiscal Relations
• PI-10 Public Access to key fiscal information
• PI-16 Predictability in the availability of funds for commitment of • GoL monitoring and evaluation framework for the NSEDP (under
expenditures preparation final version will be presented to Development Partners in
• PI-26 Scope, nature and follow-up of external audit November 2010)
o Literacy rate of 15-24 year-olds, women and men (84 in 2005)
o Proportion of births attended by skilled health personnel (23 in
2005)
Although assessment PEFA indicators is not available yet, substantial progress
has been made in the overall public financial management reform program
(PFM). Key PFM reforms implemented to-date by the government include: (i) • Indicators of PRSO policy matrix (will be aligned as much as possible to
establishing a centralized control over all provincial and ministerial spending NSEDP indicators and will be selected at programme formulation tentatively
accounts, representing about 80 percent of total budgetary resources; (ii) revising planned for 2011)
of the budget classification system to be consistent with the IMF GFS statistics, o Number of businesses registered with tax authority
and implementing it for FY2008/09 budget (iii) publishing -- with expanding o % share of credit to private sector
coverage and improved timeliness -- the annual budget and outturn reports; (iv) o Recurrent education expenditure
mandating minimum spending on health and education sectors by provincial o Primary school enrolments
governments from FY2008/09; and (v) improving the legislative framework o Recurrent health expenditure
governing public financial management and external audit. o % of population enrolled in health security schemes schemes
• Increase in percentage of expenditure on the health and education • PEFA indicators to measure progress in Public Finance Management reforms
sectors: for health from 5.5% to 7.5% of the budget by 2007, and for (PEFA assessment ongoing currently and final results are expected
education from 11% in 2005 to 13% by 2007; tentatively in May 2010)
o PI-1 Aggregate expenditure out-turn compared to original approved
The percentage of the budget allocated to Education between FY 2003/04 and FY budget
2006/07 increased to 14.5% while there has been a decline in health to 2.8%. The o PI-24 Quality and timeliness of in-year budget reports
o PI-6 Comprehensiveness of information included in budget
EN 41 EN
latter is due almost entirely to the decline of donor-financed infrastructure. documentation
o PI-8 Transparency of Inter-Governmental Fiscal Relations
If donor spending is excluded from the calculation, spending as percent of total o PI-10 Public Access to key fiscal information
spending grew in education (from 9.2 to 11.9 percent) and health (from 3 to 3.2 o PI-16 Predictability in the availability of funds for commitment of
percent) expenditures
o PI-26 Scope, nature and follow-up of external audit
• % of total primary school enrolments accounted for by 47 priority

districts
School enrolments in the 47 priority districts have increased from 28.4% in 2006
to 30.4% in 2008.
• Improved textbook/student ratios: from 1:5 in FY 2004/05 to 1:1 in

FY 2006/07 in grades 1 and 2;
This indicator has not been measured within the PRSO. PROS4-7 measures the
average student/textbook ration in 47 priority districts. In 2006/7 the percentage
was 4.7 and the target is to see a decrease by 2011.
• Halving the delays in payment of teachers’ salaries: from 20% of

teachers’ salaries with over two months’ delay in 2004 to less than 10%
with any delay in 2007.
Government improved the timeliness of payment of salaries to teachers and health
workers during PRSO-3 from the benchmarks established in PRSO2 (in the case
of teachers, a stock of salaries outstanding more than 1 month of 6 percent of one
month’s payroll). The last report mentioned by the WB in the PRSO3 document
(Q4 of FY05/06) showed no deviation from the trend of improving timelines of
payments in comparison to the benchmark. The report for Q1 of FY06/07 shows
that the salary payment timelines have improved as the salary arrears were
reduced from 8% in Q2 2005/6 to 2.9% in Q1 2006/7.
• Pilot community school grants programmes implemented: from zero in

2004 to 500 grants in 300 villages in FY 2006/07.
EN 42 EN
This indicator has not been measured within the PRSO process due to the
postponement of the establishment of the school block grants by the Government
until the strategy and the legislative framework are in place. The PRSO is
supporting preparation of those steps. Some community school grants have been
set up within donor funded projects although the exact number is not known.
• Increase in percentage of health expenditure going to district hospitals

and health centres: from 22% in 2003 to 45% by 2007.
This indicator has not been measured within the PRSO process and no data is
available.
In the current system health spending in Lao PDR is predominantly the

responsibility of provinces which reduces the ability of the central authorities to
implement national programs. Thus national consolidated data on this indicator
is currently very difficult to obtain. Measures are being taken to improve
availability of this type of data and the ongoing preparation of the health
financing strategy as well as the work on the budget norms should help.
• Number of health personnel in 47 priority districts

The Government has maintained a steady increase of the number of health
personnel available in the 47 priority districts in its efforts to improve health
services in the priority districts. The indicator has increased from 1644 in 2006 to
1998 in 2009.
• Private sector development and improvement of the investment climate -

Number of days to start-up a business
This indicator has decreased from 183 in 2006 to 145 in 2009 showing an
improvement in the legislative framework supported by PRSO reforms.
• Trade facilitation (see under non-focal area below for more details)-
Number of documents to export and import
EN 43 EN
This indicator has decreased from 12.16 in 2006 to 9.10 in 2009 reflecting
government efforts to reduce trade barriers under the PRSO.
Additional Action 1: Support to sustainable development in the Uplands and policy dialogue on relocation
MIP 2007-10 MIP 2011-13
General Objective: to contribute to poverty reduction, food General Objective: to contribute to rural poverty reduction and to
security and environmental and cultural sustainability through achieve sustainable development in the Uplands
support to sustainable development in the uplands and dialogue on
reform of current policy
Specific Objective 1: to secure, improve and sustain livelihoods of the

rural poor in these areas, to create a constructive dialogue on current
policy reform, and to establish a programme-based approach based on
GoL priorities, policies and implementation systems
Specific Objective 2: to increase the availability of safe land and to

reduce the number of UXO accidents related to farming and land
cultivation
Risks:
• International perception of GoL village relocation policy might hamper • International perception of GoL village relocation policy might hamper
donor community support; donor community support;
GoL has been recently more open to discuss issues of relocation and seems to take
into account international advice. The NUDP will offer a platform for a more
coordinated and systematic approach. • GoL reluctance to discuss rural development policy and ‘stabilisation’ with
development partners;
• GoL reluctance to discuss rural development policy and ‘stabilisation’ • Differing perceptions and approaches between donors and NGOs on delivery
with development partners; of services to rural communities;
EN 44 EN
This is increasingly addressed at GoL level; the initial programme document of
the NUDP includes references to these issues. The EC and other NUDP partners
share a common understanding and pragmatic approach. • Administrative environment for INGOs, NNGO and CBOs to operate in an
adequate and timely manner not yet established, although significant
regulatory changes have taken place in 2009;
• Differing perceptions and approaches between donors and NGOs on

delivery of services to rural communities;
EC established practice prevents development support to recently relocated
villages so as to avoid "validating" uncoordinated GoL policy. Issues of
relocation are constantly addressed through the prism of poverty and poverty
reduction.
Results
• Introduction of participatory planning in villages in priority districts; • Introduction of participatory and decentralised planning in villages in
priority districts using pro-poor methods
• Improved social infrastructure and rural livelihoods in highland villages

with good potential for economic and environmental sustainability in • Improved social infrastructure and rural livelihoods in highland villages with
situ; good potential for economic and environmental sustainability in situ
• Improved health and livelihoods in recently relocated or consolidated • Improved health and livelihoods in recently relocated or consolidated
villages; villages
• Improved planning and preparation of new locations for village • Participatory preparation of new locations for village voluntary relocation,
relocation where remaining in situ is not a viable proposition and where remaining in situ is not a viable option
villagers are willing to move.
Despite delays in the programming of the NUDP, several achievements can be
noted :i) a diagnostic study and a feasibility study have been conducted; ii) • Improved planning, use and management of land, including protection and
extensive joint work amongst DPS and between DPs and GoL to prepare the sustainable use of natural resources
project document has taken place; iii) a clear commitment from DPs to the NUDP
is now shown; iv) there is an increased understanding and cooperation amongst
DPs, v) the NUDP is taken as a model by GoL; vi) GoL seems to be willing to • Better and more conducive economic environment for the poorest farmers
review its policy on land concession. As shown by the indicators adopted by the
GoL in the NUDP (draft) programme document, there is a clearer will to discuss
EN 45 EN
and address so far sensitive issues. • Enhance position of poor households to negotiate market issues, to defend
their rights and to organise themselves
• Improved capacity of GoL staff at provincial, district, kumban and village

level in needs assessments, planning and services delivery
• More safe arable land available to farmers. Risk of accidents related to UXO
reduced specifically in rural farming areas
Indicators
• food security, measured in terms of number of months of rice sufficiency • (joint monitoring framework for NUDP to be developed by MAF)
for each village;
• food production, measured in terms of increases in rice, other cereal,
vegetable and livestock production and labour input per hectare • (Indicators for UXO clearance to be developed with future implementation
cultivated or per tonne of rice production, broken down by gender; partners, e.g. quantities of removed ordnance, size of cleared areas, existence
• alternative livelihoods, measured in terms of introduction of and of qualified clearance teams, number of accidents, type of support to UXO
increases in non-traditional and cash crops, wage labour, non-agricultural victims)
businesses and income-earning ventures;
• health status, measured in terms of numbers of protected water supplies
installed, increases in malaria prevention practices, recorded mortality
and morbidity rates;
• service delivery indicators, including numbers of visits by extension
staff, vaccinations administered, numbers and proportions of children in
school, and literacy rates;
• cross-cutting indicators, such as environmental impact assessment
reports, gender impact reports and cultural impact reports.
• specific indicators in accordance with the EC and World Bank policies
on Indigenous Peoples
(a comprehensive monitoring framework including the specified indicators will be

developed under the Northern Uplands Development Programme to start in 2010)
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Additional Action 2: Governance – Rule of Law and Human Rights
MIP 2007-10 MIP 2011-13
General Objective: to support the Government in its activities in General Objective: to support the Government in its activities in the
the fields of governance, rule of law and human rights fields of governance, rule of law and human rights
Specific Objective: to assist the Government of Lao PDR to Specific Objective 1: to assist the Government of Lao PDR to develop
develop a coherent, credible and predictable legal, financial and a coherent, credible and predictable legal, financial and administrative
administrative framework for all citizens and to promote and protect framework for all its citizens and to promote and protect all human
all human rights rights
Specific Objective 2: to support the development of a civil society

culture and local NSA activities in development cooperation based on
new regulatory frameworks introduced in 2009.
Risks:
• Uncoordinated donor support; • Uncoordinated donor support;
• Lack of GoL commitment to reforms; • Lack of GoL commitment to reforms;
Results
• The capacity of the GoL to address key justice, rule of law and other • The human, institutional, legal and organisational capacity of the
human rights issues will be enhanced Government of Lao PDR to address key justice, rule of law and other human
rights issues will be enhanced
• Lao PDR is effectively compliant with the International Treaties to which it
• Lao officials have increased knowledge on International Law including is a signatory
Human Rights, International Humanitarian Law, International Private • Lao PDR Parliament is empowered and effectively represents and defends
Law and anti-corruption legislation Lao citizens
• Lao Civil Society is empowered and contributes to the development of the
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country
• The Human Rights Dialogue between the EC and Lao PDR is strengthened
Indicators
• Reform of the legal system: adoption and ratification of laws and treaties • Improved participation in the legislative process ;
• Parliamentary inquiries and fact finding missions become routine;
Lao PDR is now party to almost 100 multilateral treaties, over 100 ASEAN
treaties and regional treaties and over 300 bilateral treaties. • Increased public understanding of the role and function of the National
Assembly;
• Number of MoFA and other line ministries and students who received
training;
• Capacity of Lao officials: judicial knowledge and instrumental skills • Equipment available and used in the libraries;
Several trainings and workshops have been organized targeting government
officials, judges and law students; a yearly Law Forum has been organized; an
Official Gazette officially notifying the treaties binding on the Lao PDR as a State
Party has been published.
Additional Action 3: Trade
MIP 2007-10 MIP 2011-13
General Objective: to provide trade-related assistance to Lao PDR General Objective: to enhance Lao PDR’s capacity to integrate with
to enhance its capacity to integrate into regional and international regional and international trade systems, leading to economic growth
trade systems, leading to economic growth and in turn to reduction and in turn to reduction of poverty
of poverty
Risks:
• Uncoordinated donor support; • Uncoordinated donor support;
The Integrated Framework (IF) process has considerably fostered donor
coordination. EC TRA activities are coordinated with other donors as part of the
on-going IF exercise. The TDF is well supported by all stakeholders and any • Lack of GoL commitment to reforms;
future contributing partners will be encouraged to participate through this
structure.
• Lack of GoL capacity (staff and resources);
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• Lack of GoL commitment to reforms;
The Government has shown strong commitment to complete the accession process
into the WTO. Trade and private sectors have been included as priority areas in
the current NSEDP and it is foreseen that an even stronger emphasis will be made
on these sectors in the upcoming 7th Plan. Following on the recommendations
made in the Diagnostic Trade Integration Study, the GoL has furthermore shown
its strong commitment and leadership to implement Aid for Trade activities while
following a Sector Wide Approach. In Lao PDR, this is done under the National
Integrated Framework Government Structure (NIFGS) (reflecting the WTO IF
concept). This lengthy process involved not only the adaptation of the GoL
internal structure to incorporate the IF and Trade Development Facility (TDF)
structure, but also helped in the establishment of a Sub-working Group on Trade
and Private Sector Development to enhance the overall coordination mechanisms
and strengthen linkages between the two inter-related sectors
• Lack of GoL capacity (staff and resources);
The current relatively low capacity of the Government of Lao PDR to manage
TRA was one of the 'raison d'etre' of the TDF, i.e. its specific objective is to
support the establishment of the NIFGS through a National Implementation Unit
(NIU) (capacity building is one of the main components of the TDF). It is
expected that with these structures fully operational the implementation of
activities as set out in the IF Action matrix will accelerate and with that, the
absorption capacity of the GoL to receive and manage additional 'Aid for Trade'
funds will increase. A pre-requisite is the channeling of further future TRTA funds
through existing government systems and structures, such as the TDF. A recent
result-oriented monitoring report of the TDF showed that there is a very high
potential for the TDF to achieve its targeted objectives. TDF has set up systematic
knowledge transfer to ensure capacity building within the government to take over
the overall management of future TRTA to Laos.
Results
• Reduction of poverty, thanks to enhanced trade performance • Reduced poverty and sustained growth through enhanced trade performance
and private sector expansion as results of the reduction of trade barriers and
(no data available, due to insufficient poverty data).
the creation of an enabling business environment as being supported
currently under the PRSO
• Lao PDR will participate effectively and become more integrated in regional
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• Lao PDR will participate effectively and become more integrated in and international trade systems
regional and international trade systems • Greater capacity for trade policy formulation and implementation, including
customs and border measures and trade facilitation and “behind-the-border”
Export share to GDP has increased steadily, from an average of 24.6 % of the
regulatory issues
year 2004-2007 to 30% in 2008. The share is relatively low compared to other
• Improved knowledge of Lao officials and legal and regulatory framework (in
countries in the region.
particular of customs and SPS issues) and administrative capacity to ensure
compliance with WTO requirements
• Improved trade facilitation leading to increased import/export flows and
• Greater capacity for trade policy formulation and implementation, control over transit flows
including customs and border measures and trade facilitation and • Stronger expertise on the part of Lao officials on subjects and issues covered
“behind-the-border” regulatory issues under comprehensive FTAs, and better understanding of the
interests/priorities/consequences /impact of negotiating future FTAs
Reforms of customs and trade facilitation are ongoing.
• Capacity of Lao private sector in particular small and medium enterprise is
strengthened to optimise global trade opportunity
• Improved knowledge on the part of Lao officials of the legal and

regulatory framework (in particular of customs and SPS issues) and
administrative capacity to ensure compliance with WTO requirements
Since 2002, Lao PDR has adopted and amended 20 laws and 35
decrees/regulations in relation to WTO requirements. In 2009, three SPS related
laws were passed. Currently, 18 Laws and decrees are pending.
• Improved trade facilitation leading to increased import/export flows and

control over transit flows;
Reforms of customs and trade facilitation are ongoing.
• Revised legal and regulatory framework with better implementation and

enforcement;
Refer to WTO-related legal reforms on SPS, TBT, TF (customs and non-customs
clearance) and investment. Implementation and enforcement of these laws is at an
early stage. These will become prominent in post-WTO accession after 2011.
• Stronger negotiating skills on the part of Lao officials;
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The Lao Business Forum is a main public-private dialogue/consultations platform
to ensure the interests of private sector are covered when GoL negotiates trade
agreements.
• Stronger expertise on the part of Lao officials on subjects and issues

covered under comprehensive FTAs, and better understanding of the
interests/priorities/consequences /impact of negotiating future FTAs.
(awaiting data from the TDF RFM)
Indicators
• reduction in the cost and time needed for customs clearance; • reduction in the cost and time needed for import-export including customs
clearance and other related procedures/documents;
The World Bank's Doing Business report has verified the progress of PRSO's
• increase in the value of official trade;
Indicators on "Reduce trade barriers and proceed with implementation of
international and regional agreements - Streamlined cross-border procedure" as • increase in customs revenue;
follows: • Increased number of business operators registered.
• increase in the quality of inputs provided by the Ministry of Commerce in
- Number of days to export and import was reduced from 66, 78 in 2006 to 50, 50 the WTO accession process/AFTA.
in 2008 with the target of 32, 33 in 2011
.- Number of documents to export and import was reduced from 12, 16 in 2006 to
9, 10 in 2008 with the target of 7, 8 in 2011.
• 2. increase in the value of official trade;

Total trade value of 2007 was $ 3,100 million and 2008, $ 3,750 million.
• 3. increase in customs revenue;

WB estimates that customs automation may contribute to the increase of Customs
revenue collection on non-petroleum. Figure will be available when the
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automation is completed by 2012.
• 4. increase in the number of business operators requesting a licence;

The data of the Tax Department showed that the Number of businesses registered
with tax authority was 47,320 units in 2008 increased from 32,763 in 2007.
• 5. increase in the quality of inputs provided by the Ministry of Commerce in

the WTO accession process/AFTA.
WTO accession is ongoing. MOC is taking a leading role in the accession
process.
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ANNEX 5: DESCRIPTION OF THE MTR DOCUMENT DRAFTING PROCESS
Background on consultations:
Consultations for the Mid Term Review of the country strategy for Lao PDR took place between
January and October 2009. A kick-off event was held on 29th January 2009 in Vientiane with
Government of Laos (GoL), Donors, and Civil Society in order to explain the MTR process and for
feedback on new issues and lessons learnt from earlier cooperation. GoL officials were drawn
principally from the policy planning and operational departments of the key line ministries, the
Department of International Cooperation (DIC) in the Ministry of Planning and Investment, and
from the Ministry of Foreign Affairs (MOFA). The donors group comprised all the main bilateral
donors (including EU MS) and international organisations active in Laos.
Since civil society is not well developed in Laos and limited to either Mass Organisations or
international NGOs (INGOs), the choice of participants was limited. Representatives from 17
organisations participated in the consultations, including 8 INGOs. In addition representatives of
the National Assembly were invited.
These consultation meetings were held back-to-back with a presentation of the 2008-09 Country
Evaluation of the EUs development cooperation with Laos, which allowed participants to better
understand the context in which the MTR was taking place and offered lessons learnt from earlier
cooperation. In each meeting the MTR process was presented by RELEX and AIDCO desks, and
chaired by the Delegation. The MTR questionnaire was handed out in the civil society meeting to
encourage feedback.
Specifically for the EU MS, the MTR process was further explained and discussed at a HOM's
meeting held on Friday January 30th at which Austria, Belgium, France, Germany, UK,
Luxembourg, Sweden, and EU Delegation participated.
The MTR process was also part of the agenda for the Working Group on Trade and Cooperation
and the Joint Committee meeting between Laos and the European Commission on 9 March 2009.
The final draft MTR document prepared by the Delegation was then again presented to EU Member
States resident in Laos on 28 September and to Civil Society representatives on 12 October for their
feedback. The comments received throughout the process have been incorporated into the draft
document and are summarised as follows:
Consultation with Government:
The meeting on 29 January was co-chaired by the Deputy Director of DIC. DIC noted the
importance of improved coordination between Development Partners and the Government and
hoped the EU would continue taking an active role in this. DIC considered the MTR process a good
participatory initiative and confirmed they would like to maintain the focal sectors. Line ministries
were requested to send in written comments to DIC and the EU Delegation. MOFA asked for
further elaboration on donor coordination and the EU Code of Conduct and how this might be
related to the MTR process. MOFA Director for Europe expressed the view that no major
adjustments in the EU's strategy were needed, but noted the new difficult economic situation and
hoped that despite this the EU would be able to maintain or increase the country allocation.
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In addition, the MTR dialogue with Government was taken further in the Working Group on
Cooperation held on the 9th March prior to the Joint Committee meeting the same day, and has been
reported on in the agreed minutes. Both parties appreciated the concentration on a limited number
of cooperation areas and the move towards programmes und the MIP 2007-10, which has
strengthened the relationship between Laos and the EU beyond individual projects to a wider and
comprehensive partnership based on policy dialogue. This is seen as an avenue to be taken further
Consultation with Donors:
17 donor representatives participated in the meeting on 29 January and made the following key
suggestions:
i) the 2008-09 economic crisis will also affect Laos, and the implications need to be taken into
account in the review;
ii) while recognising the valuable support of EU to PRSO, economic reform and trade, coordination
specifically between the areas of Trade and Small and Medium-size Enterprise development should
be strengthened;
iii) closer ties could be developed between EU and other donors in regional cooperation;
iv) acknowledgment of improved coordination between the Commission and EUMS, such as the
monthly cooperation meetings, the EU Delegation’s role in the Vientiane Declaration(VD)/Country
Action Plan (CAP) and in the Uplands Rural Development Sub-Working Group;
v) the EU should pursue and deepen its interests in the field of human rights and is perceived as a
development partner which “does not only have the competence, but also the courage” to discuss
sensitive issues with the Government ;
vi) the EU will have wider influence if it maintains a mix of instruments in Laos and does not focus
exclusively on budget support;
vii) the Commission has an important role to support NGOs and could lobby GoL to register local
NSAs;
viii) the EU could assist in developing a stronger link between donor strategies and national plans
to eradicate drug production and trans-national criminal activities (aligning with GoL's sectoral
plans, in this case the Drug Control Master Plan), and strengthening their oversight in HIV/Malaria
Global Fund and giving more attention to the legal framework of women’s access to the justice
system.
In a meeting with EU Development Councillors and Member State agencies (AFD, DED, GTZ,
SIDA) on 28 September, the draft MTR document was presented and shared, and participants were
invited to submit comments. However, no comments were received ahead of the formal
consultation process with MS ahead of the DCI Committee Meeting.
Consultation with Civil Society:
The key points made in the discussion on 29 January were:
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i) Representatives of the National Assembly emphasized the role of civil society and non-state
actors for development;
ii) The specific difficulties of NGOs in Laos, operating under a rather undefined national regulatory
framework and with many small and scattered projects and many cross-cutting issues to deal with
needs to be recognised. Support to expanding the space for civil society should be an element in the
modification of the CSP as well as a wider definition of civil society to embrace rural groups. The
EU should lobby for improvements in the new INGO Decree proposed by GOL;
iii) There is need for longer-term funding to NSA's to encourage programme-based planning also on
their side, moving away from short-term funding for relatively small projects;
iv) Where the EU provides budget support, there should be a role for NSAs to challenge and hold
the Government accountable; Civil society should be able to play a watchdog role but in Laos they
are not yet given the necessary freedom of expression;
v) Laos has signed the ASEAN-charter, which makes provisions for establishing Human Rights
mechanism (AICHR) in the partner countries and promoting democratic reform – this should be
recognised by the EU;
vi) In a volatile economic environment dominated by the neighbouring countries, particularly

China, the Commission should use its leverage to promote responsible development by the new
donors and to use its leverage (such as EC support in trade and economy) to counter the lack of
transparency in business practices in Laos, especially those involving foreign purchases of land and
natural resources;
viii) The signing of the Oslo Convention on Cluster Munitions removes conditions expressed by
some donors on UXO clearance and victim assistance – the EU should provide assistance on a
larger scale now ,
These issues raised at the beginning of the MTR process were reviewed again, together with an
outline of the draft MTR document in a meeting with selected NGO partners on 12 October in
which three national and 18 international organisations were represented. Participants confirmed the
strategic approach chosen by the EU for MIP 2011-13 but raised three important points with
implications beyond the scope of the country programme:
• With an increasing move towards coordinated programmes and sector-wide approaches,

how can the contributions of NGOs be integrated? Financing instruments for NGOs have
usually a limited thematic and geographic focus, and project durations are usually short.
This does not allow for significant contributions to sector dialogue and sector programmes.
• The competitive selection process in Calls for Proposals makes it difficult for NGOs to enter
into a longer-term policy dialogue and joint programming with the EU. It is unclear for
many NGOs to which extent their activities are part of the country strategy and how they
can actively contribute to this strategy.
• The hurdles for local organisations in participating in competitive Calls for Proposals of the
EU are perceived as very high in a country like Laos. There is a language barrier, and the
EU should think about publishing Calls also in Lao. More generally, the EU should think
about funding windows specifically for small local NGOs.
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ANNEX 6: BUDGET SUPPORT IN LAO PDR
General budget support is the selected aid modality to implement the focal area of the EU Strategy
Paper 2007-2013 for Lao PDR and of the 2007-2010 Multi-Annual Indicative Programme (MIP),
namely "Support to the Government of Lao PDR’s reform agenda". Within that framework the EU
started providing general budget support to the Government of Lao PDR by supporting the
implementation of the Third Poverty Reduction Support Operation (PRSO-3) with a single fixed
tranche. A second budget support operation for four years (PRSO 4-7) was approved by the end of
2008. The EU introduced in this programme performance indicators as a basis of disbursement of
an annual variable tranche for PRSO-5, 6 and 7.
1. The PRSO mechanism in Lao PDR
The Government of the Lao People's Democratic Republic (GoL) has been receiving support for the
implementation of its Development Strategy through the PRSO since 2004. This programme
emerged in Lao PDR with the aim to ensure that Government would undertake key reforms to
ensure the Nam Theun 2 (NT2) hydroelectricity project revenues are used to support the
Government’s priority poverty reduction programmes. The purpose of the programme is to
introduce key reforms in the public sphere to sustain growth, ensure efficient management of public
sector resources and create the conditions to increase social service delivery with a view of reducing
poverty.
PRSO is the only general and non-targeted budget support currently operational in the country that
has been useful in promoting key public sector reforms and inter-sectoral dialogue. PRSOs are
annualised operations within the framework of a multiyear programme. The PRSO annual policy
matrix contains the list of actions to be achieved for each priority area jointly agreed by the
Government and PRSO co-financiers: World Bank (WB), Australia, Japan (funds not committed
yet) and EC.
Table 1 - Snapshot of donor financial support to the PRSO (in million EUR)
PRSO3 PRSO4 PRSO5 PRSO6 PRSO7
World Bank 7.5 (disbursed) 7.5 (disbursed) 13.6 (approved)
Japan 3.3 (disbursed)
EC 3 (disbursed) 3 (approved) 3 (committed) 3 (committed) 3 (committed)
Australia NA 1.5 (disbursed) 1.5 (committed) 1.5 (committed) 1.5 (committed)
During implementation of the PRSO, the main focus of attention concerning the policy matrix is at
‘activity’ level: an annual progress review of the implementation of prior policy actions so called
"triggers" precedes and determines individual disbursement decisions by each contributing donor.
The policy matrix however also contains a set of expected ‘reform programme outcomes’ and
indicators (with baselines and targets) aimed at monitoring the progress made towards achieving the
outcomes at the end of the series which the PRSO is intended to support.
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PRSO1 to 3 was the first programmatic series of support which ran for three years (from 2004 to
2007) with the focus in three areas: i) Public resource management (strengthening public
expenditure management, the banking sector, improving the performance of state-owned enterprises
and promoting the financial sustainability of utilities); ii) Public expenditure policies (aligning
spending with pro-poor NGPES priorities, and monitoring this expenditure); and iii) Sustainable
growth (strengthening private sector development, accelerating regional and global integration, and
improving resource management).
PRSO4 to 7 started in July 2007 (and is expected to end in 2011) as a second series of four years. It
is currently half-way in its implementation: PRSO-4 was completed in April 2008 and PRSO-5
implementation finished end of April 2009. Aligned with the Sixth 2006-2010 National Socio-
Economic Development Plan (NSEDP), PRSO 4-7 focuses on two components: i) Investment
climate, competitiveness and business development and ii) Public finance and improving service
delivery (health and education).
The main achievements of the Lao Government during the implementation of PRSO-4 included:
(i) Maintaining macroeconomic stability in a context of rising oil and food prices and achieving a
strong economic growth of 7% in 2008 by attracting important foreign direct investments in the
hydropower and mining sectors. This resulted in increased revenue collection and external
reserves.
(ii) Improving the business climate: reforms undertaken included the simplification of the business
registration by approving a clear negative list of a limited number of activities requiring the
registration with the relevant line ministry.
(iii)Progressing in the implementation of the 2007 Budget Law by strengthening the inter-
governmental fiscal relations and strengthening the central control over revenues which
represents an important improvement of the Public Finance Management reform.
2. EU participation in the PRSO
The first support for a one year programme was approved by the EU in September 2007. It included
a EUR 3 million tranche disbursed in 2008 against satisfactory progress in implementing PRSO-3
reforms and the fulfilment of the three general conditions: progress in implementing the NSEDP,
progress in strengthening the PFM and macroeconomic stability. PRSO-3 progress and conditions
were assessed jointly by the EC and other PRSO donors during an appraisal mission.
The full and fast completion of the eleven triggers (or key policy actions) and twenty five policy
actions under PRSO 3 (included in the agreed PRSO matrix) and the request of the Government to
continue with a new PRSO series demonstrated the increasing commitment of the Government to
implement difficult structural reforms in a broad range of areas such as the approval of a revised
budget law, a new chart of accounts, regular monitoring of State Owned Banks and State Owned
Enterprises through audits and the diminution of the arrears in the payment of salaries to teachers
and health workers. The success of this PRSO can be attributed to government’s ownership in the
reform and the frequent inter-ministerial coordination meetings within the PRSO team and its
secretariat.
Encouraged by those achievements, the EU approved in 2008 EUR 13 million of four-year support
to the PRSO 4-7 including 12 million for transfers to the Lao Treasury upon fulfilment of the
conditions, additional capacity development support to strengthening the capacities of Government
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to move towards comprehensive sector strategies for a total amount of EUR 0,8 million and EUR
0,2 million for monitoring and evaluation.
In addition to the fixed tranche, related to the conditions mentioned above, this support introduced
the results based approach through a variable tranche in order to increase the focus in the social
sectors. The disbursement of a variable tranche of EUR 1 million per year during three years of the
programme is subject to the achievement of the agreed targets of the indicators that measure
progress in health and education. A set of six indicators in the social sectors was agreed with the
Government: three in the education and three in the health sector as presented in the table 2 below.
Table 2 – Performance indicators of EC's Second General Budget Support

Indicators Baseline Target by March Target by March Target by March
2009 2010 2011
(end of PRSO 5) (end of PRSO 6) (end of PRSO 7)
EDUCATION SECTOR (Weight 0.5)
1 MOE adopts and implements an Formulation and MOE adopts MOE implements MOE implements
Education Sector Development development of Education Sector the Education Education Sector
Framework ESDF draft to be Development Sector Development
completed by Framework Development Framework
November 2008 Framework
2 Recurrent education budget as % 14.1% in FY Education share in Education share in Education share in
of total budget (domestic, 2007/08 FY 2008/09 at FY 2009/10 FY 2010/11
allocation) least equal to the increases from the increases from the
baseline previous year in previous year in
line with ESDF line with ESDF
targets targets
3 Share of total primary enrolment 28.4% share for Share at least Share in academic Share in academic
in the poorest 47 districts academic year equal to the year 2009/10 year 2010/11
2006/07 (2007/08 baseline for increases from the increases from
figure to be academic year previous year in previous year in
confirmed by 2008/09 line with ESDF line with ESDF
MOE for the targets targets
baseline)
HEALTH SECTOR (Weight 0.5)
4 Government adopts and Government MoH initiates

implements a Health Financing Adopts a Health implementation of
Strategy Financing Strategy the approved
Health Financing
Strategy based on
agreed plan
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Indicators Baseline Target by March Target by March Target by March
2009 2010 2011
(end of PRSO 5) (end of PRSO 6) (end of PRSO 7)
5 Recurrent health budget as % of 3.9% in FY Share in FY Share in FY Share in FY

total budget (domestic, 2007/08 2008/09 at least 2009/10 increases 2010/11 increases
allocation) equal to the from the previous from previous year
baseline year not less than in line with HFS
percentage targets
increase in overall
Government
recurrent budget
allocation
6 Number of health personnel in 1644 in 2007 Number in 2008 at Number in 2009 Number in 2010
47 priority districts least equal to the increases from increases from
baseline previous year previous year in
line with HFS
targets
The agreed performance indicators aim to encourage: i) pro-poor sector public financial
management and resource alignment, ii) pro-poor health and education access strategies and iii)
poverty focused sector development strategies and partnerships. The successful achievement of the
yearly targets for each indicator will allow the EU to disburse a variable tranche of EUR 1 million.
Intense discussions were held around the variable tranche indicators in health and education during
the joint PRSO-5 appraisal mission in April 2009. Their preliminary assessment indicated that two
of the targets on budget allocations are not met. More up-dated data is being consolidated by the
government to finalise the assessment and the forecast for the disbursement of the second tranche is
being postponed to 2010.
The preliminary results of the first assessment of the performance indicators revealed a lack of full
understanding by the GOL of the EU's results-oriented approach, despite intensified communication
efforts by the Delegation. This indicates that the dialogue needs to be even more intensive and
sector-specific and cannot be covered from within the PRSO framework only.
3. The evolution of the GBS eligibility criteria
A brief review of the progress regarding the three eligibility criteria for EU budget support is
presented below.
3.1 Macroeconomic stability
The Lao economy has been stable and has been benefiting from a strong macroeconomic
performance. Growth has been high (7,5 percent of GDP growth in 2007) and boosted mainly by
the rapid expansion of the mining and hydropower sectors thanks to the attraction of important
foreign direct investments but also by the dynamism of the tourism sector. This resulted in
increased revenue collection and external reserves. Maintaining macroeconomic stability in a
context of rising oil and food prices during 2008 was a challenge.
In the context of global economic slowdown, macroeconomic monitoring intensified during the first
half of 2009 throughout the PRSO general budget support review mission. As the Lao government
started experiencing the effects of the global economic crisis with a decrease in revenue collection,
it was urgent for the PRSO co-financiers (World Bank, Japan, Australia and EC) to discuss the
measures the government is taking to ensure macroeconomic stability. Government commitments
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towards macroeconomic stability are summarised in the PRSO-5 letter of development of July 2009
as follows:
i) maintain the budget deficit at 4.5 percent of GDP in FY2008/09 and phase out any further quasi-
fiscal activities by end 2009,
ii) maintaining fiscal sustainability of our expenditure programme and thus formulating the
FY2009/10 budget towards targeting the total deficit of not more than 4.5 percent of GDP (in Lao
PDR Government's classification) with no additional off budget activities,
iii) tightening monetary policy and significantly slowing the growth of bank credit in 2009 to a
level consistent with macroeconomic stability
iv) coordinating fiscal and monetary policy to maintain macroeconomic stability and sustainability
(including by establishing a task force), and
v) ensuring that budget allocations to social sectors are adequate for meeting the Government's
sectoral policy bjectives.
3.2 PFM reform
Complementary to the general budget support, the EU is supporting the Public Finance
Management reform with EUR 3 million managed by the World Bank in a multi donor trust fund
that also receives funds from Australia, Sweden and Switzerland. The Government has been
implementing a PFM reform programme since November 2005. Two critical components of this
programme are: the capacity building activities and the reforms in the central-local relationship.
This complementary action is critical to ensure one of the three eligibility criteria for EU's General
Budget Support is fulfilled.
Lao PDR has made satisfactory progress in the implementation of the Public Finance Management
reform in the last couple of years. The main achievement in 2008 consisted in the increased control
over revenues by the central authorities by strengthening the central treasury, effectively
centralising tax and customs functions and development of a new revenue sharing formula. In
addition, inter-ministerial work has been intense to implement the revised chart of accounts and the
new budget nomenclature with focus on piloting it in the education sector. Efforts are also being
made to improve the accounting, treasury, customs and debt information systems.
3.3 Progress in implementing a national development strategy
Finally, the implementation of a well defined national development strategy, i.e. the 2006-2010
National Socio-Economic Development Plan (NSEDP) has been satisfactory, on the basis of the
2008 and 2009 reports on the Round Table Implementation Meeting (RTIM). The report reviews
the third year of implementation of the NSEDP and highlights the progress achieved by the
Government in implementing Government policies and sector programmes.
The NSEDP implementation has supported the achievement of five MDGs targets. However,
maternal mortality and child malnutrition remain high, according to the draft MDG report used for
the preparation of the report. Despite the increase in the GDP per capita, the resources to the
education, but particularly, to the health sector remain insufficient. The government reasserts the
importance of these two sectors and the efforts to prepare the Education Sector Development
Framework are a good indication of the commitment.
EN 60 EN
ANNEX 7: OVERVIEW OF TRADE
Lao PDR’s trade with the world and the EU
TRADE FLOWS € million
2005 2006 2007 2008
Lao PDR-World
Exports 557 908 944 1,110
Imports 1,022 1,316 1,532 1,916
Balance -465 -408 -588 -806
Lao PDR- EU
Exports 110 95 118 124
Imports 42 31 61 71
Balance 68 64 57 53
Source: DG TRADE, 22 September 2009
http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/statistics/
Main destinations for Lao PDR’s exports in 2008
Destinations Value (€ million) Share (%)
Thailand 386.7 35
Vietnam 146.7 13.3
EU 27 122.5 11.1
China 95.5 8.6
South Korea 49.6 4.5
Others 303 27.4
World 1,104 100 0
Source: DG TRADE, 22 September 2009
EN 61 EN
ANNEX 8: COUNTRY ENVIRONMENT PROFILE4
1. Summary
Environmental issues are at the centre of the welfare of over 80% of the population in Lao PDR.
For many rural communities, current negative environmental trends directly threaten their
livelihoods and welfare. And Lao PDR has signed Multilateral Environmental Agreements. The
following issues are identified as serious environmental concerns and pose a threat to biodiversity,
enhancing in turn the vulnerability of rural poor:
- Illegal logging and deforestation;
- Loss of watershed function in logged upland areas;
- Land degradation and loss of habitats through unsustainable agricultural practices;
- Unsustainable extraction of wildlife and other Non-Timber Forest Products (NTFP) either
for food or for sale;
- Illegal trade in wildlife and protected species;
- Socio-environmental impacts of large-scale hydropower, mining, and commercial
agriculture, particularly large scale plantations; Increased urban and industrial pollution, in
turn posing public health threats.
Despite the existence of legislative and other administrative frameworks that aim to govern the
exploitation of natural resources and environmental management, weaknesses remain in regulatory
and enforcement capacity to support the control of natural resources exploitation. The Water
Resources and Environment Administration (WREA) was created in 2007. It is made of six
departments and functions under the auspices of the Prime Minister's Office. In general, there is a
lack of coordination on environmental conservation and management issues at central government
level coupled with very weak enforcement of existing environmental laws: at least six major Plans,
Regulations or Actions are in force at present.
WREA has updated and or is reviewing most of the environmental regulations. For example, the
old decree on environmental impact assessment has been updated and approved on 16th February
2010 (Decree PM 112). Consequently the 2000 regulation on environmental assessment in Lao
PDR is being revised. Both the water and water resource law of 1996 and the environmental
protection law of 1999 are also under revision. The mining law of 1997 has been replaced by the
new minerals law of 2009 and the regulations on environmental protection in mining dated 2004 is
being updated to bring it in line with the new minerals law. In addition, the electricity law of 1997
which concerns power generation and transmission has been revised and was approved in 2008.
There are proposals underway for the preparation of pollution control regulation and watershed
management. Two laws which remain to be modernised are the land law dated 1997 (so important
for land use in view of the commercialisation of agriculture) and regulations on the management of
the national biodiversity conservation areas. In the case of the latter, there are proposals to update
this for it to become a Prime Minister's decree. In addition to these, the forestry law of 1996 has
also been amended in 2007. Details of these amendments are available under relevant Government
websites.
4
Sources: Country Environmental Profile Lao PDR, AGRIFOR Consult, June 2005. ; Environmental evaluation for the
Northern Uplands Core Coherent Programme, Transtec, 2009, Contribution to the Feasibility and Design Study; Lao
PDR National Socio-Economic Development Plan (2006-2010), Committee for Planning and Investment.; Hydro Nepal,
issue # 4,
EN 62 EN
2. State of the environment
Lao PDR occupies a land area of 231,000 km² within the geographically distinct Mekong Basin. It
shares riparian interests with China, Myanmar, Thailand, Cambodia and Vietnam. The country lies
mainly on the eastern (left) bank of the Mekong, with a small area in the north-west on the right
bank. The population, which is mostly rural, is estimated at around 6.3 million in 2008.5
The small population and relatively difficult access to natural resources (due to the largely
mountainous terrain and poor infrastructures) has resulted in relatively modest resources extraction
until the late 1990's. However, whilst natural resource utilisation was in the past almost exclusively
an essentially locally-based subsistence activity, this has changed dramatically in recent years, with
the development of large-scale organised depredations on natural resources, with insufficient regard
to the core issue of their environmental sustainability. Although the legislative framework on which
environmental management should be based exists, the effective management of natural resources
utilisation and pollution control is complicated by a number of challenges:
- Lack of capacity and resources;
- Dilution of responsibilities amongst various GoL agencies,
- Weak, diluted, and sometimes contradictory enforcement and compliance with the
rules and environmental standards;
- Lack of clear standards, targets and compliance levels that hamper environmental
protection;
- Weak human resources capacity at local levels
- Extension of cultivated areas without prior assessment of impact on the environment,
and generally lack of sound land planning and utilisation mechanisms.
The National Growth and Poverty Eradication Strategy (NGPES) adopted in 2003 states clearly:
“The socio-economic development of the country must be balanced between economic growth,
socio-cultural development and environmental preservation. These are the three pillars of the Lao
PDR’s development policy.” However, IUCN, WCS and WW6F published jointly in 2007 a very
alarming "Consuming the Future – The real status of biodiversity in Lao PDR" where unregulated
access to natural resources and insatiable demand were pointed as the main cause of environment
degradation.
Forestry
Lao PDR is fairly well endowed with valuable, productive and ecologically unique forest in
comparison with its neighbouring countries. Eighty percent of the population relies heavily on the
forest for timber and non-timber products for food, fuel, medicines, income sources and spiritual
protection. The forest cover has decreased from 47% to only 34% in the past fifteen years, despite
an official ban on the removal of timber. The main causes of deforestation are forest clearing for
agricultural purposes and large-scale illegal (and legal) logging. Forest change, including decreases
in stocking and size of trees, loss of wildlife and plant habitats, is also a serious problem.
Recognising that forest resources were depleting at an alarming rate, the Government of Lao PDR
5
Lao National Census, 2005
6
International Union for the Conservation of Nature (IUCN), Wildlife Conservation Society (WCS) and World Wildlife
Fund (WWF)
EN 63 EN
has set development targets for 2005, 2010 and 2020. These targets included stabilising shifting
cultivation by 2005 and phasing it out completely by 2010. Tree plantations for commodity
production are to be strongly promoted, and acceleration of classification, delineation and
management of forests for protection, conservation and production was also called for.
Significant areas of upland are being converted to commercial plantations, often rubber, under the
Government policy of converting land to capital. Land is awarded by the provincial authorities as
long lease concessions to private companies (mostly Chinese and Vietnamese). The companies
prefer forested concessions as these give an instant revenue from logging. In any event there is
serious loss of biodiversity, NTFP, and negative social consequences for the communities affected
who may become transformed from peasant farmers to plantation labourers. The most common
complaint to the National assembly in the last sitting concerned land concessions.
Biodiversity and Protected Areas
The natural biodiversity remains extremely high throughout the country. A total of 319 of the
animal species recorded for Lao PDR are of national or global conservation significance,
specifically 67 percent of large mammals, 53 percent of bats, 6 percent of insectivores, 14 percent
of rodents, 22 percent of birds, 25 percent of reptiles and 2 percent of amphibians. The real pressure
on biodiversity in Lao PDR arises from illegal trading of plants and wildlife and loss of habitat.
Effective control of the present illegal trading pathways and their replacement by officially
endorsed and correctly managed domestic pathways is necessary. In addition, Foreign Direct
Investment, in the form of contract farming or concessions, affects the agro-ecology systems by
imposing mono cropping in the landscape. Monoculture reduces agro-biodiversity as well as
ecological diversity. The uniformity of the vegetation increases the risk for pest and disease
outbreaks. Furthermore, monoculture on sloping lands enhances soil erosion and degradation.
Since 1993, 20 National Protected Areas NPAs) and two protected corridors have been created,
covering about 23% of the country surface area according to the Wold Bank These include
Provincial PAs, District PAs, Protected Watershed Areas and Provincial Conservation Forests. The
joint IUCN-WCS- WWF paper though, shows that even PAs see a decline in biodiversity.
Vulnerability to disasters
Floods and droughts are major natural disasters. Flood flows in the Mekong have relatively low
variability compared to most Asian rivers of comparable size. There are exceptional floods such as
that of August 2008. Flood peaks tend to occur in August in the upper Mekong and September in
the lower basin. Possibly linked to climate change, the size and seasonality of the floods are
becoming increasingly unpredictable. The main cause of flood flows is prolonged heavy rain on
saturated soils. The four major flood-prone areas are the Vientiane Plain, Khammoune Province
(Thakhek town), Savannakhet Province and Champasak Province (Pakxe town). With increasing
populations living close to main rivers, the risks to life and property from flooding are increasing.
To some extent this may be mitigated by the development of new water control infrastructure in the
power and irrigation sectors, but this itself brings additional problems – for example the
consequential loss of an essential component (fish) in the diet. Droughts tend to occur in the
northern region.
EN 64 EN
Agriculture
Agriculture is a crucial economic sector in Lao PDR where about 80% of the population is
concerned. Major impacts on natural resources and the environment arise from agricultural
practices, particularly in the highland areas where the environment, if richer in many ways, is also
more fragile. These areas are characterised by unfertile soils that are particularly difficult to access.
Communities living in these areas have been practicing shifting cultivation and swidden agriculture
(slash and burn) in order to increase soil fertility and sustain minimum agricultural outputs. These
practices are sustainable only when sufficient time (fallow period) is allowed for regeneration in the
areas which are not exploited anymore. Increasing population pressure in the highlands has forced
established swidden farmers to migrate to steeper terrain and to increase the intensity of cultivation.
This has resulted in deforestation, land degradation and loss of habitats. Other impacts from
agricultural activities come from the use of chemicals (pesticides, fertilisers, weed control, etc).
Although these are relatively little used, there are increasingly becoming a problem both in terms of
human health and damage to the environment, because of improper handling and the use of banned
chemicals. A recent phenomenon which is having far reaching social and environmental effects is
the rapid rise in large scale commercial plantation agriculture, which sometimes takes place with
the primary objective of a windfall gain from the sale of the cleared timber.
Land degradation
Excessive land clearance on sloping ground due to deforestation and large-scale hydropower
development has increased soil erosion and sediment transport in some tributaries of the Mekong.
Deposit of sediments in lowland areas increases the threat of localised flash flooding and
consequently damages lowland agricultural activities and river fisheries. The recent development of
mining activities for gold and toxic metals such as copper and zinc has resulted in huge quantities of
potentially toxic wastes being inappropriately disposed of. This has brought a high risk of toxic
leachate draining to ground and surface waters and contaminating soils, including in Vientiane.
Excessive irrigation in the dry season and irrigation with poor drainage can, in combination with
certain soil and water conditions, cause salinity problems. Salt can accumulate in the subsoil and at
the surface and cause immediate damage to agriculture and fish production and productivity, as well
as long-term soil deterioration.
Water resources and water pollution
The Mekong river runs the length of Laos and represents a vital ecosystem to the country in terms
of water resources, fisheries and transport systems, not to mention the potential for hydro-power
and irrigation. Oversight for management and development of the river basin is vested in the
Mekong River Commission (MRC). The MRC is faced with many development challenges such as
mainstream dams, flooding and flood management, river water quality and pollution, conservation
of fish stocks and biodiversity. To put this resource in context, the entire basin contributes 2.5% of
global fish catch worth billions of dollars per annum and provides a livelihood for millions of
people.
The total renewable supply of fresh water in the country is estimated at 54,000 m3 per person per
year, compared with an estimated per capita demand of 228 m3/year. Most of the water
EN 65 EN
consumption occurs in the agricultural sector. Water availability is not a limiting factor of
development in Lao PDR.
Only 60% of urban populations receive a direct domestic water supply. Water for domestic use (but
not for drinking) is commonly obtained from shallow wells or surface streams. Only about 51% of
rural households have direct access to good-quality water supplies, but in fact only about half of
these systems actually function, due to poorly selected technologies and a lack of spare parts to
maintain them. Inadequate hygiene and sanitation results in contamination of good-quality water
and leads to significant morbidity and mortality from water-borne and water-related bacterial, viral
and parasitic infections. Monitoring of the incidence of these diseases is poor, and this sector is in
urgent need of support and improvement. In rural areas, sanitation is generally non-existent. Rural
sanitation schemes suffer from poor planning, unreliable water supplies, and socially inappropriate
design and location.
Although water quality in the Mekong basin is generally satisfactory, increasing pressures on
surface water quality are developing due to agricultural activities (pollution by livestock waste,
inappropriate use of chemicals), and increasing contamination from garbage and other
anthropogenic wastes. Water contamination with arsenic and other chemicals is a rising concern in
Lao PDR.
Urban environment
With its large and rapidly expanding population (+ 700,000 inhabitants), Vientiane is the only large
urban conglomeration in Lao PDR. Large numbers of workers have moved into the town in recent
years, and the slow progress of road reconstruction has failed to prevent localised traffic congestion
at peak traffic periods. The most prominent environmental issues are the lack of appropriate
sewerage and waste disposal systems and traffic issues such as noise and air quality. The former is
under review and upgrading, whilst the latter is not yet so severe that it represents an environmental
problem although a bypass road on the Mekong River is currently under construction in the capital
city. No detailed data on air quality are available.
Energy and mine production
Lao PDR has a great potential for hydropower development. Actual implementation has been
sporadic and hampered by well-founded environmental and social concerns. The theoretical
potential in Lao PDR is estimated at about 26 000 MW while the current exploitation rate is of 3%.
The electricity sector is the third larger export earner for the country Laos has 10 operating
hydropower plants with installed capacity of about 678 MW. Another 9 projects have been granted
concession agreements or are under construction (including NT2) and a further 17 projects have
development agreements approved. The remaining 42 have signed MOUs. If all 78 projects go
ahead they will have an installed capacity of 23,000 MW. The Hongsa Lignite-Fired Power Project
which would present some serious environmental issues is currently on hold pending availability of
funding.
Hydropower, although widely promoted as an “environmentally friendly” form of power

generation, has had severe socio-environmental impacts in Lao PDR especially with regard to
fisheries (disturbance of natural occurrence of fish in the Mekong River), fragmentation of habitats,
methane emissions and pre-emptive logging. Hydropower activities also alienate farmers from
EN 66 EN
production area and increase pressure on land. Often it wipes out fertile land fit for paddy rice
cultivation. Flooding of the reservoir changes the ecology of the area and affects biodiversity while
it also provides income to the country and work and income to the rural people. The reservoir also
provides a potential for irrigation to agricultural lands and for village water supply.
There exist tin, copper and gold mining activities, and massive bauxite potential on the Boloven
Plateau, as well as coal extraction to a lesser extent, all with potential adverse effects on agriculture
and more generally on environment, if mitigation measures are not implemented and standards
followed: open pit exploitation leads to erosion and siltation, loss of vegetation, habitat and
biodiversity. The ongoing and likely increase in ore processing waste can pollute soil, rivers,
ground water as well as air with hazardous chemicals. Health and livelihoods hazard for populations
located downstream from the mining activity exist.
EN 67 EN
Annex 9: Impact of the Global Financial Crisis on Lao PDR
Until 2008, the economic liberalisation policy of the GoL over the past 10 years had translated into
a stable macroeconomy with a controlled fiscal deficit, low inflation, increasing international
reserves and average annual real growth rate of 6%. In 2008, this rate was at 7.9%, just before the
global financial crisis unfolded. Average per capita income has risen from US$ 594 in 2006 to
about US$ 859 by 20087. The nature of the economy – largely agrarian - and lack of exposure to
global financial markets helped spare the country from the worst brunt of the 2008 banking crisis.
However, there is mounting evidence that the economic crisis has had an impact on Foreign Direct
Investments in Laos which was expected to fall by 30% in 2009. This has repercussions on
forecasted growth rates which are expected to drop from 7% in 2008 to around 5% this year (WB
estimates). However, Laos appears to be the only country in the Southeast Asia region with positive
growth, and the projected growth rate is among the highest worldwide at the moment. Commodity
export prices – particularly for copper – have dropped sharply immediately after the crisis unfolded,
and although prices have recovered there is still a high element of volatility. This has hit GOL
revenue collection and will materialise in a widening budget deficit (estimated at about US$ 383
million in FY 2008/09) making it more difficult to meet the targets foreseen in the NSEDP.
There is concern that the social sectors may see a drop in their budget allocations making it more
difficult to achieve the MDGs. For the time being, the GOL has not cut expenditures for FY2008/09
but decided to increase the fiscal deficit. In the future some prioritisation of expenditures might
have to be considered, as announced to development partners by the Ministry of Planning and
Investment in a briefing in September 2009. However, health and education will remain to be
priority sectors according to the GOL. Within the current formulation of its new 7th NSEDP, the
crisis is bringing more emphasis on some priorities: focus on a diversification of the economy
through the development of the non-resource sector, diversification of agricultural production and
also better exploitation of the high price potential of "green agriculture", and better access to
markets for producers by forming producer associations.
To mitigate the effects of the economic slowdown, there has also been an expansionary monetary
policy with rapid and very high credit growth (reaching 85% in June 2009), including some off-
budget activities. This has raised concerns on the sustainability of the financial sector with the risk
of non-performing loans. However, the Government has ensured development partners in the
briefing meeting of September 2009 that the credit growth will be controlled and that more timely
information will be provided on the financial sector situation.
Although limited data is available, according to the WB the socio-economic impacts of the crisis
are likely to be:
• higher unemployment particularly among the workers in Thailand representing 10% of

active population, and to a lower extent in the domestic manufacturing sector (which
employs only 2% of the active population);
• lower earnings particularly in the rural areas where 25% of the poor have reported cash
wage reductions and 12% of households do not have access to land for cultivation;
• lower foreign remittances, particularly important from Lao migrants in Thailand;
7
World Bank estimates
EN 68 EN
• possible social sector spending cuts, particularly in investments, and a continuation of
reliance on patient/parents contributions to finance operational costs in health and education,
posing a risk of even lower utilization of health and education services as household
incomes decrease;
• in a context of limited social protection systems in the country, household coping strategies
could include: sale of livestock, increased child labour or sex work, and (re-) migration to
rural areas increasing pressure on land use and natural resources.
EN 69 EN
ANNEX 10: MAP OF LAO PDR
EN 70 EN

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MID-TERM REVIEW DOCUMENT

1 Executive Summary ............................................................................................................. 7

Lao PDR at a glance — Macro-economic indicators ………………………………... 30

Lao PDR at a glance — Indicators derived from MDGs …………………………….. 32

Summary tables MIP 2007-10 and MIP 2011-13 …………………………………… 33

Donor matrix — disbursements in 2007 …………………………………………….. 35

CSP 2007-13 Logical Framework Matrix …………………………………………….. 39

Description of the MTR document drafting process …………………………………. 53

Budget support in Lao PDR ………………………………………………………….. 56

Overview of trade ……………………………………………………………………. 61

Country Environment Profile …………………………………………………………. 62

Impact of the global financial crisis on Lao PDR …………………………………... 68

Map of Lao PDR ……………………………………………………………………… 70

ADB Asian Development Bank

AFD Agence Française de Développement

AFTA ASEAN Free Trade Area

ASEAN Association of South East Asian Nations

AusAid Australian Agency for International Development

CfP Call for Proposals

CBO Community-Based Organisation

CSP Country Strategy Paper

DTIS Diagnostic Trade Integration Unit

EBA Everything But Arms

EIF Enhanced Integrated Framework (see IF)

FLEGT Forest Law Enforcement Governance and Trade

FTA Free Trade Agreement

GBS General Budget Support

GFATM Global Fund to Fight AIDS, Tuberculosis and Malaria

GTZ Gesellschaft für Technische Zusammenarbeit (German Technical

GoL Government of Lao PDR

INGO International Non-Governmental Organisation

IF Integrated Framework (for Trade-Related Assistance to LDCs)

LDC Least Developed Country

MIP Multiannual Indicative Programme

MTR Mid-Term Review

NDS National Development Strategy

NGPES National Growth and Poverty Eradication Strategy

NGO Non-Government Organisation

NNGO National Non-Governmental Organisation

NRM Natural Resource Management

NSA Non-State Actor

NSEDP National Socio-Economic Development Plan

NUDP Northern Uplands Development Programme

PEMSP Public Expenditure Management Strengthening Programme

PFMSP Public Finance Management Strengthening Programme

PRSO Poverty Reduction Support Operation

RTIM Round Table for Implementation Monitoring

SDC Swiss Agency for Development and Cooperation

SELNA Support for an Efficient Lao National Assembly

SME Small and Medium-sized Enterprise

SPS Sanitary and Phyto-Sanitary (issues)

SWG Sector Working Group

TDF Trade Development Facility

UXO Unexploded Ordnance

WTO World Trade Organisation

WREA Water Resources and Environment Administration

Non focal areas 45-50 % 16-18